Canada: The "Bright Line" Rule Is Dimmed By The Alberta Court Of Appeal In Statesman

Joint retainers are common in modern legal practice. But what happens when a dispute is brewing between two parties represented by the same law firm? How is a lawyer to know when the "bright line" of conflict of interest has been crossed? And when the duty of loyalty to a client is breached, when is disqualification of the law firm an appropriate remedy? The Alberta Court of Appeal addressed these issues in Statesman Master Builders Inc v Bennett Jones LLP, 2015 ABCA 142 ("Statesman").

I. Background

Matco Investments Ltd. ("Matco") had used the same law firm (the "Law Firm") for over 25 years. Matco entered a partnership (the "Partnership") in 2006 to build condominiums in Calgary with the Statesman Group of Companies ("Statesman").

In 2008, a third party contractor filed builders' liens against the condominium project. Matco and Statesman asked the Law Firm to represent the General Partner in the builders' lien dispute. The Law Firm agreed, but first emailed to Statesman's general counsel the following:

As discussed, Matco is an important client of our firm, and I want to be careful that by this retainer we do not disqualify ourselves from assisting Matco in what I trust is the unlikely event of disagreement between it and the Statesman group in future. I confirm our agreement that this retainer is sufficiently limited in scope that you will take no objection to our continued freedom to act for Matco in such event.

The Law Firm confirmed the limited scope of retainer with Statesman two more times in the subsequent two years. In late spring 2010, Statesman asked the General Partner to terminate the retainer with the Law Firm. The applications judge found that the Law Firm acted for the General Partner and Statesman until June 24, 2010.

Around the same time, a dispute arose between Statesman and Matco. On June 21, 2010, Matco served a notice attempting to terminate the General Partner. On July 8, 2010, Matco commenced an oppression action against Statesman. The Law Firm represented Matco throughout. Statesman objected to the Law Firm representing Matco in the oppression action.

II. Decision at First Instance

At first instance, the case management judge held that the Law Firm had breached its duty of loyalty to Statesman and should be disqualified from representing Matco in the oppression action. The judge held that the Law Firm ought to have told Statesman prior to June 21, 2010 that it was representing Matco in a dispute involving the potential elimination of Statesman from the Partnership. The judge held that Statesman had consistently maintained its opposition to the Law Firm's representation of Matco, that Statesman had never waived any claim it may have, and that, in any event, no prejudice would result from disqualification since Matco had already retained different legal counsel.

III. Decision on Appeal

The Court of Appeal reversed the trial judge's decision and held that (a) the Law Firm had not breached its duty of loyalty, and (b) even if the Law Firm had breached its duty, disqualification would not be an appropriate remedy.

The Court of Appeal addressed the three components of the duty of loyalty: (a) duty to avoid conflicting interests, (b) duty of commitment to the client's cause, and (c) duty of candour. The Court of Appeal then addressed the appropriate remedy.

a. Duty to Avoid Conflicts and the Bright Line Rule

The Court of Appeal discussed the duty to avoid conflicts of interest in the context of the "bright line" rule set out by the Supreme Court of Canada in R v Neil, 2002 SCC 70 ("Neil"). The bright line rule prohibits a law firm from representing one client whose interests are directly adverse to the immediate interests of another current client, even if the two mandates are unrelated, unless both clients consent after receiving full disclosure.

The Court of Appeal said that the bright line rule appeared "at first glance" to apply because Statesman was still a client of the Law Firm when Matco commenced planning its legal strategy in the oppression action. The Court of Appeal, however, emphasized the limitations of the bright line rule at paragraph 22 of its reasons:

[The bright line rule] applies only where the immediate interests of clients are directly adverse in the matters on which the client is acting. It applies only when clients are adverse in legal interest. It cannot be successfully raised by a party who seeks to abuse it by relying on it in a manner that is tactical rather than principled. And, most importantly for the purposes of this appeal, the bright line rule only applies in circumstances where it is reasonable for a client to expect that its law firm will not act against it in unrelated matters. (emphasis in original)

The Court of Appeal considered the following factors identified by the Supreme Court of Canada in Canadian National Railway Co v McKercher LLP, 2013 SCC 39 ("McKercher") in analysing whether a client could reasonably expect the law firm's exclusive loyalty:

  • Nature of the relationship between law firm and client – Matco had been a client of the Law Firm for over 25 years, whereas the Law Firm had only represented Statesman (through the Partnership) for the builders' lien dispute.
  • Terms of the retainer – The retainer with the General Partner was for the limited purpose of the builders' lien dispute, and was accepted by the Law Firm only on the express condition that it could act for Matco in any future dispute between the parties. By the time Matco launched the oppression action (July 8, 2014), Statesman had already terminated the limited retainer (Statesman's request for termination in spring 2014, and the representation by the Law Firm actually ending on June 24, 2014).
  • Types of matters involved – The "true substance" of the builders' lien dispute was unrelated to the oppression action.

The Court of Appeal held that the oppression action was "exactly the kind [of dispute] that could have been anticipated as this joint venture was [Matco's and Statesman's] only involvement". Through the waiver in the limited retainer, Statesman had "expressly consented in advance" to the Law Firm acting for Matco in any action arising from the joint venture. The Court of Appeal held that Statesman could not have reasonably expected the Law Firm to owe it an exclusive duty of loyalty in respect of the oppression action. The bright line rule did not apply.

In the absence of the bright line rule, there was no evidence that the Law Firm's representation of Statesman on the builders' lien matter was materially and adversely affected during the "short overlap" between Matco first discussing the oppression action with the Law Firm, and the termination of Statesman's limited retainer.

b. Duty of Commitment to Client's Cause

The Court of Appeal held that the Law Firm did not breach its duty of commitment to Statesman's cause because it was Statesman who had terminated the retainer.

c. Duty of Candour

The Court of Appeal held that it "cannot be viewed as a surprise" that the Law Firm would act for Matco in the oppression action. Statesman knew or ought to have known that there was a dispute with Matco, and it had provided its consent to the Law Firm acting for Matco in the future. The Law Firm did not breach its duty to be candid to Statesman.

d. Appropriate Remedy if Duty of Loyalty Breached

The Court of Appeal stated, in obiter, that even if the Law Firm had breached its duty of loyalty, disqualification of the Law Firm would not have been the appropriate remedy. There were no concerns about a risk of improper use of confidential information, and the Law Firm had not represented Statesman at the time that the oppression action was actually launched.

The Court of Appeal reversed the case management judge's apparent conclusion that disqualification was necessary to maintain the repute of the administration of justice, stating at paragraph 34 of its reasons:

Considering that [Statesman] delayed over a year in bringing the application to disqualify [the Law Firm] as counsel, the fact that Matco would be deprived of its counsel of choice with whom it had a longstanding relationship of over 25 years, and the fact that [the Law Firm] believed in good faith that its continued representation of Matco did not contravene any duty of loyalty it may have owed to [Statesman], the only reasonable conclusion is that disqualification was not necessary in this case to protect the integrity and repute of the administration of justice.

IV. Discussion

The Court of Appeal reinforced that the bright line rule is not a hard-and-fast rule to be applied in all circumstances, even when a law firm is representing two parties whose legal interests are directly adverse. Where a client cannot reasonably expect the law firm not to act against it in unrelated matters, the bright line rule does not apply. Although the Supreme Court of Canada in Neil and McKercher held that such cases were the exception, not the rule, the Court of Appeal in Statesman identifies such an exception.

The Court of Appeal's decision tacitly recognizes the realities of modern legal practice where large law firms have a broad roster of clients, and in which lawyers often move from firm to firm. The decision avoids a chilling effect that might have resulted if the Law Firm was forced to abandon its long-term client as the ultimate result of taking a joint retainer that, at the time, had been to both clients' benefit.

At the same time, the Court of Appeal's decision serves as a cautionary tale: It is crucial that a law firm make it clear to joint clients which client will stay with the law firm in the event of a conflict, and which one will need to find new counsel. It is also crucial that law firms communicate to their clients the possibility of a conflict of interest at the earliest opportunity. Joint retainers can promote efficiency and access to justice, but must be continually monitored to ensure that the law firm can give both parties its untainted loyalty.

Case Information

Statesman Master Builders Inc v Bennett Jones LLP, 2015 ABCA 142

Docket: 1401-0054-AC

Date of Decision: April 21, 2015

To view original article, please click here.

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 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
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.