COMM 393 Chapter Notes - Chapter Case: Fiduciary, Shelf Corporation, Canada Revenue Agency
COMM 393 Strother v. 3464920 Canada Inc. Case Briefs
Supreme Court of Canada 2007
Facts
Situation
• Monarch Entertainment Corporation (Monarch) began promoting tax assisted
production services funding (TAPSF) investments in 1993.
• The appellant Robert Strother was one of the biggest billers at Davis & Company
(Davis) and in the mid 1990s Monarch was by far his biggest client. Effective
1996, the retainer expressly prohibited Davis from acting for clients other than
Monarch in relation to TAPSF schemes. The written retainer terminated at the
end of 1997 but Monarch continued thereafter as a firm client
• In November 1996, the federal Minister of Finance announced his intention to
amend the Income Tax Act to defeat the TAPSF tax shelters using Matchable
Expenditure Rules (MER). Strother advised Monarch that he did not have a “fix”
to avoid the effect of the MER.
• By the end of 1997, Monarch was trying to salvage the remnants of their
business.
• In November 1997, Strother learns of a possible “fix” or workaround to the MER,
known as the “exception”.
• In early 1998, Strother was approached by Paul Darc, a former executive of
Monarch, who was working on a tax credit business. He with Darc put forward
the “exception” to Revenue Canada with the intention to start a business using
Darc’s shelf company, Sentinel Hill Entertainment Corporation (Sentinel).
Strother told his partners that he had an “option” to acquire 50% of the common
shares of Sentinel, but in fact Strother and Darc had agreed that Strother would
receive 55% of the first $2,000,000 of profit and 50% thereafter if the “exception”
was granted. None of this was shared with Monarch.
• On October 6, 1998, the “exception” was granted and legalized. Sentinel closed
$260 million of business by the end of 1998.
• In 1998, Strother met with Monarch executives 8 times, and Strother told them
there was “absolutely no way to get around the rules”. Monarch reiterated that
Strother’s job was to find them an exception, and that was way Davis was
retained by Monarch.
• On August 4, 1998, Strother wrote to Davis about a possible conflict of interest
between Monarch and Sentinel, however stated that Sentinel’s prospects were
speculative and uncertain and that during the late fall of 1997 he had met with
Darc. The memo described an “option to acquire 50% of shares”
• The managing partner of Davis told Strother he would not be permitted to own
any interest in Sentinel.
• In March 31, 1999, Strother resigned from Davis and joined Darc as a 50%
shareholder in Sentinel.
• Monarch learned of Sentinal’s “exception” four months after the ruling was
granted. No one from Davis had mentioned it, and Monarch promptly fired Davis,
and threatened legal action against Strother and Darc.
Initial Judgment
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COMM 393 Strother v. 3464920 Canada Inc. Case Briefs
• The British Columbia Supreme Court dismissed Monarch’s claim
o while the relationship between Monarch and Strother was fiduciary,
Strother’s duty was advice was governed by the terms of the retainer, and
thus Strother was only obliged to act in Monarch’s best interests in relation
to the advice he was retained to give
o During 1997, the retainer obliged Strother to keep Monarch apprised of all
legal developments pertaining to TAPSF, and during that time Strother
had not known of the “exception”
o During 1998, there was no continuing contractual requirement for Davis to
act exclusively for Monarch, and that Strother was not obliged to provide
any advice that was not explicitly asked for. Strother did not have a duty to
disclose competitive information and was free to act for Sentinel
• Monarch appealed to the British Columbia Court of Appeal
o The appeal court concluded that the duty of loyalty was breached by
Strother by continuing to act with a conflict of interest
o The solicitor-client relationship had continued through the end of 1998
without a new retainer and billed on hourly rates, consulting from time to
time
o Strother had an obligation to advice Monarch of the “exception” or that
Monarch should seek advice elsewhere.
o The appeal court dismissed Monarch’s appeal that the fees between 1993
and 1999 should be returned, but ordered that Davis return to Monarch all
fees paid by Monarch from 1998 onwards.
• Strother appealed to the Supreme Court of Canada on the grounds that when the
retainer terminated at the end of 1997, he and Davis were free to take on new
clients and no longer owed any non-explicit duty to Monarch
Issues
• Did Strother/Davis breach a fiduciary duty owed to Monarch by accepting
Darc/Sentinel as a new client?
• Did Strother breach a fiduciary duty to Monarch by accepting a personal financial
interest in Sentinel, and if so, is Davis liable for that breach?
• Did Strother wrongly use for his own or Sentinel’s benefit confidential information
belonging to Monarch?
• If one or more of the above issues are resolved in favor of Monarch, what
remedies lie against Strother/Davis or any other entity which profited?
Reasons
Law: MacDonald Estate v. Martin [1990] 3 S.C.R. 1235
• states that it is of high public importance that public confidence in that integrity [of
administration of justice be maintained
The beneficiary is entitled to expect that the fiduciary will be concerned solely for the
beneficiary’s interests, never the fiduciary’s own.
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Document Summary
1996, the retainer expressly prohibited davis from acting for clients other than. The written retainer terminated at the end of 1997 but monarch continued thereafter as a firm client. In november 1996, the federal minister of finance announced his intention to amend the income tax act to defeat the tapsf tax shelters using matchable. Strother advised monarch that he did not have a fix to avoid the effect of the mer: by the end of 1997, monarch was trying to salvage the remnants of their business. In november 1997, strother learns of a possible fix or workaround to the mer, known as the exception . In early 1998, strother was approached by paul darc, a former executive of. Monarch, who was working on a tax credit business. He with darc put forward the exception to revenue canada with the intention to start a business using. Darc"s shelf company, sentinel hill entertainment corporation (sentinel).
