Canada: Supreme Court Of Canada On The Lawyer's Duties Of Loyalty, Commitment And Candour

Last Updated: July 29 2013
Article by Neil Guthrie

Most Read Contributor in Canada, September 2016

Canadian National sought to disqualify McKercher LLP from acting for Wallace, the representative plaintiff in a proposed class action against Canadian Pacific, CN and other entities.  The firm also acted for CN but argued that CN was what Binnie J in R v Neil, [2002] 3 SCR 631, called a 'professional litigant' like a bank or the Crown, which may be deemed to have consented to otherwise disqualifying conflicts.

Saskatchewan Court of Queen's Bench

CN's motion to disqualify the law firm was successful at first instance: Wallace v Canadian Pacific Railway, 2009 SKQB 369.  Popescul J concluded that the Wallace retainer would materially and adversely affect the firm's representation of CN, and that the 'professional litigant' exception to Neil's 'bright line' test is available only where two matters are sufficiently unrelated that there is no danger of misuse of confidential information.  The consent of a professional litigant may be inferred where a potentially conflicting mandate is minor or uncontentious, but not where (as here) the firm and the client had a deep and longstanding relationship, and where the impugned retainer involved seeking 'huge damages' based on the 'moral turpitude' of the client.  It was unreasonable to think that CN's consent to act was implied.  CN had, in any event, said that it did not consent to the Wallace retainer; to the extent there ever was implied consent, it had been revoked.  McKercher was disqualified.

Saskatchewan Court of Appeal

The McKercher firm appealed. The Saskatchewan CA allowed the law firm's appeal but by no means let it off the hook: 2011 SKCA 108.

McKercher argued that the chamber judge erred in limiting the 'professional litigant' (PL) exception to minor, non-contentious matters and in holding that such a litigant's implied consent could be negated by an after-the-fact express objection. CN took the position that the bright line from Neil is absolute and that the PL exception limited in scope; McKercher had, in any event, acquired confidential information about its litigation strategy through its longstanding retainer by the company, making disqualification the only possible remedy.

On possession of confidential information, the Court of Appeal thought the judge below was wrong: any knowledge McKercher gained about CN's litigation strategy failed to rise to the level of confidential information, largely because the firm had undertaken very little actual litigation for the client. The judge at first instance was also wrong about the bright line in Neil: it isn't absolute because it has exceptions (PL, tactical disqualification motions). CN is certainly a professional litigant and, because McKercher's other CN matters were sufficiently unrelated to the Wallace class action and did not give rise to a danger that CN's confidential information would be abused, it was reasonable for McKercher to assume CN would consent to the Wallace retainer (especially given the relative lack of litigation files McKercher had previously undertaken for CN). An objection to the Wallace retainer by CN ex post facto was not determinative; CN wouldn't have given its consent anyway.

The kicker was that McKercher failed in discharging another aspect of its duty of loyalty to CN: the duty of candour. The firm failed to advise CN of the Wallace retainer except in ways that were 'feeble at best', and it terminated (or downed tools on) the earlier CN matters. The chamber judge was correct in his characterisation of McKercher's conduct as dumping the old client in favour of the new. McKercher's treatment of CN was arguably improper, but the court ultimately concluded that this was a matter for the Law Society, not the courts; the role of the latter is not to police lawyers or set them up as examples. It would be unfair to deprive Wallace of his counsel and not prejudicial to CN to let McKercher represent him. CN could always sue the firm for the costs of having to transfer its work to other lawyers. No disqualification, then, and appeal allowed; but not exactly a ringing endorsement of firm's conduct.

Supreme Court of Canada

The Supreme Court of Canada has taken a slightly different view in allowing the appeal: Canadian National Railway Co v McKercher LLP, 2013 SCC 39. The Chief Justice, for the Court, held that McKercher's conduct fell 'squarely' within the scope of the Neil bright line: CN and the proposed class were directly adverse in legal interest, CN was not abusing a disqualification motion for tactical purposes and it was reasonable for CN to have expected that the firm would not represent a party that was suing it. 'The bright line rule is precisely what its name implies: a bright line rule' (how's that for stunning legal analysis?); 'it cannot be rebutted or otherwise attenuated', although its scope is confined to situations where the immediate interests (legal interests, not commercial or strategic) of two clients are directly adverse. There is, unfortunately, only cursory treatment of the 'professional litigant' exception to the bright line rule.

The McKercher firm failed to discharge three central duties of a lawyer: the duty of loyalty, in failing to obtain CN's consent before taking on the class action retainer; the duty of commitment to the client's cause, by terminating its retainer with CN; and the duty of candour, in failing to advise CN of its intention to take on the class action work. Whether the firm ought to be disqualified was remitted to the Court of Queen's Bench for determination in light of the Court's reasons. The Chief Justice noted that that there was no risk of misuse of confidential information or impaired representation in this case (which Popescul J had thought relevant back in 2009); the only question for the Queen's Bench judge would be whether disqualification would be necessary to maintain public confidence in the justice system.

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