McKercher ‘makes it easier’ for counsel to argue they’re not in conflict

Correction: This story incorrectly identified Gordon Wallace as the client McKercher LLP should have obtained consent from before accepting his retainer. In fact, the Supreme Court of Canada ruled in Canadian National Railway Co. v. McKercher LLP that McKercher should have obtained consent from its client CN Rail before accepting Wallace''s retainer.

The Supreme Court of Canada clarified the scope of the bright-line rule this month in a ruling at least one lawyer suggests will make it easier for law firms to argue they’re not in a conflict of interest.

“On its face, [Canadian National Railway Co. v. McKercher LLP] makes it easier for lawyers to potentially represent concurrently two clients and to argue that they’re not in a conflict,” says Timothy Morgan, an associate at Podrebarac Barristers Professional Corp. in Toronto.

In McKercher, the top court ruled Saskatchewan law firm McKercher should have obtained its client Gordon Wallace’s consent before accepting his retainer while simultaneously representing CN Rail — the company he was suing — on a variety of unrelated matters.

Wallace was the leading plaintiff in a class action lawsuit that sought $1.75 billion in damages on behalf of Prairie farmers against CN Rail, Canadian Pacific Railway Ltd., and others for allegedly overcharging them for grain transportation over 25 years.

The case questioned the parameters of Canada’s bright-line rule that the top court established in its landmark 2002 decision R. v. Neil. The ruling stated that “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 (and preferably independent legal advice), and the lawyer reasonably believes that he or she is able to represent each client without adversely affecting the other.”

On July 5, the Supreme Court upheld the bright-line rule as set out in Neil and stated that once it applies, there are no exceptions. However, it also recognized that the rule doesn’t apply in all situations.

“First, the bright line rule applies only where the immediate interests of clients are directly adverse in the matters on which the lawyer is acting. . . . Second, the bright line rule applies only when clients are adverse in legal interest. . . . Third, the bright line rule cannot be successfully raised by a party who seeks to abuse it,” wrote Chief Justice Beverley McLachlin on behalf of a unanimous bench.

In circumstances where the bright-line rule doesn’t apply, the court said the test comes down to whether there’s a substantial risk that the law firm’s concurrent actions on behalf of both parties would adversely affect a client’s representation.

In Morgan’s view, the top court is “straddling the line on two positions.”

“On the one hand, the Supreme Court of Canada is very clear that the bright-line rule is absolute and this is no exception, but arguably by having the exception to the application of the rule, it still leaves the question quite open-ended as to when the rule is going to apply,” he says.

He continues: “At the end of the day, you need to know whether or not you’re going to be in conflict and when that’s going to arise. And so, by taking all of the exceptions out of the rule and putting it into when you apply the rule, I’m not sure the situation is all that different to a lawyer who’s trying to decide when they’re in conflict.”

Another point of contention in the case related to whether the court should disqualify McKercher from acting in the class action because of its violation of the bright-line rule. The Saskatchewan Court of Queen’s Bench said it should, but the Saskatchewan Court of Appeal reversed that decision and permitted McKercher to continue to act on the class action. The top court sent the case back to the Court of Queen’s Bench to determine the appropriate remedy.

So “even when you’re in violation of the bright-line rule, the court affirms that the automatic result is not disqualification, that you have to look at the contextual factors around the case itself to determine whether or not you actually disqualify the law firm,” says Morgan.

Malcolm Mercer, a partner at McCarthy Tétrault LLP and counsel for the Canadian Bar Association as intervener in the case, says McKercher sets out a framework for considering disqualification.

The court said its “discretion under the administration of justice should be exercised on the basis that lawyers be disqualified where confidential information is put at risk or effective client representation is put at risk or the repute of the administration of justice is put at risk,” he tells Law Times. “The court is saying that by applying that framework that disqualifications shouldn’t be ordered where there isn’t a good reason to do it.”

Brent Cotter, a law professor at the University of Saskatchewan who advised the Federation of Law Societies of Canada in the matter, says the case “has confirmed the sequencing of how you examine conflicts as addressed; the drawing together and consolidation of the qualifiers to the Neil test; an articulation of this concept of reasonableness on the part of a client; the potential for even when the bright line is crossed — as happened in this case — that a law firm might be able to avoid disqualification; . . . and then this richer articulation of the obligations of commitment and candour.”

In a subplot to the case, the CBA urged the top court to water down the bright-line rule on conflicts of interest and argued the rule as understood in Neil was “overbroad,” says Mercer.

Cotter says the court implicitly endorsed the language of the federation’s model code and made it clear that it’s interested in the issues related to a regard for the administration of justice.

Morgan says the ruling will have a significant impact on law firms and lawyers.

“Ultimately, this case is about what are your duties to your client and in what circumstances do you feel that the representation is going to affect them,” he says.

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