



COURT OF APPEAL FOR ONTARIO

CITATION: Roth Estate v. Juschka, 2016 ONCA 92

DATE: 20160202

DOCKET: C57506

Feldman, Hourigan and Benotto JJ.A.

BETWEEN

Marlene Florence Roth, Estate Trustee of the
    Estate of Harold Peter Roth, Deceased and Marlene Roth

Plaintiffs

and

Roy Juschka, Cynthia
    Juschka and Roth-Juschka Holdings Ltd.

Defendants (Appellants)

and

Allan D. Brock

Third Party (Respondent)

Thomas J. Corbett, for the appellants

James D. Virtue and Dagmara Wozniak, for the respondent

Heard: June 4, 2015

On appeal from the judgment of Justice C. Stephen Glithero
    of the Superior Court of Justice, dated July 15, 2013, with reasons reported at
    2013 ONSC 4437.

Feldman J.A.:

[1]

The respondent is a lawyer who acted for both sides in a family share
    purchase transaction that included the provision of a promissory note. In the
    action against them on the note, the appellants brought a third party claim
    against the lawyer for negligence and breach of fiduciary duty. At trial, the
    action on the note was successful, while the third party claim was dismissed.

[2]

Following that judgment, the
    parties to the main action settled for a lesser sum. This appeal is solely
    against the dismissal of the third party claim. The appellants seek
    indemnification for the amount they paid to settle the judgment on the note.
    For the reasons that follow, I would allow the appeal and hold the respondent lawyer
    liable to the appellants for negligence and breach of fiduciary duty.

FACTS

[3]

Harold Roth is a central figure in the events underpinning this
    litigation. As he died in 2008, the evidence at trial of what transpired came
    from his wife, his daughter, his son-in-law, the respondent, and two
    accountants who had involvement at the relevant time.

[4]

Mr. Roth had experience in the grocery store business. He wanted to take
    advantage of an opportunity to take over a grocery store in Corunna, Ontario
    with his daughter and son-in-law, Cynthia and Roy Juschka, who lived with him and
    his wife, Marlene Roth. Mr. Roth wanted to acquire the Corunna grocery store
    and operate it with his wife, daughter and son-in-law, while teaching them the
    business.

[5]

Mr. Roth proposed that he and the Juschkas each put in $10,000 of
    equity, and he would loan an additional $40,000. This would allow the family to
    make a down payment on the store in Corunna. The Roths and Juschkas proceeded
    to acquire the store in 1985. Their initial arrangement was that the profits
    from the store operation would be split 51% to the Roths and 49% to the
    Juschkas. Later that year, they incorporated Roth-Juschka Holdings Ltd. Harold
    Roth received 51% of the shares and Roy and Cynthia Juschka received 49%. There
    is nothing in the record to suggest that the parties ever had a shareholders
    agreement to address issues such as a buy-sell arrangement.

[6]

The respondent acted for all four parties on the incorporation. While
    the respondent did other legal work for the Roths and the Juschkas over the
    years, he had an ongoing relationship with Harold Roth, who would consult him
    from time to time as his lawyer.

[7]

The store became very successful. Initially, Harold Roth ran the store,
    teaching Roy and Cynthia Juschka. Marlene Roth worked there full-time for the
    first two years only, and thereafter only sporadically. Cynthia Juschka began
    to work only part-time at some point, in order to stay home to look after their
    children. She came back full-time after 1993. By 1988, Harold Roth had begun to
    cut back his involvement.

[8]

In 1992, Harold Roth was advised that he needed surgery for stage-four
    bladder cancer. That diagnosis caused him to take steps to deal with succession
    planning for the disposition of his shares in the company as well as to provide
    ongoing income for himself and his wife for the rest of their lives. He wanted
    his shares to go to Roy and Cynthia Juschka, but he was concerned about
    interference from other family members if the shares were left as part of his
    estate.

[9]

Mr. Roth approached his accountants to obtain tax and accounting advice
    about how to accomplish his wishes. He also sought advice from his lawyer, the
    respondent Allan Brock. Mr. Brock was first approached by Mr. Roth in the late
    fall of 1991 about amending his will to leave his shares to the Juschkas and
    not to his other daughter. His concern arose from difficulties in the
    relationship between Mrs. Roth and Mrs. Juschka and between himself and his
    other daughter. Mr. Brock recalled advising about family law obligations that Mr.
    Roth had to Mrs. Roth and her entitlement to support.

[10]

Mr.
    Brock did not hear from Mr. Roth again until February 1992 when Mr. Roth
    visited his office. Mr. Roth brought a letter from his accountant that  proposed
    a deferred share purchase structure. The deal involved transfer of the Roths
    shares to the Juschkas upon payment of a promissory note in the amount of the
    fair market value of the Roths 51% interest. It assumed a market value of
    $570,000 for the shares, based on a 1989 valuation of the company. In the event
    that the Roths died before the note was paid in full, it would be forgiven in
    their wills.

[11]

Later
    in February, there was a meeting in Mr. Brocks office with Harold Roth, the
    two accountants and Roy Juschka, who arrived late and stood behind the others. The
    plan had evolved again. Mr. Brock said that he and one of the accountants
    explained to Mr. Juschka what had transpired before he arrived. The trial judge
    described the evidence as follows:

The new arrangement had now become a share transfer to the
    Juschkas, but an income stream would continue to the Roths.  The figure was to
    be $408,000.00 for Mr. Roths shares, which Mr. Roth thought to be low, but
    wasnt concerned in a major way because he was to continue to receive his
    income, and the note was to be forgiven by will. Mr. Brock testified that the
    promissory note was to justify to Revenue Canada that there was a reasonable
    price being paid for the shares and it was in Mr. Roths interest to have the
    value of the shares at a low figure so as to attract less tax.  The note was to
    be forgiven when the Roths died.  His evidence is that at the meeting it was
    discussed that the purpose of the new arrangement was to freeze the value of
    the estate, to provide an income stream to the Roths and to get the shares into
    the hands of the Juschkas.

[12]

Following
    that meeting, there was continued work on the numbers for the transaction. It
    wasnt until early summer that year that Mr. Roth instructed Mr. Brock that he
    was proceeding with the new arrangement and asked him to draft the documents to
    implement it. Mr. Brock prepared draft documents, which he sent to both Mr.
    Roth and Mr. Juschka.

[13]

The
    final documents consisted of the share-purchase agreement between the Roths as
    vendors and the Juschkas as purchasers; two consulting agreements, one for
    Harold Roth and one for Marlene Roth; and a promissory note from the Juschkas
    to Harold Roth. Mr. Brock testified that these four documents were
    inextricably linked together.

[14]

The
    consulting agreements provided for ongoing consulting fees to be paid to each
    of the Roths by the company, reflecting a 50% entitlement to the profits of the
    store (25% each), with the entitlement reducing somewhat over time. The
    consulting agreements were guaranteed by the Juschkas. By that time neither of
    the Roths was working in or providing any service to the business. The
    consulting agreements were a way to have the Roths continue to receive their
    income stream from the store.

[15]

The
    promissory note read as follows:

The Payors, Roy Juschka and Cynthia Juschka promise to pay to
    the Payee, Harold Roth, the sum of $408,000.00 on demand, in forty years being
    April 30, 2032 bearing interest at the preferred lending rate from time to time
    of the Royal Bank of Canada, calculated annually, not in advance on the
    anniversary date of the said note commencing on May 1, 1993 and yearly
    thereafter. The interest rate chargeable can be reduced at the holders
    discretion upon the anniversary date heretofore stated. The note shall also
    become due and payable upon demand in the event of the sale of Bluewater Food
    Market or upon the transfer of shares in Roth-Juschka Holdings Ltd. Such that
    Cynthia Juschka owns or controls the voting rights to less than fifty percent
    (50%) of the outstanding voting shares in the said Roth-Juschka Holdings Ltd.

[16]

The
    promissory note representing the purchase price for the shares was for $408,000
    plus annual interest at the Royal Bank preferred rate, reducible at the option
    of the Roths as holder. The consulting agreements provided that any interest
    paid on the note would reduce the amounts of the consulting payments. Both Mr.
    Roth and Mr. Brock believed that the amount of the note was too low. However,
    Mr. Brock explained in his evidence his belief that the only significance of the
    chosen value was to be high enough to satisfy Revenue Canada that it reflected
    the market value of the shares. Otherwise, it was not important because the
    note was to be forgiven on the death of the Roths.

[17]

The
    note contained two conditions where it would become due on demand: if the
    grocery store was sold, or if Cynthia Juschkas voting share interest fell
    below 50%.  The reason the note contained the two conditions where the note would
    become payable on demand was because Mr. Roth felt that if the Juschkas sold
    the business or if his daughter were no longer a full partner in the business,
    then he wanted to be able to receive immediate payment on the note. The note
    contained no provision that it would be forgiven by the Roths in their wills.

[18]

Mr.
    Brock testified that all four parties were familiar with the documents and knew
    what the arrangement was. He said he had discussed with the parties that the
    note could not contain a clause saying it would be forgiven on death, because
    that would diminish the value that was being paid for the shares and undermine
    the position with Revenue Canada that the transfer was at arms length and for
    fair value.
[1]

[19]

Mr.
    Brocks evidence, which the trial judge accepted, was that he reviewed the
    documents with all four of the parties and he explained to each of them that
    the promissory note was to be forgiven in the Roths wills. He pointed out to
    Roy and Cynthia Juschka that there was no guarantee that the note would
    actually be forgiven because a will can be changed. But the Juschkas just
    laughed and said they were not concerned that the Roths would not do as they
    had discussed.

[20]

While
    the Juschkas testified that they understood when they signed the documents that
    the payments under the consulting agreements would be applied to reduce the
    balance of the promissory note, the trial judge rejected their evidence. He
    found that the Juschkas understood in 1992 that the payments under the
    consulting agreements were independent of the obligation to pay the principal
    owing on the promissory note.

[21]

It
    was Mr. Brocks evidence that although he was acting for all four parties, the
    entire deal was being directed by Harold Roth.

[22]

Nevertheless,
    at no time did Mr. Brock put his mind to the question of independent legal
    advice for the Juschkas. This was because he believed the share sale was, in
    effect, a gift of shares from the Roths and that the Juschkas were obtaining a
    substantial benefit from the arrangement. His evidence on this issue was very
    clear:

Because there wasnt in my mind any conflict between the
    parties. There was a situation where a benefit was being given to a son-in-law
    and daughter by their father, a substantial benefit. There was a change going
    on where the father and mother, Mr. and Mrs. Roths income [as] a percentage of
    the flow of profits from the corporations was being reduced immediately and
    then thereafter it was going to be reduced even more in increments and the
    Juschkas were going to receive all of the Roths shares in the operating
    company for nothing, that is they were going to be gifted basically on death. A
    value was placed on it to freeze it so that they would initially automatically
    get all of the increase in value in those shares.

On death of their parents, of Cindys parents, they would get
    the shares fully paid and in the interim they would be paying less of the
    profits of the corporation to their parents than what their parents were
    entitled to before the agreement was entered into. So it didnt seem to me
    there was any conflict. They were getting a huge benefit for nothing.

[23]

Shortly
    after the signing meeting, the respondent drew new wills for Harold and Marlene
    Roth where each forgave the note if the other had predeceased.

[24]

Following
    the 1992 share transfer, the Juschkas paid the Roths the amounts called for in
    the consulting agreements until 2002. The Roths performed no services to the
    business in that time. In 2002, the Juschkas reduced the payments because of
    financial difficulties at the store. The Juschkas came to see Mr. Brock because
    Harold Roth had threatened to call the note. Mr. Brock explained that they were
    obliged to carry on with the payments under the consulting agreement but they
    need not worry about the note because it would be forgiven in the Roths wills.

[25]

By
    late 2007, the Roths had received $1.7 million under the consulting
    arrangements. The Juschkas had expanded the store but were now in debt to
    Sobeys, which had helped them finance the expansion. Sobeys required that the
    Juschkas stop making the consulting payments to the Roths. The Juschkas had to
    decide whether to declare bankruptcy or sell the store to Sobeys and work on a
    salary. They chose to sell to Sobeys. Mr. Brocks advice then was for them to
    sit down with the Roths and explain that now that the business was sold, the
    company was not earning profits and therefore no consulting fees were owing.

[26]

However,
    Mr. Roth died in 2008 and Mrs. Roth elected to demand payment of the note
    because of the sale of the business by the Juschkas. That demand eventually
    resulted in the action against the Juschkas and the company.

Findings by the trial judge

[27]

The
    trial judge made findings in the main action that were important to the
    determination of the third party claim:

·

The Juschkas understood when they signed the documents in 1992
    that the payments under the consulting agreements would not be applied to the
    note.

·

There was an agreement between the Roths and the Juschkas that
    the Roths would forgive the note in their wills.

·

Mr. Brock advised the Juschkas that there was a risk that the
    Roths would not live up to that obligation.

·

The 1992 share purchase was very advantageous to the Juschkas. They
    were receiving the Roths 51% of the shares in the store without any cost
    because the note was to be forgiven and the income stream that the Roths were already
    entitled to indefinitely was being reduced.

·

The Roths received $1.7 million from the Juschkas under the
    consulting agreements from 1992 to 2007.

[28]

With
    respect to  the claim against the respondent for breach of fiduciary duty and
    negligence, the trial judge also found:

·

The parties were amicable and there were no conflicting positions
    between them.

·

There was little potential for a collision of interests.

·

A problem only arose when the Juschkas tried to renege on their
    agreement.

·

Mr. Brock was sensitive to the risks to the Juschkas.

·

The Juschkas were well-served by the 1992 agreement.

·

Mr. Brock acted within the standard of care which was reasonable
    care, skill and knowledge.

·

While it may have been unwise of Mr. Brock to act for everyone,
    he did not fall below the standard of care in doing so.

·

Had they gone to another lawyer for independent legal advice, the
    Juschkas would have signed the 1992 documents because they were anxious to take
    advantage of the opportunity that Mr. Roth was affording them.

·

There was no other advice that another lawyer could have given
    the Juschkas in respect of the 1992 transaction.

·

The only advice a lawyer could have given the Juschkas regarding
    the note was not to sign it if they did not want to risk having to pay it.

·

The Juschkas would not have heeded that advice nor would it have
    been in their interests to do so.

·

The Juschkas loss was not caused by Mr. Brock.

ISSUES

[29]

I
    would frame the issues on this appeal as follows:

1)

Did
    the respondent breach his fiduciary duty to the appellants by acting for all
    parties where there was a conflict of interests and by failing to send them for
    independent legal advice?

2)

Did the respondent
    fall below the standard of care by implementing the instructions of Harold Roth
    and failing to assess and advise the appellants of the significance of the
    liabilities they were undertaking and whether the arrangement was in their best
    interests?

[30]

The
    appellants submitted that the trial judge made palpable and overriding errors
    of fact in three areas, and that those errors undermined his conclusion on their
    third party claim. I discuss two of those areas  the potential impact of
    independent legal advice and the impact of the transaction on the Juschkas  in
    my analysis of the issues. In light of my conclusions, there is no need to
    address the third area raised by the appellants, which is the trial judges
    treatment of the evidence of the appellants expert witness.

ANALYSIS

Fiduciary duty

[31]

A
    solicitor acting for a client owes the client a fiduciary duty to act in the
    best interests of that client. The proposition comes from the House of Lords
    decision in
Boardman et al. v. Phipps
, [1966] 3 All E.R. 721 at 756, where
    the lawyers conflict was between his duty to his client and his own
    self-interest. In this courts 1982 decision in
Davey v. Woolley
(1982), 35 O.R. (2d) 599, (leave to appeal to S.C.C. refused (1982) 37 O.R.
    (2d) 499n), Justice Bertha Wilson explained that the rule also applies where
    the conflicting interests are between clients. At p. 602 she stated:

A solicitor is in a fiduciary relationship to his client and
    must avoid situations where he has or potentially may develop a conflict of
    interests. 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. The underlying premise in both these
    situations is that, human nature being what it is, the solicitor cannot give
    his exclusive, undivided attention to the interests of his client if he is torn
    between his clients interests and his own or his client's interests and those
    of another client to whom he owes the self-same duty of loyalty, dedication and
    good faith. [Citation omitted.]

[32]

In
Woolley
, the court addressed the argument that in rural areas,
    solicitors commonly act for both sides in real estate transactions where there
    is full disclosure and both parties consent. The court responded, at p. 602:

This may well be true although even in the case of a so-called simple
    real estate deal, I doubt that it is good practice. In any event the solicitor
    unquestionably assumes a dual role at his own risk, the onus being on him in
    any lawsuit that ensues to establish that the client has had the best
    professional assistance which, if he had been engaged in a transaction with a
    third party, he could possibly have afforded: see
London Loan &
    Savings Co. of Canada et al. v. Brickenden
, [1933] S.C.R. 257 at 262 [affirmed
    [1934] 3 D.L.R. 465 (P.C.)].

[33]

More
    recently, in
Waxman v. Waxman
(2004), 44 B.L.R. (3d) 165 (C.A), (leave
    to appeal refused [2005] 1 S.C.R. xvii (note)), this court held that [o]rdinarily
    a lawyer should not act on both sides of a transaction where the interests of
    one client potentially conflict with the interests of the other.  If there
    are some simple or routine transactions where a lawyer can act for both
    parties, the share sale is not one of them (para. 646).

[34]

In
    this case, the respondent acted for all parties on what turned out to be a
    share sale transaction. He did so without ever considering whether there was a
    conflict of interest or a potential conflict because he believed that the
    effect of the transaction was essentially a gift by Harold Roth of his 51%
    interest in Roth-Juschka Holdings Ltd. to the Juschkas. Having perceived no
    potential conflict, he did not undertake the most basic obligations of a lawyer
    to his client: to raise the problem of acting for both sides, to explain the
    potential conflict, to obtain consent to act for both sides or to recommend
    independent legal advice:
Waxman
, at para. 647.

[35]

The
    trial judge agreed with the respondents view of the transaction: that it was
    very beneficial to the Juschkas and therefore there was no potential conflict
    of interest. With respect to the trial judge, these findings are based on a
    misapprehension of the evidence with respect to the effect of the transaction
    and an error of law.

[36]

The
    transaction was not wholly beneficial to the Juschkas and there was a
    significant potential conflict of interest between the two sets of clients.
    That the parties were amicable at the time of the transaction will normally be
    the case where a lawyer is asked to act for both sides. However, that fact is wholly
    irrelevant to whether their interests in the transaction had the potential to
    conflict.

[37]

The
    purpose of the transaction, as conceived by Harold Roth, was to transfer his
    shares to the Juschkas in a tax-efficient manner while retaining a significant
    income stream for himself and his wife during their lifetimes. Although he
    expressed to the respondent that his wish was to benefit the Juschkas by
    allowing them to become full owners of the grocery business without
    interference from other family members, the ultimate transaction was in no way a
    gift of shares. The Juschkas guaranteed the Roths a significant income stream
    for life, while the terms of the promissory note ensured that until the deaths
    of both Harold and Marlene Roth, the Roths would be able to enforce it.

[38]

The
    transaction was structured as a share sale for which the Roths were to receive
    two forms of compensation from the Juschkas:

1)

a promissory note from
    the Juschkas personally for $408,000, which accrued interest annually at the
    current rate; and

2)

two consulting
    agreements that obligated the company and the Juschkas to pay the Roths significant
    annual remuneration for life, based initially on 50% of the profits of the
    company and reducing somewhat over time.

[39]

A
    significant part of the deal was not documented: as found by the trial judge, the
    promissory note was to be forgiven upon the deaths of the Roths.

[40]

It
    is unclear exactly what the respondent understood was the effect of not
    documenting this condition of the agreement. In his view, the intent of the
    transaction was not a sale but a gift accomplished through the vehicle of the
    share transfer, the consulting contracts and the forgiveness of the note in the
    will. He testified that the amount of the note was only important from a tax
    point of view. It wasnt really important in my analysis of what the clients
    wishes were.

[41]

However,
    the evidence also suggests that perhaps the respondent believed the requirement
    to forgive was not enforceable, since he advised the Juschkas that because the
    obligation was undocumented, they would have to trust that the Roths actually
    would forgive the note in their wills and not make a change to that provision.

[42]

It
    is also difficult to understand the respondents position that the obligation
    to forgive the note could not be documented. The purpose of the note was to
    document the value of the shares being sold by Harold Roth and to freeze that
    value for tax purposes. The respondent testified that the accountants had
    advised that if the note provided that it was to be forgiven, it would not be
    worth its face value. The respondent believed that the face value of the note
    could not be undermined in the eyes of Revenue Canada. If the suggestion is
    that the intent was to mislead Revenue Canada about the true value being paid
    for the shares, that would be totally improper.

[43]

Regardless,
    the fact that the respondent suggested that a term in the transaction that was
    critical to the interests of one client, the Juschkas, remain undocumented and
    perhaps unenforceable by them in order to protect the interests  of the other
    client, Mr. Roth, reveals an actual conflict of interest.

[44]

Even
    more significant was the failure of the respondent to understand and explain the
    full business effect of the transaction on the interests of the Juschkas: see
Waxman
,
    at para. 648. Although the trial judge found that the respondent did fully
    explain all the documents and the transaction, it is clear that the respondent himself
    did not completely understand the significance and potential consequences of
    the transaction for the Juschkas.

[45]

Prior
    to the share sale, the Juschkas owned 49% of the company and the Roths owned
    51%. As majority shareholders, the Roths could have insisted that the Juschkas
    continue to be the only workers at the store and still share the profits 51% to
    49% with the Roths, while they made no further contribution. However, had the
    Juschkas decided at some point that they were no longer content with that
    arrangement, or that they wanted to sell the store, they had potential remedies.
    Those included negotiation with the Roths for the purchase of their shares,
    with the leverage that the Juschkas were the sole workforce that created the
    profitability of the company; or court action, such as seeking an oppression
    remedy or the wind-up of the company.

[46]

By
    contrast, in the 1992 share purchase deal, the Juschkas bound themselves
    contractually to pay the Roths consulting fees for life, representing a
    significant percentage of the profits of the company. They also signed a
    promissory note for $408,000 on the understanding that the note would never be
    enforced because it was going to be forgiven. However, the note also contains
    two conditions that allowed the holders to make demand on the note before it
    was forgiven: 1) if the grocery store was sold, or 2) if Cynthia Juschka became
    a less than 50% owner of the shares of the company.

[47]

There
    is no mention in the evidence of any explanation by the respondent to the
    Juschkas of the potential consequences of these conditions at the time of the
    share sale. The note was a 40-year note due in 2032. From a business point of
    view, it was highly likely that the Juschkas might have decided to sell their
    lucrative grocery business at some point and retire before 2032, or they might have
    been forced to sell for some other reason, which is exactly what occurred.

[48]

Roy
    Juschka testified that his understanding was that if he sold the business
    before the note was paid down in full by the consulting payments, he would owe
    the unpaid portion of the note. But the trial judge found that was not the deal
    or the effect of the documents. He accepted the respondents understanding of
    the transaction that the principal of the note and consulting payments were
    separate obligations. On the basis of that structure, the advice the respondent
    gave was wholly deficient.

[49]

As
    Wilson J.A. found in
Davey v. Woolley
, this was where the Juschkas
    were at risk and needed legal advice. While agreeing that a solicitor is not
    obliged to give business advice, Wilson J.A. held that although legal advice
    and business advice frequently coalesce in a commercial transaction of this
    kind, I believe that solicitors are generally sensitive to the distinction and
    view it as an important part of their responsibility to build into the
    transaction the maximum legal protection they can for their client (at pp.
    601-602).

[50]

In
    my view, it is clear that following the share purchase transaction, the
    Juschkas were not in a financially better position than before and certainly
    had not received a gift. Legally, they were now contractually obligated to pay
    close to the same percentage of profits to the Roths that they were only
de
    facto
obliged to pay before, and they were bound by a promissory note to
    pay $408,000 plus interest in certain eventualities: a sale of the business, a
    reduction in Cynthias ownership interest, or if the Roths did not actually maintain
    the provision in their wills for forgiveness of the note. In addition, they
    personally guaranteed the payments under the consulting agreements and personally
    owed the promissory note, expanding their potential legal liability beyond the
    assets of the company.

[51]

The
    trial judge equated this case with
Upper Valley Dodge Chrysler v. Cronier
    Estate
(2005), 10 B.L.R. (4th) 201 (Ont. C.A.), where this court affirmed
    the decision of the trial judge that found no breach where the parties came to
    the lawyer to document a simple transaction that they had already agreed to.
    The court found that the borrower would have gone through with the loan even
    had he received independent legal advice.

[52]

In
    my view, that case is distinguishable on the facts and has no application. This
    transaction had its genesis in estate planning for Harold Roth. Roy Juschka went
    along with the plan, presented as it was as a great opportunity for him. It was
    not a negotiated deal that both clients were bringing to one lawyer just to document.
    Furthermore, Mr. Juschka testified that he understood that the consulting
    payments would be credited against the promissory note. Although that testimony
    was rejected by the trial judge, such an arrangement would have made much more
    commercial sense for Roy Juschka and would have been consistent with the advice
    he was receiving that the deal was beneficial to him.

[53]

Had
    the Juschkas obtained independent legal advice, the lawyer would have exposed
    the pitfalls in the deal and suggested alternative responses that the Juschkas
    could have presented before they agreed to be bound. In my view, it was a
    palpable and overriding error for the trial judge to find that the Juschkas
    would have signed the documentation whether they had gone to another lawyer or
    not. There was no evidence to support that conclusion.

[54]

In
    my view it is clear that at the time of the 1992 transaction, there was a
    significant potential conflict of interest between the two sets of clients of
    the respondent which precluded him from acting for both. By doing so, he was in
    a clear conflict of interest and breached his fiduciary duty to the Juschkas to
    act in their best interests.

Standard of Care

[55]

The
    respondent was also required to bring reasonable care, skill and knowledge to
    the performance of the services he undertook to perform:
Central Trust Co. v.
    Rafuse
, [1986] 2 S.C.R. 147 at 208. In my view, the respondent also fell
    below the standard of care in the performance of his services for the Juschkas.

[56]

He
    failed to understand and explain the meaning and effect of the promissory note,
    and the fact that, between the consulting agreement and the promissory note, the
    Juschkas could potentially pay an amount for the Roths 51% of the shares that
    was far in excess of their value. He also failed to warn the Juschkas of the
    risks of the transaction:
Fasken Campbell Godfrey v. Seven-Up Canada Inc.
(2000), 47 O.R. (3d) 15 (C.A.) at paras. 38-42, (leave to appeal refused [2000]
    S.C.C.A. No. 143).

RESULT

[57]

The
    Juschkas became liable to double-pay for the Roths 51% of the shares by paying
    them $1.7 million in consulting fees plus the amount of the promissory note.
    They were represented in the transaction by the same lawyer who acted for the
    Roths and they were not advised of the potential conflict nor sent for
    independent legal advice. The respondent failed to assess and advise them of
    the significance of the liabilities they were undertaking.

[58]

They
    are seeking damages in the amount of $200,000, which is the amount they agreed
    to pay Mrs. Roth on the note as a settlement of the judgment awarded by the
    trial judge. I would award the appellants damages in that amount, together with
    prejudgment interest and costs fixed at $35,000, inclusive of disbursements and
    HST.

Released: KF FEB 2 2016

K. Feldman J.A.

I agree. C.W.
    Hourigan J.A.

I agree. M.L.
    Benotto J.A.





[1]
This evidence appears at odds with the agreement itself which provides that the
    parties agreed that they were not dealing at arms length and that the purchase
    price would therefore be subject to review by Revenue Canada. In addition, the
    agreement provides for the shares in Roth-Juschka Holdings Ltd to be held by
    the Roths as security for payment of the promissory note. This provision
    appears to be inconsistent with the term of the note that provides that if the
    store is sold (if it is a share sale) or if Cynthia Juschkas share interest
    falls below 50%, the note becomes due on demand.


