MacCharles v. iS5 Communications Inc. et al.

[Indexed as: MacCharles v. iS5 Communications Inc.]

Ontario Reports

Ontario Superior Court of Justice

Dietrich J.

February 28, 2020

150 O.R. (3d) 30 | 2020 ONSC 525

Case Summary

Professions — Barristers and solicitors — Conflict of interest — Disqualification — Law firm having retainer agreement with corporation — Officer and shareholder of corporation terminated from employment — Officer commencing oppression application against corporation and moving to remove law firm as its counsel of record — Officer failed to establish disqualifying conflict of interest as he had no set plan to call firm's lawyers as witnesses and retainer clearly stated that firm represented only the corporation.

The applicant M and the respondent D founded the respondent corporation, with M as CFO and vice president and D as CEO and president. The corporation retained a law firm to advise it on various matters from time to time, until eventually a retainer was prepared to govern the present and any future services. The terms of the retainer letter stated that the firm was acting for the corporation only and not any of its officers, directors, employees or shareholders, with instructions to be taken from D unless otherwise advised. When the corporation ran into some financial challenges, M led discussions on behalf of the corporation to obtain external financing. The initial negotiations resulted in a term sheet which did not guarantee M a seat on the corporation's board. A revised unanimous shareholders agreement was signed by all shareholders, including M and the new investors. In the context of that unanimous shareholders agreement, M and D negotiated the terms of their respect-ive employment agreements with the corporation, and both obtained independent legal advice. D obtained his independent advice from another office of the firm. The shareholders then entered into a second amended and restated unanimous shareholders agreement, in which the firm acted for the corporation. After M was terminated in accordance with the terms of his employment agreement, he applied for an order directing the buy-out of his shares and related relief, alleging oppressive conduct by the corporation. In the context of that proceeding he brought a motion to have the firm removed as counsel of record for the respondents. [page31]

Held, the motion should be dismissed.

M failed to show that the firm was in a conflict of interest in representing the respondents in the oppression application. The firm did not act jointly for the corp-oration, M, and D. The firm's retainer letters clearly stated that the firm represented the corporation and not any of its officers, directors, employees or shareholders. The termination of an officer of the corporation and the interpretation of the shareholders agreement were matters on which the corporation could reasonably be expected to seek legal advice. The firm took instruction from D and M when each was a director, but such instructions were given on behalf of the corporation as opposed to in his own interest. M chose to commence his proceeding by way of application, which would not normally involve witnesses. He had not yet determined whether he would seek to convert his application to an action, whether he would be calling any of the firm's lawyers as a witness, or precisely what evidence such lawyers were likely to adduce. Accordingly, there was no reason to interfere with the respondents' fundamental right to its choice of counsel.

Essa (Township) v. Guergis (1993), 1993 8756 (ON SCDC), 15 O.R. (3d) 573, [1993] O.J. No. 2581, apld

Other cases referred to

MacDonald Estate v. Martin, 1990 32 (SCC), [1990] 3 S.C.R. 1235, [1990] S.C.J. No. 41 (S.C.C.); Paterson v. 5334781 Manitoba Ltd., [2013] M.J. No. 2, 2013 MBQB 3, 286 Man.R. (2d) 85; Rice v. Smith, [2013] O.J. No. 784, 2013 ONSC 1200; Wright v. Sun Life Assurance Co. of Canada, [2019] B.C.J. No. 38, 2019 BCCA 18, 85 C.C.L.I. (5th) 187 (C.A.)

Rules and regulations referred to

Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 57.01

MOTION to remove counsel of record.

Natalie Schernitzki, for applicant/moving party.

Richard B. Swan and Alexander C. Payne, for respondents/ responding parties.

DIETRICH J.: —

Overview

[1] The applicant John MacCharles brings this motion seeking an order requiring the removal of Fasken Martineau DuMoulin LLP ("Fasken") as counsel of record for the Respondents iS5 Communications Inc. (the "Corporation") and Clive Dias ("Mr. Dias").

[2] For the reasons that follow, I decline to make an order requiring the removal of Fasken as counsel of record for the respondents. Mr. MacCharles has failed to demonstrate that Fasken has a disqualifying conflict of interest in its representation of the respondents and has failed to demonstrate that lawyers from Fasken will be called on to provide testimony in the within application. [page32]

Factual Background

[3] The Corporation, founded by Mr. MacCharles and Mr. Dias, is a private company, incorporated under the laws of Ontario on or about November 29, 2012. It is in the business of designing cyber-secure, hardened industrial networking platforms and solutions to protect power grids for Smart Cities and other infrastructure networks.

[4] Mr. MacCharles became the CFO, Vice President, Secretary and Chief Business Development Officer. Mr. Dias became the CEO and President. Mr. MacCharles' role included raising funding, negotiating contracts and overseeing the payment of invoices.

[5] Initially, each of Mr. MacCharles and Mr. Dias held an equal number of common shares in the Corporation. Each of them formed a family trust shortly after the incorporation. The respect-ive family trusts hold certain of the common shares that would otherwise have been held by Mr. MacCharles or Mr. Dias directly. Through additional investments over time, Mr. Dias came to own a much larger share in the equity of the Corporation than did Mr. MacCharles.

[6] In February 2013, soon after its incorporation, the Corp-oration retained Fasken to advise it on an export control matter. Mr. Dias knew Clifford Sosnow, a lawyer in Fasken's Ottawa office. Since 2013, Fasken has continued to act as corporate counsel to the Corporation, advising on export licensing compliance and corporate matters, and drafting corporate agreements and transactional documents.

[7] In December 2013, two of Fasken's corporate lawyers, Anna Tosto and Julia Kennedy (from its Ottawa office), advised the Corporation on a unanimous shareholders agreement. Mr. Dias sought independent legal advice regarding this shareholders agreement. Mr. MacCharles did not.At that time,Mr. MacCharles signed a Subscription Agreement that included a statement that he had been advised to consult with his own legal and tax advisors with respect to the execution and delivery of this Subscription Agreement.

[8] On July 29, 2014, the Corporation retained Fasken regarding a claim brought against the Corporation. The retainer letter stated that Fasken was appointed to represent the Corporation, and the Client Service Terms attached to the retainer letter stated that Fasken was acting for the Corporation only and not third parties related or connected to the Corporation, including its officers, directors, employees or shareholders.

[9] On October 9, 2015, the Corporation retained Fasken with respect to financing it was arranging, including a secured promissory note. The retainer letter is addressed to Mr. Dias as President [page33] and CEO of the Corporation. The letter confirms that Fasken will provide services to "you", and confirms that "you" means iS5 Communications Inc. Fasken confirmed in this letter that it would take instructions from Mr. Dias, being the President and CEO of iS5, unless otherwise advised. The same Client Service Terms are attached to this retainer letter as were attached to the July 29, 2014 letter. Fasken confirmed that these terms would govern any services provided by Fasken going forward unless the services required a separate retainer letter. No such separate retainer was ever required.

[10] The retainer that governs the solicitor-client relationship, from October 9, 2015 onward, provides as follows:

We represent only our named client [iS5]. We do not represent or take on any solicitor-client or other obligations or duties to any third parties that may be related to or connected with our client, even if the third party pays all or any portion of our fees. Examples of such third parties include directors, officers, employees or agents of client; shareholders, subsidiaries or affiliates of a client . . . Accordingly, any representation by our Firm of another client adverse to any such third parties does not constitute a conflict of interest and does not require your consent.

[11] By 2017, the Corporation was facing some financial challenges and Mr. MacCharles led the discussions on behalf of the Corporation to obtain external financing. He had discussions with Phoenix Contact Ventures Funds I GmbH ("Phoenix"), initially, and later with ClearSky Security Fund I LLC ("ClearSky"). These initial negotiations resulted in a term sheet which did not guarantee Mr. MacCharles a seat on the Corporation's board.

[12] On November 23, 2017, Ms. Kennedy attended a board meeting as external counsel regarding the term sheet. The minutes of the meeting reflect Ms. Kennedy's advice to the board that she was representing the Corporation only and not any shareholder group. At this meeting, the entire board, including Mr. MacCharles, agreed to the proposed term sheet. The terms required amendments to the Corporation's 2013 shareholders agreement and the Corporation asked Fasken to advise the Corporation on these amendments to give effect to the Phoenix transaction.

[13] On March 14, 2018, a revised unanimous shareholders agreement was signed by all the shareholders, including Mr. MacCharles and the new investors. Around the same time, on March 19, 2018, Mr. MacCharles signed a Subscription Agreement regarding the purchase of additional shares. The terms of the Subscription Agreement include the following:

6.19. Independent Legal Advice. Each of the parties acknowledges that they (a) have been advised by the other parties hereto to seek independent legal advice; (b) have sought such independent legal advice or deliberately decided not to do so; (c) understand their rights and obligations under this Agreement; and (d) are executing this Agreement voluntarily. [page34]

[14] In the context of the March 2018 unanimous shareholders agreement, Mr. MacCharles and Mr. Dias negotiated the terms of their respective employment agreements with the Corporation. Each of them negotiated his own agreement with Dominic Talalla, a representative of an institutional investor that had made an investment in the Corporation prior to Phoenix. Marcus Boeker of Phoenix also had input in these negotiations. Fasken encouraged both Mr. MacCharles and Mr. Dias to obtain independent legal advice on their employment contracts. Mr. MacCharles retained Phil White to advise him. Mr. Dias was advised by another office of Fasken who, according to Ms. Kennedy's evidence, had put an ethical wall in place to ensure that the lawyers advising the Corporation (Ms. Tosto and Ms. Kennedy) were not privy to the advice given to Mr. Dias regarding his employment contract. Each employment contract includes an acknowledgement that the employee obtained independent legal advice.

[15] Subject to the closing of the Phoenix transaction, ClearSky was prepared to invest in the Corporation, but required certain additional terms and changes to reflect an entrenched board seat, a right to a board observer seat and approval rights over certain decisions. The shareholders then entered into a Second Amended and Restated Unanimous Shareholders Agreement dated July 31,2018, which is the operative shareholders agreement.

[16] Fasken acted for the Corporation regarding the July 31, 2018 shareholders agreement. Paragraph 2.10 of this agreement includes an acknowledgment that Mr. MacCharles, qua shareholder, "has received the opportunity to obtain independent legal advice in respect of this Agreement". He also signed a Counterpart and Acknowledgement stating that he was given the opportunity to obtain independent legal advice. Notwithstanding, Mr. MacCharles asserts that he was not advised by Fasken to obtain independent legal advice on this shareholders agreement. It, like the earlier revised shareholders agreement, did not entitle Mr. MacCharles to a board seat though Mr. MacCharles deposed that he believed Fasken was representing his interest in attempting to get a seat on the board as the directors' nominee.

[17] Mr. MacCharles was terminated in November 2018 in accordance with the terms of his employment agreement. He then commenced the within application in which he alleges oppressive conduct by the Corporation, including his termination and the interpretation of his rights as a shareholder. In his application, Mr. MacCharles seeks an order directing the buy-out of his shares and related relief. [page35]

Position of the Parties

[18] Mr. MacCharles seeks the removal of Fasken as counsel of record on the basis that Fasken is in a conflict of interest because: (i) it acted for the Corporation, Mr. Dias and him, on a joint retainer, and will now represent the Corporation and Mr. Dias regarding the within oppression application to the exclusion of him; and (ii) partners of Gideon Forrest, the Fasken partner representing the respondents, may be called as witnesses in the oppression application owing to their involvement in key events and communications underlying the litigation.

[19] The respondents assert that Mr. MacCharles never personally retained Fasken and that Fasken never acted for Mr. MacCharles personally, jointly or independently. They further assert that there was no joint retainer of Fasken by the Corporation, Mr. Dias and Mr. MacCharles.

[20] The respondents further assert that Mr. MacCharles chose to proceed by way of application, even though it was open to him to bring his claim in oppression by way of an action. Having done so, the respondents assert that Mr. MacCharles presumably determined that there was no need for viva voce evidence and therefore there was no need to call any lawyer from Fasken as a witness. Further, they assert that Mr. MacCharles does not list any Fasken lawyers as potential witnesses in his notice of application. In any event, the respondents submit, any information that a Fasken lawyer may have relating to Mr. MacCharles' termination by the Corporation would be subject to solicitor-client privilege in favour of the Corporation and inadmissible. Accordingly, the respondents assert that Mr. MacCharles brings this motion for tactical purposes.

Issues

[21] The issues in this matter are as follows:

1. Did Fasken jointly represent the Corporation, Mr. Dias and Mr. MacCharles such that Fasken should be removed as counsel of record due to conflicting duties of representation?

2. Should Fasken be removed as counsel of record because lawyers at that firm may need to be called as witnesses?

Legal Principles

(i) Joint representation

[22] A party's choice of counsel is a fundamental right that should only be overturned or blocked in the very clearest of circumstances: MacDonald Estate v. Martin, 1990 32 (SCC), [1990] 3 S.C.R. 1235, [page36] [1990] S.C.J. No. 41; see, also, Wright v. Sun Life Assurance Company of Canada, [2019] B.C.J. No. 38, 2019 BCCA 18, at para. 67. Such relief should only be ordered where it is necessary to prevent the imposition of a more serious injustice and the risk of real mischief: Rice v. Smith, [2013] O.J. No. 784, 2013 ONSC 1200, [2013] O.J. No. 784, at para. 14.

[23] The court's respect for preferred representation is nevertheless tempered with an ongoing concern to maintain the high standards of the legal profession and the integrity of the justice system, and the court will remove a lawyer from the record in the case of a conflict of interest: Rice, at para. 16.

[24] The court has identified corporate shareholder disputes as situations which involve an inherent conflict of interest that can restrict a lawyer's ability to extend joint representation. A lawyer will often be precluded from jointly representing both a corporation and shareholder in litigation based on an internal corporate dispute; for example, a lawyer representing the corporation and one shareholder against another shareholder: Rice, at para. 13.

(ii) Lawyers from an opposing firm acting as witnesses

[25] A conflict of interest may arise where a member of an opposing lawyer's firm is a witness in a proceeding: Paterson v. 5334781 Manitoba Ltd., [2013] M.J. No. 2, 2013 MBQB 3, 225 A.C.W.S. (3d) 30; Rice, at para. 18. The court has held that an advocate's credibility can be impeached where the advocate has a common interest with a witness in the accuracy of that witness' evidence, such as where the witness is a partner of the law firm to which the advocate belongs and the other lawyer's evidence concerns a matter arising from the law firm's practice: Paterson, at para. 11. This point was also made in Essa (Township) v. Guergis (1993), 1993 8756 (ON SCDC), 15 O.R. (3d) 573, [1993] O.J. No. 2581 (Ont. Div. Ct.), at paras. 37-38, where it is stated that if a witness is called to assist the party against whom her firm is acting, as a firm member, the witness has an interest in seeing that the firm's client succeeds. However, if called as a witness for the defence, she must testify honestly even if that will assist the defendant. This too could result in a conflict of interest. Accordingly, the court has held that the lawyer conducting the case, or a partner or associate of the law firm conducting the case, who is a necessary witness, should testify and entrust the conduct of the case to someone else: Rice, at para. 18.

[26] The prohibition against a lawyer acting as a counsel where a member of his or her firm is likely to be a witness is not absolute and the court adopts a flexible approach that considers a number of factors which include: the stage of the proceeding; the likelihood that the witness will be called; the good faith (or otherwise) of the [page37] party making the application; the significance of the evidence to be led; the impact of removing counsel on the party's right to be represented by counsel of choice; the likelihood of a real conflict arising or that the evidence will be tainted; who will call the witness; and the connection or relationship between counsel, the prospective witness and the parties involved in the litigation: Essa, at para. 48.

Analysis

[27] I find that Mr. MacCharles has failed to show, on a balance of probabilities, that Fasken is in a conflict of interest in representing the respondents in the within oppression application. On the evidence, I find that there was no joint retainer involving the Corporation and one or both of Mr. MacCharles and Mr. Dias. Rather, Fasken was retained by the Corporation alone, and not by Mr. Dias or Mr. MacCharles personally, and Fasken provided legal services to the Corporation only. I also find that, at this stage in the proceeding, the applicant has failed to demonstrate that lawyers from Fasken will be called as witnesses in the proceeding, and if they are called, that their participation would give rise to a conflict of interest.

(i) The joint retainer

[28] Mr. MacCharles alleges that Fasken advised both Mr. Dias and himself on the Unanimous Shareholders Agreement dated December 17, 2013, and that Fasken did not advise Mr. MacCharles to seek independent legal advice. However, the evidence is that Mr. Dias did obtain independent legal advice in respect of this agreement. Also, Mr. MacCharles signed a Subscription Agreement in connection with this agreement acknowledging that he had been "advised to consult with his . . . own legal and tax advisors with respect to the execution and delivery of the Subscription Agreement". As a corporate officer whose role it was to negotiate contracts on behalf of the Corporation, it is not unreasonable to expect that Mr. MacCharles would review any agreement that he entered into carefully and would obtain independent legal advice if he believed it to be necessary.

[29] Mr. MacCharles asserts that in late 2017, when he was leading the discussions with Phoenix and ClearSky, he was taking advice from Fasken. He also asserts that Fasken was involved in the negotiations, which included whether Mr. MacCharles would be guaranteed a seat on the Corporation's board. Ms. Kennedy deposed that Mr. MacCharles was in frequent communication with her during the negotiation of the Phoenix and ClearSky investments, but that at all times she understood Mr. MacCharles to be acting and providing instructions on behalf of the Corporation as an officer [page38] and director. Mr. MacCharles admitted in cross-examination that Fasken was not involved in the Phoenix deal until the substantive terms of the deal were presented in November 2017.

[30] Mr. MacCharles also asserts that with Fasken's help he negotiated a new Amended and Restated Unanimous Shareholders' Agreement dated March 19, 2018, and that Fasken did not advise him to obtain independent legal advice. However, under cross-examination, Mr. MacCharles admitted that there was no retainer agreement between Fasken and himself, or any other evidence that he, personally, was retaining or engaging Fasken to advise him. There is no evidence that Fasken ever opened a file in his name, independently or jointly with Mr. Dias, or the Corporation, or billed him for legal advice, or that he, personally, paid Fasken for legal advice.

[31] Mr. MacCharles acknowledges that both Ms. Tosto and Ms. Kennedy advised him multiple times to seek the advice of a lawyer with respect to his employment contract and that they told him Mr. Dias would also obtain independent legal advice. It is not disputed that Mr. Dias sought advice on his employment contract from a lawyer at Fasken. However, Ms. Kennedy's evidence is that the Fasken lawyer who advised Mr. Dias practiced in a separate Fasken office, in another city, and that Fasken took steps to create an ethical wall between its lawyers advising the Corporation and its lawyer advising Mr. Dias on his employment agreement in order to ensure that the advice Mr. Dias received was indeed independent.

[32] Mr. MacCharles asserts that Fasken did not advise him to obtain independent legal advice at the time he signed the Subscription Agreement in March 2018. He claims that he did not pay attention to the language of the Subscription Agreement, including the language regarding independent legal advice, because he thought the Subscription Agreement was "boilerplate". He also asserts that when he entered into the July 2018 unanimous shareholders agreement, he relied on Fasken's advice and they did not advise him to obtain independent legal advice.

[33] Mr. MacCharles does not deny that he was at the meeting of the Corporation's board at which Ms. Kennedy confirmed that she was representing only the Corporation in the transactions with Phoenix and ClearSky. Mr. MacCharles asserts that, notwithstanding that he was CFO of the Corporation, he had not seen the Fasken retainer letters while employed at the Corporation. However, he does not dispute that he would have seen the Fasken invoices for legal services and arranged for the payment of them.

[34] Irrespective of whether Mr. MacCharles read the retainer letters, which clearly state for whom Fasken will and will not act, Mr. MacCharles does not deny that he was at the meeting, on [page39] November 23, 2017, at which Ms. Kennedy confirmed that Fasken represented the Corporation only. Further, Ms. Kennedy deposed that Mr. MacCharles, on behalf of the Corporation, negotiated the term sheets directly with Phoenix and ClearSky. Fasken was acting for the Corporation alone in relation to these investments and the ancillary agreements required to put into effect the terms of the term sheets negotiated by the Corporation.

[35] Ms. Kennedy also deposed that Mr. MacCharles never indicated to her that he thought Fasken was acting for him. Rather, he told her that he had his own counsel, but did not reveal that counsel's name.

[36] Mr. MacCharles points to three separate email messages from Ms. Kennedy in support of his claim that she was representing Mr. Dias and him, or him alone. He asserts that there may well be other evidence of conflict, which will be revealed once he has received the respondents' responding materials.

[37] The first such email message from Ms. Kennedy is notice to Mr. Dias and Mr. MacCharles that a counterparty to a potential financing deal had requested a non-standard term. As counsel to the Corporation, Ms. Kennedy would have been obligated to bring this matter to the attention of Mr. Dias, from whom she was taking instructions. This is especially so if a term was being proposed that was not included in the term sheet. Presumably, Ms. Kennedy included Mr. MacCharles in the email messages to also make him aware of the fact that the request was being made of Mr. Dias and him personally. I am not satisfied that this communication shows Ms. Kennedy was providing independent legal advice to Mr. MacCharles or Mr. Dias.

[38] Ultimately, this matter was addressed with a standard officers' certificate and there is no evidence to suggest that Ms. Kennedy offered any advice to either Mr. Dias or Mr. MacCharles personally with regard to the request. She did tell them that she had told the counsel making the request that it was not something she would recommend. It is not apparent from the record whether either of Mr. Dias or Mr. MacCharles sought independent legal advice on this term.

[39] The second email from Ms. Kennedy to both Mr. Dias and Mr. MacCharles relates to a power of attorney. Ms. Kennedy followed up on a proposal made by Mr. Dias respecting the voting of shares and she had suggested having shareholders related to Mr. Dias sign a power of attorney permitting him to vote their shares.

[40] The third email relates to a reminder to Mr. Dias and Mr. MacCharles, as officers of the Corporation, that their promissory notes relating to their respective share bases were unsecured. [page40]

[41] I do not find that these latter two communications demonstrate that Ms. Kennedy was providing independent legal advice to Mr. MacCharles and Mr. Dias, or that contacting them on these matters, which appear to be largely administrative in nature and related to finalizing the transaction on behalf of the Corporation, rise to the level of joint representation that would put Fasken in a disqualifying conflict of interest.

[42] Mr. MacCharles deposed that he believed that Fasken was involved with and/or gave advice to the Corporation with respect to the shareholders' interpretation of Mr. MacCharles' rights as a shareholder and/or to Mr. Dias with respect to Mr. MacCharles' termination as an officer and employee of the Corporation. Further, he advances his belief that these communications, if they occurred, would not be subject to solicitor-client privilege if it is found that Fasken acted jointly for the Corporation, Mr. Dias and Mr. MacCharles.

[43] On the evidence before the court, I do not find that Fasken acted jointly for the Corporation, Mr. Dias and Mr. MacCharles. Fasken's retainer letters are clear with respect to whom it would represent (the Corporation) and whom it would not represent (any shareholder, director, officer, employee, etc.). It is not surprising that Fasken may have taken instructions from Mr. Dias or from Mr. MacCharles, from time to time, on certain matters, on behalf of the Corporation. Fasken's retainer letter specifically provided that it will take instructions primarily from Mr. Dias on behalf of the Corporation, unless otherwise advised. The termination of an officer of the Corporation and the interpretation of the shareholders agreement to which the Corporation is a party would be matters on which the Corporation could reasonably be expected to seek legal advice.

[44] I accept that Fasken took instructions from each of Mr. Dias and from Mr. MacCharles, when each was a director, but I am satisfied that the instructing director was giving those instructions on behalf of the Corporation as opposed to in his own interest. Further, Mr. MacCharles is no longer a director of the Corporation and ceased being a director in 2018.

(ii) Fasken lawyers as witnesses

[45] Mr. MacCharles disputes the respondents' assertion that Fasken did not act jointly for the Corporation, Mr. Dias and Mr. MacCharles. Mr. MacCharles argues that this issue will be subject to a determination on the merits in the underlying application and, for this reason, he asserts that there is a "high probability" that Fasken's evidence "may" be necessary for him to prove on a balance of probabilities that the July 31, 2018 Second Amended [page41] and Restated Unanimous Shareholders Agreement does not represent his reasonable expectations as a shareholder.

[46] In applying the relevant factors in Essa, I am not persuaded that removing Fasken as counsel of record at this stage of the proceeding would be appropriate. The proceeding is at a preliminary stage, but based on the evidence before the court, Mr. MacCharles has not yet determined whether he will call any lawyer from Fasken as a witness, whether he will seek to convert his application to an action, or precisely what evidence such lawyers are likely to adduce. At this point, Mr. MacCharles can only say that there is a "high probability" that lawyers from Fasken will be called. Mr. MacCharles' evidence is that he warned the Corporation early on that he would oppose Fasken's representation of the respondents in the application and, therefore, he asserts, there is no bad faith on his part and that this motion was not brought for tactical reasons.

[47] Mr. MacCharles further asserts that the evidence to be led by the lawyers at Fasken will be significant because it relates to Mr. MacCharles' reasonable expectations as a shareholder and his reliance on Fasken's advice even though he believed that Fasken was more focused on protecting Mr. Dias' interests than his own. Mr. MacCharles submits that Fasken "likely" has significant evidence with respect to the timing of his termination and the interpretation of Mr. MacCharles' shareholder rights. I agree with the respondents' assertion that if Fasken has such evidence, it would likely be subject to solicitor-client privilege and it is not something on which any witness from Fasken could testify. Mr. MacCharles argues that it is not a certainty that all advice given by Fasken would be protected by solicitor-client privilege.

[48] Mr. MacCharles asserts that removing Fasken as counsel would have little impact on the respondents because the trial date has not been set and therefore the respondents should be able to find suitable alternative counsel. This is not disputed, but the respondents submit that they have invested many years establishing their working relationship with Fasken and Fasken is their counsel of choice.

[49] Mr. MacCharles asserts that there is a significant likelihood of real conflicts of interest arising that would taint the evidence. He includes in such potential conflicts: a conflict with respect to Fasken's interest in the court accepting the evidence of other Fasken's lawyers who testify, because the court's rejection of such evidence would reflect negatively on the firm; a conflict of interest between the lawyer witnesses and the respondents; and a conflict of interest between the duties the lawyer witnesses owe to the respondents as clients and the duties of the witnesses to the court. [page42]

[50] In his factum, Mr. MacCharles states that he "may" call Mr. Sosnow, Ms. Kennedy and Ms. Tosto from Fasken as witnesses. He asserts that if he calls them, they should not be cross-examined by a lawyer from Fasken because such cross-examination could result in an unfair advantage. Mr. MacCharles submits that if a lawyer at Fasken calls witnesses who are also Fasken lawyers, involved in matters and communications at the heart of Mr. MacCharles' oppression claim, the connections between the lawyers would be very close and relevant to the proceedings. This would also result in a potentially unfair advantage.

[51] The difficulty with Mr. MacCharles' application of the factors set out in Essa is that, at this stage, they are speculative and not grounded in evidence. Mr. MacCharles has not yet determined whether any lawyer from Fasken will be called as a witness in his application.

[52] For a witness to be called, the application judge would need to order the trial of an issue within the application, or Mr. MacCharles would need to convert his application to an action. Mr. MacCharles chose to commence his proceeding by way of application, which would not normally involve viva voce evidence. He could have chosen to advance his oppression claim by way of an action, where it is likely that witnesses would be called to testify, but he did not.

[53] In his notice of application, Mr. MacCharles has not identified any particular lawyer at Fasken whom he plans to call as a witness. In his affidavits sworn October 1, 2019 and October 28, 2019, he states that there is a high probability that "various lawyers that I worked with at Fasken will be called in this proceeding by me. . .". These statements do not evidence a decision by Mr. MacCharles that he will indeed call them. Even if Mr. MacCharles chooses to call witnesses from Fasken, it may be possible that such witnesses could be cross-examined by a lawyer for the respondents other than Mr. Forrest.

Disposition

[54] For the foregoing reasons, I find that the applicant, Mr. MacCharles, has failed to demonstrate that Fasken has a disqualifying conflict of interest in its representation of the respondent iS5 Communications Inc. and Mr. Dias, as CEO instructing counsel on behalf of iS5 Communications Inc. Accordingly, I decline to interfere with the respondents' fundamental right to its choice of counsel. Further, I find that, at this point in the proceeding, Mr. MacCharles has failed to demonstrate that lawyers from Fasken will be called to provide testimony in the within proceeding. Accordingly, the applicant's motion is dismissed. However, this dismissal is made without prejudice to the applicant's right to bring another motion seeking [page43] the removal of Fasken as counsel of record if his application is converted to an action, or a trial is ordered within his application, and if lawyers from Fasken will be called to testify in the proceeding.

Costs

[55] The respondents have succeeded in defending against this motion and are entitled to their costs. The parties have submitted Costs Outlines, which I have reviewed. The respondents seek $37,808.78 on a partial indemnity basis, inclusive of HST and disbursements. The applicant, if successful, would have sought $29,137.55, on a partial indemnity basis, inclusive of HST and disbursements. The respondents were represented by two counsel at the hearing whereas the applicant was represented by one. Considering the relevant factors set out in rule 57.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 in determining costs, including the amount that the unsuccessful party might reasonably expect to pay, I fix the costs payable by the applicant to the respondents at $30,000 inclusive of HST and disbursements. Under the circumstances of this case, I find this award to be fair and reasonable.

Motion dismissed.

End of Document