2006 BCSC 1294err1 Philippine Community Centre Society et al v. De Guzman et al

Before: The Honourable Mr. Justice Goepel

Reasons for Judgment

Counsel for the Petitioners:	M.D. Murphy
Counsel for the Respondents:	L.S. Kim
Date and Place of Hearing:	August 11, 2006
	Vancouver, B.C.

INTRODUCTION

[1] For the last several years, two groups have been vying for control of the Philippine Community Centre Society (the “Society”). The dispute is presently the subject matter of three separate proceedings. The present application is to disqualify Michael D. Murphy of MacKenzie Fujisawa from acting as counsel for the petitioners in this proceeding. This application is a skirmish in a larger war. For the reasons that follow, the application is dismissed.

BACKGROUND

[2] The Society was incorporated in 1992. Over the next several years, it raised some $200,000 and purchased a community centre. Marcelino de la Cruz has been president of the Society for several years. In January, 2002 a business plan was presented to the Society’s Board of Directors (the “Board”) which included a proposal to hire Mr. de la Cruz as manager of the Society for a salary of $4,000 per month. A dispute subsequently arose between various directors as to whether or not Mr. de La Cruz was in fact hired, and whether certain monies received by him were paid pursuant to his appointment by the Board as manager of the Society.

[3] A group of directors led by Roberto de Guzman sought to remove Mr. de la Cruz from office. On September 15, 2002 a majority of the directors gave Mr. de la Cruz a vote of confidence. On September 20, 2002 Mr. de Guzman was replaced as treasurer. For ease of reference I will refer to Mr. de Guzman and the directors who support him as the Dissidents and Mr. de la Cruz and the directors who support him as the Incumbents. I note that Pureza Browne was originally an Incumbent, but subsequently switched sides and is now a Dissident.

[4] In May 2003 the Dissidents filed a petition (“the First Petition”) seeking the removal of Mr. de la Cruz as president, a declaration that the Society should be wound up, and an order allowing the Dissidents to commence proceedings in the name of the Society against the Incumbents to recover money paid to Mr. de la Cruz. The respondents named in the first petition were the Society and eight individual directors. Mr. Michael D. Murphy was retained to act for all respondents.

[5] Mr. Murphy brought an application before Mr. Justice Sigurdson to strike the First Petition on the grounds that it disclosed no reasonable cause of action. In oral reasons dated September 15, 2003 Mr. Justice Sigurdson struck out the claims brought against the individual respondents other than Mr. de la Cruz.

[6] On December 16, 2003 the Dissidents applied to have Mr. Murphy disqualified from acting for Mr. de la Cruz and the Society in defence of the First Petition. Ross J. dismissed that application in reasons reported at 2004 BCSC 36. She concluded that the interests of the Society and Mr. de la Cruz were not adverse, but parallel. She noted that the Society acts through its Board and, in this case, the majority of the Board, and therefore the Society has concluded that the actions of Mr. de la Cruz were authorized. She found that while there was a potential for conflict between the Society and Mr. de la Cruz, there was no present conflict and the joint retainer did not breach any duty of loyalty. In reaching her decision she distinguished MacDonald Estate v. Martin, [1990] 3 S.C.R. 1235 and Mottershead v. Burdwood Bay Settlement Company, [1991] B.C.J. No. 2554 (QL)(S.C.)

[7] The First Petition remains outstanding. It was scheduled to be heard in March 2006. That hearing did not proceed because of certain events that transpired in January and February 2006, which events have led to the second and third petitions.

[8] The bylaws of the Society provide for fifteen directors. The quorum for a directors’ meeting is the majority of directors then in office. If a director resigns, the remaining directors can appoint a successor.

[9] The parties are in agreement as to who were the directors as of December 1, 2002. On December 10, 2002 Sonia Worrall resigned as a director. The Incumbents depose that at a meeting held on March 13, 2003 the directors appointed Ceasar Castro to replace Ms. Worrall. Teresita Drexler resigned as a director on February 5, 2004. The Incumbents depose that at a meeting held March 1, 2004 the directors appointed Arsenia Dakis to replace Ms. Drexler.

[10] The Dissidents now take the view that neither Mr. Castro nor Ms. Dakis was properly appointed as a director of the Society. On January 15, 2006 the seven Dissident directors held a meeting. None of the Incumbent directors attended. At that meeting the Dissidents declared that Ms. Worrall and Ms. Drexler had not been properly replaced as directors and, therefore, their positions remained vacant. The significance of that determination, if correct, was that there were but 13 directors then in office and seven directors constituted a quorum.

[11] The seven directors then determined they constituted a quorum and proceeded to fill the vacant directorships by electing Erlinda Rosales and Catalina Trinidad as directors. They next moved to remove the executive officers, including Mr. de la Cruz as president, and fill those positions among themselves. They passed a motion to settle the First Petition. As the Dissidents are the petitioners in the First Petition, the effect of the motion was to agree to settle with themselves. Finally, they resolved to immediately terminate the services of MacKenzie Fujisawa and Mr. Murphy.

[12] Not surprisingly, the Incumbents refused to recognize the validity of the January 15, 2006 meeting. Mr. de la Cruz called a directors’ meeting for February 19, 2006. Only the Incumbents, including Mr. Castro and Ms. Dakis, attended. The eight directors present passed a resolution that the meeting of January 15, 2006 was illegal ab initio and in direct violation of the bylaws of the Society.

[13] On March 15, 2006 this proceeding (the “Second Petition”) was brought. The petitioners are the Society and the Incumbents, the respondents are the Dissidents. The relief sought in the Second Petition is:

(a) a declaration that the purported directors’ meeting held on January 15, 2006 contravened the bylaws of the Philippine Community Centre Society, is a nullity and that any action taken based on the results of this meeting are void;

(b) a declaration that the directors of the Philippine Community Center Society are Marcelino de la Cruz, Wilfredo Durana, Placido Gaborno, Trinidad Lopez, Flor Sorilla, Renato del Rosario, Ceasar Castro, Arsenia Dakis, Delilah Abaya, Benjamen Vencer and Roberto de Guzman;

(i) President – Marcelino de la Cruz;

(ii) Vice-president – Wilfredo Durana;

(iii) Secretary – Ceasar Castro;

(iv) Treasurer – Placido Gaborno.

[14] The Dissidents in turn have filed a petition (the “Third Petition”). The petitioners are the Dissident, the respondents are the Society and the Incumbents. The Third Petition seeks the following relief:

(a) a declaration that the purported directors meeting held on March 13, 2003 contravened the bylaws of the Philippine Community Centre Society and is a nullity and that any action taken based on the results of this meeting are void;

(b) a declaration that the purported directors meeting held on March 1, 2004 contravened the bylaws of the Society and is a nullity and that any action taken based on the results of this meeting are void;

(c) a declaration that the purported directors meeting held on February 19, 2006 contravened the bylaws of the Philippine Community Centre Society and is a nullity and that any action taken based on the results of this meeting are void;

(d) A declaration that the directors of the Society are:

(i) Roberto de Guzman;

(ii) Delilah Abaya;

(iii) Perlita Borge;

(iv) Carlito Pradas;

(v) Benjamin Vencer;

(vi) Aurora Suing;

(vii) Pureza Browne;

(viii) Erlinda Rosales;

(ix) Catalina Trinidad;

(x) Marcelino de la Cruz;

(xi) Placido Gaborno;

(xii) Renato del Rosario;

(xiii) Trinidad Lopez;

(xiv) Flor Sorilla; and

(xv) Wilfredo Durana.

(e) A declaration that the officers of the Society are:

(i) Pureza Browne – President;

(ii) Aurora Suing – Vice-President;

(iii) Erlinda Rosales – Secretary; and

(iv) Delilah Abaya – Treasurer.

POSITIONS OF THE PARTIES

[15] The Dissidents submit that the court has the inherent jurisdiction to remove counsel who has a conflict of interest. They submit that given the present dispute over control of the Society, Mr. Murphy should not be allowed to act for both the Society and the Incumbents. They submit that the interests of the Society and the Incumbents are no longer identical. Given the current contest as to who controls the Society it is improper for one side to act in the name of the Society until the courts conclude who in fact is properly authorized to give instructions on behalf of the Society. They submit that they are prejudiced because they are required to personally fund the litigation whereas it appears that the Society is funding the litigation on behalf of the Incumbents. They suggest that this puts them at a disadvantage and perpetuates the litigation.

[16] The Dissidents submit that the situation is now different than it was before Ross J. when a similar application was brought in the First Petition. They submit her finding was based on the conclusion there was no conflict between the Society and Mr. de la Cruz, his actions having been supported by the majority of directors. They say that the present dispute, which concerns control of the Society, raises materially different considerations.

[17] The Incumbents submit that this case cannot be distinguished from the earlier application heard by Ross J. They submit that the interests of the Incumbents and the Society remain parallel and parties in such circumstances can be jointly represented. They submit the Society is entitled to defend the integrity of its own process when an individual or group challenges the appointment of a director and in the circumstances of this case only the Incumbents can instruct counsel to act for the Society.

DISCUSSION

[18] Since MacDonald Estate, applications to disqualify counsel have become an all too familiar feature of contested litigation. In most cases the key question is whether the lawyer received confidential information attributable to a solicitor-client relationship and whether there is a risk such information will be used to the prejudice of the other side. That issue does not arise on this application. The Dissidents do not suggest that Mr. Murphy is the recipient of any confidential information that will be used to their prejudice. Rather they suggest that it is improper for Mr. Murphy to act for both the Society and Incumbents when the question of whether the Incumbents still control the Society is in issue.

[19] While the court has the inherent jurisdiction to remove counsel it is a power to be used sparingly: Mara (Guardian ad litem of) v. Blake (1996), 23 B.C.L.R. (3d) 225 (C.A.). In Jorgensen v. San Jose Mines Ltd. (2004), 30 B.C.L.R. (4th) 344 (C.A.), Levine J.A. emphasized the importance of taking a cautious approach in ordering the removal of counsel contrary to the wishes of the client. In Re Manville Canada Inc. v. Ladner Downs (1992), 88 D.L.R. (4^th) 208 (B.C.S.C), Esson C.J. noted the hardship faced by a party that is deprived of their counsel of choice. He discussed the circumstances when counsel should be removed at page 223 :

… One litigant applies to deprive the opposing litigant of the services of the lawyer which it has chosen and which has represented it for years. Such a remedy necessarily imposes hardship and, given that the party deprived of its representative is an innocent bystander in an issue between its lawyer and the opposite party, some degree of injustice on the innocent party. The imposition of such hardship and injustice can only be justified if it is inflicted to prevent the imposition of a more serious injustice on the party applying. It follows that the injunction should be granted only to relieve the applicant of the risk of "real mischief", not a mere perception.

[20] The Second Petition and Third Petition are two sides of the same coin and will be heard together. That hearing is tentatively scheduled for next month. Although the Third Petition is not formally before me, it is understood that the outcome of this application will determine whether Mr. Murphy can act in that proceeding.

[21] Fundamental to both petitions is whether Mr. Castro and Ms. Dakis are in fact directors of the Society. The Second Petition seeks to declare the January 15, 2006 meeting a nullity. If Mr. Castro and Ms. Dakis were properly appointed directors, the January 15, 2006 meeting lacked a quorum and what occurred at that meeting would likely be of no force or effect. In the Third Petition the Dissidents seek declarations that the meetings of March 13, 2003 and March 1, 2004 that appointed Mr. Casto and Ms. Dakis contravened the bylaws of the Society and the results of those meetings are void. If those declarations are made, the Society will have but thirteen directors and arguably the meeting of January 15, 2006 was properly constituted. I should note that even if the Dissidents prove that the appointments of Mr. Castro and Ms. Dakis contravened the Societies bylaws a court could remedy any irregularity in procedure and validate their appointments pursuant to s. 85 of the Society Act, R.S.B.C. 1996, c. 433.

[22] At the January 15, 2006 meeting the Dissidents took it upon themselves to determine that Mr. Castro and Ms. Dakis were not directors. In the Third Petition the Dissidents seek court confirmation that their position is correct. The Society is a respondent in the Third Petition. The Society is entitled to retain counsel to defend the process through which its directors were appointed. The Society acts through its directors. In the circumstances of this case it falls on the Incumbents to instruct counsel as only the Incumbents seek to defend the integrity of the process by which the contested directors were appointed.

[23] There is no conflict between the Incumbents and the Society. Their positions remain parallel, as found by Ross J. in the application brought in the First Petition. The issues in the Second and Third Petitions turn on the process adopted by the Society. A society must be able to maintain the integrity of its own process when that process is challenged. The Society is a proper party in those petitions and has the right to retain counsel of its choice to defend its actions. While the Incumbents are named in both petitions they are not necessary parties and the relief sought in the two petitions could be granted regardless of whether the Incumbents were personally joined.

[24] The interests of the Society remain aligned with the Incumbents unless a court confirms the validity of the January 15, 2006 meeting. Until a court orders otherwise the Incumbents are entitled to manage the Society and instruct counsel.

[25] There is no risk of real mischief if Mr. Murphy continues to act. Mr. Murphy has acted for the Society throughout. The Society would be severely prejudiced if it was required at this late date to obtain new counsel. If new counsel were retained it is likely the petitions could not be heard next month. Further delays are not in the interest of either side. This dispute, which has paralyzed the Society, must be resolved.

[26] The application to remove Mr. Murphy is dismissed.

COSTS

[27] The petitioners seek costs of this application payable forthwith in any event of the cause. In Sinclair v. Sutton Resources Ltd. (1996), 24 B.C.L.R. (3d) 96 (S.C.) Scarth J. dismissed an application to have a solicitor removed in the context of a battle between parties for the control of the board of directors of a limited company. He held that the application was a matter separate and distinct from the substantive aspects of the petition that formed the basis of the proceeding and determined in the circumstances that costs should be payable forthwith after taxation.

[28] I have reached a similar conclusion in this case. This application did not advance the proceedings. The Dissidents have twice failed to have Mr. Murphy removed. Such applications only add to the costs of litigation. In the circumstances of this case, I award the petitioners the cost of this application on Scale 3 in any event of the cause payable forthwith after taxation.

“R.B.T. Goepel, J.”
The Honourable Mr. Justice R.B.T. Goepel

March 5, 2007 – Revised Judgment

Please be advised that the attached Reasons for Judgment of Mr. Justice R.B.T. Goepel of August 23, 2006 have been edited.

Corrections have been made to identify M.D. Murphy as Counsel for the Petitioners and L.S. Kim as Counsel for the Respondents.

Citation:	*Philippine Community Centre Society et al v. De Guzman et al*
	2006 BCSC 1294