CITATION: 2235512 Ontario Inc. v. 2235541 Ontario Inc., 2016 ONSC 1956
NEWMARKET COURT FILE NO.: CV-16-125248-00
DATE: 20160318
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
2235512 ONTARIO INC., and SANTA MARINELLA INC.
Applicants/Respondents on Motion
– AND –
2235541 ONTARIO INC., JOE D’ERCOLE, TONY DE MARCO, UNIVERSALCARE CANADA INC., UNIVERSALCARE HOME HEALTH INC., UNIVERSALCARE HEALTH SERVICES INC., UNIQUE CARE PRODUCTS INC., 2247960 ONTARIO INC., POTUS LIVING INC., POTUS DUFFERIN NORTH INC., POTUS PROPERTIES INC., and MAJOR MACKENZIE GROUP INC.
Respondents/Moving Party on Motion
M. Farace and R. Del Vecchio, for the Applicants
R. Staley and J. Bell, for the Respondents, 2235541 Ontario Inc., Joe D’Ercole and Tony De Marco
HEARD: February 18, 2016
RULING ON MOTION
DOUGLAS J.
Overview
[1] This motion arises from an allegation that the Applicants’ lawyers are in a conflict of interest because, as former counsel for one of the corporate Respondents, they cannot now act on behalf of one of the shareholders of the former client, against both the former client and the remaining shareholder.
[2] The moving parties (2235541 Ontario Inc., Joe D’Ercole and Tony De Marco, hereinafter referred to collectively as “the moving parties”) seek orders removing Miller Thomson as lawyers of record for the Applicants and prohibiting Miller Thomson (hereinafter “MT”) from acting as counsel for the Applicants or their shareholders in any dispute involving UniversalCare and its shareholders and principals.
[3] In this application, the Applicants seek orders allowing the Applicants to purchase various entities (which are among the Respondents) that are equally owned by the Applicants and certain of the Respondents, on the basis that the entities are deadlocked.
[4] For the reasons that follow I would allow the motion in part.
The Moving Parties’ Position
[5] The moving parties’ position is summarized as follows:
(a) MT has acted as counsel for a number of the jointly owned entities that are named as Respondents, including the principal entity that is the subject of dispute, UniversalCare Canada Inc. (“UniversalCare”). MT has also been, and continues to be, counsel to AllianceCare, a joint project of UniversalCare, funded by UniversalCare and important to the value of UniversalCare.
(b) Despite the connectivity of UniversalCare and the AllianceCare project, it appears that Joseph Gulizia (“Gulizia”), the president and CEO of UniversalCare and the directing mind of the Applicants, is trying to take the AllianceCare project for himself and that MT is helping him do so. The Applicants dispute that UniversalCare has an ongoing interest in AllianceCare. This is a contentious issue between the parties.
(c) UniversalCare has recently paid MT for legal services rendered to UniversalCare and certain of the other jointly owned entities. MT’s involvement with these entities was originally as UniversalCare’s (and not the Applicants’) lawyers.
(d) MT now acts for the Applicants who have sued entities that MT acted and continues to act for, including UniversalCare, which appears to be a current client (through MT’s ongoing work on the AllianceCare project). MT cannot now act as counsel for the Applicants, whose position in this application is that UniversalCare has no entitlement to the AllianceCare project which MT itself was pursuing on UniversalCare’s and shareholders’ behalf. That in of itself is a disqualifying conflict.
(e) Counsel for jointly owned entities should remain neutral and on the sidelines when there is a dispute among the shareholders. It is inappropriate for corporate counsel to choose sides in shareholder disputes as doing so will almost inevitably cause the corporation’s counsel to disregard its obligations owed to the corporate body and structure as a whole, in favour of a particular corporate faction.
(f) MT lawyers and personnel may well be witnesses in this application and appear to have information relevant to the disputes that would assist both sides (and which is now available only to Gulizia and the Applicants).
(g) The application necessarily involves an inquiry into the day to day operation of UniversalCare and the other jointly owned entities and the value of those entities if the court concludes that a buyout should be ordered.
(h) Given the link between the AllianceCare project and the value of UniversalCare, AllianceCare is relevant to the issues at dispute in this application.
(i) Despite the fact that they clearly have relevant evidence to the issues at dispute on this motion, MT failed to put in any evidence denying their conflict of interest, nor have the Applicants been willing to produce the relevant documents in MT’s files.
The Applicants’ Position
[6] The Applicants’ position in response to the motion is summarized as follows:
(a) The conflict motion is meritless and represents part of the moving parties’ ongoing strategy to intimidate and harass the Applicants and drain their financial resources, evidence of which includes:
i. The supporting affidavit of Joe D’Ercole sworn February 1, 2016 contains no specific allegations or statements regarding any confidential information in MT’s possession that may be misused in these proceedings;
ii. The moving parties’ reply affidavit of Joe D’Ercole sworn February 11, 2016 contains only bald assertions as to an alleged conflict of interest, relying on allegations that the moving parties are or were also clients of MT on account of two invoices rendered by MT to UniversalCare Canada Inc. regarding work unrelated to the matters herein and an “opportunity” considered by the Applicants and the moving parties respecting an entity that is a non-party to the proceedings and that is not favoured as between the parties;
iii. The Respondents are required by s. 15.2 of the Shareholders’ Agreement dated March 1, 2010 to submit a dispute or question to a single arbitrator by written notice to the other parties, yet in the Notice of Arbitration of the moving parties dated December 31, 2015 they make no claim against the Respondents named in the notice as to any matter at all surrounding the AllianceCare issue that is raised in the affidavit of Mr. D’Ercole sworn February 11, 2016;
iv. The moving parties have insisted on an improperly constituted arbitration before an arbitrator with a determined apprehension of bias.
(b) The motion is the type of tactical conflict motion that the Supreme Court of Canada warns that courts should guard against while protecting clients and upholding the administration of justice.
(c) The Applicants and their principal and controlling mind Gulizia never provided MT with any confidential information. In fact, the moving parties state that they “would like to see MT’s files in order to be able to further determine” the issue of a conflict of interest and confidential information purportedly in MT’s possession available for misuse, effectively imposing a reverse onus on the Applicants.
(d) The moving parties’ motion should be dismissed as a “fishing expedition”.
The Facts
[7] Many of the background facts are not in dispute and have been summarized in the parties’ facta.
[8] UniversalCare is a corporation incorporated under the laws of Ontario. It is owned by 512 and 541, each of which owns fifty percent of its common shares.
[9] UniversalCare is governed by a unanimous Shareholders’ Agreement. The Shareholders’ Agreement was subsequently amended by Amending Agreement.
[10] 541 is a corporation incorporated under the laws of Ontario. 541 is owned by D’Ercole and De Marco with each holding fifty percent of its issued and outstanding common shares.
[11] The Respondent UniversalCare Health Services Inc. (“Health Services”) is a corporation incorporated under the laws of Ontario. Health Services is owned by Santa Marinella and 541, each of which owns fifty percent of its common shares. Health Services provides physiotherapy services to UniversalCare. Health Services is managed day to day by Angela Gulizia, Gulizia’s wife.
[12] The Respondent UniversalCare Home Health Inc. (“Home Health”) is a corporation incorporated under the laws of Ontario. Home Health is owned by Santa Marinella and 541, each of which holds fifty percent of its common shares. Home Health does not actively carry on business.
[13] The Respondent Major Mackenzie Group Inc. (“Major Mackenzie”) is a corporation incorporated under the laws of Ontario. Major Mackenzie is owned by 512 and 541, each of which hold fifty percent of its common shares. Major Mackenzie receives consulting fees.
[14] The Respondent Unique Care Products Inc. (“Unique Care”) is a corporation incorporated under the laws of Ontario. 512 and 541 each hold twenty-five percent of its common shares. The remaining fifty percent is owned by 2247960 Ontario Inc. Unique Care imports and sells gloves and wipes to homes managed by UniversalCare.
[15] The Respondents Potus Living Inc., Potus Dufferin North Inc, and Potus Properties Inc. are corporations incorporated under the laws of Ontario. They are investment holding companies that own properties related to living services for individuals with special needs. These companies receive rent payments. They do not actively carry on business.
[16] Potus Living Inc. and Potus Dufferin North Inc. are each owned fifty percent by 541 and fifty percent by 512. Potus Properties Inc. is owned fifty percent by 541 and fifty percent by Santa Marinella.
[17] Gulizia has a history in the nursing home/retirement home business. In 2010 he was looking to launch a start-up in that sector and was seeking investors. D’Ercole had prior dealings with Gulizia and Gulizia approached D’Ercole looking for potential investors.
[18] D’Ercole brought the proposed investment to De Marco and they agreed through 541 to take a fifty percent interest in what became UniversalCare.
[19] In addition to serving as the main operating entity, 512 and 541 had used UniversalCare to incubate various projects.
[20] UniversalCare is governed by a unanimous Shareholders’ Agreement dated March 1, 2010.
[21] The Shareholders’ Agreement provides at Article 3.2 that Gulizia is to receive a salary of $150,000 plus certain specified benefits. Article 3.3 provides that UniversalCare shall be the owner of all of Gulizia’s work product developed during the period of his employment at UniversalCare.
[22] The Shareholders’ Agreement prohibits Gulizia, D’Ercole and De Marco from competing with UniversalCare either “directly or indirectly, in any manner whatsoever”.
[23] The Shareholders’ Agreement also contained a shotgun buy/sell clause that could not be invoked prior to March 1, 2015. Pursuant to the Amending Agreement the shotgun buy/sell clause could not be invoked prior to March 1, 2022. It was the purported exercise of that shotgun provision by 512 that gives rise to this application.
[24] Through a proposed new structure called AllianceCare, UniversalCare commenced pursuit of the acquisition of a long-term care facility located in Scarborough along with others.
[25] The moving parties are concerned that Gulizia and the Applicants are trying to appropriate the significant value that AllianceCare represents for UniversalCare for themselves despite the fact AllianceCare falls within the scope of the non-competition provision in the Shareholders’ Agreement, meaning that Gulizia could not pursue it outside of UniversalCare without 541’s consent.
[26] While Michael Di Paolo served as the corporate counsel for UniversalCare, Gulizia retained MT to act for UniversalCare in other matters.
[27] MT’s relationship with UniversalCare goes back to at least April 2014 when Gulizia sent Enzo Di Iorio of MT an email referencing “our conversation about MT doing business with UniversalCare”. Gulizia did not have a personal pre-existing relationship with MT. MT’s first involvement with these entities was as UniversalCare’s, and not Gulizia’s or 512’s counsel.
[28] Around March 2015, MT performed legal work for UniversalCare in pursuing an opportunity relating to a property and potential business opportunity (the Elgin Ltd. Partnership). This work included an email from Di Iorio to Gulizia entitled “UniversalCare and MT” and references a meeting between Gulizia and Di Iorio where a number of items were discussed.
[29] In July 2015 MT was engaged to review a contract between Home Health and Richview Manor (a UniversalCare-managed retirement home).
[30] These matters were subject to an account issued by MT to UniversalCare in September 2015. The description of services shows that MT was retained by UniversalCare and provided advice on agreements to which UniversalCare and the UniversalCare entities were parties, and took instructions from Gulizia in doing so.
[31] In August 2015 MT developed a licence agreement for UniversalCare. These services were covered by an account issued by MT to UniversalCare in September 2015. The services described show that MT was drafting agreements to which UniversalCare is a party and took instructions from Gulizia in doing so.
[32] In October 2015 Gulizia asked MT for a quote to revise and “beef up” various contracts used by UniversalCare. At a meeting with 541 Gulizia advised that UniversalCare had engaged MT to address various of the standard contracts it was using.
[33] An email from Di Iorio to Gulizia includes Di Iorio’s commentary on an AllianceCare marketing brochure in which Di Iorio refers to the significant work “we” need to do on the document. Di Iorio’s email also referenced “UniversalCare’s involvement” in the project.
[34] On December 2, 2015 512 issued a shotgun notice. Di Iorio of MT was identified in the letter as counsel for 512 and Gulizia.
[35] On December 9, 2015 the moving parties advised 512 and MT that the shotgun notice was invalid because the shotgun is not available prior to March 1, 2022. MT’s conflict of interest was raised by the moving parties.
[36] On December 31, 2015, 541 gave its written notice that it wished to arbitrate its claim that the shotgun notice was invalid.
[37] Responding outside the forty-eight hour deadline specified in the Shareholders’ Agreement, 512 took the position in response to the Notice of Arbitration claim that disputes between 512 and 541 must be resolved by the courts and not by arbitration.
[38] The parties have now agreed upon an arbitrator should this dispute proceed by way of arbitration.
Legal Framework
[39] Courts have an inherent jurisdiction to remove a lawyer or law firm from the record on the basis of a conflict of interest (see Canadian National Railway Co. v. McKercher LLP, 2013 SCC 39, [2013] 2 S.C.R. 649).
[40] Lawyers owe their clients a fiduciary duty to avoid conflicts of interest. A solicitor cannot give his exclusive, undivided attention to the interests of his client if he is torn between his client’s interests and his own or his client’s interests and those of another client to whom he owes the same duty of loyalty, dedication, and good faith (see R. v. Neil, 2002 SCC 70, [2002] 3 S.C.R. 631).
[41] In Consulate Ventures Inc. v. Amico Contracting and Engineering (1992) Inc., [2010] ONCA 788, the Ontario Court of Appeal removed a lawyer on the basis that the removal was necessary for the maintenance and the integrity of the justice system. The court indicated:
This broader continuing duty of loyalty to former clients is based on the need to protect and 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.
[42] Courts have found that internal corporate shareholder disputes create “inherent conflicts of interest that effectively restrict a lawyer’s ability to extend joint representation” (see Rice v. Smith, 2013 ONSC 1200).
[43] In MacDonald Estate v. Martin, [1993] S.C.R. 1235 the Supreme Court of Canada identified three competing values that require consideration on conflict of interest motions:
(a) The concern to maintain the high standards of the legal profession and the integrity of the justice system;
(b) A litigant should not be deprived of his or her choice of counsel without good cause; and
(c) The desire to permit reasonable mobility in the legal profession.
[44] The Supreme Court established the appropriate test to address conflicts of interest as follows:
…the test must be such that the public represented by the reasonably informed person would be satisfied that no use of confidential information would occur. That, in my opinion, is the overriding policy that applies and must inform the court in answering the question: Is there a disqualifying conflict of interest? In this regard, it must be stressed that this conclusion is predicated on the fact that the client does not consent to but is objecting to the retainer which gives rise to the alleged conflict.
Typically, these cases require two questions to be answered: 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 it will be used to the prejudice of the client?
[45] In Canadian National Railway Co. v. McKercher the Supreme Court of Canada held:
The first major concern addressed by the duty to avoid conflicting interests is the misuse of confidential information. The duty to avoid conflicts reinforces the lawyer’s duty of confidentiality – which is a distinct duty – by preventing situations that carry a heightened risk of a breach of confidentiality. A lawyer cannot act in a matter where he may use confidential information obtained from a former client or a current client to the detriment of that client. A two part test is applied to determine whether the new matter will place the lawyer in a conflict of interest: 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 it will be used to the prejudice of that client? If the lawyer’s new retainer is “sufficiently related” to the matters on which he or she worked for the former client, a rebuttable presumption arises that the lawyer possesses confidential information that raises a risk of prejudice.
[46] Courts should be on guard to ensure conflict motions are not brought for a tactical advantage (see Credit Union Central of Ontario Ltd. v. Heritage Property Holdings Inc., [2007] O.J. No. 1875 (S.C.J.)).
[47] The solicitor client relationship is based on the general concept of contract and the specific concept of a retainer. When a corporation retains a solicitor, he or she is not the solicitor for the individual shareholders in the absence of a further retainer (see Filipovic v. Upshall, [1998] CarswellOnt. 2305 Ontario General Division, affirmed 2000, CarswellOnt. 2163 Ontario Court of Appeal).
Analysis
What is MT’s relationship with UniversalCare and AllianceCare?
[48] The primary question here is about MT’s relationship with UniversalCare, one of the parties against whom MT is acting in this proceeding.
[49] MT is counsel of record for both Applicants in this proceeding, one of them being 512, a fifty percent shareholder in UniversalCare. MT is acting against UniversalCare, its former client, and 541. 541 is the other of UniversalCare’s two shareholders.
[50] It is clear that MT has acted in previous matters on behalf of UniversalCare. I am satisfied on the strength of the responding material that MT is not acting for UniversalCare on an ongoing basis.
[51] The issue is the nature of MT’s prior retainer by UniversalCare.
[52] The germination of the solicitor and client relationship between MT and UniversalCare, is, on the evidence before me, traceable back to April 2014. In March of 2015 MT performed legal work for UniversalCare regarding the Elgin Ltd. Partnership. Other legal services relating to the AllianceCare project were performed as well. This is confirmed in an email from Di Iorio to Gulizia in which Di Iorio sets out a commentary on the AllianceCare marketing brochure and which refers to the significant work “we” need to do on the document. The email also referenced “UniversalCare’s involvement” in the project. There is no evidence that any firm other than MT was performing legal services regarding AllianceCare. It appears that legal services were being performed in relation to AllianceCare at the same time that MT was providing legal services on other matters for UniversalCare.
[53] In cross-examination of Gulizia it was confirmed that UniversalCare was paying expenses to facilitate the AllianceCare project and that every employee in UniversalCare’s corporate office had worked on the AllianceCare project. Additionally, the AllianceCare brochures reference the management role of UniversalCare in all AllianceCare properties. This is consistent with the agreement alleged by the moving parties that UniversalCare was to partake in the AllianceCare project to the benefit of UniversalCare, 541 and 512.
[54] There is no evidence that AllianceCare is anything other than a name assigned to a project that forms, at least, part of the fabric of this dispute. There is no evidence that AllianceCare has any corporate identity. As such it cannot be said, as submitted by the moving parties in their Factum, that “MT has….been and continues to be, counsel to AllianceCare”. There can be no solicitor and client relationship with a non-corporate entity.
[55] Therefore, while I find that MT has no ongoing solicitor/client relationship with UniversalCare, MT did previously have such a relationship and that such touched on corporate issues unrelated to these proceedings but included services in relation to the AllianceCare project.
Did MT receive confidential information attributable to a solicitor/client relationship relevant to a matter at hand? (See Canadian National Railway Co. v. McKercher LLP, supra).
[56] Development of a response to this question necessarily requires consideration of whether I should draw an adverse inference against the Applicants in the circumstances that follow.
[57] The moving parties argue that during Gulizia’s cross-examination MT refused a number of clearly relevant questions, many of which go to the root of the issues in dispute on this motion, including the AllianceCare issue. The moving parties invite me to draw an adverse inference that the evidence that would have been given would likely have been unhelpful to the Applicants in this motion. In response the Applicants describe this argument as a “mirage”. AllianceCare, it is submitted, was merely a business opportunity being discussed, the relative insignificance of which is underscored by the moving parties’ failure to reference same in their Notice of Motion.
[58] The moving parties submit that the following refusals were relevant questions to this motion:
(a) Who did the legal work for the AllianceCare project?
(b) What work had MT done regarding the AllianceCare project?
(c) Who retained MT to work on the AllianceCare project?
(d) Whether MT had spoken with any UniversalCare employees regarding the AllianceCare project?
(e) Whether AllianceCare existed as a corporate entity or was only an idea?
(f) The current status of each of the proposed projects to be pursued by AllianceCare (including those that were being used by UniversalCare staff) and whether MT had that information?
(g) Whether Gulizia felt he had a material advantage in this application given that only he and Miller Thomson know whether the AllianceCare corporate opportunity is still available to UniversalCare?
(h) Whether it was open to Gulizia to use UniversalCare resources to pursue the AllianceCare project in which he now says UniversalCare cannot participate?
(i) To request UniversalCare employees to produce all documents they have regarding AllianceCare; and
(j) Whether Di Iorio was involved in any matter related to this litigation other than initiating the shotgun by 512?
[59] At the commencement of the cross-examination of Gulizia on February 12, 2016 counsel for the Applicants stated:
…AllianceCare is not a party to the application. AllianceCare is not a party to the arbitration. Therefore, our position is that we are not going to be producing any documentation regarding AllianceCare.
[60] Later in that same cross-examination counsel for the Applicants made it clear that no questions would be answered regarding AllianceCare as “AllianceCare is not a party to the proceedings” and it is “not a party as a result of the Notice of Arbitration” and “the Shareholders Agreement doesn’t permit the subject matter of AllianceCare to be dealt with within the arbitration context”.
[61] AllianceCare is first referenced in the evidence before me in the reply affidavit of D’Ercole sworn February 11, 2016. No objection was raised by counsel for the Applicants to the effect that this was not proper reply evidence to come before me.
[62] When Mr. Gulizia was subject to cross-examination on February 12, 2016 he would have had available to him the February 11, 2016 affidavit of D’Ercole.
[63] The Applicants argue that relevance is determined on the basis of pleadings (see Fabrikant v. Dzavik, [2014] CarswellOnt. 17).
[64] However, pleadings only exist in an action. This proceeding has been commenced by way of Notice of Application within which the current motion comes before me. There are no rules of pleading per se in respect of motions. The rules do require that the moving party deliver a motion record containing a table of contents, the Notice of Motion (which is to contain “Grounds for the Motion”), a copy of all affidavits and other material served for use on the motion, a list of all relevant transcripts of evidence and a copy of any other material in the court file necessary for the hearing of the motion. Of particular note is the fact no reference is made to the AllianceCare project as formulating a basis for the allegation of conflict of interest.
[65] In this case, before cross-examinations were conducted and before argument was entertained, the moving parties had presented evidence relating to the AllianceCare issue. That evidence was presented in the form of the reply affidavit of Mr. D’Ercole served in accordance with the rules and relied upon, without objection from the Applicants.
[66] In my view the Applicants have not been surprised by the AllianceCare issue. The evidence in relation to AllianceCare was before the court and related by the moving parties to the conflict issue prior to cross-examination of Gulizia and prior to argument of the motion before me. It is thus relevant, even though it was not specifically referenced in the Notice of Motion. The requirement that a moving party include Grounds for the motion is designed to promote procedural fairness by alerting a responding party to the material issues in play, supplemented by a broad description of the main allegations of fact. Here the notice of motion referenced the allegation of conflict of interest. A reply affidavit referenced the AllianceCare project prior to cross-examinations and related it to the conflict issue. I see no basis to conclude that the Applicants have been prejudiced in these circumstances.
[67] The Applicants argue that there can be no relevance to AllianceCare when AllianceCare has not been made a party to this proceeding.
[68] The difficulty with this argument is that there is no evidence before me that AllianceCare has evolved from a project to the level of corporate entity. This is one of the questions refused by the Applicants. I have no basis on which to therefore conclude that AllianceCare could possibly be added as a party.
[69] Even if AllianceCare could be added as a party, such is not a necessary pre-condition to rendering questions in relation to AllianceCare relevant. There are many individuals who are referenced in the affidavit evidence and the transcript of the cross-examinations of the parties (for example Di Paolo and Di Iorio) who are not parties to this proceeding but about whom no objection has been raised as to relevance of questions. The relevance of questions at cross-examination is determined by defined issues, not by who is or is not a party.
[70] It is apparent from the evidence summarized in part above, supplemented by Mr. D’Ercole’s evidence given at cross-examination, that AllianceCare represents an important component of the dispute between the parties.
[71] I therefore conclude that it was not proper for the Applicants to refuse to answer the questions put to them regarding AllianceCare and that it is open to me to draw an adverse inference to the effect that answers to the questions refused would have been unhelpful to the Applicants’ position on this motion.
[72] The questions refused were directed at determining the nature of the work performed and information received by MT in relation to the AllianceCare project. Answers would have shed light on whether MT received confidential information attributable to a solicitor/client relationship relevant to a matter at hand.
[73] The refusals lead me to draw an inference that had the answers been provided such would likely have supported the moving parties’ position on this issue that confidential information had been obtained.
[74] According to McKercher, there is a rebuttable presumption that a lawyer possesses confidential information that raises the risk of prejudice if a new retainer is “sufficiently related” to the matters on which he or she worked for the former client.
[75] The rebuttable presumption in McKercher is supplemented by the adverse inferences drawn from the Applicants refusal to answer questions regarding the AllianceCare project.
[76] The concern is that the past representation by MT of UniversalCare provided access to confidential information that is sufficiently related to the subject matter of the current dispute.
[77] For these reasons in response to the question “Did MT receive confidential information attributable to a solicitor/client relationship relevant to the matter at hand? I respond “yes”.
Is there a risk that the confidential information will be used to the prejudice of the client? (See Canadian National Railway Co. v. McKercher LLP, supra).
[78] I have already described above the nature of the work performed by MT for UniversalCare in relation to the AllianceCare project. In my view, in the circumstances described herein, the retainer of MT by the Applicant 512 is sufficiently related to the matter addressed, in part, in the prior retainer of MT by the Respondent UniversalCare that a rebuttable presumption arises that MT possesses confidential information that raises a risk of prejudice (see Canadian National Railway Co. v. McKercher LLP, supra). The value of the AllianceCare project, if value can be ascribed to it, will likely be a component of determination of the issues raised in the Application.
[79] As the Applicants have refused to answer questions related to this issued, the presumption has not been rebutted.
[80] For these reasons, in response to the question “Is there a risk that the confidential information will be used to the prejudice of the client?” I respond “yes”.
Does a retainer of MT by UniversalCare necessarily extend, for conflict of interest purposes, to UniversalCare’s shareholders (ie. 512 and 541)?
[81] Although Di Paolo served as corporate solicitor for UniversalCare, MT also acted for UniversalCare in relation to the matters described in more detail above.
[82] As confirmed in Filipovic v. Upshall (1998), CarswellOnt 2305 OCJGD “…the solicitor and client relationship is based upon general concepts of contract, and the specified concept of a retainer”. There is no evidence of a retainer between MT on the one hand and 541 on the other. Obviously there is a retainer of MT by 512 in this proceeding.
[83] However, “…a lawyer representing a corporate organization must remember at all times that the corporation has a legal personality distinct from its individual directors and shareholders, and that those interests may very well diverge, thereby preventing a lawyer’s continued involvement in an internal corporate dispute”. (see Rice v. Smitth, 2013 ONSC 1200, [2013] O.J. No. 784).
[84] The court in Rice v. Smith confirms that “….authorities have repeatedly identified corporate shareholder disputes as situations involving inherent conflicts of interest that effectively restrict a lawyer’s ability to extend joint representation”. In the context of Rice v. Smith “joint representation” referred to circumstances where corporate counsel purported to act for the corporation and two of the three shareholders in defence of an application commenced by the remaining shareholder. Having found sufficient relation between the work performed for UniversalCare by MT and the subject matter of this dispute, and this dispute being between one of UniversalCare’s shareholders on the one hand (512) and UniversalCare and the remaining shareholder (541) on the other hand, I conclude that MT is in a conflict of interest.
[85] For the foregoing reasons, in response to the question “Does a retainer of MT by UniversalCare extend, for conflict of interest purposes, to 512 and 541?” I respond “yes”.
Conclusion
[86] While our courts “…repeatedly have emphasized the right of litigants not to be deprived of their counsel of choice without good cause”, this principle “…is tempered by ongoing concern to maintain the high standards of the legal profession and the integrity of the justice system, and this includes the courts’ inherent jurisdiction to remove from the record lawyers who have a conflict of interest” (see Rice v. Smith).
[87] I appreciate that an order removing counsel imposes a hardship upon the Applicants but on balance this is lesser than the harm occasioned by permitting counsel to continue in the circumstances described herein.
[88] The relief sought by the moving parties in the form of a prohibition against MT acting as counsel for the Applicants on their shareholders in any dispute involving UniversalCare and its shareholders and principals is overbroad. Should the issue arise in future disputes between the parties it can and should be addressed within the context of the proceeding in which the issue arises.
[89] For all the foregoing reasons:
MT shall be removed as counsel of record for the Applicants in this proceeding.
If unable to agree on costs, parties to provide written submissions to my assistant at Barrie, restricted to three pages (excluding Bill of Costs and Offers) within 30 days.
Douglas J.
Released: March 18, 2016