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Lawyers for Hollinger facing discipline

|Written By Robert Todd

Two Torys LLP lawyers say they are “disappointed” by Law Society of Upper Canada allegations they failed to guard against conflicts of interest in the sale of Conrad Black’s Hollinger International newspapers.

The allegations stem from legal services provided by Darren Sukonick, a partner at the firm, and Beth DeMerchant, who is no longer practising, between 2000 and 2003. They relate to the sale of Canadian newspapers to Canwest Global Communications Corp. and Osprey Media Holdings Inc.

“Ms. DeMerchant and Mr. Sukonick are two highly regarded and accomplished corporate counsel who have always acted ethically and worked within the Rules of Professional Conduct,” says a joint statement from lawyers Philip Campbell of Lockyer Campbell Posner, and Ian Smith of Fenton Smith, who represent DeMerchant and Sukonick respectively.

They say their clients are disappointed the law society has chosen to pursue these allegations.

“Both Ms. DeMerchant and Mr. Sukonick continue to enjoy the support of their firm, Torys, and they appreciate this very much. They look forward to demonstrating that they worked entirely within the law society’s rules and then prevailing and

accepted professional practices, and countering the allegations at a hearing before their colleagues.”

The law society allegations, outlined in notices of application in April, include the claim that the lawyers worked on Hollinger’s sale of newspaper assets to Canwest, “which included the provision of non-competition covenants and payments in respect of which the interests of two or more of your clients were not aligned.”

That allegation goes on to suggest the lawyers had a solicitor-client relationship with Hollinger and a group of its subsidiaries, as well as recipients of non-competition payments, such as Black and former Hollinger executives Peter Atkinson and John Boultbee.

The law society alleges the lawyers were in a conflict of interest on that file with regard to “who was to receive compensation for their non-competition covenant; how much was to be received; what was the true purpose of the non-competition payments; what was required to be publicly disclosed in connection with the payments; and what was the appropriate tax treatment for the payments,” according to the notices.

The law society also suggests the lawyers were in conflict when they helped Black renounce his Canadian citizenship. It alleges that Black’s renunciation could hurt Hollinger.

The law society noted that s. 19 of the Income Tax Act prevents advertisers from deducting advertising expense in media controlled by a non-Canadian. It also pointed to, “The potential breach of the National Post partnership agreement with Canwest.”

Les Viner, managing partner of Torys, also issued a statement supporting the lawyers.

“Torys is committed to the highest standards of practice and professionalism,” said Viner. “The firm and its lawyers have co-operated fully with the law society’s investigation, and the process of the law society now provides an opportunity for Beth and Darren to address the allegations.

“Beth and Darren are principled and ethical lawyers. We believe they acted in good faith and with integrity in accordance with professional practices prevailing at the time. Whatever view the law society now takes on how its rules should have then been interpreted and applied, we do not believe Beth’s and Darren’s good faith and integrity can be doubted. The firm continues to support them.”

A closed pre-hearing into the matter continued last week. A date for the full hearing will be set Aug. 31, and it should begin next year.

Defence lawyers for Black criticized Torys for offering poor advice on the disclosure of the non-compete payments during the sale of the newspapers to Canwest.

The firm never admitted any wrongdoing in the matter, but in 2005 agreed to pay Hollinger $30.25 million to settle allegations that the firm provided improper advice and did not act in the company’s interests.

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