In the unanimous decision of the Supreme Court on July 5, 2013, Canadian National Railway Co. v. McKercher LLP,1 the Chief Justice frames the main question on appeal as whether a law firm can accept a retainer to act against a current client on a matter unrelated to the client's existing files and more specifically, can a firm bring a lawsuit against a current client on behalf of another client?
Conflicts background and result
Briefly, the circumstances of this case involved a Saskatchewan law firm, McKercher LLP which was acting for CNR on several matters when, without CNR's consent or knowledge, it accepted a retainer to act for Prairie farmers in a $1.75 billion class action against CNR. CNR only learned that McKercher was acting against it when it was served with the statement of claim. Before CNR was served, McKercher summarily terminated all retainers with CNR, except for one which CNR terminated. CNR applied to strike McKercher as counsel in the class action on the basis of conflict of interest. The motion judge granted the application and disqualified McKercher. The Court of Appeal overturned the motion judge's order.
The SCC allowed the appeal and remitted the matter to the Court of Queen's Bench for redetermination of a whether disqualification is the appropriate remedy based on the Court's reasons.
Duties of loyalty, commitment and candour breached
The SCC reexamined a lawyer's duties to a client and stated:
- "As we held in R. v. Neil, 2002 SCC 70, [2002] 3
S.C.R. 631, the general "bright line" rule is that a
lawyer, and by extension a law firm, may not concurrently represent
clients adverse in interest without obtaining their consent —
regardless of whether the client matters are related or
unrelated... However, when the bright line rule is inapplicable,
the question becomes whether the concurrent representation of
clients creates 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 bright line rule was engaged by the facts of this
case: CN and Wallace were adverse in legal interests; CN has not
attempted to tactically abuse the bright line rule; and it was
reasonable in the circumstances for CN to expect that McKercher
would not concurrently represent a party suing it for $1.75
billion. McKercher failed to obtain CN's consent to the
concurrent representation of Wallace, and consequently breached the
bright line rule when it accepted the Wallace retainer."
- "In addition to its duty to avoid conflicts of interest, a law firm is under a duty of commitment to the client's cause which prevents it from summarily and unexpectedly dropping a client in order to circumvent conflict of interest rules, and a duty of candour which requires the law firm to advise its existing client of all matters relevant to the retainer. I conclude that McKercher's termination of its existing retainers with CN breached its duty of commitment to its client's cause, and its failure to advise CN of its intention to accept the Wallace retainer breached its duty of candour to its client."
conflict rules of Canadian Bar Association and Law Societies
Although the intervener submissions of the CBA and the Federation of Law Societies of Canada expressed different views, the SCC was careful to not take sides. The Court did state:
- "Both the courts and law societies are involved in
resolving issues relating to conflicts of interest — the
courts from the perspective of the proper administration of
justice, the law societies from the perspective of good governance
of the profession... In exercising their respective powers, each
may properly have regard for the other's views. Yet each must
discharge its unique role. Law societies are not prevented from
adopting stricter rules than those applied by the courts in their
supervisory role. Nor are courts in their supervisory role bound by
the letter of law society rules, although "an expression of a
professional standard in a code of ethics . . . should be
considered an important statement of public
policy.""
- "In recent years the Canadian Bar Association and the Federation of Law Societies of Canada have worked toward common conflict rules applicable across Canada. However, they have been unable to agree on their precise form...That debate was transported into the proceedings before us, each of these interveners asking this Court to endorse their approach. While the court is properly informed by views put forward, the role of this Court is not to mediate the debate. Ours is the more modest task of determining which principles should apply in a case such as this, from the perspective of what is required for the proper administration of justice."
"Bright Line" rule – where immediate legal interests are directly adverse
The SCC emphasized that this "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" such as in the case of a "professional litigant", for example a bank and other large institutions which retain many law firms on different litigation matters and whose consent can be inferred.
Practical implications
From a practical perspective, the Court offered this direction on how to address perceived conflicts:
- "When a law firm is asked to act against an existing
client on an unrelated matter, it must determine whether accepting
the retainer will breach the bright line rule. It must ask itself
whether (i) the immediate legal interests of the new
client are directly adverse to those of the existing client, (ii)
the existing client has sought to exploit the bright line rule in a
tactical manner; and (iii) the existing client can reasonably
expect that the law firm will not act against it in unrelated
matters. In most cases, simultaneously acting for and against a
client in legal matters will result in a breach of the bright line
rule, with the result that 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. In
the event that the existing client disagrees with the law
firm's assessment, the client may bring a motion before the
courts to prevent the firm from continuing to represent the adverse
party".
- "It follows that as a general rule 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. At the very
least, the existing client may feel that the personal relationship
with the lawyer has been damaged and may wish to take its business
elsewhere".
- "The lawyer's duty of candour towards the existing client must be reconciled with the lawyer's obligation of confidentiality towards his new client. In order 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. If the new client refuses to grant this consent, the lawyer will be unable to fulfill his duty of candour and, consequently, must decline to act for the new client".
The CNR decision is a helpful reminder to law firms of the various duties owed to clients and as a general rule the need to inform and obtain consent from an existing client before accepting a new retainer from another that is directly adverse to their immediate legal interests even on an unrelated matter.
However, the SCC acknowledges that the courts will continue to be called on a case-by-case basis to "further develop the contours of the bright line rule" to ensure that lawyers "exercise their professional judgment free of conflicting pressures."
1
2013 SCC 39.
The foregoing provides only an overview. Readers are cautioned against making any decisions based on this material alone. Rather, a qualified lawyer should be consulted.
© Copyright 2013 McMillan LLP
