Conflicts of Interest
Duty to a client in relation to Conflicts of Interest
Compiled by Eric B. Appleby:
General principle
For centuries it has been a well settled rule that no one can be an attorney for both sides even with the consent of the parties. In Masons’ Case (1672), 89 E.R. 55, an attorney was struck from the roll because “he had been an ambidexter, namely, after he was retained by one side he was retained by the other side”. A leading case that sets the standard for modern conflict of interest cases is MacDonald Estate v. Martin (1990), 121 N.R. 1; 70 Man.R.(2d) 241 (S.C.C.); in this case the Supreme Court of Canada stated a lawyer who has relevant confidential information cannot act against his client or former client. In such a case the disqualification is automatic. No assurances or undertakings not to use the information will avail . The rule against conflicts has been extended to such matters as the purchase and sale of real estate.
In the case of John Burrows Ltd. v. Subsurface Surveys Ltd. (1967), 62 D.L.R.(2d) 700, the New Brunswick Court of Appeal stated at page 707: “All transactions of purchase and sale include a possibility of conflicting interests developing. Barristers and solicitors should be careful to avoid acceptance of any retainer which involves such a possibility”.
In the case of Lafferty v. N.B. Coal Ltd. (1995), 190 N.B.R.(2d) 1; 484 A.P.R. 1 (C.A.), the Court of Appeal affirmed the removal from the record a firm of solicitors. The court stated at paras. 4 and 5: [4] “I agree with the decision by Mr. Justice McLellan in ordering the removal of the firm as solicitors of record. As he held, in some cases, and this is one of them, it is the perception of conflict that taints the file. Perhaps the result denies to one of the litigants, in certain instances, the opportunity to engage the counsel of his or her choice. Nevertheless it may be necessary, as here, to avoid an adverse public perception. It is a price that the profession must pay in order to preserve the integrity of the concept of solicitor and client privilege.
[5] Courts are not bound to apply a code of ethics before determining whether to remove a firm of solicitors from the record. Courts have inherent jurisdiction to remove solicitors from the record when they find a conflict of interest. This also applies to the appearance of conflict. Even an appearance of impropriety should be avoided. There is a presumption that lawyers who work together share each others confidences. This does not come about as a form of legal osmosis, it is a practical perception. Unless there is clear and convincing evidence that all reasonable measures have been taken to ensure that no disclosures will be made to other members of the firm, an inference should be drawn that the tainted information has been shared.
Conflicts of interest arising from lawyers’ relations
In the case of Holte v. Macor (1998), 229 A.R. 70 (Q.B.), Macar was the driver of an automobile that collided with a tractor – Macar’s three passengers sued Macar and the truck driver for damages for personal injuries – Meanwhile, Macar was convicted under the Highway Traffic Act of driving without due care and attention – At his first appearance regarding the Highway Traffic Act offences, he was represented by K. Tarrabain, as agent for his lawyer – When he attended for examination for discovery in the personal injury action, he discovered that the three passengers were represented by Tarrabain’s law firm – Macar applied to have the plaintiffs’ solicitor and law firm removed for conflict of interest – The Alberta Court of Queen’s Bench allowed the application.
In the case of Turner v. Wheatland Baking Co. (1991), 122 A.R. 369 (Q.B.), the plaintiff shareholder of the defendant company sued the corporate and personal defendants respecting the cancellation of some of his shares – The lawyer now representing the defendants was also a shareholder and represented both defendants before and after the cancellation -The plaintiff applied for an order restraining the lawyer and his firm from acting for the defendants in the present action – The Alberta Court of Queen’s Bench allowed the application on the ground that the lawyer was in a conflict of interest position.
In the case of Taylor v. Nellist, [2004] O.T.C. 1052 (Sup. Ct.), the court summarized the law relating to conflicts of interest arising from a lawyer’s relations at paras. 22 to 24: [22] “The standard for the removal of counsel is an objective one, being that of a reasonably informed member of the public. See the case of MacDonald Estate vs. Martin, [1990] 3 S.C.R. 1235. Thus, a solicitor should be removed as solicitor of record if a fair- minded, reasonably informed member of the public would conclude that the proper administration of justice required the removal of the solicitor. See the case of Everingham vs. Ontario, 8 O.R. (3rd) 121, at paragraph 29.
[23] Moreover, there does not need to be a finding of impropriety in order for the solicitor to be removed, rather it is the appearance of impropriety that is the test. In MTS International Services Inc. v. Warnat Corp. Limited, [1981] 31 O.R. 221 at page 224 Justice Montgomery wrote, A lawyer should avoid even the appearance of professional impropriety. This is particularly true when the litigation involves a family dispute. See the case of Goldberg vs. Goldberg, (1982) 31 R.F.L. (2nd) 453 at paragraph 8.
[24] The basis for the above-mentioned statement of the law in this area can be summarized by that well-known quote from the case of R. vs. Sussex Justices, [1924] 1 K.B. 256 at page 259, It is of fundamental importance that justice should not only be done, but should manifestly and undoubtedly be seen to be done .
Conflict of interests, acting for both sides
In the case of Jeffers v. Calico Compression Systems et al. (2002), 314 A.R. 294 (Q.B.), the plaintiff (Jeffers) and defendant (Curtis) agreed to form a company – The defendant’s solicitor (Dawe) acted on behalf of both parties in incorporating the company, having guarantees signed and drafting the shareholder’s agreement – A dispute as to the division of shares proceeded to litigation – Dawe represented the defendant – The plaintiff applied for removal of Dawe as solicitor of record – The Alberta Court of Queen’s Bench held that Dawe was precluded from acting for the defendant – Although Dawe had never been formally retained by the plaintiff, no monies were ever paid by the plaintiff to Dawe and there was no confidential information imparted, the plaintiff had grounds to reasonably believe a solicitor/client relationship existed – Dawe acted for both parties on the very issue in dispute – It would be unfair and improper for Dawe to continue to act for the defendant.
In the case of Ridge View Development & Holding Co. Ltd. v. Simper (1989), 95 A.R. 282 (Q.B.), the Alberta Court of Queen’s Bench stated that it was not a breach of fiduciary duty for a lawyer to act for both sides in a real estate transaction, provided that both sides were fully informed and consented – The court stated that the lawyer must (1) advise both sides of their contractual rights and obligations, (2) advise each that if an actual or potential conflict arises he must step aside and advise each to seek independent counsel and (3) advise both sides that the usual solicitor-client privilege did not apply and that relevant information from one side must be disclosed to the other side – See paragraphs 49 to 61.
In the case of Ferris v. Rusnak (1983), 50 A.R. 297 (Q.B.), a lawyer acted for an unsophisticated lender of $50,000 – The lawyer also acted for the borrower – The Alberta Court of Queen’s Bench stated that a conflict of interest arises immediately in such circumstances (see paragraph 30) and the court referred to the lawyer’s duty to advise the lender to seek independent legal advice (see paragraphs 32 and 33) – The court also referred to the lawyer’s duty in circumstances when such a lender is knowledgable (see paragraph 30).
Conflict of interests, lawyer acting for several parties
In the case of R. v. Doz (1984), 52 A.R. 321 (C.A.), Woitt identified himself as Hutchinson when charged by police with impaired driving – Woitt told Hutchinson what he did and both sought legal advice from the accused solicitor -The Alberta Court of Appeal stated that it was absolutely impossible for one lawyer to act for both parties, Woitt and Hutchinson, under the circumstances in which there was such a conflict of their interests – See paragraph 7.
In the case of Brumer v. Gunn (1982), 18 Man.R.(2d) 155 (Q.B.), the Manitoba Court of Queen’s Bench held that a lawyer was in a conflict of interest situation where he was advising one client to invest funds in a business which was also a client – The business subsequently failed and the funds were never recovered – See paragraph 25.
In the case of MacCulloch Estate and MacLennan v. Corbett (1982), 49 N.S.R.(2d) 663; 96 A.P.R. 663 (C.A.), several individuals retained a lawyer to incorporate and organize a company, which the lawyer did negligently – When a dispute arose among the individuals the lawyer proceeded to act in the interest of one of them – The Nova Scotia Court of Appeal held that the lawyer was acting for all of the individuals and acted in a conflict of interest, in continuing to act after the dispute arose – See paragraphs 31 to 33.
Conflicts of interest, acting for a corporation
When acting for a corporation, a lawyer should be wary of the extent of the lawyer’s duty. When acting for a client corporation a lawyer’s duty may extend to protecting the interests of the shareholders and the interests of the creditors of the corporation. See Toronto Globe and Mail, May 17, 2006 where Jacquie McNish reported that three prominent law firms settled claims against them by creditors, shareholders and others. The claims arose out of work done by the law firms for corporations. The three claims were settled for $110 million, $32 million and $30.25 million.
Conflict of interest, situations resulting in a conflict
In the case of Gottschlich v. Gottschlich (2001), 291 A.R. 173 (Q.B.), Mr. Gottschlich retained a lawyer from Cleall Pahl to represent him in his divorce – The lawyer’s legal secretary subsequently left the firm to work for Emery Jamieson, the firm representing Mrs. Gottschlich – In fact, the legal secretary became the secretary for the lawyer representing Mrs. Gottschlich – At issue was whether the legal secretary’s employment at Emery Jamieson created a disqualifying conflict of interest sufficient to remove Mrs. Gottschlich’s lawyer as solicitor – The Alberta Court of Queen’s Bench held that the legal secretary possessed relevant confidential information and despite Emery Jamieson’s bona fide efforts to isolate her from the file, there was a sufficient conflict of interest created that Mrs. Gottschlich’s lawyer must remove herself.
In the case of McDonald Crawford v. Morrow (2002), 324 A.R. 8 (Q.B.), a law firm applied to have a bill taxed – The firm was still representing the client on an appeal – The client, while served, failed to appear on the taxation – The taxing officer allowed the bill in full – The Alberta Court of Queen’s Bench stated that it was the duty of the Firm to advise the Client that there was a substantial amount at stake, that the Taxing Officer was going to make a decision that could be binding on the Client, and the Client should seek independent legal advice. Instead, throughout, the Firm continued to act as counsel for the Client when it was in a clear conflict. – See paragraph 27.
In the case of R. v. Werkman (A.H.) (1977), 198 A.R. 35 (Q.B.), the accused was charged with manslaughter and his trial was pending – A lawyer from the accused’s counsel’s law firm had previously represented an essential Crown witness – The accused’s counsel would have to impeach the Crown witness’s credibility at the trial – The Crown and the accused’s counsel applied to the court for directions on whether the accused’s counsel could continue to act – The Alberta Court of Queen’s Bench disqualified the accused’s counsel from acting – The court referred to the applicable test and stated that there was a deemed sharing of information between the lawyers from the firm, that there was a risk that this information would be used to prejudice the Crown witness and that the proper administration of justice was a paramount consideration – See paragraphs 9 to 20.
In the case of MacDonald v. Howard Estate et al. (1995), 170 A.R. 376 (Q.B.), Defendants applied to remove the plaintiff’s counsel (Pipella), arguing that a conflict of interest arose when Pipella joined with Warren to form an independent association for the practice of law – Warren had previously acted in the matter on behalf of one of the defendants and admitted receiving confidential information which could be prejudicial if revealed – Warren stated that he had never discussed the litigation with Pipella and the two undertook not to communicate about the matter – The Alberta Court of Queen’s Bench held that there were not sufficient safeguards to satisfy a reasonably informed member of the public that no disclosure would occur – The interests of justice and the integrity of the legal profession favoured discharging Pipella from the file.