Risk Update

Concerning Conflicts — Succession Commercial Conflicts Considerations, Local Plowing Dispute Plows Into Mayor Conflicts Allegations

[Succession spoiler alert, for those not caught up on the latest greggs and tomlettes.] “When emotions run high: representing a warring family in a commercial deal” —

  • “This week on Charles Russell Speechlys Succession Watch, we look at what trustees should do to get the best possible outcome for their beneficiaries (and protect themselves) in commercial deals involving competing beneficial interests and non-commercial considerations.”
  • “Episode 1 of Succession Series 4 saw a bidding war ensue between Logan Roy and his outcast children, Kendall, Shiv and Roman, for the acquisition of family-controlled media group Pierce. It also saw Nan Pierce, majority shareholder and family representative of Pierce, hold her nerve in negotiations with the Roy family to try to achieve the best possible deal on the sale of her beloved family company.”
  • “As family representative, Nan was responsible not only for herself in these negotiations, but the wider family and shareholders; people with different financial positions, outlooks and views about the future of the company itself. And, as Episode 1 portrayed so clearly, where families and family businesses are involved, there’s also emotion. In Succession they call it the ’emotional premium’ that takes the value of the company beyond its usual price tag and can mean negotiations spiral out of control and at times appear to lose all commercial sense.”
  • “To prioritise the interests of the beneficiaries when trying to achieve the best possible deal. Trustees should take comfort that the ‘best possible deal’ does not necessarily mean the best deal from a commercial perspective, though trustees are likely to avoid criticism where their decisions make business sense and they have taken advice (see below).”
  • “Identify conflicts early. Competing and conflicting interests will inevitably exist where there are family shareholdings and a group of beneficiaries. Where a trustee is also a beneficiary, or has their own personal shareholdings, then the potential for conflict is even greater. Under Jones v Firkin Flood a conflict of interests can vitiate a trustee’s otherwise reasonable decision.”
  • “It may be that conflicts can be managed simply by acting on professional advice or it may be that an independent trustee can be brought in to effectively neutralise them. Where conflicts look to be insurmountable it can be possible to get prior approval from the Court to proceed on the company sale despite the conflict (see below). Episode 1 threw up a further conflict in that Shiv and Tom, while married, were or were working for rival bidders. In such a situation it might be possible as trustee to limit the information disclosed to either of them and ensure suitable confidentiality agreements are in place.”
  • “Especially in circumstances where the trustees lack relevant expertise. In Episode 1, we saw the Roy and Pierce families supported by a team of advisors. Trustees should consider what advice is going to be needed: this could include corporate finance advice, valuations, tax advice, legal advice and, where you are dealing with a HNW family like the Roys, reputational advice. Trustees should also take into account and seek possible advice on what happens if the company sale falls through: are they faced with a depreciating asset and further family conflict? What price should they put on that?”

Pembroke mayor’s law firm colleague is paid to represent the city. Some residents say that’s not OK” —

  • “A Pembroke, Ont., homeowner says a road plowing dispute with the city snowballed into what she calls a ‘threatening’ letter from the law firm where both the city solicitor and mayor work — a situation she believes is both a conflict of interest and an ‘abuse of power.'”
  • “Arianna Nolet said she was outraged after learning taxpayers are paying Mayor Ron Gervais’s law firm colleague Robert Sheppard for legal services, and questions the implications of the city’s top elected official continuing to work at the same firm — Sheppard & Gervais — as its solicitor.”
  • “‘There is a large conflict,’ said Nolet. ‘How does the city’s interests align with Mayor Gervais’s interests, and then [how do] his interests further align with his law firm? It raises a lot of eyebrows.'”
  • “The dispute began in December when Nolet contacted the city over what she described as city plows repeatedly ‘dumping the entire street of snow’ on her property, which sits at the end of her street.”
  • “In February, Nolet received a letter in the mail from the law firm Sheppard & Gervais… ‘This is to advise that should you engage in conduct that is contrary to the By-law that you risk being prosecuted by the City of Pembroke for such activity,’ Sheppard wrote.”
  • “The letterhead includes both Sheppard’s and Gervais’s credentials, and their full names are printed at the bottom.”
  • “One 2012 agreement with the Town of Deep River describes the firm’s ‘extensive history’ of expertise in the municipal sector and touts it as “one of the oldest law firms in the county. According to the firm’s proposal, Gervais was billing $226/hour and Sheppard $288.15/hour for legal services at the time.”
  • “Under the act [Ontario’s Municipal Conflict of Interest Act], conflict of interest relates only to pecuniary (financial) interests. An official has an indirect pecuniary interest if they are a shareholder, director or senior officer with a private company that has a direct financial interest in the matter, or ‘if they are a partner of a person or is in the employment of a person or body that has a pecuniary interest in the matter.'”
  • “According to the city, Gervais twice declared a pecuniary interest regarding his offer to purchase the city land adjacent to his property, on March 7 this year and Sept. 6, 2022. There were no declarations regarding the matter with Nolet.”
  • “Despite his law firm’s name, Gervais is not a partner there but an employee, the city’s CAO David Unrau pointed out in an email to CBC.”
  • “John Mascarin, a lawyer with Aird & Berlis and the integrity commissioner for dozens of Ontario municipalities, said the situation in Pembroke ‘may very well give rise’ to an indirect pecuniary interest, and said ‘it doesn’t really matter’ whether Gervais is a partner at the firm… However, even the perception of conflict of interest can be problematic, Mascarin said.”