SCC to hear arguments on bright line conflict rule tomorrow

The Canadian Bar Association will urge the Supreme Court of Canada to water down its bright line rule on conflicts during Thursday’s hearing of Canadian National Railway v. McKercher LLP.

The rule came about as a result of the top court’s landmark 2002 decision in R v. Neil, when former justice Ian Binnie wrote that in general “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.

But counsel for the the CBA, Malcolm Mercer, says the rule should only apply where there is a substantial risk of prejudice to the lawyer’s former client.

“The issue is whether or not that rule is a presumptive,” says Mercer, a partner in McCarthy Tétrault LLP’s Toronto office, and a former member of the CBA’s task force on conflicts of interest. The bar association’s position is that clients shouldn’t be deprived of their choice of counsel without a reason. “And where there is no substantial risk of prejudice to anyone, there is no reason.”

The case has its roots in a proposed Saskatchewan class action by farmers against CN, alleging the rail giant overcharged them for grain transportation during the previous 25 years.

Saskatchewan law firm McKercher LLP had been acting for CN on various matters for almost a decade, when in 2008, representative plaintiff Gordon Wallace approached the firm to commence the multi-billion-dollar class action.

When the class action was launched, four of those files remained open. Over the next few months, the firm unilaterally withdrew from three files and attempted to continue work on another, but were denied by CN.

Although Saskatchewan Appeal Court Justice Justice Ralph Ottenbreit allowed McKercher to continue acting for Wallace, overturning a lower court ruling, the judge found “McKercher did breach its duty of loyalty” for “dumping” CN the way it did.

But without a transfer of material confidential information during their retainer that could prejudice CN in the class action, the court decided the circumstances did not justify disqualification, noting there were other remedies open to CN, such as suing for damages related to the transfer of files or a complaint to the Law Society of Saskatchewan.

“Disqualification should not be used as punishment of counsel or as an example to deter lawyer conduct as such,” Ottenbreit wrote in his decision on behalf of a unanimous three-judge panel.

Counsel for CN and McKercher are also expected to clash over the “professional litigant exception” to the bright line rule, where consent to act adverse in interest may be inferred from entities such as banks, governments, or large corporations. The appeal court in Saskatchewan bolstered that exception, finding it was reasonable for McKercher to infer CN’s consent, despite the fact the company objected when it found out.

“Once it is concluded that implied consent is reasonable, subsequent express non-consent cannot vitiate the implied consent: otherwise the professional litigant exception would be meaningless,” wrote Ottenbreit.

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