DATE: 20040419
DOCKET: C38201
COURT OF APPEAL FOR ONTARIO
ABELLA and CRONK JJ.A. and JURIANSZ J. (ad hoc)
B E T W E E N:
ANDRE BOUDREAU
Eric R. Murray and Chris Morrison for the appellant
Plaintiff (Respondent)
- and -
JONATHAN H. MARLER, MURRAYFIELD CORP. and JOHN WIEBE
Guy A. Wainwright for the respondent
Defendants (Appellant)
Heard: January 21, 2004
On appeal from the judgment of Justice David J. Nadeau of the Superior Court of Justice dated April 10, 2002 in Cochrane.
ABELLA J.A.:
[1] This is an appeal from a finding that a residential mortgage assigned by a corporate client to its lawyer was a fraudulent conveyance and an unlawful preference. The appeal also involves the trial judge’s decision to disqualify a proposed lawyer from acting.
[2] This appeal was heard together with the appeal in Platt v. Malmstrom et al. Both decisions are being released concurrently.
BACKGROUND
[3] The background to this appeal is complex, marked by years of litigation between the parties and associated persons. Accordingly, it is useful to set out the background facts in some detail.
The China Wars Litigation
[4] In the late 1980s, Mr. Platt owned mining claims for kaolin, an industrial mineral (the Kaolin Claims). He and Jacobus Hanemaayer were partners in a controlling interest in Great Lakes Nickel Ltd., a public company incorporated to own and develop the Kaolin Claims.
[5] Mr. Hanemaayer and his lawyer, Eric Kraushaar, incorporated 798839 Ontario Ltd. (39 Ltd.), which obtained an option from Mr. Platt to purchase the Kaolin Claims subject to a right of reversion.
[6] In the spring of 1989, a kaolin deposit was confirmed. However, on December 8, 1989, 39 Ltd. informed Mr. Platt that it was terminating work on the Kaolin Claims. This event, according to Mr. Platt, triggered his reversionary right.
[7] In March 1990, Mr. Hanemaayer and 39 Ltd. sued Mr. Platt, the respondent Andre Boudreau (an associate of Mr. Platt), James Bay Kaolin Corp. (JBK), and others for $14 million on the basis that funds advanced to Mr. Platt and JBK had not been spent on exploration and development of the Kaolin Claims as they should have been (the 1990 Hanemaayer Action).
[8] In June 1993, Mr. Platt and others sued, among others, Mr. Hanemaayer, Mr. Kraushaar, 39 Ltd., and Great Lakes Nickel Ltd., to obtain the return of the Kaolin Claims (the 1993 Platt Action).
[9] Since 1994, Farley J. has case managed both the 1990 Hanemaayer Action and the 1993 Platt Action, litigation he refers to as the “China Wars”. This litigation is ongoing.
The Platt Mortgage and Bankruptcy Proceedings
[10] On October 7, 1996, Mr. Boudreau obtained a judgment against 964433 Ontario Inc., now called Murrayfield Corp. (Murrayfield), for approximately $29,000. Murrayfield was controlled by John Wiebe. On September 25, 1997, Mr. Boudreau obtained an order for costs against Murrayfield in the amount of $2,500 plus disbursements. The judgment was based on a debt owed to Mr. Boudreau by Mr. Platt. The debt was guaranteed by Murrayfield. Mr. Boudreau chose to enforce the judgment against Murrayfield.
[11] Murrayfield’s only asset was a mortgage on Mr. Platt’s home in Cochrane, Ontario registered on January 27, 1993. In 1993, Mr. Platt had mortgaged the property for $80,000 but, according to Mr. Wiebe, only $45,000 had been advanced.
[12] The mortgage had been transferred from Murrayfield to Betty Jane Wheeler on February 4, 1993, then transferred back to Murrayfield on December 15, 1998.
[13] In October 1998, Murrayfield attempted to enforce the mortgage by way of power of sale. Mr. Platt, in turn, commenced proceedings against 964433 Ontario Inc., Murrayfield, and Ms. Wheeler concerning the mortgage transfers. He also moved successfully before Boissonneault J. on March 10, 1999 to have the mortgage discharged from title on the basis that there was no money owing under it. No one appeared on the motion on Murrayfield’s behalf.
[14] Murrayfield then retained Jonathan Marler to act for it in the Platt mortgage proceedings. On March 26, 1999, Mr. Marler accepted a cash retainer of $4,000 as well as an assignment of the Cochrane mortgage as collateral security for future legal services. At the time, Murrayfield was insolvent, with debts approximating $500,000. Its only asset was the mortgage.
[15] The assignment of the mortgage from Murrayfield to Mr. Marler was not registered until November 6, 2000, approximately one and a half years later.
[16] On April 1, 1999, one week after Murrayfield had assigned the mortgage to him, Mr. Marler moved before Boissonneault J. on behalf of both Murrayfield’s predecessor company and Ms. Wheeler, to have the mortgage reinstated on title. Boissonneault J. set aside his previous order and directed that a trial take place in the proceedings commenced by Mr. Platt, once cross-examinations on the parties’ affidavits had been completed.
[17] Subsequently, on June 9, 1999, Murrayfield, 39 Ltd., and Ersen Cogulu filed a petition for a receiving order against Mr. Platt. This put on hold the trial ordered by Boissonneault J. in the Platt mortgage proceedings.
[18] When Mr. Platt sought security for costs against Mr. Cogulu, he withdrew from the bankruptcy litigation. Mr. Cogulu was replaced as a petitioning creditor by Kaarina Malmstrom, a former employee of 39 Ltd. On December 17, 1999, the date set for Mr. Platt’s bankruptcy trial, the proceeding was adjourned when Murrayfield, upon being told that its mortgage debt was being disputed by Mr. Platt, withdrew as a petitioning creditor in order to avoid a lengthy hearing.
[19] On February 7, 2000, Farley J. found Mr. Platt to be bankrupt and made a receiving order.
The Boudreau Mortgage Action
[20] In November 2000, in an attempt to collect on some 1996 and 1997 judgments against Murrayfield, Mr. Boudreau instructed the sheriff to seize Murrayfield’s interest in the mortgaged property and have it sold under writ of seizure and sale. Mr. Boudreau learned that the assignment of the mortgage to Mr. Marler had been registered on title the day before the attempted seizure.
[21] On March 5, 2001, Mr. Boudreau commenced an action against Mr. Marler, Mr. Wiebe, and Murrayfield (the Boudreau Mortgage Action). He sought a declaration that Murrayfield’s assignment of the mortgage to Mr. Marler was void as a fraudulent conveyance under the Fraudulent Conveyances Act, R.S.O. 1990, c. F.29 and/or an unlawful preference under the Assignments and Preferences Act, R.S.O. 1990, c. A.33, and an order setting aside the assignment.
THE TRIAL JUDGE’S RULINGS
Mr. Marler’s Motion to Change Solicitors
[22] Mr. Marler’s firm had been the solicitors of record throughout the Boudreau Mortgage Action for all the defendants, including Mr. Marler. However, during the week prior to the trial, scheduled to be heard by Nadeau J., Mr. Marler wrote to Guy Wainwright, counsel for Mr. Boudreau, indicating that he intended to be represented separately by Kathryn Pirie. In the alternative, he proposed to act for himself.
[23] Mr. Marler did not file a notice of change of solicitor or notice of intention to act in person, as required by the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.
[24] When the trial started, Mr. Wainwright objected to Ms. Pirie acting as Mr. Marler’s solicitor because she was a junior associate at the law firm Mr. Boudreau had retained to defend him in the China Wars litigation. Mr. Wainwright also objected to Mr. Marler having separate counsel while Mr. Marler’s law firm continued to act for the other defendants.
[25] A letter from Owen Smith to Mr. Boudreau, dated January 20, 1995 and written on the old letterhead of Smith, Byck & Grant, Litigation Division (now Smith, Wowk), was produced to the court as proof that the firm had acted for Mr. Boudreau in the 1993 Platt Action. At the time of that action, there had been an association between Mr. Platt, Mr. Wiebe, and Mr. Boudreau. Mr. Smith had received instructions from Mr. Boudreau, and Mr. Boudreau had paid legal fees to Mr. Smith directly. At the same time, Mr. Smith had been acting for Mr. Wiebe and his company, Murrayfield.
[26] Mr. Wainwright also filed a letter from Mr. Smith dated January 18, 2002 to reinforce his argument that Mr. Smith’s prior relationship with Mr. Boudreau disqualified his firm from acting for Mr. Marler in the Boudreau Mortgage Action. This letter stated that the very mortgage which was the subject of the action had been prepared by Theodore Byck of Smith, Byck & Grant.
[27] In this letter, however, Mr. Smith maintained that when the mortgage was drafted, he was a sole practitioner and had entered into an arrangement with Ted Byck and Richard Grant, whereby he practised litigation exclusively while the other two lawyers practised only commercial law. Accordingly, the mortgage had been prepared in a separate office by a law firm that shared nothing with Mr. Smith’s law practice but the name.
[28] Mr. Smith also stated in his January 18, 2002 letter that he knew of nothing arising out of the earlier retainer that had any bearing on the Boudreau Mortgage Action. He pointed out that his partner, John Wowk, had cross-examined Mr. Boudreau on an affidavit in connection with the Platt bankruptcy without objection. In his view, therefore, the only reason for Mr. Boudreau’s objection to Ms. Pirie’s involvement was to delay the proceedings.
[29] In response to the challenge to her representation of Mr. Marler, Ms. Pirie acknowledged that she had met with Mr. Boudreau many times in preparing the defence pleadings in the China Wars litigation. She said, however, that the litigation office of Smith, Byck & Grant had taken no part in the registration or preparation of the Platt mortgage and that she did not recall knowing about it. She stated that the mortgage files were still in Mr. Smith’s office in storage, and that she had not reviewed them. She also said that if there was any confidential information that was relevant to the Boudreau Mortgage Action, she did not know what it was.
[30] The trial judge asked Ms. Pirie if she intended to cross-examine Mr. Boudreau:
The Court: It’s more whether there’s any kind of advantage being given by knowledge by a previous engagement with the law firm and that’s the real issue, I think, that I have to address….Before Mr. Wainwright raises it, and I think he has, if that’s going to be contemplated, that’s my most serious concern so far.
Ms. Pirie: Well certainly the appearance is there, Your Honour.
The Court: Uh-hum.
Ms. Pirie: I do have to acknowledge that. That’s admitted. That problem, I think, could be solved by having Mr. Andrew [counsel for the other defendants] cross-examine Mr. Boudreau and certainly, Your Honour, I do have to say that if I’m removed, Mr. Marler intends to continue on representing himself.
The Court: Uh-hum.
Ms. Pirie: The defendants very much want to have these proceedings completed in the next two days, Your Honour.
[31] Mr. Wainwright summarized his position to the trial judge as follows:
I’m not bringing a motion here today to remove Ms. Pirie. Ms. Pirie is not the solicitor of record now. The only people that are entitled to attend before you are the solicitors of record and they’re requesting someone assist them. So it’s not quite the same as me bringing a motion to remove anybody. They’re really seeking leave.
Now in terms of Mr. Marler acting for himself, I’ll just alert you to the fact that he has notified me that if Ms. Pirie is not acting for him he’ll be acting for himself. I’ll be objecting to that too….His counsel is Mr. Andrew. The firm of Marler and Kyle [are] the solicitors of record. Mr. Marler has not defended this by himself. He has retained counsel which happens to be his own firm and whether that was wise or it was not, it was done. I’ve never objected. So that’s the way it is. But he is not entitled at this stage, without leave from Your Honour, to discharge his solicitors and then appear personally. And of course, we’ll then get into problems of assuming he’s a witness, he’s going to have counsel from his firm cross-examine him as a witness. We get into lots of problems.
[32] Mr. Wainwright argued, based on Sopinka J.’s decision in MacDonald Estate v. Martin, 1990 32 (SCC), [1990] 3 S.C.R. 1235, that once Mr. Boudreau established that Mr. Smith’s firm had a previous relationship with him that was sufficiently related to its current retainer with Mr. Marler, the court should infer that confidential information was imparted unless Ms. Pirie satisfied the court otherwise.
[33] Before ruling on the challenge to Ms. Pirie’s involvement, the trial judge gave her an opportunity to demonstrate that no confidential information had been imparted that could be relevant. The transcript describes the exchange as follows:
The Court: So dealing with that first question in this case, we have Ms. Pirie who has indicated that she has been with the Smith firm from the period of 1989 to 1998, and now is back with that firm. And I note from Exhibit number one, the letter from Owen Smith of her firm, where at page two he indicates that the Smith firm defended the 1990 action against Platt and the plaintiff here, Andre Boudreau. And that Ms. Pirie, to her credit, indicates that she assisted in this defence and in fact met with Andre Boudreau many times. All of this at the same time as this mortgage was prepared by the Smith firm, which mortgage is the subject matter of this action.
Therefore on the first question, I am satisfied, on what has been presented here, that there existed a previous relationship which is sufficiently related to the retainer from which it is sought to remove Ms. Pirie.
And therefore, on that question, on the first question, I am…Ms. Pirie, giving you the…having regard to making the initial determination,…the option as to whether you wish to satisfy the court…that no information was imparted which could be relevant…with the difficulties, as he [Sopinka J.] indicates, the dilemma that he indicates exist for any counsel attempting to discharge that heavy burden.
So I think in the circumstances, as I have mentioned, I am satisfied that there is a previous relationship which is sufficiently related and I will infer that there is confidential information imparted, unless you decide to discharge the burden.
Ms. Pirie: As I’ve said before, I haven’t reviewed the file. I agree with Mr. Justice Sopinka that it’s almost impossible to do that. As I say, I have no idea what the information would be, nor do I feel at liberty to discuss it any further. I’ve indicated to the court, I frankly have no recollection of having represented Mr. Boudreau specifically. Mr. Smith confirms though that we did. I have no recollection of being involved in those pleadings. I stand to be corrected, should I look at the file, but I have to be quite frank, Your Honour. I just have no recollection.
[34] The trial judge concluded that Ms. Pirie could not act for Mr. Marler.
Mr. Marler’s Motion to Represent Himself
[35] Mr. Marler then brought a motion requesting permission to represent himself, with Mr. Andrew of his firm continuing to represent the other defendants.
[36] Mr. Wainwright argued that Mr. Marler’s motion, if granted, would place Mr. Marler in the position of testifying as a witness, acting as an advocate, and, potentially, directing the defence of the other parties, contrary to the Rules of Professional Conduct.[^1] Moreover, he argued that the arrangement Mr. Marler proposed would confer an unfair advantage on Mr. Marler. Mr. Marler’s firm, in effect, could end up with the opportunity to cross-examine Mr. Boudreau twice, make two sets of submissions, and have Mr. Andrew cross-examine Mr. Marler to correct any problems with his evidence-in-chief.
[37] Mr. Wainwright submitted:
And at this late stage I’m not sure what the intent of this is. I’m not sure why they’re doing it. If there’s a dispute… The logical reason would be there’s now a dispute between Mr. Marler and his co-defendants. That would be the logical reason as to why they now want separate counsel and that may be their very reason. If that’s the case then I question whether the law firm of Marler and Kyle can continue to act for the other defendants because they’re going to be in conflict when they’re examining Mr. Marler.
The other reason I can think of is….Do they want to conduct two cross-examinations of my client, make two sets of submissions to Your Honour? Does Mr. Marler want to give his evidence and then have his own firm cross-examine him in case there’s things that need to be fixed up?
[38] Mr. Andrew responded by informing the court that Mr. Wainwright had been notified of Mr. Marler’s position by letter dated January 10, 2004, ten days before the trial. He informed the trial judge that he had no intention of cross-examining Mr. Marler, as it was a “very straightforward case” and, significantly, that there were no issues between the defendants.
[39] The trial judge denied Mr. Marler’s motion to represent himself, ruling:
This is a very unusual request by Mr. Jonathan Marler requesting that his own firm be removed from the record for his interest at this very late stage of the proceedings. As Mr. Andrew indicated, it is a straightforward case and there’s no issues between the defendants. I am not allowing the firm of Marler, Kyle, Andrew to be removed from the record for the defendant Jonathan Marler at this late stage of the proceedings.
[40] After his motion was denied, Mr. Marler did not seek an adjournment of the trial. As previously indicated, Ms. Pirie had earlier informed the trial judge that all of the defendants were anxious to proceed that day. The trial proceeded with all the defendants represented by counsel of record, namely, Mr. Andrew of Mr. Marler’s law firm.
The Fraudulent Conveyance and the Unlawful Preference
[41] Mr. Boudreau, Mr. Marler, and Mr. Wiebe each testified at the trial. Mr. Marler testified that the reason he had requested the assignment of the mortgage from Murrayfield was that Murrayfield “did not have much in the way of liquid assets” and that the assignment was as “security for the payment of legal fees and disbursements” to be assessed. The stated consideration for the assignment from Murrayfield to Mr. Marler was $2, but the assignment document noted that the transfer was for the purpose of securing future legal fees and disbursements that were to be incurred on behalf of Murrayfield. As previously noted, Murrayfield also gave Mr. Marler a $4,000 cash retainer.
[42] The trial judge did not accept this explanation from Mr. Marler, concluding that there were no outstanding legal fees and disbursements. Moreover, Murrayfield was insolvent, being approximately $500,000 in debt. Its only asset was the mortgage from Mr. Platt. The trial judge found:
In this matter, the Transfer of Charge from Murrayfield to Marler states that the consideration is for $2.00, although there is also a reference to “security for the payment of legal fees and disbursements” to be assessed. The testimony of Marler was that he had also received a $4,000.00 retainer from Murrayfield on or about March 26, 1999, although he could not produce a statement of account for this retainer.
It is clear on this evidence that there were no legal fees and disbursements by Marler to be assessed at that time [emphasis added]. This Court therefore concludes that Jonathan Marler was not “a creditor” of Murrayfield at the time of apparent execution on March 26, 1999 of the Transfer of Charge to Marler.
…[T]he unsatisfactory testimony of both Marler and Wiebe with respect to subsequent billings by Marler for questionable legal services apparently rendered, which billings were the subject of a very calculated and suspect Consent to the Assessment of Bills of Costs by Wiebe (as principal of Murrayfield), certainly cannot make this conveyance one of adequate valuable consideration. In these circumstances on the evidence presented, this Court finds that the Transfer of Charge from Murrayfield to Marler is a voluntary conveyance for inadequate or no valuable consideration.
[43] In determining that the assignment was made contrary to s. 4(1) of the Assignments and Preferences Act, the trial judge stated:
This legislation only operates to invalidate transactions made when the person making the conveyance is in insolvent circumstances, is unable to pay its debts in full, or knows that it is on the eve of insolvency. As indicated previously, there is no difficulty in this matter making such a finding regarding Murrayfield.
This Court must also determine from the particular facts of this case whether Murrayfield made the conveyance with the intent to defeat, hinder, delay or prejudice Boudreau. If otherwise there is good consideration and bona fides in the Murrayfield conveyance to Marler, the mere fact that the execution of the conveyance may have the effect of defeating Boudreau is not enough. If Marler has no fraudulent intent, he cannot be affected by the fact that there was such an intent, unknown to him, in the mind of Murrayfield. Furthermore, a transaction entered into by Murrayfield in insolvent circumstances is not impeachable as being given with intent to give a preference if Marler had no knowledge of the insolvency and was not a party to such intent. Knowledge by Marler of the insolvency of Murrayfield is not sufficient in itself to cause the Transfer of Charge to be set aside as an unlawful preference. There is nothing improper in Marler obtaining security to protect himself in the event of a possible insolvency. It is quite another thing however for Marler, knowing that Murrayfield has many unpaid creditors, to remain silent or make no reasonable inquiry and then take the only remaining security from Murrayfield; particularly when the effect is to leave creditors such as Boudreau with no recourse.
This Court is clearly not at liberty to set aside this Transfer of Charge upon the mere suspicion that it is an unlawful preference. There must be either direct affirmative evidence of fraudulent intent or controlling circumstantial evidence leading to that conclusion. However as exists here, where the natural consequence of the conveyance is to delay, hinder or defraud the creditor (Boudreau) and where the circumstances of the conveyance demonstrate badges of fraud, the question of upholding this conveyance made by the Defendants as legitimate becomes extremely strained.
In reviewing all of the evidence in this trial, it is clear that the provisions of section 4(1) of the Assignments and Preferences Act are satisfied. In determining whether the saving section 5(1) rescues the Defendants in these circumstances, this Court must consider whether the Transfer of Charge was made in good faith in consideration “of a present actual payment in money, or by way of security for a present actual advance of money”.
[44] The trial judge described Mr. Marler as follows:
[W]hen I consider his intelligence and obvious experience in dealing with matters of this nature, I am not at all satisfied with the credibility of his testimony presented to this Court. In reviewing the internal and external consistency of his testimony, his rationalization of the outrageous billing practices, his obvious self interest by many of his statements, as well as his controlling and argumentative nature demonstrated to this Court, I find that Jonathan Marler was a direct participant and a party to the intent of John Wiebe to defeat and prejudice the judgment and order of Andre Boudreau. In fact, this Court is convinced that Jonathan Marler was a central figure in the very calculated plan to defeat the enforcement by Boudreau.
[45] His censorious conclusion was equally forceful:
This Court finds that all of the Defendants were depleting the only asset of Murrayfield to pursue legal proceedings without reasonable basis nor benefit to Murrayfield in its circumstances. This Court agrees that the Transfer of Charge is surrounded by “badges of fraud”. There was an element of secrecy to this conveyance, compounded by the late registration of the Instrument one day prior to attempted seizure of the mortgage by Boudreau through the Sheriff. The fact that John Wiebe was not advised by Marler to obtain independent legal advice adds a further element to this secrecy. The Court is also concerned that the mortgage was the only asset of the corporation in insolvent circumstances. Add to this that the judgment and order in favour of Boudreau had existed for some time prior to the conveyance, and the inadequate valuable consideration for the Transfer of Charge. All these factors assist the Court in concluding on all of the evidence that the three Defendants were acting in concert, and not in good faith, with the intent and effect to prejudice Boudreau.
[46] The trial judge summarized his findings as follows:
a) Was the Transfer of Charge made by Murrayfield “with intent to defeat, hinder, delay or defraud (or prejudice) Boudreau? Yes.
b) Was the Transfer of Charge to Marler made “upon good consideration and in good faith”?____ No.
c) Was the Transfer of Charge by Murrayfield to Marler made “in good faith in consideration of a present actual payment in money, or by way of security for a present actual advance of money”? No.
d) Was Marler a party and a participant to the “intent to defeat, hinder, delay or defraud (or prejudice)” Boudreau? Yes.
[47] Therefore he held that the assignment from Murrayfield to Mr. Marler was a fraudulent conveyance under the Fraudulent Conveyances Act and an unlawful preference under the Assignments and Preferences Act. The assignment was declared void and set aside.
[48] Mr. Marler appealed.
ANALYSIS
[49] During oral argument before this court, counsel for Mr. Marler argued that the trial judge made two errors. First, he erred in not allowing Ms. Pirie to act as solicitor for Mr. Marler and, having disqualified Ms. Pirie, in not allowing Mr. Marler to represent himself while his law firm continued to represent the co-defendants. As a result, Mr. Marler and his co-defendants were represented by the same lawyer, Mr. Andrew. Mr. Marler now claims that Mr. Andrew was too young and inexperienced to act for him.
[50] Second, Mr. Marler maintains that the trial judge erred in finding that he had the requisite knowledge of Murrayfield’s insolvency and of Mr. Wiebe’s intent to defraud, to support the conclusion that the mortgage assignment was a fraudulent conveyance and an unlawful preference.
[51] In his factum, Mr. Marler also submitted that Mr. Boudreau’s claim was barred by virtue of issue estoppel or res judicata. He did not pursue this submission during oral argument.
a) Mr. Marler’s Legal Representation and the Fresh Evidence
[52] This court allowed both parties to submit fresh evidence. Mr. Marler introduced the two court orders of Boissonneault J. in the Platt mortgage proceedings and an endorsement of Riopelle J. dated October 16, 2001 regarding the pre-trial in the Boudreau Mortgage Action. The endorsement states in part: “The defendants are likely to retain trial counsel other than Mr. Marler to conduct the trial.” Riopelle J.’s endorsement does not specifically refer to Ms. Pirie.
[53] Mr. Marler also introduced the letter dated January 15, 2002 he had written to Mr. Wainwright indicating that Ms. Pirie would be representing him at the trial the following week. In this letter, he had indicated that, in his opinion, Ms. Pirie had not been privy to any confidential information and, should Ms. Pirie be disqualified, he intended to represent himself. Mr. Marler argued that this letter demonstrated that his application to represent himself was not untimely and that, in any event, counsel for Mr. Boudreau had notice of the possible change despite Mr. Marler’s failure to follow strictly the notice requirements of the Rules of Civil Procedure.
[54] As evidence that Ms. Pirie’s involvement did not present a conflict, Mr. Marler also relied on the January 18, 2002 letter to Mr. Wainwright from Mr. Smith that had been filed as an exhibit before the trial judge, which explained Mr. Boudreau’s previous involvement with the firm of Smith, Byck & Grant.
[55] Mr. Boudreau filed an affidavit, sworn by him on May 14, 2003, outlining his factual response to the appellant’s fresh evidence. In it, he stated that he had instructed his counsel to object to Ms. Pirie as counsel because her firm had not only previously acted for him, but had also drafted the mortgage in issue in the proceedings. Mr. Boudreau stated that Mr. Andrews, who was described by Mr. Marler in his factum on this appeal as young and inexperienced, was born in 1942. As to Mr. Marler’s concerns, expressed for the first time on this appeal, about the competence of his partner to act for him, counsel for Mr. Boudreau also questioned why, if Mr. Andrew’s inexperience was a serious issue, Mr. Marler had said nothing about this at trial and was content to have him continue to act for his co-defendants, who were also his former clients.
[56] The leading case on the disqualification of a lawyer based on a conflict of interest is MacDonald Estate v. Martin, supra. In that case, a former junior solicitor for the appellant transferred her employment to the law firm acting for the respondent. Sopinka J. held that the relevant questions were: (1) Did the lawyer receive confidential information attributable to a solicitor and client relationship relevant to the matter at hand? (2) Is there a risk that the confidential information will be used to the prejudice of the client?
[57] In explaining the test, Sopinka J. wrote at p. 1260:
In my opinion, once it is shown by the client 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 information was imparted which could be relevant. This will be a difficult burden to discharge. Not only must the court’s degree of satisfaction be such that it would withstand the scrutiny of the reasonably informed member of the public that no such information passed, but the burden must be discharged without revealing the specifics of the privileged communication. Nonetheless, I am of the opinion that the door should not be shut completely on a solicitor who wishes to discharge this heavy burden.
[58] At p. 1243, Sopinka J. explained that there are three competing values to be considered when resolving an alleged conflict of interest issue:
There is first of all the concern to maintain the high standards of the legal profession and the integrity of our system of justice. Furthermore, there is the countervailing value that a litigant should not be deprived of his or her choice of counsel without good cause. Finally, there is the desirability of permitting reasonable mobility in the legal profession.
[59] Finally, Sopinka J. anticipated the concerns expressed by Nadeau J. regarding the potential for Ms. Pirie to have an advantage during her cross-examination of Mr. Boudreau due to her past relationship with him, when he said at p. 1261:
Furthermore, there would be a danger that the lawyer would avoid use of information acquired legitimately because it might be perceived to have come from the [former] client. This would prevent the lawyer from adequately representing the new client. Moreover, the former client would feel at a disadvantage. Questions put in cross-examination about per-sonal matters, for example, would create the uneasy feeling that they had their genesis in the previous relationship.
[60] In Everingham v. Ontario (1992), 1992 7681 (ON SC), 8 O.R. (3d) 121, the Divisional Court observed:
The issue is whether a fair-minded reasonably informed member of the public would conclude that the proper administration of justice required the removal of the solicitor.
[61] The applicable standard of appellate review was articulated by Goudge J.A. in Chapters Inc. v. Davies, Ward & Beck LLP (2001), 2001 24189 (ON CA), 52 O.R. (3d) 566 at 574 and 576:
[T]he conclusions…that the two retainers are sufficiently related to cast the onus on [the law firm]…and that [the law firm] could not discharge that onus are matters of judicial discretion. They are the product of applying a legal standard to the facts. As such, these conclusions would be subject to reversal on appeal only if…[the trial judge] applied the wrong legal standard or based his conclusion on irrelevant factors or on factors to which he attached inappropriate weight.
For the court to find that the retainers are sufficiently related, it must conclude that in all the circumstances it is reasonably possible that the lawyer acquired confidential information pursuant to the first retainer that could be relevant to the current matter [emphasis added].
[62] I see no error in the exercise of discretion by the trial judge in not permitting Ms. Pirie to represent Mr. Marler. The evidence of her former relationship with Mr. Boudreau and Mr. Platt created the reasonable likelihood of a possible conflict, particularly given the protracted intensity and the conspiratorial claims involved in the China Wars litigation.
[63] The following facts suggest that the trial judge’s discretion ought not to be interfered with: Ms. Pirie met directly with Mr. Boudreau concerning his defence in the China Wars litigation; Ms. Pirie’s law firm drafted the mortgage that formed the subject matter of the assignment at issue in the trial; Mr. Marler, an experienced litigator, only notified Mr. Wainwright of his intention to retain Ms. Pirie one week before the trial was scheduled to start; and Mr. Marler, despite being immediately advised that Mr. Boudreau objected to Ms. Pirie’s retainer based on his former relationship with her, persisted in raising the issue at the outset of the trial without having followed the Rules of Civil Procedure and filing the necessary notices.
[64] Of these factors, Ms. Pirie’s and her law firm’s prior relationships with Mr. Boudreau are the most significant justifications for the trial judge’s decision, but the other factors are relevant to whether Mr. Marler can now complain that Ms. Pirie, who was never his solicitor of record, ought to have been permitted to represent him at trial.
[65] The second asserted error involves the trial judge’s decision, having disqualified Ms. Pirie, to prevent Mr. Marler from representing himself. Mr. Wainwright had no problem with Mr. Marler acting for himself if Mr. Andrew was also removed from the record for the other defendants. However, he argued that it was inappropriate for both Mr. Marler and his law firm to be on the record as equally participating counsel.
[66] The issue is whether a reasonably informed member of the public would consider it fair for Mr. Marler to be permitted at a late stage to represent himself, leaving his co-defendants and former clients in the hands of his law partner who he suddenly decided, one week before the trial, should not represent him, notwithstanding that he had been acting for him in this lawsuit for one and a half years.
[67] Mr. Marler’s firm were the solicitors of record until – and including – the beginning of the trial. As previously indicated, Mr. Marler’s letter to Mr. Wainwright telling him that if Ms. Pirie was disqualified, he intended to represent himself, was dated January 15, 2002. The trial was scheduled to begin the following week. Mr. Marler made no attempt to follow the Rules of Civil Procedure. It was clear that he was going to be a witness and that his evidence would be crucial, yet he chose not to seek an adjournment to retain other counsel: see Essa (Township) v. Guergis; Membery v. Hill (1993), 1993 8756 (ON SCDC), 15 O.R. (3d) 573 (Div. Ct.).
[68] In these circumstances, I would not interfere with the trial judge’s discretionary decision to refuse to allow Mr. Marler to represent himself while his law firm represented the other defendants. Mr. Marler offered no evidence to this court by way of affidavit to justify his suggestion that Mr. Andrews could not – and did not – adequately represent him at the trial, or any explanation for why, if he was so concerned about his law partner’s experience and ability to act, he permitted him to represent the co-defendants, who were his former clients and whose interests, as Mr. Andrews explained at trial, were the same as his.
b) The Fraudulent Conveyance and the Unlawful Preference
[69] Nor do I see any basis for interfering with the trial judge’s factual findings or his application of the relevant law in connection with the assignment of the mortgage from Murrayfield to Mr. Marler.
[70] The trial judge was entitled to conclude that the following factors created a rebuttable presumption that Mr. Marler had the requisite intent to defeat Mr. Boudreau in accordance with s. 4(1) of the Assignments and Preferences Act:
a) the lack of meaningful consideration for the assign-ment of the mortgage;
b) Murrayfield’s insolvency at the time of the purported assignment;
c) Mr. Marler’s secrecy, evidenced by his late registration of the assignment of the mortgage only one day before Mr. Boudreau attempted to seize Murrayfield’s inter-est in the mortgaged property; and
d) the outstanding judgment in Mr. Boudreau’s favour.
[71] Murrayfield’s only asset at the time that it made the assignment was the mortgage, which was worth anywhere from nothing to $45,000. Its debts, however, totalled $500,000. Mr. Marler took a $4,000 retainer and the mortgage for future legal fees, since none were immediately anticipated beyond the $4,000 retainer. As previously indicated, the trial judge had found: “It is clear on this evidence that there were no legal fees and disbursements by Marler to be assessed at that time.”
[72] Most significantly, Mr. Marler failed to register the assignment for one and a half years, an act of secrecy that supports the trial judge’s inference of fraud in these circumstances.
[73] Mr. Marler billed Murrayfield $70,270 and Ms. Malmstrom $51,700, totalling $121,970, to collect debts worth dramatically less. There was no money owing on the Murrayfield mortgage and the debt to Ms. Malmstrom totalled $1,500. Mr. Marler attempted to authenticate these bills by way of a consent assessment with his co-defendant, Mr. Wiebe. These were the billings Mr. Marler relied on to justify the assignment and they represented, according to the trial judge, “outrageous” billing practices. Moreover, they were billed in connection with Murrayfield, which had debts in excess of $500,000 when it commenced legal proceedings against Mr. Platt.
[74] It is clear that the trial judge believed neither Mr. Marler nor Mr. Wiebe, to whom the onus to disprove fraud shifted once badges of fraud were demonstrated. The trial judge’s credibility findings, along with his findings that Mr. Marler double and triple billed his clients, that the assignment of the mortgage was not for an initial deposit on account of fees or for outstanding legal fees, and that Mr. Marler knew that Murrayfield was insolvent at the time of the assignment, all support his conclusions that the presumption of fraud had not been rebutted, and that the assignment of the mortgage was a fraudulent conveyance and an unlawful preference.
CONCLUSION
[75] I would dismiss the appeal with costs fixed in the total amount of $15,000.
RELEASED:
“APR 19 2004” “R.S. Abella J.A.”
“RSA” “I agree E.A. Cronk J.A.”
“I agree R. Juriansz J. (ad hoc)”
[^1]: Two rules of the Rules of Professional Conduct are relevant. Rule 2.04, Avoidance of Conflicts of Interest, states:
(1) In this rule a “conflict of interest” or a “conflicting interest” means an interest (a) that would be likely to affect adversely a lawyer’s judgment on behalf of, or loyalty to, a client or prospective client, or (b) that a lawyer might be prompted to prefer the interests of a client or prospective client.
(3) A lawyer shall not act or continue to act in a matter where there is or is likely to be a conflicting interest unless, after disclosure adequate to make an informed decision, the client or prospective client consents.
The Commentary reads in part: “A client or the client’s affairs may be seriously prejudiced unless the lawyer’s judgment and freedom of action on the client’s behalf are as free as possible from conflict of interest.”
Rule 4.02, The Lawyer as Witness, states:
(1) Subject to any contrary provisions of the law or the discretion of the tribunal before which a lawyer is appearing, a lawyer who appears as advocate shall not submit his or her own affidavit to the tribunal.
(2) Subject to any contrary provisions of the law or the discretion of the tribunal before which a lawyer is appearing, a lawyer who appears as advocate shall not testify before the tribunal unless permitted to do so by the rules of court or the rules of procedure of the tribunal, or unless the matter is purely formal or uncontroverted.