Former directors can’t claim confidentiality against company’s lawyers: court

A British Columbia Supreme Court decision will likely make it difficult for former directors of a corporation to make a claim for duty of confidentiality against their former employer’s lawyers.

A judge ruled this week against disqualifying Davis LLP’s lawyers from representing Sagebrush Golf & Sporting Club Ltd. because they had received information from the former CEO, who is now in a dispute with the company, while he still worked there.

The former CEO and director, Richard Zokol argued Davis was in conflict of interest because his relationship with the firm’s lawyers was “so close that it was personal and professional.”

But the judge in this case found Zokol could not expect the Davis lawyers to keep information obtained through their conversations with him from Sagebrush as the company, and not Zokol, had been the firm’s client.

“Mr. Zokol . . . could not expect that his communications with Davis dealing with matters would be kept confidential from Sagebrush. If it were otherwise, the lawyers would be favouring the officers of the corporation violating the lawyer’s obligation to his client, which is the corporation,” wrote Justice Hope Hyslop.

McCarthy Tétrault LLP lawyer Malcolm Mercer, whose practice is in the area of conflict of interest, says the judge arrived at the right answer.

“If you’re a lawyer acting for a company and your instructions or communications come through a director, then it needs to be understood by the lawyer and the director that the director is not the client; the company is the client,” Mercer says.

“So the ability of the director to say there’s a conflict because of my personal interests doesn’t work because they’re not the client.”

Normally, “near clients” of lawyers — those who are not direct clients but believe lawyers have information about them that they’re not entitled to use — can claim a duty of confidentiality. The courts have in the past recognized that, says Mercer, but in this case, the company is entitled to use the information Zokol passed on to the Davis lawyers.

“There was no confidential information to protect,” adds Mercer, who notes the decision will make it difficult for former directors of corporations who claim a duty of confidentiality in a similar fashion.

The other question the court pondered in this case was whether the likelihood that Davis’ lawyers could be called to testify should in itself disqualify the firm.

The court said lawyers are allowed to testify on behalf of the client they’re representing although the practice is discouraged. This is different from the situation in Ontario, where there’s an outright prohibition on lawyers giving evidence for their clients.

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