IN THE SUPREME COURT OF CANADA (ON APPEAL FROM THE SASKATCHEWAN COURT OF APPEAL) - and - McKERCHER LLP AND GORDON WALLACE. - and -

Transcription

1 B E T W E E N: IN THE SUPREME COURT OF CANADA (ON APPEAL FROM THE SASKATCHEWAN COURT OF APPEAL) SCC File No.: CANADIAN NATIONAL RAILWAY APPLICANT (RESPONDENT) - and - McKERCHER LLP AND GORDON WALLACE RESPONDENTS (APPELLANTS) - and - CANADIAN BAR ASSOCIATION AND FEDERATION OF LAW SOCIETIES OF CANADA INTERVENERS FACTUM OF THE RESPONDENTS McKERCHER LLP AND GORDON WALLACE (Pursuant to Rule 42 of the Rules of the Supreme Court of Canada) HEENAN BLAIKIE LLP HEENAN BLAIKIE LLP 333 Bay Street, Suite 2900, PO Box Metcalfe Street, Suite 300 Toronto, Ontario, M5H 2T4 Ottawa, Ontario, K1P 6L5 Gavin MacKenzie Judith Parisien Tel: Tel: Fax: Fax: gmackenzie@heenan.ca jparisien@heenan.ca Counsel for the Respondents, McKercher LLP and Gordon Wallace Ottawa Agent for the Counsel for the Respondents

2 TO : REGISTRAR OF THE SUPREME COURT OF CANADA TO: MACPHERSON LESLIE & TYERMAN LLP 1500, nd Street East Saskatoon, Saskatchewan, S7K 5T6 Douglas C. Hodson, Q.C. Tel: Fax: dhodson@mlt.com Vanessa Monar Enweani Fax: vmenweani@mlt.com C. Ryan Lepage Tel: Fax: Counsel for the Appellant, Canadian National Railway McMILLAN LLP O Connor Street Ottawa, Ontario, K1P 6L2 Jeffrey W. Beedell Tel: Fax: jeff.beedell@mcmillan.ca Ottawa Agent for Counsel for the Appellant, Canadian National Railway Malcolm M. Mercer Eric S. Block Brendan Brammall McCarthy Tétrault LLP Suite 5300, T-D Bank Tower Toronto-Dominion Centre Toronto, Ontario M5K 1E6 Telephone: (416) Facsimile: (416) Counsel for the Intervener, Canadian Bar Association Henry S. Brown, Q.C. Gowling Lafleur Henderson LLP Elgin St P.O. Box 466, Stn "D" Ottawa, Ontario K1P 1C3 Telephone: (613) Facsimile: (613) henry.brown@gowlings.com Ottawa Agent for the Intervener, Canadian Bar Association

3 John J. L. Hunter, Q.C. Hunter Litigation Chambers Law Corporation Georgia St. W. Vancouver, British Columbia V6E 4H1 Telephone: (604) Facsimile: (604) Counsel for the Intervener, Federation of Law Societies of Canada Marie-France Major Supreme Advocacy LLP 397 Gladstone Avenue, Suite1 Ottawa, Ontario K2P 0Y9 Telephone: (613) Ext: 102 Facsimile: (613) Ottawa Agent for the Intervener, Federation of Law Societies of Canada

4 TABLE OF CONTENTS PART I STATEMENT OF FACTS... 1 A. Overview... 1 B. The Facts... 3 PART II QUESTIONS IN ISSUE... 5 PART III STATEMENT OF ARGUMENT... 6 (A) The Neil general rule permits a lawyer to act against a current client on unrelated matters when there is no substantial risk of material and adverse effect on client representation... 6 (B) The Neil Case (C) The Rule in Other Jurisdictions (D) CN s Position on Confidential Information (E) The Professional Litigant Exception (F) The Appropriate Remedy PART IV COSTS PART V ORDER REQUESTED PART VI LIST OF AUTHORITIES PART VII STATUTES, REGULATIONS AND RULES PART VIII... 30

5 1 PART I STATEMENT OF FACTS A. Overview 1. This appeal concerns the nature, scope, and limits of the lawyer s professional obligation of loyalty and the principles defining disqualifying conflicts of interest. It arises out of an interlocutory motion brought by the Appellant Canadian National Railway ( CN ) to disqualify the Respondent McKercher LLP ( McKercher ) from representing the Respondent Gordon Wallace in a proposed class action against CN and other defendants (the Wallace action ). At the time the Wallace action was commenced, McKercher was also representing CN on a few completely unrelated matters. In the Judgment under appeal, 1 the Saskatchewan Court of Appeal unanimously allowed the Respondents appeal from an order disqualifying McKercher from acting. 2. The Court of Appeal found that McKercher did not possess any confidential information from CN that was relevant to the Wallace action. The Court also found that CN is a professional litigant within the meaning of an express exception to the general rule in R.v. Neil 2 that lawyers should not act directly adverse to the immediate interests of current clients. The Court found that McKercher had breached its duty of loyalty by not offering to continue to act for CN on certain of the unrelated matters, and its duty of candour by failing to inform CN sooner of its acceptance of the Wallace retainer. It found that these breaches did not justify the extreme remedy of disqualification, which would have denied Mr. Wallace his choice of counsel, and that adequate alternative remedies for these breaches were available to CN. 3. CN submits that it was a breach of McKercher s duty of loyalty to accept Mr. Wallace s retainer to act against CN while it was representing CN on unrelated matters in that the representation offends what CN characterizes as a categorical prohibition 3 in Neil against acting directly adverse to the immediate interests of a law firm s current client. This submission ignores both explicit and implicit exceptions to the general rule in Neil, including the exception recognized there for professional litigants such as CN. 1 Wallace v. Canadian Pacific Railway et al, 2011 SKCA 108, Appellant s Record, Tab 2C [Appeal Judgment]. 2 R. v. Neil, 2002 SCC 70, [2002] 3 S.C.R. 631 [Neil]. 3 Appellant s factum, para. 75 (ii).

6 2 4. This appeal provides this Court with an opportunity to clarify the meaning and scope of the general rule articulated in Neil. At least as it is interpreted by CN, the rule is contrary to the law developed in England and Wales and other Commonwealth countries. 4 The Respondents submit that, properly understood, the general rule in Neil is not a categorical prohibition, but (as both the Chambers Judge and the Court of Appeal in the present case held) is subject to the principle also set out in Neil that there is no conflict of interest in the absence of a substantial risk of material impairment of client representation. This principle engages a consideration of the nature of the client, the nature of the retainers with the client, and whether those retainers are related to the adverse retainer. Where there is no conflict of interest, there is no need for client consent. 5. This appeal also provides this Court with an opportunity to clarify the meaning and scope of the professional litigant exception to the general rule articulated in Neil. In Neil this Court expressly recognized that such professional litigants as governments and chartered banks fall within a separate category of clients who are not subject to the general rule in all cases. As the client in Neil was a vulnerable individual it was unnecessary for the Court to elaborate on the meaning and extent of this exception. There are compelling reasons to differentiate between individual clients who are unsophisticated or vulnerable (as in Neil) and clients who are large, sophisticated corporations that retain multiple outside law firms. These reasons include among others the protection of a party s right to be represented by counsel of choice and the protection of the independence of the legal profession. The relationship of dependency and vulnerability that characterizes many lawyer-client relationships does not exist in the case of clients such as CN. Such clients are positioned to negotiate as a term of their retainer with a law firm a condition that the firm not act against the client on unrelated matters a term that did not form part of CN s retainers with McKercher. 6. CN submits that the only appropriate remedy for the breach of the duty it alleges is an order disqualifying McKercher from continuing to act for Mr. Wallace in the Wallace action. The Respondents submit that the extreme remedy of disqualification is unjustified, particularly in light of the facts that (i) even if this Court interprets the general rule in Neil to be applicable in this case McKercher has no confidential information relevant to the matter; (ii) McKercher no 4 See below, paras. 33 to 36.

7 3 longer acts for CN, and accordingly disqualification is unnecessary to protect CN s interest in a continuing solicitor-client relationship; and (iii) disqualification would not remedy the alleged breach of duty in any event. B. The Facts 7. CN is an exceptionally sophisticated legal client. It is one of the largest corporations in Canada, and generated over eight billion dollars of revenue in It requires a broad array of legal services. 5 It is involved in up to 50 new lawsuits a year in Canada. CN employs 23 inhouse counsel, and regularly consults 50 to 60 outside law firms across Canada. 6 It pays many millions of dollars in legal fees to its outside counsel every year. Both the Chambers Judge and the Court of Appeal found that CN is a professional litigant as that term is used in Neil McKercher had acted for CN on certain unrelated matters since 1999 or earlier. Although CN claimed that McKercher was CN s go to firm for litigation in Saskatchewan, the Court of Appeal found that was clearly not the case. 8 McKercher handled very little of CN s litigation. In fact, of the 22 litigation files in Saskatchewan for which counsel could be identified in the previous ten years, McKercher was counsel on only one McKercher billed CN a total of $68,462 in the five-year period from 2004 to This figure represents less than one-third of the fees paid to Saskatchewan law firms during that time period, and approximately 0.1 percent of the annual fees paid by CN to outside legal counsel On December Mr. Wallace commenced a proposed class action against the Canadian Pacific Railway, CN, Her Majesty the Queen as represented by the Minister of Transport, the Canadian Transportation Commission, the National Transportation Agency, and the Canadian Transportation Agency. He alleged overcharging of Western farmers for grain transportation. McKercher is counsel of record for Mr. Wallace. 5 Appeal Judgment, para Appeal Judgment, para Wallace v. Canadian Pacific Railway et al, 2009 SKQB 369 [Judgment of Popescul, J.] Appellant s Record, Tab 2A, para. 53; Appeal Judgment, para Appeal Judgment, para Appeal Judgment, paras. 9, 78, Appeal Judgment, para. 7.

8 4 11. The Court of Appeal found that McKercher accepted the retainer from Mr. Wallace at a time when McKercher was representing CN on the following matters: 11 (a) (b) (c) a personal injury defence that had been dormant for several years; a real estate conveyancing file; and a Companies Creditors Arrangements Act, R.S.C. 1985, c. C-36 matter that was substantially completed (the CCAA matter ). Also, two McKercher partners were registered attorneys for service of documents on CN in Saskatchewan. 12. These matters were factually, legally, and strategically unrelated to the Wallace action. There was no suggestion that McKercher had ever acted for CN in a class action or in a matter involving the regulation of freight rates. In this Court CN concedes that there is no factual connection between any of the matters on which CN retained McKercher and the Wallace action (and that, accordingly, the rebuttable presumption in MacDonald Estate v. Martin 12 that confidential information relevant to the new matter has been imparted is inapplicable) There were no written retainer agreements between CN and McKercher. Although CN claimed that it does not permit its outside counsel to act against it in unrelated matters, 14 CN at no time asked that such a term should form part of any of McKercher s retainers or communicated any such expectation to McKercher Contrary to the Appellant s submission this is not a case in which a law firm stopped acting for a client in order to accept a retainer to act against that client. 16 McKercher continued to act for CN while acting for Mr. Wallace until shortly before 17 or shortly after 18 the Wallace 11 Appeal Judgment, paras MacDonald Estate v. Martin, [1990] 3 S.C.R [MacDonald Estate]. 13 Appellant s factum, paras CN contends that despite the absence of any factual connection between the matters on which it was retained and the present matter, McKercher acquired information about CN s operations, risk tolerance, and litigation strategy that may rise to the level of confidential information, and that this may be an additional basis for the Court to hold that McKercher breached its duty of loyalty. This argument is addressed at paras. 40 to 46 below. 14 Appeal Judgment, para Appeal Judgment, paras. 21, See, for example, Toddglen Construction Ltd. v. Concord Adex Developments Corp., [2004] O.J. No (QL) (S. Ct. Master). 17 In the personal injury action: see Appeal Judgment, para. 12.

9 5 action was commenced. On February , several weeks after the Wallace action was commenced and notice of the action was received by CN, the lawyer at McKercher who was responsible for the real estate matter wrote to ask whether CN wanted McKercher to continue to act for CN on that matter. CN instructed McKercher to transfer the file to another Saskatchewan firm, MacPherson, Leslie & Tyerman LLP. Although McKercher did not make the same request of CN in the other matters, as the Court of Appeal found: given the material filed by CN, it would not have granted consent in any event even if McKercher had informed it of the Wallace claim in a timely matter. 19 Although it would have been preferable if McKercher had handled the other matters in the way it handled the real estate matter, the reality remains that CN did not want McKercher to continue to act for it after the Wallace action was commenced. 15. The Chambers Judge ordered that McKercher be disqualified from acting in the Wallace action. The Court of Appeal overturned the decision of the Chambers Judge, finding that McKercher did not possess confidential information and that CN s consent to adverse representation should be implied. The Court of Appeal found that McKercher breached its duties of loyalty and candour, but that the extreme remedy of disqualification was neither required nor appropriate. PART II QUESTIONS IN ISSUE 16. The Respondents argue that: (a) (b) The Court of Appeal was correct to hold that the Neil unrelated matter rule (that a law firm should not act directly adverse to the immediate interests of another client even on an unrelated matter) is not a categorical prohibition as CN contends, but rather is a general rule that is qualified, among other things, by the principle that there is no conflict of interest in the absence of a substantial risk that the law firm s representation of its client on the matters on which it is acting will be materially and adversely affected by its representation of its other client. The Court of Appeal was correct to hold that (i) CN is a professional litigant within the meaning of an exception to the Neil unrelated matter rule, and (ii) in the absence of an agreement between the parties, or evidence that the CN had communicated to McKercher an expectation that the firm would not act against 18 In the other matters: see Appeal Judgement, paras Appeal Judgment, para. 101.

10 6 CN on unrelated matters, CN may be taken to have impliedly consented to such an adverse representation. (c) PART III The Court of Appeal was correct to hold that as (i) McKercher has no confidential information from CN that is relevant to the present matter, (ii) there is no continuing lawyer-client relationship between McKercher and CN, and (iii) because disqualification would not remedy any alleged breach of duty in any event, it is neither necessary nor appropriate to deprive Mr. Wallace and the Western Canadian grain farmers of their choice of counsel by resorting to the extreme remedy of disqualification. STATEMENT OF ARGUMENT (A) The Neil general rule permits a lawyer to act against a current client on unrelated matters when there is no substantial risk of material and adverse effect on client representation 17. This Court in Neil expressed the general rule as follows: The bright line is provided by the general rule that a lawyer may not represent 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 (and preferably independent legal advice), and the lawyer reasonably believes that he or she is able to represent each client without adversely affecting the other. 20 (Emphasis in original.) 18. The Court immediately continued as follows: 30. The Venkatraman law firm was bound by this general prohibition to avoid acting contrary to the interest of the appellant, a current client, who was a highly vulnerable litigant in need of all the help and reassurance he could legitimately get. 3. Breaches of the Duty of Loyalty 31. In my view the Venkatraman law firm, and Lazin in particular, put themselves in a position where the duties they undertook to other clients conflicted with the duty of loyalty which they owed to the appellant. I adopt, in this respect, the notion of a conflict in 121 of the Restatement Third, The Law Governing Lawyers (2000), vol. 2, at pp , as a substantial risk that the lawyer s representation of the client would be materially and adversely affected by the lawyer s own interests 20 Neil, at para. 29.

11 7 or by the lawyer s duties to another current client, a former, client, or a third person In Strother v Canada Inc. 22, this Court clarified the purpose of the bright line rule in such a way as to reconcile the rule with the substantial risk principle: the primary function of the bright line rule has to do with the lawyer s duty to avoid conflicts of interest that impair the respective representation of the interest of his or her concurrent clients whether in litigation or other matters In the wake of Neil, the Canadian Bar Association established a Task Force on Conflicts of Interest (the Task Force ). The Task Force consisted of 17 prominent lawyers. The mandate of the Task Force was to review the law with respect to conflicts of interest focusing on the lawyer-client relationship, and to make recommendations for the guidance of the profession. The Task Force issued a Report and Recommendations (the Task Force Report ) in August 2008 following many thousands of volunteer hours and after receiving input from hundreds of members of the profession who responded to consultation papers. 24 The Task Force also conducted meetings across the country to obtain the input and views of the profession and experts on the difficult issues surrounding conflicts of interest. 25 The recommendations of the Task Force were adopted by the Canadian Bar Association at its annual Mid-Winter Meeting in Lake Louise on February 21 and 22, 2009 for inclusion in the Canadian Bar Association Model Code of Professional Conduct. 21. The Task Force Report pointed out the apparent conflict between the substantial risk principle (adopted in Neil at paragraph 31) and the unrelated matter rule (adopted in Neil at para. 29). It went on to propose a principled method for resolving the apparent conflict: We therefore conclude that the Unrelated Matter Rule and the Substantial Risk Principle are reconcilable. If there is a substantial risk that the lawyer s representation of the current client would be materially 21 Neil, at paras Strother v Canada Inc., 2007 SCC 24, [2007] 2 S.C.R. 177 [Strother]. 23 Strother, at para. 58, emphasis added. 24 Canadian Bar Association Task Force on Conflicts of Interest, Conflicts of Interest: Final Report, Recommendations and Toolkit, (Ontario: Canadian Bar Association, 2008) [Task Force Report]. The Task Force report is available online at

12 8 and adversely affected by the matter, the lawyer may not act, whether or not the matters are unrelated.. Accordingly, we conclude that the appropriate interpretation of Neil and Strother (which also reconciles the minority reasons in Strother) is that, absent proper consent, a lawyer may not act directly adverse to the immediate interests of a current client unless the lawyer is able to demonstrate that there is no substantial risk that the lawyer s representation of the current client would be materially and adversely affected by the new unrelated matter The relevant portion of the specific amendment to Chapter V of the Model Code of Professional Conduct, adopted by the Canadian Bar Association in 2009 is as follows: 27 Chapter V - Impartiality and Conflict of Interest Between Clients Rule 1. The lawyer shall not advise or represent both sides of a dispute and, except after adequate disclosure to and with the consent of the clients or prospective clients, preferably after receiving independent legal advice, shall not act or continue to act in a matter when there is a conflicting interest. 2. The lawyer may act in a matter which is adverse to the interests of a current client provided that: (a) (b) the matter is unrelated to any matter in which the lawyer is acting for the current client; and no conflicting interest is present. Commentary Guiding Principles 1. A conflicting interest is an interest which gives rise to substantial risk that the lawyer s representation of the client would be materially and adversely affected by the lawyer s own interests or by the lawyer s duties to another current client, a former client, or a third person. Canadian Bar Association, Code of Professional Conduct 26 Task Force Report, p Canadian Bar Association, Code of Professional Conduct, Chapter V.

13 9 23. The substantial risk principle is consistent with the Law Society of Saskatchewan s Code of Professional Conduct as it was at the material time. The Law Society of Saskatchewan did not adopt a narrow interpretation of the Neil general rule, and did not prohibit lawyers from acting against current clients in the absence of an adverse effect upon client representation. 24. While this Court is not bound by codes of professional conduct, this Court recognized in MacDonald Estate that an expression of a professional standard in a code of ethics relating to a matter before the court should be considered an important statement of public policy Both the Chambers Judge and the Court of Appeal found that the general rule contains several important qualifications. They accepted the formulation of the Task Force Report (based on paragraph 31 of Neil), which permits adverse representation on unrelated matters provided there is no substantial risk that the lawyer's representation of the current client would be materially and adversely affected by the new unrelated matter. 29 Accordingly both the degree of risk of the potential harm and the materiality of the potential harm must be assessed before one may reliably conclude that the Neil bright line has been crossed. The Respondents submit that the Chambers Judge and Court of Appeal were correct to hold that the general rule is qualified by the substantial risk principle. The hallmark of a conflict of interest is whether there is a real risk of material impairment of client representation. 26. In determining whether there is a substantial risk of material impairment of client representation relevant factors include the nature of the client, the nature of the retainers of the client, and whether those retainers are related to the adverse retainer. 27. In the present case, CN has not demonstrated any relationship between the retainers. There are no legal, factual, or strategic linkages between the retainer with Mr. Wallace and the previous CN retainers. They are truly unrelated matters. There is no reason that CN s representation by McKercher on the real estate conveyancing matter, the long dormant personal injury matter, the substantially completed CCAA matter, or the powers of attorney for service matter would be adversely affected by that firm s representation of Mr. Wallace in the Wallace action. Whether the acceptance of a new retainer will have an adverse effect on representation 28 MacDonald Estate, at p Judgment of Popescul, J., at para. 43, quoting the Task Force Report at p. 44; Appeal Judgment at paras

14 10 must be determined objectively, not on the client s claimed subjective reaction. There is no disqualifying conflict of interest in the absence of a substantial risk of an adverse effect on client representation. (B) The Neil Case 28. Neil involved two independent conflicts. Binnie J. described the first conflict as the law firm s attempt to act simultaneously for both the appellant and his eventual co-accused in the Canada Trust charges, Helen Lambert. They were clearly adverse in interest. 30 Court clearly meant that they were adverse in interest in respect of the same matter. By this, this 29. When discussing the second conflict, the Doblanko charges, Binnie, J. pointed out that the retainers were related: It was contended that the Doblanko and Canada Trust cases were wholly unrelated in the sense that Lazin could not have obtained in the Doblanko mandate confidential information that would be relevant in the Canada Trust mandate. This, as stated, is not the test of loyalty to an existing client, and it is not entirely true either. While the two cases were wholly independent of each other in terms of their facts, Lambert s cutthroat defence was helped by piling up the allegations of dishonest conduct in different matters by different complainants in a way that would make it easier for the jury to consider her a victim rather than a perpetrator. The linkage was thus strategic The above paragraph clarifies the opening comment in paragraph 3 of Neil that: [t]he Doblanko mandate, though factually and legally unrelated to the Canada Trust matters, was adverse to the appellant s interest. The law firm, as fiduciary, could not serve two masters at the same time. 32 The Respondents submit that the inclusion of unrelated matters in the general rule is restricted to this context. 31. If the unrelated matter rule was not intended to be restricted to the context suggested above, then it is evident that that portion of the general rule was made in obiter, as discussed further below. The two conflict situations were both related to the Neil retainer, a point conceded by both Mr. Neil s counsel and counsel for the Attorney General of Alberta in 30 Neil, at para Neil, at para Neil, at para. 3.

15 11 argument. The issue of adverse representation in unrelated matters was not before the Court, and the complex considerations germane to that issue were not fully developed in the decision. The Neil case, an appeal as of right under s. 691 of the Criminal Code, R.S.C. 1985, c. C-46, was decided by a five member Court. The parties made no submissions on the unrelated matter rule in their facta as it did not arise on the facts; the issue between the parties was whether the remedy of a stay should be granted. No one sought leave to intervene in Neil to make submissions on the unrelated matter rule. (C) The Rule in Other Jurisdictions 32. It is important that this Court keep in mind that one of the important purposes of conflicts analysis is to ensure that choice of counsel is not denied unnecessarily. 33. In England and Wales, a breach of the duty of loyalty is triggered only where the other party is adverse in interest in respect of the same or a related matter. The proper limit of the principle was established by the Court of Appeal in Marks and Spencer Group PLC v. Freshfields Bruckhaus Deringer: 33 Mr Brindle submits that Bolkiah, [Bolkiah v. KPMG, [1999] 2 A.C. 222 (H.L.)], despite the generality of Lord Millett's terminology, was a "same transaction" case, as was an earlier case Bristol and West Building Society v Mothew [1998] Ch 1 where Millett LJ (as he then was) had made a general statement to the same effect as that I have cited from Bolkiah at 234H. Mr Brindle submits that the principle cannot extend beyond the same transaction situation. He gave examples which indicate situations with no possible conflict of interest arising from the fact that a solicitor's firm, which may of course have a number of branches spread around the country and abroad, is in one transaction acting contrary to a client for whom it acts on another. I would accept that there must be a degree of relationship between the two transactions, but I am quite unable to accept the submission that the language used by Lord Millett in Bolkiah and the comparative strictness, with respect, with which he has stated the principles in this area of the law is confined to same transaction cases. Moreover, while there must be limits upon the application of the principle, it is, in my judgment, a sound one and I accept the submission of Mr MacLean on that point. The court must consider what the 33 Marks and Spencer Group PLC v. Freshfields Bruckhaus Deringer, [2004] EWCA Civ 741 at paras

16 12 relationship is between the two transactions concerned. added] [Emphasis 34. Charles Hollander Q.C., the author of the leading English text on conflicts of interest in the legal profession, has written that in considering concurrent client conflict issues the analysis must focus on whether there is a conflict between the lawyer s two fiduciary relationships: If there is no reasonable relationship between the matters it is difficult to see how there will be a breach of fiduciary duty. 34 In considering the alternative (which is advanced by CN in the present case, based on a narrow interpretation of paragraph 29 of Neil) of categorically prohibiting lawyers and law firms from acting against current clients even in unrelated matters, Hollander has written that it is not easy to understand why such a restrictive rule is necessary or beneficial This is also the position in Australia, as described by Sandro Goubran in his article Conflicts of Duty: The Perennial Lawyers Tale A Comparative Study of the Law in England and Australia : Common to each kind of conflict, whether present or former client conflict, is that the matters which underlie an injunction application must be the same or closely related and that the clients must have adverse interests. These requirements, described in this article as connecting factors, are often overlooked in commentaries on this subject. This may be because courts in England and Australia have described the connecting factors in different ways. Thus, the weight of authority in both England and Australia supports the view that a connection is necessary, although the language is not settled. Examples of the judicial insistence that there must be some form of connection between the underlying matters abound in the law. In Australian Liquor Marketers Ptd Ltd v Tasman Liquor Traders Pty Ltd, a firm acting in a preference action in Queensland for recovery of a small debt on behalf of a client was also instructed in proceedings in Victoria against the same client where it was alleged that the client had repudiated a business sale agreement. Habersberger J. held that the two cases were 34 Charles Hollander Q.C. and Simon Salzedo Q.C., Conflicts of Interest, 4 th ed. (United Kingdom: Sweet & Maxwell, 2011) at 60 [Hollander Conflicts]. 35 Hollander Conflicts, at p. 62.

17 13 truly unrelated and consequently refused to restrain the firm from acting in the Victorian proceedings In Fordham v Legal Practitioners Complaints Committee, 37 Malcolm, C.J., observed that: The rule not only prevents the use of knowledge or information gained from the client during the course of the retainer, but also prevents the assumption of a position hostile to the client concerning the same matter. [T]he extension to any related matter is both logical and consistent with the public policy which gives rise to the duty of professional loyalty. In the context of loyalty it is the establishment of the hostile relationship against the client in relation to the same or related matter which is the breach of professional duty. 37. As the Manitoba Court of Appeal recognized in a case involving the Canadian Pacific Railway, the law in Canada has historically been to the same effect: Although it may not be politic to do so, there is nothing wrong with a lawyer acting for and against a client at the same time so long as there is no connection between the matters being litigated and the lawyer has not been given privileged information by the client concerning the case in which he is acting against the client. It is not uncommon for this to happen where the client is large and involved in different endeavours. It could happen in the case of CPR. A lawyer acting for CPR in a suit over a right-of-way might accept instructions to sue CPR for damages alleged to arise from an accident involving a CPR train. CPR could, of course, terminate the lawyer's retainer in the right-of-way dispute, but it could not stop the lawyer acting against it in the other matter without identifying the nature of the privileged information which it alleges the lawyer has and its relevance to the suit arising from the accident The Respondents submit that this is also the proper position in Canada today, at least insofar as clients such as CPR and CN are concerned. Neil, properly understood, does not create a categorical prohibition against law firms acting adversely to the interests of other clients, as CN contends. The modifiers directly (adverse) and immediate (interests) require lawyers to engage in a balancing exercise in applying this Court s test to particular circumstances; they make what would otherwise be an absolute and inflexible principle a practical and workable one. 36 Sandro Goubran, Conflicts of Duty: The Perennial Lawyers Tale A Comparative Study of the Law in England and Australia, (2006) 30 Melb. Univ. L.R. 88 at pp (emphasis added). 37 (1997), 18 W.A.R Canadian Pacfic Railway v. Aikins, MacAulay & Thorvaldson, [1998] 6 WWR 351 at para. 31 [Canadian Pacific Railway].

18 14 Moreover, this Court s characterization in Neil of the unrelated matter rule as a general rule makes it clear that exceptions will be recognized. 39. An application of the unrelated matter rule that treats the rule as a categorical prohibition would extend the rule against conflicts of interest beyond the boundaries necessary to protect client interests and public confidence in the integrity of the administration of justice and would unnecessarily compromise a party s prima facie right to be represented by counsel of choice. A categorical prohibition would inhibit access to justice particularly in concentrated specialized markets and in communities with fewer lawyers, as the current case illustrates: a categorical prohibition would have a disproportionate effect in a province such as Saskatchewan, where there are either no or few national firms or specialized litigation boutiques. A categorical prohibition against acting against a current client that is a large corporation would impair the efficient administration of justice. (D) CN s Position on Confidential Information 40. CN contends that despite the absence of any factual connection between the matters on which McKercher was retained by it and Mr. Wallace, McKercher acquired information about CN s operations, risk tolerance, and litigation strategy that may rise to the level of confidential information, and that this may be an additional basis for the Court to hold that McKercher breached its duty of loyalty. CN concedes that the rebuttable presumption in MacDonald Estate, whereby if the matters are sufficiently related the Court may presume that relevant confidential information was imparted, is inapplicable in the present case because the matters are unrelated McKercher submits that CN s position should be rejected for the reasons expressed by the Court of Appeal. The Court of Appeal found that the witness CN put forward to testify about this was not forthcoming when invited to connect the supposed confidential information gained over the years by McKercher while acting on the personal injury matter to McKercher s prosecution of the Wallace claim and to elaborate on its effect on CN. He did not elaborate further and declined to answer further Appellant s factum, paras Appeal Judgment, para. 22.

19 The Court of Appeal also found that the evidence of the witness consists of bare and vague assertions of the transfer of confidential information 41 and is no more than a nonspecific, bald assertion of transfer of confidential information devoid of any greater detail. 42 The Court of Appeal found that the witness spoke in generalities, declined to confirm that there was specific transfer of knowledge, even when invited to do so, and he failed to connect any supposed confidential information gained by McKercher to the Wallace claim The Court of Appeal went on to find that the evidence taken as a whole did not show a consistent handling of litigation matters by McKercher such that the cumulative imparting by CN of its litigation strategies might amount to confidential information. McKercher acted as counsel for CN in only one of 22 litigation matters in which counsel for CN could be identified during the period January to the date of the application in this case (i.e., the personal injury matter), and that file appeared to have been dormant for a long time. CN did not meet its onus of establishing that confidential information had been imparted to McKercher and that there was as a result a risk of prejudice to CN if McKercher acted on the Wallace action In coming to this conclusion, the Court of Appeal relied on the decision of the Manitoba Court of Appeal in Canadian Pacific Railway, a relevant passage from which is quoted at paragraph 37 of this factum. That case resulted from a motion in which the Canadian Pacific Railway ( CPR ) sought an order disqualifying its former employee, a regional counsel, who was later employed by a law firm that was suing CPR, on the basis that he possessed confidential information about CPR. The Manitoba Court of Appeal observed as follows: There is a distinction between possessing information that is relevant to the matter at issue and having an understanding of the corporate philosophy of a previous employer. The first scenario can bring about a disqualification because of conflict; the second does not Appeal Judgment, para Appeal Judgment, para Appeal Judgment, para Appeal Judgment, para Canadian Pacific Railway, at para. 26.

20 The Court of Appeal also relied on Walsh v. TRA Co. 46, in which a large corporate party (Sobeys) sought to disqualify a law firm that had formerly acted for it. The Court in Walsh stated as follows: Sobeys is a large business empire. While it is possible that they manage their litigation according to some general principles, the evidence does not satisfy me that they have a confidential litigation strategy which applies to all of its litigation or that any strategy discussed and/or developed during the Goodman & Carr LLP retainer sufficiently relates to the Walshes suit. Litigation strategy depends in large part on the facts and nature of the particular matters in dispute. In this case, Sobeys dispute with the Walshes is discrete and defined by existing facts which surely dictate in large measure its strategy in defending the case McKercher respectfully submits that the Court of Appeal was clearly right to decide on this record that CN had failed to establish that McKercher acquired any confidential information as a result of its retainers by CN that would provide it with an unfair advantage in acting on behalf of Mr. Wallace in the current case. (E) The Professional Litigant Exception 47. In stating the Neil bright line rule, this Court also recognized an important exception to the general rule. This exception was stated as follows: In exceptional cases, consent of the client may be inferred. For example, governments generally accept that private practitioners who do their civil or criminal work will act against them in unrelated matters, and a contrary position in a particular case may, depending on the circumstances, be seen as tactical rather than principled. Chartered banks and entities that could be described as professional litigants may have a similarly broad-minded attitude where the matters are sufficiently unrelated that there is no danger of confidential information being abused. These exceptional cases are explained by the notion of informed consent, express or implied It was unnecessary for the Court in Neil to elaborate on the nature of the professional litigant exception; the Appellant, Mr. Neil, was a vulnerable individual charged with serious 46 Walsh v. TRA Co., 2009 NLTD 9, 283 Nfld. & P.E.I.R. 94 [Walsh]. 47 Walsh, at para Neil, at para. 28.

21 17 criminal offences. 49 The Court recognized, however, that very different considerations must be brought to bear on concurrent client loyalty issues where the client is a large, sophisticated corporation or other institution that employs and retains many lawyers and law firms and is frequently involved in litigation. 50 The present case affords the Court an opportunity to define the scope of the duty of loyalty owed to such professional litigants. 49. The Court in Neil provided some guidance on this issue. The Court suggested that governments and chartered banks and other entities that could be described as professional litigants 51 may fall into this exception to the general rule. The Court did not go on to further define professional litigants. The term itself, and the reference to governments and chartered banks suggests that what the Court had in mind is large corporate and institutional entities that regularly engage in litigation. 50. The Court expressly recognized the risk of expanding the duty of loyalty unnecessarily: [I]t is important to link the duty of loyalty to the policies it is intended to further. An unnecessary expansion of the duty may be as inimical to the proper functioning of the legal system as would its attenuation. The issue always is to determine what rules are sensible and necessary and how best to achieve an appropriate balance among the competing interests As CN correctly acknowledges in its factum on this appeal (para. 78), the duty of loyalty must not be overbroad, or in the air 53, and must adapt both to the realities of modern practice and freedom of contract. 52. The Chambers Judge accepted that CN is a professional litigant, due to its size and scope of activities. 54 The Court of Appeal agreed. 55 CN does not challenge those findings in this Court. The Respondents submit that these findings are correct and should not be disturbed. It is not disputed that CN is a very large and sophisticated entity that regularly engages in litigation and requires legal services on a wide range of matters. It has a large in-house legal department 49 Neil, at para Neil, at para Neil, at para Neil, at para To use the term of the Chief Justice, dissenting, at para. 135 of Strother. 54 Judgment of Popescul, J., para Appeal Judgment, para. 90.

22 18 and engages multiple law firms in Saskatchewan and across Canada. It pays these outside firms tens of millions of dollars a year. CN is not dependent upon McKercher for legal representation, and does not hold a reasonable expectation that McKercher will not act against it in unrelated matters in relation to which it has no relevant confidential information. 53. The Respondents submit that the Court of Appeal was correct to hold that the Chambers Judge failed to give full effect to the nature of CN as a large, sophisticated client that spread its legal services among a number of law firms across Saskatchewan and Canada. The relationship of dependency and vulnerability that characterizes many lawyer-client relationships did not exist in the present case. 54. Regardless of the conceptual underpinnings and rationale of the professional litigant exception to the general rule, if the exception does not apply to the facts of the present application, for all practical purposes, no exception exists. 55. CN submits that the Judgment of the Court of Appeal effectively eliminated the duty to avoid conflicts entirely 56 and that by giving effect to the professional litigant exception the Court of Appeal created a class of clients who can no longer expect protection from conflicts of interest. 57 In fact the Court of Appeal s Judgment fully protects professional litigants rights to be protected against conflicts of interest, based both on the duty of confidentiality and the duty of loyalty. Lawyers have a duty not to act against current or former clients on matters related to matters on which they have acted for such clients. They also have a duty to competently, loyally, and resolutely advance their clients interests in all matters on which they have been engaged. As the Chief Justice wrote in the dissenting opinion in Strother, [t]he lawyer owes the client a duty to act loyally for the client in performing as agreed in the retainer. This manner of viewing a lawyer s duties conforms to the realities of the legal profession and the needs of clients The Respondents submit that the professional litigant exception is grounded in the reasonable expectations of the parties. If the client is a large corporation or institution that 56 Appellant s factum, para Appellant s factum, para Reasons of the Chief Justice, dissenting, in Strother, at paras

23 19 obtains legal advice and services from many law firms it is not objectively reasonable to expect that none of those firms will act adverse to the client s interests even on unrelated matters where there is no danger of confidential information being abused. 57. The reasonableness of the client s expectations must be assessed objectively, not subjectively. A corporation seeking to disqualify a law firm based on an allegation of breach of duty of loyalty will have every incentive to assert an expectation that the law firm would never act against it. Corporate or organizational clients may even have a policy or business practice that they will not retain law firms that act against them. A subjective test, however, would mean that it is up to the client to determine the scope of the lawyer s professional responsibility. That is a matter to be determined by the lawyer and regulated by the lawyer s governing bodies and courts. This point is made in Moffat v. Wetstein: From a tactical perspective, there is some suggestion that Peter Sahagian is of the view that any time a firm which Peat Marwick has retained in the past seeks to represent a party adverse in interest to Peat Marwick the law firm must apply for and receive Peat Marwick's consent, whether the matters are related or not. This is a rather "high handed" attitude and does not reflect the state of the law, and is seemingly more a "business" practice. Perhaps, this motion may be viewed as an attempt to enforce the in-house business rule of Peat Marwick's legal department as opposed to being motivated by a fear of disclosure of confidential information The professional litigant exception can also be explained on the basis of the lack of vulnerability of the client. The duty of loyalty is based in the broad fiduciary duty owed by the lawyer to the client. A touchstone of fiduciary obligations has always been vulnerability. An unsophisticated client who has relied exclusively on one lawyer or law firm is far more vulnerable if that lawyer or law firm should choose to act against it. The same vulnerability does not exist in the case of a sophisticated client that has a large in-house legal department and employs many different outside law firms In fact, large corporate clients such as CN unlike most individual clients and many smaller organizations enjoy considerable bargaining power in negotiating with law firms over the terms of their retainer. Their market power and the technical legal expertise of large 59 Moffat v. Wetstein, [1996] O.J. No (Gen.Div.) at para 136 [Moffat]. 60 McKenna v. Gammon Gold Inc.(2009), 94 O.R. (3d) 735 (Sup. Ct. Just.) at para. 7 [McKenna].

24 20 corporations in-house legal departments give them the capacity to negotiate agreements with outside law firms that prohibit the firms from acting against the corporation in unrelated matters. 61 The fact that CN did not do so with McKercher strongly suggests that it did not have a reasonable expectation that the firm would not act against it in such matters. 60. The professional litigant exception also serves to prevent other mischief. Where a client seeks to disqualify a law firm from acting adverse to the client on an unrelated matter where there is no danger of abuse of confidential information, the spectre is raised of a tactical rather than a principled objection. 61. This Court in Neil expressly referred to this concern in describing the professional litigant exception. The Courts have consistently stated that applications to disqualify lawyers should not be allowed where they are made for tactical reasons. This Court in Neil stated as follows: If a litigant could achieve an undeserved tactical advantage over the opposing party by bringing a disqualification motion or seeking other ethical relief using the integrity of the administration of justice merely as a flag of convenience, fairness of the process would be undermined Courts have often expressed the need to be wary of tactical disqualification applications. As Kyle J. stated in Rayner v. Enright: Concerns have been expressed that motions such as these have become a standard tactic in litigation in recent years. The courts must be vigilant to confine the principle to those cases where a litigant s interests are threatened or at least reasonably appear to be threatened as any expansion of the principle beyond the present guidelines will make the delivery of legal services to the public by law firms of large or medium size extremely difficult. Such is not a concern only for the lawyers; the expense and inconvenience to a litigant required to obtain new counsel cannot be overlooked in assessing the impact of judicial decisions in this area Similarly, in Manville Canada Inc. v. Ladner Downs, Chief Justice Esson of the British Columbia Supreme Court expressed concern: 61 See Christopher J. Whelan and Neta Ziv, Privatizing Professionalism: Client Control of Lawyers Ethics, (2012) 80 Fordham L.R Neil, at para Rayner v. Enright (1993), 20 C.P.C. (3d) 269 (Sask. Q.B.) at para. 7.

25 21 Until very recently, applications to remove lawyers were so rare an event that, at least in this jurisdiction, few judges or lawyers seem to be more than vaguely aware that such a remedy existed. Nor, so far as I am aware, was there any general feeling of discontent on the part of the public arising from the possibility of conflict. But there was and is a rising tide of discontent with the length, complexity and cost of proceedings. Since MacDonald Estate v. Martin, the application to disqualify has become a growth area as it began to do so 20 or 30 years ago in the United States where it seems to have reached the stage of being a common feature of major litigation. No doubt, some of those applications are brought to prevent a risk of real mischief. But can there be any doubt that many are brought simply because an application to disqualify has become a weapon which can be used amongst others to discomfit the opposite party by adding to the length, cost and agony of litigation? There is a further rationale for the professional litigant exception: the professional litigant has sufficient resources and requirements for legal services that it can, by spreading its work around, materially limit an opposing party s choice of counsel. This concept has been described in Moffat as the preemptive prevention of adverse representation. 65 Although that case dealt primarily with confidential information, the concern expressed by the Court applies equally to applications based on alleged breaches of the duty of loyalty. In Moffat, the Court stated: Another troubling aspect with respect to this case is the policy implications of preemptive prevention of adverse representation. It has been shown that Peat Marwick has retained several large Toronto firms with respect to various matters since If Peat Marwick is successful in asserting that the confidential information which is relevant to a matter at hand was its financial structure, litigation philosophy and business practice of which McCarthy Tétrault has been privy given their relationship, it would lead to a practice where large institutional clients such as Peat Marwick could retain a number of mega-firms and disclose information with respect to their financial structure, etc. in order to prevent that firm from acting on a matter adverse to the institutional client, in the future. Such a practice is undesirable because it frustrates the legitimate opportunity of parties who are adverse in interest to retain counsel to represent them in an action against the institutional client. For example, in this case, Peat Marwick has, since 1992, retained over ten of the large and well-known firms in Toronto. If Peat Marwick can establish a conflict with each firm based on such matters as general 64 Manville Canada Inc. v. Ladner Downs (1992), 88 D.L.R. (4 th ) 208 (B.C.S.C.) at para Moffat, at para. 117.

26 22 knowledge of insurance policies, financial structure and litigation philosophy, the plaintiffs will be unable to avail themselves of any of the talent and resources of those firms, with respect to the prosecution of their claim against Peat Marwick A similar concern has been expressed by commentators with respect to the American counterpart of the bright line rule in Neil: The existence of the concurrent conflict rule empowers institutions that are heavy users of legal services over other litigants. These institutions, by employing dozens of law firms, can disqualify many thousands of lawyers from representing parties that are directly adverse to them. In certain submarkets where the number of qualified lawyers is small, strategic disqualification can confer a significant advantage on institutional litigants over smaller adversaries. There is no question that corporate law departments are fully aware of the power manipulation of the conflict rules gives them and strategically refuse to waive conflicts to deny adverse parties their choice of counsel. 67 Broad conflict rules create the danger that they will be manipulated by giant corporate clients to create conflicts of interest among all of the best available lawyers, thus blockading legal talent from potential adversaries In Strother the Chief Justice (dissenting) observed that while our law rightly imposes rigorous fiduciary duties on lawyers it also recognizes the need to ensure that fiduciary obligations remain realistic and meaningful in the face of the realities of modern practice. 69 Those realities include the growth of both major law firms and in-house law departments, increased mobility of lawyers between firms, and the erosion of the exclusivity and stability that characterized most law firms institutional client relationships in the past, largely as a result of the practice of engaging specialized lawyers in many different firms for particular legal services. Institutional clients are likely to be working at any given time with dozens of different law firms on many different matters. 70 On the evidence in the present case, CN is an apt illustration of a reality of modern law practice: that the days when large corporate clients depended almost exclusively on a single outside law firm are largely over. 66 Moffat, at paras Daniel J. Bussel, No Conflict, (2012) 25 Georgetown Journal of Legal Ethics 207 at 223 [Bussel]. 68 Charles W. Wolfram, Modern Legal Ethics (St. Paul, MN: Hornbook, 1986) at Strother, at para Bussel, at pp , n. 24.

27 This potential mischief is addressed through the invocation of the professional litigant exception. 68. A final rationale for the professional litigant exception is based on the fundamental importance of the independence of the bar. If large corporations had an unfettered right, even in the absence of a contractual right, to enjoin every law firm that acts for them from acting against them even on unrelated matters on which the law firm has no relevant confidential information, that would severely impinge not only on the public s right to be represented by counsel of choice but also on the independence of the legal profession. Such clients are entitled to the protection of their confidences and to loyal and conscientious representation on matters on which lawyers are retained. They are not entitled otherwise to prevent those lawyers from undertaking professional obligations to others or to deny adverse parties in unrelated matters access to counsel of their choice. As one American commentator has written: it is more in keeping with the professional ideal of independence that lawyers resist these efforts to extend duties beyond ordinary professional bounds. Nor is it desirable from a systemic or policy point of view to encourage powerful clients to think that they not only engage attorneys, but in some sense hold a proprietary interest in them that extends to precluding their law firm from working for an adversary in an unrelated matter, even though no confidences are threatened and attorney competence or material limitation of either representation is not reasonably in question. An attorney, in the best traditions of the legal profession, is not merely a creature of the client, or wholly subordinate to its will. He is an independent professional, whose obligation of loyalty to the client is fixed by the scope of his retainer, the law, and professional norms It would be inappropriate to infer consent where it is an express term of the retainer that the lawyer will not act against the client even on unrelated matters where there is no danger of confidential information being abused. However, if the whole notion of implied consent could be overridden by an express denial of consent after the lawyer has been retained on the unrelated matter, the professional litigant exception would be meaningless, being replaced by a tactical veto. The Respondents submit that the Court of Appeal was correct to hold that the Chambers Judge erred in finding that implied consent can be vitiated by subsequent withdrawal of consent. 71 Bussel, at pp

28 The Respondents submit that the Court of Appeal was also correct to hold that cases cited by the Chambers Judge have no application as they all refer to situations where consent was expressly refused prior to the date when the other party sought to rely on implied consent. In contrast, the present situation deals with the effectiveness of a retroactive purported repudiation of consent. 71. The Alberta Court of Queen s Bench considered a withdrawal of consent to adverse representation in Alberta Union of Provincial Employees v. United Nurses of Alberta et al. Read, J., found that the retroactive withdrawal of consent could not interrupt the relationship between the law firm and the new client: If the terms of the retainer were, as found by the Board, that AUPE consented to Chivers Carpenter acting for UNA in an adverse interest application, so that Chivers Carpenter could maintain its relationship with UNSA, then the corollary must be that while AUPE could withdraw its consent, it could only do so by withdrawing from the retainer and seeking other counsel for all its files. This it did. There would be no point in Chivers Carpenter seeking AUPE s consent before accepting the retainer, if that consent could be withdrawn in a way that interrupted the relationship between the law firm and UNA CN could withdraw its implied consent to adverse representation; that withdrawal of consent, however, would be effected by terminating its retainer with McKercher and seeking new counsel for its files. It could not thereby interrupt the relationship between McKercher and the new client. 73. In the absence of an express stipulation to the contrary, for the reasons developed above, the terms of the CN s retainers of McKercher in the present case included implied consent to adverse representation in unrelated matters where no confidential information was at risk. McKercher was free to accept new retainers on this basis. 74. To extend the rule prohibiting acting against current clients on unrelated matters to large corporations and other professional litigants would impose an unnecessary and undesirable 72 Alberta Union of Provincial Employees v. United Nurses of Alberta, Local 168 and Labour Relations Board, 2008 ABQB 421 at para. 70. [Emphasis added]

29 25 burden on individual clients and smaller organizations. It would be inimical to the reputations of the legal profession and the administration of justice to permit this to occur. 75. The professional litigant exception enunciated in Neil should be applied in this case. It is just and equitable that CN s consent to McKercher s representation of Mr. Wallace should be inferred. This is a complete answer to the application to disqualify McKercher. (F) The Appropriate Remedy 76. A finding of a breach of duty is not the end of the inquiry. The Court should address, as a separate analysis, the issue of what is the appropriate remedy. The Respondents submit that the Court of Appeal was right to hold that the extreme remedy of disqualification is neither required nor appropriate in the present case. 73 There are three reasons for this: (a) (b) (c) There is no risk that confidential information will be used to the prejudice of CN; There is no risk of taint or prejudice in the future as McKercher is no longer acting for CN and CN has made it clear that it will not continue to retain McKercher; and, Such an order would not remedy the breach of duty alleged in any event. This reasoning applies regardless of whether the professional litigant exception is applicable. Unnecessary disqualifications of clients counsel of choice are to be avoided. 77. The cases in which litigants have succeeded in obtaining an order disqualifying a law firm based on conflict of interest involve apprehended breaches of the duty of confidentiality or a compromise of loyalty in related matters. If the court concludes that a law firm, by virtue of its prior or concurrent representation of the applicant, has obtained confidential information relevant to the lawsuit, the court will intervene to disqualify the firm from acting for a client adverse in interest to the applicant. The court will exercise this jurisdiction to prevent the disclosure or misuse of confidential information. 78. The same considerations do not apply in the case of breach of a duty of loyalty, where the adverse representation is with respect to an unrelated matter and there is no danger of misuse of 73 Appeal Judgment, paras

30 26 confidential information. In such cases consideration should be given to the appropriate remedy. As this Court said in Strother: Conflict between concurrent clients where no confidential information is at risk can be handled more flexibly than MacDonald Estate v. Martin situations because different options exist at the level of remedy, ranging from disqualification to lesser measures to protect the interest of the complaining client. In each case where no issue of confidential information arises, the court should evaluate whether there is a serious risk that the lawyer's ability to properly represent the complaining client may be adversely affected, and if so, what steps short of disqualification (if any) can be taken to provide an adequate remedy to avoid this result. 74 As the Court of Appeal held, there is no risk that the lawyer s ability to properly represent the complaining client may be adversely affected in the current case. 79. In Neil, similarly, this Court said: It is one thing to demonstrate a breach of loyalty. It is quite another to arrive at an appropriate remedy. 75 In that case, the remedy sought was a stay of a criminal conviction. At the time the application was heard, as in the present case, there was no adverse representation. This Court, having found a breach of duty, embarked on a second inquiry as to what is the appropriate remedy. This Court found that there had been a serious breach of a lawyer s duty of loyalty to the client but declined to grant the remedy requested, or indeed any remedy. 80. In cases in which there is no risk of misuse of confidential information the court generally will not interfere with a party s choice of counsel unless an injustice would otherwise occur or the integrity of the administration of justice would be compromised. Matters of professional conduct are better left to law societies. Where a breach of a lawyer s professional duty is alleged, law societies are equipped to determine whether the allegation is warranted and, if so, what sanction should be imposed. Judges presiding on interlocutory motions in civil proceedings are not well-positioned to determine whether such an allegation against a party s lawyer has been proven or, if so, what the appropriate sanction should be. Nor is that their role; their role is to determine whether disqualification is necessary to protect a party s rights. The 74 Strother, at para Neil, at para. 36.

31 27 integrity of the justice system would be ill-served, moreover, if the court too readily disqualified counsel at the prompting of adverse parties In deciding on the appropriate remedy, the court should have regard for all relevant circumstances. In this case the competing interests and the nature of the violation should be considered. 82. This Court in MacDonald Estate recognized that an application to disqualify a law firm based on an allegation of conflict of interest involves consideration of at least three competing values: There is first of all a concern to maintain the high standards of the legal profession and the integrity of our system of justice. Furthermore, there is the contravening value that a litigant should not be deprived of his or her choice of counsel without good cause. Finally, there is a desirability of permitting reasonable mobility in the legal profession The current appeal does not involve a consideration of the desirability of permitting reasonable mobility in the legal profession. It does involve consideration of the other two competing values, the integrity of the system of justice and the litigant s right to choice of counsel. 84. It will be readily observed that the Wallace action is a major undertaking. The legal and factual issues are complex. There are potentially in the range of 100,000 class members. As the Court of Appeal observed, this is the type of litigation that is generally undertaken only by large law firms that offer both specialization and the substantial resources necessary to pursue such a claim. The evidence establishes that CN has used all three of the largest firms in Saskatchewan. The disqualification of the McKercher firm would deny Mr. Wallace his choice of counsel, and may well require him to retain counsel from outside the Province As for the integrity of the system of justice, the Respondents submit that the public s perception of the system of justice would be damaged more by depriving Mr. Wallace, a litigant 76 Transamerica Life Insurance Company of Canada v. Seward (1997), 33 O. R. (3d) 604, [1997] O. J. No (Ont. Ct. (Gen. Div.)). 77 MacDonald Estate, at para Appeal Judgment, at para. 113.

32 28 with far less resources than CN, of his counsel of choice, than it would by giving effect to CN s application to deprive Mr. Wallace of that right in a case in which the law firm has no relevant confidential information. 86. Where, as in this case, the complaining client has made it clear that it will not continue to retain the law firm, disqualification does not serve the purpose of allowing the complaining client to continue to use the law firm without the impairment of any conflicting interest. The sole effect of disqualification would be to deprive a party of counsel of choice. In circumstances in which a breach of duty does not adversely affect the litigation, the Respondents submit that the Court should decline to impose the extreme remedy of disqualification. PART IV COSTS 87. The Respondents request their costs in this appeal. PART V ORDER REQUESTED 88. The Respondents ask that the appeal be dismissed with costs. ALL OF WHICH IS RESPECTFULLY SUBMITTED THIS 9TH DAY OF NOVEMBER Gavin MacKenzie Solicitor for the Respondents