This morning, the Supreme Court of Canada handed down its fourth significant decision on conflicts of interest, the scope of duties of loyalty, and the appropriate division of responsibility between courts and law societies as regulators of professional conduct. It rejected arguments for liberalizing the so-called bright-line rule, but clarified its operation.
The case reopened the “bright-line rule” and the so-called “professional litigant exception, ” formulated by former Justice Ian Binnie in R. v. Neil, and re-affirmed in Strother v. 3464920 Canada Inc. It provides:
… a lawyer may not represent one client whose interests are directly adverse to the immediate interests of another current client — even if the two mandates are unrelated — unless both clients consent after receiving full disclosure (and preferably independent legal advice), and the lawyer reasonably believes that he or she is able to represent each client without adversely affecting the other. (Neil, para. 29);
The professional litigant exception articulated in Neil, suggests that consent can be inferred for professional litigants, such as governments and major banks, where the matters are unrelated and there is no risk to confidential information.
The Supreme Court heard the Appeal on January 24, 2013, with all nine judges present. The Chief Justice wrote for the court. Her judgment is clear and unambiguous, and settles much of the debate over the last decade. It applies the bright line test to an unrelated matter involving an sophisticated institutional client.
Gordon Wallace is a Saskatchewan farmer. He acts as the representative plaintiff in a $1.75 billion class action against the Government of Canada, the Canadian Wheat Board and Canada’s two largest railway companies CN and CP, alleging that 100,000 Western grain growers were overcharged for grain transportation for a quarter century. Wallace approached a Saskatoon law firm, McKercher LLP. to see whether it could act for him and the class.
But when McKercher accepted Wallace’s retainer, it was also acting for CN on a few unrelated matters. Though none was terribly active, CN was considered to be a “current client” of McKercher. McKercher took steps to address that issue. Both before and immediately after Wallace’s Statement of Claim was issued, the law firm withdrew from its CN matters and told CN it would no longer be CN’s attorney for service in the province. And a few weeks later, McKercher asked CN’s permission to continue acting for it in a real estate deal. CN declined to consent and withdrew all its work from the McKercher firm.
CN then moved in the Court of Queen’s Bench for an order disqualifying McKercher from representing Wallace in the class action. It said that McKercher owed a duty of loyalty to its clients and that it had crossed Binnie J’s bright line. Popescul J agreed, saying that McKercher should be disqualified from acting against its current client CN in the class action. The Saskatchewan Court of Appeal concluded that McKercher should not be disqualified (the remedy being too extreme), but reached the same conclusion as the chambers judge on how to read the “bright-line rule”.
The new Supreme Court decision holds that the McKercher firm crossed the bright line, that it breached both its duties of commitment and candour. It remits the case back to the Court of Queen’s Bench to determine whether disqualification was an appropriate remedy.
In a post in a few minutes, I’ll extract the key messages of the decision.
[In the interests of disclosure I should mention that my then partner Gavin MacKenzie acted for the McKercher firm and that my finger prints are on the respondent’s factum; and that I’ve been involved in the Canadian Bar Association’s Task Force on Conflicts of Interest, since its inception – though obviously not in its Wallace intervention.]