Court File and Parties

COURT FILE NO.: CV-20-00000384-00A1 (Kingston)

DATE: 2021-10-04

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: LaSalle Electrical Contractors Inc., Plaintiff

AND:

2590687 Ontario Inc., Amit Bhatti and Jagjit "Jai'' Bhatti, Defendants

AND:

Jensen Building Ltd., Third Party

BEFORE: Mr. Justice Graeme Mew

COUNSEL: Dan J. Leduc and Erika Woolgar, for the Plaintiff and the Third Party Ian Latimer, for the Defendants

HEARD: 27 August 2021 (by videoconference), at Kingston

ENDORSEMENT

[1] Disputes have arisen in connection with a project to construct a Hampton Inn at 125 Innovation Drive, Kingston.

[2] The defendant 2590687 Ontario Inc. (“259”) is the owner of the project. The defendants Amit and Jagjit “Jai” Bhatti are the project’s managers.

[3] The third party, Jensen Building Ltd. (“JBL”), was hired as the construction manager for the project pursuant to a modified CCDC 5A 2010 Construction Management Services contract dated 16 April 2019. JBL is also the plaintiff in related construction lien proceedings against the defendants in Kingston court file no. CV-19-00000406 (the “Lien Action”).

[4] JBL coordinated the tendering of various trade contracts that were required by the project.

[5] The plaintiff LaSalle was an electrical contractor which submitted the lowest compliant bid for the electrical work on the project.

[6] However, for reasons that are immaterial to the motions before the court, contracts with major trades, including LaSalle, were not finalised. Suffice it to say that JBL and 259 each blame the other for the lack of progress.

[7] There was a meeting on 19 August 2019 between representatives of JBL, 259, LaSalle and the mechanical contractor involved in the project, following which JBL and 259 sent each other notices of default alleging various breaches of the contract.

[8] On 28 August 2019, JBL registered a construction lien for unpaid work on the project.

[9] On 3 September 2019, 259 terminated its contract with JBL.

[10] In the Lien Action, commenced on 21 November 2019, amongst other things, the following relief is sought:

a. a declaration that JBL is entitled to the construction lien in the amount of $79,550.07;

b. damages in the amount of $81,143.69 for non-payment of its invoices and compensation for breach of trust under Part II of the Construction Act, R.S.O. 1990, c. C.30; and

c. damages in the amount of $387,428.55 for breach of contract, breach of the duty of good faith contractual performance, and intentional interference with JBL’s contractual and economic relations.

[11] As described by JBL in its factum, one of the main allegations in the Jensen Action is that the defendants “engaged in obstructive and anti-competitive conduct in relation to the tendering of the major trade contracts, including the electrical work”. JBL asserts that this interference was a breach of contract and prevented JBL from carrying out its duties and obligations under the contract, resulting in the wrongful termination of the contract and causing damages to JBL.

[12] This action was commenced by LaSalle on 11 December 2020. As described by 259, this action is a tender case in which LaSalle claims damages from 259 based on an alleged breach of “Contract A” or “Contract B” (as those terms are known in cases dealing with tendering disputes). In its statement of claim, LaSalle pleads that 259 had awarded Contract B to LaSalle, but subsequently resiled, taking the position that it had not awarded Contract B to LaSalle.

[13] In their statement of defence, delivered on 22 February 2021, the defendants deny breaching Contract A or Contract B and plead that 259 was prepared to enter into Contract B with LaSalle, but the parties could not agree on the terms and conditions of Contract B, and that LaSalle advised 259 that it was not interested in doing the work when LaSalle learned that JBL had been terminated.

[14] On 8 March 2021, 259 commenced a third party action against JBL for damages and contribution and indemnity. In its third party claim, 259 alleges that if LaSalle obtains a judgment, then JBL is liable to pay the judgment because, but for JBL's breaches of the contract and negligence, it would not be possible for LaSalle to obtain a judgment. Specifically, 259 alleges that:

a. JBL negligently tendered the electrical subcontract without regard to the provisions in the contract and its duties and obligations to 259;

b. after the tenders were open, JBL provided negligent advice to 259, acted without instructions from 259, and preferred LaSalle's interests over 259's interests;

c. JBL preferred LaSalle's interests over those of 259 due to a prior close business relationship JBL had with LaSalle, which JBL did not disclose to 259; and,

d. JBL sent a first and second purchase order to LaSalle without 259's instructions and authorisation.

[15] JBL delivered its defence to the third-party claim on 21 April 2021, but has not defended the main action.

[16] Norton Rose Fulbright Canada LLP (“Norton Rose”) are the solicitors for both JBL and LaSalle in both the instant proceedings and the Lien Action.

Issues

[17] 259 seeks an order removing Norton Rose as lawyers of record for LaSalle (but not JBL) in these proceedings.

[18] JBL and LaSalle seek, among other relief, orders that:

a. the Lien Action and the current action (including the third-party action) be heard and tried together, or one after another, with common productions and examinations for discovery;

b. the implied undertaking rule in Rule 30.1.03(3) does not apply as between this action and the Lien Action.

Position of the Parties

[19] In its brief, 259 alleges that Norton Rose is in a conflict of interest by acting for both JBL and LaSalle. The motion for trial together and waiver of the implied undertaking rule is said to be tactical and aimed at mitigating the effects of that conflict. 259 claims that JBL and LaSalle are, through their collusion and joint representation, “ganging up” on it.

[20] Under its contract with 259, JBL had a duty to "keep all documents and discussions in relation to the project confidential other than those party(s) involved in the Project and as provided for under the law". Without knowing what, if any, confidential information has been wrongfully shared by JBL with LaSalle, 259’s position is that the potential exists for a breach of the obligation of confidentiality to occur.

[21] 259 says that there is a significant threat of its interests being prejudiced. The following paragraph in its factum summarises the basis for this concern:

The litigation strategy of JBL and LaSalle is deliberate and transparent. They are trying to pressure [259] and gain an unfair advantage at the expense of [259]. For example, Norton's knowledge of the entire project could be used to tailor a discovery plan in the LaSalle Action or conduct a better cross-examination. Further, with Norton acting for JBL and LaSalle, Norton has complete control of the process. Norton can meet with both parties at the same time to discuss strategy and to prepare for discoveries and the trial. Norton will know in advance what answers JBL and LaSalle will give to the questions Norton will ask.

[22] Furthermore, 259 argues that the summary character of Construction Act proceedings and the different nature of the two sets of proceedings (one being a claim for unpaid services and damages for the wrongful termination of contract, the other a tender case in which LaSalle claims damages based on the allegation that after LaSalle and 259 had entered into a contract which 259 then refused to honour) should militate against consolidation.

[23] JBL and LaSalle deny that there is any conflict arising from Norton Rose representing each of them. Even if they were separately represented, they would not be precluded from sharing most relevant information pertaining to the litigation. They say that the substantial overlap of issues raised in the Lien Action and the third-party proceedings favours consolidation and renders the likelihood of disclosure of information that might otherwise be restricted by the implied undertaking rule inevitable.

Analysis

Removal of Norton Rose as Lawyers of Record for LaSalle

[24] As solicitors for both JBL and LaSalle, Norton Rose cannot withhold confidential information they possess in their capacity as JBL’s lawyers from LaSalle and vice-versa.

[25] Many cases involving requests to remove lawyers arise where a lawyer has moved from one firm to another. In MacDonald Estate v. Martin, 1990 CanLII 32 (SCC), [1990] 3 S.C.R. 1235, it was held that once the opposing firm of solicitors is shown to have received “confidential information attributable to a solicitor and client relationship relevant to the matter at hand”, the court will infer “that lawyers who work together share confidences” (at p. 1262) and that this will result in a risk that such confidences will be used to the prejudice of the client, unless the receiving solicitors can show “that the public represented by the reasonably informed person would be satisfied that no use of confidential information would occur” ( at p. 1260). Only where there is “clear and convincing evidence” (p. 1262) to the contrary will the presumption be rebutted.

[26] Celanese Canada Inc. v. Murray Demolition Corp., [2006] S.C.C. 36, dealt with solicitors obtaining privileged information from a party adverse in interest, through the execution of an Anton Piller order. The Supreme Court in that case held that a moving party does not have the onus of establishing “a real risk of prejudice”; rather, the onus of rebutting a presumption of prejudice rests with the other party (in the instant case, that would be LaSalle/Norton Rose).

[27] As Mesbur J. explained in Greenbriar Holding Inc. v. Canadian Hydrogen Energy Company, 2006 CanLII 27307 (ON SC), at para. 10:

Generally, in these situations, the court must balance the right of a litigant to retain the lawyer he or she wishes against the right of a party adverse in interest to be secure in the knowledge that there will be no misuse of confidential information obtained by opposing counsel to the adverse party’s detriment. The court must consider these issues from the point of view of the reasonable person, and have regard to both the appearance of conflict, not just actual conflict, as well as the risk of prejudice, not just actual prejudice.

[28] 259’s case is grounded largely on optics and the potential for conflict. Because Norton Rose is also acting for LaSalle, 259 is concerned about the possibility that Norton Rose will use the information and documentation it obtained from JBL in the Lien Action against 259 in this action.

[29] The court has no way of knowing what confidential information Norton Rose may have obtained as a result of its lawyer-client relationship with JBL which could be of interest to LaSalle. To quote Nordheimer J., who was the judge at first instance in Celanese, it “might be mundane, or may even be irrelevant to the underlying issues. Conversely, of course, it might also be crucial to the defence of the claim. I have no way of knowing”: Celanese Canada Inc. v. Murray Demolition Corp., 2003 CanLII 6649, 69 O.R. (3d) 618 (SCJ), at para. 28. I find myself in a similar position.

[30] The concerns raised by 259 may to some extent be tempered by the likelihood that most if not all of the information that it regards as confidential will, if relevant, eventually be disclosed in one or both actions in the course of discovery.

[31] Nevertheless, I am satisfied that the potential for mischief exists. My overall unease is not mitigated by the fact that LaSalle and JBL have agreed to waive any potential conflict of interest (although they maintain that they do not consider there to be an actual conflict of interest), particularly given the refusal of LaSalle to disclose whether it received independent legal advice before consenting to the dual representation with JBL.

[32] 259’s concerns may, as JBL and LaSalle argue, be “speculative”. But other than a bald repudiation of the concerns raised, they have not adduced evidence to assuage those concerns.

[33] I would, accordingly, grant 259’s motion on the basis of those concerns.

[34] In the event that I am in error in so finding, I would also, and independently of the confidential information issue, find Norton Rose’s representation in this proceeding of the plaintiff LaSalle and the third party defendant, JBL, to be untenable.

[35] While I recognise that the main action and the third party action are technically separate actions, the reality is that LaSalle’s claim and JBL’s third party defence bookend 259’s assertion that if LaSalle has a valid claim against it, it is because of JBL’s negligence or breach of contract. Norton Rose’s prosecution of LaSalle’s claim and its defence of 259’s claim for indemnity cannot be salvaged by virtue of JBL not having pleaded to the main action.

[36] Put bluntly, it is not wholly in JBL’s interests for LaSalle’s claim against 259 to succeed.

[37] While during the course of argument, counsel for JBL conceded the potential for conflict, he nevertheless asserted that only if that potential is realised should the court require LaSalle to be separately represented.

[38] In my view, the interests of the orderly administration of justice would not, in these circumstances, be better served by waiting to see if the potential for conflict matures. The change should be made before the parties are plunged into discoveries and beyond. It will be less disruptive that way.

[39] It is therefore ordered that Norton Rose be removed as lawyers of record for LaSalle.

Trial Together and Implied Undertaking Issues

[40] Given my ruling on the issue of representation, it would be premature for the issues of trial together and waiver of the implied undertaking rule to be adjudicated before LaSalle has obtained separate legal representation.

[41] The motion for trial together and relief from the implied undertaking rule issues, should be adjourned.

[42] While I am not seized of this matter, it would be in the interests of judicial economy for the return of the motion to be scheduled for hearing by me, if available. Once the parties are ready schedule a return date, they should contact the trial coordinator at Kingston for assistance.

Costs

[43] I am presumptively of the view that 259, as the successful party, should have its costs of the motion to remove Norton Rose as lawyers of record. If counsel are unable to agree on costs, 259 should submit its bill of costs and a written submission of not more than 3 pages to me via my judicial assistant, Aimee McCurdy (aimee.mccurdy@ontario.ca) within 15 working days of the release of these reasons. Responding submissions should be delivered no more than 10 working days thereafter.

Mew J

Date: 04 October 2021