Superior Court Releases Waxman Judgment

On June 27, 2002, Justice Sanderson of the Ontario Superior Court of Justice released a significant multi-million dollar judgment relating to issues of breach of fiduciary duty, oppression, undue influence, unconscionability, inducing breach of contract and solicitor’s and auditor’s negligence. Five related actions were heard together by Justice Sanderson.

The plaintiff, Morris Waxman, together with his brother Chester Waxman and their late father, Isaac, built I. Waxman & Sons Limited (IWS) in Hamilton, which was one of Canada’s largest scrap and waste companies. In 1983, Morris learned that he required open-heart surgery. He was concerned about dying; Chester was also concerned about Morris’s death and potentially having to deal with Morris’s son as a shareholder. Chester instructed IWS’s and the brothers’ personal lawyer to draw up a share sale and lease. Morris attended at the lawyer’s office and signed documents, which conveyed his 50 per cent shareholding in IWS to Chester and leased his lands to IWS on a long-term, discounted basis.

Justice Sanderson concluded that Chester took advantage of Morris and tricked him into conveying his shares at a time when Morris was preoccupied with his own mortality. The judge found that Morris did not know that the papers he was signing related to a share sale and lease. The judge found that, as brothers and partners in the corporation, Chester owed Morris a fiduciary duty, which he breached. The judge also found that the transaction was patently unfair and unconscionable, and procured by undue influence. The ruling is also significant in that the oppression remedy under the Ontario Business Corporations Act was held to apply to the share sale transaction. The judge further found liability against the solicitor who had purported to act for both parties, affirming that a solicitor simply cannot act for both parties in a complex transaction.

Broad-ranging equitable remedies were ordered; the judge directed that Morris’s shares be returned to him and that he be reinstated as a 50 per cent owner of the company. The judge also ordered that Morris was entitled to 50 per cent of the profits drawn from IWS since the 1983 transaction. The judge also found that Chester’s son, Robert, had diverted millions of dollars in profits from IWS to companies controlled by him, and made orders for repayment against Chester, Robert, IWS and Robert’s companies. A tracing order was issued, allowing Morris to trace profits and funds taken out of IWS by Chester and his sons, with a constructive trust being imposed over those funds and assets. A further award was made in favour of a company controlled by Morris’s sons against Chester, IWS and Robert, for inducing a breach of contract with the company’s business partner, Philip Environmental, after the main litigation was commenced. Significant punitive damages were ordered.

The case also included a claim by Morris against IWS’s auditors (and his personal tax advisors), Taylor Leibow, for failure to warn Morris about bonuses and improper diversion of profits to Robert’s company. The judge found that Taylor Leibow breached the standard of care required; however, on the basis of the Supreme Court of Canada’s decision in Hercules Management Ltd., she found that Taylor Leibow owed no duty of care to Morris as a shareholder.

Robert Harrison and Richard Swan of Fasken Martineau DuMoulin LLP acted for Morris and his family. Alan Lenczner of Lenczner Slaght Royce Smith Griffin, together with Lorne Silver of Cassels Brock & Blackwell LLP, acted for Chester and his family. Barbara Murchie of Sim, Hughes, Ashton & McKay acted for the solicitor, Paul Ennis. Frank Bowman and Chris Hluchan of Fraser Milner Casgrain LLP acted for the auditors.