Canada: Staying on the Right Side of the "Bright Line"

In the Supreme Court of Canada's recent decision in Canadian National Railway Co. v. McKercher LLP, the Chief Justice of Canada writing on behalf of the entire Court re-asserted the importance of the "bright line rule" for conflicts of interest faced by legal practitioners.

In that case, McKercher LLP had acted as primary counsel to CN Rail for some time. McKercher accepted a retainer to sue CN for $1.75 billion class action, and began ending its retainer agreements with CN. CN only discovered that McKercher had been engaged to act against CN's interests when it was served with the claim. Upon this discovery, CN applied to strike McKercher as solicitor of record in the class action.

The Court responded to these facts with a detailed analysis of the lawyer's duty of loyalty to the client. This duty encompasses the duty to avoid conflicts of interest, the duty of commitment to the client's cause and the duty of candour to the client. Ultimately, the Court found that McKercher had breached every one of those duties, and returned the case to the Queen's Bench for determination of whether McKercher could remain as counsel to the class action.

With respect to the duty to avoid conflicts, the rule from R v Neil was reaffirmed. This "bright line rule" is based on the inherent conflict resulting from certain situations of concurrent representation. The rule requires that a lawyer not represent two clients whose immediate legal interests are directly adverse, and applies to both related and unrelated matters. The main exception to this rule is where the party invoking the rule has done so for tactical purposes. Of course, the rule does not apply where both clients have consented to be represented in the circumstances. The rule also does not apply to "professional litigants," such as the government or chartered banks, which are presumed to have given implied consent.

If the "bright line rule" is found not to apply, then the relevant question is whether concurrent representation creates a substantial risk that the representation of either client would be adversely affected. The Court describes this risk as one where "the situation is 'liable to create conflicting pressures on judgment.'"

Moving on to counsel's duty of commitment to the client's cause, the Chief Justice notes that this duty is closely tied to the duty to avoid conflicting interests. This duty is supposed to prevent a lawyer from "soft peddling" the interests of one client in order to gain an advantage for another client. It also has the effect of preventing a lawyer from simply ending the relationship with a client in order to pursue a more lucrative opportunity, as occurred in this case.

Finally, the Court notes that where a lawyer is planning to represent a new client who is adverse in interest to the existing client, the duty of candour requires the lawyer to disclose this to the existing client. Such disclosure will also require the consent of the new client to give sufficient detail about the new retainer to the existing client, so that the existing client can make an informed decision as to whether they wish to continue their retainer. If the new client will not consent to this disclosure, then the lawyer cannot be retained by them.

This decision provides practical advice to a lawyer or law firm that is faced with a potential conflict of interest. It should be required reading for every newly minted lawyer. The foundation of the principles engaged by this case are succinctly stated by the Court, quoting Lord Brougham from the Trial of Queen Caroline:

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