Court File and Parties

Court File No.: CV-18-602234 Released: 2019/06/11

Superior Court of Justice - Ontario

Re: Royal Bank of Canada, Plaintiff And: Nickolaos Bouzios aka Nick Bouzios aka Nick Bouzios cob as Huntingwood Capital and Iro Nikolaidis et al., Defendants

Before: Master Graham Heard: June 5, 2019

Counsel: Gregory W. Bowden for the plaintiff (moving party) Murray N. Maltz for the responding defendants Bouzios and Nikolaidis

Reasons for Decision

(Plaintiff’s motion to remove counsel for the defendants Bouzios and Nikolaidis)

[1]

Reasons for Decision

The plaintiff Royal Bank of Canada (“RBC”) claims damages from all of the defendants in the action on the basis that they were participants in a fraud against it with respect to six loans to six corporations, and seeks a tracing order with respect to the proceeds. RBC alleges that the defendant Bouzios was the “loan broker/business advisor” who, along with the co-defendant Kageepan Nadarajah, orchestrated the various frauds by assisting the prospective lenders with the preparation of forged and misleading documents, and subsequently shared in the proceeds. RBC alleges that the defendant Nikolaidis, who is Bouzios’ spouse, shared in the proceeds of one of the frauds.

2Murray Maltz is the lawyer of record for the defendants Bouzios and Nikolaidis (“the Bouzios defendants”). RBC alleges that certain of the proceeds of the frauds passed through Mr. Maltz’s trust account and now moves to remove Mr. Maltz as lawyer of record for those defendants on the basis that he will be a witness at the trial of the action. RBC does not allege that Mr. Maltz was aware of the frauds and acknowledges that there was no impropriety on his part.

3For the following reasons, I have concluded that Mr. Maltz should not be removed as the lawyer of record for the Bouzios defendants and I have dismissed RBC’s motion.

Evidence on the motion

[4]

Evidence on the motion

RBC’s evidence on this motion is contained in the affidavit of Dora Simoes-Pereira, the plaintiff’s Manager of Investigations-Ontario. She deposes that in each of the cases of fraud that is the subject of this action, a borrower, using the services of the defendant Bouzios, claimed to be borrowing funds to open a business, and submitted false banking records. The funds were not used to open a business, were widely disbursed, and some of the funds were traced to Mr. Maltz’s account.

5The details of funds allegedly received by Mr. Maltz are:

• Of the funds advanced by RBC to the defendant Dara Physiotherapy & Rehab Centre, $260,680.74 was placed into the account of the defendant 2251654 Ontario Inc. which subsequently transferred $25,000.00 to Mr. Maltz’s trust account.
• Mr. Maltz received proceeds of another alleged fraud in respect of a loan to a company called Airman Group. Some of the proceeds of this alleged fraud were moved to a corporation called Eurocraft Kitchen Renovations & Contracting Ltd. from which $15,000.00 was transferred to Mr. Maltz’s trust account. This alleged fraud is not the subject of the action before me, and Airman Group and Eurocraft Kitchen Renovations are not defendants in this action. Further, RBC’s evidence does not state that Mr. Bouzios was involved in the loan to Airman Group.
• With respect to a loan to 2439052 Ontario Inc., which involved the defendant Bouzios, Mr. Maltz received $205,000.00, at the direction of the borrower. Of this amount, $20,000.00 was disbursed to Bouzios as a broker fee. This alleged fraud is not the subject of the action before me and 2439052 Ontario Inc. is not a defendant in this action.

6RBC’s evidence also includes a statement that it is commonplace for fraudsters to make use of lawyers when moving the proceeds of frauds. At trial, RBC intends to examine Mr. Maltz and other lawyers involved “to give evidence and produce documents to show what was done with the loan proceeds”, to assist with tracing the funds.

7Finally, on February 6, 2019, RBC served Mr. Maltz by email with what purports to be a request to admit that he received $25,000.00 with respect to each of two loans to “Inthu” (presumably the defendant 9705511 Canada Inc. o/a Inthu Computer Consultant Services) and to “Dara” (presumably the defendant 984746 Canada Inc. o/a Dara Physiotherapy & Rehab Centre). Mr. Maltz replied later the same day that “I never received this money nor do I know who these people are.”

8Mr. Maltz’s evidence is contained in the affidavit of his legal assistant Shannon Brown, as follows:

• He has no previous knowledge of the allegations against the Bouzios defendants in the statement of claim and no knowledge of their relationship with the plaintiff or co-defendants.
• He has been retained by the Bouzios defendants on three other matters, once for Bouzios to incorporate a company not related to this action, once to purchase a residential property for both Bouzios defendants for which he has no knowledge of the source of funds, and once to arrange a new mortgage on the residential property with the Bank of Nova Scotia.
• With respect to the funds of $205,000.00 received from 2439052 Ontario Inc., Mr. Maltz’s office paid out the funds in accordance with his trust statement found at tab D of RBC’s motion record and Mr. Maltz “knows no more than what the Royal Bank of Canada knows in this matter”.
• The cheques referred to by the plaintiff as deposited to Mr. Maltz’s trust account were paid to third parties not party to these proceedings and arm’s length from the Bouzios defendants.

9In addition, although not stated in an affidavit and therefore not in evidence, Mr. Maltz submitted orally that the $25,000.00 received with respect to the “Dara Physiotherapy” loan was used by the Bouzios defendants for the purchase of their residential property.

The law

[10]

The law

As stated, the plaintiff’s motion to remove Mr. Maltz as counsel for Bouzios and Nikolaidis is based on the submission that the issues in the case will require Bouzios to give evidence at trial. The parties agree on the applicable case law, which was summarized thoroughly by Master Glustein (as he then was) in Mazinani v. Bindoo, 2013 ONSC 4744 at paragraphs 60 and 61:

60 I adopt the following principles as the applicable law on a motion to remove a lawyer of record who may be a witness at trial:

(i) The court has inherent jurisdiction to remove a lawyer from the record who has a conflict of interest. The inherent jurisdiction "stems from the fact that lawyers are officers of the court and their conduct in legal proceedings which may affect the administration of justice is subject to this supervisory jurisdiction" (MacDonald Estate v. Martin, [1990] 3 S.C.R. 1235 ("MacDonald Estate"), at para. 18);

(ii) The inherent jurisdiction extends to removing a lawyer who may be a witness in a case in which the lawyer acts as counsel (Ontario Realty Corp v. P. Gabriele & Sons Limited et al, [2006] O.J. No. 4497 ("Ontario Realty"), at para. 16);

(iii) The court on a motion to remove a lawyer of record who may be a witness at trial must consider "(a) the maintenance of high standards of the legal profession and the integrity of our system of justice and (b) the right of a litigant to its choice of counsel, which he or she should not be deprived of without good cause" (Ontario Realty, at para. 17, citing MacDonald Estate, at para. 13);

(iv) The test to be applied on a motion to remove a lawyer from the record who may be a witness 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. This determination is objective, fact-specific and based on an examination of all factors in the case (Karas v. Ontario, 2011 ONSC 5181 (S.C.J. - Mast.) ("Karas") at para. 26; Ontario Realty, at para. 20);

(v) The court's concern of a lawyer appearing as a witness is that (i) there may be a conflict of interest between the lawyer and client and (ii) the administration of justice can be impaired by a conflict between the lawyer's obligations of objectivity and detachment which are owed to the court and the lawyer's obligation to his or her client to present evidence in as favourable a light as possible. In Urquhart v. Allen Estate, [1999] O.J. No. 4816 (S.C.J.) ("Urquhart"), Gillese J. (as she then was) held (Urquhart, at paras. 27-28):

When counsel appears as a witness on a contentious matter, it causes two problems. First, it may result in a conflict of interest between counsel and his client. That conflict may be waived by the client, as indeed, was done in this case. The second problem relates to the administration of justice. The dual roles serve to create a conflict between counsel's obligations of objectivity and detachment, which are owed to the court, and his obligations to his client to present evidence in as favourable a light as possible. This is a conflict that cannot be waived by the client as the conflict is between counsel and the court/justice system.

Counsel are independent officers of the court. The trial judge must be able to rely upon plaintiffs' counsel for a high degree of objectivity. The overriding value, in these circumstances, is concern for the proper administration of justice. A distinction must be drawn between the role of counsel as an independent officer of the court and the role of a witness whose objectivity and credibility are subject to challenge.

(See also Karas, at para. 27);

(vi) The integrity of a lawyer's role as an advocate is also undermined if the lawyer was a witness to a critical meeting. In Young-Tangjerd v. Official Board of Cavalry United Church, [2006] O.J. No. 2161 ("Young-Tangjerd"), Hockin J. held (Young-Tangjerd, at paras. 6-7):

The material fact on the motion and the fact which raised the possibility that the solicitor might be called as a witness at trial is this. The solicitor was present at a meeting at which the plaintiff was present with members of the defendant church. He was there as a member of the church not as solicitor. The plaintiff alleges that she was dismissed from her employment constructively during the course of the meeting or because of the meeting. The reasons of the motion judge posit that in this circumstance, the solicitor's disqualification is not automatic and that it could be left to another judge by motion (presumably on the eve of trial) to quash his subpoena or to the trial judge to determine whether he could act as trial counsel if he was to be called as a witness.

In my view, the issue is not the lawyer's position as a witness but his position as advocate. I doubt whether any party or a witness may be cross-examined by a lawyer who could cross-examine not on the basis of his brief but on the basis of his participation in the event or transaction cross-examined on. Any question, leading or not, once posed by the lawyer is unfair to the witness and carries with it the appearance of an unsworn offer of the advocate's version of the facts. In addition, questions put in cross-examination by the lawyer witness would create the uneasy feeling in the mind of the plaintiff in this case that the measure of his credibility could be based not on the basis of the evidence but the unsworn declaration of a judicial participant in the proceeding, the defendant's lawyer. It goes without saying that the lawyer cannot compartmentalize his or her mind to exclude actual knowledge of the event. As well, the court should ensure no conflict in the lawyer's duty as advocate and as an officer of the court. For example, what is the lawyer to do if his memory of the event differs from the evidence in-chief he hears from his witnesses. [Italics in original.]

(vii) Rule 4.02(2) of the Rules of Professional Conduct of the Law Society of Upper Canada provides that "Subject to any contrary provisions of the law or the discretion of the tribunal before which a lawyer is appearing, a lawyer who appears as advocate shall not testify before the tribunal unless permitted to do so by the rules of court or the rules of procedure of the tribunal, or unless the matter is purely formal or uncontroverted";

(viii) The commentary to Rule 4.02(2) sets out the concern that a lawyer who puts personal beliefs into issue acts contrary to the lawyer's role as an objective advocate and puts the lawyer's credibility at issue. The commentary provides:

"A lawyer should not express personal opinions or beliefs or assert as a fact anything that is properly subject to legal proof, cross-examination or challenge. The lawyer should not in effect appear as an unsworn witness or put the lawyer's own credibility in issue. The lawyer who is a necessary witness should testify and entrust the conduct of the case to another lawyer".

(ix) Rules of Professional Conduct are not binding on a court, but are persuasive as an important statement of public policy (MacDonald Estate, at paras. 16 and 18; Karas, at para. 29);

(x) Courts should be reluctant to make what may be premature orders preventing lawyers from continuing to act. If the evidence does not necessarily have to come from the lawyer and may be obtained through admissions or documentary productions, a removal order will be premature (Essa (Township) v. Guergis; Membery v. Hill, [1993] O.J. No. 2581 (Div. Ct.) ("Essa"), at para. 43; Lesniowski v. H.B. Group Insurance Management Ltd., [2002] O.J. No. 3194 (S.C.J. - Mast.) ("Lesniowski"), at para. 15);

(xi) If there is some doubt or "merely a potential" that a lawyer will be called as a witness at trial, the courts should be more generous in allowing the lawyer to remain on the record and deferring the matter until after discoveries or leaving the matter to the trial judge (George S. Szeto Investments Ltd. et al v. Ott, [2006] O.J. No. 1174 ("George S. Szeto"), at para. 13);

(xii) "In view of the expense of litigation and the enormous waste of time and money and the substantial delay which can result from an order removing solicitors, courts should only do so in clear cases" (Essa, at para. 43);

(xiii) "[A] court should be slow to interfere with the litigant's right to choose his or her counsel. ... When a litigant is deprived of the services of a lawyer whom she has chosen, there will be some hardship imposed on her. The imposition of such hardship can only be justified if it is done to prevent the imposition of a more serious injustice. It follows that the removal of counsel should be only to relieve the risk of real mischief and not a mere perception of mischief" (Urquhart, at para. 19);

(xiv) Certainty that a lawyer will be called as a witness is not required. Rather, the court must consider the likelihood of the lawyer being called as a witness (Ontario Realty, at para. 33);

(xv) "It is not sufficient for a moving party to suggest opposing counsel is a potential witness or allege only that he or she might provide material evidence. Rather, it must be established that there is a real basis to believe counsel can likely, or probably, provide material evidence" (Graham v. Ontario, [2006] O.J. No. 763 (S.C.J.) ("Graham"), at para. 35; Ontario Realty, at paras. 34-35);

(xvi) "While courts have acknowledged that the freedom to choose counsel is an important interest to protect, it is not an absolute right. The right to be represented by counsel of choice can be outweighed when the administration of justice would be detrimentally affected" (Karas, at para. 45; George S. Szeto, at para. 21; Urquhart, at paras. 21 and 28); and

(xvii) The court should approach a motion to remove a lawyer of record who may be a witness at trial by following a flexible approach and consider each case on its own merits (Essa, at para. 48). . . .

61 Given the above law, the Divisional Court in Essa set out "a variety of factors" to be considered on a motion to remove a lawyer of record who may be a witness at trial. Those factors are (Essa, at para. 48) (quoted verbatim):

(i) the stage of the proceedings,

(ii) the likelihood that the witness will be called,

(iii) the good faith (or otherwise) of the party making the application,

(iv) the significance of the evidence to be led,

(v) the impact of removing counsel on the party's right to be represented by counsel of choice,

(vi) whether trial is by judge or jury,

(vii) who will call the witness if, for example, there is a probability counsel will be in a position to cross-examine a favourable witness, a trial judge may rule to prevent that unfair advantage arising, and

(viii) the connection or relationship between counsel, the prospective witness and the parties involved in the litigation.

Issue on the removal motion

[11]

Issue on the removal motion

Although there is no evidence from Bouzios or Nikolaidis, either directly or by way of their affiant’s information and belief, that they want Mr. Maltz to continue acting for them, in the absence of any such evidence, I will infer that Mr. Maltz opposed this motion on their instructions.

12RBC’s evidence in paragraph 5 above as to the funds received by Mr. Maltz, which is not denied by him, means that Mr. Maltz can plausibly provide evidence as to what ultimately happened to those funds, which is relevant to RBC’s claim for a tracing order. Based on the applicable law, the issue on this removal motion is:

Does the fact that Mr. Maltz has information relevant to RBC’s claim for an order tracing the funds of which they say that they were defrauded create a sufficient likelihood that he will be a witness in this action to warrant depriving the Bouzios defendants of their choice of counsel?

Analysis and decision

[13]

Analysis and decision

The Divisional Court in Essa (Township) v. Guergis, supra (see paragraph 61 of Mazinani, supra) set out a list of factors to be considered on a motion to remove a lawyer of record who may be a witness at trial. My review of those factors is as follows:

(i) The stage of the proceedings:

The action is currently at the pre-discovery stage, with the parties having only exchanged pleadings. The issue of Mr. Maltz having to be a witness in this action was raised by plaintiff’s counsel in a timely manner so there can be no suggestion of delay by the defendants in raising the issue. The fact that this motion is brought at this early stage means that any financial burden on Bouzios arising from a removal order has been minimized to the extent possible. This factor is favourable to the moving party provided that the removal order is actually warranted.

(ii) The likelihood that the witness will be called:

RBC wants to call Mr. Maltz as a witness to obtain his evidence as to how he ultimately disbursed the proceeds of various allegedly fraudulently obtained loans that were received in his trust account. It is submitted by RBC and acknowledged by Mr. Maltz that the transfers into and out of his trust account are matters of fact rather than matters of privileged lawyer client communications (see: Ontario (Securities Commission) v. Greymac Credit Corp., [1983] O.J. No. 2986 (Div. Ct.) at paras. 23 and 24). The evidence sought by RBC could very well be obtained through documentary disclosure of Mr. Maltz’s trust records, or through examinations for discovery of the Bouzios defendants, without the need for Mr. Maltz to testify. This factor therefore does not favour the removal of Mr. Maltz as counsel.

(iii) The good faith (or otherwise) of the party making the application:

The evidence that RBC seeks with respect to the recipients of the proceeds of the loans in question when paid out from Mr. Maltz’s trust account is relevant to its claim for a tracing order. RBC did try to obtain some information about funds received by Mr. Maltz through its February 6, 2019 request to admit. I note that although the request to admit refers to $25,000.00 that RBC says Mr. Maltz received from “Inthu”, RBC’s affidavit on this motion includes no reference to any transaction involving that defendant. Further, RBC has done little else to try to obtain the information by any means other than by calling Mr. Maltz as a witness at trial, such as by seeking production of documents relating to the disbursement of the funds in the affidavit of documents of the Bouzios defendants.

The fact that the information sought appears to be relevant suggests some degree of good faith on the part of RBC. However, the fact that, other than through its request to admit, RBC has not attempted to obtain the information by other means is not helpful to it. On balance, this factor is at best neutral from RBC’s perspective.

(iv) The significance of the evidence to be led:

As indicated, I accept that the evidence is relevant to part of RBC’s claim for a tracing order. However, the significance of the evidence must be considered in the context of whether Mr. Maltz’s attendance at trial is necessary to elicit the evidence. For the reasons under (ii) above, this factor does not favour Mr. Maltz’s removal.

(v) The impact of removing counsel on the party's right to be represented by counsel of choice:

Although there is no evidence from the Bouzios defendants as to the impact on them of the possible removal of Mr. Maltz as their counsel, I can accept that retaining a new lawyer who must spend time to familiarize themselves with the file will inevitably result in extra expense that would not otherwise be incurred. This factor inevitably favours the party whose lawyer is at risk of removal.

(vi) Whether trial is by judge or jury:

The action will be tried by judge alone. This factor is neutral with respect to the outcome of this removal motion.

(vii) Who will call the witness if, for example, there is a probability counsel will be in a position to cross-examine a favourable witness, a trial judge may rule to prevent that unfair advantage arising:

RBC has already expressed its intention to call Mr. Maltz as a witness, which means that, if the Bouzios defendants retain a new lawyer, that lawyer will be able to cross-examine their own former lawyer. However, given that the transactions for which RBC seeks the details are presumably found in Mr. Maltz’s written accounting records, it is difficult to imagine that a new lawyer’s ability to cross-examine Mr. Maltz would provide any great tactical advantage. This factor is essentially neutral.

(viii) The connection or relationship between counsel, the prospective witness and the parties involved in the litigation:

The prospective witness Mr. Maltz is counsel for the Bouzios defendants against whom RBC alleges fraud. In support of its claim for a tracing order, RBC seeks Mr. Maltz’s evidence about what happened to the proceeds of what it alleges are various fraudulent transactions after those funds were deposited into Mr. Maltz’s trust account. This factor must be considered in the context of factor (ii) above, which I concluded does not favour the removal of Mr. Maltz as counsel, and for the same reasons, factor (viii) from Essa (Township) does not favour his removal.

14The only factor from the test in Essa (Township) v. Guergis that would favour the removal of Mr. Maltz as counsel for the Bouzios defendants is that RBC has moved at an early stage in the action. However, given my conclusion at item (ii) that the information sought from Mr. Maltz could well be obtained without requiring his testimony at trial, and that the balance of the factors either do not favour removal or are neutral, the timing of the motion is of little significance.

15To summarize the law as stated in paragraphs 60(x)-(xiii) of Mazinani, supra, courts should be reluctant to interfere with the right of litigants to choose their own counsel and should avoid making what may be premature removal orders where the evidence that will be sought from the lawyer may be obtained through admissions or documentary productions. As specifically stated in paragraph 60(xi) of Mazinani, “If there is some doubt or merely a potential that a lawyer will be called as a witness at trial, the courts should be more generous in allowing the lawyer to remain on the record and deferring the matter until after discoveries or leaving the matter to the trial judge”.

16RBC wishes to call Mr. Maltz at trial “to give evidence and produce documents to show what was done with the loan proceeds” (Simoes-Pereira affidavit para. 14), to assist it in tracing the funds. Mr. Maltz would therefore be called to give evidence with respect to what happened to those funds after they were transferred to his trust account. I cannot accept at this point that the only means of putting that evidence before the court is to call Mr. Maltz at trial. For example, RBC has already been provided with and put in evidence various documents, including Mr. Maltz’s trust statement, with respect to the distribution of the funds received by way of the loan to 2439052 Ontario Inc..

17Further, at examinations for discovery, RBC’s counsel may question the Bouzios defendants as to when and to whom the funds held in trust by their lawyer or lawyers were disbursed, and may request production of Mr. Maltz’s trust ledger and any other documents relevant to the issue. For the assistance of the parties, but without making a formal ruling, it would appear that Mr. Maltz’s trust records showing how the funds described in paragraph 5 above were disbursed from his trust account should be produced as part of the Bouzios defendants’ schedule A productions.

18As stated, I am not persuaded at this stage of the action that disclosure of the evidence that will enable RBC to trace the funds received by Mr. Maltz will require him to give evidence at trial. Given that the evidence in this regard could very well be made available without Mr. Maltz’s testimony, an order removing him from the record, that would deprive the Bouzios defendants of their choice of counsel, would be premature and is not warranted.

19For these reasons, the motion to remove Mr. Maltz as the lawyer of record for the Bouzios defendants is dismissed.

Costs

[20]

Costs

Counsel have filed costs outlines. If they cannot agree to the disposition of the costs of the motion, they may make written submissions, the Bouzios defendants by July 10, 2019 and RBC by July 31, 2019.