CITATION: A Big Mobile Sign Company Inc. v. Curbex Ltd. et al, 2016 ONSC 2053 BARRIE COURT FILE NO.: CV-15-0329
DATE: 201620323
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
A Big Mobile Sign Company Inc.
Plaintiff
– and –
Curbex Ltd. and Ward Sullivan
Defendants
Christopher D. Salazar for the Plaintiff
Ewa Krajewska, for the Defendants
HEARD: March 10, 2016
RULING ON MOTION
CHARNEY J.:
Introduction
[1] This motion is brought by the defendants Curbex Ltd. (Curbex) and Ward Sullivan (Sullivan) for an order removing HGR Graham Partners (HGR) as lawyers for the plaintiff A Big Mobile Sign Company Inc. (Mobile). The defendants allege that HGR placed itself in an impermissible conflict of interest when a partner of HGR acted for Sullivan in two mortgage transactions in which Sullivan disclosed confidential information to the HGR. As such, the defendants argue that HGR is in a conflict of interest position and should be removed as counsel for the plaintiffs.
Facts
[2] Mobile, Curbex and Sullivan have been engaged in litigation since December 2013. This litigation has given rise to several motions, the dates of which are significant to the present motion. The chronology is set out below.
The First Statement of Claim
[3] Mobile and Curbex are competitors in the mobile sign business. The defendant Sullivan is an officer of Curbex.
[4] Mobile commenced an action against Curbex and another individual named Janice Marshall (Marshall) on December 23, 2013, alleging that Curbex and Marshall intentionally interfered with Mobile’s economic relations and interests and seeking damages and an injunction against both defendants. HGR was identified on the Statement of Claim as lawyers for the plaintiff Mobile.
[5] The precise details of this claim are not relevant to the present motion. It is agreed by all parties that the issues in this claim are unrelated to the mortgage transactions for which Sullivan retained an HGR partner to provide legal work.
[6] Sullivan was not a party to this action, but as an officer of Curbex he was aware of the claim and attended at court on December 31, 2013, to provide directions to Curbex’s counsel. There is no dispute that he was aware that HGR was counsel for Mobile on this date.
[7] Healey J. heard Mobile’s motion for an interlocutory injunction on December 31, 2013, and issued reasons on January 2, 2014, granting an interim injunction against Marshall. Costs were reserved until January 14, 2014, when the motion would continue for a review of the injunction on further and better material.
[8] Due to a scheduling conflict counsel from HGR could not appear on behalf of Mobile on January 14, 2014, and retained Dan Dooley, a lawyer from another firm, to appear as its agent. Mr. Dooley communicated with officers of Mobile and received confidential information regarding issues relevant to the litigation.
[9] Curbex was represented by its lawyer, Mr. Gionet, at both the December 31, 2013, and January 14, 2014 hearings.
The First Conflict Motion
[10] On May 1, 2014, Mr. Gionet’s law firm merged with Mr. Dooley’s law firm. While a conflicts check was done by the merged law firm, the conflicts check did not reveal that Mr. Dooley had acted as agent for HGR and represented the plaintiff at the January 14, 2014 hearing. For a period of approximately six weeks Mr. Gionet continued to represent Curbex without any form of “Chinese wall” to protect against any possibility of communication between Mr. Dooley and Mr. Gionet.
[11] On June 11, 2014, HGR wrote to counsel for Curbex to advise that they had been instructed to amend the Statement of Claim to add Sullivan as a defendant. HGR also raised the issue of Mr. Gionet’s conflict as a result of Mr. Gionet’s merger with Mr. Dooley.
[12] On July 11, 2014 HGR served a motion on behalf of Mobile to remove Mr. Gionet and his firm as lawyers for Curbex and to amend the Statement of Claim to add Sullivan as a defendant. There is no dispute that Sullivan was advised of this motion on or about July 11, 2014, and at least at that time knew that HGR was the law firm representing Mobile in this claim.
[13] The motion was heard on February 5, 2015. Only the motion to remove Mr. Gionet was argued. The motion to add Sullivan as a defendant was adjourned sine die, to be brought back on four days’ notice once Curbex appointed new counsel. As matters progressed, it was never argued.
[14] On February 11, 2015, Edwards J. issued an order removing Mr. Gionet as solicitor of record for Curbex. Edwards J. stated (at paras. 27 and 28):
While the evidence confirms that a conflicts check was done by the newly merged firm of Dooley Lucenti as of May 1, 2014, that conflicts check for whatever reason did not reveal Mr. Dooley’s limited engagement representing the plaintiff in mid-January 2014… A conflicts check, however, is not only designed to reveal situations where a law firm is presently representing a party, but also those situations where a law firm has represented a party in the past.
There is no dispute that the Chinese wall was not put in place until approximately six weeks after the actual conflict occurred. The conflict occurred once Mr. Gionet joined the Dooley Lucenti firm as of May 1, 2014. It is clear to me from a review of the jurisprudence that the Chinese wall has to be put in place prior to that point in time when the conflict would have occurred.
[15] Curbex alleged that the motion to remove Gionet as its counsel was brought as a “litigation tactic”. Edwards J. found (at para. 31) that the evidence did not support this allegation.
The Second Statement of Claim
[16] On March 13, 2015, HGR, on behalf of Mobile, issued a second Statement of Claim. This claim is against both Curbex and Sullivan, and is the claim within which the present motion to remove HGR is brought. In this action Mobile seeks damages in the sum of $400,000 plus punitive damages in the sum of $100,000 from the defendants for unjust enrichment, disgorgement of profits, breach of contract, breach of confidence, negligence, fraud, and several other causes of action. This claim arises out of the same facts as the first Statement of Claim.
[17] There is no dispute that Sullivan had no knowledge of this claim until it was served on the defendants on August 17, 2015.
The Mortgage Transactions
[18] The mortgage on Sullivan’s primary residence was up for renewal in March 2015. Sullivan’s mortgage broker, Adam Bazuk (Bazuk) worked with Sullivan to obtain new financing. On February 25, 2015, Sullivan and Bazuk reviewed the lending documents at Bazuk’s office. Bazuk asked if Sullivan knew a lawyer who could prepare the legal documents. As he did not, Bazuk recommended Tracy Arkell (Arkell), and stated that he often worked with her. Unbeknown to Sullivan, Arkell was a partner at HGR.
[19] On February 25, 2015, Bazuk emailed Arkell with the documents related to the mortgage renewal. These documents contained information regarding Sullivan’s income, property and assets, including bank account information, credit card balances, vehicle loan balances, notice of assessment, and employer information.
[20] On February 27, 2015, Arkell phoned Sullivan to introduce herself and advised him that she had received his mortgage commitment papers. That same day Arkell sent an email to Sullivan to confirm her retainer and to schedule an appointment for them to meet on March 4, 2015. The email is signed “Tracy Arkell, Tracy Arkell Professional Corporation/Partner”. The bottom of the email states “HGR Graham Partners LLP Lawyers – Mediators”. Sullivan testified that he read the email on his iPhone and did not notice the firm name at the bottom of the email.
[21] On March 4, 2015, Sullivan went to the Arkell’s office and for the first time noticed the affiliation with HGR. His affidavit states:
I attended at Ms. Arkell’s offices on March 4, 2015. It was at this time that I noticed the sign on the wall outside the firm’s offices: HGR Graham Partners LLP. I paused and thought that it was odd. I wondered whether this was the same firm that represents A Big Mobile Sign Company. I also wondered whether she knew who I was and whether she knew that I had a relationship with Curbex. I assumed that she knew all of this as she had my documents, which referred to Curbex as my employer. At the meeting, I reviewed the documents with Ms. Arkell. At no point during the meeting did any discussion of a conflict arise. Ms. Arkell did not advise me that HGR Graham was acting against me in the first action and had immediate plans to start a second action against me personally.
[22] Neither Arkell nor anyone else from HGR filed an affidavit in this proceeding, and so Sullivan’s testimony in this regard was not contradicted. Sullivan acknowledged that he did not express any concerns to Arkell when he met with her. Their conversation was restricted to the mortgage renewal.
[23] It is clear from this paragraph that on March 4, 2015, Sullivan was aware that HGR was the same law firm that represented Mobile in the litigation against Curbex. At that point, he was not a party to that litigation, although there was an outstanding motion to add him as a defendant. It is agreed by all parties that Sullivan was aware of that motion when it was brought in July 2014. It is not clear whether he remained cognizant of that motion or its potential significance for him personally on March 4, 2015, since the motion to add him as a defendant had been heard and was adjourned sine die the month before.
[24] Sullivan’s limited understanding of the potential significance of the outstanding motion is not surprising. On March 4, 2014, Curbex had not yet retained a lawyer to replace Mr. Gionet, who was removed as solicitor of record less than one month before.
[25] It is also apparent that Arkell was unaware that Sullivan was involved in the Mobile litigation and that HGR could be in a conflict if she acted for Sullivan in the mortgage transaction. There is no suggestion that Arkell or anyone at HGR performed any kind of conflicts check before she accepted Sullivan as a client.
[26] The mortgage refinancing transaction closed on March 17, 2015.
[27] On April 17, 2015, Sullivan went to see Bazuk about an income property he was interested in purchasing. Bazuk again suggested that they use Arkell as the lawyer on the transaction. On June 10, 201,5 Arkell sent Sullivan an email confirming that she would act for him on the purchase of that property. Sullivan met with Arkell at her offices on June 23, 2015, to close the transaction. He provided her with updated personal and financial information.
Service of the Second Statement of Claim
[28] On August 17, 2015, Curbex and Sullivan were served with the Statement of Claim in the second action, originally issued on March 13, 2015.
[29] Curbex and Sullivan retained Borden Ladner Gervais LLP (BLG) to defend them in the second action.
The Second Conflict Motion
[30] Once retained, counsel for the defendants wrote to counsel for Mobile on September 24, 2015, identifying HGR’s potential conflict of interest arising out of Sullivan’s retention of Arkell in relation to the two mortgage/property transactions. The letter stated:
In both instances, Mr, Sullivan sent Ms. Arkell confidential information about his income, property and assets. Mr. Sullivan was not aware at the time of the retainers that your firm issued a claim naming him as a defendant on March 13, 2015, or intended to do so.
[31] BLG requested that counsel for Mobile advise what steps had been taken to identify the conflict prior to taking on Sullivan as a client, and what steps, if any, were taken to protect his confidential information
[32] On September 24, 2015, HGR replied to BLG indicating that HGR had performed its conflict check prior to taking on the Mobile retainer in 2013. This, of course, is not an answer to the question asked. No one is suggesting that HGR was in a conflict when it initially took on the Mobile retainer in December 2013. It will be recalled that Sullivan was not a party to that action, and was not even a prospective party until June 2014 when HGR received instructions to amend the first Statement of Claim to add Sullivan. The question asked was what steps HGR had taken prior to taking on Sullivan as a client in February 2015. I infer from HGR’s reply that HGR took no steps to identify this conflict in February 2015, and, as a result, no steps were put in place to safeguard Sullivan’s confidential information.
[33] In this regard Sullivan’s counsel also relies on Section 3.4-1 of the Law Society of Upper Canada’s Rules of Professional Conduct. Commentary [2] states that:
A lawyer should examine whether a conflict of interest exists not only from the outset but throughout the duration of the retainer because new circumstances or information may establish or reveal a conflict of interest.
[34] Had Arkell conducted a conflicts search in February 2015, she would have identified the outstanding motion to add Sullivan as a party to the Statement of Claim. Had Arkell conducted a conflicts search in June 2015, she would have identified the fact that HGR had already issued a second Statement of Claim naming Sullivan as a defendant.
[35] HGR’s September 24 letter also took the position that Sullivan was aware that HGR was acting for Mobile when he retained HGR, and had known since July 2014 that HGR was, on behalf of Mobile, seeking to add him as a party to the first claim.
[36] Finally, HGR’s September 24 letter also stated: “It also remains to be proven that your client disclosed ʽconfidentialʼ information in the completion of the two real estate transactions”.
[37] As the matter could not be resolved, BLG served HGR with this motion for an order removing HGR as the lawyers of record for the plaintiff on the basis that HGR is in a conflict of interest.
The Law
[38] Since this is the second time the issue of solicitor conflict has arisen in this case, I begin by adopting the summary of the law set out by Edwards J. in the first conflict motion (at paras. 20 – 24):
[20] The Supreme Court of Canada in McDonald Estate v. Martin, 1990 32 (SCC), [1990] 3 S.C.R. 1235, has made it clear at para. 16 that there are essentially three competing values when faced with a motion to have a solicitor removed as counsel of record. These competing values which the court must concern itself with are as follows:
(1) the concern to maintain the high standards of the legal professional and the integrity of the justice system;
(2) the countervailing value that a litigant should not be deprived of his or her choice of counsel without good cause;
(3) the desirability of permitting reasonable mobility in the legal profession.
[21] The test that the court must apply when considering a motion like the one before this court, as enunciated by Sopinka J. at para. 47, is 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?
[22] In answering the aforementioned questions Sopinka J. at para. 48 went on to state:
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?
I pause in my analysis and note that in posing the aforementioned two questions, Sopinka J. raises the concern as to whether there is a risk that the confidential information attributable to a solicitor client relationship “will be used” to the prejudice of a client as opposed to phrasing the question, is there a risk that the confidential information “ has been used” to the prejudice of the client.
[24] As part of the court’s analysis in Martin, Sopinka J. rejects the suggestion that a reasonable member of the public will necessarily conclude that confidences are going to be disclosed in every case despite institutional efforts to prevent it. It is clear then, that it is not every case where a potential conflict of interest arises that the court will come to the conclusion that a reasonable person would conclude that confidences will be breached. That said, however, Sopinka J. goes on in his reasons to state:
There is, however, a strong inference that lawyers who work together share confidences. In answering this question, the court should therefore draw the inference, unless satisfied on the basis of clear and convincing evidence, that all reasonable measures have been taken to ensure that no disclosure will occur by the “tainted” lawyer to the member or members of the firm who are engaged against the former client. Such reasonable measures would include institutional mechanisms such as Chinese walls and cones of silence.
[39] I would add to this analysis the Supreme Court of Canada’s decision in R. v. Neil, [2002] 3 S.C.R. 631, 2002 SCC 70, where the Court considers the proper limits of a lawyer’s “duty of loyalty” to a current client in a case where the lawyer did not receive any confidential information that was (or is) relevant to the matter in which he proposes to act against the current client’s interest. This case is perhaps closer to the present case, because Sullivan acknowledges that the confidential information provided to Arkell did not relate to the Mobile litigation.
[40] In Neil the Supreme Court confirmed (at para. 17) that “the duty of loyalty to current clients includes a much broader principle of avoidance of conflicts of interest, in which confidential information may or may not play a role”.
[41] The Court discussed the general prohibition that precludes a partner in a law firm from representing a client whose interests are “directly adverse to the immediate interests of another current client” and established the following “bright line” (at para. 29):
The general prohibition is undoubtedly a major inconvenience to large law partnerships and especially to national firms with their proliferating offices in major centres across Canada. Conflict searches in the firm’s records may belatedly turn up files in another office a lawyer may not have been aware of. Indeed, he or she may not even be acquainted with the partner on the other side of the country who is in charge of the file. Conflict search procedures are often inefficient. Nevertheless it is the firm not just the individual lawyer, that owes a fiduciary duty to its clients, and a bright line is required. The bright line is provided by the general rule that a lawyer may not represent one client whose interests are directly adverse to the immediate interests of another current client — even if the two mandates are unrelated — unless both clients consent after receiving full disclosure (and preferably independent legal advice), and the lawyer reasonably believes that he or she is able to represent each client without adversely affecting the other. (emphasis added)
[42] In Canadian National Railway Co. v. McKercher LLP, 2013 SCC 39, [2013] 2 S.C.R. 649 the Supreme Court summarized the “bright line” rule as follows (at para.8):
[T]he general “bright line” rule is that a lawyer, and by extension a law firm, may not concurrently represent clients adverse in interest without obtaining their consent — regardless of whether the client matters are related or unrelated.
[43] The Court went on to explain the rationale for this bright line rule even where the matters are not related (at para.28):
It is possible to argue that a blanket prohibition against concurrent representation is not warranted with respect to unrelated matters, where the concrete duties owed by the lawyer to each client may not actually enter into conflict. However, the rule provides a number of advantages. It is clear. It recognizes that it is difficult — often impossible — for a lawyer or law firm to neatly compartmentalize the interests of different clients when those interests are fundamentally adverse. Finally, it reflects the fact that the lawyer-client relationship is a relationship based on trust. The reality is that ʽthe client’s faith in the lawyer’s loyalty to the client’s interests will be severely tried whenever the lawyer must be loyal to another client whose interests are materially adverseʼ.
[44] The Court went on to reject the contention that the bright line rule should be seen as a rebuttable presumption that attracts balancing of various circumstantial factors that may give rise to a conflict. The Court stated:
Where applicable, the bright line rule prohibits concurrent representation. It does not invite further considerations. As Binnie J. stated in Strother v. 3464920 Canada Inc., 2007 SCC 24 [2007] 2 S.C.R. 177, ʽ[t]he ‘bright line’ rule is the product of the balancing of interests not the gateway to further internal balancing: para. 51. To turn the rule into a rebuttable presumption or a balancing exercise would be tantamount to overruling Neil and Strother. I am not persuaded that it would be appropriate here to depart from the rule of precedent.
[45] On the other hand the Supreme Court did indicate that the bright line rule “is not a rule of unlimited application” (para. 30) and went on to delineate three limits to the scope of the rule :
The rule applies where the immediate legal interests of clients are directly adverse. It does not apply to condone tactical abuses. And it does not apply in circumstances where it is unreasonable to expect that the lawyer will not concurrently represent adverse parties in unrelated legal matters.
[46] Thus, even though the bright line rule “applies regardless of whether the client matters are related or unrelated” the Court explained that it “applies only where the immediate interests of clients are directly adverse in the matters on which the lawyer is acting” (para. 33). With respect, I think that this limit makes the bright line a little less bright and a little more blurred. I am satisfied, however, that the immediate legal interests of Sullivan were directly adverse to Mobile with regard to the claim in which HGR was acting for Mobile, and therefore this limit to the bright line rule does not apply in this case.
[47] The third limit identified in McKercher, which HGR relies on in the present case, is that:
[T]he bright line rule cannot be successfully raised by a party who seeks to abuse it. In some circumstances, a party may seek to rely on the bright line rule in a manner that is ‘tactical rather than principled’ (para. 36).
Issues
[48] The present conflicts motion raises three primary issues:
(a) Did Sullivan give Arkell confidential information?
(b) Is the sole purpose of the motion before this court nothing more than a “litigation tactic”?
(c) Was there implied waiver on the part of Sullivan?
Did Sullivan give Arkell confidential information?
[49] Sullivan testified that the documents provided to Arkell included mortgage information, contracts, current debts and recent payments on those debts, employment information, bank account information, notices of assessment as well as family financial information. None of this information is available to the public. There is no evidence to the contrary from the Arkell or HGR.
[50] Counsel for Sullivan argues that Sullivan and Curbex have legitimate concerns that Mobile could use the confidential information to their detriment. Being in possession of confidential financial information on an adverse party is inherently prejudicial, and Mobile and HGR could gain a tactical advantage over the defendants. HGR knows about Sullivan’s financial ability and resources to defend the lawsuit, his ability to enter into potential financial settlements, and his ability to satisfy any potential judgment. The confidential information provides Mobile with the equivalent of the information it would obtain on a judgment debtor examination.
[51] HGR argues that Bazuk sent the information to Arkell on February 25, 2015, before Arkell had agreed to accept the retainer. None of this information related to the Mobile litigation, and any such confidential information would have been producible during the course of litigation.
[52] While Bazuk sent the information to Arkell before she accepted the retainer, the fact remains that Arkell did confirm the retainer on February 27, 2015, and again in June 2015. If a lawyer is unilaterally faxed or emailed confidential documents by a potential client before the lawyer has an opportunity to confirm the retainer, I agree that the lawyer must be given an opportunity to conduct a conflict search before any allegation of conflict can be raised. Otherwise there is a potential for abuse if litigants can put unsuspecting lawyers in a conflict position simply by faxing or emailing unsolicited documents. In this case, however, Arkell did not reject the documents or the retainer, nor apparently did she conduct a conflicts search before she accepted the retainer.
[53] Counsel for Mobile relies on this court’s decision in Fishman v. Fishman, 2010 ONSC 7054, for the position that information readily exchangeable during the course of litigation does not qualify as confidential information for the purposes of conflict of interest analysis. Fishman is a family law case where there is a duty to disclose certain financial documents, and the court concluded (at para. 15):
The information provided by the applicant…does not amount to confidential information which, if provided to the respondent, could be used to her advantage...The information imparted by the applicant to the firm, as reflected in his affidavit, would have been information readily exchanged between the parties in the course of their mediation…
[54] The Fishman case does not support the proposition that the confidential financial information disclosed to Arkell in this case would have been “readily available” to the plaintiffs. The information provided by Sullivan to Arkell would not have been “readily exchanged” with Mobile in the course of this litigation.
[55] While the Supreme Court of Canada in Martin did state that the confidential information must be “relevant to the matter at hand”, the bright line general rule pronounced by the Court in Neil “is that a lawyer, and by extension a law firm, may not concurrently represent clients adverse in interest without obtaining their consent — regardless of whether the client matters are related or unrelated” (emphasis added). Accordingly, the fact that the mortgage information was not directly related to the Mobile litigation does not preclude the application of the solicitor conflict principles.
[56] Applying that general rule to the facts of this case, there is a risk that the confidential information provided by Sullivan to Arkell could be used to the advantage of HGR in the Mobile litigation against Sullivan. There is no evidence that a conflicts check was done when Sullivan retained HGR, and there is no evidence that HGR established any sort of protective screen, cone of silence or ethical wall to ensure that Sullivan’s confidential information was not shared within the firm. As the Supreme Court stated in Martin: “There is …a strong inference that lawyers who work together share confidences”. There is no evidence to rebut that inference in the present case.
Is the sole purpose of the motion before this court nothing more than a “litigation tactic”?
[57] The court must consider whether the motion to disqualify HGR is being brought for tactical reasons. In McKercher the Supreme Court of Canada held that the bright line rule does not apply where a party seeks “to rely on the bright line rule in a manner that is ‘tactical rather than principled’”. As Edwards J. stated in the first conflicts motion in this case (at para. 31):
If I had been satisfied that the sole purpose for which this motion had been brought was to obtain a tactical advantage…this court would have been vigilant in weeding out such a disqualification motion which was brought solely for the purposes of gaining a tactical advantage by one side over the other.
[58] Edwards J’s. reference to tactics being the “sole purpose” is significant. In Chiefs of Ontario v. Ontario (2003), 2003 32351 (ON SC), 63 O.R. (3d) 335 A. Campbell J. noted (at para. 105):
As for Blake’s allegation that MFN’s conflict motion is actuated by tactical considerations, there is a sense in which everything done in a lawsuit is tactical. Clients never try to remove their former lawyers in order to hurt themselves. The question is not whether the motion is tactical, but whether it is driven by ulterior motives.
[59] In the present case Mobile states that ulterior tactical motives can be inferred from the circumstances surrounding Sullivan’s retention of Arkell. At the time that he went to Arkell’s office on March 4, 2015, Sullivan was aware that HGR was the law firm retained by Mobile in the action against Curbex. And at some time before March 4, 2015, Sullivan was aware that HGR had brought a motion to add him as a party to the first claim. Notwithstanding that he “paused and thought that it was odd” he did not raise the conflict issue with Arkell and seemed unconcerned with it at the time.
[60] HGR goes so far as asking the court to infer that Sullivan’s retention of HGR was not an innocent mistake, but a calculating litigation tactic aimed at putting HGR in a conflict position in order to frustrate the litigation. HGR argues that the timing of the retainer – just a few weeks after the court removed Mr. Gionet as counsel for Curbex – is no coincidence. Sullivan, HGR alleges, “sought out Tracey Arkell for unrelated real estate transactions so that he could frustrate those proceedings thereby avoiding liability for his unlawful conduct…” HGR claim that it was set up by a calculating Sullivan determined to retaliate for the removal of Gionet.
[61] The suggestion that Sullivan deliberately sought out Arkell with the intention of putting HGR in a conflict of interest is just too far-fetched to believe.
[62] There is no direct evidence to support these allegations. For this devious plan to work, Sullivan would have had to assume that HGR would not conduct a conflict search when he retained Arkell at the end of February 2015, and when he retained her again for the second mortgage transaction in June 2015.
[63] If HGR’s allegation of calculated tactics were true, and Sullivan was setting up HGR in March and June of 2015, why did he wait until after he was served with the second Statement of Claim - a claim that he knew nothing about when the conflict arose in March and June of 2015 - to raise the conflict issue?
[64] Sullivan’s version – that he retained Arkell because she was recommended by Bazuk with whom she had often worked in the past - was not contradicted by Arkell and makes much more sense.
[65] I also accept that while Sullivan thought it odd that Arkell worked at the same firm as Mobile’s lawyer, Sullivan does not know the legal intricacies relating to lawyer’s conflicts, and he did not think more about it at the time because he was focused on the mortgage transactions. The first Statement of Claim was not upper-most in his mind because he was not a party to that action, and the motion to add him as a party had been adjourned sine die. As far as Sullivan knew in March 2015, that was all in the past. The significance of the conflict did not occur to him until he was served with the second Statement of Claim and he retained a law firm to provide legal advice with respect to that case.
[66] Finally, Sullivan’s affidavit states that, “I find it disturbing that HGR Partners had a claim issued against me and was sitting on it, without serving it, for months, while Ms. Arkell did work for me and received confidential financial information from me.” This appears to me to be the very sort of concern that the Supreme Court of Canada had in mind when it established the bright line rule in Neil.
[67] Accordingly, I conclude that this motion is neither an abuse of process nor part of a calculated tactic to derail the litigation.
Was there implied waiver on the part of Sullivan?
[68] One of the limits to the bright line rule is set out in both Neil and McKercher is the “exceptional case” where consent of a client may be inferred. Both cases make clear that these exceptional cases apply only to sophisticated professional litigants like governments and chartered banks. In Neil the Court states (at para. 28):
In exceptional cases, consent of the client may be inferred. For example, governments generally accept that private practitioners who do their civil or criminal work will act against them in unrelated matters, and a contrary position in a particular case may, depending on the circumstances, be seen as tactical rather than principled. Chartered banks and entities that could be described as professional litigants may have a similarly broad-minded attitude where the matters are sufficiently unrelated that there is no danger of confidential information being abused. These exceptional cases are explained by the notion of informed consent, expressed or implied.
[69] This point was reiterated in McKercher at para. 37.
[70] This case does not fall into the exceptional cases category described by the Supreme Court in these cases.
[71] HGR argues that when Sullivan saw HGR’s name on the wall outside of Arkell’s office Sullivan had some obligation to raise the conflict of interest issue with her.
[72] The law firm cannot shift the onus to a prospective client to inquire about potential conflicts. It is reasonable for clients to rely on the expertise of the firm and assume that law firms will conduct a conflict search and alert the client if a possible conflict is identified. The onus and duty to identify a conflict is the firm’s.
[73] Rule 3.4-2(b) of the Rules of Professional Conduct state:
Consent may be implied and need not be in writing where all of the following apply:
(i) the client is a government, financial institution, publicly traded or similarly substantial entity, or an entity with in-house counsel;
(ii) the matters are unrelated;
(iii) the lawyer has no relevant confidential information from one client that might reasonably affect the representation of the other client; and
(iv) the client has commonly consented to lawyers acting for and against it in unrelated matters.
[74] This rule requires that all of these factors be present for an implied waiver to be effective. There is no dispute that factors (i) and (iv) are not present in this case. I find that factor (iii) is also not applicable to this case.
Conclusion
[75] Based on these reasons I conclude that this is a case in which the bright line rule advanced by the Supreme Court of Canada in Neil and McKercher is applicable. The immediate legal interests of Sullivan and Mobile were directly adverse at the time that Arkell accepted the retainer on behalf of HGR. The fact that the two retainers were unrelated does not prevent the application of the bright line rule. Sullivan provided Arkell with confidential financial information that could be used to his prejudice if the information were shared with counsel for Mobile. There is no evidence that any steps were taken by HGR to establish any sort of protective screen, cone of silence or ethical wall to ensure that Sullivan’s confidential information was not shared, either before or after the conflict came to HGR’s attention.
[76] In these circumstances HGR should be disqualified from representing Mobile in these proceedings. This will ensure that any confidential information will not be shared. This remedy is also appropriate to protect the integrity and the repute of the administration of justice. This is not a case where anyone from HGR provided an affidavit to explain how the conflict arose even though a conflicts search was conducted. Nor is there any evidence that HGR accepted Sullivan’s “retainer in good faith, reasonably believing that the concurrent representation fell beyond the scope of the bright line rule and applicable law society restrictions” (McKercher at para. 65). As indicated, it appears that HGR simply failed to conduct a conflicts search when it accepted the retainer, and has tried on this motion to blame Sullivan for HGR’s failure in this regard.
[77] For these reasons this Court orders that the HGR Graham Partners be removed as lawyers for the plaintiff.
[78] If the parties cannot agree on costs, the defendant may make submissions limited to 3 pages in length, not including a costs outline and offers to settle, within 20 days of these reasons, and the respondent may make submissions on the same terms 10 days thereafter.
Justice R.E. Charney
Released: March 23, 2016
CITATION: A Big Mobile Sign Company Inc. v. Curbex Ltd. et al, 2016 ONSC 2053 BARRIE COURT FILE NO.: CV-15-0329
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
A Big Mobile Sign Company Inc.
Plaintiff
and
Curbex Ltd. and Ward Sullivan
Defendants
RULING ON MOTION
Justice R. E. Charney
Released: March 23, 2016