Lawyer Conflict of Interest

conflict of interest-lawyer

In McDonald v McDonald Estate 2013 BCSC 1732, an application was made to remove the solicitor for the defendant, on the basis that the lawyer for the defendant was in a conflict of interest.

The court found that the defence counsel had acted for one of the plaintiffs on an unrelated matter some years before, and since no confidential information was imparted, there was no conflict of interest.

The case related to an action brought by three of four children, to set aside the gifting of shares in the company which owned the family farm.

on July 5, 2013, the Supreme Court of Canada (SCC) had released the decision in Canadian National Railway Co. v. McKercher LLP, 2013 SCC 39 [CNR].

[48] This most recent pronouncement on the subject of conflicts of interest expounds upon an earlier decision of the SCC in R. v. Neil, 2002 SCC 70 [Neil]. It was agreed by all parties that supplemental submissions on the impact of the CNRcase would be of benefit to the Court in making a decision on this application. I agreed to permit the parties to make these further submissions.

[49] Conflict of interest matters come before the Court as part of the Court’s inherent jurisdiction to control its own process by protecting clients from prejudice and maintaining the repute of the administration of justice; it is from these duties that the supervisory power over lawyers is exercised: CNR at para. 13. Courts also develop the fiduciary duties that govern lawyers in their duties to clients; however, the role of the Court is from the perspective of the proper administration of justice, whereas the role of law societies is to maintain the good governance of the profession: CNR at paras. 14-16.

[50] The overarching duty of loyalty owed by a lawyer to his client includes:

1. a duty to avoid conflicts of interest;

2. a duty of commitment to the client’s cause; and

3. a duty of candour.

[CNR at para. 19, citing Neil at para. 19.]

A breach of any of the three aforementioned duties may warrant disqualification. The determination of whether there is a conflict of interest or another type of breach is a matter which will turn on the facts of each case.

[51] A review of the legal framework for conflicts of interest is helpful in assessing how to analyze the parties and alleged breaches in this case.

[52] Where the alleged conflict is between two current clients, as was the case in CNR, the first question is whether the conduct of the law firm falls within the scope of the bright line rule.

[53] In CNR, the SCC makes clear that the bright line rule plainly prohibits concurrent representation of current clients who are directly adverse in interest: CNR at para. 26. The rule applies to unrelated and related matters alike because even if the representation has to do with unrelated matters, the fact of opposing interests will severely compromise the trust inherent in the solicitor-client relationship. As the Court in CNRaptly stated at para 28:

The reality is that “the client’s faith in the lawyer’s loyalty to the client’s interests will be severely tried whenever the lawyer must be loyal to another client whose interests are materially adverse”: Restatement of the Law Third: The Law Governing Lawyers (2000), vol. 2, §. 128(2), at p. 339

[54] While there is no place for further internal balancing once the bright line rule is engaged (CNR at para. 29), the Court in CNRclarified the scope of the bright line rule:

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. [CNR at para. 32.]

And further at para. 41:

If a situation falls outside the scope of the rule, the applicable test is whether there is a substantial risk that the lawyer’s representation of the client would be materially and adversely affected.

[55] This second avenue to determine a conflict is only applicable when considering situations where both clients are current clients.

[56] MacDonald Estate v. Martin, [1990] 3 S.C.R. 1235 [MacDonald Estate] is an earlier decision of the SCC where the test for a disqualifying conflict of interest was developed for situations where the alleged conflict involved is between former and current clients. The principles were conveniently summarized in Gardner v. Viridis Energy Inc., 2012 BCSC 19 [Gardner], starting at para. 22:

[22] The Supreme Court of Canada established the principles to be applied in relation to applications to remove a lawyer in MacDonald Estates v. Martin [MacDonald Estates],[1990] 3 S.C.R. 1235. Mr. Justice Sopinka described the test as follows at pp. 1259-1260:

Since, however, it is not susceptible of proof, the test must be such that the public represented by the reasonably informed person would be satisfied that no use of confidential information would occur. That, in my opinion, is the overriding policy that applies and must inform the court in answering the question: Is there a disqualifying conflict of interest? In this regard, it must be stressed that this conclusion is predicated on the fact that the client does not consent to but is objecting to the retainer which gives rise to the alleged conflict.

Typically, these cases require two questions to be answered: (1) Did the lawyer receive confidential information attributable to a solicitor and client relationship relevant to the matter at hand? (2) Is there a risk that it will be used to the prejudice of the client?

[23] Such an application involves a balancing of the right of a litigant to counsel of his or her choice, the prejudice of being forced to change counsel in the course of litigation, the interest of public confidence in the integrity of the legal profession and the administration of justice. As noted by Madam Justice Levine, speaking for the court in Coutu v. Jorgensen, 2004 BCCA 400, at para. 31:

This Court has previously taken a cautious approach to ordering the removal of counsel contrary to the wishes of the clients: see Mara (Guardian ad Litem of) v. Blake (1996), 134 D.L.R. (4th) 716 at para. 13; Ribiero at para. 20, quoting Esson C.J.B.C. (as he then was) in Manville Canada Inc. v. Ladner Downs (1992), 63 B.C.L.R. (2d) 102 at 117 (S.C.), (affirmed in (1993), 76 B.C.L.R. (2d) 273). This cautious approach acknowledges the right of a litigant to his or her choice of counsel and the prejudice from being forced to change counsel in the course of litigation. Balancing those interests are, of course, the interests of public confidence in the integrity of the legal profession and the administration of justice: see Martin v. Gray at para. 51.

[24] The issues to be addressed in such an application were summarized by Madam Justice Bennett in LS Entertainment Group Inc. et al. v. Wong et al., 2000 BCSC 1789, at para. 38 as follows:

In summary, the application of the MacDonald Estate test for a disqualifying conflict of interest requires a consideration of the following issues:

(a) Was there a previous solicitor-client relationship between the applicants and the respondents that was sufficiently related to the retainer from which it is sought to remove the solicitor?

(b) If there was a “sufficiently related relationship”, has the respondent met the burden of satisfying the court that no confidential information was passed that could be relevant to the present action?

(c) Is there a risk that the confidential information will be misused?

[57] The principles in MacDonald Estate have not been overcome by the decision in CNR because CNR did not concern former and current clients; however, the broader principles set out in CNR concerning the duty of loyalty should be considered regardless of whether the relationship involves current or past clients.

[58] In a very recent decision of this court, Bhandal v. Khalsa Diwan Society of Victoria, 2013 BCSC 1425 [Bhandal], Mr. Justice Johnston reviewed the legal principles as set out in CNR as well as MacDonald Estate, and focused on the distinction between the duty of loyalty that is owed to existing versus former clients. In Bhandal Johnston J. relied on the decision of Cromwell J.A. (as he then was) in Brookville Carriers Flatbed GP Inc. v. Blackjack Transport Ltd., 2008 NSCA 22 [Brookville],for guidance on the approach to follow in situations of lawyers acting against former clients. In Brookvillethe Court says:

[20] A lawyer has a duty to both current and former clients to keep their confidences: MacDonald Estate v. Martin, [1990] 3 S.C.R. 1235. Consequently, a lawyer must not act in any matter which puts that obligation in conflict with the duties owed to current clients. To current clients, the lawyer also owes a broader duty of loyalty which goes beyond the duty to keep their confidences. This duty includes avoiding conflicting interests, providing zealous representation and being candid: R. v. Neil, [2002] 3 S.C.R. 631 at para. 19.

[21] This appeal is not governed by either of these clearly settled principles: it concerns acting against a former, not a current, client and the new retainer does not put the former clients’ confidences at risk. The appeal, therefore, raises a threshold question of whether, as the judge found, a lawyer may be disqualified from acting against a former client on the same or a related matter even though by doing so, the lawyer will not place the former client’s confidential information at risk.

[22] I agree with the chambers judge that the answer to this question is yes. There is binding authority to this effect in Nova Scotia. Other courts of appeal have either taken the same position or at least kept the door open to this principle. The recent jurisprudence from the Supreme Court of Canada on the duty of loyalty to current clients does not, in my view, place this view in doubt and many decisions of other courts and text writers have adopted it.

And at para. 49:

In my view, lawyers have a duty not to act against a former client in the same or a related matter and this duty may be enforced by the courts. Although in general, the focus of the analysis will be on whether, by acting, the lawyer is placing at risk the former client’s confidential information, the duty is not limited to situations in which that is the case. The chambers judge was right not to limit the duty in that way.

[59] In Bhandal, Johnston J. explained:

[32] These passages show the importance of determining whether the matter on which the lawyer acted for the former client is “related” to the current matter from which the former client seeks to disqualify the lawyer. The court in Brookville said that the current and former retainers would be sufficiently related if:

1) “the new retainer involves the lawyer taking an adversarial position against the former client with respect to the legal work which the lawyer performed for the former client or a matter central to the earlier retainer” (para. 17); or

2) if “it is reasonably possible that the lawyer acquired confidential information pursuant to the first retainer that could be relevant to the current matter” (para. 50).

[33] The first consideration does not depend on the lawyer having in the past received confidential information from the former client. The court in Brookville held that where a lawyer acts against a former client and none of the former client’s confidential information is put at risk by the new retainer, the lawyer still owes a duty of loyalty to the former client, a duty the court said was based on the need to protect and to promote public confidence in the legal profession.

[34] At para. 51 the court noted:

… What is of concern is the spectre of a lawyer attacking or undermining in a subsequent retainer the legal work which the lawyer did for the former client or of a lawyer effectively changing sides by taking an adversarial position against a former client with respect to a matter that was central to the previous retainer.

[35] The relationship between the matters on which a lawyer acts or has acted affects the burden of proving whether a client has imparted confidential information to the lawyer such that the lawyer should be disqualified. The court in MacDonald Estate said at para. 46:

… In my opinion, once it is shown by the client that there existed a previous relationship which is sufficiently related to the retainer from which it is sought to remove the solicitor, the court should infer that confidential information was imparted unless the solicitor satisfies the court that no information was imparted which could be relevant. This will be a difficult burden to discharge.

[36] The relationship between retainers is also important where confidential information is not a concern. In Brookville, the court said at para. 55:

… As I have attempted to explain, the approach to the question of whether two matters are related is entirely different in a MacDonald Estate situation than it is in the case of an alleged disqualifying conflict of interest where confidential information is not at risk. The purpose of assessing the relationship between the two retainers in MacDonald Estate is to determine whether an inference should be drawn that confidential information obtained in the course of the first retainer is relevant to the second. When, as here, confidential information is not at risk, the relationship between the two retainers is considered in order to identify whether the second retainer involves the lawyer attacking the legal work done during the first retainer or amounts, in effect, to the lawyer changing sides on a matter central to the earlier retainer. The concept of relatedness for this purpose is much narrower and has an entirely different focus than the concept as applied in the MacDonald Estate analysis.

[37] It is up to the Society to show that the previous relationship between it and the Law Firm is “sufficiently related” to its present retainer by the petitioners.

[60] Once a breach of a duty is established pursuant to either of these tests, the issue of remedy remains.

[61] In CNR, the Court set out that upon breach of any of the three duties underlying the overarching duty of loyalty to a client, 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.

[CNR at para 61.]

[62] Where there is a need to prevent the misuse of confidential information, disqualification will generally be the only appropriate remedy. The residual third purpose for disqualification was described by the Court in CNRas follows:

[63] Disqualification may be required to send a message that the disloyal conduct involved in the law firm’s breach is not condoned by the courts, thereby protecting public confidence in lawyers and deterring other law firms from similar practices.

[64] In assessing whether disqualification is required on this ground alone, all relevant circumstances should be considered. On the one hand, acting for a client in breach of the bright line rule is always a serious matter that on its face supports disqualification. The termination of the client retainers — whether through lawyer withdrawal or through a client firing his lawyer after learning of a breach — does not necessarily suffice to remove all concerns that the lawyer’s conduct has harmed the repute of the administration of justice.

[65] On the other hand, it must be acknowledged that in circumstances where the lawyer-client relationship has been terminated and there is no risk of misuse of confidential information, there is generally no longer a concern of ongoing prejudice to the complaining party. In light of this reality, courts faced with a motion for disqualification on this third ground should consider certain factors that may point the other way. Such factors may include: (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 Brookville Carriers scope of the bright line rule and applicable law society restrictions.

Trevor Todd

Trevor Todd is one of the province’s most esteemed estate litigation lawyers. He has spent more than 40 years helping the disinherited contest wills and transfers – and win. From his Kerrisdale office, which looks more like an eclectic art gallery than a lawyer’s office, Trevor empowers claimants and restores dignity to families across BC. He is a mentor to young entrepreneurs and an art buff who supports starving artists the world over. He has an eye for talent and a heart for giving back.

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