Returning to this morning's decision, in Canadian National Railway Co. v. McKercher LLP, which we gave the headline for in an earlier post, I thought it would be helpful to boil down the judgment, into twelve paragraphs, largely using the court's own words:
1. The Bright Line rule has been confirmed – the court was not prepared to overrule Neil and Strother. So a law firm cannot accept a retainer to act against a current client on a matter unrelated to the client’s existing files. The fact that the Wallace and CN retainers were legally and factually unrelated does not prevent the application of the bright line rule. The rule cannot be rebutted or otherwise attenuated, but it does have certain limits. It applies where the immediate legal interests of clients are directly adverse in the matters on which the lawyer is acting. It applies only to legal — as opposed to commercial or strategic — interests. It does not apply to condone tactical abuses. And it does not apply in circumstances where it is unreasonable to expect that the law firm owes it exclusive loyalty and will not concurrently represent adverse parties in unrelated legal matters.
2. In Neil, Binnie J. gave the example of “professional litigants” whose consent to concurrent representation of adverse legal interests can be inferred. These cases are the exception, rather than the norm. Factors such as the nature of the relationship between the law firm and the client, the terms of the retainer, as well as the types of matters involved, may be relevant to consider when determining whether there was a reasonable expectation that the law firm would not act against the client in unrelated matters.
3. The court recognized that the possibility of tactical abuse is especially high in the case of institutional clients dealing with large national law firms. Indeed, institutional clients have resources to retain many firms, and the retention of a single partner in any Canadian city can disqualify all other lawyers within the firm nation-wide from acting against that client. Institutional clients should not spread their retainers among scores of leading law firms in a purposeful attempt to create potential conflicts.
4. The substantial risk principle, articulated in para 31 of Neil, is a second level rule, which only comes into play when the bright line isn't tripped. If so, the question is: does the concurrent representation of clients create a “substantial risk that the lawyer’s representation of the client would be materially and adversely affected by the lawyer’s own interests or by the lawyer’s duties to another current client, a former client, or a third person”. The determination of whether a conflict exists becomes more contextual. The onus is on the client to establish, on a balance of probabilities, the existence of a conflict.
5. Commitment – a law firm is under a duty of commitment to the client’s cause which prevents it from summarily and unexpectedly dropping a client to circumvent conflict of interest rules, or neutralize its duty of loyalty.
6. Candour – A lawyer should advise an existing client before accepting a retainer that will require him to act against the client, even if he considers the situation to fall outside the scope of the bright line rule. CN should have been given the opportunity to assess McKercher’s intention to represent Wallace and to make an appropriate decision in response. This duty of candour towards the existing client must be reconciled with the lawyer’s obligation of confidentiality towards his new client. To provide full disclosure to the existing client, the lawyer must first obtain the consent of the new client to disclose the existence, nature and scope of the new retainer.
7. The court clarified its role, and that of the law societies. Courts have supervisory power over litigation brought before them. Lawyers are officers of the court and must conduct their business as the court directs. The court can determine whether a lawyer may act for a particular client in litigation. Its supervisory role is to protect clients from prejudice and to preserve the repute of the administration of justice, not to discipline or punish lawyers. Courts also develop the fiduciary principles that govern lawyers in their duties to clients.
8. Law society regulation exists to establish general rules applicable to all members to ensure ethical conduct, protect the public and discipline lawyers who breach the rules: the good governance of the profession. Law societies are not prevented from adopting stricter rules than those developed by the courts. Courts are not bound by the letter of law society rules.
9. Effective and fair conflicts rule must strike an appropriate balance between conflicting values: the high repute of the legal profession and the administration of justice, and the values of allowing the client’s choice of counsel and permitting reasonable mobility in the legal profession. The realities of large law firms and litigants who pick and choose between them are also factors. The rules must be context-sensitive.
10. There is no concept of play book data – a general understanding of a client’s business or litigation philosophy is not confidential unless it can be used against the client in some tangible manner.
11. When a law firm is asked to act against an existing client on an unrelated matter, it must answer the following questions:
a. Does accepting the retainer breach the bright line rule?
i. Are the immediate legal interests of the new client directly adverse to those of the existing client?
ii. Is the existing client exploiting the bright line rule for tactical reasons; and
iii. Is it reasonable for the existing client to expect that the law firm will not act against it in unrelated matters.
If the answer is yes, simultaneously acting for and against a client in legal matters will generally result in a breach of the bright line rule, and the law firm cannot accept the new retainer unless the clients involved grant their informed consent.
If the law firm concludes that the bright line rule is inapplicable, it must then ask itself whether accepting the new retainer will create a substantial risk of impaired representation. If the answer is no, then the law firm may accept the retainer.
12. Remedy – the court went a long way to clarify how remedy should be considered: Disqualification may be required:
a. to avoid the risk of improper use of confidential information;
b. to avoid the risk of impaired representation; and/or
c. to maintain the repute of the administration of justice.
Where there is a need to prevent misuse of confidential information, disqualification is generally the only appropriate remedy, subject to the use of screens to alleviate this risk as permitted by law society rules.
Where the concern is risk of impaired representation, disqualification will normally be required if the law firm continues to act concurrently for both clients.
To protect the integrity and repute of the administration of justice, disqualification may be needed to send a message that the courts do not condone the disloyal conduct involved in the law firm’s breach, thereby protecting public confidence in lawyers and deterring other law firms from similar practices. Courts faced with a motion for disqualification on this third ground should consider additional factors:
i. behaviour disentitling the complaining party from seeking the removal of counsel, such as delay in bringing the motion for disqualification;
ii. significant prejudice to the new client’s interest in retaining its counsel of choice, and that party’s ability to retain new counsel; and
iii. the fact that the law firm accepted the conflicting retainer in good faith, reasonably believing that the concurrent representation fell beyond the scope of the bright line rule and applicable law society restrictions.
When CN ended its McKercher retainers, that ended the representation; and the law firm didn't have confidential information. The only question for the Court of Queen’s Bench, to which the remedy issue is remitted, is whether disqualification is required to maintain public confidence in the justice system.