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Supreme Court of Canada to examine boundaries of 'conflict of interest'

CN Rail v. McKercher tests the boundaries of 'conflict of interest'

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The Supreme Court of Canada on Thursday hears a case that will likely clarify when lawyers can act against former clients in unrelated matters.

The case, Canadian National Railway v. McKercher LLP, affects a wide range of clients — from large companies who must rely on the limited number of major firms in Canada’s legal market for representation in significant transactions and litigation, to consumers from rural and remote areas that are served by only a few lawyers.

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Indeed, the issue is of such importance that the Canadian Bar Association, which favours the presumptive approach and has drafted a proposed model rule that it will put before the Supreme Court, has intervened.“It boils down to whether there is a categorical prohibition preventing lawyers from acting against clients in unrelated matters even where there is no risk of prejudice to the former clients, or whether the prohibition is merely a presumption that requires the lawyers to establish that no substantial risk of prejudice exists,” says Scott Joliffe, the Toronto-based chair and chief executive of Gowling Lafleur Henderson LLP.

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But Alan Hutchinson, distinguished research professor at York University’s Osgoode Hall Law School in Toronto, believes the choices before the Supreme Court may not be quite that clear-cut.

“Acting for a former client on an unrelated and small matter shouldn’t be a problem, but acting on a huge matter, say the takeover of the former client, could be a problem even if it is strictly speaking unrelated to the current retainer,” Mr. Hutchinson says.

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However that may be, Mr. Hutchinson shares the view that lawyers should not be prohibited from acting merely because a former client is on the other side of a deal or a case. “The court has to be careful about unduly limiting the choice of counsel both in the case of massive institutions and in small communities where there are but a few lawyers available.”

The case before the Supreme Court originated in 2008, when McKercher LLP, one of Saskatchewan’s top law firms, took on a proposed class action brought on behalf of a group of prairie farmers. The claim alleged that the Canadian National Railway and others overcharged the class for grain transportation for over 25 years. At the time, McKercher was acting for the railway in other matters, but subsequently withdrew from these cases. CN sought to disqualify McKercher from acting on the class action law suit.

The motions judge characterized the behaviour of McKercher as “dumping” CN Rail. The Saskatchewan Court of Appeal found that McKercher had breached its duty of loyalty to the railway by handling the matter without candour and by improperly withdrawing from the cases on which the firm had been counsel. Still, the court refused to disqualify McKercher from continuing against CNR on the class action. The court stated at paragraph 111:
“Disqualification is a prospective remedy. There is in this case now no existing relationship between CN and McKercher to protect. The point is, that once the withdrawal has taken place, whether by the client or improperly by the law firm, where there is no risk that confidential information will be used to the prejudice of the client, the potential for actual future disloyalty on its previous retainers no longer exists.”

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Mr. Hutchinson says it’s difficult to say how the Supreme Court will decide the case.

“The court has made it clear in the past that it wants conflicts taken more seriously, but it may be averse to a knee-jerk absolute prohibition that hampers access to justice,” he says.

Experts say that the high court, which has divided on the issue in previous cases, will be trying to fashion a consensus that will provide greater clarity to lawyers and clients.

Gavin Mackenzie in Heenan Blaikie LLP’s Toronto office represents McKercher and Douglas Hodson in MacPherson Leslie & Tyerman LLP’s Saskatoon  office acts for CN.

Photo: CN Rail is seeking to disqualify a former law firm from representing plaintiffs in a proposed class action against the railway. SOURCE: Handout/ Canadian National Railway

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