Date: Thu, 5 Jan 2006 11:21:10 -0500

From: John Swan

Subject: VL for breach of duty of loyalty

I, too, have grave doubts about Jason's analysis (though I don't have much confidence in our Supreme Court).

If vicarious liability is based on the servant's (employee's or partner's) tort, it is hard to see how the unjust enrichment of the partner in this case makes the firm liable; it was not, in fact, enriched.

There is an earlier Canadian case, Guertin v. Royal Bank of Canada (1983), 43 O.R. (2d) 363, 1 D.L.R. (4th) 68; affirmed, (1984), 47 O.R. (2d) 799n, 12 D.L.R. (4th) 640n, in which the bank was made liable for the gains made by one its employees. A bank manager had appropriated for himself a business opportunity brought to his knowledge by a customer who was seeking a loan (which the manager turned down). The plaintiff’s claim was for damages for breach of fiduciary duty but the amount awarded was based on the gains made by the manager. The Ontario courts did not worry at all about making the bank liable in the circumstances.

I can only hope that the pace of developments in topics to be discussed at Jason’s conference in the summer slows down so that those drafting papers have time to draw their breath.

Happy New Year to all.

John Swan

-----Original Message-----
From: Andrew Tettenborn
Sent: January 5, 2006 10:40 AM
To: Jason Neyers
Subject: Re: ODG: VL for breach of duty of loyalty

Colleagues:

Whether or not there can be VL for non-good-faith wrongs, Jason must be right. Two points strike me about the claim for the $60m under VL.

(1) A more proper criterion for deciding whether an employer/firm has to disgorge an employee/partner's UE is, I would have thought, agency law. If (and only if) the UE was received by the employee as the employer's agent should the employer have to return it. VL goes beyond agency liability only in limited and specialised contexts. And even there it has on occasion been reined in: for example, the employer is only liable for his employee's misrepresentation if that representation was made within actual or ostensible authority.

(2) Surely the SCC must know better than to say policy demands that the firm pay over the $60m. VL for losses is one thing: the plaintiff deserves the money and the employer ought to take at least some of the risks of hiring potential (bankrupt) wrongdoers. Not so with UE. The plaintiff doesn't deserve the money: the only reason he's entitled to it is that the employee's demerit is even greater. The employer never had it at all. Why on earth make it pay up?

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