COURT FILE NO.: CV-6516-17CL
DATE: 2018-05-22
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Cy Rheault Construction Ltd.
Plaintiff
– and –
Danark Enterprises Limited and The Bank of Nova Scotia
Defendant
Dan J. Leduc, for the Plaintiff
Peter J. Doucet, for the Defendant
HEARD: April 27, 2018
DECISION ON MOTION
GAUTHIER J.:
[1] The moving party, “Danark”, has brought a motion for the following relief:
a) An order directing that all motions in the within proceedings be held before a particular justice of the Superior Court of Justice to be named.
b) An order for directions with respect to the cross examination of Roger Rheault in respect of his motion to remove Peter J. Doucet as solicitor for the defendants herein.
c) An order for the sealing of the affidavit of Louise Lamothe sworn August 2, 2017 with the said affidavit only be available to the justice hearing the removal motion, on consent of the parties.
[2] The responding party, Cy Rheault Construction Ltd. (“Cy Rheault”), opposes the relief sought in (a) and (b) above. On April 27, 2018, at the conclusion of the hearing of the motion, I made an order, on consent, sealing the affidavit of Louise Lamothe.
[3] In November 2014, Roger Rheault, the owner of Cy Rheault, retained Peter Doucet, “Doucet”, a Timmins lawyer, to act for him in matrimonial proceedings. The issues between Roger Rheault and his spouse were strictly financial: spousal support, child support, and equalization of net family property.
[4] Throughout the course of the retainer, and in his role as matrimonial counsel, Doucet, became privy to a great deal of information about Roger Rheault’s company, Cy Rheault Ltd, including information contained in corporate Minute Books/organizational information, corporate financial statements as well as income tax returns.
[5] On March 4, 2015, Roger Rheault terminated Doucet’s retainer. It appears that the spousal litigation was still ongoing at that time.
[6] On February 27, 2017, Cy Rheault commenced a construction lien action against Danark, by way of Statement of Claim. The claim relates to a contract between the parties, entered into in or around April 2016, for the demolition of an existing building and the construction of a new building on the lands owned by Danark, in the City of Sudbury.
[7] Danark delivered a Statement of Defence and Counterclaim alleging delays on the part of Cy Rheault as well as deficiencies and non-payment by Cy Rheault of certain sub-trades. Danark retained Doucet in connection with the construction lien action and he is the counsel of record in the action.
[8] Cy Rheault brought a motion to remove Doucet as counsel of record for Danark, initially returnable on May 19, 2017. That motion remains outstanding.
[9] On August 17, 2017, Doucet served Roger Rheault with a Notice of Cross-Examination, confirming that he would be cross-examining Roger Rheault on his affidavit in support of the removal motion. October 30, 2017 was the agreed upon date for the cross-examination of Roger Rheault.
[10] During the month of October 2017, Doucet and Leduc, counsel for Cy Rheault corresponded extensively concerning the propriety of Doucet conducting a cross-examination of Roger Rheault, a former client. Roger Rheault objected to Doucet cross-examining him. Doucet insisted that there was no valid impediment to him conducting that cross-examination.
[11] The removal motion is not before me.
Issues
[12] The issues are:
a) Should Doucet be permitted to cross-examine Roger Rheault on his affidavit in support of his removal motion, in the context of the construction lien action, when Doucet acted for Rheault previously in the matrimonial proceeding?
b) Is an order that all motions in the construction lien proceeding be heard by the same judge justified or necessary.
Danark’s Position
[13] Cy Rheault’s motion to remove Doucet as counsel for Danark is a frivolous motion to prevent Danark from being represented by its counsel of choice, Doucet.
[14] Doucet has been the long time personal and corporate counsel for the president of Danark, the corporation, and members of the president’s family. He is the family’s “trusted legal advisor”. Danark should not have to establish a relationship with a new litigation lawyer, with whom it does “not have the long history of trust and positive dealings” that it has had with Doucet for decades.
[15] The removal motion and the refusal to allow Doucet to cross-examine Roger Rheault are part of a tactical position being taken by Cy Rheault in an attempt to delay the construction lien proceedings. This is evidenced by the delay in objecting to Doucet conducting the cross-examination of Roger Rheault, among other things.
[16] Although Doucet does have private and confidential information about Roger Rheault and Cy Rheault, that he obtained while counsel in the matrimonial proceeding, none of that information is relevant to the issues raised in the construction lien action which is a straightforward, simple matter of whether work was done properly and on time, and whether payment for the work was made.
[17] Doucet simply wishes to ask a few questions of Roger Rheault about the nexus, if any, between the information obtained in the course of the prior matrimonial proceeding, and the construction lien action, in which Roger Rheault’s company is the plaintiff.
[18] Finally, Doucet submits that, in any event, he would not be allowed to use any confidential or private information obtained in the earlier proceedings, against Cy Rheault.
Cy Rheault’s Position
[19] As a result of having represented Roger Rheault in the matrimonial proceeding, Doucet obtained, and continues to have highly private and confidential information and documents related to Cy Rheault that are relevant to the construction lien action, including the following:
a) All correspondence between Mr. Rheault, Mr. Doucet, opposing counsel, Cy Rheault’s accountant and Cy Rheault’s corporate counsel, Mr. Greiner.
b) All correspondence related to the engagement of the valuator including two memorandums; one memorandum summarizing the acquisition of shares in Cy Rheault; and a second memorandum on the overall corporate organization of all of Mr. Rheault’s companies and the interplay between them all.
c) Copies of all of Mr. Doucet’s accounts.
d) The memorandum provided by Mr. Greiner to Mr. Doucet about Mr. Rheault’s acquisition of Cy Rheault shares. The memorandum includes complete and unredacted copies of share purchase agreements detailing the terms and amounts of each transaction. The memorandum details dividends declared as recently as 2013, the ownership structure of Cy Rheault and includes copies of the shareholders register and the shareholders ledger.
e) Copies of Mr. Doucet’s notes recorded over the course of the retainer. Aside from the sensitive personal issues detailed in the notes, the notes further disclose that Mr. Doucet had extensive and lengthy conversations with Cy Rheault’s accountant and corporate counsel about Cy Rheault’s financials.
[20] Doucet was and is privy to extensive information about Cy Rheault that would give Danark “an immense advantage in these proceedings,” including:
a) Cy Rheault’s tax planning and asset protection structure;
b) All properties owned by Cy Rheault, including their locations and value;
c) Copies of parcel registries and appraisals of all properties owned by Cy Rheault;
d) Details of all the leases held by Cy Rheault;
e) Copies of three years of Cy Rheault’s financial ledgers and tax returns;
f) Detailed history of Cy Rheault’s financial health and profits since inception; and
g) A breakdown of Cy Rheault’s work volume.
[21] The financial aspect of Roger Rheault’s matrimonial proceedings gave Doucet access to the highly sensitive financial information about Cy Rheault, the Plaintiff in the action that Doucet is now acting against.
[22] Given that Doucet has confidential information from the matrimonial matter, that is relevant to the construction lien action, Doucet is automatically disqualified from acting against Cy Rheault, and conducting the cross-examination of Roger Rheault.
[23] Roger Rheault is concerned that Doucet will misuse the confidential information about Cy Rheault, to the prejudice of both Roger Rheault and Cy Rheault. Put another way, Roger Rheault’s concern is that “Doucet has leverage in the upcoming cross-examination by virtue of the sensitive personal and corporate information he became privy to through the previous retainer.”
[24] Allowing Doucet to cross-examine his former client would have a damaging impact on the legal profession and impact on the ability of clients to speak to their lawyer honestly.
[25] The Rules of Professional Conduct state that a lawyer who is a necessary witness should “entrust the conduct of the case to another lawyer.” This includes the cross-examination of Roger Rheault in this case.
[26] Finally, Cy Rheault submits that a reasonably informed member of the public would be rightly concerned about the improper use of privileged and confidential information by Doucet in a cross-examination of his former client.
The Law
[27] Although the removal motion is not before me, I must nonetheless turn my mind to the law that governs the issue of conflict of interest to inform the decision whether or not Doucet should be permitted to cross-examine his former client, Roger Rheault.
[28] As was stated in MacDonald Estate v. Martin, 1990 Carswellman 233:
In determining whether a disqualifying conflict of interest exists, the court is concerned with balancing three competing values: the maintenance of the high standards of the legal profession and the integrity of the judicial system, the right of litigants not to be deprived of their counsel without good cause, and the desirability of permitting reasonable mobility in the legal profession…the appropriate test must be such that the public, represented by the reasonably-informed person, would be satisfied that no use of confidential information would occur.
[29] In applying the test, two questions must be answered: (1) did counsel receive confidential information as a result of the solicitor-client relationship, relevant to the matter at hand, and (2) is there a risk that such information will be used to the client’s prejudice.
[30] Sopinka J. in MacDonald Estate said this about the first question to be posed:
In my opinion, once it is shown by the client that there existed a previous relationship which is sufficiently related to the retainer from which it is sought to remove the solicitor, the Court should infer that confidential information was imparted unless the solicitor satisfies the Court that no information was imparted which could be relevant. This will be a difficult burden to discharge. Not only must the Court’s degree of satisfaction be such that it would withstand the scrutiny of the reasonably informed member of the public that no such information passed, but the burden must be discharged without revealing the specifics of privileged communication.
[31] Still dealing with the first question, the onus is on the client or former client to show that there existed a “previous relationship which is sufficiently related to the retainer from which it is sought to remove the solicitor.” Macdonald Estate, headnote.
[32] On the issue of relevance, the court in Moffat v. Wetsein, 1996 CanLII 8009 (ON SC), 29 O.R. (3d) 371, 1996 CarswelOnt 2148 (Gen. Div.) said the following, at paragraphs 94-95:
…in order to be relevant to a matter at hand, the confidential information gained through the solicitor and client relationship does not necessarily have to have a factual connectiveness with the issues in the present retainer. Rather, legitimate concerns are raised when a solicitor has acquired confidential information with respect to a party’s financial and business affairs and purports to conduct litigation adverse to that party.
[33] With regard to the second question relating to the risk of misuse of confidential information, the court in Sharp Electronics of Canada Ltd. V. Battery Plus Inc., 2000 CarswellOnt 2445, said this, at paragraph 13:
The reason why a counsel may be removed from the record is not the probability of mischief if counsel for a party possesses confidential information obtained while acting for the opposite party in the same or a sufficiently related matter. That probability cannot be proved or disproved. The test is that the public represented by a reasonably informed person must be satisfied that no use of confidential information would occur if the counsel were permitted to act for the present client in an action against a former client.
The goal is to ensure, in the eyes of the reasonably informed member of the public, possessed of all the facts, that even an appearance of impropriety should be avoided.
[34] Kurke J. said it this way in Boston-Cloutier v. Boston, 2015, ONSC 2510:
A solicitor may be disqualified from representing a party where the lawyer finds him or herself in a conflict of interest, or where the lawyer may become a witness at trial, or even if his or her conduct of a case creates an appearance of impropriety because of previous contacts with the opposing party. The fact that there was nothing untoward about the previous conduct does not detract from the need to protect public confidence in the administration of justice. Rather, the guiding issue has been determined to be: Would a reasonably informed member of the public think that the solicitor should be disqualified from continuing to act for the party?: MacDonald Estate v. Martin, 1990 CanLII 32 (SCC), [1990] 3 S.C.R. 1235, at 1259-1260; Fitzgerald v. Sharp, [2004] O.J. No. 4110 (Sup. Ct.), at paras. 11-12, 15; Everingham v. Ontario, 1992 CanLII 7681 (ON SC), [1992] O.J. No. 304 (C.A.), at page 7 (QL).
Analysis
[35] The plaintiff (defendant by Counterclaim) in the construction lien is the company owned by Roger Rheault. Doucet obtained and continues to have access to personal, private and confidential information about both Roger Rheault and the company, Cy Rheault, against whom Doucet is now acting. It is precisely the financial aspect of the prior divorce proceedings that are of concern to Roger Rheault. The evidence establishes that Roger Rheault feels that he is being put in a very uncomfortable and unjustifiable position if Doucet, his former counsel, is permitted to cross-examine him about the basis for his perception that Doucet is in a conflict of interest position by virtue of his representation of Danark in the proceedings against Cy Rheault, being armed with a significant amount of sensitive and confidential financial information.
[36] Cy Rheault feels it is at risk of “serious and irreversible prejudice” in the construction lien action.
[37] As MacDonald Estate instructs, at page 11, in discussing the expression of a professional standard in a code of ethics:
The statement in Chapter V should therefore be accepted as the expression by the profession in Canada that it wishes to impose a very high standard on a lawyer who finds himself or herself in a position where confidential information may be used against a former client. The statement reflects the principle that has been accepted by the profession that even an appearance of impropriety should be avoided. (my emphasis)
[38] Although Doucet’s argument that there is no nexus between the information gleaned in the course of the retainer in the matrimonial litigation and the issues in the construction lien action has superficial appeal, in the end, it is not persuasive, nor determinative of the issue.
[39] The observation in Moffat v. Wetsetin, supra, regarding legitimate concerns being raised when a lawyer has acquired confidential information regarding a party’s financial and business affairs, and that lawyer subsequently purports to act against that party, is applicable here.
[40] As well, like the law firm in Canada Trustco Mortgage Co. v. Corkum, (1991) C.P.C. (2d) 90, it is not Doucet’s integrity which is in question, but rather the former client’s discomfort with the potential use by the former counsel of confidential information, and the potential knowledge of the strengths and weakenesses of Roger Rheault and Cy Rheault company. It is not a stretch to presume that very personal information, together with confidential corporate and financial information was imparted to Doucet in his role as counsel in the matrimonial proceeding. A reasonably informed person would likely assume that the prior relationship between Doucet and Roger Rheault could well give the former a tactical advantage in his litigation strategy against Cy Rheault.
[41] As a result, and as was the case in 781332 Ontario Inc. v. Mortgage Insurance Co. of Canada (1991), 1991 CanLII 7076 (ON SC), 5 O.R. (3d) 248, out of concern for appearances which might reflect adversely on the integrity of the administration of justice, I conclude that Danark’s right to be represented by counsel of its choice must yield “to the paramount public interest in preserving the integrity of the system, as well as its appearance.” (paras. 17-18).
[42] Accordingly, the Order will be that Doucet is not permitted to conduct or be present for the cross-examination of Roger Rheault on his Affidavit of April 11, 2017. Mr. Doucet is not to assist whichever counsel does conduct the cross-examination, if it proceeds.
[43] Turning now to the request for the designation of a case management judge. The request is denied. Danark’s own evidence (through the Affidavit of Mark Torchia) is that the construction lien action is, absent the issue of conflict, “a very simple construction lien file”. The matters raised in that litigation are neither complicated nor complex, nor do they involve two or more proceedings involving similar issues. The test for the appointment of a case management judge is simply not met.
Order
[44] Order to issue as follows:
Any cross-examination of Roger Rheault on his Affidavit of April 11, 2017, shall not be conducted by Peter Doucet.
The request for an Order pursuant to Rule 37.15 is denied.
[45] In the event that the parties are unable to agree on costs, they shall communicate with the trial coordinator within 20 days of the date of this Order to set a date and time for the hearing of the issue of costs, which can be done by way of teleconference call. If neither party communicates with the trial coordinator in the time specified above, the parties will be taken to have agreed on costs.
The Honourable Madam Justice Louise L. Gauthier
Released: May 22, 2018
COURT FILE NO.: CV-6516-17CL
DATE: 2018-05-16
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Cy Rheault Construction Ltd.
Plaintiff
– and –
Danark Enterprises Limited and The Bank of Nova Scotia
Defendant
Decision on Motion
Gauthier J.
Released: May 16, 2018