Habina v Saretsky, 2023 ABKB 0024

Court of King’s Bench of Alberta Citation: Habina v Saretsky, 2023 ABKB 0024 Date: 20240117 Docket: 2001 11195 Registry: Calgary Between: Grant Saretsky and 1194251 Alberta Ltd. Applicants - and - Michael Habina and 1194255 Alberta Ltd. Respondents Docket: 2201 05145 Between: Grant Saretsky and Applicants - and - Michael Habina, 1194255 Alberta Ltd; and Unison Drywall LTD. Respondents

Docket: 2201 06004 Between: Ultra Construction Inc. Applicants - and - Michael Habina, 1194255 Alberta Ltd; and Unison Drywall LTD. Respondents _______________________________________________________ Reasons for Judgment on Application to Remove Counsel of the Honourable Justice N.E. Devlin _______________________________________________________ Overview [ 1 ] Grant Sartesky [“Saretsky”] and Michael Habina [“Habina”] were business partners in the drywall industry.

Their commercial and personal relationship has deteriorated into rancor and multifarious litigation, involving them and their corporate entities [“the commercial dispute”]. Those matters are now in case management for the determination of numerous pre-trial motions. [ 2 ] The hearing of those motions was derailed due to Saretsky’s wife retaining Habina’s counsel in the commercial dispute to represent her in their incipient divorce. That development led Saretsky to bring the present application seeking the removal of Habina’s lawyer, Mr. Chiu. The Issue

[3] The commercial dispute has been underway for three years. Mr. Chiu has acted for Habina and his companies throughout. InJuly 2023, Saretsky and his wife separated. She has remained cordial with Habina and, when he heard she needed legal assistance with arecent separation, he recommended Mr. Chiu, who he knew also handled family matters. Mrs. Saretsky retained Mr. Chiu to assist herwith her divorce in late July 2023. He prepared and filed a Statement of Claim for Divorce and Notice to Produce on her behalf inAugust. [4] Saretsky was displeased by this turn of events.

His counsel promptly raised concerns with Mr. Chiu and subsequently soughtdirection from the Court on this situation, which he characterized as an overt conflict of interest. Shortly thereafter, Saretsky applied tohave Mr. Chiu removed as counsel in the commercial dispute. Following an initial case conference before me, Mr. Chiu ceased to act forMrs. Saretsky. This did not, however, satisfy Saretsky, who opted to pursue Mr. Chiu’s removal.

The evidentiary record [5] The record on this application consists of affidavits from Habina and Saretsky, together with counsel’s representations as tothe duration of the impugned retainer. No cross-examinations were conducted. Mrs. Saretsky took no

part in the application andexpressly declined to provide an affidavit to either party. The Court has no information about of her solicitor-client relationship with Mr.Chiu, other than that she neither wished to participate in this process nor sought any relief from the Court. [6] In his evidence, filed prior to Mr. Chiu ceasing to act for his ex-wife, Saretsky states that he was particularly concerned thathe could be forced to disclose personal and confidential information to Mr.

Chiu’s office in the matrimonial proceedings, including acomprehensive picture of his finances, that might be improperly used against him in the commercial dispute. Saretsky also deposes thathis former spouse is “not a sophisticated individual”, describing her work status, educational attainment, and mental health in belittlingterms. [7] Habina’s evidence is that he recommended Mr. Chiu, gave Mrs. Saretsky his number, but has had no further conversationswith her about the divorce. He says that he has received advice about potential conflicts and is content to proceed. He also states that heunderstands that Mrs.

Saretsky was similarly informed and consented to proceeding, though the source of his knowledge on this point isnot specified. [8] Habina describes that Mrs. Saretsky expressed distress when she spoke about her separation and told him that she had beenexcluded from the matrimonial assets and was left without any financial support. [9] It is agreed that Mrs. Saretsky is not a director, officer, employee, or shareholder of any of the corporate entities involved inthe commercial dispute. Due to the long duration of the Saretsky’s marriage, it is also common ground that Mrs.

Saretsky has anequitable interest in Saretsky’s personal and corporate holdings. The alleged conflicts [10] Saretsky alleges three conflicts: (

i) that Mr. Chiu’s office could obtain confidential financial and other information, disclosedunder compulsion in the matrimonial proceedings, that he would not be entitled to have in the commercial dispute; (ii) that Mr. Chiu ispresumed to be in possession of confidential information by virtue of his solicitor client relationship with Mrs. Saretsky that couldpotentially be of use in the commercial dispute, to his former client’s consequential detriment; and (iii) that Mr.

Chiu’s office iseffectively acting against its own client because any success on Habina’s behalf in the commercial dispute would necessarily reduce thepool of matrimonial assets from which Mrs.

Saretsky could claim a division, placing his clients in a “zero-sum game” that renders hiscontinued involvement unseemly to the administration of justice. [11] Saretsky argues that the matrimonial and commercial disputes are “related” within the meaning of that term in MacDonaldEstate v Martin, (SCC), [1990] 3 SCR 1235, in that they both concern Saretsky’s financial position and conduct.Consequently, he submits that since confidential information is presumed to have passed from Mrs. Saretsky to Mr.

Chiu, he isautomatically and irredeemably in conflict. [12] Habina responds that the matters are not related, that no passage of potentially relevant confidential information has beenproven or can be presumed, and that no conflict exists now that Mr. Chiu no longer acts for Mrs. Saretsky. Governing Principles [13] A lawyer’s relationship with his or her client is one of the utmost trust. Consequently, a lawyer cannot act where two retainersgive rise to a conflict between their obligations of confidentiality and loyalty to the respective clients.

These obligations cannot becompromised. [14] In Canada, the Supreme Court has laid down a “bright line” in situations of potential divided loyalties. A lawyer cannotconcurrently represent clients adverse in interest without obtaining their consent – regardless of whether the matters are related: R vNeil, 2002 SCC 70 at para 29.

This rule, however, applies only in cases of immediate and direct conflict between the clients’ interests:Canadian National Railway Co v McKercher LLP, 2013 SCC 39 at para 32. [15] Where the bright line rule is not triggered by an impugned retainer, the Court asks whether there is a “substantial risk that thelawyer’s representation of the client would be materially and adversely affected by the lawyer’s own interests or by the lawyer’s duties toanother current client, a former client, or a third person”: Neil at para 31.

[ 16 ] The concept of a client’s “interest” is also limited to its strict legal sense and does not extend out to broader “commercial prosperity”: Strother v 3464920 Canada Inc , 2007 SCC 24 at para 55 . [ 17 ] Concerns around divided loyalties arise where there is a risk that the lawyer is tempted to prefer other interests over those of his client, such that it will be “systematically unclear” whether the lawyer performed his or her fiduciary obligations fully in each client’s unqualified best interests.

If there is a temptation to prefer one client’s interests, or to seek a compromise between them, a conflict exists: McKercher at paras 25-26. [ 18 ] Moreover, a lawyer or firm cannot obviate its duty of loyalty to a client by ceasing to act.

The duty of loyalty does not allow lawyers to circumvent their obligation not to act against a present or former client by terminating a retainer: McKercher at para 55. [ 19 ] Concerns around the misuse of confidential information against the client from whom it was obtained within a solicitor-client are addressed through a two-part test, enunciated in MacDonald Estate at 1260, wherein the court asks: (1) did the lawyer receive confidential information attributable to a solicitor and client relationship relevant to the matter at hand? (2) is there a risk that it will be used to the prejudice of the client? [ 20 ] Where the allegedly conflicting retainers are “sufficiently related”, a rebuttable presumption arises that the lawyer received and possesses confidential information capable of causing prejudice.

Where the party alleging the conflict cannot meet the onus to show that the retainers are sufficiently related, no presumption arises: Trizec Properties Ltd v Husky Oil Ltd , 1997 ABCA 182 at para 12 .

Where the presumption does not arise, the former client (or another interested party as in this case) can lead evidence that the law firm actually possesses relevant confidential information: Hogarth v Hogarth , 2016 ONSC 3875 at para 41 . [ 21 ] The scope and scale of confidential information transmitted usually cannot be known without compromising privilege, requiring courts to err on the side of caution in protecting against potential conflicts.

However, the focus of the law is on protecting clients from real risks of harm, and choice of counsel should be protected unless removal is clearly mandated by the circumstances, including the bright line rules laid out in the jurisprudence: McKercher at paras 21-22. [ 22 ] All lawyers have an ongoing obligation to be vigilant for potential conflicts, and to bring them to the attention of opposing counsel and the courts at the earliest occasion, so that litigation does not proceed in a compromised fashion: Harder v Sartorio , 2020 ABQB 404 at para 28 . [ 23 ] In McKercher at para 61, the Supreme Court held that courts have the inherent authority to remove lawyers from litigation where disqualification is required to: “(1) avoid the risk of improper use of confidential information; (2) to avoid the risk of impaired representation; and /or (3) to maintain the repute of the administration of justice. [ 24 ] The Court went on, at paras 62, to spell out where the need to remove a lawyer will materialize: [w]here there is a need to prevent misuse of confidential information, as set out in [ MacDonald Estate ], disqualification is generally the only appropriate remedy, subject to the use of mechanisms that alleviate this risk as permitted by law society rules.

Similarly, where the concern is risk of impaired representation as set out in these reasons, disqualification will normally be required if the law firm continues to concurrently act for both clients. [ 25 ] The jurisprudential guidance on conflicts is affirmed in the applicable professional regulations. The Law Society of Alberta’s Code of Conduct says the following about retainers which may impact other clients: Acting Against Former Clients 3.4-6 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 3.4-7, in any other matter if the lawyer has relevant confidential information arising from the representation of the former client that may prejudice that client. [ 26 ] The first two contingencies mirror the bright line rule and the third is an articulation of the principles in MacDonald Estate . [ 27 ] Finally, Courts have the residual authority to consider whether maintaining the integrity of the judicial process requires removing a solicitor, even where the most impacted party takes no position.

The question to be asked when considering removal of counsel in the broader public interest is whether the conflict between the lawyer’s loyalties is so acute that: a fair-minded reasonably informed member of the public would conclude that the proper administration of justice required the removal of the solicitor: Beacon Hill Service

(2000) Limited v Esso Petroleum Canada , 2011 ABQB 138 at para 35 , aff’d 2012 ABCA 269 . [ 28 ] It is on this agreed legal landscape that the dispute over disqualification in this case is joined. Analysis Conflict with Mr. Saretsky’s interests

[ 29 ] Had Mr. Chiu remained on the matrimonial action he may well have acquired confidential information about Saretsky that he would not have been entitled to access in the commercial dispute. This would have raised concerns under Rule 5.33, regarding the collateral use of involuntarily produced private information. Mr. Chiu’s wise departure from the matrimonial action forestalled such difficulties. This answers any concerns about Saretsky’s personal interests and, by the hearing, Saretsky no longer relied on any risk to his own rights as the basis for Mr.

Chiu’s removal. [ 30 ] In the is regard, it is worth noting that individuals are generally free to share her information about their spouses to ai third parties in litigation if they want to. There is no property in a witness and Mrs. Saretsky is/was free to speak with Habina or his counsel about their litigation opponent if she wishes. The potential problem arises where her decision to share personal information arises in the context of a solicitor-client relationship aimed at advancing her own interests, not to aid a third party. Conflict with Mrs. Saretsky’s interests [ 31 ] Mrs.

Saretsky’s intentional absence from this application creates a curious situation whereby the motion turns on Saretsky’s advancement of his ex-wife’s interests. He bears the burden of persuading the Court that, in the face of her disinterest, the integrity of the administration justice nevertheless requires the removal of his opponent’s lawyer, well into the thick of litigation. While the motion was properly brought, and I in no way criticize Mr.

Henderson for pursuing it, the underlying irony and tactical dimensions of this circumstance are not lost on the Court. [ 32 ] Dealing first with the concern that confidential information passed during Mrs. Saretsky’s retainer with Mr. Chiu might be used against her interests in the commercial dispute, this case turns on its specific facts. Based on my knowledge of the matter as the case management judge, a careful analysis of the pleadings to date, and the state of the record before me, I find as a fact that the matrimonial action and the commercial dispute have no specific commonalities or interrelationship.

Both seek Saretsky’s money, but the overlap ends there. These are not sufficiently related actions for the presumption to arise that potentially useful information has passed. [ 33 ] I further find as a fact that there is a vanishingly small chance that Mrs. Sarestsky communicated any information of use in, or potentially relevant to, the commercial dispute over the course of her nascent solicitor client relationship with Mr. Chiu. The retainer was brief and preliminary.

There is no evidence that she had, much less conveyed, detailed or potentially useful information about her husband’s business and financial affairs. Moreover, the only thing Habina and Saretsky appear to agree on is that Mrs. Saretsky is not a financially sophisticated individual. While the nature of a union could give rise to an inference that one spouse knew the other’s affairs inside-out, this is not such a case. Indeed, Saretsky’s low view of his spouse’s acumen gives rise to the opposite inference. [ 34 ] The informational dimension of Mr. Chiu’s retainer with Mrs.

Saretsky does not require his removal from the commercial dispute. [ 35 ] This leaves the question of whether Mr. Chiu’s enduring duty of loyalty to Mrs. Saretsky — which survives his early exit from the matrimonial litigation undiminished — is breached by his continuing to seek a piece of the Saretskys’ marital assets for Habina. [ 36 ] The financial intertwinement of committed couples makes it unwise for a lawyer acting for one spouse to concomitantly represent a third party seeking monetary relief against the other. That is not a situation where ‘my enemy’s enemy is my friend’.

On the unique facts of this case, however, I find that no real or meaningful conflict exists. [ 37 ] As a starting point, the allegedly conflicting retainers are not on related matters within the applicable meaning of that concept. On their face, there is no connection between the actions. Saretsky advances none, other than the potential monetary impact of each. The mere fact that both actions lay claim to Saretsky’s assets is an insufficient connection to find that the matters are “related” or to invoke the “bright line” rule.

Most civil litigation is about money at some level, or capable of having financial implications. Finding that that alone makes renders them “related” in the sense relevant to conflicts would precipitate a vast and unwarranted expansion of the limitations imposed by conflict of interest principles. [ 38 ] This is a case where connectedness of the actions would have to be shown through a concrete risk of misuse of information between the actions. The applicant has factually failed on that point. [ 39 ] The broader residual concern over impaired representation is answered by Mr.

Chiu’s early departure from the matrimonial file. Habina, quite reasonably, has no concern that Mr. Chiu’s brief solicitor client relationship with Mrs. Sartesky will decrease the ardour with which his lawyer pleads his case. The Court had no basis on which to gainsay his judgment. Similarly, Mrs. Saretsky does not seem to care or be concerned about Mr. Chiu’s continued retainer against her soon-to-be ex-husband. [ 40 ] This leaves the question of whether Mr.

Chiu’s continuing to act in a case that may have an indirect financial impact on his former client is unseemly and invokes the Court’s obligation to remove him in favour of a broader public interest. [ 41 ] On this point, Mr. Henderson crafted a subtle argument that, given the proscription against lawyers abandoning their clients to staunch emergent conflicts, the matter should be judged on the basis of the conflicting loyalties that would have prevailed had Mr.

Chiu remained on both files. [ 42 ] The merit to his position is that a lawyer saying to his client that the pool of assets from which she can expect a matrimonial property settlement is prone to being reduced by another piece of litigation he is conducting has a distinctly uncomfortable feel. The shortcoming of the submission, however, is that the principle Saretsky relies on — being the bar against a lawyer effectively ‘choosing sides’ by withdrawing from one of the conflicting retainers — exists to protect a duty of loyalty the forsaken client actually cares about.

Here, the beneficiary of the conflicting loyalty has demonstrated no interest in this application. While I place less weight on this factor than I would were the absent party a sophisticated litigant, this is nonetheless a relevant consideration. [ 43 ] There is no evidence that Mrs. Saretsky is the slightest bit bothered by Mr. Chiu continuing to act against her estranged husband and his companies. To the extent I can draw any conclusions about how she envisions her interests, I conclude that she is content to be disentangled from commercial dispute and unbothered by Mr. Chiu’s departure.

That happens to be a sensible position. It is

also consistent with the very brief and preliminary nature of her client relationship with Mr. Chiu. These facts attenuate any interest the Court might have in trammelling upon the Habina’s solicitor-client relationship. [ 44 ] Moreover, when the Court is asked to interfere with a party’s choice of counsel in defence of a broader public interest, it can and should consider the corollary impact that the removal would have on the impacted party. Here that impact would be great. The commercial dispute is a long way down the road. The pending motions may have a significant impact on its outcome.

Having to find new counsel now would be a dire development for Habina, even if appropriate monetary accommodations were ordered. In MacDonald Estate , the Supreme Court expressly noted that protecting choice of counsel is a key value informing the public interest in, and operating to temper the stricture of, conflict rules. Here, those considerations weigh strongly against removing Mr. Chiu unless there is a compelling need to do so. Conclusion [ 45 ] This is not a case in which the automatic rules of disqualification apply.

Employing a factual-specific consideration, I conclude that there is no real risk that Mr. Chiu has material confidential information. Moreover, I find that the commercial dispute and the divorce proceeding are not related matters within the relevant legal sense. As a matter of fact, and common sense, there is no risk that confidential information from Mrs. Saretsky will be used against her as his former client. Similarly, this is not a case in which divided loyalties will give rise to a perception of compromised representation. Consequently, I find that there is no reason or requirement to remove Mr.

Chiu. [ 46 ] Mr. Chiu taking on Mrs. Saretsky as a client in her divorce was a well-intentioned but ill-advised step that has been remedied by his departure from that file under circumstances which do not aggrieve his ex-client. There is no risk of any real harm being done here. The repute of the administration of justice would be much more adversely impacted by an interference with Habina’s representation than by Mr. Chiu continuing to act. The application is accordingly dismissed. [ 47 ] Saretsky was unsuccessful on the contentious aspect of this motion, but Mr.

Chiu’s improvident actions prompted the need for it. Together with the nature, timing, and extent of filings by the parties, these factors persuade me that they should bear their own costs. Heard on the 19 th day of December, 2023. Dated at the City of Calgary, Alberta this 17 th day of January, 2024. N.E. Devlin J.C.K.B.A. Appearances: Aidan Henderson for the Applicant Elmer S. Chiu for the Respondents