Court File and Parties

Court File No.: CV-19-616049-00CL Date: 2019-06-28 Superior Court of Justice - Ontario

Re: MINA BECHAI, 24792326 ONTARIO INC., and 2382558 ONTARIO INC. o/a SYNOPTIC MEDICAL ASSESSMENTS, Plaintiffs And: DR. MICHAEL HANNA, MICHAEL HOLDING CORPORATION, SYNOPTIC MEDICAL ASSESSMENTS INC., CANADIAN MEDICAL ASSESSMENT CENTRE INC., MICHAEL HANNA HEALTH MANAGEMENT INC., and DYNAMIC FUNCTIONAL SOLUTIONS INC., Defendants

Before: Dietrich J.

Counsel: Gregory Govedaris, for the Plaintiffs Arnie Herschorn and Whitney Abrams, for the Defendants (other than Dynamic Functional Solutions Inc.)

Heard: June 21, 2019

Endorsement

[1] The Plaintiffs seek an order requiring the removal of Minden Gross LLP as counsel of record for the corporate defendant Synoptic Medical Assessments Inc. (“SMAI”). The removal is sought on the basis of a conflict of interest of the lawyer of record, A. Irvin Schein (“Mr. Schein”). The Plaintiffs have withdrawn their request for a similar order against the other defendants represented by Minden Gross LLP.

[2] For the reasons that follow, I decline to make an order requiring the removal of Minden Gross LLP as counsel of record for SMAI. The Plaintiffs have failed to demonstrate that Mr. Schein or Minden Gross LLP has a disqualifying conflict of interest in their representation of SMAI.

Factual Background

[3] SMAI is a private company incorporated under the laws of Ontario. It is in the business of providing medical assessments. Initially, it had three equal shareholders: Mina Bechai, Michael Hanna, and Franco Tavazzani. Mr. Bechai acquired all of Mr. Tavazzani’s shares. He claims to have acquired all of Dr. Hanna’s shares as well. However, Dr. Hanna asserts that the funds he received from Mr. Bechai were for services provided by Dr. Hanna to SMAI and not proceeds from the sale of his shares. At a minimum, Mr. Bechai owns two-thirds of the shares of SMAI.

[4] Dr. Hanna is the sole director and officer of SMAI. The parties agree that SMAI would be bound by any determination of the issues between the parties. Therefore, SMAI is a necessary and proper party to the action.

[5] On June 26, 2018, Dr. Hanna incorporated a new company, Canadian Medical Assessment Centre Inc. (“CMAC”), of which he is the sole shareholder. Among other things, the Plaintiffs allege that Dr. Hanna, while a director and shareholder of SMAI, misappropriated business opportunities for the benefit of CMAC.

[6] The Plaintiffs seek damages from Dr. Hanna for breach of contract and breach of trust, and relief pursuant to the Business Corporations Act, R.S.O., c. B.16 (the “OBCA”) for his alleged oppressive conduct. In essence, the matter involves a shareholder dispute between Mr. Bechai on one hand and Dr. Hanna on the other.

The Parties’ Positions

[7] Mr. Bechai’s position is that Mr. Schein is in a conflict of interest in representing SMAI because he had previously advised Mr. Bechai in a solicitor-client relationship.

[8] The Plaintiffs assert that because Mr. Schein acts for Dr. Hanna and companies controlled by him, which are defendants in this matter, there is a risk that the advice given to SMAI will take into account Dr. Hanna’s interests to the detriment of the Plaintiffs. This risk, in their view, puts Mr. Schein in a conflict of interest.

[9] The Defendants represented by Minden Gross LLP (the “Hanna Defendants”) dispute that Mr. Schein was in a solicitor-client relationship with Mr. Bechai. They further assert that no confidential information has passed from the Plaintiffs to Mr. Schein that could be used to prejudice the Plaintiffs. Accordingly, they assert that no order should issue requiring Minden Gross LLP to withdraw as counsel of record for SMAI.

[10] The Hanna Defendants further assert that there is no law that precludes the director of a corporation from instructing counsel on the affairs of the corporation, and such director is absolutely entitled to instruct counsel.

Issue

[11] The issue is whether Mr. Schein has a disqualifying conflict of interest in acting as lawyer of record for SMAI.

Legal Principles

[12] The Supreme Court of Canada in Martin v. MacDonald Estate (Gray), [1990] 3 S.C.R. 1235 (“MacDonald”) at p. 1260 set out the test for determining whether there is a disqualifying conflict of interest in acting against a former client. The two-part test is as follows: 1) Did the lawyer receive confidential information attributable to a solicitor and client relationship relevant to the matter at hand? and 2) Is there a risk that it will be used to the prejudice of the client? In Canada National Railway Co. v. McKercher LLP, 2013 SCC 39 (“McKercher”), at paras. 23 and 24, the Supreme Court held that the lawyer’s main duty to a former client is to refrain from misusing confidential information.

[13] If the client can show that there existed a relationship that is sufficiently related to the retainer in respect of which it is sought that the lawyer be removed, the onus is on the lawyer to show that no information was imparted that could be relevant: MacDonald at p. 1260. A lawyer who has relevant confidential information cannot act against his client or former client. In such a case, the disqualification is automatic: MacDonald at p. 1261.

[14] Recent appellate court jurisprudence reveals that motions to disqualify a lawyer from acting are also concerned with public confidence in the administration of justice. Accordingly, a lawyer may be disqualified from acting against a former client even if the new retainer does not put the former client’s confidences at risk. See: Brookville Carriers Flatbed GP Inc. v. Blackjack Transport Ltd., 2008 NSCA 22 at para. 49. In Consulate Ventures Inc. v. Amico Contracting & Engineering (1992) Inc., 2010 ONCA 788 (“Consulate Ventures”), Doherty J.A. of the Ontario Court of Appeal stated at para. 31 that: “[t]his broader continuing duty of loyalty to former clients is based on the need to protect and promote public confidence in the legal profession and the administration of justice.”

[15] A duty of loyalty goes beyond the duty not to disclose confidential information. In R. v. Neil, 2002 SCC 70, [2002] 3 S.C.R. 361 at para. 17, the Court stated that “the duty of loyalty to current clients includes a much broader principle of avoidance of conflicts of interest, in which confidential information may or may not play a role.”

[16] In McKercher, the Supreme Court commented on remedies to address conflicts of interest and, at para. 61, stated that: “Disqualification may be required (1) to avoid the risk of improper use of confidential information; (2) to avoid the risk of impaired representation; and/or (3) to maintain the repute of the administration of justice”; and, at para. 62 stated that: “… where the concern is risk of impaired representation … disqualification will normally be required if the law firm continues to concurrently act for both clients.”

[17] Regarding representation of a corporate organization, the corporation’s legal personality is distinct from the individual directors and shareholders. In Rice v. Smith et al., 2013 ONSC 1200 (“Rice”), Justice Leach commented that if their interests diverge, a lawyer acting for both the corporation and a director may be prevented from continuing his or her involvement in a dispute among shareholders or directors and officers.

Analysis

Disqualifying Conflict of Interest

[18] As stated above, the test to be applied when determining whether there is a disqualifying conflict of interest is set out by Justice Sopinka in MacDonald. It requires the Plaintiffs, first, to prove that Mr. Schein received confidential information attributable to a solicitor and client relationship relevant to the matter at hand; and, second, to prove that there is a risk that such information will be used to the prejudice of the Plaintiffs. According to MacDonald, the test must be such that the public, represented by a reasonably informed person, would be satisfied that no use of confidential information would occur. I find that the Plaintiffs have not satisfied the test.

[19] To satisfy the first step, the moving party must show that there existed a previous solicitor and client relationship that is sufficiently related to the retainer from which they are seeking to remove the solicitor: MacDonald, at para. 49. According to Mr. Bechai, he met Mr. Schein in 2012 and then met with him on multiple occasions from 2012 to 2015 to discuss various corporations that he owned, which were connected to the medical assessment business. Mr. Bechai’s evidence is that he also sought Mr. Schein’s advice on a commercial lease negotiation and a Small Claims Court matter. Mr. Bechai did not provide documentary evidence such as correspondence or invoices in respect of these multiple meetings and discussions in support of his assertions other than with respect to the Small Claims Court matter.

[20] Mr. Schein’s evidence is that there was no relationship between him and Mr. Bechai directly, let alone a relationship that relates to his retainer with SMAI or the other Hanna Defendants in this action. According to his evidence, Mr. Schein did act for companies in which Mr. Bechai had some beneficial interest, but he never met with or took any instruction from Mr. Bechai. Further, he asserts, the matters had nothing to do with SMAI or any of the issues arising in the within action. Mr. Schein’s evidence is that he first met Mr. Bechai when Mr. Bechai was an adverse party to the party for which Mr. Schein was acting. Mr. Schein further deposed that he is a commercial litigator who has never negotiated a commercial lease for anyone and that the Small Claims Court matter to which Mr. Bechai refers involved a loan collection matter for a company in which Mr. Bechai had a beneficial interest and that it was handled by an articling student at Minden Gross LLP with some supervision by Mr. Schein.

[21] Based on the record before me, Mr. Bechai has neither met his onus to show that there was a solicitor and client relationship between the Plaintiffs and Mr. Schein, nor his onus to show that his relationship with Mr. Schein is “sufficiently related” or related at all to Mr. Schein’s retainer with the Hanna Defendants.

[22] Further, Mr. Bechai has not established that he provided any confidential information to Mr. Schein. Mr. Bechai’s evidence is that he provided personal details, client lists, pricing lists, terms of employment and other documents relating to staff members and general information regarding the operation of a medical assessment business to Mr. Schein through meetings and correspondence with Mr. Schein. Again, Mr. Bechai has failed to produce such correspondence or other documentary evidence in support of this transmission of information. Mr. Schein denies having been provided with any such information. On the record before the court, I am not persuaded that Mr. Schein received this information or, even if he had, that it was confidential information.

[23] The Plaintiffs assert that public confidence in the administration of justice is also important. They rely on the recent appellate court jurisprudence to argue that a lawyer may be disqualified from acting against a former client even if the new retainer does not put the former client’s confidences at risk. In Consulate Ventures, Doherty, J.A. found, at para. 21, that the broader continuing duty of loyalty to former clients is based on the need to protect and promote public confidence in the legal profession and the administration of justice. However, the Plaintiffs have not established that Mr. Bechai is a former client of Mr. Schein. Accordingly, this broader continuing duty of loyalty does not assist the Plaintiffs in their motion.

Other Arguments

[24] The Plaintiffs submit that SMAI is a separate entity from the shareholders and its directors and that its interests are different from those of the shareholders or directors, especially in this case of a dispute between groups of shareholders. They assert that joint representation by Mr. Schein of SMAI and the other Hanna Defendants puts Mr. Schein in “an actual conflict of interest.” In support of this assertion, they point to their factum, in which it is stated that “conflicts exist in the: a. payment of the alleged minority shareholders’ (sic) legal costs as a corporate expense; b. provision of legal opinions to the alleged minority shareholder who is also a director and not to the sole or majority shareholders, who are presently not directors; c. refusal to disclose litigation-related documents related to SMAI and information to other shareholders on the basis of solicitor-client privilege; and d. access to confidential information of SMAI.”

[25] None of these examples of alleged conflicts of interest is supported by the evidence. They appear to be bald and speculative assertions made in the Plaintiffs’ factum only.

[26] In further support of their argument that Mr. Schein should be disqualified from acting for SMAI, the Plaintiffs rely on the Rice case. In my view, the Rice case is highly distinguishable from the case at bar. It involved a shareholder dispute in which Mr. Rice was one of three shareholders, with a 25 percent interest in a private textile corporation. He commenced an application to address issues arising among the shareholders in which he sought oppression remedies. The respondents to the application were the other two shareholders and the corporation. At the time of the application, all three shareholders were directors of the corporation. All three shareholders had also been employees of the corporation.

[27] Prior to the commencement of the application, when the relationship among the shareholders began to deteriorate, a lawyer, John McDonald, became involved in discussions and meetings regarding the possibility of share buyouts as among the shareholders. Those discussions failed and, subsequently, Mr. Rice was terminated as an employee of the corporation. Mr. McDonald effectively carried out the termination and Mr. Rice’s termination was an issue in the dispute. Mr. Rice nonetheless carried on as a director and shareholder.

[28] Mr. McDonald responded to Mr. Rice’s application on behalf of the majority shareholders and the corporation. Mr. Rice sought to have him disqualified. Justice Leach ordered that Mr. McDonald withdraw as lawyer of record for any respondent.

[29] Critical to the decision in the Rice case were the facts that Mr. McDonald was privy to confidential information (e.g., the business valuation obtained by Mr. Rice for the purposes of a share buyout), he took charge of the meeting at which Mr. Rice was terminated, he conceded that he never took any instruction from Mr. Rice, notwithstanding that Mr. Rice was a director, and his opinions and advice to the corporation were delivered to only two of the corporation’s three directors and shareholders. In addition, it was Mr. McDonald’s intention to continue to represent the respondents at trial, which would put him in the dual role of counsel and witness.

[30] Justice Leach was primarily concerned about a conflict of interest arising from the likelihood that Mr. McDonald would be acting as both counsel and witness, and was prepared to decide the case on that conflict of interest alone. However, Justice Leach also addressed Mr. McDonald’s failure to seek litigation instructions from the corporation’s entire board of directors, including Mr. Rice, and his failure to share otherwise confidential and privileged litigation information with all of the corporation’s directors, including Mr. Rice. Accordingly, Justice Leach found that Mr. McDonald was disqualified from acting for any of the respondents. The facts of the Rice case are entirely different from those in the case at bar.

[31] The Hanna Defendants submit that according to well-established principles of corporate law, it is the director, not the shareholder, even a majority shareholder, who is entitled to instruct counsel with respect to the affairs of the corporation. See: OBCA, s. 115(1), R.S.O. 1990, c. B.16. This is not disputed by the Plaintiffs. The Hanna Defendants further submit that, as long as Dr. Hanna is the director, he has the responsibility to instruct counsel. I agree.

[32] The Hanna Defendants further submit that the Plaintiffs have another option to deal with any perceived or actual conflict of interest, should one arise. It is open to the Plaintiffs, as the majority shareholders, to remove Dr. Hanna as a director and replace him with another director who can retain counsel for the corporation. They have not done so. The Hanna Defendants submit that the Plaintiffs are instead trying to circumvent the steps that are open to them and seek the court’s assistance to disqualify Mr. Schein as counsel of record.

[33] Depriving a party of its preferred counsel imposes inherent hardship on a litigant, and such relief therefore should only be ordered where it is necessary to prevent the imposition of a more serious injustice and the risk of real mischief: MacDonald, at paras. 16 and 47. I find that the evidence before the court does not support the disqualification of Minden Gross LLP as the counsel of record for SMAI. Mr. Schein and Minden Gross LLP are, of course, subject to the Law Society of Ontario Rules of Professional Conduct.

Disposition and Costs

[34] The Plaintiffs’ motion is dismissed and the Respondents are entitled to their costs. Each of the parties provided the court with a Bill of Costs or Costs Outline, which I have reviewed.

[35] The fixing of costs is within the discretion of the court pursuant to s. 131 of the Courts of Justice Act. The factors listed in Rule 57.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 are relevant in the exercise of this discretion. These factors include the principle of indemnity for the successful party, the expectations of the unsuccessful party, and the complexity of the issue. The paramount consideration in exercising the discretion is what is fair and reasonable in the context of balancing the goals of compensating the successful party and fostering access to justice: Boucher v. Public Accountants Council (Ontario), (2004), 71 O.R. (3d) 291.

[36] Taking these factors into account, I fix the costs of this motion at $16,000 inclusive of HST and disbursements. This amount shall be paid by the Plaintiffs to the Hanna Defendants within thirty days.

Dietrich J. Date: June 28, 2019