Date: 20080410
Docket: T-2088-05
Citation: 2008 FC 464
Vancouver, British
Columbia,
April 10, 2008
PRESENT: The Honourable Madam Justice Heneghan
BETWEEN:
TAZCO HOLDINGS INC.,
EXCALIBRE OIL TOOLS LTD.,
and TEBO INDUSTRIES LTD.
Plaintiffs
(Appellants)
and
ADVANTAGE PRODUCTS INC.,
GENESIS MACHINING SERVICES INC.,
and WEATHERFORD CANADA LTD.
Defendants
(Respondents)
REASONS FOR ORDER AND ORDER
[1]
Tazco
Holdings Inc., Excalibre Oil Tools Ltd., and Tebo Industries Ltd. (the
“Plaintiffs”) appeal from the Order of Prothonotary Aalto made on August 31,
2007. In that Order, the Prothonotary granted the motion by Advantage Products
Inc., Genesis Machining Services Inc., and Weatherford Canada Ltd. (the
“Defendants”) that the law firm of Brownlee LLP (“Brownlee”) be removed as
solicitors of record for the Plaintiffs on the grounds that Brownlee is in
conflict of interest arising from the fact that the lawyer who is representing
the Plaintiffs in this action had previously acted on behalf of the Defendant
Advantage Products Inc. in an action for patent infringement.
[2]
The
material before the Prothonotary consisted of the pleadings, that is, the
Statement of Claim issued on November 22, 2005, together with the Defence
and Counterclaim filed on January 27, 2006. As well, the Defendants filed
the affidavits of Lynn Tessier, sworn March 29, 2006 and Daniel R.
Horner sworn on March 29, 2007. Mr. Tessier is the inventor of the TorqStopper,
an anti-rotation tool which is the patented device at the heart of this patent
infringement action.
[3]
In
reply, the Plaintiffs filed the affidavits of Edward L. Moore, sworn on March
20, 2007 and of Neil F. Kathol, sworn March 21, 2007. A reply affidavit of Mr.
Kathol, sworn May 7, 2007, was also filed. Mr. Moore is the President of Tazco
Holdings Inc. and Excalibre Tools Ltd. Mr. Kathol is a partner of Brownlee
and represents the Plaintiffs. He is also the lawyer of Brownlee who
represented Advantage in a prior patent infringement lawsuit involving the
TorqStopper.
[4]
The
Prothonotary reviewed the affidavit evidence and the written submissions of the
parties. He stated the issues arising as follows:
1.
Is
Brownlee in a position of disqualifying conflict such that it should no longer
be able to act for the Plaintiffs?
2.
If
Brownlee is in a position of disqualifying conflict, does the failure of
Advantage to move expeditiously to disqualify Brownlee permit Brownlee to
continue to act for the Plaintiffs?
[5]
The
Prothonotary referred to the decision in MacDonald Estate v. Martin,
[1990] 3 S.C.R. 1235, where Justice Sopinka at page 1243 said that the Court is
concerned with at least three competing values in assessing whether a conflict
of interest exists. These values are as follows:
1.
Maintaining
the high standards of the legal profession and the integrity of our system of
justice;
2.
Not
depriving litigants of their counsel of choice without good cause; and
3.
Allowing
reasonable mobility in the legal profession.
[6]
The
test for the existence of a disqualifying conflict of interest in the context
of a solicitor-client relationship is two-fold. First, has the solicitor
received confidential information that is relevant to the matters in issue?
Second, is there a risk to the former client that the confidential information
will be used to the prejudice of the client?
[7]
In
the present case, the Prothonotary found that both parts of the test were met.
He found that Mr. Kathol had received confidential information concerning
Advantage while he was engaged in the prior retainer. The Prothonotary
specifically referred to the evidence before him as contained in the affidavit
of Mr. Tessier. At paragraphs 5 and 6 of his reasons, the Prothonotary said the
following:
[5] Prior to this proceeding,
Advantage had retained the services of Kathol to pursue a patent infringement
on their behalf (the “Corlac Action”). This retainer lasted from approximately
October 2001 through August 2002 (the “Brownlee Retainer”). Tessier deposes
that during the Brownlee Retainer, Kathol worked closely with various
individuals from Advantage including Tessier, Horner, John Doyle, an
employee of Advantage, and others associated with the TorqStopper patent.
During the course of the Brownlee Retainer, Tessier deposes that confidential
information was shared by Advantage with Kathol and, more specifically:
6. In the course of the Advantage
Communications, the Plaintiffs’ solicitors, and specifically Mr. Kathol:
(a)
drafted
licence agreements and sub-license agreement including those involving MSI and
Advantage;
(b)
discussed,
in detail, aspects of the TorqStopper and the nature of its operation;
(c)
discussed,
in detail, patent infringement issues respecting the Corlac Action with myself,
Mr. Weber, Mr. Goodwin, Mr. Doyle and Mr. Malyszko;
(d)
discussed,
in detail, litigation strategy concerning patent infringement issues respecting
the Corlee Action with Mr. Weber, Mr. Goodwin, Mr. Doyle and Mr. Malyszko;
(e)
assisted
in drafting the Statement of Claim issued by Advantage and MSI in the Corlac
Action;
(f)
prepared
Affidavits on behalf of Mr. Weber and Mr. Doyle respecting patent infringement
issues in the Corlac Action; and
(g)
generally,
obtained knowledge of Advantage’s finances, share structure, offshore interests
and intentions, corporate make-up, customers, suppliers of machined goods,
distributors and litigation strategy.
7. As a result of the Advantage
Communications, I am of the belief that the Plaintiffs’ solicitors, Brownlee
Fryett, and specifically, Mr. Kathol, have confidential information concerning
Advantage’s business, interests and affairs as well as the personal characteristics
and litigation tolerances of myself and Mr. Weber, which the Plaintiff might
use to the disadvantage of Advantage.
[6] Tessier further states that he
did not consent to either Kathol or Brownlee releasing confidential information
obtained during the Brownlee Retainer relating to the Corlac Action. Attached
as exhibits to the Tessier affidavit are copies of accounts rendered by
Brownlee to Advantage commencing in October 2001 to August 2002. The total
of the accounts is in excess of $23,000. The accounts are all signed by Kathol
on behalf of Brownlee. The work done by Brownlee for Advantage is extensive as
appears from the accounts and it would be impossible to believe that during the
course of the Brownlee Retainer that confidential information relating to the
TorqStopper and Advantage generally was not shared with Kathol and Brownlee.
[8]
The
Prothonotary then addressed the second part of the test, that is, whether there
is a risk that such confidential information will be used to the detriment
of the client in the present proceedings. He acknowledged that this is a “much
more difficult question to answer” but, having regard to the evidence before
him and the submissions of the parties, he concluded that “a risk existed that
confidential information will be used to the prejudice of Advantage.”
[9]
The
Prothonotary referred to relevant jurisprudence concerning the use of
confidential information by a former solicitor, that is, O’Dea v. O’Dea
(1987), 68 Nfld. & P.E.I.R. 67; aff’d [1988] N.J. No. 186 (Nfld. C.A.), R. v.
Neil, [2003] 3 S.C.R. 613, and Strother et al. v. 3464920 Canada Inc. et
al., [2007] 2 S.C.R. 177. In Strother, Justice Binnie referred to
the prior jurisprudence and said the following at para. 51:
In MacDonald Estate v. Martin,
similarly, the legal rule was arrived at after balancing various interests,
including trading off a client’s ability to choose counsel against other
considerations such as lawyer mobility. Once arrived at, however, the MacDonald
Estate v. Martin rule protecting against disclosure of confidential
information is applied as a “bright line” rule. The client’s right to
confidentiality trumps the lawyer’s desire for mobility. So it is with Neil.
The “bright line” rule is the product of the balancing of interests not the
gateway to further internal balancing. In Neil, the Court stated (at
para. 29):
The bright line is provided by the
general rule that a lawyer may not represent one client whose interests are
directly adverse to the immediate interests of another current client – even
if the two mandates are unrelated – unless both clients consent after
receiving full disclosure (and preferably independent legal advice), and the
lawyer reasonably believes that he or she is able to represent each client
without adversely affecting the other.
[Emphasis in original]
[10]
The
Prothonotary addressed the Plaintiffs’ argument that an adverse inference
should be drawn because the Defendants submitted the affidavit of Mr. Tessier,
rather than an affidavit from Mr. Weber, in support of their motion. He
rejected that submission on the grounds that there was a sufficient nexus
between Mr. Tessier, a co-inventor of the TorqStopper, to support the
Defendants’ claim that confidential information had been provided to Mr. Kathol
in the course of his retainer.
[11]
Finally,
the Prothonotary considered whether the Defendants had delayed in bringing
their motion for disqualification of Brownlee, such that the motion should
be dismissed. The Prothonotary disposed of this argument on the basis that
the problem was created by Brownlee not the Defendants, and in any event, the issue
had been raised by counsel for the Defendants prior to the commencement of this
action.
[12]
Nonetheless,
the Prothonotary went on to consider whether the timing of the motion was a
tactical decision by the Defendants. He concluded that the “facts in this case
do not support an improper motive on behalf of Advantage for bringing this
motion.” The Prothonotary granted the Defendants’ motion, without costs.
[13]
The
Plaintiffs now argue that the Prothonotary erred in law in making his order and
that this Court should review the motion on a de novo basis. In this
regard, the Plaintiffs rely on the decision of the Federal Court of Appeal in Canada
v. Aqua-Gem Investments Ltd., [1993] 2 F.C. 425, where the Court held that
a discretionary order of a prothonotary should be reviewed de novo on
appeal if that decision is vital to the final issue or the order is clearly
wrong in the sense that the prothonotary based his or her decision on a wrong
principle or a misapprehension of the facts.
[14]
In
this case, the Plaintiffs argue that the Prothonotary based his findings on
speculation rather than upon the evidence submitted. They submit that the
Prothonotary failed to make reasonable findings of fact relative to the receipt
of confidential information by Mr. Kathol in the course of the prior
retainer. In this regard, the Plaintiffs rely on the decision in Denharco
Inc. v. Forespro Inc., 162 F.T.R. 202 (T.D.).
[15]
Further,
the Plaintiffs argue that the delay by the Defendants in bringing the motion
should be considered by this Court. They submit that the delay by the
Defendants in bringing this motion was a matter of tactics.
[16]
For
their part, the Defendants submit that the Prothonotary committed no reviewable
error.
[17]
The
Federal Court of Appeal restated the test applicable to review of a
prothonotary’s decision in Merck & Co. v. Apotex Inc., [2004] 2
F.C.R. 459; leave to appeal refused (2004), 30 C.P.R. (4th)
vii, 331 N.R. 394, where the Court said the following at para. 19:
…
I will use the occasion to reverse the
sequence of the propositions as originally set out, for the practical
reason that a judge should logically determine first whether the questions are
vital to the final issue: it is only when they are not that the judge
effectively needs to engage in the process of determining whether the orders
are clearly wrong. The test would now read: "Discretionary orders of
prothonotaries ought not be disturbed on appeal to a judge unless: (a) the
questions raised in the motion are vital to the final issue of the case, or (b)
the orders are clearly wrong, in the sense that the exercise of discretion by
the prothonotary was based upon a wrong principle or upon a misapprehension of
the facts."
[18]
In
the present case, the Prothonotary made findings of fact that, in my opinion,
were reasonably open to him on the basis of the evidence that was before him.
That evidence consisted of the affidavits that were submitted by the
parties, together with the exhibits that were attached.
[19]
The
Prothonotary correctly identified the test for finding a disqualifying conflict
of interest, as stated in MacDonald Estate and confirmed recently in Neil
and Strother. The existence of a disqualifying conflict of interest
requires the delivery of confidential information from a client to a solicitor
and the existence of a reasonable possibility that such information could be
used to the prejudice of the former client. Prothonotary Aalto made findings of
fact with respect to each of these issues, finding that confidential
information had been exchanged and that a risk existed that such information
could be used to the detriment of the former client.
[20]
In
its decision in Housen v. Nikolaisen, [2002] 2 S.C.R. 235, the Supreme
Court of Canada made it clear that, absent palpable and overriding error in the
determination of factual findings, a reviewing Court will not interfere with
factual findings.
[21]
In
my view, that principle applies here. I am satisfied that the factual findings
made by the Prothonotary are reasonably supported by the evidence. The
Prothonotary relied on the statements of account that had been presented by Mr.
Kathol to support his conclusion that confidential information had been
received by Kathol. This conclusion is reasonable, having regard to the amount
of the work that had been done for Advantage. The same invention was involved
in the prior litigation as is the subject of the present action. There is no
evidence of any “palpable and overriding error” by the Prothonotary. There is
no basis to disturb his factual findings.
[22]
I
am satisfied that the Prothonotary could reasonably determine that, in the
circumstances, there is a risk that the prior confidential information could be
used to the detriment of the former client, in the context of the present
action, if Brownlee were allowed to represent the Plaintiffs.
[23]
Finally,
the Prothonotary made a factual finding that the Defendants had not delayed in
seeking removal of Brownlee or that the timing of the withdrawal motion
represented an improper tactic by the Defendants.
[24]
The
next question is whether the Prothonotary erred by applying wrong principles of
law. It is clear from his Reasons that he did not. He referred to and
applied relevant jurisprudence. He considered relevant Rules of
Professional Practice, that is, the Rules applicable to members of the Alberta
Bar.
[25]
The
Prothonotary committed no reviewable error in granting the Defendants’ motion
and this appeal is dismissed with costs.
ORDER
THIS COURT ORDERS that this appeal
is dismissed with costs.
“E. Heneghan”
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