Executive Summary: Key Legal and Evidentiary Issues

• WHC law firm’s eligibility to represent a shareholder in a derivative action was challenged due to alleged conflict of interest.

• The defendant claimed a solicitor-client relationship existed by virtue of being a shareholder in PestBoss, the client company.

• The court analyzed whether WHC’s past role in incorporating the company created a duty to the defendant.

• Plaintiff argued the derivative action was on behalf of PestBoss, not against it, making the firm’s role appropriate.

• No evidence showed the defendant ever retained WHC or shared confidential information.

• The disqualification application was dismissed, and costs were awarded to the plaintiff.

Facts and outcome of the case

This case arose from a corporate dispute between two equal shareholders of PestBoss Business Software Inc.: Steve Gallagher and Eran Matis. Gallagher filed a common law derivative action on June 19, 2025, alleging that Matis breached fiduciary duties owed to PestBoss, causing harm to the company. The action was brought in Gallagher’s name but on behalf of PestBoss, naming both Matis and PestBoss as defendants. PestBoss was included as a nominal party to receive notice of the proceedings, not to be held liable.

The matter before the court was not the core claim but rather an interlocutory application brought by Matis. On July 9, 2025, Matis applied to have the law firm representing Gallagher—Webster Hudson & Coombe LLP (WHC)—disqualified. He argued that because WHC had incorporated PestBoss and filed its annual returns, and since Matis was a director and shareholder, the firm owed him duties that gave rise to a conflict of interest. He maintained that WHC’s involvement in the company’s affairs, however limited, created a solicitor-client relationship with him personally, and thus the firm could not act against him.

Gallagher opposed the application, asserting that Matis never retained WHC, gave it instructions, or received legal advice from the firm. All engagement was solely between Gallagher and WHC on behalf of PestBoss. WHC had conducted a search and confirmed that no representation of Matis ever occurred. Furthermore, since the action was a derivative claim on behalf of PestBoss and not a claim against it, the interests of Gallagher and the company were aligned. Thus, there was no real or apparent conflict.

The court agreed with Gallagher. Justice Forth found that Matis failed to establish any solicitor-client relationship with WHC. Simply being a shareholder or director did not create such a relationship absent evidence of interaction, retainer, or advice. The judge distinguished this case from others where more extensive involvement gave rise to disqualification, finding no such indicia here. Since no confidential information had been shared by Matis and PestBoss was not being sued for relief, WHC’s representation of Gallagher was not improper.

The court dismissed Matis’s application on July 16, 2025, and ordered that Gallagher is entitled to costs for defending the motion, payable in any event of the cause. No damages were awarded at this stage, and the primary derivative claim remains to be adjudicated.