Law Society of Upper Canada v. DeMerchant, 2017 ONLSTA 5
In this case, the Appeal Division of Ontario's Law Society Tribunal, ordered
the Law Society of Upper Canada (“LSUC”) to pay $650,000 each to Beth
DeMerchant and Darren Sukonick, two lawyers at Torys LLP who were successful in
defending themselves against professional misconduct allegations brought by the LSUC. The LSUC had alleged that the lawyers had
acted in a conflict of interest while working on the sale of Conrad Black’s
Hollinger Group of Companies. Both lawyers have since retired from the practice
of law.
The legal saga lasted 11 years and ended with the Appeal
Division of the Tribunal finding that the hearing should never have taken
the nearly 140 days that it took. The Tribunal found the Law Society bore the lion’s share of
responsibility for its length. The LSUC’s definition of the issues, its
approach to examination and its lack of focus on the legal test for conflicts
of interest were the largest factors in a hearing whose time and costs were
grossly disproportionate to the issues at stake. In the end the
Appeal Division found that approximately 110 hearing days were wasted and were
not necessary.
The LSUC first learned of an issue between Torys and
Hollinger International Inc. from a Globe and Mail article in 2005. It
instituted an investigation into the lawyers' professional conduct. The
allegations included that the lawyers may have acted in a conflict of
interest.
In November of 2008, the LSUC concluded that there had been
a conflict of interest which impacted the lawyers' ability to represent the
legal interests of their clients. The LSUC’s Proceeding Authorization
Committee (“PAC”) then authorized an application for professional
misconduct against the lawyers.
A hearing panel of the LSUC tribunal held that the
proceedings were not unwarranted and that there was a significant public
interest in the issues and that it was appropriate for the LSUC to conduct an
investigation.
These findings were overturned by the Appeal Division in
part. It held that there were multiple issues that both
individually and combined warranted PAC’s decision to commence the
application. There was no evidence of bad faith nor was the application
doomed to fail.
However, the Appeal Division criticized the LSUC harshly on the
conduct of the hearing.
It held that typically allegations of conflict of interest
would, if proven, likely have led to no more of a short suspension. The
LSUC attempted to prove that the lawyers’ conflict had manifested itself in
misjudgments in their work for the corporations that resulted from preferences
for the interests of executives of the corporations. The theory of the
LSUC's case was that the lawyers should have taken steps when working on the transactions
to protect the public companies from exploitation by the executives.
These were serious allegations but importantly did not form part of the legal
test for conflict of interest.
The hearing started on April 26, 2010 and completed on
December 13, 2012, after nearly 140 days of hearing. The hearing panel
found that after the lawyers had presented their expert evidence about general
practice in the corporate bar, the proceedings became unwarranted and the LSUC
should have re-evaluated its case.
On appeal, the Appeal Division found that continuing after
the lawyers’ expert evidence was not the fundamental problem. A valid
legal theory of conflict of interest continued to exist but the problems with the case and
how the LSUC conducted the hearings started long before that.
The Appeal Division found that the time taken by the LSUC to present
its case was unprecedented in the history of LSUC discipline proceedings.
It began with a four day opening statement, conducted cross-examinations of the
lawyers for more than 40 hearing days. It found that the LSUC had acted
unreasonably and caused costs to be wasted throughout the hearing by
disregarding the need for the proceedings to be proportionate to the issues at
stake in their seriousness; failing to focus its evidence in cross-examination
on the test for conflict of interest; conducting argumentative
cross-examinations of unprecedented length and detail that added little to the
analysis and were not justified by the issues at stake in the case; and taking
issue with detailed aspects of the lawyers’ work in a complex and specialized
area of practice with no expert or other evidentiary support.
The tribunal held that it was important to explicitly acknowledge in its reasons the stress the proceedings had put on the lawyers
given the pall that hung over their careers for longer than it should have, the
months they spent in the hearing room dealing with these allegations and the
evident strain of so many days on the witness stand under
cross-examination.
In addition, it found that the LSUC had wasted
costs without reasonable cause throughout the hearing. Its conduct
at the hearing was entirely disproportionate to what was at stake. The
LSUC did not focus on the key elements of the test for conflict of interest.
Cross-examinations focused on unimportant details, were repetitive and
argumentative.
In calculating the costs, the Appeal Division found that the
lawyers should be awarded costs of approximately 110 hearing days.
Counsel representing the lawyers had practiced for over 20 years and the hourly
rate for lawyers with that level of experience under the LSUC’s current tariff
was $350. This resulted in an award of $650,000 each (as opposed to the
$1.8 million that they were seeking). The LSUC also awarded the
lawyers costs of the appeal of $17,500.
In March of 2017, the lawyers commenced an action against
the LSUC claiming over $2 million in damages for misfeasance in public office,
negligent investigation, abuse of process, malicious prosecution and
libel. There will be much to follow on this case.
Regards,
Blair
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