473440 Alberta Ltd. v. Evelyn Faye Morrison, 2016 ABQB 435

Court of Queen ’ s Bench of Alberta Citation: 473440 Alberta Ltd v Lenaco Homes Masterbuilder Inc, 2016 ABQB 435 Date: 20160831 Docket: 1403 14123 Registry: Edmonton Between: 473440 Alberta Ltd. and Evelyn Faye Morrison Plaintiffs - and – Lenaco Homes Masterbuilder Inc., Lenaco Homes Ltd., Ismail Naboulsi, John Contessa, John Doe, and Jane Doe (Defendants) Respondents - and – Ismail Naboulsi (Plaintiff by Counterclaim) Respondent - and – 473440 Alberta Ltd., Evelyn Faye Morrison, James Morrison, Reid-Built Homes Ltd., Reid Worldwide Corporation, John Doe and Jane Doe (Defendants by Counterclaim) Applicants _______________________________________________________ Memorandum of Decision of the Honourable Madam Justice D.C.

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_______________________________________________________ Introduction: [1] This is an application by parties to a litigation to remove counsel for other parties because of an alleged conflict causedbecause counsel previously acted for some of the moving parties. [2] The lawyer sought to be removed is Daniel Hagg Q.C., counsel for the Defendants and Plaintiff by Counterclaim, who hadpreviously acted for two of the Defendants by Counterclaim: Reid-Built Homes Ltd. (“Reid-Built”) and Reid Worldwide Corporation(“Worldwide”) and, in doing so took instructions from a third Defendant by Counterclaim, James Morrison (“Mr.

Morrison”). [3] All parties agree that the governing law is as set out in MacDonald Estate v. Martin (SCC), [1990] 3 SCR1235, where the Court set out the appropriate test at para 44 of the Quicklaw version of the judgement: the test must be such [page1260] that the public represented by the reasonably informed person would be satisfied that no use ofconfidential information would occur.

That, in my opinion, is the overriding policy that applies and must inform the court in answeringthe question: Is there a disqualifying conflict of interest? [4] That Court goes on to say that in applying the test in a particular case, two questions must be answered:

(1) Did the lawyerreceive confidential information attributable to a solicitor and client relationship relevant to the matter at hand?

(2) Is there a risk that itwill be used to the prejudice of the client? [5] Speaking for the majority, Sopinka, J. gave further guidance in respect to how the first question should be considered at para46: In my opinion, once it is shown by the client that there existed a previous relationship which is sufficiently related to the retainer fromwhich it is sought to remove the solicitor, the court should infer that confidential information was imparted unless the solicitor satisfiesthe court that no information was imparted which could be relevant. This will be a difficult burden to discharge.

Not only must thecourt's degree of satisfaction be such that it would withstand the scrutiny of the reasonably informed member of the public that no suchinformation passed, but the burden must be discharged without revealing the [page1261] specifics of the privileged communication Issue: [6] Here the real question is whether the previous matters on which Mr. Hagg acted are so “sufficiently related” to the presentmatter that I should infer that confidential information was imparted, unless Mr. Hagg can satisfy the court that no information wasimparted which could be relevant.

Facts and Evidence: [7] Before answering this, some explanation as to who the various parties are, is appropriate. [8] Reid-Built is a closely held family run corporation that builds homes in Edmonton and elsewhere in Alberta. Worldwide is arelated Alberta corporation which develops land and prepares land for sale to various builders, including Reid-Built. Mr. Morrison is thecurrent president of both Reid-Built and Worldwide. These are the applicants in this application. [9] Lenaco Homes Ltd. (“Lenaco”) is a home building company with operations in Edmonton.

Lenaco Homes MasterbuilderInc. (“Masterbuilder”) is a related company. John Contessa and Ismail Naboulsi are directors of both Lenaco and Masterbuilder. Mr.Naboulsi is the sole Plaintiff by Counterclaim. Lenaco, Masterbuilder, Mr. Contessa and Mr. Naboulsi are the Defendants in this action. [10] Evelyn Faye Morrison (“Mrs. Morrison”) is Mr. Morrison’s wife. 473440 Alberta Ltd. is an Alberta corporation controlled byMrs. Morrison and a one-third shareholder in Lenaco. Mrs. Morrison and 473440 are the Plaintiffs in this action. They allege in theStatement of Claim that Mr. Naboulsi and Mr.

Contessa have wrongfully caused Lenaco to transfer all of its business assets toMasterbuilder for the sole purpose of unfairly prejudicing 473440’s shareholder’s rights. [11] Mrs. Morrison is also the sister of Emilie Reid, the widow of Art Reid, and now, through another company, controllingshareholder and director of Reid-Built and Worldwide. [12] Mr. Hagg became counsel for the Defendants on August 12, 2015, after filing a Notice of Change of Representation. On thatsame date, on behalf of Mr. Naboulsi, Mr. Hagg filed the Counterclaim against Reid-Built, Worldwide, Mr. Morrison, Mrs.

Morrison,and 473440, the Defendants by Counterclaim. This counterclaim was originally filed in a different action, No. 1503-02648, a separateclaim made by Mrs. Morrison and 473440. However, the Counterclaim was later withdrawn from action 1503-02648 and filed, instead,in the within action.

For the purposes of this application, nothing turns on this change. [13] The Counterclaim alleges conspiracy, invasion of privacy and abuse of process against the Defendants by Counterclaim andspecifically alleges that two other court actions brought by one or more of the Defendants by Counterclaim, including action no. 1503-02648, are an abuse of process and that Mr. Morrison has wrongfully caused Reid-Built to prevent Lenaco from having access tobuilding lots from Reid-Built. The Counterclaim alleges that previously Mrs. Morrison had used her influence with Mr.

Morrison to gainaccess for Lenaco to home building lots from Reid-Built and Worldwide.

[ 14 ] This application was filed on October 13, 2015, in both this action and in action No. 1503-02648, but is being continued only in this action. [ 15 ] There is no doubt and it is not contested that Mr. Hagg represented Reid-Built and Worldwide in a number of separate court actions in the past when he was still a partner with his former law firm Bryan and Company LLP. It is not contested that he has never acted for either Mrs. Morrison or 473440. [ 16 ] Mr. Hagg was retained in 2006 in action No. 0603-12314, a matter I will call the Stony Plain Litigation.

The Stony Plain Litigation was an action commenced in 2006 by several home purchasers in relation to cancellation of their building contracts with Reid- Built for construction of their homes in the Stony Plain area. On behalf of Reid-Built, Mr. Hagg filed a Statement of Defence and a Counterclaim. In an affidavit filed in the present action, Mr. Morrison says that he was Reid-Built’s litigation representative for and worked closely with Mr. Hagg on the Stony Plain Litigation between 2006 and 2009 when it was resolved and had “countless discussions over the telephone and by email” and numerous meetings with Mr.

Hagg as a result. [ 17 ] Mr. Hagg also acted for Reid-Built in action No. 0803-08945, an action brought by Reid-Built against Jack Reid, the brother of the then sole-shareholder of Reid-Built, Art Reid. I will call this proceeding the Jack Reid Litigation. Mr. Hagg filed the Statement of Claim in the Jack Reid Litigation and handled it initially, but it was taken over by another lawyer at Bryan and Company LLP, even before Mr. Hagg left Bryan & Company in late 2011. It has yet to be resolved, but has been dormant for some time. [ 18 ] The Jack Reid Action appears to be an action in defamation.

It is alleged that Jack Reid, who was a sales person with Reid- Built, made various defamatory statements about Reid-Built in connection with the reason sales contracts were cancelled. [ 19 ] The Jack Reid Litigation and the Stony Plain Litigation are apparently related in that the defamation alleged in the Jack Reid Litigation is respecting the contracts that were the subject of the Stony Plain Litigation. [ 20 ] Mr. Hagg and Bryan and Company acted for Reid-Built in respect to some other matters (“Unrelated Matters”), as well, but Mr.

Morrison did not instruct on these matters and they were not the focus of argument in respect to this motion. [ 21 ] On the face of it, based upon the pleadings, it does not appear that the subject matter of either the Stony Plain Litigation or the Jack Reid Litigation is related to the current action from which it is sought to remove Mr. Hagg’s retainer. However, Mr. Morrison alleges that in the normal course of instructing Mr.

Hagg in both the Stony Plain Litigation and the Jack Reid Litigation, he shared confidential information respecting Reid-Built and Worldwide, including ownership structure, business plans and strategies, financial position, relationship dynamics between key management and other personnel, internal employee issues and litigation and risk tolerance. [ 22 ] He alleges further that after Art Reid passed away suddenly in January of 2009, there were various internal family issues concerning his estate and the ownership and control of Reid-Built, Worldwide and other companies. Mr.

Morrison says he was extensively involved in these matters and sought and received legal advice and guidance from Mr. Hagg about the reorganization of the companies and also about estate and family matters, although he agrees Mr. Hagg was not formally retained in respect to these matters. [ 23 ] He said that after Art Reid died in January 2009, Reid-Built and the people involved were in disarray and Mr. Hagg was involved with the company as they tried to restructure, rebuild and reorganize the company and was, as a consequence, aware of the dysfunction and disarray and should therefore be aware that Mr.

Naboulsi took advantage of this disarray. Further, and in respect to the Jack Reid Litigation, he said that Mr. Hagg knew from their discussions that there was a two-tiered system at Reid-Built and it was possible for certain insiders to circumvent normal business practices in certain business transactions by taking them directly to the owner of the company rather than through the usual business operations of the company. [ 24 ] Further, Mr. Morrison says that in 2009, he had a telephone conversation with Mr.

Hagg in which he asked whether a shareholder of a corporation was entitled to financial statements of the corporation, telling Mr. Hagg he was asking the question because his wife’s company was having difficulties with a particular investment she made. This was in relation to 473440 and the conflict with Mr. Naboulsi that is the basis for the within action. He did not recall that his discussion with Mr. Hagg was very detailed and he did not think he mentioned Mr. Naboulsi or Lenaco by name. [ 25 ] Additionally, Mr. Morrison recalls a discussion with Mr.

Hagg in the lobby of the Manulife office building, in which he told Mr. Hagg he might want to talk to him about “a shareholder problem with financial statements”. He said he told Mr. Hagg “I am not getting financial statements”. He said Mr. Hagg, who had by then left Bryan and Company LLP, gave him his card. Ultimately, Mr. Morrison said they decided to hire Calgary counsel. Mr. Morrison did not recall that he used specific names during this conversation with Mr. Hagg. [ 26 ] Further, Mr. Morrison said that Bryan and Company, and specifically Mr.

Hagg, were retained in 2009 with respect to an accounting audit of Reid-Built and Worldwide and, he assumed, might have received financial statements of the corporations in the course of this retainer and would have been asked to comment on any lawsuits that were outstanding. [ 27 ] Mr. Morrison had what he considered to be a close and personal relationship with Mr. Hagg. He said that because of his relationship with Mr. Hagg, he spoke to Mr. Hagg about many things where a file was not necessarily opened and because of this relationship, Mr. Hagg knows Mr.

Morrison, knows how he makes decisions, what his principles are, and what he looks for. [ 28 ] Mr. Hagg denies that he provided advice in respect to anything other than the Stony Plain Litigation and the Jack Reid Litigation and the Unrelated Matters or that he had any knowledge of any intimate family details respecting personnel associated with Reid-Built. [ 29 ] Specifically, Mr. Hagg denies that Mr.

Morrison sought his legal advice and guidance in relation to the reorganization of companies and estate and family matters or that he inquired into intimate or sensitive familial issues for the purposes of handling the Stony Plain Litigation or the Jack Reid Litigation.

[ 30 ] Mr. Hagg further denies that he spoke to Mr. Morrison about a shareholder’s right to financial statements when he was at Bryan & Company or in the lobby of Manulife. Reasons for Decision: [ 31 ] I will first deal with the allegations made respecting that 2009 telephone call and in the casual conversation in the lobby of Manulife. On his evidence, Mr. Morrison discussed the issue of failure to obtain financial statements with Mr. Hagg, the very matter that is at issue in the present litigation. Mr. Hagg denies these conversations occurred.

I need not resolve the factual issue, however, because even if these brief and general conversations occurred, they cannot raise an issue of conflict for the lawyer. No names were mentioned and what was sought was simply general advice. If these conversations occurred, Mr. Hagg received no confidential information and had no idea of any specifics surrounding what Mr.

Morrison was discussing, including even about whom he was speaking. [ 32 ] I will now consider the remaining questions of conflict. [ 33 ] Of course, lawyers owe duties of loyalty and confidentiality to their clients and must avoid conflicts of interest. A lawyer’s duty to a client does not end when the matter or matters he or she was retained to deal with are at an end. The Code of Professional Conduct for lawyers in Alberta discusses the lawyer’s obligations to a former client and says this: 2.04(6) Unless the former client consents, a lawyer must not act against a former client: (

a) in the same matter, (

b) in any related matter, or (

c) except as provided by Rule 2.04(7), in any other matter if the lawyer has relevant confidential information arising from the representation of the former client that may prejudice that client. [ 34 ] Rule 2.04(7) is inapplicable here. [ 35 ] The Code of Conduct is not binding on this Court. However, the Rule and commentary are based upon the case law and provide a helpful jumping-off place in a consideration of whether a lawyer is in a situation of conflict with a former client. [ 36 ] As I said earlier, the parties agree that the law is as set out in MacDonald Estate v. Martin . However, they disagree as to the

interpretation of this case. The test outlined in Martin has two parts. The first question to be asked is: did the lawyer receive confidential information attributable to a solicitor and client relationship relevant to the matter at hand? [ 37 ] For the Applicants, it is argued that this part of the test is met where the relationship between the lawyer and the client in one retainer is sufficiently close or intimate so as to give the lawyer an advantage on the second matter. The Respondents say this is incorrect.

They argue that instead what must be examined is the relationship between the two retainers, citing a number of cases, including Mountain View Credit Union Ltd. v. Cowboy Trail Realty Ltd. 2012 ABQB 351 and Atco Gas and Pipelines Ltd v. Sheard , 2003 ABCA 61 . [ 38 ] The Respondents compare the subject matters in the causes of action in both the Stony Plain Litigation and the Jack Reid Litigation and conclude they are “wholly unrelated” with relation to the subject matter of the Counterclaim in this action. [ 39 ] The Respondents are correct.

The subject matters of the Stony Plain Litigation and the Jack Reid Litigation are on their face, unrelated to the present litigation. But that is not the end of the analysis. [ 40 ] Of course, if the subject matters of the prior and the now litigation are the same or substantially similar, there is a clear conflict and the lawyer cannot now act against the client he has acted for. The Code and the case law make this clear.

But as Sopinka, J said at para 45 of Martin Estate , the focus must be on what confidential information attributable to a solicitor and client relationship the lawyer received in the previous litigation which is relevant to the matter at hand. [ 41 ] A comparison of the subject matters of the previous and the present litigation gives some information about the sort of confidential information that a client may have given to a lawyer but it is not determinative. [ 42 ] In a solicitor client relationship, the confidential information a lawyer receives is not necessarily confined only to the specific subject matter of the litigation or other task assigned to the lawyer.

The commentary to the Code of Conduct states that “confidential information” means “all information concerning a client’s business, interests and affairs acquired in the course of the lawyer client relationship”. The type of information thus received may go beyond the subject matter of the litigation, depending on the circumstances. One must consider the breadth of the retainers when considering if it is reasonably possible to conclude on the evidence that the lawyer had acquired confidential information from the first retainer that could be relevant to the second: see Atco Gas and Pipelines Ltd. v.

Sheard , at 16. [ 43 ] The Applicant need not show that Mr. Hagg actually possessed relevant confidential information. It is only required to introduce evidence of sufficient connection between the retainers to invoke the rebuttable presumption that Mr. Hagg possessed such information: Atco Gas , para 15. [ 44 ] The burden of proof is on the Applicant at this stage. [ 45 ] In terms of its subject matter, the within action is unrelated to the previous actions. There is however an alleged link. Although the subject matters are not the same, the Applicants argue that similar issues arise. According to Mr.

Morrison, the background of the Jack Reid Litigation was that Jack Reid used his personal influence as the brother of the then-president and sole shareholder of Reid-

Built to circumvent the normal business practices of Reid-Built and obtain approvals for transactions that would not have been approved in the ordinary course under normal business practices, and that later became the issue in the Stony Plain Litigation. [ 46 ] Mr. Morrison says that there is a similar issue involved in the within action. Mr. Naboulsi has used his personal influence with Mrs. Morrison and with her sister, Emilie Reid, to enable Mr.

Naboulsi and his companies to conduct business transactions with Reid- Built which circumvented the normal business practices of Reid-Built and Worldwide, which business transactions would not have been approved had the normal business practices been employed. [ 47 ] As I have said, Mr. Morrison says, in addition, that because of his close association with Mr. Hagg during the course of his previous retainers and in taking instructions in respect to these retainers, Mr.

Hagg has learned confidential information about Reid- Built’s business including ownership structure, business plans and strategies, financial position, relationship dynamics between key management and other personnel, internal employee issues and litigation and risk tolerance. [ 48 ] Mr. Morrison put it this way in questioning on his affidavit. Mr.

Hagg has information that other lawyers would not be able to obtain, gleaned from: sitting with me for five years and learning how I think and how I do business and what kinds of things are involved with – what—family involvement is, how I work with that, how I – how I corrected it or tried to correct it. That is – that is way beyond what – what he should be entitled to in – in terms of dealing with that counterclaim. (questioning on affidavit of James Patrick Morrison, November 17, 2015, page 45, lines 3-9) [ 49 ] Importantly, from Mr. Morrison’s point of view, Mr.

Hagg has also learned about what he called the “Achilles heel” of Reid- Built as a closely held company in which it is possible to circumvent the normal business practices of the company and to seek and obtain approval directly from a family member. [ 50 ] Mr.

Hagg denies that he had any such information gleaned from his previous retainers and denies that he had any specific knowledge about personal family issues involving Reid-Built or its principals. [ 51 ] However, that such circumvention of normal business practices is alleged to have occurred in Reid-Built and is relevant to the Counterclaim is corroborated in the Counterclaim itself. It is alleged on behalf of Mr. Naboulsi that Mrs.

Morrison’s contributions to Lenaco’s business included using “her influence with her husband James Morrison to gain access to building lots controlled by Reid- Built” and using “her influence with her husband to obtain an inflated price for” certain lots. [ 52 ] Mr. Morrison deposes to having reviewed his personal calendar and found reference to twelve meetings he had with Mr. Hagg between November of 2006 and September of 2008. From their description, at least one of these appears to have been somewhat casual. There is a reference to February 27, 2007 “Lunch Dan Hagg re cross Examination”.

Others are simply termed “meeting” without any reference to what the meeting was about. [ 53 ] The contact between Mr. Morrison and Mr. Hagg was neither brief nor fleeting and the opportunity existed for sharing the kind of information Mr. Morrison says he did. [ 54 ] Were family dynamics and dynamics between personnel of the corporations potentially relevant to the previous retainers? This question must be answered in the affirmative. Were they actually discussed? I cannot decide facts on the basis of disputed affidavit evidence.

However, it is not mere speculation to assume that they were. [ 55 ] Could such information, if obtained, be relevant to the current action? The details of the current action are not before me. The counterclaim appears generally to relate to allegations of conspiracy, unlawful interception of a private communication, invasion of privacy and abuse of process. Among other things, the Plaintiff by Counterclaim alleges that Mrs. Morrison obtained her share interest in Lenaco at nominal cost in return for using her influence with her husband Mr.

Morrison to gain access to home building lots and to other business opportunities which might be provided by Reid-Built and Worldwide. It is alleged that she used this influence to profit personally through her company 473440 and that this and other lawsuits have been filed which are without merit and an abuse of process. The counterclaim casts a very wide net and invites questions at discovery or in cross-examination about personal matters, such as the relationships between parties and their influence one on another.

Personal information about Reid-Built, the personalities involved, their relationships with one another, and their litigation strategy and risk tolerance could be relevant. [ 56 ] Mr. Hagg denies receiving such information. However, for the purposes of this branch of the test in Martin I need only find that there existed a previous relationship which is sufficiently related to the present retainer, that I can infer that such confidential information has been imparted.

On the evidence, although the subject matters of the two retainers are different, I conclude that because of the personal nature of the allegations made in the Counterclaim, the previous relationship between Mr. Morrison, Reid-Built and Worldwide was sufficiently related to present proceedings so as to make previously obtained confidential information possibly relevant. [ 57 ] While Mr.

Hagg ceased work on the Stony Plain Litigation and the Jack Reid Litigation by late 2008 or early 2009, and left Bryan & Company at the end of November 2011, and the facts underlying the present action did not arise until as late as 2013, the passage of time is not so long that it could be said that any confidential information that passed would be irrelevant today. [ 58 ] I conclude, therefore, that the first branch of the test set out in Martin has been met. It is reasonably possible that Mr. Hagg possessed confidential information as a consequence of his work with Reid-Built and Mr.

Morrison that could be relevant to the within action. [ 59 ] The onus, therefore, switches to Mr. Hagg to show the confidential information so acquired would not be relevant to the present matter. [ 60 ] As the Court noted in Martin , this is a heavy burden to discharge.

[61] Mr. Hagg swears that his contacts with Mr. Morrison were strictly limited to dealing with the narrow issues involved in theStony Plain and Jack Reid Litigation. He denies receiving confidential information of any sort during his retainer that is in any wayrelevant to the conduct of the present action. In support of these statements, he provides transcripts of the examination for discovery ofMr. Morrison in the Stony Plain Litigation and the examination for discovery of one of the Plaintiffs in that same litigation. He alsoprovides the transcript of the examination of Jack Reid.

Further, he reviews and comments upon legal accounts issued in these matters. He specifically denies that Mr. Morrison sought legal advice or guidance from him in relation to estate and family matters. [62] I do not question Mr. Hagg’s sincere belief in what he says. Nor do I question his integrity. However, as Sopinka, J. said, inMartin, the court’s degree of satisfaction must be sufficient to withstand the scrutiny of the reasonably informed member of the publicthat no confidential information passed.

I find that the reasonably informed member of the public would not be so satisfied in thiscircumstance and would be concerned about the possibility of such confidential information being passed. [63] In Martin, the Court said that in cases such as this, a court must balance three competing values: the maintenance andintegrity of our system of justice, the right of litigants not to be lightly deprived of their chosen counsel, and the desirability of permittingreasonable mobility in the legal profession. However, the most important of these is the preservation of the integrity of our system ofjustice: Martin; R. v.

Neil , 2002 SCC 70 , [2002] 3 S.C.R. 631. [64] I recognize that it will be distressing and inconvenient for the Plaintiff by Counterclaim to obtain new counsel. However, theintegrity of the judicial system is paramount and must take precedence. Heard on the 3rd day of August, 2016. Dated at the City of Edmonton, Alberta this 31st day of August, 2016. D.C. Read J.C.Q.B.A. Appearances: Douglas G. Mills, Burnet, Duckworth & Palmer LLP for the Applicants Kenneth F. Bailey, Q.C., Parlee McLaws LLP for the Respondents