





CITATION: Simmons v. Hamber, 2011
          ONCA 7



DATE: 20110107



DOCKET: C49924



COURT OF APPEAL FOR ONTARIO



Goudge, Cronk and Armstrong JJ.A.



BETWEEN



Lawrence John Simmons and Anchordale Holdings Limited



Plaintiffs (Appellants)



and



Christian J. Hamber and Harrison Pensa LLP



Defendants (Respondents in Appeal)



C. F. MacKewn, for the appellants



Russell M. Raikes, for the respondents



Heard: September 7, 2010



On appeal from the judgment of
          Justice R. M. Pomerance of the Superior Court of Justice, dated December 15,
          2008.



ARMSTRONG J.A.:



[1]

The appellants appeal the dismissal of their action for solicitors
    negligence.

[2]

Christian Hamber, a partner of the law firm of Harrison Pensa LLP, was
    retained to do the necessary legal work in connection with two commercial
    transactions involving the appellants and the L. J. Simmons Group Ltd. (the
    Simmons Group).  The appellants assert that Mr. Hamber should have recommended
    that they receive independent legal advice and that he should have discussed
    alternatives to the proposed transactions.

[3]

For the reasons that follow, I would dismiss the appeal.

BACKGROUND

[4]

John Simmons and his personal holding company, Anchordale Holdings Ltd.,
    were shareholders of the Simmons Group.  The two other shareholders of the
    Simmons Group were Walter Webb and Daniel Van Houtte.

[5]

Anchordale was also shown on the financial statements of the Simmons
    Group as a creditor in the amount of $54,389 (later reduced to $44,389).  There
    was some question as to the origin of this debt.  However, the chartered
    accountant for the Simmons Group testified that he assumed the origin of the
    debt was not one of substance as it was a reflection of excess dividends that
    had been declared but not paid.

[6]

The Simmons Group was engaged in the real estate brokerage and appraisal
    business.

[7]

As a result of the precarious personal financial position of Mr.
    Simmons, he decided to declare personal bankruptcy.  This led to a discussion
    among Messrs. Simmons, Webb and Van Houtte as to the future of the Simmons
    Group.  A decision was made by these three principal shareholders that Mr.
    Simmons and Anchordale would surrender their shares in the Simmons Group.  In
    respect of the Anchordale debt, there had been earlier discussions with the
    Simmons Groups accountant about getting the debt off the books of the company to
    improve its position in obtaining bank financing.  The evidence was that if the
    debt was removed from the books of the company, a note to the financial
    statements, which cast a negative light on the financial position of the
    Simmons Group, could also be removed.  These discussions ultimately led to a
    proposal that the Anchordale debt would be converted to a class of preference
    shares that were not retractable, but redeemable at the option of the
    corporation.

[8]

As a result, Messrs. Simmons, Webb and Van Houtte agreed to proceed with
    the surrender of the shares and the conversion of the debt.  The trustee in
    bankruptcy testified that if neither the shares nor the debt had any economic
    value, they would not be assets, which would be of interest to the bankrupt
    estate.  He testified that he gave that opinion to Mr. Simmons.  Mr. Simmons
    testified that he was content to give up his shares in the Simmons Group
    because he did not want his own financial difficulties to compromise the
    position of the young people in the firm.

[9]

The documentation for the transactions was prepared by Mr. Hamber who
    was the solicitor to the Simmons Group.  He was also the solicitor to
    Anchordale.  Mr. Simmons testified that it was Mr. Webbs responsibility to
    retain and instruct lawyers for anything to do with the affairs of the Simmons
    Group.  Mr. Webb retained Mr. Hamber and his law firm, Harrison Pensa LLP, in
    respect of the transactions.

[10]

The transactions were closed on September 14, 1998 with Messrs. Simmons,
    Webb and Van Houtte at Mr. Hambers law firm.  Mr. Hamber reviewed all of the
    documentation to be signed that day.  He asked if there were any questions and
    there were none.  As the three individuals were about to sign the documents,
    Mr. Simmons, according to Mr. Hamber, asked So, what am I signing?  Both Mr.
    Webb and Mr. Van Houtte, according to Mr. Hamber, expressed some exasperation. 
    Mr. Simmons testified that he had simply asked, What are my options? and Mr.
    Van Houtte replied, That will depend on events in the future.  According to
    Mr. Simmons, he received assurances from Mr. Webb that his shares would be
    restored after he was discharged from bankruptcy.  Mr. Webb and Mr. Van Houtte
    both denied that there were any such assurances given.  The trial judge
    concluded that, [t]he overwhelming weight of the evidence compels the
    conclusion that there was never any agreement to restore Simmons position.

[11]

Mr. Hamber testified that after Mr. Simmonss confusion, he asked the
    parties if they needed to discuss matters any further.  Mr. Hamber did not
    recall if and to what extent they discussed matters further, but shortly
    thereafter, he asked if they wanted to proceed with the signing.  They
    indicated that they did.  The documents were signed and Mr. Simmons read each
    document before he signed it.  He testified that he read and understood what it
    was that he signed.

[12]

The trial judge accepted the evidence of Mr. Hamber as to what
    transpired at the meeting.

[13]

On December 4, 1998, Mr. Simmons made a voluntary assignment in
    bankruptcy.  In the statement of affairs signed by Mr. Simmons, at the time of
    his assignment in bankruptcy, he stated that in October 1998, he had
    transferred his shares in the Simmons Group to other shareholders.  He further
    stated those shares had no value and that he received no money in exchange. 
    Mr. Simmons did not advise the trustee that upon discharge from bankruptcy, he
    would be restored as a shareholder of the Simmons Group.  There was no
    discussion with the trustee about any restoration of the debt owed to
    Anchordale after his discharge from bankruptcy.

[14]

Some seven years later, after a dispute with Messrs. Webb and Van Houtte
    over appraisal fees, and after Mr. Simmons had been terminated from his
    employment by the Simmons Group, he commenced this action against Mr. Hamber
    and his law firm for solicitors negligence.

[15]

The essence of the claim against Mr. Hamber and his law firm is found in
    paragraph 5 of the Statement of Claim:

Prior to the bankruptcy of the plaintiff Simmons,
    the defendant Hamber organized the legal services necessary in a transaction
    which had the net effect of denuding Simmons of any interest in Simmons Group
    and converting the indebtedness of Simmons Group to Anchordale from a debt
    position to  non-voting, non-participating preference shares which were not
    retractable thereby emasculating the indebtedness apparently owed by Simmons
    Group to Anchordale.  In acting the defendant Hamber and the defendant firm
    acted for all parties involved, Simmons and Anchordale not being independently
    represented and not being fully protected.

[16]

Mr. Hamber was the solicitor of both the Simmons Group and Anchordale
    for at least a couple of years prior to 1998.  All of his instructions related
    to the two companies came from Mr. Webb, whom he understood to be the manager
    of the Simmons Group, and responsible for giving instructions to lawyers and
    accountants.  The accountant for the Simmons Group, Richard Ferris, told Mr.
    Hamber that the Anchordale debt was a bogus debt that had no real substance and
    was causing difficulty for the company in obtaining financing.

[17]

Mr. Hamber was made aware that Mr. Simmons was contemplating a voluntary
    assignment in bankruptcy.  For this reason, he satisfied himself that the
    proposed transactions did not run afoul of the applicable bankruptcy
    legislation and the
Fraudulent Conveyances Act
, R.S.O. 1990, c. F.29.

[18]

Nil value was attributed to the shares of the Simmons Group on the
    advice of Mr. Webb and Mr. Ferris.  This valuation was consistent with previous
    share transactions that Mr. Hamber acted on in 1996.

[19]

Mr. Hamber did not recommend to Mr. Simmons that he seek independent
    legal advice in respect of these transactions.  When asked, Why not? he
    replied:

A.

I didnt think it was necessary.  He struck me as a sophisticated
    business person who had been through previous restructurings as I could see
    from my review of the various minute books.  He seemed to indicate he knew what
    he was signing and it didnt seem necessary.

[20]

In respect of whether Mr. Hamber advised Mr. Simmons that the share
    transaction was necessary, the following exchange took place:

Q.          Did you advise Mr. Simmons that there
    was no need to transfer these common shares because they had no value?

A.          No, the parties had agreed to implement
    the transaction in a certain way, and I saw my role as fulfilling their
    request.

[21]

In respect of Anchordale, Mr. Hamber said that he dealt with Mr. Webb,
    whom he considered the designate of Mr. Simmons.  Mr. Hamber was pressed in
    cross-examination on this issue:

Q.          Did you feel any obligation to advise
    Anchordale as a corporation directly, or Mr. Simmons as the sole controlling
    shareholder directly, that this transaction conceivably could have an adverse
    effect upon them?

A.          That would have been completely
    inconsistent with the pattern with which I was retained by Anchordale.  I was
    instructed through Mr. Webb.

[22]

The trial judge dismissed the action against Mr. Hamber and his law firm
    and in doing so said:

I find that these claims are entirely lacking in
    merit.  Whether or not Hamber owed a duty of care to Simmons and Anchordale, he
    discharged his obligations in a proper, prudent, responsible and highly
    professional manner.  Hamber acted on the instructions that he was given by
    Webb, the representative of the corporation who had the requisite authority. 
    Hamber independently confirmed that his instruc-tions were not contrary to the
    law.  He drafted the documents to effect the corporate transactions.  At the
    meeting of September 14, 1998, he took pains to ensure that all present read
    and understood the content and consequences of what was to be signed.  He
    reported in a prompt and responsible fashion to the designated representative
    of the corporation.

Christian Hamber acted throughout with competence
    and professionalism.  While no expert evidence was adduced on the standard of
    care in this context, I am hard pressed to imagine what else Mr. Hamber might
    have done in the proper discharge of his duties.

THE ACTION AGAINST MR. WEBB, MR. VAN HOUTTE, AND THE SIMMONS GROUP

[23]

Mr. Simmons and Anchordale commenced a separate action against Mr. Webb,
    Mr. Van Houtte and the Simmons Group to set aside the transactions.  He
    included a claim for wrongful dismissal.  The action was tried by the same
    trial judge and at the same time as the solicitors negligence action.  The
    trial judge dismissed the claims to set aside the transactions but awarded
    significant damages to Mr. Simmons for wrongful dismissal.

[24]

An appeal in respect of the damages awarded in the wrongful dismissal action
    was taken by the defendants in that action and was heard at the same time as
    this appeal.  The wrongful dismissal appeal resulted in a modest reduction of
    the award of damages.  See
Simmons v. Webb
, 2010 ONCA 584, released
    September 13, 2010.

THIS APPEAL

[25]

This appeal raises the following issues:

(i)

Did
    Mr. Hamber err in failing to recommend that the appellants receive independent
    legal advice?

(ii)

Did Mr.
    Hamber have a duty to discuss with Mr. Simmons and Anchordale alternatives to
    these trans-actions?

(iii)

If Mr. Hamber and his law
    firm breached their duty, is there any evidence of damages?

(i)

Did Mr. Hamber err in failing to recommend that the appellants receive
    independent legal advice?

[26]

The appellants rely on subrule 2.04(3) of the
Rules of Professional
    Conduct
of the Law Society of Upper Canada which provides:

A lawyer shall not act or continue to act in a
    matter when there is or is likely to be a conflicting interest unless, after
    disclosure adequate to make an informed decision, the client or prospective
    client consents.

The commentary to subrule 2.04(3) contains the following
    statement:

While subrule 2.04(3) does not require that a lawyer
    advise the client to obtain independent legal advice about the conflicting
    interest, in some cases, especially those in which the client is not
    sophisticated or is vulnerable, the lawyer should recommend such advice to
    ensure that the clients consent is informed, genuine, and uncoerced.

[27]

The appellants also rely on the judgment of this court in
Davey v.
    Woolley et al
(1982), 35 O.R. (2nd) 599.  The case at bar is very different
    from
Davey
.  In
Davey
, the agreement in question was extremely
    complex and required a high degree of sophisticated legal advice.  The vendor
    and purchaser in
Davey
were both clients of the law firm and a senior
    partner of the firm had a personal interest in the transaction.  It is clear
    that Davey needed independent legal advice on the facts of that case.  Wilson
    J.A., writing for the court in
Davey
at page 602, provided a useful
    statement of the relationship between a solicitor and his/her client:

A solicitor is in a fiduciary relationship to his
    client and must avoid situations where he has or potentially may develop a
    conflict of interest: see
Boardman et al. v. Phipps
, [1967] 2 A.C. 46,
    [1966] 3 All E.R. 721 at 756.  This is not confined to situations where his
    clients interests and his own are in conflict although it of course covers
    that situation.  It also precludes him from acting for two clients adverse in
    interest unless, having been fully informed of the conflict and understanding
    its implications, they have agreed in advance to his doing so.

[28]

I do not take from either subrule 2.04(3) of the
Rules of
    Professional Conduct
or the judgment of this court in
Davey
that in
    the circumstances of this case, there was an obligation on Mr. Hamber to
    recommend to Mr. Simmons that he obtain independent legal advice.  It might
    well have been preferable that he make such a recommendation out of an
    abundance of caution, but his failure to do so in these circumstances does not constitute
    a breach of his fiduciary duty or negligence.

[29]

While Mr. Simmons and Anchordale were giving up their shares in the
    Simmons Group, it was clearly something that Mr. Simmons wanted to do prior to
    his filing for bankruptcy.  Mr. Hamber took his instructions from Mr. Webb (the
    designate of Mr. Simmons), which was consistent with his previous practice.  He
    was made aware of the intention of Mr. Simmons to make an assignment in
    bankruptcy and satisfied himself that the transactions were not in conflict
    with the applicable bankruptcy legislation and the
Fraudulent Conveyances
    Act
.  No issue has been taken either here or below with Mr. Hambers
    conclusions in that regard.

[30]

On their face, the transactions suggest that Mr. Simmons and Anchordale
    were adverse in interest to Messrs. Webb and Van Houtte.  However, the position
    of Mr. Simmons and Anchordale must be viewed in the context presented to Mr.
    Hamber.  Mr. Hamber accepted the advice of Mr. Webb that the shares in the
    Simmons Group had no value.  He accepted the advice of both Mr. Webb and Mr.
    Ferris that the Anchordale debt had no substance.  Mr. Hamber was entitled to
    rely on that information.  There was nothing to suggest to Mr. Hamber that
    either Mr. Simmons or Anchordale were giving up anything of value or that Mr.
    Simmons did not fully appreciate what he was doing.  Indeed, he was of the view
    that Mr. Simmons was a sophisticated businessman who had been through previous
    share restructurings, who wanted these simple transactions to proceed and who understood
    the documents he was signing.

(ii)

Did Mr. Hamber have a duty to discuss with Mr. Simmons and Anchordale
    alternatives to these transactions?

[31]

The appellants submit that Mr. Hamber should have advised them that the
    transactions were unnecessary since the underlying assets had no value.  In
    paragraph 6 of the statement of claim, the appellants alleged:

In the course of the transaction[s], alternative
    steps potentially available to the plaintiffs to restructure the holdings in
    such a way as to transfer the assets to persons in whom they had confidence for
    their protection were neither discussed, canvassed, nor proffered by the
    solicitor as a result of which the solicitor and the law firm failed in their
    duty to the plaintiffs.

[32]

While the submission on appeal changed slightly from the position taken
    in the statement of claim, both positions appear to be rooted in Mr. Simmonss
    claim that there was an agreement to return the assets to him and Anchordale
    after his discharge from bankruptcy.  As indicated above, Mr. Hamber was not
    aware of any such agreement and the trial judge found that there was none.  If
    there had been such an agreement that may well have raised additional legal and
    ethical issues but that was not the case.

[33]

Mr. Hamber did not breach his duty to Mr. Simmons and Anchordale by
    failing to discuss alternatives to these transactions.

(iii)

If Mr. Hamber and his law firm breached their duty, is there any
    evidence of damages?

[34]

The principal relief sought in this appeal is an award of damages in an
    amount to be assessed by way of a reference.

[35]

At the time these transactions were executed, the evidence is that the
    Simmons Group shares had no value and that the Anchordale debt was not one of
    substance.  At the time of trial, there was no evidence led to suggest that the
    situation had changed in respect of any of the underlying assets involved in
    the transactions.

[36]

In my view, therefore, even if it could be said that Mr. Hamber breached
    some duty to Mr. Simmons and Anchordale  a proposition that I reject  the plaintiffs
    have failed to establish a basis upon which the court could order damages.

DISPOSITION

[37]

For the above reasons, I would dismiss the appeal.  I would award the respondents
    their costs of the appeal on a partial indemnity basis fixed in the amount of $12,500
    including disbursements and applicable taxes.

RELEASED:

JAN -7 2011                                              Robert
    P. Armstrong J.A.

STG                                                            I
    agree S. T. Goudge J.A.

I
    agree E. A. Cronk J.A.


