CITATION: 2368230 Ontario Inc. et al. v. Fu et al., 2015 ONSC 2378 COURT FILE NO.: CV-15-522693 DATE: 20150413
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
2368230 ONTARIO INC. (c.o.b. HEALTH GOURMET RESTAURANT), GUANGZHI WANG and PEIHUI HE Plaintiffs
- and -
YUE QIN FU and PAUL JONE Defendants
Bruce A. Thomas counsel to Gardiner Miller Arnold LLP, and Mark A. Arnold for the Plaintiffs
Christopher P. Goldson, for the Defendants
HEARD: April 9, 2015
F.L. MYERS J.
REASONS FOR decision
Background
[1] The defendants move in this action and in the related action under Court File No. CV-15-524070, for an order removing the law firm Gardiner Miller Arnold LLP as lawyers of record for the plaintiffs in this action and for the plaintiff CANADA YI FENG TRADE COMPANY INC. in the other action.
[2] At issue in both lawsuits is a dispute between landlord and tenant. The corporate plaintiff is a tenant of five combined commercial condominium units from which it operates a restaurant. Ms. Fu owns four of the units and claims that she is owed approximately $600,000 by the tenant and one of its principals - Mr. Wang. By contrast, Mr. Wang claims that Ms. Fu actually owes him approximately $11,000. In January, 2015, the parties were very close to a resolution under which a neutral, independent accountant would be appointed by the parties to perform a full accounting of the entire relationship between them. Ultimately however, Ms. Fu determined that Mr. Wang was not negotiating in good faith. She had a bailiff evict the tenant. Mr. Wang claims that as much as $100,000 in food inventory was destroyed in the eviction.
[3] By order dated February 26, 2015, I required Ms. Fu to return possession of the premises to the tenant restaurant on an interim basis on terms including that the tenant post $200,000 cash in court to stand as security for the landlord’s claims. At that time, it appeared that the landlord was claiming substantially less than the amount that she currently says is outstanding. I also established a schedule for the exchange of further evidence, cross-examinations, and the return of the full interlocutory hearing by April 11, 2015.
[4] Instead, Ms. Fu brings this motion to remove the tenant’s lawyers. The motion was scheduled before Stinson J. who determined that the motion should be heard by me. He also extended the interim injunction to April 22, 2015 to accommodate the hearing of this motion. Upon the completion of the hearing, it was apparent that there would be insufficient time for the parties to prepare fully for an interlocutory injunction hearing by April 22, 2015. Accordingly, I extended the interim injunction to a date that is 30 days after the date upon which this decision is released.
[5] At the hearing of this motion, counsel for the tenant asked the court to direct a reference before an accountant to take accounts. Rule 54.03(1) provides that for a reference to be held before someone who is not an officer of the court, all parties must consent. Counsel for the landlord advised that his instructions were to simply ask for the removal of counsel opposite from the record. He had no instructions to deal with a request for a reference.
The Facts
(i) Was the Gardiner Miller firm Ms. Fu’s Lawyer?
[6] The fundamental factual dispute on this motion is whether the law firm Gardiner Miller Arnold LLP was Ms. Fu’s lawyer. Ms. Fu is a resident of China and is represented here under power of attorney by the defendant Jone. They say that in 2008, Ms. Fu provided the law firm with approximately $750,000 toward the purchase of the five commercial condominium units that are the subject matter of this action and that the firm was acting as lawyer for Ms. Fu on the purchase.
[7] Gerald Miller was the partner of the firm who handled the purchase of the condominium units. He says that he never acted for Ms. Fu. Rather, the firm was retained by Mr. Wang with whom Mr. Miller had a longstanding relationship. Ms. Fu, they say, was an investor in the purchase of the property by Mr. Wang.
[8] There is no evidence that Ms. Fu or her representative ever approached the law firm and had a conversation or a meeting of the minds by which the firm agreed to act as her lawyer. There is no documentation that one would associate with client intake processes or a retainer agreement. However, there is no dispute that the firm held Mrs. Fu’s money in trust, applied it towards elements of the purchase of the condominium units, payment of mortgage and common expenses, and payment of fees, including legal fees charged by the firm. The firm also reported on the purchase of the condominium units to Mr. Wang and Ms. Fu personally. Although the matter is not free from doubt and many of the indicia of a lawyer-client relationship recited by Master Egan in Banai Management Inc. et al. v. Baghai Development Limited et al., 2004 CanLII 29609 (ON SC) are missing in this case, it seems to me that I should assume, for the purposes of this motion only, that Ms. Fu was a client of the law firm. It would take a much fuller factual inquiry than was presented by the parties to form a definitive view on the issue. In view of the importance the issues involving the integrity of the system of justice that are implicated on this motion, it seems to me that I should analyze the issues applying the full rigour of the law rather than trying to make fine distinctions based on an inadequate factual record.
(ii) The Parties’ Investment
[9] Little happened from 2008 until 2011 as the condominium building was undergoing construction. Once the condominium was built, interim occupancy was conveyed in 2011. The title to the five purchased condominium units was directed to be held by Canada Yi Feng Trade Company Inc. (the “Company”). The common shares of the Company were held 83% by Ms. Fu and 17% by Mr. Wang in accordance with the relative financial contributions of each. As Ms. Fu is a non-resident investor, Mr. Wang had day-to-day control of the Company and the condominium premises.
[10] After the closing, mortgage and condominium element expenses were required to be paid by the Company. In March, 2012, Mr. Wang, on behalf of the Company, entered into an offer to lease with a Patrick Wan in trust for a company to be incorporated. In September, 2013, Mr. Wan assigned his rights as tenant to the defendant Peihui He. She and Mr. Wang own or operate the corporate plaintiff which opened the Health Gourmet Restaurant which occupies the five condominium units.
[11] Issues arose between Ms. Fu and Mr. Wang in 2012. Ms. Fu was dissatisfied with the reporting and accounting that she was receiving concerning the properties. In mid-2012, she retained a lawyer, Henry K. Hui, who practises law in Toronto. Mr. Hui transferred title to four of the five condominium units from the jointly held Company into Ms. Fu’s personal name. In February, 2013, Mr. Hui prepared a supplemental lease agreement to recognize that Ms. Fu had become the owner of her four units and to direct payment of her proportionate share of rent to her. Mr. Hui also arranged for a refinancing of the five units on behalf of Ms. Fu and Mr. Wang (whose fifth unit remained in the Company). According to Mr. Miller, until the issues arose in this action, Mr. Hui raised no concerns with him concerning financial reporting of the initial purchase transaction or thereafter. The law firm’s trust statement detailing all funds received and paid out is in evidence before me.
[12] Ms. Fu only met Mr. Miller at a few meetings at times when she attended Canada. She does not speak English so Mr. Wang or others translated for her. There is no indication that Ms. Fu ever met with Mr. Miller alone or ever communicated any information to him that was not, at the same time, shared with Mr. Wang. In any event, she shared no confidential information with Mr. Miller about the initial purchase of the condominium units or the lease in issue.
[13] I note in passing that Ms. Fu also had a lawyer in China assisting her with the initial purchase. Whether he was purporting to act as her lawyer or just as a friend assisting her deal with Mr. Miller is in issue. As I am assuming for the purposes of this motion that the Gardiner Miller firm was Ms. Fu’s lawyer, I do not need to resolve this issue.
[14] The documentation of the lease upon which the plaintiffs rely is less than ideal. The Gardiner Miller firm did not prepare the lease documents.
[15] Ms. Fu alleges that the tenant has not paid property tax or proper rent in accordance with the lease. Through her attorney, she says that she has been trying to obtain an accounting from Mr. Wang for years and they have lost all confidence that Mr. Wang will pay the amounts that the tenant is alleged to owe. In January, 2015, Ms. Fu retained litigation counsel, Mr. Harvey Dorsey, a lawyer in Toronto. Mr. Dorsey retained a bailiff who made demand on the tenant for approximately $283,000.
[16] On January 14, 2015, Mr. Miller contacted Mr. Dorsey and advised that the Gardiner Miller firm had been retained by Mr. Wang on behalf of the tenant. Initially, Ms. Fu’s attorney Mr. Jone was denying that there was a valid lease to the premises. Mr. Miller indicated that he had actual knowledge of the initial offer to lease to Wan in trust because he had had meetings with Ms. Fu, Mr. Jone, and Mr. Wang at which the offer to lease was discussed prior to Mr. Hui being retained by Ms. Fu.
[17] Mr. Dorsey and Mr. Miller were negotiating toward an agreement to obtain an independent accounting as discussed above. Mr. Dorsey initially asserted that Mr. Miller was in a conflict of interest acting for the Corporation in which Ms. Fu either is or was majority shareholder. He wrote that “I am prepared to waive the conflict if we can resolve the issue [sic] the immediate issue of arrears of rent without litigation.”
[18] Mr. Miller responded as follows:
If you perceive there is a conflict then I have no interest in representing Mr. Wang, the Tenant or Canada YiFeng. This should be a litigation matter and I do not do litigation. I would have my partner do that work. But if you prefer to have us excuse ourselves as a law firm that would be the right thing to do. I am however the one person who can assist in getting this resolved because I know so much and have no particular allegiance to either party. You will have seen the email from Paul [Jone] this morning. That is the type of misinformation that is enabling Ms. Fu and this conflict. It is not her fault and I feel bad for her but she is simply getting the wrong information. Tony Wang was an authorized officer and Director when he signed the lease for Patrick Wan. He bound the corporation to that agreement in which the rent represented the fair market value. Ms. Fu, through the efforts of Henry Hui confirmed that contract when she transferred the units to herself so she could ensure rent cheques in the correct proportion were deposited into her account. That issue is moot.
[19] Mr. Miller also explained the tenant’s position with respect to property tax arrears. Rightly or wrongly, the tenant claims that the City enforced tax arrears against it in relation to a period before its lease commenced. Mr. Wang believes he is entitled to credit from Ms. Fu for 83% of those payments. Much ink was spilled discussing this issue back and forth without the parties finding a way to sit down together with their accounts open and their accountants present. Both counsel acknowledged that the parties’ finances were a “mess” and they agreed that an independent accounting was required. Before the lawyers were able to cross all the T’s and dot all the I’s, however, Ms. Fu discharged Mr. Dorsey and evicted the tenant.
The Landlord’s position
[20] The bulk of the argument at the hearing of the motion was spent on the facts supporting or undermining the argument that the Gardiner Miller firm acted for Ms. Fu on the purchase of the condominium units in 2008 until replaced by Mr. Hui in 2012. As noted above, for the purposes of this motion, I assume that a lawyer-client relationship existed.
[21] Mr. Goldson, counsel for the defendants, argues that the Gardiner Miller firm should be disqualified now because Mr. Miller is a witness on the upcoming accounting. He argues that Ms. Fu requires cross-examination of Mr. Miller to have meaningful disclosure. He says that as a fiduciary, the law firm is required to account to Ms. Fu for funds that it received and disbursed. Finally, he argues that the duty of loyalty prevents the Gardiner Miller firm from acting against Ms. Fu because it is contrary to the interests of justice for a lawyer to be seen to be acting against a former client.
Fiduciary Duties
[22] There is no doubt that as fiduciaries, lawyers have a duty to account for funds received and expended. The law firm has done so. Mr. Goldson says he needs to ask questions concerning how expenditures were allocated as between Ms. Fu and Mr. Wang. That is not an issue for the law firm. It held funds and it paid the funds out as instructed. How the parties or their Company account for those funds as among themselves is an issue for them to resolve. One would not ask a bank president to say how a cheque drawn on a customer’s account should be accounted for as between the bank’s customer and its shareholders. The firm’s fiduciary duty to account for funds received and expended is a red herring and is not a basis to remove it at this juncture in my view.
Mr. Miller as a Witness
[23] I do not see how any evidence that Mr. Miller may have would be a basis to remove the law firm at this time. The defendants rely upon the comprehensive decision of Leach J. in Rice v. Smith, 2013 ONSC 1200. Justice Leach noted that the courts have repeatedly emphasized the right of litigants “not to be deprived of their counsel of choice without good cause.” At para. 15 of the decision he wrote:
In particular, deprivation of preferred counsel imposes inherent hardship on a litigant, and such relief therefore should be ordered only where it is necessary to prevent the imposition of a more serious injustice, and the risk of real mischief. [Emphasis added and footnotes omitted]
[24] The prohibition against lawyers acting as witnesses in their own cases seeks to prevent a conflict of interest between the lawyer’s duty to his or her client and his or her self-interest. Moreover, lawyers owe duties to the court to be objective and independent.
That fundamental relationship is compromised, and the administration of justice and integrity of the system accordingly are undermined, where the objectivity and credibility of counsel necessarily are subjected to challenge in the course of determining the substantial merits of an underlying dispute.” Rice at para 19.
[25] Following the seminal decision of the Divisional Court in Essa (Township) v. Guergis (1993), 1993 CanLII 8756 (ON SCDC), 15 O.R. (3d) 573, and other cases, at para. 20 of his reasons, Leach J. set out the test for resolving this type of issue as follows:
[20] However, rather than approach the general “lawyer as witness” conflict of interest concern and prohibition as an absolute rule, our courts adopt a flexible approach and consider each case on its own merits, having regard to a variety of factors that, according to the circumstances of the case, may include the following:
a. the stage of the proceedings;
b. the likelihood that the witness will be called;
c. the good faith (or otherwise) of the party making the application;
d. the significance of the evidence to be led;
e. the impact of removing counsel on the party’s right to be represented by counsel of choice;
f. whether trial is by judge or jury;
g. the likelihood of a real conflict arising or that the evidence will be “tainted”;
h. who will call the witness; and
i. the connection or relationship between counsel, the prospective witness and the parties involved in the litigation.
[26] It is not alleged that Mr. Miller kept the books for the business or that he was involved in any of the expenditures beyond being the lawyer who negotiated the purchase of the condominium units and having had some limited involvement with the parties to mid-2012 as they sought to find a modus vivendi. Nothing he did is relevant to whether the restaurant has paid its rent, paid property taxes, or whether Mr. Wang owes Ms Fu another $173,000 on a separate loan evidenced by promissory note as she alleges.
[27] Ms. Fu’s lawyer argues that the tenant has asserted a right to set off against its indebtedness other amounts that Mr. Wang claims may be owing to him or to the Company by Ms. Fu. He refers in particular, to the allegation in paragraph 20 of the statement of claim that Mr. Wang or his partner Peihui He funded the Company’s payment of property taxes that were properly referable to the period prior to the tendency. Although mortgage payments are mentioned, the claim for setoff in paragraph 24 the statement of claim is limited to the payment of property taxes.
[28] Further particulars are provided in an affidavit of Mr. Wang sworn March 2, 2015. At paragraph 7 of the affidavit, Mr. Wang confirms that the Company’s mortgage payments were first paid from the trust account of Gardiner Miller from July 8, 2011 to February 8, 2012. Then, the plaintiffs say, that the plaintiffs paid nine further mortgage payments totaling just over $72,000 for the Company. Paragraphs 11 and 12 of the affidavit provide as follows:
[11] At this time [October, 2012], we were having a dispute with Ms. Fu because we had paid $72,800.86 in mortgage payments and $52,370.72 in realty taxes without any contribution from her.
[12] In December 2012, we stopped paying the mortgage until Ms. Fu would agree to reconcile her account.
[29] Apparently, the Company’s mortgagee commenced power of sale proceedings. As a result, Mr. Hui acted to refinance the condominium units for the parties in order to pay out the mortgagee and to stabilize the relationship between Ms. Fu and the tenant. Mr. Wang claims that there was an accounting done at the time of the refinancing or shortly after and that Ms. Fu was satisfied. This remains in issue.
[30] The point of this recitation is not to prefer the evidence of one party over the other. Rather, it is to show that the issues in dispute are accounting issues between and among Ms. Fu, Mr. Wang, and the Company. The mortgage payments paid out of the Gardiner Miller trust account are not in issue. To the extent that Mr. Wang says he paid nine further mortgage payments for the Company that properly ought to have been 83% funded by Ms. Fu or that he paid property taxes as tenant in relation to periods preceding the tenancy, all of these points are worked out by looking at the bank accounts, the cheques, the bills, or invoices being paid etc. The Gardiner Miller firm can and has confirmed the money that was paid into its trust account and the money that flowed out. As noted above, its trust statement is in evidence and shows mortgage payments, common expense payments etc. It does not appear that any of the payments from the firm’s trust account are in issue. However, to the extent that the parties may be assisted by some further back-up documents in order to account for each payment more fully, questioning a senior partner at the law firm is a uniquely inefficient and unhelpful way to obtain that. Mr. Wang will know why each transaction happened. He is the one who instructed the law firm to pay the money that it disbursed. He and the Company should have accounts dealing with every dollar received and paid on behalf of the Company and the tenant. If any transaction in which the law firm was involved is put in issue, the firm might have a few documents that might help explain the flow of funds, such as cheque requisitions. That is the potential evidence that I am left to balance on the multifactorial test for removing counsel discussed by Justice Leach above.
[31] The issue of timing is always important on motions such as this. Typically, removing counsel early in a case is seen as causing less prejudice to the client than, for example, removing trial counsel on the eve of trial. But it seems to me that in this case, it is too early to consider removing counsel. As far as I can tell, counsel has little or no evidence of any real relevance to the issues between the parties. If some administrative documents are required, it seems to me that having the firm engaged may be a more direct and efficient path for production.
[32] Mr. Miller will not be called as a witness by the plaintiffs. Accordingly counsel will not be putting his own credibility on the line or asking the court to assess the credibility of his partner. While Mr. Goldson says that the defendants need the evidence of Mr. Miller, I am not at all convinced that he has any relevant evidence to give concerning the accounting issues between the parties. If however, as an accounting proceeds or the interlocutory injunction preparation proceeds (which should also involve an accounting through cross-examinations of the parties) if it turns out that there is greater relevancy to evidence in the hands or mind of Mr. Miller or the Gardiner Miller firm that is not as readily and more appropriately obtainable elsewhere, then the matter can be revisited. However at this stage, it seems to me that there is little likelihood of Mr. Miller actually being an important witness to the issues in dispute in this action. In the words of Leach J. relied upon by the defendants, removing Gardiner Miller is not necessary to “prevent the imposition of a more serious injustice, and the risk of real mischief”.
The Duty of Loyalty
[33] Finally, I address the issue of counsel acting against a former client. In Consulate Ventures Inc. v. Amico Contracting & Engineering (1992) Inc. et al., 2010 ONCA 788, the Court of Appeal removed counsel in a case like this one where there was no risk of the release of confidential information. The Court found that it would violate the lawyer’s duty of loyalty to act against a former client on a matter that a reasonable client would view to be the same matter which the lawyer acted on for the client. The Court held that allowing a lawyer to act against a former client on the very matter on which the lawyer acted for the client would strike at the integrity of the justice system. Consulate, at paras. 35 and 36. The policy identified in that case was to prevent a lawyer from being a “turncoat”. A strict rule applies to prevent a lawyer from turning against his or her client in the same matter.
[34] However, the test is different when the lawyer is not acting in the same matter for which he or she acted for the client. The question then is whether the two matters are sufficiently related so that the lawyer continuing to act will offend the integrity of the administration of justice. At paras 30 to 32 of Consulate, Doherty J.A. quoted with approval from the discussion of the relationship between lawyers’ briefs authored by Mr. Justice Cromwell in Brookville Carriers Flat Bed GP Inc. v. Blackjack Transport Ltd. (2008) N.S.R. (2d) 272 (C.A.). In Brookville, Cromwell J.A. (as he then was) distinguished between cases where lawyers continuing to act cause a risk of disclosure of their former clients’ confidential information and those in which confidential information is not at risk but the lawyers are alleged to be turncoats.
[50] ...In the MacDonald Estate analysis, the focus is on protection of the client’s confidential information. In that context, two matters will be sufficiently related to trigger the principle if, as Goudge, J.A. put it in Chapters at para. 30, “... it is reasonably possible that the lawyer acquired confidential information pursuant to the first retainer that could be relevant to the current matter.” The issue is not so much whether the subject-matter of the two retainers is the same, but whether confidential information learned in one would be relevant to the other. Ultimately, the “overriding policy” must be “that the reasonably informed person would be satisfied that no use of confidential information would occur”: MacDonald Estate, p. 1260.
[51] Under the principle relevant here, that concerning acting against a former client in a related matter, the focus is different. As the cases and commentators show, the scope of this duty is very limited absent confidential information being at risk. This broader continuing duty of loyalty to former clients is based on the need to protect and to promote public confidence in the legal profession and the administration of justice. What is of concern is the spectre of a lawyer attacking or undermining in a subsequent retainer the legal work which the lawyer did for the former client or of a lawyer effectively changing sides by taking an adversarial position against a former client with respect to a matter that was central to the previous retainer. … In either type of case, the relationship between the two retainers must be very close so that the lawyer in the new retainer is attacking or undermining the value of the legal work provided to the former client or effectively changing sides in a matter that was central to the previous retainer.
[52] It is important, in my view, that this principle not be applied too broadly. One must not lose sight of the important right of parties to retain and instruct the counsel of their choice or of lawyers to earn a living free of undue restriction. Moreover, one must not ignore the possible strategic use of applications to disqualify counsel. As Binnie, J. pointed out in Neil at para. 14, “[i]f a litigant could achieve an undeserved tactical advantage ... by ... using ‘the integrity of the administration of justice’ merely as a flag of convenience, fairness of the process would be undermined.”
[53] It is also important that the scope of these duties be as clear as possible. To be avoided is an approach “... on a case-by-case basis through a general balancing of interests, the outcome of which would be difficult to predict in advance”: Strother at para. 51. This sort of uncertainty intrudes unduly into the rights of parties to retain counsel of choice, nourishes misuse of the principles for tactical purposes and generally undermines rather than reinforces public confidence in the legal profession and the administration of justice. [Emphasis added]
[35] In cases where there is no risk of counsel releasing the former client’s confidential information Cromwell J.A. concluded that the proper balance between the competing goals is achieved in the following way:
When, as here, confidential information is not at risk, the relationship between the two retainers is considered in order to identify whether the second retainer involves the lawyer attacking the legal work done during the first retainer or amounts, in effect, to the lawyer changing sides on a matter central to the earlier retainer. [Emphasis added]
[36] No doubt, the integrity of the system is offended if a lawyer becomes a turncoat by attacking his or her own work or changes sides on a matter that was central to his or her earlier retainer. That was the case in the Court of Appeal for Ontario in Consulate, supra. However, if a lawyer acts in a subsequent case with no risk of disclosing client confidences and where the lawyer is not undermining his or her own work or changing sides on a matter that was central to the prior retainer, then the mischief being guarded against is not threatened and the integrity of the system is best protected by favouring the opposing party’s right to counsel of his or her choosing.
[37] As noted above, the work performed by the Gardiner Miller firm involved the purchase of the five condominium units and dealing with some of the structuring between Ms. Fu, Mr. Wang and their Company. None of this is central to the question of whether the tenant Health Gourmet Restaurant owes rent or property taxes to Ms. Fu. Moreover, even if Ms. Fu and Mr. Wang want to bring in other aspects of their relationship, such as the promissory note that Ms. Fu says Mr. Wang owes her, or the mortgage and property tax payments that Mr. Wang says he funded for Ms. Fu, those accounting issues were not central, or even part of the work that was performed by the Gardiner Miller firm. The accounting issues are simply: (a) who paid what to whom and when? (b) then, to the extent that payments were made by or on behalf of one party, ought there be some allowance respecting the other’s percentage ownership? There might also be a legal question as to whether any of those payments are properly included or excluded from the debits and credits to be tallied as between the landlord and tenant i.e. does doctrine of setoff apply in the circumstances of this case. As noted above, it may be that the Gardiner Miller firm might have copies of some back-up documents, such as copies of invoices or cheque reqs, that may assist in the accounting. However nothing in the dispute has the Gardiner Miller firm turning against Ms. Fu in a matter central to the matters on which I have assumed for the purpose of this motion that they acted for her.
[38] Furthermore, in Canadian National Railway Company v. McKercher LLP et al., 2013 SCC 9, another case relied upon by the defendants, the Supreme Court of Canada discussed remedies when a law firm is attacked for breaching its duty of loyalty to a former client. At para. 65 of the decision Chief Justice MacLachlan wrote the following for the Court:
[65] On the other hand, it must be acknowledged that in circumstances where the lawyer-client relationship has been terminated and there is no risk of misuse of confidential information, there is generally no longer a concern of ongoing prejudice to the complaining party. In light of this reality, courts faced with a motion for disqualification on this third ground should consider certain factors that may point the other way. Such factors may include: (i) behaviour disentitled in the complaining party from seeking the removal of counsel, such as delay in bringing the motion for disqualification; (ii) significant prejudice to the new client’s interest in retaining its counsel of choice, and that party’s ability to retain new counsel; and (iii) the fact that the law firm accepted the conflicting retainer in good faith, reasonably believing that the concurrent representation fell beyond the scope of the bright line rule and applicable law society restrictions.
[39] While the defendants have not delayed extensively, it is clear from the material before the court that they were quite willing to negotiate with the Gardiner Miller firm and, in fact, expressly allowed for the firm to continue acting while it looked like the parties were close to settlement. It seems convenient for a party to be content when its goals are being met and then, when things do not pan out as hoped, to purport to protect the integrity of the administration of justice. If Ms. Fu’s concern is truly for the propriety and integrity of the justice system, then Gardner Miller’s involvement ought to have been equally a concern whether a settlement was in the offing or not. However, to establish a knowing waiver involves several factual elements that were not pressed on this motion. Therefore, I do not put any weight on this issue. Of actual concern though, are the final two factors noted by the Chief Justice above. Ms. Fu’s counsel points to Mr. Miller’s email in which he volunteered to have the firm stop acting. Mr. Miller noted first that he would not be the litigator and he would leave the lawsuit to one of his partners. Obviously, a conflict of interest involves the firm. Implicit in Mr. Miller’s statement, that his partner would be the litigator, is an indication that he did not view the matter as a disqualifying conflict. His offer to cease acting was made as part of the “without prejudice” negotiations and was not taken up by the defendant’s counsel. On reading the email as a whole, it seems to me that Mr. Miller was trying to convey to the defendant’s lawyer a view that he perceived as helpful in light of his belief that Ms. Fu was being misinformed by her attorney. He was trying to avoid litigation and encourage a consensual, corporate lawyer’s deal-making approach. Now that the parties are in litigation however, they fall back on their legal rights, and the matter is to be assessed under the legal tests set out above.
[40] Ms. Fu’s counsel was not able to point to any real mischief in allowing the Gardiner Miller firm to continue to act at this point. I do not belittle the vital importance of protecting the integrity of the process. However, in cases where there is no risk of counsel releasing confidential information, the issue is much more nuanced. One must focus carefully on the nature of the risk of harm to the integrity of the process in this type of case. There are competing risks. On the one hand, there is the risk of a lawyer arguing to undermine his or her own work. That is not in issue here. Then, there is the risk of a lawyer turning against his or her client on a matter central to his or her former retainer for the client. That is also not in issue here. On the other hand, there is a risk to the integrity of the process of depriving the tenant of counsel of its choice. That is coupled with a risk that motions of this type can be seen to be brought for tactical reasons or to have unfair tactical effects as discussed by Binnie J. in Neil, supra. The latter two risks are presented in this case.
[41] I need not and do not find that the defendants have brought this motion based on any improper tactical motivation. The point is that in cases such as this, where there is no risk of the release of confidential information, a party needs to provide evidence to establish that if counsel opposite continuing to act there is a real risk of mischief of the types identified in the precedents. General statements of principle, as important as those principles are, are not a basis to deprive a party of counsel of his or her choice where there is no evidence of the principles being undermined.
[42] In the second action between the parties, the Company is the plaintiff. While counsel for a closely held private corporation would normally not act in a dispute between the shareholders, in this case, Ms. Fu effectively removed herself from the Company by transferring title to her units to herself and then resigning as a director. She does not claim that she owns 83% of the last unit. That is, while technically still a shareholder, Ms. Fu effectively withdrew from the Company leaving it owning Mr. Wang’s unit. Practically speaking this is not a shareholders’ dispute between the shareholders of the Company. It is a landlord and tenant dispute where financial accounting remnants from the parties’ prior relationships may have some effect. The law firm was not involved in those issues.
[43] As noted by Cromwell J.A. in Brookville, the propriety of counsel acting against a former client where the release of confidential information is not at risk is a narrow and focused issue. In my view, balancing the factors set out by Leach J. in Rice, considering the issues noted by Cromwell J.A. in Brookville, and by the Chief Justice of Canada, in CNR, I do not see this as a case in which the integrity of the process is put at risk by the Gardiner Miller firm acting for the plaintiffs in this or the other matter.
[44] Therefore the motion is dismissed.
[45] The parties are to arrange a Case Conference under Rule 50.13 before me, to be added to my motions list on any date that counsel agree upon in the next two weeks, to discuss the scheduling of: (a) argument of the costs of this motion; (b) return of interlocutory injunction motion; and (c) implementation of a process to conduct an accounting between the parties expeditiously, affordably, and proportionate to the amounts an issue.
F.L. Myers J.
DATE: April 13, 2015
CITATION: 2368230 Ontario Inc. et al. v. Fu et al., 2015 ONSC 2378 COURT FILE NO.: CV-15-522693 DATE: 20150413
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
2368230 ONTARIO INC., (c.o.b. HEALTH GOURMET RESTAURANT), GUANGZHI WANG and PEIHUI HE Plaintiffs
- and -
YUE QIN FU and PAUL JONE Defendants
REASONS FOR DECISION
F.L. MYERS J.
Released: April 13, 2015