A brief summary as to what this case means for you:

Franchisors, franchisees and agents must be aware of certain issues that can arise when dealing with agents that liaise between the parties. In this month's case of the month, a franchisee agent was found liable for interfering with the relationship between franchisor and franchisee, and franchisees and their legal counsel. The agent in question interposed himself between the franchisees and their legal counsel, with the result that he prejudiced their claims against their franchisor and cost all parties involved considerable extra time and expense. It is important to remember when dealing with agents in a litigation context, that the agents cannot give legal advice and direct instructions must always be sought from legal counsel.

WONG v. SECOND CUP LTD.

[2005] O.J. No. 2897, Superior Court of Justice
Master C. Albert
June 27, 2005.

Lawrence Eftoda was in the business of providing legal and business advice to franchisees. He was not a lawyer. Mr Eftoda began soliciting Second Cup Ltd. ("Second Cup") franchisees as prospective clients, with the intent of creating interest among the franchisees to bring legal action against Second Cup (via individual claims, not as a class action). As the franchisees' agent, Mr Eftoda was authorized to litigate on their behalf and retain counsel. After a series of proceedings, Mr Eftoda was removed, via court order, as the franchisees' agent in their claims due to various delay tactics he had employed in several claims. Second Cup brought this motion to strike the franchisees' pleadings and dismiss their claims and counterclaims. Second Cup also sought the costs of the various actions against Mr Eftoda. Second Cup claimed that repeated delays caused by both the franchisees and Mr Eftoda in bringing their matters forward, and breaches of court orders, were bringing the administration of justice into disrepute. Second Cup further claimed that it was prejudiced by these delays because as a franchisor, it is required to disclose all unresolved litigation pursuant to the Arthur Wishart Act (the "Act"). As a result of Mr Eftoda's actions, Second Cup brought a personal action against him for defamation.

In evaluating the delay issue, the court held that Second Cup provided no evidence of prejudice suffered as a result of the delay. It did not demonstrate that any witnesses were ill, deceased, or missing, that documents were lost as a result of the delay, or that business transactions were lost due to the reporting requirements of the Act.

The court found Mr Eftoda's actions to be "obstructionist, interfering, and abusive, showing a contumelious disregard for the court, Second Cup and his clients". The franchisees were victimized by Mr Eftoda's representation and did not personally have disregard for the court or its orders. Due to the fact that the court was not satisfied that Second Cup had suffered any prejudice as a result of delay, to strike the franchisees' pleadings the court would be solely sanctioning them for breaches of court orders. As this proposition did not seem just to the court, the franchisees were allowed one final opportunity to comply with the court's orders (namely, orders intended to move proceedings along) and show their good faith through compliance. Second Cup was awarded costs in the amount of $3,500 from each franchisee for what the court called "costs thrown away by the franchisee in each action".

Second Cup submitted that Mr Eftoda's pleadings should be struck in the defamation counter claim against Mr Eftoda. Due to Mr Eftoda's conduct in the actions, the delays that he intentionally caused, and his personal and repeated breach of court orders, the court found that Mr Eftoda did not have a bona fide intention to defend the action against him. This lack of intent to defend, coupled with his disregard for the court, was a sufficient basis for the court to strike his defence. Mr Eftoda was ordered to compensate Second Cup for costs thrown away in the defamation action as a result of his actions.

Turning to whether he was responsible for costs in the franchisees' individual actions, Second Cup argued that as a non-party to the litigation of the franchisees, Mr Eftoda was liable for costs by reason of engaging in champerty and maintenance. It argued that Mr Eftoda had no personal claim against Second Cup, was not a franchisee, and was not a lawyer, and yet embarked on a course of conduct designed to encourage litigation against Second Cup. Having enticed the franchisees to retain him as their agent, Mr Eftoda then interposed himself between Second Cup and the true litigants, to their detriment, by refusing to allow them to communicate directly with counsel, and failing to inform them of their litigation responsibilities. The court therefore found that he engaged in the tort of maintenance, and, by agreeing to share in the proceeds of the litigation by way of a contingency fee, Mr Eftoda also engaged in the tort of champerty. Mr Eftoda's actions were also found illegal for contravening section 50 and 61.0.7(1) of the Solicitor's Act . Second Cup was awarded $31,000 in costs from Mr Eftoda.

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