Canada: Duty Of Loyalty

Last Updated: February 12 2015
Article by Jonathan Speigel

The larger a law firm gets, the more important conflict searches become. The benefit of these searches became apparent to a law firm in Stewart v. Hosack 2014 ONSC 5693 (S.C.J.).


For many years, the plaintiff, her family, and her business had been clients of a law firm in Simcoe, Ontario. The firm previously represented the plaintiff and her business on 5 matters: the sale of a home, the purchase of a building, a Small Claims Court action, a flood damage claim, and a medical malpractice lawsuit. The firm was currently acting for the plaintiff's husband, and perhaps her also, on two real estate deals.

A former employee of the plaintiff's business was criminally charged with uttering a death threat to the plaintiff. Another lawyer (the "criminal lawyer") in the law firm, who was a friend of the employee's boyfriend, accepted the employee's retainer to defend her in the criminal proceedings. The criminal lawyer knew that the plaintiff was the alleged victim of the death threat and that she and her family had been clients of the firm. Regardless, he did not "run a conflict check, make inquiries from other lawyers in the firm, review (the plaintiff's) files, obtain consent from (the plaintiff), or set up an ethical wall."

As an aside, why the judge would comment adversely on the criminal lawyer's failure to review the plaintiff's prior files is beyond our comprehension. If those files contained confidential information, the criminal lawyer would not want to know it.


Something must have clicked within the law firm. Shortly after it accepted the employee's retainer, the real estate lawyer in the firm withdrew from the real estate transaction on the pretext that the plaintiff had not paid a previous account. In reality, the law firm fired the plaintiff so that the firm could continue to represent the employee. The plaintiff claimed that she did not know about an outstanding account and, cognisant of the law firm's involvement in the criminal charges, became suspicious of the real reasons for the termination of her retainer.


The criminal lawyer, who was a part owner of the tavern in which the death threat was allegedly made, had, at all times, a video of the incident taken from the tavern's security system. He provided that video to the Crown about 6 months later. The Crown then laid a 2nd charge against the employee for criminal harassment.

However, it seems that the video told the story differently than the plaintiff or the Crown originally thought. Ultimately, based on the video, the Crown withdrew all charges against the employee. However, it did so while other lawyers were representing the employee. Prior to the withdrawal, the Crown insisted that the criminal lawyer withdraw as counsel because of an alleged conflict of interest. Rather than subject the employee to the legal fees to be incurred to oppose the Crown's threatened motion, the criminal lawyer resigned from the file.


Why do we refer to the plaintiff as the plaintiff? Because the plaintiff sued the law firm. The plaintiff claimed that the law firm misconducted itself, breached its duty of loyalty to her, and used, or could have used, confidential information. She claimed both compensatory and punitive damages. The law firm moved to dismiss the action by way of summary judgment.

In an understatement, the judge stated "I would have thought that it would be preferable, safer and easier to decline the (employee's) retainer." However, that, by itself, does not mean that there was a conflict.

The plaintiff's first problem was that she had not shown that the law firm had used, in defending the employee, any confidential information that she had provided in her prior files. The video had nothing to do with the plaintiff's prior relationship with the law firm; it was obtained solely pursuant to the law firm's retainer from the employee.

Although the judge ruled that the plaintiff was the law firm's client at the time the firm accepted the employee's retainer, there was still no conflict of interest. A conflict was not generated merely because the law firm knew the plaintiff and her family; confidential information had to arise out of the relationship and be used. The plaintiff could not suggest any way that confidential information was used or misused. Further, the plaintiff was not an adverse party in the criminal proceedings; the Crown was the adverse party and she was merely a witness.

However, the judge found that the law firm breached its duty of loyalty to the plaintiff and noted that the law firm had treated the plaintiff badly. He stated that the law firm ought not to have summarily and unexpectedly terminated its retainer with the plaintiff as a means to circumvent conflict of interest rules. He found that the law firm breached its duty of candour in failing to disclose its intention to represent the employee and allow the plaintiff to make her own decision about continuing her retainers with the firm or going elsewhere.


The plaintiff claimed that she suffered psychological damages arising out of the law firm's "high-handed arrogant disregard" for her, including emotional distress and damage to reputation. However, aside from own self-serving statements in her affidavit, the plaintiff failed to lead any evidence with respect to those damages. No medical reports. Nothing. The judge refused to award compensatory damages without real evidence in support of them.

The judge also noted that even if there were a conflict, the law firm's actions were not "high-handed, malicious, arbitrary or highly reprehensible" so as to require an award of punitive damages.

Finally, the judge determined that he was not able to compensate the plaintiff for the breach of fiduciary duty by way of a restitution of profits arising out of that breach. There were no profits. The judge noted that the breach of fiduciary duty "was not based on personal profit but on an error in judgment."

The judge did note that the plaintiff's complaint to the Law Society, which was held in abeyance pending the result of the action, was still outstanding and stated "I leave it to the Law Society to fashion an appropriate deterrent remedy if they think that to be fit."


In our opening, we talked about the advisability of performing a conflict of interest search. In regards to the facts of this case, that opening was, perhaps, misleading. In this case, the law firm did not need the search; it already knew about the problem. Instead of dealing with the problem up front with the plaintiff, it engaged in poorly-executed damage control. As a consequence, it ultimately did not act for the employee, lost the plaintiff and her family as clients, and was dragged into a legal action.

Further, we suspect that, in the thriving metropolis of Simcoe, many residents were told what had happened and might not have had the best view of the law firm's actions. We surmised that the law firm's decision might have embroiled it in a public relations nightmare. However, when reviewing the website of the Simcoe Informer, we noted many hits relating to the law firm, many hits relating to the plaintiff, who it seems runs a very good business, and no hits regarding the action.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions