Court File and Parties

COURT FILE NO.: CV-20-00001340-0000 DATE: 2021/11/12

SUPERIOR COURT OF JUSTICE-ONTARIO

RE: MANANI INVESTMENTS INC., AZAD DAMANI and RODNEY SLAGTER, Plaintiffs -and- 1936028 ONTARIO INC., Defendant

BEFORE: Gibson J.

COUNSEL: Gerry Schaffer, Counsel for the Plaintiffs Jarvis Postnikoff, Counsel for the Defendant

HEARD: September 16, 2021

Endorsement

Overview

[1] The controversy before the Court in this matter has its origins in a dispute regarding a mortgage pertaining to the property at 230 Kerwood Avenue, Cambridge, Ontario. There have been a convoluted series of legal proceedings involving this property.

[2] This is a motion to remove Steven Gadbois (“Gadbois”) as lawyer of record for the Defendant 1936028 Ontario Inc. (“193”) in the present action on the basis that he is in a conflict of interest in the current litigation. The Defendant opposes this request.

[3] The Plaintiff Azad Damani (“Damani”) (one of the three plaintiffs in this action) submits that Gadbois previously acted as his lawyer involving the same issues that are the subject of this litigation and that Gadbois has been privy to information with respect to an earlier action through his then co-defendants, William Hoskinson (“Hoskinson”) and Ali Jamal (“Jamal”). Damani states that Gadbois was the solicitor on record for the Plaintiff Damani, his then lawyer William Hoskinson (now deceased, and who, before his passing in 2018, was disbarred by the Law Society of Ontario for his actions in the previous litigation) and an unregistered mortgage broker named Ali Jamal (who is also now deceased). Damani says that he provided information to Hoskinson and presumes that this information was passed on to Gadbois, who now acts for the Defendant 193 and more particularly for its principal, Aurel Pauser.

[4] Damani submits that Gadbois, having represented Damani along with other defendants in the earlier action (File No. 947-14), is now in a conflict of interest in representing 193 in this action involving the same mortgage, property and parties. He submits that he has never consented to Gadbois acting for 193, and that, in continuing to act for the Defendant, Gadbois is in contravention of the “bright line rule” articulated by the Supreme Court of Canada in Canadian National Railways Co. v. McKercher LLP, 2013 SCC 39, and of the Law Society of Ontario Rules of Professional Conduct. He also notes that Gadbois has not submitted a personal affidavit, but rather relies upon the affidavit of his law clerk. Damani submits that there is an unsavoury appearance of conflict of interest in Gadbois continuing to act for the Defendant.

[5] The Defendant submits that 193 is the company of Olga and Aurel Pauser and owns their home of many years, which the Plaintiffs seek to sell by Power of Sale. Gadbois has acted for the Pausers against both of the other Plaintiffs.

[6] Gadbois disputes that there was ever a lawyer-client relationship between himself and Damani. He asserts that he and Damani have never met, spoken or communicated directly. He argues that the presumption of Damani that the confidential information he provided to Hoskinson made its way to Gadbois is misplaced, as he indicates that he never received such confidential information. He asserts that he did not have a relationship with Damani of any type, let alone one where he received confidential information or money from Damani, directly or indirectly. He submits that in defending the previous mortgage action in relation to the subject property on behalf of Hoskinson, at Hoskinson’s request he put Damani and Jamal’s names on the Statement of Defence, and this was the full extent of his involvement with Damani.

[7] The Defendant submits that the timing of this motion is suspect, and that it is clearly a tactical manoeuvre based on conjecture and presumption. It submits that the bright line rule is not applicable in this instance, and that the Pausers should not be deprived of their lawyer of choice without good cause. It points to MacDonald Estate v. Martin, [1990] 3 S.C.R. 1260, for the proposition that in such cases two questions require to be answered: (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? It also points to Celanese Canada Inc. v. Murray Demolition Corp., 2006 SCC 36 at p. 218, para. 42, for the proposition that where there is clear and convincing evidence to the contrary, the presumption that lawyers shared information may be rebutted.

[8] Gadbois submits that in this case, in the previous proceedings Damani consented to the mortgage being discharged, as requested by Slagter, and that Damani’s affidavit was in opposition to the position taken by Hoskinson in both the Statement of Defence (to which Gadbois had added Damani’s name) and an affidavit in the same motion. Damani acted in concert with Slagter and via Slagter’s lawyer against the position put forward by Gadbois on his behalf, it is asserted, demonstrating that there was no solicitor-client relationship between Gadbois and Damani.

Issues

[9] The Issues before the Court on these motions are thus:

(i) Whether Gadbois is in a conflict of interest in acting for the Defendant 193; and,

(ii) If there is a conflict of interest, may he continue to act?

Law

[10] As stated by McLachlin CJC for the Court in McKercher at para. 19, a lawyer owes a duty of loyalty to clients. This duty has three salient dimensions: (1) a duty to avoid conflicting interests; (2) a duty of commitment to the client’s cause; and (3) a duty of candour.

[11] In McKercher, at para. 27, McLachlin CJC articulated the “bright line rule” that a lawyer may not represent a client in one matter while representing that client’s adversary in another matter, unless both clients provide their informed consent, and that the lawyer reasonably believes that he or she is able to represent each client without adversely affecting the other.

[12] The Law Society of Ontario has provided further guidance to lawyers in Ontario in a Memorandum to its licensees in dealing with conflicts of interest, and in its Rules of Professional Conduct.

[13] In McKercher, the Court made clear that the scope of the bright line rule is not unlimited. It applies only where the immediate interests of clients are directly adverse in the matters in which the lawyer is acting. Second, the bright line rule applies only when clients are adverse in legal interest, not strategic ones.

[14] Third, the bright line rule cannot be successfully raised by a party who seeks to abuse it. As the Supreme Court of Canada stated at para. 36 in McKercher:

“Third, the bright line rule cannot be successfully raised by a party who seeks to abuse it. In some circumstances, a party may seek to rely on the bright line rule in a manner that is “tactical rather than principled”: Neil, at para. 28.”

[15] The Supreme Court of Canada then went on to consider the substantial risk principle. When a situation falls outside the scope of the bright line rule for any of the reasons discussed above, the question becomes whether the concurrent representation of clients creates a substantial risk that the lawyer’s representation of the client would be materially and adversely affected. The determination of whether there is a conflict becomes more contextual. In addition, the onus falls upon the client to establish, on a balance of probabilities, the existence of a conflict-there is only a deemed conflict of interest if the bright line rule applies.

[16] The Supreme Court of Canada succinctly summarized the rule at para. 41 in McKercher:

“The bright line rule is precisely what its name implies: a bright line rule. It cannot be rebutted or otherwise attenuated. It applies to concurrent representation in both related and unrelated matters. However, the rule is limited in scope. It applies only where the immediate interests of clients are directly adverse in the matters on which the lawyer is acting. It applies only to legal-as opposed to commercial or strategic- interests. It cannot be raised tactically. And it does not apply in circumstances where it is unreasonable for a client to expect that a law firm will not act against it in unrelated matters. If a situation falls outside the scope of the rule, the applicable test is whether there is a substantial risk that the lawyer’s representation of the client would be materially and adversely affected.”

Analysis

[17] In applying these principles in the present case, I make the following findings of fact on the basis of the evidence presented. Gadbois did file a Statement of Defence in the previous litigation with Damani’s name on it, at the behest of Hoskinson. However, there was no consultation or communication between Gadbois and Damani of any confidential information in regard to the previous matter. They have never met. Gadbois was never paid by Damani. The previous action has been dismissed.

[18] I assess that that Damani’s complaint, and this motion, have been brought for tactical reasons, to displace Gadbois in his representation of the Pausers.

[19] On these facts, the bright line rule does not apply.

[20] In this circumstance, Damani has not met the onus which thus falls upon him to establish, on a balance of probabilities, the existence of a conflict – there is only a deemed conflict of interest if the bright line rule applies.

[21] As this situation falls outside the scope of the rule, applying the test of whether there is a substantial risk that the lawyer’s representation of the client would be materially and adversely affected, I find no such risk. The moving party has not demonstrated that any actual prejudice will accrue to him arising from Gadbois’ continued representation of the Defendant in this matter.

[22] It is of the utmost importance that lawyers act with integrity in all their dealings with clients, and that they be seen to do so. Both the Law Society of Ontario and the Supreme Court of Canada have provided guidance to assist members of the legal profession in this regard. These standards must be applied stringently. That is why it is called a “bright line rule”. But, as the Supreme Court of Canada noted, the applicable standards must be applied contextually on the facts of each case.

[23] In the present case, I do not assess that the maintenance of the reputation of the administration of justice in this circumstance requires the disqualification of Gadbois to act for the Defendant on this matter.

[24] The Pausers should not be deprived of representation by their lawyer of choice without good reason.

[25] The Plaintiff’s motion will be dismissed.

Order

[26] The Plaintiff’s motion is dismissed.

Costs

[27] The parties are encouraged to agree upon appropriate costs. If the parties are not able to agree on costs, they may make brief written submissions to me (maximum three pages double-spaced, plus a bill of costs) by email to my judicial assistant, Mona Goodwin at mona.goodwin@ontario.ca. The Defendant may have 14 days from the release of this decision to provide its submissions, with a copy to the Plaintiffs; the Plaintiffs a further 14 days to respond; and the Defendant a further 7 days for a reply, if any. If no submissions are received within this timeframe, the parties will be deemed to have settled the issue of costs as between themselves. If I have not received any response or reply submissions within the specified timeframes after the Defendant’s initial submissions, I will consider that the parties do not wish to make any further submissions, and will decide on the basis of the material that I have received.

M. R. Gibson, J.

Date: November 12, 2021