2018 MBCA 73, 2018 MBCA 73

Citation: 5801916 Manitoba Ltd v 6191763 Manitoba Inc , Date: 20180717 2018 MBCA 73 Docket: AI17-30-08974 IN THE COURT OF APPEAL OF MANITOBA Coram: Mr. Justice Michel A. Monnin Madam Justice Barbara M. Hamilton Madam Justice Holly C. Beard BETWEEN : 6191763 MANITOBA INC. doing business ) B. D. Collins as EMES CONSTRUCTION ) for the Appellant ) (Plaintiff) Respondent ) V. R. Jhanji ) for the Respondent - and - ) ) Appeal heard: 5801916 MANITOBA LTD. ) May 30, 2018 ) (Defendant) Appellant ) Judgment delivered: ) July 17, 2018 beard JA I.

THE ISSUE [ 1 ] The appellant (defendant) is appealing an order removing the law firm of Monk Goodwin LLP (Monk Goodwin) as its lawyer of record for this action, as a result of it being in a conflict of interest arising out of its role as corporate counsel for the defendant. The defendant has also appealed the motion judge’s ancillary finding that, for the purpose of the motion, the plaintiff and its president should be treated as one and the same. II.

THE FACTS [ 2 ] As regards the underlying action, three individuals, Blair Rasmussen, Clifford Dearman and William Todd Emes, agreed to go into business together to subdivide some land in West St. Paul and sell the lots to builders. The land was acquired and transferred to the defendant corporation.

The subdivision was completed and some of the lots have been sold. [ 3 ] The three individuals had a falling-out and entered into their own negotiations to settle the dispute among themselves, including drafting and signing settlement documents to memorialize those arrangements. [ 4 ] Subsequent thereto, the plaintiff caused a caveat in its name to be filed against the title to the property. The plaintiff then filed a statement of claim to determine, among other things, its entitlement to an interest in the land by way of a declaration that the plaintiff is a shareholder of the defendant. [ 5 ] Mr.

Rasmussen and Mr. Dearman take the position in their statement of defence and counterclaim that: firstly, the only person with any potential claim to the land is Mr. Emes personally and that they had no dealings with the plaintiff; and, secondly, as part of the settlement, Mr. Emes disclaimed his interest in the defendant and released it from any past or future debts owing to him or anyone under his direction. [ 6 ] The motion that is the subject of this appeal arose as follows. After the three individuals agreed to proceed with the joint venture, they agreed to retain Mr.

Rasmussen’s personal lawyer, James Dixon of Monk Goodwin, to be the defendant’s corporate counsel. While Mr. Dixon did not incorporate the defendant and he was not involved in the settlement negotiations referred to earlier, he did do other work for the defendant, including preparing two versions of a unanimous shareholder agreement and attending to corporate filings related to the settlement agreement. Further, in response to the plaintiff’s statement of claim, Monk Goodwin acted for the defendant in filing a statement of defence and counterclaim and also a motion to have the caveat discharged.

The plaintiff responded by filing this motion to have Monk Goodwin removed as the defendant’s lawyer of record in this action. III. THE MOTION JUDGE’S DECISION

[7] In response to the plaintiff’s motion, the defendant argued before the motion judge that only Mr. Emes personallyhad any involvement in the business venture and in the defendant, and not the plaintiff. Thus, it argued that the plaintiff had no link toMonk Goodwin. [8] The motion judge noted that Mr. Emes was the president of the plaintiff. He found that, in light of Mr.

Emes’involvement with the defendant, there was a sufficient overlap between his interest and that of the plaintiff that they should be treated asone for the purpose of the motion. [9] On the motion to remove Monk Goodwin on the basis that it had “provided legal advice and legal services to both theplaintiff and the defendant and received confidential information from the plaintiff”, the motion judge concluded that “a reasonableperson, in the position of a party with knowledge of all the facts, could not reasonably form the belief that Mr. Dixon was acting for Mr.Emes or the plaintiff”.

In coming to this conclusion, he applied the principles in MacDonald Estate v Martin, (SCC),[1990] 3 SCR 1235 at 1260; and Zimak v 4244354 Manitoba Ltd et al, 2015 MBCA 58 at paras 30, 35-36 (see paras 7, 11-12). Thisfinding has not been appealed. [10] The motion judge then raised with the parties the issue of whether Monk Goodwin was potentially in a conflict ofinterest position in continuing to represent the defendant in this action.

He noted that the essence of the underlying claim was ashareholder dispute, given that the plaintiff was challenging the effect of the settlement agreement and claiming an interest in the sharesof the defendant. He found: Accordingly, what remains very much at issue is whether the plaintiff, whose president is Mr. Emes, has an interest in the defendantas alleged. Given Mr. Dixon’s involvement as corporate counsel to the defendant and Mr. Dixon’s work regarding the development, inlight of Mr. Emes’ evidence discussed above, Mr.

Dixon most likely has some insight into this issue and in all probability will be awitness. [emphasis added] [11] After looking at the factors relevant to determining whether there was an inherent conflict of interest in the context ofshareholder litigation as set out in M Deborah MacNair, Conflicts of Interest: Principles for the Legal Profession (Toronto: ThomsonReuters, 2017) (loose-leaf updated 2017, release 26), vol 1, ch 7 at 7-35 to 7-37, and applying the principles in Rice v Smith et al, 2013ONSC 1200 at paras 24-30, 32, the motion judge found: The case at hand is essentially a shareholder dispute.

As noted, it is undisputed that at one point Mr. Emes was the beneficial ownerof shares in the defendant corporation and Mr. Emes disputes that he no longer has a shareholding interest in the defendant. It is alsoundisputed that Mr. Rasmussen, who is a director and shareholder of the defendant, instructed Mr. Dixon to prepare the resolution andamended shareholders’ agreement to reflect that Mr. Emes was no longer a beneficial shareholder of the defendant.

While it is thedefendant corporation that is named as a defendant in this action, it is apparent that, at its core, this matter involves a shareholder disputebetween Mr. Rasmussen and Mr. Emes, which implicitly includes the interest of Mr. Dearman as another shareholder. Part of thedefence advanced against the plaintiff is that Mr. Emes disclaimed his beneficial interest in shares in the defendant corporation. In myview, the nature of this dispute gives rise to the inherent conflicts of interest discussed in the above quotation from Rice.

Monk Goodwinhas a duty to the defendant corporation and the best interests of the defendant corporation are not necessarily those of Mr. Rasmussen,about whom this dispute largely relates. Further, without commenting on the merits of the plaintiff’s claim, the conduct of corporate counsel vis-à-vis the plaintiff’s interest isbeing called into question. This also bears on the ability of Monk Goodwin to act. [12] The motion judge then held that Monk Goodwin was in a conflict of interest position and ordered that it be removed aslawyer of record for the defendant. IV.

DECISION [13] I agree with the motion judge’s finding that the plaintiff’s underlying claim is, in essence, that of a shareholder disputebetween the plaintiff, on the one hand, and Mr. Rasmussen and Mr. Dearman, on the other. As the motion judge correctly found, thecorporation is a separate entity from the shareholders and its interests may well be different from those of individual shareholders orgroups of shareholders, particularly where there is a dispute between groups of shareholders. [14] In this case, Mr. Dixon had a significant professional relationship with Mr.

Rasmussen before the events giving rise tothis litigation, as a result of Mr. Dixon having been his personal lawyer. As corporate counsel, Mr. Dixon was involved in takinginstructions and drafting a unanimous shareholder agreement that recognized Mr. Emes’ interest in the defendant and a second versionthat did not. He also received instructions from Mr. Rasmussen to prepare, and did prepare and register, documents to give effect to thesettlement agreement that the plaintiff now challenges. The legal effect and

interpretation of the settlement agreement are core issues inthis case. The motion judge found that Mr. Dixon would “in all probability” be a witness at the trial in relation to those core issues. I

am of the view that he made no palpable and overriding error in so finding. [ 15 ] While the defendant questioned the motion judge’s

interpretation of the law regarding conflict of interest, I am not persuaded that, when considered in the context of the facts and issues in this case, the motion judge erred in principle. Further, I am not persuaded that he made any palpable and overriding error in the facts or in the application of the facts to the law.

Thus, for these reasons, I am of the view that the motion judge did not err either in finding that that Monk Goodwin was in a conflict of interest position or in ordering that the law firm be removed as lawyer of record for the defendant in this action. [ 16 ] Finally, the issue of whether the plaintiff (as opposed to Mr. Emes personally) has any claim to an interest in the shareholdings of the defendant was raised by the defendant at the hearing before the motion judge, even though the only motion was in relation to the removal of counsel.

While, on the facts as they appear in the affidavits, that may be a live issue in the underlying action, in my view that is an issue for another day. The motion judge’s finding that, for the purpose of this motion, there was a sufficient overlap between the interests of Mr. Emes and the plaintiff to proceed with the motion was a practical and proportionate approach that permitted the substance of the motion before him to be resolved. [ 17 ] I would dismiss the appeal and award tariff costs of the appeal to the plaintiff. JA I agree: JA I agree: JA