Friday, July 12, 2013

Law Firm Gets Knuckles Rapped For Acting Against Client

McKercher LLP ("McKercher"), a Saskatchewan law firm, was acting for Canadian National Railway Company ("CN") on several matters when, without CN's consent or knowledge, it accepted a retainer to act for the plaintiff in a $1.75 billion class action against CN.  CN first learned that McKercher was acting against it in the class action when it was served with the statement of claim.  McKercher hastily terminated all retainers that the firm had with CN, except for one which CN terminated.  CN applied to the Saskatchewan Court of Queen's Bench to remove McKercher as the lawyers of record in the class action due to the apparent conflict of interest.  The motion judge granted the application and disqualified McKercher.  The Saskatchewan Court of Appeal overturned the motion judge's order.  
On appeal to the Supreme Court of Canada, the court allowed the appeal and ordered that the case be remitted back to the Court of Queen's Bench for determination of an appropriate remedy.  
The Supreme Court, in a unanimous decision, with reasons by Chief Justice McLachlin, held that
a lawyer's duty of loyalty to a client has three "salient dimensions": a duty to avoid conflicting interests; a duty of commitment to the client's cause; and a duty of candour.
The duty to avoid conflicts is mainly concerned with protecting a former or current client's confidential information and with ensuring the effective representation of a current client.  
The duty of commitment provides that, subject to law society rules, a lawyer should not summarily drop a client simply to avoid conflicts of interest.  
The duty of candour requires the lawyer to disclose any factors relevant to his ability to provide effective representation to the client.  A lawyer should advise an existing client before accepting a retainer that will require him to act against the client.
In the case of R. v. Neil, the Supreme Court of Canada held that the general "bright line rule" is that a lawyer (and a law firm) may not concurrently represent clients adverse in interest without first obtaining their consent.  The rule cannot be rebutted or otherwise attenuated and it applies to concurrent representation in both related and unrelated matters.   
However, the rule is limited in scope.  It applies only where the immediate interest of clients are directly adverse in the matters on which the lawyer is acting and it applies only to legal interests, as opposed to commercial or strategic interests.  It cannot be raised tactically.  It does not apply in circumstances where it is unreasonable for a client to expect that a law firm will not act against it in unrelated matters.
In this case, McKercher's conduct fell squarely within the scope of the bright line rule.  CN did not tactically abuse the bright line rule.  It was reasonable in the circumstances for CN to have expected that McKercher would not concurrently represent a party suing it for $1.75 billion.   McKercher's failure to obtain CN's consent before accepting the class action retainer breached the bright line rule.  McKercher's termination of its retainers with CN breached its duty of commitment.  McKercher's failure to advise CN of its intention to represent the class breached its duty of candour.  However, McKercher possessed no relevant confidential information that could be used to prejudice CN in the class action proceedings.  
Justice McLachlin held that disqualification of a law firm may be required to avoid the risk of improper use of confidential information, to avoid the risk of impaired representation, or to maintain the repute of the administration of justice.  In this case, the only concern that would warrant disqualification is the protection of the repute of the administration of justice. 
While a breach of the bright line rule normally attracts the remedy of disqualification, factors that may militate against it must be considered.  These factors include:
1.     behaviour disentitling the complaining party from seeking disqualification of counsel, such as delay in bringing the motion;
2.    significant prejudice to the new client's interest in retaining its counsel of choice, and that party's ability to retain new counsel; and
3.    the fact that the law firm accepted the conflicting retainer in good faith, reasonably believing that the concurrent representation fell beyond the scope of the bright line rule or applicable law society rules.  
Justice McLachlin held that as the motion judge did not have the benefit of the Supreme Court's reasons, the matter should be remitted to that judge for re-determination of the appropriate remedy. 

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