CITATION: W.C. Thornton v. Zamirski et al., 2017 ONSC 6464
COURT FILE NO.: CV 16-094
DATE: 20171027
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: W.C. Thornton of Meaford Limited, Plaintiff
and
Mark A. Zamirski and Nova Initium Capital, Defendants
BEFORE: Justice C.J. Conlan
COUNSEL: Gavin H. Leitch, for the Plaintiff
Sakina Babwani, for the Defendants
E N D O R S E M E N T
Conlan J.
I. Introduction
[1] The Plaintiff, W.C. Thornton of Meaford Limited (“Thornton”), has sued the Defendants, Mark Zamirski (“Zamirski”) and Nova Initium Capital (“Nova”).
[2] The Statement of Claim, issued in late April 2016, seeks damages in the amount of $280,000.00, plus interest and costs.
[3] Thornton is a corporation that seeks investment opportunities in the southern Georgian Bay area.
[4] Nova is a corporation that provides financing for litigation, specifically, personal injury claims.
[5] It is alleged that Zamirski, on behalf of Nova, contacted Thornton with regard to investment opportunities in litigation financing.
[6] It is alleged that, commencing in November 2013, Thornton and Nova entered into a series of Investment Loan Contracts. The purpose of the agreements was to fund personal injury claims across the country. Thornton asserts that it paid money to Nova and was promised certain returns on those investments.
[7] It is alleged that Thornton advanced to Nova, or to Zamirski on behalf of Nova, a total of $280,000.00, but it became apparent that the representations made by Zamirski on behalf of Nova were not coming to fruition.
[8] Hence, the lawsuit.
[9] There is no dispute that Thornton invested the sum of $280,000.00. But the Defendants state that the amounts claimed as owing under the various contracts are not accurate, and in fact some amounts have not yet become due. An accounting needs to be completed, according to the Defendants.
[10] Faced with what it perceived to be a rather weak Statement of Defence, Thornton moved for summary judgment.
[11] That Motion came before the Court on October 12, 2017. At that time, Justice Fitzpatrick adjourned the Motion, at the request of the Defendants, to allow the Defendants to bring their own “preliminary motion” regarding an alleged conflict of interest.
[12] Here we are. The Defendants have indeed brought that “preliminary motion”.
[13] We are not dealing at this time with Thornton’s Motion for summary judgment but rather just the Defendants’ Motion.
II. The Motion
[14] Among other less important items, the Defendants move for the following relief: (i) an Order removing Gavin Leitch (“Leitch”) as counsel for Thornton as a result of an alleged conflict of interest with the Defendants, and (ii) an Order permitting the Defendants to file an Amended Statement of Defence.
[15] The draft amended pleading is included in the Motion Record. A key amendment is to argue, for the first time, that all or part of Thornton’s Claim is statute-barred by the Limitations Act, S.O. 2002, c. 24, Schedule B, as amended.
[16] On the issue of the conflict of interest, the Defendants assert that Leitch was retained by Diana Zderic (“Zderic”), director of Nova, in or around June 2015, to incorporate a golf club. The purchase of that club was later funded by Nova.
[17] Allegedly, Leitch, through that retainer, acquired confidential information about Nova, and that information may be used against the Defendants in the current litigation.
[18] Zderic is the wife of Zamirski.
[19] The Defendants’ Motion is supported by a very brief Affidavit sworn by Zamirski. It includes a bald assertion that Zamirski believes that Leitch, in the current litigation and specifically in the context of Thornton’s Motion for summary judgment, had access to confidential information regarding Nova by virtue of the prior retainer concerning the golf club.
[20] No other details are provided. Nothing.
[21] The Defendants’ Motion is supported further by an Affidavit sworn by a legal assistant in the law firm representing the Defendants. That Affidavit, as far as it deals with the alleged conflict of interest issue, is entirely hearsay. It relies exclusively on information supposedly provided by Zamirski. Ironically, much of that information is not contained in Zamirski’s own Affidavit.
[22] In any event, the legal assistant’s Affidavit states that Leitch acquired information through the prior retainer about Nova’s finances, corporate structure and business activities.
[23] The legal assistant’s Affidavit points to Thornton’s Factum in support of its Motion for summary judgment, specifically, Thornton’s submission that Zamirski should be held personally liable because the circumstances suggest that Nova may be involved in fraudulent activity and/or because Zamirski may not have had the legal capacity to bind Nova vis a vis the contracts.
[24] The implication is that the said submission by Thornton is based on confidential information acquired by Leitch through the prior retainer.
[25] The legal assistant’s Affidavit also points to another portion of Thornton’s Factum in support of its Motion for summary judgment, specifically, Thornton’s submission that the contracts in question may not have been drafted by a lawyer.
[26] Again, the implication is that the said submission by Thornton is based on confidential information acquired by Leitch through the prior retainer.
[27] Beyond the above, there is no evidence in support of the assertion that Leitch has a conflict of interest.
[28] The Affidavit material filed in response to the Defendants’ Motion includes alleged further details about Leitch’s prior retainer in question. Leitch was not retained by Zderic but by someone with another name. If that other name is in fact the same person as Zderic, it matters not as the incorporation file for the golf club contains no mention of Zderic or Nova or Zamirski.
III. Analysis
The Law
[29] At any stage of an action, it is presumed that a party will be permitted to amend its pleading, unless there is non-compensable prejudice that would result to the other side: 26.01 of the Rules of Civil Procedure.
[30] With regard to the conflict of interest issue, in terms of basic principles, one need look no further than the decision of the Supreme Court of Canada in Canadian National Railway Co. v. McKercher LLP, [2013] 2 SCR 649, 2013 SCC 39.
[31] Paragraphs 19 through 24 of that decision are important for our purposes.
[19] A lawyer, and by extension a law firm, owes a duty of loyalty to clients. This duty has three salient dimensions: (1) a duty to avoid conflicting interests; (2) a duty of commitment to the client’s cause; and (3) a duty of candour: Neil, at para. 19. I will consider each in turn.
- Avoiding Conflicts of Interest
(a) English Origins
[20] Canada’s law of conflicts as administered by the courts is based on precedents rooted in the English jurisprudence. Traditionally, the main concern was that clients not suffer prejudice from a lawyer’s representation — at the same time or sequentially — of parties adverse in interest. Disqualification of a lawyer from a case was reserved for situations where there was a real risk of harm to the client, as opposed to a theoretical possibility of harm: see, for example, Cholmondeley v. Clinton (1815), 19 Ves. Jun. 261, 34 E.R. 515; Bricheno v. Thorp (1821), Jacob 300, 37 E.R. 864; Taylor v. Blacklow (1836), 3 Bing. (N.C.) 235, 132 E.R. 401. The rule was not absolute or “bright line”, but pragmatic. Courts looked to the circumstances of each case and sought to determine whether it was realistic to conclude that the client would suffer some form of harm. Fletcher Moulton L.J.’s statement in Rakusen v. Ellis, [1912] 1 Ch. 831 (C.A.), catches the flavour of the English common law approach:
As a general rule the Court will not interfere unless there be a case where mischief is rightly anticipated. . . . [W]here there is such a probability of mischief that the Court feels that, in its duty as holding the balance between the high standard of behaviour which it requires of its officers and the practical necessities of life, it ought to interfere and say that a solicitor shall not act. Now in the present case there is an absolute absence of any reasonable probability of any mischief whatever. [p. 841]
(b) The Martin Test: A Focus on Risk of Prejudice and Balancing of Values
[21] In the Martin case, this Court (per Sopinka J.) adopted the English common law’s focus on protecting the client from real risks of harm, although it diverged from some of the English case law with respect to the exact level of risk that should attract the conflicts rule. The issue in Martin was whether a law firm should be disqualified from acting against a party because a lawyer in the firm had received relevant confidential information in the course of her prior work for that party. As will be discussed further below, the Court held that a firm cannot be disqualified unless there is a risk of prejudice to the client, although in some cases the client benefits from a presumption of risk of prejudice: pp. 1260-61.
[22] In addition to retaining an emphasis on risk of prejudice to the client, the Court concluded in Martin that an effective and fair conflicts rule must strike an appropriate balance between conflicting values. On the one hand stands the high repute of the legal profession and the administration of justice. On the other hand stand the values of allowing the client’s choice of counsel and permitting reasonable mobility in the legal profession. The realities of large law firms and litigants who pick and choose between them must be factored into the balance. As was the case in the English common law, the Court declined to endorse broad rules that are not context-sensitive.
(c) Types of Prejudice Addressed by Conflict of Interest Rules
[23] The law of conflicts is mainly concerned with two types of prejudice: prejudice as a result of the lawyer’s misuse of confidential information obtained from a client; and prejudice arising where the lawyer “soft peddles” his representation of a client in order to serve his own interests, those of another client, or those of a third person. As regards these concerns, the law distinguishes between former clients and current clients. The lawyer’s main duty to a former client is to refrain from misusing confidential information. With respect to a current client, for whom representation is ongoing, the lawyer must neither misuse confidential information, nor place himself in a situation that jeopardizes effective representation. I will examine each of these aspects of the conflicts rule in turn.
(d) Confidential Information
[24] 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 or 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?: Martin, at p. 1260. 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: p. 1260.
The Law as Applied to Our Facts
[32] The request to amend the Statement of Defence is granted. The action is still in an early stage. There is no prejudice to Thornton. None was even advanced.
[33] Of course, Thornton will be permitted to reply to the amended pleading delivered by the other side. I have considered the request made today by counsel for Thornton to allow the Plaintiff to amend its actual Claim. There is no need for that. The anticipated Reply will suffice.
[34] On the conflict of interest matter, Zamirski’s Affidavit is essentially useless.
[35] The legal assistant’s Affidavit, looking beyond the hearsay, is more useful. But it totally ignores the fact that the Factum filed by Thornton on its Motion for summary judgment is not evidence. So what does it matter if it refers to things that Leitch allegedly obtained in confidence through the prior retainer?
[36] Decisions on Motions are based on the evidence. Facta are a form of advocacy and are helpful to the presiding Judge, however, they are not evidence.
[37] Further, I accept that Leitch’s prior retainer, even if it was with Zderic, had nothing to do whatsoever with Nova or Zamirski.
[38] As such, not only did Leitch not acquire any confidential information about Nova, he had no opportunity to do so.
[39] There is no conflict of interest. There is no appearance of any conflict of interest.
[40] Applying the principles outlined by the Supreme Court of Canada in the decision cited above, particularly at paragraph 24, the two retainers in our case are not related in any material way. There is no heightened risk, or any risk, of prejudice.
[41] I see this issue of an alleged conflict of interest as unmeritorious.
IV. Conclusion
[42] For these reasons, the Motion is granted in part.
[43] The Defendants may amend their pleading as per the draft supplied. The Plaintiff will be permitted to reply in accordance with the Rules.
[44] The remaining relief prayed for in the Defendants’ Motion is denied. I will hear oral submissions by counsel today on the scheduling of Thornton’s Motion for summary judgment, and I will entertain submissions on costs of the Defendants’ Motion.
Conlan, J.
DATE: October 27, 2017
COURT FILE NO.: CV 16-094
DATE: 20171027
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: W.C. Thornton of Meaford Limited and Mark A. Zamirski and Nova Initium Capital
BEFORE: Justice C.J. Conlan
COUNSEL: Gavin H. Leitch, for the Plaintiff
Sakina Babwani, for the Defendants
ENDORSEMENT
Conlan, J.
DATE: October 27, 2017