Summary of the decision in Canadian National Railway Co. v. McKercher LLP

A law firm may not accept a retainer to act against one of its current clients without the client's prior consent, even in a matter unrelated to the client's existing files. However, infringement of this rule does not automatically entail a declaration of disqualification, as the Supreme Court of Canada held in its recent judgment of July 5, 2013 in Canadian National Railway Co. v. McKercher LLP.

"An advocate, in the discharge of his duty, knows but one person in all the world, and that person is his client" (Lord Brougham)

In its unanimous judgment, the Supreme Court recalls that the lawyer's duty of loyalty to his client must take precedence over any other consideration. The lawyer must avoid any conflict of interest in order to ensure the protection of confidential information and the effective representation of his client. Nevertheless, a declaration of disqualification is no longer the automatic sanction where a lawyer fails in his duty of loyalty. A number of factors must be considered in order to determine the appropriate remedy.

In conflicts of interest, the "bright line rule" laid down in R. v. Neil, 2002 SCC 70 still applies. This rule prohibits a lawyer from representing a client whose interests are directly adverse to the immediate interests of another current client – even if the matters are unrelated – unless both clients have consented thereto after having been fully informed. This rule, however, includes certain limitations:

1. It applies only where the immediate legal interests of the clients – and not their commercial or strategic interests – are directly adverse;
2. It may not be raised for reasons of a tactical nature;
3. 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.

When determining whether there was a reasonable expectation that the law firm would not act against the client in unrelated matters, it may be relevant to consider factors such as the nature of the relationship between the law firm and the client, the terms of the retainer, as well as the types of matters involved. In exceptional cases, consent of the client to concurrent representation of adverse legal interests may be inferred. That is the case, for instance, for what the Court calls “professional litigants” or institutional clients.  Such clients by their sophistication, may have, as the Court described in Neil, a “broad-minded attitude” and who, by the notion of informed consent, either express or implied, might not expect their law firm will not act against them in unrelated matters.

The facts of this case showed that the bright line rule applied to the simultaneous representation by the McKercher law firm of two clients with directly adverse interests. The firm breached the rule when it agreed to sue a current client in acting for a new client, without obtaining the prior consent of the parties involved. The firm thus put itself in a conflict of interest position and failed in its duty of loyalty.

The Saskatchewan firm of McKercher LLP was representing CN in several cases when it accepted a retainer to represent a plaintiff in a class action against CN for $1.75 billion. It was only when the statement of claim was served on it that the company became aware that its law firm was suing it. McKercher then quickly abandoned CN's retainers. Alleging the existence of a conflict of interest, CN moved to strike McKercher as solicitor of record in the class action. This motion was granted by the motion judge, who declared McKercher disqualified. The Court of Appeal quashed the decision and CN appealed that judgment.

The New Legal Framework: The Remedy to be Granted

The remedy of disqualification will be granted if it is necessary for one of the three following reasons:

1. to avoid the risk of improper use of confidential information;
2. to avoid the risk of impaired representation;
3. to safeguard public confidence in the administration of justice.

Where the first two reasons cannot be invoked, determining whether disqualification is necessary to protect public confidence in the administration of justice requires taking account of all the relevant circumstances. Breach of the bright line rule is always a serious circumstance which, on its face, justifies the remedy of disqualification, even in cases where the retainers of the client have been cancelled following the breach. Where the solicitor-client relationship has been terminated, however, and there is no risk of misuse of confidential information, there is generally no longer a concern of ongoing prejudice to the complaining party. In order to determine whether disqualification is then the appropriate remedy, courts must henceforth take account of three factors, which may militate against such a sanction:

1. behaviour disentitling the complaining party from seeking disqualification, 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;
3. the fact that the law firm accepted the conflicting retainer at the root of the conflict of interests, reasonably believing that the concurrent representation fell beyond the scope of the bright line rule.

In this case, there was no risk that McKercher would use relevant confidential information, since the retainers that CN had entrusted to the firm were unrelated to the class action. A general understanding of a corporate client's litigation philosophy is not tantamount to holding confidential information.

Moreover, there was no risk of impaired representation, since the solicitor-client relationship was terminated. The Court therefore remanded the case to the motion judge for a redetermination, based on the new legal framework, as to whether disqualification was necessary to safeguard public confidence in the administration of justice.

Going Further

The Neil and McKercher decisions lay down rules governing conflicts of interest for counsel. Nevertheless, the provincial bar associations are also empowered to establish general rules applicable to all their members so as to ensure professional ethics, protect the public and impose disciplinary sanctions on lawyers. It is therefore still recommended to refer to these codes of ethics governing lawyers. In Québec, the Code of Ethics of Advocates (the "Code"), c. B-1, r. 3, governs such conflicts of interest.1 Article 3.06.02, for example, provides that an advocate shall not agree to perform professional services if doing so entails or may entail the communication or use of confidential information obtained from another client, without the latter's consent. Similarly, in McKercher, the firm had hastily stopped representing its client, CN. In Québec, an advocate may not cease representing his client unless he has a serious reason,2 does not act at an inopportune time, and only provided he does everything which is immediately necessary to prevent a loss (Article 3.03.04 of the Code). The Neil and McKercher judgments should therefore be read in conjunction with the rules enacted by the law societies.

Points to Remember

1. The lawyer's duty of loyalty to his client must prime every other consideration. The lawyer may not place himself in a conflict of interest by accepting a retainer to act against one of his current clients without the latter's prior consent, even in a case having no connection with the other active retainers involving that client.
2. The client who believes that his lawyer has put himself in a conflict of interest position may prima facie obtain a declaration of disqualification, but that remedy is not always appropriate.
3. Where the solicitor-client relationship is terminated, and there is no risk of misuse of confidential information, the client seeking the remedy of disqualification must avoid delaying in making his motion, on pain of having its dismissal.

View the full text of the Supreme Court of Canada's decision here.

¹ Articles 3.06.01 et seq.

² The fact that the advocate is placed in a situation of conflict of interest or in a circumstance whereby his professional independence could be called in question constitutes a serious reason within the meaning of this article.