Court File and Parties

COURT FILE NO.: CV-21-1074 DATE: 2023/01/09 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Robert Woroch, Plaintiff/Responding Party AND: Northfield Trim and Door Inc., Defendant/Moving Party

BEFORE: G. E. Taylor, J.

COUNSEL: Brandon Carter, Counsel for the Plaintiff/Responding Party Justin Heimpel, Counsel for the Defendant/Moving Party

HEARD: November 22, 2022

CORRECTED DECISION: COUNSEL: Irwin Duncan, Counsel for the Plaintiff/Responding Party was corrected on January 11, 2023 to read Brandon Carter, Counsel for the Plaintiff/Responding Party.

Endorsement

Introduction

[1] The defendant is the current iteration of a 55-year-old family owned and operated business. The plaintiff is the former president of the defendant. The defendant brings this motion seeking an order removing the plaintiff’s counsel of record in this action. The plaintiff’s counsel is the former corporate solicitor for the defendant.

Facts

[2] The defendant carries on business as a supplier of doors, trim and hardware for residential and commercial construction. The defendant is the successor corporation to Northfield Lumber Company Limited. The plaintiff was the operations manager for Northfield Lumber before the defendant was incorporated. Effective January 1, 2012, Northfield Lumber transferred its assets to the defendant as part of the transition of the business from Richard and Ruth Woroch to their children.

[3] The plaintiff, his parents and siblings and the defendant entered into a unanimous Shareholders’ Agreement dated January 1, 2012. The plaintiff and the defendant entered into an Employment Agreement also dated January 1, 2012, pursuant to which the plaintiff became the president of the defendant.

[4] From at least 1987 to February 8, 2021, Irwin Duncan was corporate counsel to Northfield Lumber and the defendant. As such Duncan prepared the Shareholders’ Agreement and the Employment Agreement. Duncan has also been the plaintiff’s personal lawyer for nearly 40 years.

[5] The Shareholders’ Agreement contained a buy/sell clause. On February 8, 2021, the defendant and his wife, as trustees of the Robert Woroch Family Trust, the owner of the defendant’s shares, in accordance with the terms of the Shareholders’ Agreement, offered to buy all of the remaining outstanding shares of the defendant or to sell the shares of the defendant owned by the Robert Woroch Family Trust to the remaining shareholders. The Buy/Sell Notice was prepared by Duncan. Also on February 8, 2021, Duncan gave notice to the defendant that he and his firm were ending their retainer as solicitors for the defendant, effective immediately. The letter of termination was addressed to the plaintiff. The remaining shareholders were not aware that Duncan had terminated his retainer as counsel to the defendant until so advised in a letter from Duncan to their lawyer on February 19, 2021.

[6] Duncan began to act for the plaintiff in relation to the exercise of the buy/sell provisions of the Shareholders’ Agreement no later than January 6, 2021. On that date a file entitled “Northfield Acquisition” was opened by Duncan with the plaintiff as the client. In addition, between September 22, 1989 and June 2020, seven other files with the plaintiff or his family trust as clients were opened by Duncan. These files were in relation to estate and real estate matters.

[7] The defendant was not notified that the plaintiff had retained Duncan to represent him in relation to the exercise of the buy/sell provisions of the Shareholders’ Agreement nor was it advised that in the event of a conflict, Duncan would be unable to act for either client.

[8] On February 18, 2021, the beneficial owners of the defendant’s shares other than the plaintiff, through his family trust, accepted the offer by the plaintiff to sell his shares of the defendant. The accepted Buy/Sell Notice was delivered to the plaintiff on February 19, 2021.

[9] By way of a letter dated February 19, 2021 from counsel for the purchasing shareholders, the plaintiff was advised that he was “relieved of any continuing obligation to perform any duties or responsibilities to [the defendant] pursuant to your employment, or otherwise, from this point forward”. The plaintiff was advised that he would be paid his salary and continue to receive benefits until the date of the closing of the share sale.

[10] Counsel for the purchasing shareholders immediately asserted the position that Duncan was in a position of conflict and could not act for the plaintiff. The plaintiff disagreed. On March 15, 2021, the sale of the plaintiff’s shares in the defendant to the remaining shareholders was completed without resolution of the conflict issue.

[11] In accordance with the provisions of the Shareholders’ Agreement, on the date of closing of the share sale, the plaintiff delivered to the defendant his resignation as an employee and a Release of the defendant of all claims against it.

[12] In August 2021 the present action was initiated seeking damages for breach of contract and wrongful dismissal from employment. It is alleged in the Statement of Claim that:

a) It was not the intent of that provision [of the Shareholders’ Agreement] to permit the defendant (and its remaining shareholders) to avoid complying with their legal obligations to a departing shareholder (para 15);

b) The Release should not be interpreted or applied to permit the defendant to avoid it obligations to pay wrongful dismissal damages to the plaintiff (para 16); and

c) If the Release is interpreted so as to waive the plaintiff’s rights to wrongful dismissal damages, then the Shareholders’ Agreement and Release contravene the Employment Standards Act, as such are ineffective to that extent pursuant to Section 5 of the Act.

[13] The defendant delivered its Statement of Defence and Counterclaim on September 23, 2021. The plaintiff delivered his Reply and Defence to Counterclaim on October 4, 2021. The plaintiff served his Affidavit of Documents on January 21, 2022. In a letter dated March 9, 2022, to counsel for the defendant, Duncan requested that the defendant deliver its Affidavit of Documents and provide dates for examinations for discovery. On May 31, 2022, the plaintiff served a Notice of Motion for and order that the defendant serve its Affidavit of Documents and that examinations for discovery be scheduled within 40 days. The present motion was initiated on June 8, 2022.

[14] Beginning with a letter dated February 19, 2021 from counsel for the purchasing shareholders to Duncan, the defendant has repeatedly asserted the position that Duncan has a conflict and should not continue to act for the plaintiff. With equal persistence, the plaintiff has asserted that a conflict does not exist and there is no reason why Duncan cannot continue to act for him.

Positions of the Parties

[15] The defendant takes the position Duncan should be removed as counsel of record in this action on the basis of a conflict of interest due to previously acting as corporate counsel to the defendant. The defendant says that Duncan is taking an adversarial position to his former client arising out of the drafting and execution of the Shareholders’ Agreement and the Employment Agreement.

[16] It is the position of the plaintiff that the defendant has failed to meet its onus of establishing that Duncan is in possession of confidential information which could be used to the prejudice of the defendant. In any event even if Duncan is in possession of confidential information the extreme remedy of denying a litigant his counsel of choice is not justified because the defendant did not act promptly in bringing the present motion.

Governing Principles

[17] The Rules of Professional Conduct of the Law Society of Ontario include provisions dealing with conflicts of interest and joint retainers. Excerpts of those Rules relevant to the present motion are as follows:

3.4-1 A lawyer shall not act or continue to act for a client where there is a conflict of interest, except as permitted under the rules in this Section.

Commentary

Former Client Conflicts

[10] Duties owed to a former client, as reflected in Rule 3.4-10, can impair client representation and loyalty. As the duty of confidentiality continues after the retainer is completed, the duty of confidentiality owed to a former client may conflict with the duty of candour owed to a current client if information from the former matter would be relevant to the current matter. Lawyers also have a duty not to act against a former client in the same or a related matter even where the former client’s confidential information is not at risk. In order to determine the existence of a conflict of interest, a lawyer should consider whether the representation of the current client in a matter includes acting against a former client. [emphasis added]

3.4-5 Before a lawyer acts in a matter or transaction for more than one client, the lawyer shall advise each of the clients that

(a) the lawyer has been asked to act for both or all of them;

(b) no information received in connection with the matter from one client can be treated as confidential so far as any of the others are concerned; and

(c) if a conflict develops that cannot be resolved, the lawyer cannot continue to act for both or all of them and may have to withdraw completely.

3.4-6 If a lawyer has a continuing relationship with a client for whom the lawyer acts regularly, before the lawyer accepts joint employment for that client and another client in a matter or transaction, the lawyer shall advise the other client of the continuing relationship and recommend that the client obtain independent legal advice about the joint retainer.

[18] Although lawyers’ codes of ethics are not binding on the courts, they are nevertheless important expressions of the professional standard expressing the collective views of the profession as a whole as to the appropriate standards to which lawyers should adhere (MacDonald Estate v. Martin, [1990] 3 S.C.R. 1235 at para 18 and Canadian National Railway Co. v. McKercher LLP, 2013 SCC 39, [2013] 2 S.C.R. 649 at para 16).

[19] In MacDonald Estate the Court articulated three issues to be considered in determining if a lawyer should be disqualified because of a conflict of interest. They are:

a) The maintenance of the integrity of the justice system;

b) The entitlement of a litigant to counsel of choice and not to be deprived of that counsel of choice without good cause; and,

c) The desirability of permitting reasonable mobility within the legal profession.

[20] It was also held in MacDonald Estate that once it is shown that there existed a previous relationship which is sufficiently related to the retainer from which it is sought to remove the solicitor, the court should infer that confidential information was imparted unless the solicitor satisfies the court that no relevant information was imparted. This will be a difficult burden to discharge (para 46).

[21] The Nova Scotia Court of Appeal in Brookville Carriers Flatbed GP Inc. v. Blackjack Transport Ltd., 2008 NSCA 22 held that lawyers have a duty not to act against a former client in a related matter even when there is no risk of the former client’s confidential information being misused. The Court went on to explain that a matter is related if the lawyer is taking an adversarial position against the former client with respect to the legal work the lawyer performed for the former client (para 17).

[22] In Consulate Ventures Inc. v. Aimco Contracting and Engineering (1992) Inc., 2010 ONCA 788, it was held that when a lawyer proposes to act against a client in relation to the same subject matter on which the lawyer had been retained by the client, the ongoing fiduciary duty owed by the lawyer to the client is the governing factor rather than just the duty of confidentiality (paras 26, 27 and 29).

[23] In CNR, the Supreme Court held that there are three components to a lawyer’s duty of loyalty to clients:

a) a duty to avoid conflicting interests;

b) a duty of commitment to the client’s cause; and

c) a duty of candour.

[24] The duty to avoid conflicting interests precludes a lawyer from representing a client in one matter while representing the client’s adversary in another matter unless both clients provide their informed consent (paras 31 and 41). The immediate interests of the clients must be directly adverse. The duty of commitment provides that a lawyer should not summarily and unexpectedly drop a client in order to avoid a conflict of interest with existing or future clients (para 44). The duty of candour requires a lawyer to advise an existing client before accepting a retainer that will result in the lawyer acting against the existing client even if the lawyer is of the view that there is no conflict of interest (para 46).

Analysis

[25] Duncan was the corporate solicitor for Northfield Lumber and the defendant from at least 1987 until February 8, 2021. Duncan terminated his retainer as corporate solicitor to the defendant, without prior notice, on February 8, 2021. The notice of termination of the retainer was only given to the plaintiff as president of the defendant. Immediately after delivering the notice of termination of retainer, Duncan as counsel to the plaintiff, delivered to the remaining shareholders of the defendant a Buy/Sell Notice in accordance with the terms of the Shareholder’s Agreement. On February 18, 2021 the remaining shareholders of the defendant accepted the plaintiff’s offer to sell his shares in the defendant. Duncan accepted a retainer on behalf of the plaintiff in relation to the implementation of the buy/sell provisions of the Shareholders’ Agreement as of January 6. 2021. The defendant and the remaining shareholders were not advised of the intention to accept this retainer until approximately one month after it was in place.

[26] The present lawsuit claims damages for breach of the Shareholders’ Agreement and the Employment Agreement, both of which were drafted by Duncan as corporate solicitor to the defendant. The Statement of Claim puts in issue the interpretation of the Shareholders’ Agreement and the interpretation of the Release required by the Shareholders’ Agreement to be given by the departing shareholder. The Statement of Claim also pleads that if the interpretation of the Shareholders’ Agreement and the Release is contrary to the position of the plaintiff, then those documents contravene the provisions of the Employment Standards Act.

[27] In my view the retainer of Duncan by the defendant to draft and execute the Shareholders’ Agreement and the Employment Agreement is closely related to claims in this action which relate to the interpretation of those agreements and whether they are legally binding. The Statement of Claim also raises the possibility of Duncan having to testify at the trial. The time to address that concern is at the outset and not when it arises at trial.

[28] As was held in MacDonald Estate, once it is shown that there existed a previous retainer which is sufficiently related to the retainer from which it is sought to remove the lawyer, it should be inferred that the lawyer possesses confidential information unless the lawyer satisfies the court that no information was received which would be relevant, but the burden on the lawyer will be difficult to discharge. In my view the retainers are sufficiently related. Duncan in his capacity as solicitor to the defendant drafted and arranged for execution of the Shareholders’ Agreement and the Employment Agreement. He now acts for the plaintiff in a lawsuit in which the Shareholders’ Agreement and the Employment Agreement are in issue. The Statement of Claim puts in issue intent of the Shareholders’ Agreement, the interpretation of the Release required to be given by the departing shareholder/employee and the legality of the Shareholders’ Agreement and the Release.

[29] There is no affidavit from Duncan deposing that he is not in possession of confidential information from the defendant. In MacDonald Estate the example of a situation in which the burden on the solicitor would be discharged would be when the former client admits that no confidential information was shared with the lawyer (para 46). In cross-examination, James Woroch said only that he did not know if any confidential information had been disclosed to Duncan. He did not admit that no confidential information had been shared with Duncan.

[30] Duncan terminated his retainer as corporate solicitor to the defendant in order to act for the plaintiff in connection with the triggering of the buy/sell provisions of the Shareholders’ Agreement. He was already acting for the plaintiff. He had not given prior notice to the defendant that he was going to terminate the retainer. Accordingly, Duncan breached his duty commitment to the defendant. In CNR it was found that the law firm had breached its duty of commitment to its existing client by terminating several retainers unrelated to the subject of the retainer of the new client. In the present case, the same lawyer, acting for two clients, in related matters chose to prefer the interest of the plaintiff over that of the defendant. In my view, this makes the breach of the duty of commitment more serious.

[31] The file entitled “Northfield Acquisition” was opened on January 6, 2021. The defendant was not consulted before this file was opened. The delivery of the letter terminating the retainer as corporate solicitor to the defendant shows that Duncan recognized that he could not act for both the plaintiff and the defendant with respect to the implementation of the buy/sell provisions of the Shareholders’ Agreement. He did not however advise the defendant that he intended to accept a retainer from the plaintiff for the purpose of buying the shares in the defendant owned by the remaining shareholders or for the purpose of selling his shares to them. This in my view was a breach of the lawyer’s duty of candour.

[32] Duncan owed an ongoing fiduciary duty to the defendant. As was held in Consulate Ventures, when it is the same lawyer who proposes to act against a former client on the same matter as the matter in dispute, the governing principle is the ongoing duty to the former client rather than any concern about the misuse of confidential information.

[33] In my view Duncan also breached the Rules of Professional Conduct in that:

a) he acted against a former client in a related matter; and

b) he did not advise both clients that he was acting for both and that in the event of a conflict he would not be able to act for either.

[34] I have concluded that for any one of the above reasons it would be appropriate to consider removal of Duncan as counsel for the plaintiff in this lawsuit. Before making such an order, however, it is necessary to consider if the defendant has acted promptly or if the present motion has been brought for tactical reasons.

[35] As soon as the purchasing shareholders became aware that Duncan had make the decision to terminate his retainer as corporate counsel to the defendant in order to act for the plaintiff, the conflict issue was raised. The defendant never accepted that Duncan did not have a conflict of interest. It was raised repeatedly before the share sale was closed and after the Statement of Claim was issued. While it may have been preferrable to have brought the motion before pleadings were completed, there was never a suggestion that this issue would not be litigated. The lawsuit is at the pleadings stage. No discoveries have taken place and the trial is not imminent. I am satisfied that there will be no prejudice to the plaintiff in having to retain a new lawyer to prosecute this lawsuit. I am also satisfied that this motion was not brought for tactical reasons as referred to in CNR.

Conclusion

[36] For the foregoing reasons there will be an order removing Irwin Duncan and Duncan Linton LLP as solicitors of record for the plaintiff in this action.

[37] The parties are encouraged to agree on the costs of this motion. If no agreement is reached written submissions can be made to me by email to my judicial assistant at mona.goodwin@ontario.ca and to Kitchener.SCJJA@ontario.ca. The defendant’s submissions are to be served and filed on or before January 27, 2023 (to allow for negotiations). The plaintiff’s submissions are to be served and filed on or before February 10, 2023. Submissions are not to exceed three pages in length exclusive of a Costs Summary and Bill of Costs. If no submissions have been received by February 13, 2023, there will be no order as to costs.

G.E. Taylor, J. Date: January 9, 2023