Court File and Parties

COURT FILE NO.: CV-20-00652251-00ES DATE: 20211118

SUPERIOR COURT OF JUSTICE – ONTARIO

IN THE MATTER OF THE ESTATE OF AGHDAS JAVID, deceased

RE: Ladan Javid, as Estate Trustee of the Estate of Aghdas Javid, Applicant

AND:

Richard Keith Watson, Richard K. Watson Professional Corporation, Respondents

BEFORE: C. Gilmore, J.

COUNSEL: Marshall A. Swadron and Nima Hojjati, Counsel for the Applicant Matthew Rendely, Counsel for Swadron Associates in the motion Richard K. Watson on his own behalf Trent Morris, Counsel for the Richard K. Watson Professional Corporation in its capacity as trustee of the Jasmine Javid Trust in the motion

HEARD: November 12, 2021

ENDORSEMENT on motion

Introduction

[1] The Respondent Moving Parties (“the Respondents”) bring this motion to remove Swadron Associates (“Swadron”) as counsel for the Estate of Aghdas Javid (“the Estate”) and as counsel for the Applicant Ladan Javid (“Ladan” or “the Applicant”) in her capacity as Estate Trustee and in her personal capacity. The removal is sought on the grounds of an irremediable and material conflict of interest on the part of Swadron by acting for Ladan personally, for Ladan as Estate Trustee, and for the Estate. The Respondents’ position is that lawyers from Swadron are likely to become witnesses on the Application as a result.

[2] Ladan defends the motion on the grounds that Swadron is her counsel as personal representative of the Estate and not the Estate itself or the beneficiaries. There is therefore no conflict as alleged.

[3] Other matters were also addressed at the motion as per my endorsement of July 19, 2021 in relation to outstanding disclosure and costs thrown away. Finally, the Applicant has served a motion to preserve certain property which is at risk of being sold due to a mortgage default.

Factual and Litigation Background

[4] The factual background to this matter is complicated. Some recounting of that background is necessary to understand how matters came to this point.

[5] The underlying Application in this matter arises out of the Estate of Aghdas Javid, who died on September 28, 2018. The deceased had three daughters: Ladan, Jasmine and Sussan. The Respondents are Ladan’s former lawyer and his professional corporation.

[6] The Application seeks a declaration that the Jasmine Javid Trust (“the Jasmine Trust”), as established by Mr. Watson, is invalid and seeks recovery of all assets transferred into the Jasmine Trust by Mr. Watson.

[7] Following the death of Aghdas Javid, Ladan retained Mr. Watson as counsel for the Estate and gave Mr. Watson a copy of her mother’s will (“the original will”) dated November 23, 1999. The assets of the Estate included a condominium at 7 King Street East, Toronto (“the King condo”), a second condominium at 5 Concorde Place, North York in which Jasmine was living, the deceased’s home in Dundas, Ontario (“the Dundas home”), and investments of approximately $193,500.

[8] The original will named Ladan as the Estate Trustee. Mr. Watson obtained a Certificate of Appointment of Estate Trustee with a Will, appointing Ladan as Estate Trustee on November 19, 2019.

[9] The beneficiaries of the original will (“the sisters”) had agreed that Jasmine’s share of the Estate would be placed into a Henson Trust and the King condo would be conveyed to the trust, and that the Dundas home would be divided equally between Ladan and Sussan. The Henson Trust was created because Jasmine is in receipt of ODSP. The various transfers to effect this agreement were carried out in May and July 2020.

[10] During this course of administering the Estate, Mr. Watson met Jasmine. The nature and extent of Jasmine’s relationship with Mr. Watson is disputed. What is not disputed is that Mr. Watson made a will for Jasmine naming his family members as beneficiaries and that he created the Jasmine Trust naming his professional corporation as the Trustee. Mr. Watson named himself the residual beneficiary of the Jasmine Trust.

[11] Mr. Watson then transferred the King condo to his professional corporation and took out a $300,000 mortgage on it. He lent the proceeds of the mortgage to his friend Curtis Petersen. Mr. Watson asserted that the loan to Mr. Petersen was secured by a mortgage. Ladan later learned that it was in fact a fourth mortgage originally held by another of Mr. Watson’s clients. In an email dated October 17, 2021 Jasmine wrote that the King condo was mortgaged without her knowledge or consent and said that she had asked Mr. Watson to “undo” the mortgage.

[12] Jasmine’s evidence is that Mr. Watson was named the Trustee and beneficiary of the Jasmine Trust at her request and that Ladan knew and approved of the arrangement.

[13] In September 2020 Jasmine produced a codicil to the original will which contained terms that were less beneficial to Ladan and Sussan than the original will. Jasmine also produced documents which alleged that Ladan’s ex-husband, Jim Collishaw, owed the Estate $100,000 and that Ladan owed the Estate between $100,000 and $140,000.

[14] In Ladan’s affidavit sworn in December 2020 she deposed that she had repaid all of the funds owed to her mother before her death and that the debt owed by Jim Collishaw had been forgiven. This remains an outstanding dispute between Jasmine and Ladan.

[15] In September 2020 Ladan learned of the will prepared by Mr. Watson for Jasmine in which he named his family members as beneficiaries. Ladan terminated her retainer with Mr. Watson and asked him to transfer the Estate funds into an account she had opened and transfer the King condo into the names of the three beneficiaries. Mr. Watson refused to cooperate, claiming Ladan had a conflict due to debts she and her ex-husband owed to the Estate. For the first time, Ladan learned of the codicil. Ladan retained Swadron in September 2020.

[16] The within Application was commenced on November 30, 2020. Notice of the Application has also been given to the mortgagees in respect of the King condo mortgage.

[17] On December 8, 2020 Justice Conway ordered the Respondents to pay all Estate funds into court and provide an accounting of the Estate funds and the King condo mortgage proceeds by December 23, 2020. Mr. Watson paid $70,663.06 into court on January 11, 2021 after deducting legal fees of $45,359 for himself and after transferring $49,902.58 to the Jasmine Trust. By way of the required accounting, in an affidavit Mr. Watson asserted he had invested the proceeds from the $300,000 mortgage to an undisclosed lender who had registered a mortgage against property located at 12 Lewis Street in Toronto in favour of 2486199 Ontario Inc., a corporation of which Mr. Watson was the sole director. Mr. Petersen owned the Lewis Street property and the assigned mortgage was in fourth priority behind other mortgages totalling $1.215M.

[18] On January 20, 2021 I ordered a litigation timetable for the hearing of the Application and required that Mr. Watson produce all documents related to the King condo mortgage transaction by January 29, 2021. The Application was set to be heard on July 19, 2021. Mr. Watson consented to the July 19, 2021 date.

[19] Despite his consent to the July 19, 2021 date, Mr. Watson did not file material in accordance with the timetable nor would he agree to be cross-examined on his December 2020 affidavit. He took the position that the Application could not be heard and that steps taken by Ladan were vitiated as she was in a conflict of interest by continuing to retain Swadron.

[20] On February 1, 2021 Mr. Watson brought an Application to remove Ladan as Estate Trustee. The Court refused to schedule any steps in his Application as there was no supporting affidavit and the scheduling judge determined that the within Application should be heard first in any event. Mr. Watson has not filed any affidavits nor taken any further steps in relation to the removal Application.

[21] In March 2021, Mr. Watson advised Swadron that he intended to bring a motion to remove Swadron as counsel for the Applicant. No motion material was served nor was a date secured. On July 12, 2021 the motion was served. During this period, Ladan had complied with the Court ordered timetable for the hearing of the Application and delivered her factum as required on June 28, 2021.

[22] On the Friday before the hearing on Monday July 19, 2021 Mr. Watson served his factum, an unsworn affidavit of Mr. Filippo Orsatti (Ladan’s estranged husband) and Jasmine’s affidavit sworn on June 25, 2021. At the July 19, 2021 hearing, Mr. Watson insisted that the removal motion be heard before the Application. A timetable was set for the November 12, 2021 hearing. However, given the timing and all of the circumstances, Mr. Watson was ordered to pay $7,500 in costs with the balance of the costs thrown away ($22,500) to be dealt with on November 12, 2021.

[23] Part of the endorsement resulting from the July 19, 2021 appearance required Mr. Watson to comply with all previous orders related to accounting and disclosure with respect to the King condo mortgage. Swadron wrote to Mr. Watson on August 3, 2021 in response to Mr. Watson’s request for details on all outstanding documents and information requested of him. Mr. Watson has not provided any of the information requested. His position at the motion was that the Applicant was not entitled to it.

[24] Mr. Watson did not file his factum for this motion on October 29, 2021 as required by the Court ordered timetable. He did not file his factum until November 8, 2021. This put Ladan’s counsel in the position of having to file their factum on November 5, 2021 without the benefit of being able to respond to Mr. Watson’s factum. Mr. Watson had no valid explanation as to why he was late filing his factum.

[25] On October 8, 2021 the mortgagees of the King condo mortgage issued a Notice of Sale under Mortgage. Urgent requests were sent to Mr. Watson with respect to the default and what steps were being taken. Mr. Watson advised that the mortgage was being refinanced but provided no details. The Notice of Sale stipulates that if the mortgage is not paid out by November 12, 2021 the property will be sold. Counsel for Ladan noted that Mr. Watson has three judgments against him, one in favour of Lucas Roffey for $123,430.67 and two in favour of the Law Society of Ontario totalling over $84,000.

The Removal Motion – Law and Argument

Is Swadron Associates in a Conflict of Interest?

[26] In its Rules of Professional Conduct, Rule 1.1-1, the Law Society of Ontario defines a conflict of interest as follows:

“conflict of interest” means the existence of a substantial risk that a lawyer’s loyalty to or representation of a client would be materially and adversely affected by the lawyer’s own interest or the lawyer’s duties to another client, a former client, or a third person. The risk must be more than a mere possibility; there must be a genuine, serious risk to the duty of loyalty or to client representation arising from the retainer.

[27] A “substantial risk” is one that is significant and plausible, even if it is not certain or probable that it will occur: see Rule 1.1-1 commentary.

[28] In MacDonald Estate v. Martin, 1990 CanLII 32 (SCC), [1990] 3 S.C.R. 1235, the Supreme Court of Canada dealt with conflicts of interests with respect to legal counsel continuing to act. In that case, a junior lawyer had assisted her principal on a case. Her position on the case allowed her access to confidential information shared between the client and the senior lawyer. The junior lawyer then changed firms and joined the firm acting for the opposing party. The Appellant applied for an Order removing the new firm as solicitors of record. The Order was granted at first instance and overturned on appeal. The appeal to the Supreme Court was allowed, thereby removing the firm as solicitors of record.

[29] The Court dealt with two main questions: whether the lawyer received confidential information attributable to a solicitor client relationship and whether that information could be used to the prejudice of the client. The Court found that since no screening mechanism had been put into place to protect the client, the firm could not continue to act.

[30] While this is the leading case on solicitor/client conflict situations, the facts do not apply as there is no evidence that Swadron has or has had access to confidential information that would give Ladan an unfair advantage. In the case at bar, the Respondents argue that Swadron’s duty to the Estate is in conflict with their duty to Ladan. The focus of the argument at the motion was whether this alleged conflict is real or whether it is based on a misunderstanding of the law and the role of an Estate Trustee.

[31] It is important to understand the distinction between the Estate and the Estate Trustee. Estates are not persons and cannot hire lawyers. It follows then that a lawyer hired by an Estate Trustee acts for that individual and not for the Estate. In DeLorenzo v. Beresh, 2010 ONSC 5655, a grandchild became entitled to the capital in her trust upon turning 30. The Estate Trustee refused to pay out the capital until certain outstanding litigation against the estate was finalized, accounts were passed and a Clearance Certificate obtained.

[32] In DeLorenzo, the Court grappled with the role of solicitor for the Estate Trustee and set out as follows, at paras. 15 and 16:

A solicitor retained by an estate trustee is in the first instance the solicitor for such trustee, not the estate….

[Quoting Coppel v. Coppel Estate, [2001] O.J. No. 5246 (S.C.)] I think the source of the problem is the misconception by … [the firm] that they are solicitors for the estate. Instead they are solicitors for the Estate Trustee: Estates cannot hire lawyers.

[33] The Respondents’ position appears to be that where a conflict is claimed by a beneficiary, counsel would need to be retained for the Estate and separate counsel for the Estate Trustee. In a somewhat strange twist in this case, Mr. Watson formerly represented Ladan and is now representing Jasmine. It could be argued that he is in a position similar to the one raised in the MacDonald Estate case in that he has privileged information about Ladan’s case which gives Jasmine an advantage.

[34] I reject Mr. Watson’s position on the alleged conflict in this case. The presumption must be that Ladan will act in the best interests of all beneficiaries. The alleged conflict related to debts owed to the Estate by Ladan and her ex-husband and the recently discovered codicil are issues which remain to be determined in the context of the underlying Application. I accept Mr. Rendely’s submission that the Respondents have failed to provide any law which suggests that a lawyer acting for an Estate Trustee must be removed because the lawyer has a conflict with the Estate.

Will Swadron Associates Become Witnesses in this Matter?

[35] The timing of the Swadron retainer is important with respect to this issue. Swadron was not retained until October 2020, long after the Jasmine Trust had been created and the transfers related to the King condo and the Dundas home had taken place. Further, there has been no evidence by way of an affidavit from Swadron lawyers.

[36] The Respondents insist that members of the Swadron firm will become witnesses but have not explained how or in what context. Even if it was the case that Ladan’s counsel was summonsed as a witness by the Respondents, the high threshold set out in R. v. 1504413 Ontario Limited, 2008 ONCA 253, 90 O.R. (3d) 122, would have to be met. In that case, the Court dealt with a situation in which a lawyer had been called to testify against his client. The Court called the practice “the exception”, and to be “avoided whenever possible”: at para. 13. The Court quashed the summons and indicated that in order for such a summons to be put into effect a high degree of necessity and materiality would have to be shown: at para. 17.

[37] In these circumstances, the Respondents have left the Court to guess with respect to why and in what context lawyers from Swadron would be called as witnesses in this case. I therefore decline to accept this as a ground for removing Swadron as counsel.

Other Issues

Disclosure and Compliance with Previous Court Orders

[38] As a result of my July 19, 2021 endorsement, Ladan’s counsel raised other issues related to disclosure and Mr. Watson’s conduct.

[39] Mr. Watson was to provide certain disclosure by Justice Conway on December 8, 2020, again by Justice Dietrich on January 7, 2021, and once again by me in January 2021 when the date for the hearing of the Application was set. Mr. Watson asked for and received a detailed list of outstanding items in Swadron’s letter of August 3, 2021. The list of outstanding items includes some of the following:

a. Documentation related to the full particulars of the $300,000 mortgage registered against the King condo and the reinvestment of those funds into the 12 Lewis Street property including an explanation of the transactions, copies of applications, appraisals, title searches, mortgage documents, certificates of independent legal advice and mortgages in priority. Those documents were to have been produced before January 29, 2021.

b. Particulars of the income generated by the King condo since December 23, 2020.

c. The names of the two prior investors in the 12 Lewis Street mortgage including mortgage applications submitted by Curtis Petersen and any Certificate of Independent Legal advice obtained by Mr. Petersen and the name of his counsel.

d. A copy of any appraisal related to 12 Lewis Street.

e. Details of a cheque in the amount of $285,300 payable to Mr. Watson’s professional corporation from Cybera Inc. and details of Cybera’s investment in 12 Lewis Street plus various other enquiries related to Cybera.

f. Copies of the mortgages in priority to the Petersen mortgage to 2486199 Ontario Inc.

[40] According to Swadron, Mr. Watson provided no further disclosure after July 19, 2021. According to Swadron, counsel was advised by Mr. Watson that the mortgage proceeds were lent to Mr. Petersen for a year. No information has been provided as to whether Mr. Petersen has paid back the funds which were due on September 15, 2021. It is assumed he has not, given the receipt of the Notice of Sale under Mortgage with respect to the King condo.

[41] Mr. Watson’s position at the motion was that he had no obligation to provide further information given the outstanding conflict of interest issue. He views Swadron’s letter of August 3, 2021 as a form of written interrogatory as opposed to a list of outstanding disclosure. His position is that the information sought has already been provided, is not in his possession, or he is not obliged to provide the information as it is not a “particular.”

[42] Swadron seeks a response to all of the requests set out in their August 3, 2021 letter. Further, if the King condo is sold by the mortgagee, Swadron asks that the net proceeds after repayment of the mortgage be paid into court and not to the Respondents.

[43] There has been a history of non-compliance in this matter to the point where court orders have clearly become meaningless to Mr. Watson. While there was general non-compliance following my Orders in January 2021, Mr. Watson then simply absolved himself of any compliance in the face of the upcoming removal motion. As the removal motion approached, Mr. Watson then changed his position and refused to provide any further information on the basis that the Applicant was simply not entitled to it or he had already given it.

[44] I have reviewed the letter from Swadron dated August 3, 2021. The actions of Mr. Watson in relation to the Jasmine Trust are very much front and centre in this case. Even on the surface and with the barest of information, the Petersen mortgage transaction appears questionable.

[45] I see no reason why all of the information sought by Swadron in the August 3, 2021 letter should not be provided within the time frame sought. It is relevant as to whether the various transfers effected by Mr. Watson should be “undone” and to the validity of the Jasmine Trust. It is also required in order to fulfil Ladan’s obligation to account to the other beneficiaries.

Costs Related to the July 19, 2021 Appearance

[46] Following the appearance on July 19, 2021 Mr. Watson was ordered to pay $7,500 of the $30,000 in costs thrown away sought by Ladan. In my endorsement of July 19, 2021, I ordered that the balance of costs thrown away sought by Ladan of $22,500 would be considered in the context of the removal motion.

[47] Some reference to the timing of the hearing of the Application must be made. The Respondents did not file their responding material on March 15, 2021 as required for the long-scheduled hearing of the Application on July 19, 2021. The Respondents also failed to participate in cross-examinations which were to be held by May 14, 2021 and did not deliver their factum due July 5, 2021.

[48] Ladan’s counsel was left in a difficult position. They were required to deliver their factum by June 28, 2021 but still had no indication of if or when the Respondents would bring their removal motion. Ladan’s counsel proceeded to file the Applicant’s factum on June 28, 2021.

[49] On Friday July 16, 2021 Ladan’s counsel received Jasmine’s affidavit which had been sworn on June 25, 2021. The affidavit of Filippo Orsatti was served on Sunday July 18, 2021. Mr. Watson’s affidavit was also served on July 18, 2021. The Applicant’s position is that all of the work done in preparation for the July 19, 2021 hearing will have to be redone given the late filed responding material, the requirement for a new factum and the issues which have arisen since. The Applicant’s counsel submitted at the July 19, 2021 hearing that the work done between March 15 and July 19, 2021 totalled an all-inclusive amount of $30,000. Of that, $7,500 was ordered to be paid following the adjournment hearing on July 19, 2021 (which took three hours). The $7,500 has since been paid.

[50] The Application has yet to be heard. Given the results of this motion, a new date must be obtained as well as a schedule for delivering reply material, conducting cross-examinations, and delivering amended factums.

[51] The Respondents were unsuccessful on the removal motion. The timing of the removal motion is also an issue. While Mr. Watson insists he raised the issue of the removal motion shortly after Swadron was retained, he consented to the scheduling of the Application and then served the material for the removal motion only days before the hearing of the Application. His actions resulted in Ladan’s counsel having to comply with a court-ordered litigation timetable to prepare material for an Application which never proceeded.

[52] Given all of the above, I see no reason why the Respondents should not pay a further reasonable and proportionate amount for costs thrown away in relation to the July 19, 2021 hearing especially in light of their lack of success on the within motion.

Preservation of Property

[53] The Applicant has served a motion dated October 27, 2021, on notice to the mortgagees, seeking an Order that funds from any sale of the King condo are to be paid into court after payment of the subject mortgage. None of the mortgagees have responded to the motion.

[54] Without a preservation Order, the Applicant is concerned that the proceeds would otherwise be paid to the mortgagor, the Respondent Richard K. Watson Professional Corporation. As the professional corporation is presumably controlled by Mr. Watson there is a real concern that funds would be used to pay the unsatisfied judgments registered against Mr. Watson.

Orders

[55] The Respondents’ motion to remove Swadron Associates as counsel for the Estate Trustee and to compel them to appear as witnesses in this proceeding is dismissed.

[56] The Respondents shall pay a further $15,000 in relation to the costs thrown away for the July 19, 2021 hearing. The payment is due within 30 days. The payment is to be made by the Respondents personally and not from the Jasmine Trust.

[57] The Respondents to answer all questions and produce all documents requested in the August 3, 2021 letter from Swadron within 30 days.

[58] The Respondents to provide an up to date accounting of the Jasmine Trust, the proceeds of the King condo mortgage and the September 15, 2020 loan to Mr. Petersen within 15 days.

[59] In the event the King condo is sold, the proceeds of sale after payment of the mortgage, shall be paid into court to the credit of the within Application.

[60] A further appointment may be arranged before me to re-schedule the hearing of the Application and to deal with any Certificate of Pending Litigation issues related to the sale of the King condo.

Costs

[61] Mr. Watson advised that he has served an Offer to Settle in relation to the motion. As such, the parties may provide brief written submissions on costs of no more than two pages (as their Bill of Costs has already been provided) exclusive of any Offers to Settle. Costs are due on a seven-day turnaround starting with Swadron seven days from the date of release of this endorsement. Costs submissions are to be sent to my assistant, electronically. If no costs submissions are received within 35 days, costs will be deemed to be settled.

C. Gilmore, J.

Date: November 18, 2021