Court File and Parties

COURT FILE NO.: CV-16-551255 DATE: 20160620 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Sim & McBurney, Plaintiff/Responding Party AND: Aird & McBurney LP, Aird & Berlis LLP and Peter McBurney, Defendants/Moving Parties

BEFORE: S.F. Dunphy J.

COUNSEL: J. Kaufman and M. Evans, for the Defendants/Moving Parties B. Gover and F. Schumann, for the Plaintiff/Responding Party

HEARD: June 3, 2016

Endorsement

[1] This is a motion brought by the defendants to disqualify counsel for the plaintiff from representing the plaintiff further in this proceeding.

[2] The action arises from the decision of four dissident (now former) partners of the plaintiff to change firms. Between late July and September 2015, these four (former) partners held discussions with the law firm now representing the plaintiff, Gowling WLG (Canada) LLP (“Gowlings”), about the possibility of moving their practice to that firm. Those discussions ultimately did not bear fruit. The four ultimately decided to join the firm of Aird & Berlis LLP in October and November 2015.

[3] The plaintiff advances a variety of claims including breach of fiduciary duty, bad faith and inducing breach of contract arising from that move. The defendants object to Gowlings representing the plaintiff in this action on the grounds that Gowlings possesses confidential information that could be used to their detriment in this proceeding and that partners of Gowlings are likely material witnesses on matters central to the claim whose testimony would be needed at trial.

[4] This motion was brought at the outset of proceedings. Pleadings are not yet closed and no statement of defence has been filed. The plaintiff has scheduled an injunction motion for August 17, 2016 seeking to restrain alleged breaches of trade-mark and passing off associated with the use of similar trade names. It is conceded by the defendants that Gowlings possesses no confidential information relative to that intended injunction motion nor will any of Gowlings partners be needed as witnesses for the purposes of that motion. The issues raised by the intended injunction are discrete and appear to be unrelated to the (failed) negotiation process between the four dissident partners and Gowlings in 2015.

[5] For the reasons that follow, I am granting the motion and order that Gowlings should be disqualified from representing the plaintiff in respect of this claim.

[6] The material filed on this motion included a significant volume of confidential information – largely client-related – that was attached as exhibits to affidavits. I directed the parties to prepare a consolidated motion record and responding record minus the confidential exhibits. The original motion record and responding record containing the confidential information was sealed by me to protect the confidentiality of the material in the exhibits. I did not find it necessary to refer to the confidential exhibits in considering or making this order.

Overview and factual background

[7] The plaintiff Sim & McBurney is a firm of patent and trade-mark agents. It is associated with a sister firm of lawyers, Sim, Ashton & McKay LLP a law firm specializing in intellectual property and commercial litigation.

[8] The defendant Peter McBurney was a founding partner of the plaintiff agency firm in 1970. He retired from the plaintiff partnership in 1999 and severed his remaining connections with the plaintiff in December 2015, later becoming associated with the defendant Aird & McBurney as a consultant.

[9] Mr. McBurney is now a consultant with the defendant Aird & McBurney, a firm of patent and trade-mark agents established in association with the other defendant, Aird & Berlis LLP.

[10] In July 2015 a group of four dissident partners with the plaintiff agency firm approached Gowlings to discuss the prospect of moving their practice to Gowlings. The negotiations were led by Mr. Lowman who, as a lawyer and trade-mark agent, was partner of both the plaintiff and its affiliated law firm (then known as Sim, Lowman Ashton & McKay LLP). The other three members of the dissident partner group are non-lawyer patent agents.

[11] The exact chronology of events is not material to this motion and there is some dispute between the parties as to how many meetings were held and what precisely was discussed with whom and when. At a minimum, the following did occur:

a. An introductory meeting was held in late July between some members of the dissident group and Mr. Joliffe of Gowlings;

b. A non-disclosure agreement was sent by the dissident partner group to Gowlings on August 2, 2015 and signed back by Gowlings;

c. On August 14, 2015 a USB drive containing client lists of the four dissident partners as well as their billings, hourly rates and compensation was sent to Gowlings;

d. The information received was reviewed by four members of Gowlings management and two senior patent agents from Gowlings’ intellectual property group and two employees who conducted conflicts checks on the client lists;

e. A follow-up meeting was held in mid-September, 2015 to discuss the information provided and answer questions arising.

[12] There is some conflict in the evidence as to just how deep these discussions went. Gowlings’ evidence described the information exchange as “typical” for such situations where a possible lateral hire at this level is under consideration. It is clear that the information exchanged went beyond the electronic documents delivered. Gowlings admits to having had discussions of the dissidents’ difficulties at the plaintiff firm, clients who might follow them if they moved, other partners, staff and associates who might choose to leave and who among them might be desirable acquisitions, compensation and billing history, etc. All of these are indeed “typical” and expected subjects of conversation in such negotiations.

[13] The dissident partners ultimately decided to join the defendant Aird & Berlis and had no further discussions with Gowlings after a last meeting in mid-September 2015. Mr. Lowman joined Aird & Berlis in mid-October while the remaining three dissident partners joined in late November 2015. In connection with that move, Aird & Berlis established a consulting arrangement with Mr. McBurney and founded a new agency firm – the defendant Aird & McBurney LP that began operating under that name on April 1, 2016.

[14] On April 6, 2016, the plaintiff retained Gowlings to act as its counsel. The normal conflicts searches conducted by Gowlings failed to bring the potential conflict to light before it accepted to act. The dissident partners were not clients of Gowlings and there is no reason why the defendants would have appeared in any data base Gowlings would normally have maintained. None of the partners or staff involved in opening the proposed new file were aware of the matter before Gowlings accepted to act.

[15] Gowlings sent a “cease and desist” letter relating to the “Aird & McBurney” firm name and trade-mark issues shortly thereafter. The defendants had no immediate reason to apprehend a conflict of interest arising since the issue of the firm names was unrelated to the negotiations that had taken place the previous summer.

[16] The litigation partners with carriage of the file at Gowlings learned of the negotiations held with the dissident partners in mid-April from Mr. Joliffe. Gowlings did not withdraw from the file. Instead, it drafted and issued the statement of claim herein on April 19, 2016. The defendants raised the potential conflict issues promptly after receiving the statement of claim and realizing that complaints going beyond the use of the firm name were included in the claim. This motion was brought shortly thereafter.

[17] There are three distinct categories of claims pleaded in the statement of claim.

[18] Firstly, the plaintiff has made a common-law passing off claim as well as advancing statutory causes of action under the Trade-marks Act, R.S.C. 1985, c. T-13 in connection with the use of the name “Aird & McBurney” by the defendants (as well as related domain names), resulting in alleged confusion with the services of the plaintiff and alleged infringement of their trade-mark. There is no suggestion that there were any discussions of this issue with Gowlings.

[19] Secondly, the plaintiff has alleged that Mr. McBurney was bound to it in contract following his retirement and that he breached his agreement by entering into a consulting arrangement with the defendant Aird & McBurney and co-operating with the latter in soliciting former clients of the plaintiff. The defendants are alleged to have induced breach of his contract. The evidence as to whether Mr. McBurney was discussed with Gowlings is in dispute. It was, at all events, not a main or central point of the discussions.

[20] Finally, the claim seeks damages against Aird & Berlis “for inducement and/or provision of knowing assistance with respect to breaches of fiduciary duty, trust, good faith and loyalty owed to Sim & McBurney” by three of the four dissidents (the three patent agents in the group). It is primarily in respect of this third category of claim that the alleged conflict arises.

Issues to be argued

[21] Does Gowlings possess confidential information that places it in a position of conflict with the duties it owes to the plaintiff?

[22] If so, ought Gowlings be disqualified from acting for the plaintiff or is another remedy more appropriate?

[23] Does the prospect of Gowlings partners being necessary witnesses warrant Gowlings removal as plaintiff’s counsel at this early stage in the proceedings?

Analysis and discussion

(i) Does Gowlings possess confidential information that places it in a conflict of interest?

[24] The moving party defendants contend that Gowlings possesses confidential information obtained in the process of negotiating the potential arrangements with the dissident partners. The duty of confidence arises both from the NDA signed in the course of those negotiations and from the nature of the discussions themselves which were subject to a reasonable expectation of confidence. Gowlings is under a continuing duty to maintain the confidence of all information obtained in that connection. That duty of confidence conflicts with its duty to the plaintiff. In such a case, the court can and should step in and disqualify Gowlings if it has refused to take the step itself.

[25] The plaintiff takes the position that all copies of the confidential information obtained have been or will shortly be destroyed and further reasonable precautions could be put in place if needed. The confidential information allegedly imparted to Gowlings is, they say, property of the plaintiff or of a sort readily obtainable by the plaintiff on discovery in any event. Finally, the plaintiff submits that counsel may only be removed for conflict of interest in the event of a conflict with duties owed to clients or “near clients” and the duty of confidence owed was for the benefit of the signatories to the NDA only and not that of the defendants with whom the individual dissident partners became associated.

[26] In my view, the inherent jurisdiction of the court to disqualify counsel from acting in the face of a conflict of interest is not restricted to conflicts arising from a solicitor-client relationship or one “near” to that. While the protection of the sanctity of the solicitor-client relationship is clearly a core value of our system, it is not the only value.

[27] A conflict can arise where a solicitor has a recognized obligation of confidentiality that conflicts with his or her obligation to advance the interests of a client in litigation. Where a lawyer receives information in circumstances giving rise to a reasonable expectation of privacy or confidentiality, that communication may be protected in a fashion similar to information disclosed in the context of the solicitor-client relationship: Salico Property Marketing Corporation et al. v. Farris Vaughan Wills & Murphy, 2005 BCSC 116 (at para. 39).

[28] There are few moments in the life of a lawyer where he or she is more vulnerable than when contemplating moving law firms to find a platform better suited to his or her professional aspirations. The mere whisper of the fact that a lawyer is looking at another firm could be enough to jeopardize his or her career. The delicate job of contacting, meeting and negotiating between candidate firm and candidate lawyer is deservedly considered by both sides to such discussions as a matter requiring the utmost confidentiality. The three dissident partners who were patent agents instead of lawyers were in no less precarious a position after their years of close association with a law firm.

[29] I find that all four dissident partners had a reasonable expectation of confidentiality attending their meetings and negotiations with Gowlings that pre-dated the delivery of an NDA and survived the termination of their negotiations. Each had a reasonable right to expect that Gowlings would keep the information conveyed, including the fact of their meetings, confidential.

[30] The plaintiff appears to treat the matter of confidentiality as being restricted to the contents of the USB drive received by Gowlings in August 2015. The USB drive contained client names and billing information. Such information, they correctly point out, is readily available to the plaintiff in any event. In my view, the plaintiff is viewing the matter of confidentiality far too narrowly.

[31] The entire discussion – including the fact of the discussion – was confidential. The reasonable expectation of confidentiality did not cease when the four dissident partners elected to make arrangements with another law firm instead of Gowlings. The dissident partners had a reasonable expectation that Gowlings would not make public, for example, their compensation or billings history over the past years simply because the negotiations failed to result in an agreement. Furthermore, the NDA by its terms extended to all confidential information imparted in the process and was not limited to documents.

[32] There is no question that Gowlings came into possession of information obtained from the dissident partners that was imparted in circumstances giving rise to a reasonable expectation of confidentiality. While there is some dispute on the evidence as to exactly what confidential information was conveyed, the subject-matters admitted by Gowlings certainly include matters that would be expected to be retained in confidence.

[33] The plaintiff has chosen to target its claims against the new firms with whom the dissidents have become associated (as well as Mr. McBurney) and has not joined the dissident partners personally. In my view, that is a distinction without a difference. There can be no question that Gowlings had no license to use information it received from the four dissident partners against their interests and this litigation directly affects both the reputation and pocket books of the dissident partners in their relationship with the defendant firms.

[34] Does the confidential information held by Gowlings place it in conflict with its duties to the plaintiff? The answer to this question requires a consideration of (i) whether the information received by the Gowlings is relevant to the matter at hand; and (ii) whether there is a risk that it will be used to the prejudice of the party to whom the duty is owed: Chapters Inc. v. Davies Ward & Beck LLP, 2001 ONCA 24189, 52 O.R. (3d) 566 (at para. 23).

[35] There is no question that, based upon the statement of claim as it is presently pleaded, the information relating to the (now disclosed) fact of negotiations with the dissident partners and their substance is both relevant and material to the breach of fiduciary duty and related claims advanced by the plaintiff in the statement of claim. The statement of claim takes specific issue with the solicitation of professional and non-professional staff from the plaintiff and the disclosure of client lists – these precise matters were the object of discussions and negotiations with Gowlings. In my view, the evidence adduced by the moving parties satisfies the “substantial relationship” test applied in Chapters (at para. 28-29). Every aspect of the negotiations with Gowlings would be relevant and potentially material to the plaintiff in framing and prosecuting its claim and preparing its discovery plan.

[36] There remains considerable risk that the information may be used to the prejudice of the defendants. The parties who received the information have sworn affidavits that they have not discussed the confidential information with the litigation team at Gowlings. That is not entirely accurate at least to the extent that the fact and nature of the discussions were revealed to the litigation team by Mr. Joliffe. No formal ethical wall was put in place when the conflict was discovered and none is in place today. Printed copies of the electronic documents created have apparently been shredded, but electronic copies in various Outlook files have been retained.

[37] The plaintiff cannot answer this charge by stating that simply the documents will be produced on discovery in any event. The contents of negotiations, the expectations of the parties communicated, their business plans and strategies, their grievances with the plaintiff firm and discussions of personnel who might follow them – all of these are matters that would be relevant and material to the claim advanced by the plaintiff in this case. The risk extends far beyond mere documents. A plaintiff fore-armed with confidential information can tailor a claim or a discovery plan around that information. As Binnie J. put it in Celanese Canada Inc. v. Murray Demolition Corp., [2006] 2 S.C.R. 189, 2006 SCC 36 at para. 34:

“The defendant’s witnesses ought not to have to worry in the course of being cross-examined that the cross-examiner’s questions are prompted by information that had earlier been passed in confidence to the defendant’s solicitors. Such a possibility destroys the level playing field and creates a serious risk to the integrity of the administration of justice”

[38] Accordingly, I find that the moving party defendants have demonstrated the existence of a conflict between Gowlings’ obligations to maintain confidentiality of the information disclosed by the four dissidents and its obligations towards its own client. The information was received by Gowlings in circumstances where there existed a reasonable expectation of confidentiality that was understood and appreciated by Gowlings. The information received is both material and relevant to the litigation Gowlings has undertaken on behalf of the plaintiff and there remains a risk of the misuse of that information that is neither fanciful nor slight.

(ii) What is the appropriate remedy?

[39] The plaintiff submits that the court should deprive a party of its choice of counsel only as a last resort. The plaintiff has submitted affidavits of the nine Gowlings partners and staff persons who had access to the information attesting to the fact of non-disclosure and the destruction of physical copies of the transmitted data. The plaintiff submits that an ethical wall can be erected – if need be on a more robust basis – to provide reasonable assurances of security of the information going forward.

[40] In my view, the correct approach is the one adopted by Mesbur J. in Greenbriar Holding Inc. v. Canadian Hydrogen Energy Company Ltd., [2006] O.J. No. 3242 (S.C.J.) (at para. 10):

“Generally, in these situations, the court must balance the right of a litigant to retain the lawyer he or she wishes against the right of a party adverse in interest to be secure in the knowledge that there will be no misuse of confidential information obtained by opposing counsel to the adverse party’s detriment. The court must consider these issues from the point of view of the reasonable person, and have regard to both the appearance of conflict, not just actual conflict, as well as the risk of prejudice, not just actual prejudice”.

[41] In Celanese, Binnie J. found (at para 56) that if a remedy short of removing the solicitor will cure the problem, it should be considered. In considering the appropriate remedy, the court reviewed a number of factors that have come to be called the “Celanese factors”. These factors include a consideration of how the information came into the possession of the solicitor, what steps were taken upon recognition of the potential conflict, the stage of litigation, the potential effectiveness of a firewall or other precautionary steps to avoid the mischief.

[42] The confidential information leaked internally at least to the extent that the fact of the prior negotiations was shared with the litigation team soon after they were retained. While most physical copies of the documents received in August had been destroyed shortly after negotiations broke off or when the dissident partners announced their departure, all were not. Some electronic copies of the documents and emails relating to them remain in folders of some of the partners who were involved even now. There may also be internal memoranda created discussing information imparted or analysing the data sent. The evidence before me is a very long way from establishing that a robust and thorough ethical wall has been put in place that would pass scrutiny having regard to the comments of Mesbur J. in Greenbriar quoted above.

[43] Gowlings did not react to its discovery of the possible conflict by immediately applying a comprehensive and effective ethical wall (as happened in Greenbriar). Offering to do so at this stage is rather late in the day. While the initial recipients of the confidential information at Gowlings have sworn they had no discussions with the litigation team managing this file for the plaintiff, the lack of a swift and monitored ethical wall means that it is impossible to verify the degree to which the confidential information has effectively been restricted to that limited group at this stage.

[44] The lack of an immediate and effective prophylactic response to the conflict situation weighs against permitting Gowlings to remain in place and asking the defendants to accept the risk that the tables have not already been unfairly tilted against them or will not be so tilted in future. The plaintiff has a right to counsel of its choice, but it does not have the right to select counsel with an “edge” unfairly gained. The fact that Gowlings have approached the whole issue of confidentiality from the limited perspective of the relatively limited number of documents exchanged raises legitimate apprehensions that other forms of confidential information including face-to-face negotiations and dialogue have not been treated with the same level of concern.

[45] The early stage of this litigation is a factor that supports acting now to cure the conflict decisively when the investment of the plaintiff in its counsel of choice both in terms of fees expended and experience and “file knowledge” acquired is at its lowest.

[46] In my view, it is not reasonable to ask the defendants to accept that their adversary’s counsel should continue in its role subject only to an ethical wall that might now be put in place this long after the fact. The appropriate remedy to deal with the conflict of interest relating to Gowlings role in this matter is to remove them as solicitor of record for the plaintiff.

(iii) Potential witness at trial

[47] The moving party defendants take the position that the relevance and materiality of the interactions of the dissident directors with Gowlings to the breach of fiduciary duty pleading is such that there is a reasonable likelihood that Gowlings partners will be called as material witnesses at trial. That factor, they submit, is another ground for disqualifying Gowlings.

[48] The plaintiff takes the position that the application is premature. It would be mere speculation at this stage to assume that partners of Gowlings would be witnesses at trial or that, if they were called, their evidence would be contentious or of a sort that might require the removal of Gowlings as counsel. The plaintiff’s position is that the trial judge is best situate to consider what steps if any ought to be taken to deal with the eventuality of Gowlings partners being called as witnesses.

[49] The rationale for removing a lawyer who may be a witness and the jurisprudence considering the grounds for doing so are helpfully summarized by Master Glustein (as he then was) in Mazinani v. Bindoo, 2013 ONSC 4744 and includes the following observations with which I agree:

a. The test for removing a lawyer in such circumstances is whether a fair-minded reasonably informed member of the public would conclude that the proper administration of justice requires the removal of the lawyer (at para. 60(iv));

b. Courts should be reluctant to make what may be premature orders preventing lawyers from continuing to act, particularly where the evidence may be obtainable from other sources (at para. 60(x));

c. If there is some doubt or merely a potential that a lawyer will be called, the courts will be more generous in allowing a lawyer to remain on the record and defer the matter until after discoveries or to be considered by the trial judge.

[50] The Divisional Court in Essa (Township) v. Guergis; Membery v. Hill, 1993 ONSCDC 8756, 15 O.R. (3d) 573 heard two separate appeals of orders that had removed solicitors from the record on the basis of their possible appearance as witnesses. The court considered a number of factors to be relevant to such applications, including:

-The stage of the proceedings; -The likelihood the witness will be called; -the good faith (or otherwise) of the party making the application; -the significance of the evidence to be led; and -the impact of removing counsel on the party’s right to be represented by counsel of choice.

[51] The moving party defendants frankly admit that it is difficult to state with certainty whether counsel would be called as a witness. They say that the allegations are sufficiently vague that it is difficult to say whether the plaintiff will narrow its pleading as the litigation proceeds. In my view, the defendants can only assess the likely necessity of witnesses in relation to the pleading as it now stands, not as the plaintiff may later choose to narrow it by later admissions or amendment. It is apparent that the negotiation process in July and September will be material issues in the litigation as the claim is now pleaded. The likelihood of Gowlings partners being needed as witnesses is reasonably probable. There is little likelihood of that evidence not being contentious or being available from other sources given the contradictions that emerged in the affidavits filed in support of this motion.

[52] The moving parties have not been acting in bad faith in my view. They have raised the issue as soon as reasonable practicable. They point out that the plaintiff had formerly been represented by another major litigation firm in prior related proceedings before Gowlings were retained for this action. They have acted to raise the conflict question at a point where the impact upon the plaintiff’s interests will be as slight as reasonably practicable.

[53] In my view, the likely prospect of Gowlings partners being required as witnesses at trial is an added factor that may be taken into account by me in deciding as I do to remove them as counsel in this case. Given my findings regarding the issue of confidentiality, I do not need to rule whether it is a sufficient factor to warrant Gowlings removal at this early stage in the process.

Disposition

[54] The motion is granted and I order that Gowlings should be removed as solicitor for the plaintiff in this action.

[55] If the parties are unable to agree on the matter of costs, written submissions should be exchanged between the parties and delivered to me within 30 days of the release of these reasons. I would ask for submissions to be kept under five pages excluding any Outline of Costs. Cases need not be included unless not readily available on line.

S.F. Dunphy J. Date: June 20, 2016