COURT FILE NO.: CV-16-3908-00
DATE: 2020 09 30
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Yellow Cedar Investment Limited, 2440733 Ontario Inc. and 2441296 Ontario Inc.
J. Smith, Counsel for the Plaintiff
Plaintiff
- and -
Egidio Di Toro, Rosanna Di Toro and Stonebrook Homes Ltd.
J. Lo Faso and D. Morawetz, Counsel for the Defendants
Defendants
HEARD: September 9th, 2020
REASONS FOR DECISION
LEMAY J
[1] The Plaintiffs held mortgages on two properties owned by the Defendants. In 2013, there was a default on both mortgages. The Plaintiffs assumed title to the properties and sold them. When the Plaintiffs sold the property, there was a shortfall from the amounts owing by the Defendants. The Plaintiffs are claiming that shortfall in this action. The Defendants claim that they transferred the properties to the Plaintiffs in complete satisfaction of the debts that they owed the Plaintiffs.
[2] This dispute will be decided at a trial in November of this year. It is common ground, however, that the properties were transferred from the Defendants to the Plaintiffs after the mortgages had gone into default. The dispute is over the significance of that transfer.
[3] Counsel for the Plaintiffs in this action is from the RZCD law firm. The lawyers who acted for the Plaintiffs on the transaction when the properties were transferred were also from the RZCD law firm. The Defendants assert that, since lawyers from the RZCD law firm acted for the Plaintiffs on the mortgage transaction, the Plaintiff’s current counsel, Mr. Smith who is from the RZCD law firm, is disqualified from acting for the Plaintiffs on the lawsuit that flows from the mortgage transaction. The Defendants have brought a motion to recuse the RZCD firm from acting in this matter.
[4] For the reasons that follow, the Defendants’ motion is dismissed.
Background Facts
a) The Parties
[5] The Plaintiffs are a series of companies that were originally controlled by the late Robert (Bob) Winn. Mr. Winn passed away on February 11th, 2020. He was able to swear an Affidavit for this motion, and for a summary judgment motion, prior to his passing.
[6] The personal Defendants, Egidio and Rosanna Di Torio, have interests in the two properties that are the subject of this action. They were friends with Mr. Winn and his wife, and had a relationship that spanned more than ten years.
[7] Part of that relationship was that Mr. Winn would, on occasion, provide financing to the Di Torios. This financing would be secured by mortgages that were placed on properties owned by the Di Torios and/or their companies.
[8] The Defendant Stonebrooke is a company that is owned by the Di Torios. It held title to one of the properties in question. The current President of Stonebrooke is Robert Di Torio, who is the son of the personal Defendants. Robert provided an Affidavit on this motion, but there is no Affidavit from either Egidio or Rosanna.
b) The Properties and the Transaction
[9] There are two properties in issue. One is the property municipally known as 61 Earl Street, Wasaga Beach Ontario. Egidio was the registered owner of this property, and granted a mortgage on the property to Yellow Cedar, one of Mr. Winn’s companies, in November of 2012.
[10] The second property is municipally known as 0 Maple Avenue East, Halton Hills, Ontario. It was owned by Stonebrooke. Stonebrooke granted a mortgage on one of these properties to Yellow Cedar in 2007.
[11] The Defendants went into significant default on the mortgage payments on both properties in and around October of 2013. An agreement was reached between the parties to extend the mortgages for six months and to impose a penalty clause for missed payments.
[12] There was some back and forth between the parties and their counsel about the terms of the transfer, and the question of ownership between the parties. Eventually, in 2014 the properties were transferred from the Defendants to Yellow Cedar. Mr. Winn was concerned about the liabilities associated with each property. Therefore, he transferred them to the numbered companies that are co-plaintiffs in this action, with Yellow Cedar continuing to hold the mortgages on the properties.
[13] When the properties were transferred to Yellow Cedar, the law firm of Parnes Rothman acted for the Defendants. RZCD had two partners, Dilreet Singh Dandiwal and Eric Dionne, who acted for the Plaintiffs on the transfer.
[14] The properties were ultimately sold by Mr. Winn’s companies, and Yellow Cedar’s mortgages were discharged. The sale of the Wasaga Beach property closed in January of 2015, and the sale of the Maple Avenue property closed in July of 2016. There was a shortfall of approximately $400,000.00 from the amounts owing on the two mortgages.
c) The Litigation
[15] The litigation commenced with the issuance and serving of a Statement of Claim on September 1st, 2016. The Plaintiffs claimed the shortfall from the Defendants. The Defendants served their Statement of Defence on September 27th, 2016.
[16] A motion for summary judgment was brought by the Defendants in January of 2017, with a return date of June 19th, 2017. Responding materials were filed by the Plaintiffs. Those responding materials included both an Affidavit from Mr. Winn and an Affidavit from Mr. Dandiwal.
[17] The June 19th, 2017 summary judgment motion was adjourned at the request of the Defendants so that their then counsel could obtain instructions. It was returnable on July 25th, 2018.
[18] On June 4th, 2018, Mr. Lo Faso replaced the Defendants’ previous counsel on the file. The summary judgment motion was abandoned by way of a Notice of Abandonment of Motion which was served nine days before the summary judgment motion was intended to proceed. I was advised that the parties have recently been able to resolve the costs of this summary judgment motion.
[19] The motion to remove RZCD as counsel was originally returnable on July 30th, 2019 as a short motion. The Defendants served their motion materials on June 10th, 2019. The Plaintiffs served their responding materials, including the Affidavit of Mr. Winn, around July 22nd, 2019. On receipt of this responding motion record, the Defendants’ counsel sought an adjournment to a long motion date. May 20th, 2020 was originally booked for a long motion.
[20] In the meantime, the Plaintiffs served their Trial Record on August 3rd, 2019. The matter was spoken to in assignment Court on December 16th, 2019 and a trial date of November 23rd, 2020 was set on consent of the parties.
[21] In the meantime, an action against the Defendants’ lawyers Parnes Rothman (“the Solicitor’s action”) was also proceeding as the Defendants were claiming that their lawyers had acted negligently on the transaction. A motion was brought to either have the Solicitor’s action heard together with the main action or to have it consolidated with the Solicitor’s action. This motion was heard by Doi J. on July 9th, 2020. On July 14th, 2020, Doi J. issued a decision in which he directed that the matters be consolidated (see 2020 ONSC 4303).
[22] In addition, Doi J. directed that a timetable be set to ensure that the action could proceed to trial in November of 2020, as scheduled. That timetable was outlined in an endorsement sent on July 17th, 2020. Part of the timetable was that this motion was returnable for a two hour long motion on September 9th, 2020. That motion was duly argued before me by video conference.
d) The Potential Factual Dispute
[23] Put simply, the potential factual dispute is over the question of whether the properties were transferred to the Plaintiffs in complete satisfaction of the monies owing under the mortgages, or whether the Plaintiffs were entitled to sell the properties and then claim any shortfall from the Defendants.
[24] The parties have advanced substantially different versions of the facts in this case. These different facts are supported by Affidavits from people who were, at one point or another, involved in the transaction.
[25] I acknowledge that both counsel spent a significant portion of their argument on this factual dispute. However, for the reasons that follow, it is not necessary for me to resolve this dispute. All that is necessary in this case is for me to accept that the parties have different versions of the facts, and that those differences have the potential to affect the outcome of the litigation. I also accept that those factual differences make it almost certain that at least Mr. Dhandiwal will be called as a witness. It is also quite possible that Mr. Dionne will be called as a witness.
[26] There is a significant factual dispute that will have to be resolved at trial. Therefore, I am not prepared to make any findings with respect to credibility on this motion and my reasons should not be read as making any such finding. I do acknowledge, however, that the trial judge may be called upon to make credibility findings. These credibility findings could include adverse findings respecting the lawyers from RZCD who acted on the transaction.
Analysis and Disposition
a) The Positions of the Parties
[27] The Defendants argue that there will be significant issues with respect to credibility in this case that will involve RZCD counsel. As a result, the Defendants argue that the right of the Plaintiffs to be represented by their counsel of choice must give way to the integrity of the legal system. Counsel for the Defendants also argues that procedural problems may well arise, and that there may be a temptation on the part of Mr. Dandiwal or Mr. Dionne to tell a white lie to assist the Plaintiffs. For these reasons, the Defendants argue that the RZCD firm should not be permitted to act for the Plaintiffs at the trial of this matter.
[28] The Plaintiffs argue that there is no disqualifying conduct on the part of the RZCD law firm, as Mr. Smith was not involved in any of the discussions relating to this transaction. The Plaintiffs also assert that the significant delays in bringing this motion raise questions as to whether the Defendants have brought the motion in good faith. In that regard, the Plaintiffs point out both that Mr. Smith has done a considerable amount of work on this file, and that Mr. Dandiwal swore an Affidavit setting out his evidence more than two years before the motion to remove RZCD from the record was brought.
[29] In addition, the Plaintiffs’ counsel Mr. Smith has provided an undertaking that he will not cross-examine Mr. Dandiwal or Mr. Dionne. As a result, there is not likely to be a conflict in this case. In any event, any risk that Mr. Dandiwal or Mr. Dionne are not going to tell the truth is no bigger or smaller than it would be if there was a different counsel from a different firm prosecuting the case.
b) The Law and Its Application
[30] The guiding case in this matter is MacDonald Estate v. Martin (1990 CanLII 32 (SCC), [1990] 3 S.C.R. 1235). In that decision, the Supreme Court set out the three competing values that arise on a case such as this:
a) The concern to maintain the high standards of the legal profession and the integrity of our system of justice;
b) The countervailing value that a litigant should not be deprived of his or her choice of counsel without good cause;
c) The desirability of permitting reasonable mobility in the legal profession.
[31] In this case, the third value does not arise as there is no mobility issue. All three of the lawyers involved in this motion are, and at all material times have been, at RZCD.
[32] The difficulties that can result from counsel representing a party and appearing as a witness in the same manner are described by Gillese J. (as she then was) in Urquhart v. Allen Estate ([1999] O.J. No. 4816 (S.C.J.)) (paras 27 and 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 plaintiff’s 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. The dual roles that [counsel] intends to fulfill compromises the integrity of the system. As I can see no way to alter the process that respects the rights of both parties, fulfills the needs for due process and maintains regard for the dictates of the proper administration of justice, in these circumstances plaintiffs’ counsel cannot be permitted to continue. I note that even if I were to exercise my discretion and permit him to continue, procedural problems may very well arise. If they did so, it is likely that it would require me to abort the trial at that time. Such a course of events would result in more prejudice to the plaintiff than does dealing with the issue now.
[33] The Divisional Court, in Essa (Township) v. Guergis ((1993) 15 O.R. (3d) 573, 1993 CanLII 8756 rev’g (1993) 12 O.R. (3d) 97 1993 CanLII 8467) set out the following criteria for the Court to consider in a motion such as this:
a) the stage of the proceedings;
b) the likelihood that the witness will be called;
c) the good faith (or otherwise) of the party making the application;
d) the significance of the evidence to be led;
e) the impact of removing counsel on the party's right to be represented by counsel of choice;
f) whether trial is by judge or jury;
g) the likelihood of a real conflict arising or that the evidence will be "tainted";
h) 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;
i) the connection or relationship between counsel, the prospective witness and the parties involved in the litigation.
[34] The decision in Essa goes on to observe that the Court should adopt a flexible approach taking into account all of the relevant factors. I will now consider each of those factors.
[35] I start with the stage of the proceedings. In their factum, the Defendants argue that “this action is essentially at the pleadings stage.” I see no factual basis to support this submission. There is a trial in less than two months. Further, considerable pleadings, documentation and other steps had been taken before this motion was even brought. This factor strongly favours dismissal of the motion.
[36] The next factor to consider is the likelihood that the witness will be called. It is clear that Mr. Dandiwal will be called as a witness. It is also quite possible that Mr. Dionne will be called as a witness. This factor favours disqualification. However this factor should be given less weight because of the undertaking not to cross-examine either witness that the Plaintiffs have given, and the fact that Mr. Dandiwal’s evidence has been known for some considerable time.
[37] This brings me to the good faith of the parties bringing the motion. In that regard, I have two concerns. First, the factual dispute between the parties was known for some considerable time prior to this motion being brought. The Affidavits of Mr. Dandiwal, and the opposing Affidavits from the Defendants clearly showed the conflict in evidence as far back as mid-2017. This brings me to my second concern. I have no substantial explanation as to why this motion was not brought for a year after Mr. Lo Faso became counsel of record. The combination of the knowledge and the delay raise issues of whether this motion is being brought in good faith. This is a factor that weighs in favour of dismissing the motion.
[38] On this point, the recusal motion may have been, as noted in the Defendants’ factum, the “first substantive step taken by the Defendants upon retaining current counsel” but there was a significant delay nonetheless. The fact that it was the first substantive step does not explain the delay between June of 2018 when Mr. Lo Faso came on the record and June of 2019 when the motion was first brought.
[39] The next factor is the significance of the evidence to be led. I do not intend to wade too far into a consideration of the evidence, as there are issues of credibility. I would simply observe that the case could hinge on the factual dispute. On a motion such as this, however, the Court should not be inquiring too far into the merits of the factual dispute. This is a factor that favours disqualification.
[40] The next factor is the impact of the removal of counsel. In my view, this is a factor that significantly favours dismissal of the motion for two reasons:
a) The case law makes it clear that the importance of the choice of counsel is considerable, and the RZCD law firm has a long-standing relationship with the Plaintiffs.
b) The timing of this request will result in both a considerable waste of the work that Mr. Smith has done to become familiar with the case and the delay of the trial.
[41] Although there was some suggestion from the Defendants’ counsel that the trial could still proceed in November, I see no basis to accept this suggestion. Even if the motion had been granted a month ago, it would still be unlikely that the Plaintiffs would have been able to find and brief new counsel in time for the trial. It is less likely now.
[42] This brings me to the question of whether the trial is by judge or by jury. This is a judge alone trial, which is a factor that is, on the best case for the Defendants, neutral. In my view, it is a factor that favours dismissal of the motion. Any prejudice that may result from having lawyers from the same firm as witnesses and as trial counsel will be lessened because the trial judge will be able to separate those issues and manage them in a way that is fair to all parties.
[43] The next factor is the likelihood of a real conflict arising or that the evidence will be tainted. I accept the submissions of the Plaintiffs on this point that the evidence of Mr. Dandiwal and Mr. Dionne is no more or less likely to be tainted if RZCD continues to represent the Plaintiffs. This factor is neutral.
[44] The next factor is who will call the witness. The Plaintiffs have undertaken not to cross-examine either Mr. Dandiwal or Mr. Dionne. I also understand that the Plaintiffs will be calling either or both of them, and that the examination of Mr. Dandiwal will generally follow his previously filed Affidavit. As set out in a number of other cases, this is not an ideal situation. However, the steps that the Plaintiffs have taken to mitigate the risk are significant. As a result the weight to be given to this factor is lessened.
[45] This brings me to the final factor, which is the connection between counsel, the prospective witness and the parties involved in the litigation. This is the factor that, in the Defendants’ submission, “makes RZCD’s acting for the Plaintiffs incongruent with the proper administration of the [sic] justice.”
[46] This argument brings me back to the case-law that the Defendants have relied upon. One case in particular, Talisman Resort v. Keyser, Usling et. al. (2013 ONSC 1901) is striking as it is a case that features in a number of the footnotes in the Defendants’ factum. In that case, Conlan J. described the nature of the motion he was faced with as follows (at paragraph 5):
In essence, the argument by these Defendants is that Bennett Jones LLP ought to be removed as counsel for Talisman because of an actual or perceived conflict of interest in that a partner in that law firm (but not the lawyer with carriage of the matter), Serafino Mantini (“Mantini”), (i) is a witness and (ii) has a personal interest in the litigation in that Mantini is the sole shareholder of Talisman’s corporate shareholder and, as a mortgagee, is owed a substantial amount of money from Talisman.
[47] In Talisman, Mr. Mantini was a law partner in the firm that the Defendants were seeking to remove from the file. In addition, however, he was a witness and the principal shareholder in the Plaintiff. As a result, Mr. Mantini was even more closely connected to the file and the case than the potential witnesses in this case. In addition, Talisman was not as far along in the litigation process as the case before me. There was no impending trial date, and the litigation had not been going on for as long as this case has been going on.
[48] Even with all of these distinguishing features that suggested a stronger case to have Mr. Mantini’s law firm removed from the record, Conlan J. declined to recuse Bennett Jones. Although there are connections between the witness, the law firm and the client in this case, they are weaker than they were in Talisman.
[49] Overall, the last factor of the relationship between the witness, counsel and the client may favour the removal of the RZCD law firm but it is only one consideration. It is not the overriding consideration.
[50] I must conduct a balancing of all of the relevant factors in arriving at my decision. As I have set out above, the factors in this case support the Plaintiff’s position that RZCD should not be removed as the law firm of record for this trial. In particular, the timing of the motion, the stage of the action and the steps that the Plaintiffs are willing to take to mitigate the risks. The facts I have set out above and Conlan J.’s analysis in Talisman, supra support the same conclusion.
[51] As a result, the Defendants’ motion is dismissed.
Conclusion
[52] For the foregoing reasons, the Defendants’ motion is dismissed.
[53] The parties are encouraged to agree on the costs of this motion. Failing agreement, the Plaintiffs shall have fourteen (14) days from the release of these reasons to provide their costs submissions. Those costs submissions are not to exceed three (3) single-spaced pages, exclusive of bills of costs, offers to settle and case law.
[54] The Defendants shall have fourteen (14) days from the receipt of the Plaintiffs’ costs submission to provide their own costs submissions. Those costs submissions are also not to exceed three (3) single-spaced pages, exclusive of bills of costs, offers to settle and case law.
[55] There shall be no reply submissions without my leave. If costs submissions are not received in accordance with this timetable, then there will be no costs of the motion. If the parties require an extension to these deadlines, even on consent, they must seek my leave.
LEMAY J
Released: September 30, 2020
COURT FILE NO.: CV-16-3908-00
DATE: 2020 09 30
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Yellow Cedar Investment Limited, 2440733 Ontario Inc. and 2441296 Ontario Inc.
Plaintiff
- and -
Egidio Di Toro, Rosanna Di Toro and Stonebrook Homes Ltd.
Defendants
REASONS FOR JUDGMENT
LEMAY J
Released: September 30, 2020