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. 

 

Regards,

 

Blair

 

   

Ontario Court ousts Toronto Mayor Rob Ford

Mr. Justice Hackland of the Ontario Superior Court of Justice has handed down his long-awaited decision in Mayor Rob Ford's conflict of interest case (Magder v. Ford).  Justice Hackland found that Mr. Ford had contravened section 5 of the Municipal Conflict of Interest Act ("Act") and declared Mr. Ford's seat on Toronto City counsel vacant.  Justice Hackland delivered a well reasoned judgment that is almost certain to be overturned on appeal.

The charge against Mr. Ford had been that he spoke to, and voted on, a matter on February 7, 2012, in which he allegedly had a pecuniary interest.

The case arose when, on August 12, 2010, the City of Toronto Integrity Commissioner, issued a report to Toronto city council concluding that Mr. Ford (then a member of council) had breached the city's code of conduct. The integrity commissioner found that Mr. Ford had used the city of Toronto logo, his status as a councillor and city of Toronto resources to solicit funds for a private football foundation that he had created in his name. The commissioner recommended that council take steps to require Mr. Ford to reimburse $3,150 in donations made by lobbyists and corporate donors to his foundation and to provide confirmation of such reimbursement.

At the city council meeting on August 5, 2010, the commissioner's report and recommendations were initially approved without debate. Later in the meeting, after a city councillor moved for reconsideration, the motion for reconsideration was defeated. Mr. Ford voted on that motion.

Just before the vote, another councillor alerted Mr. Ford to the fact that voting on the motion would put him in a conflict of interest. Mr. Ford ignored the warning.

Notwithstanding the adoption of the report and recommendations, Mr. Ford failed to reimburse the $3,150.
Accordingly, the commissioner brought the matter back to city council in a report dated January 30, 2012.
On the February 7, 2012 date, Mr. Ford spoke against the motion but did not vote on the matter. The effect of the motion was that counsel rescinded its adoption of the integrity commissioner's findings as to Mr. Ford's violation of the code of conduct as well as the repayment obligation.

The applicant, a Toronto voter, subsequently brought the application.

In his decision, Justice Hackland made, among others, the following findings.

The Act applies to a city of Toronto code of conduct violation. He found that section 5(1) of the Act which clearly states that where a member has "any pecuniary interest…in any matter" and is present at a meeting of council he or she is to disclose his or her interest and must neither take part in the discussion or vote on the matter. There is no authority for implying a right to be heard in the face of a statutory provision which specifically denies such a right. In any event, the right to be heard does not have anything to with providing a justification for voting on a matter (rather than speaking) which was what Mr. Ford chose to do in this case.

The judge held that the justification for the section was related to transparency of the decision making process by municipal councillors and invoked the issue of whether the voting public could be confident in the actions and decisions of those we elect to govern.

Justice Hackland also found that the sum of $3,150 was not so insignificant in nature that it did not influence Mr. Ford. While it was not a huge amount of money, Mr. Ford stated in his remarks at council:

"and if it wasn't for this foundation, these kids would not have a chance. And then to ask for me to pay it out of my own pocket personally, there is no sense to this. The money is gone, the money has been spent on football equipment.".

The judge held that in view of such remarks, Mr. Ford's pecuniary interest in the repayment was of significance to him.

The judge also held that the section of the Act was not contravened through inadvertence or an error in judgment. He allowed that the mandatory removal from office for contravening this section was "a very blunt instrument" and quoted Professor David Mullan, Toronto's former Integrity Commissioner, in describing it as a sledgehammer.

While this was not a case that demonstrated corruption, or pecuniary gain on behalf of Mr. Ford, Justice Hackland held that it did not occur through inadvertence because inadvertence involved "oversight in attention or carelessness". To the contrary, Mr. Ford in his cross-examination admitted that he didn't regret acting in the way he did and that he did so deliberately.

Justice Hackland held that Mr. Ford's conduct did not amount to an error in judgment because the caselaw confirms that an error in judgment must have occurred honestly and in good faith. In this context, good faith involves such considerations as whether a reasonable explanation is offered for Mr. Ford's conduct in speaking or voting on the resolution involved in his pecuniary interest. In this case, Mr. Ford has served on city council for 12 years, the last two as mayor. He acknowledged in his cross-examination that he had never read or familiarized himself with the conflict of interest rules, he never attended any briefings on conflict of interest, nor did he read the councillors' handbook which addressed the issue. The judge held that in his view, the evidence of Mr. Ford that he gave little or no consideration to whether he was lawfully entitled to speak or vote on the motion even after he was warned by Ms. Bussin that he was in conflict of interest does not constitute a good faith error in judgment.

Justice Hackland found:
"In view of the respondent's leadership role in ensuring integrity in municipal government, it is difficult to accept an error in judgment defence based essentially on a stubborn sense of entitlement (concerning his football foundation) and a dismissive and confrontational attitude to the Integrity Commissioner and the Code of Conduct. In my opinion, the respondent's actions were characterized by ignorance of the law and the lack of diligence in securing professional advice, amounting to wilful blindness. As such, I find his actions are incompatible with an error in judgment."

While well reasoned, Justice Hackland's decision does not seem to square with the recent decision of the Supreme Court of Canada in upholding the contested federal election in Etobicoke Centre. In that case there was also no allegation of fraud, corruption or illegal practices. The court held that:

"Given the complexity of administering a federal election, the tens of thousands of election workers involved, many of whom have no on-the-job experience and the short time frame for hiring and training them, it is inevitable that administrative mistakes will be made. If elections can be easily annulled on the basis of administrative errors, public confidence in the finality of and legitimacy of election results will be eroded. Only irregularities that affect the result of the election and thereby undermine the integrity of the electoral process are grounds for overturning an election."
In this case, count on Mr. Ford appealing the judgment on the basis that the court held that there is no question of fraud or corruption. He will be able to argue, (relying on the Supreme Court of Canada decision, as well as the obiter of Justice Hackland in referring to Professor Mullan citing a need for reform in the Act) that the citizens of Toronto should not be so negatively effected as to be required to spend hundreds of thousands of dollars, if not more, in a election for mayor.

Regards,

Blair