Ontario Court Declines to Remove Plaintiff Franchisee’s Counsel

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By: Anthony Pugh, Law Works

Editor: Ben Hanuka, Law Works

In 2212886 Ontario Inc. v. Obsidian Group Inc., a January 5, 2021, decision of the Ontario Superior Court of Justice, the Court dismissed a motion to remove the plaintiff franchisee’s counsel who the defendants, Obsidian and related parties, alleged was a witness.  However, the Court allowed Obsidian’s motion for the plaintiffs to produce a further affidavit of documents.

Key facts

The underlying action is a rescission claim by the franchisees, William and Kirsten Porteous and their company.  The Superior Court granted rescission on a summary judgment motion in favour of Porteous.  The Court of Appeal allowed Obsidian’s appeal, holding that summary judgment was not suitable, and referred the matter back to the Superior Court.

The rescission claim is based on an allegation that the Porteouses had received earnings projections from one of Obsidian’s representatives before signing the franchise agreement.  Under the Regulation to the Wishart Act in Ontario, if earnings projections are provided, they must be included in the franchise disclosure document along with information about the basis of the projections.

The Porteouses later served a pre-trial conference memorandum which included correspondence between their former and current lawyer from after the Court of Appeal decision, as well as a former franchisee, Mr. Sharma.  These materials were contentious because they included some materials from the litigation with Mr. Sharma.  Obsidian took the position that Porteous’s counsel was in a conflict because he had also acted for Mr. Sharma and was thus privy to certain documents.

The earlier litigation with Mr. Sharma was based on a similar allegation that Obsidian’s representatives had provided earnings projections.  That action had settled earlier.  Later, Mr. Sharma provided an email with the earnings projections to the Porteouses’ previous counsel, and agreed to act as a witness.  The Porteouses then hired current counsel, who was also the lawyer who represented Mr. Sharma against Obsidian.

Obsidian later started an action against Mr. Sharma, alleging that he had breached the settlement agreement.

After receiving the pre-trial memorandum, Obsidian brought a motion to remove the Porteouses’ current counsel.

Obsidian also brought a motion to require the Porteouses to produce the other documents that were attached to Mr. Sharma’s email.

The Court ordered the Porteouses to provide a new Affidavit of Documents

The Porteouses claimed that the other attachments to Mr. Sharma’s email were not relevant since they were only relevant to Mr. Sharma.  The Court disagreed, holding that relevance is determined by the issues.  Whether the earnings projections were legitimate would be the key question in the case.  The other documents may shed light on whether the document is legitimate, and may undermine Mr. Sharma’s evidence or credibility as a witness.

The Court also ordered the Porteouses to disclose communications between their previous and current counsel about the Court of Appeal decision – since that may also be relevant to Mr. Sharma’s credibility.

The Court refused to remove the Porteouses’ counsel

The Court applied the various factors set by the Divisional Court in Essa (Township) v. Guergis, including the following:

• the likelihood that the witness will be called, and
• the significance of the evidence to be led.In this case, the most important factor was the likelihood that Obsidian would call the Porteouses’ counsel.  The Court accepted the Porteouses’ position that numerous steps would have to take place before calling their counsel as a witness could even be contemplated.  First, Obsidian’s representative would have to deny sending the earnings projection to any franchisee, and to Mr. Sharma specifically.  Obsidian could then examine Mr. Sharma.  The only purpose of examining counsel would be in the hope that he would contradict Mr. Sharma.Further, despite also being Mr. Sharma’s lawyer, the Court held that he was not a direct witness – he merely received the documents from the Porteouses’ previous counsel.  Any advice that he gave to Mr. Sharma would be covered by solicitor-client privilege.  It was therefore questionable whether counsel would have any relevant evidence.Finally, the trial judge would be able to make any determination of the issue if there was a problem at the trial.  It was thus premature to remove counsel at this stage.  The Court added, however, that Obsidian could revisit the motion should it discover new evidence about this issue through the Porteouses’ further affidavit of documents.