Décision

[1]           On appeal from the judgment rendered on January 20, 2017 by the Superior Court, District of Gatineau (the Honourable Carole Therrien), granting Respondents’ motion to disqualify M^tre François Viau and his law firm Gowling WLG (Canada) s.e.n.c.r.l., s.r.l. from representing Appellants in the lower court.

[2]           For the reasons of Justice Schrager, with which Justices Marcotte and Hogue concur, THE COURT:

[3]           DISMISSES the appeal with legal costs.

[4]           This is an appeal from the judgment rendered on January 20, 2017 by the Superior Court, District of Gatineau (the Honourable Carole Therrien), granting Respondents’ motion to disqualify M^tre François Viau and his law firm Gowling WLG (Canada) s.e.n.c.r.l., s.r.l. (“Gowling”) from representing Appellants in the lower court. The latter, as well as the Impleaded Parties, were sued by Respondents in damages arising from an alleged fraudulent bankruptcy orchestrated to ensure that Appellants would acquire the bankrupt corporation’s assets.

[5]           For reasons that differ from those expressed by the judge, I propose to dismiss the appeal.

[6]           An outline of the facts is necessary for a full understanding of the matter. However, and for the most part, these “facts” have yet to be proved in this file at a trial on the merits of the action in the lower court. As will be indicated below, a substantial part of my reasoning flows from the allegations in the proceedings before the Superior Court and the nature of the roles played by the protagonists against the background of such allegations, none of which is the object of dispute.

FACTS

[7]           In March of 2008, the Impleaded Party Rhéal Dallaire, the principal of Resort Investors International (“Resort”), sought refinancing to allow Resort to continue to operate the hotel it owned in the Gatineau area.

[8]           Dallaire and Respondent Nadir Dormani reached an agreement, which they subsequently characterized differently but which, suffice to say, provided for an association between them to continue the business of Resort. In virtue of this agreement, Dormani disbursed 5 million dollars to purchase the outstanding loan of Resort owed to the Toronto-Dominion Bank. The other significant creditor was Société de développement industriel du Québec, owed 4 million dollars.

[9]           Then, following disputes between Dormani and Dallaire, the latter, now in association with another group of investors headed by the Appellant Pierre Heafey (“Heafey”), manoeuvered to exclude Dormani from participating in the administration and management of Resort.

[10]    On December 5, 2008, the Honourable Brian Riordan, J.C.S., sitting in the bankruptcy file of Resort described the situation as follows, which the judge in the lower Court adopts:

[12]         Starting soon after the signature of the March Agreement, M. Dallaire and Petitioners had a series of disagreements over the running of the condotel project and at some point, the exact date of which is an issue in the file, M. Dallaire decided to switch canoes - at a juncture that the Petitioners would consider to be in mid-stream.  He ceased to respect the March Agreement, blocking M. Dormani and especially Razi from participating in the administration and management of the Château Cartier. 

[13]         It is admitted that, at the same time he was negotiating the terms of the March Agreement with the Petitioners, M. Dallaire was in discussion with another group of potential investors: Pierre Heafey ("Heafey") and Samir Chowieri ("Chowieri"; collectively: the "Heafey Group").  The signing of the March Agreement did not dampen their ardour.  Within weeks of the signature, M. Dallaire and the Heafey Group were exploring ways of taking the Petitioners out of the picture and acquiring the hotel's assets for themselves

[14]         Several agreements of interest, both oral and written, were made among them between the signing of the March Agreement and June 27, 2008, the date that M. Dallaire caused Resort to make a voluntary assignment in bankruptcy.  In particular, there is an Offer to Purchase the hotel business by the Heafey Group on May 2nd (the "May Offer": Exhibit P-17B) and an August 11th assignment by M. Dallaire to the Heafey Group of some $11 million of claims against Resort for $1 million plus the possibility of earning hefty commissions on sales of condominium units (the "August Assignment": Exhibit P-14).  Although the latter document is dated after the bankruptcy, the proof indicates that its terms, or ones very similar thereto, had been agreed upon well before that date and, in the Court's conclusion, in large part prior to the bankruptcy.  We deal more fully with this question below.[1]

[11]        Prior to the bankruptcy of Resort, the conflict between Dallaire and Dormani gave rise to the first incarnation of proceedings to wrestle the administration of Resort from Dallaire and whereby Respondents sought an injunction against Dallaire as well as the appointment of an interim receiver or sequestrator. On May 26, 2008, the Superior Court (the Honourable Martin Bédard) named Chantal Gingras of the firm Ginsberg Gingras as “interim receiver” of Resort with powers of an administrator under Articles 1301 to 1305 of the Civil Code of Québec (C.C.Q.) including the power to take possession of and manage Resort’s bank accounts.[2]

[12]        Despite this judgment and without Dormani’s or Gingras’ knowledge, on June 27, 2008, Dallaire caused Resort to file a voluntary assignment in bankruptcy in the hands of the Impleaded Party Litwin Boyadjian Inc. as trustee (“Trustee”). The Respondents eventually sought to have the bankruptcy annulled.

[13]        Given the bankruptcy, Gingras petitioned the Superior Court to be discharged as sequestrator. In that motion, she was represented by M^tre Viau of the firm Gowling. Gingras’ motion was withdrawn and on July 10, 2008, it was agreed by all interested parties (including Dallaire and Dormani) acting through their attorneys, that Ginsberg Gingras would be engaged by the Trustee as its “mandatary to work under the supervision of the trustee in connection with the day-to-day operations of the bankrupt” (i.e. Resort).

[14]        The fees and costs of Gingras are stipulated to be paid out of the bankruptcy estate, subject to taxation, just as are the fees and costs of a trustee. Gowling, presumably through M^tre Viau (the signature is not legible), signed the agreement on behalf of Ginsberg Gingras.

[15]        In the context of those proceedings and in her capacity as sequestrator, Gingras signed an affidavit on June 30, 2008 attesting to the liquidity of Resort and opining on its ability to present its creditors with a proposal under the Bankruptcy and Insolvency Act.[3] During her cross-examination on such affidavit by the attorney of the Trustee on July 16, 2008, she was represented by M^tre Viau. The transcript indicates that he played an active part including posing a question in re-examination as to whether Gingras had obtained an evaluation of Resort’s assets.

[16]        Riordan, J.C.S., heard the motion to annul the bankruptcy in the autumn of 2008 where the focus changed from annulment of the bankruptcy to an equitable manner to sell the assets of Resort. Of importance for present purposes however is that M^tre Viau appeared as counsel for Gingras. Amongst the conclusions of the Riordan Judgment, is the order of a sale process as part of which Gingras was named “mandatary of the Trustee” and instructed to verify the validity of the claims of secured creditors. This would include the claim of Dormani for the loan receivable purchased from the Toronto-Dominion Bank. It also included the claims of Dallaire (assigned to Heafey) the quantum of which was such as to allow the holder of the debt to exercise sufficient voting rights to control a meeting of creditors in the bankruptcy. As Gingras’ attorney, M^tre Viau would have been called upon to advise if not opine on these claims.

[17]        In March of 2009, M^tre Viau also represented Gingras before Riordan, J.C.S., on two motions to clarify or correct his initial order referred to above.

[18]        Later, in December of 2009, M^tre Viau represented Gingras before the Honourable Louis-Philippe Landry, J.C.S., on motions filed by the present Respondents to contest the disallowance of certain claims filed by them in the bankruptcy estate. They claimed a number of expenses, including fees or costs paid to Gingras as sequestrator as well as legal and notarial fees which they incurred during the process. I underline that the B.I.A. provides that in a bankruptcy estate, it is the Trustee who examines and disallows claims.[4] In the aforementioned proceedings, Respondents named both the Trustee and its mandatary, Gingras, as opposing parties, both of whom were represented by M^tre Viau as indicated in Justice Landry’s judgment.

[19]        This is the last event in our record where it appears that M^tre Viau acted for Gingras concerning Resort, though the bankruptcy file is ongoing.

[20]        On November 20, 2008, the Respondents sued Appellants in damages arising from the alleged manoeuvering to acquire the assets of Resort. It is alleged that the latter breached their contract with Dormani with the assistance of the Trustee, specifically Mr. Noubar Boyadjian.

[21]        In September of 2015, Appellants sought to substitute M^tre Viau and Gowling for their then attorneys of record. This substitution was met in October of 2015 by Respondents’ motion seeking a declaration of disqualification followed by a hearing in December 2016, which gave rise to the judgment in the lower Court in January of 2017.

JUDGMENT OF THE SUPERIOR COURT

[22]        The judge reasoned primarily that the lawyer’s obligation of loyalty to his client caused Gingras’ duty of neutrality to extend to her lawyer, M^tre Viau. Such neutrality would be breached by representing one creditor against another, so the judge concluded by disqualifying M^tre Viau and Gowling from acting for Appellants.

[23]        The judge accepted the assertion of the parties that M^tre Viau was not in a position to communicate confidential information, which I accept as a finding of fact, albeit, peculiar, given that M^tre Viau obviously would have had exchanges with Gingras and perhaps the Trustee, which if not the subject of a renunciation are by definition privileged. In this regard, we were seized with a motion to adduce new evidence by way of a consent signed by Chantal Gingras to M^tre Viau acting for Appellants and renouncing to any attorney-client privilege that may have existed between Gingras and M^tre Viau. This document was signed on January 8, 2018, just before the hearing in this Court. The motion to adduce new evidence was dismissed at the hearing for the reasons expressed in the minutes that such renunciation and consent could have been obtained before the hearing in first instance and that the renunciation is not indispensable to the adjudication of this appeal.

DISCUSSION

[24]        The exercise of judicial discretion to disqualify an attorney should only be interfered with on appeal where such discretion was exercised abusively, unreasonably or in a non-judicious manner.[5] No such factor is present here. Moreover, while I believe that the conclusions of the judge as well as her reasons are not erroneous, I would suggest that, regard for the administration of justice is, in this case, stronger justification to conclude for M^tre Viau’s disqualification. Beyond the duty to remain neutral, the image of the administration of justice in the eyes of the public (which was mentioned by the judge) would be significantly diminished by allowing M^tre Viau to act for Appellants.

[25]        It is essential to the allegations of Respondents’ action that the Trustee, through its principal, Noubar Boyadjian, was part of a plot with Appellants and Dallaire to violate the March 2008 agreement between Dormani and Dallaire. Following is a sampling of the allegations germane thereto in Respondents’ motion to institute proceedings:

18.       Les demandeurs soutiennent que le défendeur Rhéal Dallaire a violé l'entente du 14 mars 2008 et qu'il a comploté avec les défendeurs Pierre Heafey, Samir Chowieri et la défenderesse 6963251 Canada lnc. afin de se sortir de cette entente qui le liait aux demandeurs;

19.       Au surplus, il appert que le défendeur Noubar Boyadjian a participé activement à ce complot, ce que les demandeurs n'ont appris progressivement qu'à compter de l'automne 2008, suite aux différentes décisions prises et aux gestes posés par celui-ci;

(…)

46.       Bref, en tout temps pertinent, les défendeurs Dallaire, (...) le Groupe Heafey et le syndic Boyadjian ont manigancé ensemble afin d'exclure les demandeurs de l'entente P-1;

(…)

108.     En rétrospective, il appert que le syndic Boyadjian aurait été recommandé à Rhéal Dallaire par Pierre Heafey et que c'est à la demande de ce dernier que Rhéal Dallaire l'aurait mandaté;

109.     Dans les jours précédents la faillite de Resort, il y aurait même eu des rencontres et des discussions entre Dallaire, Heafey et le syndic Boyadjian;

110.     Pourtant, au cours de l'un de ses témoignages devant l'Honorable juge Riordan, le syndic Boyadjian a déclaré n'avoir jamais rencontré Monsieur Heafey pour discuter du présent dossier avant la faillite de Resort, ce qui constitue un parjure de la part du syndic Boyadjian, lequel est un officier de justice;

111.     Selon des informations plus récemment obtenues par les demandeurs, avant l'implication de Noubar Boyadjian dans le dossier, Rhéal Dallaire et ses procureurs croyaient pouvoir contourner l'entente du 14 mars 2008 et ainsi se débarrasser des demandeurs en plaçant Resort sous la protection de la Loi sur les arrangements avec les créanciers des compagnies. Ce serait Noubar Boyadjian, suite au mandat qui lui avait été confié, qui aurait suggéré la faillite pure et simple de Resort, compte tenu que l'intention de Rhéal Dallaire et de Pierre Heafey était de se débarrasser de Dormani et non pas de restructurer Resort, laquelle n'avait pas besoin de restructuration à ce moment, compte tenu notamment de l'entente P-1;

112.     Au surplus, le syndic Boyadjian aurait suggéré d'ouvrir le dossier de faillite dans le district de Montréal au lieu de celui de Hull, le tout pour faciliter le contrôle et la gestion du dossier et également afin de le soustraire à la juridiction des juges de Hull qui suite au jugement de l'Honorable juge Bédard, avaient déjà une connaissance des faits du dossier, ainsi que du passé criminel de Dallaire;

113.     Pour permettre l'introduction du dossier dans le district de Montréal, le syndic Boyadjian a recommandé à Rhéal Dallaire de procéder à la modification de l'adresse du siège social de Resort, ce qui a été fait le matin du 27 juin 2008, soit dans les heures précédant le dépôt de la cession de Resort, lequel dépôt a été fait de façon électronique par le syndic Boyadjian;

114.     Toujours préalablement au dépôt de la cession de biens de Resort, le syndic Boyadjian aurait également recommandé à Rhéal Dallaire d'obtenir des anciens propriétaires du Château Cartier une cession d'un [prêt, (sic)] dû à l'actionnaire d'une valeur de plus de 7 millions de dollars qui était inscrite aux derniers états financiers de l'entreprise;

115.     Bien que le syndic savait qu'au moment de la faillite de Resort cette créance n'était pas la propriété de Rhéal Dallaire, il aurait suggéré à ce dernier d'obtenir un document confirmant la cession de cette créance, le tout afin de faciliter le contrôle du vote lors des assemblées des créanciers à venir;

(…)

118.     Le syndic Boyadjian aurait également suggéré à Rhéal Dallaire de faire publier une hypothèque mobilière de 275 000 $ sur les équipements et actifs mobiliers du Château Cartier en faveur d'une entreprise contrôlée par Rhéal Dallaire et ce, avant le dépôt de la faillite, ce qui a été fait par Monsieur Dallaire, par l'entremise de l'un de ses procureurs, à savoir Me Jean-Pierre Michon;

119.     Or, aucune considération n'a été donnée par le titulaire de l'hypothèque au constituant pour l'obtention de cette hypothèque mobilière et ce, à la connaissance du syndic;

120.     En participant au complot de Rhéal Dallaire et du Groupe Heafey afin de se débarrasser de l'entente liant Dallaire aux demandeurs, Noubar Boyadjian a engagé sa responsabilité vis-à-vis les demandeurs et il doit être condamné solidairement à payer aux demandeurs tous les dommages qu'ils ont subis, le tout conformément aux conclusions recherchées aux présentes;

(…)

124.     Tout au long de la contestation de la mise en faillite de Resort et suite au processus de mise en vente des actifs de Resort entériné par l'Honorable juge Riordan, le syndic Boyadjian a participé activement, avec Monsieur Heafey, Monsieur Chowieri et Monsieur Dallaire à la préparation des stratégies entourant les recommandations formulées au Tribunal lors des auditions devant l'Honorable juge Riordan;

125.     Il a également participé à la préparation des offres qui furent déposées à différentes étapes dans le processus judiciaire ainsi qu'à la dernière offre déposée au mois de décembre 2008 qui a mené à l'achat des actifs de Resort par une entreprise contrôlée par Pierre Heafey et Samir Chowieri, soit la défenderesse 6963251 Canada lnc.;

(…)

128.     Au surplus, dans le cadre de sa gestion du dossier de la faillite de Resort, le syndic Boyadjian a fait préparer un document d'information pour solliciter des acheteurs potentiels des actifs de Resort et a remis celui-ci à différentes personnes, à l'exclusion des demandeurs, recommandant même à Chantal Gingras de s'assurer que Nader Dormani ne reçoive pas une copie de ce document; copie du document d'information étant communiquée comme pièce P-30;

(…)

135.     Dans le cadre de son administration de l'hôtel Château Cartier, le syndic Boyadjian n'a pas cessé de répéter devant le Tribunal et dans ses requêtes qu'il lui manquait d'argents (sic) afin de gérer cette entreprise, requérant même du Tribunal l'autorisation d'obtenir un financement privilégié (DIP financing), alors qu'à la fin de son administration il est resté des sommes d'argent dans le compte bancaire sans que le financement privilégié n'ait eu besoin d'être utilisé;

(…)

151.     Il est évident que la mission du syndic Boyadjian, tout au long du dossier, était celle de voir aux intérêts du Groupe Heafey et de s'assurer que ce dernier acquiert les actifs de Resort;

[26]        I would not insinuate that Gingras or M^tre Viau were knowing parties to any of these alleged machinations but they are unfortunately not far removed given their roles. The allegations are a strong indictment of the Trustee. Gingras was the Trustee’s mandatary who oversaw the management of Resort and M^tre Viau was her attorney.

[27]        I note that the judge took cognizance that the Trustee supported the position that M^tre Viau could not act for Appellants. The Trustee did not plead to the appeal. Dallaire also supports the disqualification.

[28]        Mr. Boyadjian will obviously be a witness at the trial and it is stipulated that Gingras will also be called to testify.

[29]        The disqualification of attorneys has been codified in the new Code of Civil Procedure (C.C.P.):

[30]        In my view, this codification does not limit the potential grounds of disqualification and has not changed the essential principle of the courts’ mission in such matters:

[13]      Courts of inherent jurisdiction have supervisory power over litigation brought before them.  Lawyers are officers of the court and are bound to conduct their business as the court directs.  When issues arise as to whether a lawyer may act for a particular client in litigation, it falls to the court to resolve those issues.  The courts’ purpose in exercising their supervisory powers over lawyers has traditionally been to protect clients from prejudice and to preserve the repute of the administration of justice, not to discipline or punish lawyers.[6]

[31]        Also of particular concern in this case is balancing the protection of the reputation of the administration of justice[7] against the reality that M^tre Viau’s mandate for Gingras has now ceased and the assertion (which I have doubted) that there is no risk of the misuse of confidential information should M^tre Viau be permitted to continue to represent Appellants.[8]

[32]        The duty of loyalty of lawyers goes beyond and is broader than the duty not to disclose confidential information.[9] Indeed, the integrity of the judicial system is the predominant consideration given its fundamental importance to our society.[10] Even in the absence of a risk of disclosure of confidential information or other specific instance of a breach of an attorney’s duty of loyalty, circumstances in which a lawyer’s ongoing involvement seriously tarnishes the image of the administration of justice should lead to disqualification.

[33]        I certainly acknowledge that grounds to disqualify a lawyer must be balanced against the client’s right to be represented by counsel of its choice. However, where it is not possible to reconcile such competing interest, the protection of the integrity of the judicial system should be given precedence.[11]

[34]        Since Appellants were represented by other attorneys in this file for seven years, the right to be represented by attorneys of one’s choice has little weight in the circumstances. If it was a concern in balancing the parties’ interests, the administration of justice or its repute in the eyes of the public would prevail.

[35]        What is of primary concern in the circumstances of this case is the effect on the image of the administration of justice of tolerating the representation of an active party to the dispute (the Appellants) by the attorney or former attorney of a neutral party involved in the process when the facts were evolving. The litigation in the bankruptcy estate is inescapably a central factor of the dispute in the current case and vice versa. It is, as Respondents submit, in essence the same file or a continuum of the bankruptcy file. The lawsuit herein was instituted during the administration of the bankruptcy and was pending at the time of the Riordan Judgment as mentioned therein.[12] Given these incontrovertible facts, the Trustee, Gingras, and their lawyers have ongoing duties of impartiality, independence and good faith owed to the court and to all the creditors of Resort, including particularly, the parties to the current litigation.[13] Specifically, trustees are duty bound under the B.I.A. to act with “competence, honesty, integrity and due care”[14] as well as impartiality.[15] Applied to the circumstances of this case, the code of conduct extends to a trustee’s mandatary such as Gingras (who is herself a licensed trustee). I think that the judge in first instance was correct to reason that such duties extend to a trustee’s lawyer.

[36]        M^tre Viau proposed to represent one stakeholder in the bankruptcy against others. The potential for conflict is manifest. In answer to a question posed during his deposition M^tre Viau conceded that his new client could possibly have interests contrary to those of the Trustee. A serious risk or at least a reasonable fear of conflict of interest, as is present here, is sufficient to disqualify counsel.[16]

[37]        Ultimately, a court is required to look at the image of the justice system through the eyes of a reasonably informed member of the public having taken cognizance of the facts of the case as related above.[17] A significant factual issue to be determined in Respondents’ action will be whether Boyadjian conspired with Dallaire and Heafey to defeat Dormani’s rights regarding Resort. Boyadjian was Gingras’ mandator or principal and M^tre Viau was the latter’s lawyer. He also appeared in court before Justice Landry on behalf of the Trustee. The Trustee, a neutral party, has had his neutrality, indeed integrity, seriously attacked in the proceedings. Gingras is not directly the subject of the allegations directed at Boyadjian. Nevertheless, she acted as the Trustee’s mandatary. As such, her attorney should be considered as the Trustee’s attorney too. Therefore, I believe that he cannot act for another party in the case.

[38]        Will M^tre Viau cross-examine Boyadjian or Gingras? Irrespective of the knowledge of the file he may draw upon in so doing, what message concerning the integrity of the justice system is transmitted by the image of a current party (Boyadjian) being cross-examined by the attorney of a co-defendant (Heafey) who previously represented the witness’ mandatary (Gingras) while the facts on the ground were playing out? More significantly, what of the cross-examination of Respondents by M^tre Viau, formerly neutral, now representing parties (the Appellants) directly involved in the disputes? The questions are rhetorical. The effects on the image of the administration of justice are real.

[39]        The passage of almost six years between M^tre Viau’s last apparent act on behalf of Gingras and his appearance in the instant file is of no significance given the close continuing relationship between the bankruptcy file and the present one as I have underlined. Counsel for Appellants argues that two years let alone six is a sufficient lapse of time to dispel any serious grounds of disqualification. He finds guidance in Section 81(2) of the Quebec Bar’s Code of Ethics[18] which provides that a lawyer who has acted for, inter alia, the bankruptcy debtor or a secured creditor within the previous two years cannot act for the trustee in the estate unless he discloses the former mandate to the creditors or inspectors. The provision does not bar a creditor or an opposing party litigant seeking disqualification of the attorney should, as here, there exist a close nexus between the former mandate and the current one. Contrary to counsel’s argument, this provision does not apply by analogy to the particular circumstances of the case at bar.

[40]        The integrity of the administration of justice cannot, in my view, be anything but tarnished by permitting the attorney of a neutral party to act for another party to the current litigation (Appellants) who were privy to the alleged wrongdoing when it is alleged that the Trustee was also an active participant in such wrongdoing.

[41]        Accordingly, the judgment of first instance should be confirmed so that I propose the dismissal of the appeal with legal costs.