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The Meaning of Wallace – a Summary of Its Key Holdings

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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.

Comments

  1. Malcolm Mercer
    July 6th, 2013 at 3:57 pm

    The bright line rule of Neil is indeed reaffirmed. But the scope of the rule is rather different than was previously understood:

    [32] However, Neil and Strother make it clear that the scope of the rule is not unlimited. The rule applies where the immediate legal interests of clients are directly adverse. It does not apply to condone tactical abuses. And it does not apply in circumstances where it is unreasonable to expect that the lawyer will not concurrently represent adverse parties in unrelated legal matters. The limited scope of application of the rule is illustrated by Neil and Strother. This Court found the bright line rule to be inapplicable to the facts of both of those cases, and instead examined whether there was a substantial risk of impaired representation: Neil, at para. 31; Strother, at para. 54.

    The tactical exception no longer is a matter of discretion as to remedy but a limitation in the rule itself.

    On the new limitation of the scope of the rule based on client expectations, the Court says:

    [37] Finally, the bright line rule does not apply in circumstances where it is unreasonable for a client to expect that its law firm will not act against it in unrelated matters. In Neil, Binnie J. gave the example of “professional litigants” whose consent to concurrent representation of adverse legal interests can be inferred:

    In exceptional cases, consent of the client may be inferred. For example, governments generally accept that private practitioners who do their civil or criminal work will act against them in unrelated matters, and a contrary position in a particular case may, depending on the circumstances, be seen as tactical rather than principled. Chartered banks and entities that could be described as professional litigants may have a similarly broad-minded attitude where the matters are sufficiently unrelated that there is no danger of confidential information being abused. These exceptional cases are explained by the notion of informed consent, express or implied. [para. 28]

    In some cases, it is simply not reasonable for a client to claim that it expected a law firm to owe it exclusive loyalty and to refrain from acting against it in unrelated matters. As Binnie J. stated in Neil, 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. Ultimately, courts must conduct a case-by-case assessment, and set aside the bright line rule when it appears that a client could not reasonably expect its application.

    And the Court focuses disqualification on where it serves a purpose:

    [61] As discussed, the courts in the exercise of their supervisory jurisdiction over the administration of justice in the courts have inherent jurisdiction to remove law firms from pending litigation. Disqualification may be required: (1) to avoid the risk of improper use of confidential information; (2) to avoid the risk of impaired representation; and/or (3) to maintain the repute of the administration of justice.

    Taking the clarified narrower scope of the rule and the test for disqualification, McKercher should be seen as a significant development.

  2. Barry Glaspell
    July 8th, 2013 at 9:47 am

    Surely after all of that, 9 judges of the SCC could have answered the simple question posed 4 years ago — on this record, should McKercher be disqualified from acting against CNR in the grain class action?

    The damaging part for public confidence in our justice system is that our Supreme Court did not answer the question. Instead they legislated and modified a morass of rules, ones difficult for anyone to apply from a practical perspective. CNR still has an extant and very valid disqualification motion. And the grain class action is still stalled.

  3. David Cheifetz
    July 8th, 2013 at 12:05 pm

    I’ve two explanations. It’s either 1 &2 or 1 & 3.

    1. That’s not surprising. Binnie is gone. There wasn’t, and still isn’t, an adequate replacement for his skill set. (If this offends anybody up there more than anything I’ve ever written, so be it.)

    2. Given the new approach, the record didn’t contain the required findings of fact and they weren’t prepared to bend the SCC’s rules to make those. That’s the seeming import of para. 67.

    [67] As discussed, a violation of the bright line rule on its face supports disqualification, even where the lawyer-client relationship has been terminated as a result of the breach. However, it is also necessary to weigh the factors identified above, which may suggest that disqualification is inappropriate in the circumstances. The motion judge did not have the benefit of these reasons, and obviously could not consider all of the factors just discussed that are relevant to the issue of disqualification. These reasons recast the legal framework for judging McKercher’s conduct and determining the appropriate remedy. Fairness suggests that the issue of remedy should be remitted to the court for consideration in accordance with them.

    3. Or, they weren’t prepared to find that the record did contain the required findings of fact or evidence permitting the required findings of fact to be made applying the new law. There’s no discussion of the adequacy of the record beyond the negative implication in para. 67.

    Binnie’s absence becomes more significant if it’s 1 & 3.

    Addendum: To avoid back and forth, I didn’t forget about Fish J. I took into account that he’s not going to be on the Bench much longer.