The court expressed concern about his potential role as a necessary witness
In a dispute over alleged fraudulent conveyance, the Ontario Superior Court of Justice ordered the estate’s lawyer to step down due to a potential conflict of interest.
The case stemmed from a 2010 incident in which a married couple allegedly attempted to commit fraud in a loan application to the Royal Bank of Canada. Authorities laid criminal charges but later stayed them. In 2012, one of the applicants filed a lawsuit seeking damages for negligence, malicious prosecution, and related claims.
After years of litigation delays, the court dismissed the original claim in 2023 and awarded significant costs against the estate of one of the original plaintiffs, who had passed away in 2021. During this period, the estate transferred property to its sole beneficiary, prompting the bank to file a new legal action alleging the transfer was fraudulent and aimed at avoiding payment of the outstanding cost awards.
The estate and its representative filed a counterclaim alleging defamation and discrimination by the financial institution and its legal counsel.
The Superior Court ordered the estate's lawyer, Peter Callahan, removed as counsel, citing his potential role as a necessary witness. Key evidence in the case revolved around whether Callahan communicated court orders regarding cost payments to the estate's representative before the disputed property transfer.
The court determined that Callahan's involvement in these communications created a conflict of interest. It also noted that his continued representation could compromise the fairness of the proceedings, as he might be required to cross-examine witnesses or address matters in which he had direct knowledge.
In its decision, the court noted that the threshold for removing counsel is exceptionally high, and it should grant such motions only in rare circumstances. While the court acknowledged the inconvenience and expense its decision may cause, it concluded that removing Callahan was essential to ensure the proper administration of justice.
The court also considered RBC's motion to strike portions of the estate's counterclaim and related pleadings, which included allegations of defamation, racial discrimination, and intentional harm. It ruled that the estate's claims were barred by the two-year limitation period under the Trustee Act and struck them without leave to amend. Additionally, the court determined that the estate could not sustain defamation claims, as such claims expire upon the plaintiff's death under common law and statutory provisions. It also determined that other claims, including racial discrimination and intentional infliction of harm, lacked sufficient factual basis but allowed amendments within a specified timeline.
The court underscored that leave to amend was limited to claims with a clear legal and factual foundation, emphasizing the importance of improving the quality of the pleadings for the case to proceed.
