A lawyer (“Regular”) was unsuccessful in appealing from a decision of the Law Society Discipline Committee which found that he had failed to act with integrity and to avoid questionable conduct in fulfilling his duties as a lawyer

Administrative law – Barristers and solicitors – Disciplinary proceedings – Professional misconduct – Sale of assets – definition – Decisions of administrative tribunals – Law Societies – Penalties – Judicial review – Evidence

Law Society of Newfoundland and Labrador v. Regular, [2005] N.J. No. 372, Newfoundland and Labrador Supreme Court – Court of Appeal, December 5, 2005, C.K. Wells C.J.N.L., B.G. Welsh and M. Rowe JJA.

Regular acted for Petroleum Services and its majority shareholder. Another lawyer (“Hughes”) represented Randy Spurrell, an individual who held twenty-five percent (25%) share in Petroleum Services Ltd. There were negotiations conducted through the offices of Hughes and Regular to ascertain the value of Spurrell’s shares. In the fall of 2000, Spurrell reported to Hughes that there was a rumour that Petroleum Services Ltd. was being sold. Hughes accordingly wrote to Regular concerning the rumour and asked him to remind his client that Spurrell, a minority shareholder, should have input into the proceedings.

In December of 2000, Regular wrote to Hughes stating that the rumour that Petroleum Services was being sold was untrue. However, on December 14, 2000, the Directors removed Spurrell as a Director of Petroleum Services Ltd. without notice to him and without following the proper process for removal of Directors as set out in the Corporations Act. Regular acknowledged this in proceedings before the Adjudication Panel of the Law Society.

The Discipline Committee of the Law Society held that Regular had failed to act with integrity and proceeded to impose a penalty without hearing submissions from either the Law Society or Regular.

This decision was appealed by the Law Society and Regular to the Benchers. The Law Society appealed the imposition of the penalty in the absence of submissions and was successful. Regular appealed on the basis that the complaint had not been proven. The Benchers affirmed the decision of the Adjudication Panel and dismissed Regular’s appeal. Regular brought a further appeal claiming that the Benchers erred in concluding that the complaint was proven by the evidence. In particular, Regular took issue with whether Petroleum Services Ltd. had in fact been sold.

The Court reviewed the evidence that was before the Law Society and determined the question was really whether all or substantially all of the assets of Petroleum Services Ltd. had been sold. The jurisprudence defining the meaning of “substantially all the assets” was reviewed. The Court referred to Martin v. F.P. Borgault Industries Air Seeder Division Ltd. (1987), D.L.R. (4^th) 296, where the Court stated:

A common feature of all of the cases above referred to and in which the court found a sale of all or substantially all assets is that, although the corporations sold a relatively small fraction of their assets, in each case, the assets sold were the operating assets. The effect of the transaction in each case was to fundamentally alter the nature of the company from an operating company to a holding company and had the effect of destroying the company’s main business.

Regular sought to rely on a quantitative assessment of the sale of the assets, but it fell to him to identify that in his response to Hughes’s letter. In the absence of such an explanation it was expected that Hughes would be misled by Regular’s blanket statement that the rumour that Petroleum Services Ltd. was being sold was untrue.

The Court held that there was ample evidence to establish that substantially all of the assets of Petroleum Services Ltd. were sold.

The second point for consideration by the Court was whether the Law Society’s conclusion that it was not necessary to determine whether substantially all of the assets of Petroleum Services Ltd. had been sold in order to make an adverse finding against Regular was proper.

The Court reviewed the evidence and held that Regular’s response to Hughes’s letter was deliberately intended to mislead Hughes and therefore it was not critical to deciding the complaint to establish that substantially all of the assets of Petroleum Services Ltd. were sold. Regular’s response was calculated to deceive and to conceal the sale of the assets and in this sense he failed to act with integrity and failed in his responsibility to an individual lawyer and to avoid questionable conduct. The appeal was dismissed and the matter remitted to the Adjudication Panel of the Law Society for the imposition of a penalty.

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