Court File and Parties

COURT FILE NOs.: CV-17-577158-0000 and CV-17-577158-00A1 (Toronto) MOTIONS HEARD: 2018 07 27

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Mehdi Moradi and Neda Afshar, plaintiffs and Pathik Baxi, Hooshfar Rokni Pezeshkian, Majid Reza Delsouz and Jintao Liu, defendants and Arman Sabet, third party

BEFORE: MASTER R.A. MUIR

COUNSEL: Jonathan Kulathungam for the plaintiff Neda Afshar, moving party Elena Mazinani for the third party Arman Sabet, moving party Fabian Otto for the plaintiff Mehdi Moradi, responding party

REASONS FOR DECISION

[1] There are two motions before the court. The plaintiff Neda Afshar (“Ms. Afshar”) and the third party Arman Sabet (“Mr. Sabet”) both bring motions seeking an order removing Brian Sherman (“Mr. Sherman”) as lawyer of record for the plaintiff Mehdi Moradi (“Mr. Moradi”). Ms. Afshar also seeks an order granting her leave to amend the statement of claim and to be added as a defendant. Mr. Sabet also seeks an order for production of his file from Mr. Sherman. Mr. Moradi is opposed to the relief sought by the moving parties. The defendants take no position on these motions.

BACKGROUND

[2] This action involves the purchase and sale of real estate. In or about 2016, the plaintiffs and the defendants Pathik Baxi (“Mr. Baxi”) and Hooshfar Rokni Pezeshkian (“Mr. Pezeshkian”) formed a joint venture or partnership with the object of purchasing and re-selling real estate. These parties entered into a trust agreement on January 28, 2016 with respect to the purchase of a property located at 109 Kingsdale Avenue, Toronto (the “Property”). Ms. Afshar was appointed as trustee to hold title to the Property.

[3] Ms. Afshar entered into an agreement of purchase and sale on behalf of the partnership on June 22, 2016 (the “APS”). The Property was to be sold to the defendant Majid Reza Delsouz (“Mr. Delsouz”) for $3,120,000.00 with an initial closing date of October 31, 2016. The APS was subsequently assigned to the defendant Jintao Liu (“Liu”).

[4] The closing date was extended by agreement of the parties to November 7, 2016. The purchasers then requested a further extension to November 8, 2016 but Mr. Baxi and Mr. Pezeshkian allegedly refused to provide their consent. The APS did not close as scheduled.

[5] At this point, Mr. Moradi and Ms. Afshar retained Mr. Sherman to act on their behalf in relation to the Property and the APS. A retainer agreement was signed on November 9, 2016.

[6] Mr. Sherman then drafted a statement of claim and this action was commenced in Newmarket on December 1, 2016. This proceeding was subsequently transferred to Toronto pursuant to the order of Justice Myers of March 9, 2017.

[7] Ms. Afshar and Mr. Moradi were named as plaintiffs and sought specific performance of the APS. The plaintiffs also requested a mandatory order requiring Mr. Baxi and Mr. Pezeshkian to cooperate with the sale of the Property and an accounting with respect to the revenues and expenses of the partnership. The plaintiffs also sought punitive damages from Mr. Baxi and Mr. Pezeshkian. The plaintiffs allege that Mr. Baxi and Mr. Pezeshkian had developed a scheme to sell the Property to a non-arms’ length purchaser and then re-sell the Property again and sue Mr. Delsouz and Mr. Liu for damages to the exclusion of the plaintiffs. The plaintiffs allege that they wanted no part of this scheme and that this is why this specific performance action was started. Mr. Baxi and Mr. Pezeshkian deny the allegations made against them by the plaintiffs.

[8] Mr. Sabet was a tenant at the Property. The statement of claim alleges that it may not have been possible for the vendors to close the APS as scheduled because they were unable to provide vacant possession on the closing date due to Mr. Sabet’s tenancy. Mr. Pezeshkian therefore commenced a third party action against Mr. Sabet for damages for allegedly failing to vacate the Property in breach of his lease agreement. The third party claim was issued on March 1, 2017. Mr. Sabet retained Mr. Sherman on or about March 21, 2017 to act on his behalf in defending the third party claim.

[9] Beginning in December 2016, just a few weeks after the statement of claim in this action was issued, the relationship between Mr. Moradi and Ms. Afshar began to deteriorate. Part of their conflict was personal and unrelated to the matters in issue in this action. However, part of their conflict involved this action and the underlying partnership. Ms. Afshar has made allegations that Mr. Moradi renewed and increased a mortgage on the Property without her consent by using her power of attorney, used funds from her account without her permission to make mortgage payments and carried out other allegedly improper transactions with respect to the Property. Ultimately, on March 31, 2017, Ms. Afshar wrote to Mr. Sherman alleging that Mr. Moradi had been lying to her and was trying to cut her out of the partnership. Ms. Afshar then retained her current counsel in June 2017.

[10] In July 2017, the relationship between Mr. Moradi and Mr. Sabet began to deteriorate. Mr. Sabet alleges that he was suspicious of Mr. Moradi with respect to Mr. Moradi’s motivation in allegedly asking Mr. Sabet to remain in possession of the rented unit at the Property despite the scheduled closing date. Mr. Sabet was unhappy that he was being asked by Mr. Sherman to sign an affidavit that suggested that this was not true. Mr Sabet then retained his current counsel on or about July 15, 2017.

THE POSITIONS OF THE PARTIES – REMOVAL OF MR. SHERMAN

[11] Ms. Afshar and Mr. Sabet take the position that Mr. Sherman’s continued representation of Mr. Moradi in this action constitutes a conflict of interest. They also submit that Mr. Sherman’s representation of Mr. Moradi is a breach of his duty of loyalty. They suggest that Mr. Sherman acquired relevant confidential information as part of his retainer which now disqualifies him from acting on behalf of Mr. Moradi in this action. They also argue that they are no longer aligned with Mr. Moradi in terms of their interests in this litigation. That is why Ms. Afshar seeks leave to amend her statement of claim and continue her involvement in this proceeding as a defendant.

[12] Mr. Moradi takes the position that no confidential information was obtained by Mr. Sherman during the course of his retainer by Ms. Afshar and Mr. Sabet. Moreover, Mr. Moradi also argues that there is no conflict between Mr. Moradi and Ms. Afshar or Mr. Sabet in relation to the matters in issue in this action.

ANALYSIS

[13] The leading authority on the issue of disqualifying a lawyer is the Supreme Court of Canada decision in MacDonald Estate v. Martin, [1990] 3 SCR 1235. The following relevant principles emerge from MacDonald Estate:

• these cases require two questions to be answered: did the lawyer receive relevant confidential information and is there a risk that it could be used to the prejudice of the client?
• once a previous lawyer/client relationship is shown which is sufficiently related to the current retainer, the court will infer that confidential information was imparted unless the lawyer satisfies the court that no relevant information was imparted;
• this burden on the lawyer will be difficult to discharge;
• the test is an objective one – it must withstand the scrutiny of the reasonably informed member of the public;
• the court must balance the competing values of the maintenance and integrity of the civil justice system with a litigant’s right to counsel of choice;
• of these factors, the most important and compelling is the preservation of the integrity of our system of justice.

See MacDonald Estate at paragraphs 44 to 51, per Sopinka J. and 57 to 58, per Cory J.

[14] In my view, the moving parties have met the test set out in MacDonald Estate. The previous retainer is not just related to this matter, it is the same matter. Mr. Sherman is continuing to act for Mr. Moradi in the same action in respect of which he acted for Ms. Afshar and Mr. Sabet.

[15] This fact creates a presumption that confidential information was imparted. In my view, the evidence of Mr. Moradi and Mr. Sherman has failed to rebut the strong inference that relevant confidential information has passed to Mr. Sherman from Ms. Afshar and Mr. Sabet.

[16] It is absolutely clear from the evidence that confidential information was provided to Mr. Sherman. The record includes dozens of pieces of correspondence between Mr. Sherman and Ms. Afshar concerning the matters in issue in this very action and her conflict with Mr. Moradi. Ms. Afshar clearly confided in Mr. Sherman in terms of her position in this litigation, her conflict with Mr. Moradi and her motivation, concerns and objectives generally.

[17] Mr. Moradi argues that because this was a joint retainer between him and Ms. Afshar, none of her communications are confidential. I do not accept this argument. Ms. Afshar’s communications with Mr. Sherman may not be confidential with respect to Mr. Moradi but they are certainly confidential with respect to everyone else.

[18] In my view, Mr. Sherman has no right to disclose confidential information given to him by Ms. Afshar to anyone other than Mr. Moradi and perhaps Mr. Sabet. Nevertheless, it appears that this is exactly what he has done in his opposition to Ms. Afshar’s motion to amend her statement of claim. Mr. Moradi is opposed to the motion to amend. Mr. Sherman has sworn affidavits in opposition to the motion to amend. In doing so, he alleges that his former client, Ms. Afshar, is making false allegations in her proposed amended pleading. Mr. Sherman expressly states that he knows this based on information he received from Ms. Afshar. The information Mr. Sherman received from Ms. Afshar is confidential. It is clearly relevant to the matters in issue in this action and the motion to amend the statement of claim. It is obviously being used to the prejudice of Ms. Afshar in opposition to her motion to amend.

[19] The same is true in respect of the motion brought by Mr. Sabet. Mr. Sherman has sworn an affidavit in opposition to that motion which clearly references information he received from Mr. Sabet with respect to what he was told by Mr. Moradi concerning his continued tenancy. This is potentially prejudicial to Mr. Sabet in terms of his defence to the third party claim. I note that in MacDonald Estate the court observed that the burden on the lawyer to show that no confidential information was passed from the client must be discharged without revealing the specifics of privileged communication. See MacDonald Estate at paragraph 46.

[20] In my view, a reasonably informed member of the public would inevitably conclude that confidential information was provided to Mr. Sherman and there is a real risk it could be used to the prejudice of Ms. Afshar and Mr. Sabet as this litigation proceeds. The preservation of the integrity of the justice system requires that Mr. Sherman be removed as lawyer of record for Mr. Moradi.

[21] Regardless of whether confidential information has passed to Mr. Sherman and whether or not there is a risk the information will be used to the prejudice of his former clients, there exists a further reason for an order removing Mr. Sherman. That reason is based on a lawyer’s duty of loyalty to his or her former clients. The applicable principles are summarized in the decision of the Court of Appeal in Consulate Ventures Inc. v. Amico Contracting & Engineering (1992) Inc., 2010 ONCA 788. The court stated as follows beginning at paragraph 22:

22 Counsel submits that lawyers owe a duty of loyalty to their former clients. That duty is not premised on or confined to confidentiality obligations, but flows from a broader concept of fidelity that is essential to the proper functioning of the client/solicitor relationship. Clients must be able to speak frankly and without fear of exposure to their lawyers about their legal problems. To do so, clients must be confident that their lawyers will not become their adversaries' lawyers at some subsequent point in the course of the same dispute. The prospect of one's lawyer switching sides must undermine the confidence essential to the operation of the client/solicitor relationship. There is also concern that if lawyers act against former clients in the same manner, the public confidence in the integrity of the legal profession will suffer. That confidence is crucial to the effective and just administration of justice.

23 The Rules of Professional Conduct of the Law Society of Upper Canada ("Rules") offer cogent support for the duty of loyalty relied on by the respondent. Rule 2.04(4)(a) provides:

• (4) A lawyer who has acted for a client in a matter shall not thereafter act against the client or against persons who were involved in or associated with the client in that matter
• (a) in the same matter[.]

24 No doubt, the Rules are not binding on the courts: MacDonald Estate at p. 1245. The Rules are, however, a clear expression of the profession's concept of the duties owed to former clients. That expression must be given considerable weight by the courts.

25 This court long ago recognized a broad obligation not to act against former clients in the same dispute. In Re R. and Speid (1983), 43 O.R. (2d) 596, a very strong panel of this court dealt with a Crown motion to disqualify the accused's lawyer. That lawyer's partner had acted for the accused's wife in the same investigation. She was now a principal Crown witness.

26 Dubin J.A., speaking for himself, Martin J.A. and Robins J.A. (both former Treasurers of the Law Society), said this at p. 600:

• A client has a right to professional services. Ms. Nugent [the witness] had that right as well as Mr. Speid [the accused]. It was fundamental to her rights that her solicitor respect her confidences and exhibit loyalty to her. A client has every right to be confident that the solicitor retained will not subsequently take an adversarial position against the client with respect to the same subject matter that he was retained on. That fiduciary duty, as I have noted, is not terminated when the services rendered have been completed. [Emphasis added.]

27 Speid and similar cases have been aptly described by P. Perell (now Perell J.) in Conflicts of Interest in the Legal Profession (Toronto: Butterworths, 1995) at pp. 38-42 as the "turncoat cases". In these cases, disqualification is not based on confidentiality concerns but rather "the need to foster and maintain public confidence in the integrity of the legal profession and in the administration of justice."

[22] In my view, this holding is applicable to the facts before the court on this motion. Mr. Sherman is now acting against the interests of his former clients, Ms. Afshar and Mr. Sabet, and in connection with the very same matter. This is prohibited by the applicable rules of professional conduct. It undermines public confidence in the integrity of the legal profession and in the administration of justice. A lawyer’s fiduciary and other duties to his or her client continue after discharge.

[23] The fact that a lawyer’s prior engagement was a joint retainer does not diminish these duties. The potential that a lawyer may have to withdraw if a conflict arises between clients is simply a risk associated with a joint retainer. A risk to the lawyer and a risk to the clients. That is why the Law Society of Ontario’s Rules of Professional Conduct require a lawyer to inform clients of this possibility when entering into a joint retainer and to obtain their consent. See Law Society of Ontario Rules of Professional Conduct, Rules 3.4-5 and 3.4-6. In fact, Mr. Sherman clearly recognized this reality himself. On December 14, 2016 he advised Ms. Afshar in writing that if a conflict arose between her and Mr. Moradi, Mr. Sherman would have to withdraw from representing both of them.

[24] Counsel for Mr. Moradi placed emphasis on the decision of the Federal Court in Saddle Lake Indian Band v. R., 2006 FC 27. In that decision, the court expressed reservations about the suggestion that a lawyer must withdraw altogether when one client from a joint retainer discharges the lawyer. However, it is important to note that the ruling in that case included a finding that the clients’ interests were not adverse. The court also indicated that its position may be different in the event of conflict between the clients. See Saddle Lake Indian Band at paragraphs 3 and 6. Finally, Saddle Lake Indian Band is not binding on this court and was decided before the decision of the Ontario Court of Appeal in Consulate Ventures Inc.

[25] It is important to note that the decision in Consulate Ventures Inc. involved a situation where the lawyer in question had simply reviewed documents and met with the client for two hours 11 years prior to his subsequent retainer by the other side. The lawyer had no recollection of the meeting 11 years earlier. The lawyer had no involvement with the resulting litigation and did not communicate with any other parties connected to the matter. See Consulate Ventures Inc. at paragraphs 1 to 4. Nevertheless, the Court of Appeal held that the lawyer’s duty of loyalty and his professional obligation to promote public confidence in the legal profession and the integrity of the justice system required his removal. See Consulate Ventures Inc. at paragraphs 36 and 37.

[26] The facts before the court on this motion are far more compelling than those found in Consulate Ventures Inc. Mr. Sherman issued the statement of claim in the name of Ms. Afshar and engaged in extensive communications with Ms. Afshar, Mr. Moradi. Mr. Sabet and counsel for the defendants. He drafted affidavits in the name of Ms. Afshar and Mr. Sabet. He drafted a defence to the third party claim on behalf of Mr. Sabet. All of this took place within the last two years. He now acts for Mr. Moradi in opposition to his former clients. In my view, Consulate Ventures Inc. cannot be distinguished given the facts before the court on this motion and is binding on this court. The holding of the Court of Appeal in Consulate Ventures Inc. requires that an order be made in this action removing Mr. Sherman as lawyer of record for Mr. Moradi.

[27] Finally, I see no evidence of an improper purpose on the part of Ms. Afshar and Mr. Sabet in bringing these removal motions, as was suggested by counsel for Mr. Moradi. Their motions are based on very real concerns about their former lawyer acting against them in connection with the same matter that was the subject of his former representation. The issue of Mr. Sherman’s continued representation of Mr. Moradi was raised by Ms. Afshar’s new lawyer immediately following his retainer. Ms. Afshar and Mr. Sabet are not seeking to delay this matter. Any delay in having this motion heard has not been the responsibility of the moving parties. All adjournment requests were made by counsel for Mr. Moradi.

[28] For these reasons, I have concluded that Mr. Sherman must be removed as lawyer of record for Mr. Moradi.

LEAVE TO AMEND THE STATEMENT OF CLAIM

[29] Ms. Afshar seeks leave to amend the statement of claim. She argues that given the conflict that has arisen between her and Mr. Moradi, it is no longer appropriate for her to continue as a plaintiff. Unlike Mr. Moradi, Ms. Afshar no longer seeks specific performance of the APS. She now seeks a declaration that the APS is null and void and claims damages from the purchasers. Ms. Afshar also seeks to counterclaim against Mr. Moradi for damages, an accounting of the partnership affairs and an order for partition and sale of the Property.

[30] Rule 26.01 is mandatory. Leave to amend a pleading shall be granted at any time unless prejudice would result that cannot be compensated for by costs or an adjournment. There is no evidence of non-compensable prejudice. There is no suggestion here of the expiry of a limitation period. The events giving rise to this action took place in the fall of 2016, less than two years ago. Mr. Sherman and counsel for Mr. Moradi argued that the allegations in Ms. Afshar’s proposed pleading were false. However, it is not the role of the court on a motion to amend a pleading to assess the merits of the proposed amendments. The court must accept the allegations as true and provable. See Andersen Consulting Ltd. v. Canada (Attorney General), [2001] OJ No. 3576 (CA) at paragraphs 34 and 35.

[31] Mr. Moradi also argued that the allegations now being made by Ms. Afshar amount to the withdrawal of admissions for which leave is required. To the extent that leave is required, I am satisfied with Ms. Afshar’s explanation for her change of position. Her evidence is that it was only after the statement of claim was issued that she learned that Mr. Moradi was allegedly attempting to acquire the Property for himself to the exclusion of the other partners. For the purposes of this motion, it does not matter whether these allegations are true or false. I am satisfied that Ms. Afshar has provided a reasonable explanation. Her change of position is based on after acquired information.

[32] I am therefore granting leave to Ms. Afshar to amend her pleading as requested at paragraph (b) of her amended notice of motion.

PRODUCTION OF MR. SABET’S FILE

[33] Mr. Sabet seeks production of his file from Mr. Sherman. Mr. Sherman’s evidence is that he has reviewed Mr. Sabet’s file and produced everything from that file. I note that a great deal of material from the files for Ms. Afshar and Mr. Sabet have been produced to the parties as part of the evidence on these motions. The specific items identified in Mr. Sabet’s notice of motion (pleadings, correspondence, memoranda, notes, accounts and retainer) appear to have been produced or do not exist. There is no evidence of any specific documents that may be missing. I see no basis for an order for production of anything further from Mr. Sabet’s file at this time.

ORDER

[34] I therefore order as follows: (a) Mr. Sherman is hereby removed as lawyer of record for Mr. Moradi in actions CV-17-577158-0000 and CV-17-577158-00A1; (b) Mr. Moradi shall, within 60 days, appoint a new lawyer of record or serve a notice of intention to act in person; (c) Ms. Afshar is hereby granted leave to amend the statement of claim and to be added as a defendant to action CV-17-577158-0000 in accordance with the draft statement of defence, counterclaim and crossclaim attached as schedule A to her amended notice of motion dated November 28, 2017; and, (d) the relief with respect to the production of Mr. Sabet’s file is dismissed.

[35] If the parties are unable to agree on the issue of the costs of these motions, they shall provide the court with brief submissions in writing by September 13, 2018. These submissions shall be filed directly with the masters’ administration office, 393 University Avenue, 6th floor, Toronto.

Master R.A. Muir DATE: 2018 08 02