The company claims Fasken simultaneously represented competing parties in an investment opportunity
A Chinese investment company and Canadian businessman seeking $225 million in damages from Fasken Martineau DuMoulin LLP must post $140,000 in security for costs in their dispute over an unsuccessful acquisition, an Ontario court has ruled.
In a June 30 Ontario Superior Court of Justice decision, the court said Beijing Hehe Fengye Investment Co. Limited, a private corporation registered in the People’s Republic of China, failed to prove that it had sufficient assets in Ontario to satisfy a potential costs award.
While Rong Kai Hong, the Markham, Ontario businessman listed as BHF’s co-plaintiff in the action, does have sufficient funds, the court said a security for costs order was still necessary because each plaintiff could fare differently in the case.
“The pleadings raise the possibility that BHF and Mr. Hong may not succeed or fail together, that one may be entitled to relief which the other is not and that different damages and/or separate costs awards may result,” the court said.
The dispute stretches back to 2015. BHF alleged that in the fall of that year, the company retained Fasken’s services to assist with several issues involving Eastern Platinum Limited, a British Columbia-based mining company. In November, BHF and Hong began working together to acquire a controlling interest in EPL.
According to BHF, a China-based consultant affiliated with Fasken agreed to advise the company on the acquisition, and Fasken represented the company on a joint retainer.
Meanwhile, Fasken denied that it represented or advised BHF at any time and said there was never a written retainer agreement or engagement letter.
Fasken was retained by a Hong Kong-based company the following year to acquire an interest in EPL. The Hong Kong company successfully purchased an interest in EPL, even though BHF claimed it made a superior offer for a controlling interest. BHF alleged that the Fasken consultant and another Fasken lawyer advised BHF to consider the Hong Kong company’s offer over BHF’s.
Hong filed several complaints against Fasken with the Law Society of Ontario and several courts. The LSO and a BC court dismissed his complaints, with the BC Court of Appeal upholding the lower court’s decision. The Supreme Court of Canada declined to review the case. Hong filed another derivative action in BC against EPL and some of its directors.
In Ontario, BHF and Hong sued Fasken for negligence, breach of fiduciary duty, and misuse of confidential information, arguing that the law firm acted in conflict by simultaneously representing them and competing parties in their efforts to acquire interests in EDL.
Fasken filed motions seeking $550,000 in security for costs and to strike Hong as a plaintiff.
In its decision on the security for costs motion, the Ontario Superior Court of Justice noted that under the province’s civil rules of procedure, the plaintiffs can avoid security for costs by proving they have enough assets in Ontario “or a reciprocating jurisdiction” to pay out a potential order for costs.
BHF argued that while it could not meet this requirement, Hong could. The court responded that although the co-plaintiffs “claim the same damages, advance the same causes of action, and are making many of the same allegations,” certain facts and allegations stopped the court from conclusively ruling that the co-plaintiffs “must succeed or must fail” together. Each plaintiff could potentially face distinct outcomes in the case.
The court said at the moment, “It is not possible to conclude on the record before me that the plaintiffs’ claims have a good chance of success or a real possibility of success. There are numerous disputed issues of fact and multiple issues of credibility which can only be determined on a complete record at trial, not on the limited record on this motion.”
One challenge is that there is no written retainer agreement or engagement letter from Fasken to BHF. “Determining whether there is a solicitor-client relationship and a joint retainer will require the trial judge to rely on other documents, correspondence and conduct and to make numerous findings of credibility,” the court said.
The court said the plaintiffs cannot take any further steps in the case until they have posted security before the end of July.
Counsel for the parties did not immediately respond to requests for comment.
