Explaining Disqualification: An Empirical Review of Motions for the Removal of Counsel.

AuthorMacKenzie, Brooke
PositionCanada, Ontario

Introduction I. Background: Development of the Law Respecting Lawyers' Conflicts of Interest A. Former Clients and Other Conflicts Arising from the Possession of Relevant Confidential Information (i) MacDonald Estate v Martin (ii) Chapters v Davies, Ward & Beck LLP (iii) Celanese Canada Inc v Murray Demolition Corp (iv) Institutional Measures for Conflict Screening and Chartis B. Current Clients and the Duty of Loyalty (i) R v Neil (ii) CN Railway v McKercher II. Purpose and Methodology of Empirical Review A. Goals of Study B. Methodology (i) Source of Data (Judgments) (ii) Method of Sorting and Coding Judgments (iii) Comprehensiveness of the Dataset III. Findings A. Motions Asserting a Conflict of Interest B. Conflict Findings and Remedies Ordered (i) Overview (ii) Removal Without Confidentiality or Loyalty Concerns (iii) Remedies Ordered C. Confidentiality Issues and Screening Measures D. Tactical Removal Motions IV. Analysis & Discussion A. Summary Conclusions B. Guidance on Conflicts Arising from the Data Introduction

Since the Supreme Court of Canada's 1990 decision in MacDonald Estate v Martin, (1) in which the Court removed a law firm from the record because a junior associate joined the firm after acting for (and receiving confidential information from) the opposing party, motions to disqualify opposing counsel from acting on a case have been a regular occurrence in litigation. Despite their frequency, however, the law respecting disqualifying conflicts of interest remains difficult for lawyers to understand and apply. Even when a conflict of interest is identified--whether by the conflicted counsel themselves, the opposing party, or the court--it is not well-settled when a court will order the disqualification of counsel. Indeed, writing for the Supreme Court of Canada in R v Neil, Binnie J held: "It is one thing to demonstrate a breach of loyalty. It is quite another to arrive at an appropriate remedy." (2)

In 2002, the Court in Neil set out the "bright line" rule for conflicts of interest arising from lawyers' duty of loyalty to their clients: "[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". (3) But nearly two decades later, the consequences of crossing the bright line remain far from clear. No remedy was ordered in Neil. Justice Binnie explained that various other avenues of redress were available to clients whose lawyers breach their duty of loyalty, including law society complaints, which could result in disciplinary action, and civil actions against the lawyer for compensation. (4)

In 2013, the Supreme Court of Canada had the opportunity to clear up the uncertainty surrounding when disqualification will be ordered in a third leading conflict of interest case, Canadian National Railway Co v McKercher LLP. (5) Canadian National Railway Company (CN) sought to disqualify its former law firm for a breach of the duty of loyalty; the law firm had "fired" CN as a client in order to commence a class action against it. (6) Although the Court reaffirmed the bright line rule and confirmed that by firing its client to commence an action against it the law firm had breached its duty of loyalty, the McKercher decision provided scarce guidance as to the practical consequences of these findings. (7) The Court articulated numerous factors to be considered in assessing whether disqualification "may be required", (8) but neglected to apply these factors to the case before it. It instead remitted the issue to the motion judge to consider in accordance with the Supreme Court of Canada's reasons--and the issue was never decided below. (9)

In a recent decision of the Court of Appeal for Ontario, this ambiguity manifested in a different way. Ontario v Chartis Insurance Company of Canada concerned a conflict of interest allegation that arose when a law firm that had carriage of an active insurance coverage dispute hired a lawyer who had acted for the opposing party. (10) Alert to potential confidentiality concerns, before the transferring lawyer commenced work the law firm implemented comprehensive measures that met all Law Society of Upper Canada guidelines for conflict screens, with a view to ensuring that there was no risk of disclosure of the opposing party's confidential information. The Court of Appeal nevertheless disqualified the firm from continuing to act, holding: "Canadian courts have typically held that compliance with the [law society screening] guidelines provides sufficient protection for the migrating lawyer's former client.... That said, while highly persuasive, compliance is not determinative.""

There are important practical ramifications of the courts' insufficient guidance regarding what constitutes a disqualifying conflict of interest. First, it is difficult to predict the likely outcome of a disqualification motion. This leaves clients who likely already feel disheartened with the legal system as a result of their former lawyer's apparent conflict in the unenviable position of deciding whether to expend significant resources on a disqualification motion--which will inevitably delay the adjudication of their dispute on the merits--without an adequate understanding of whether they can achieve their desired outcome.

Second, lawyers and law firms face uncertainty when managing potential conflicts in their practices. In 1990 in Martin, the Supreme Court of Canada called upon the governing bodies of the legal profession to develop standards for institutional conflict screening mechanisms that would satisfy the public that no disclosure of confidential information would occur when a lawyer transfers to a firm that is acting adverse to the lawyer's former client. The Canadian Bar Association and provincial law societies developed such standards, and from that time until the Ontario Court of Appeal's decision in Chartis, firms could be confident that if a lateral hire created a potential conflict they could nevertheless continue to act if they addressed that conflict through the timely implementation of a comprehensive conflict screen. Chartis firmly established that even strict compliance with law society screening guidelines may not be enough to guard against being removed from the record, making conflict management more precarious for the practising bar.

Third, and perhaps most importantly, where the courts hold that a lawyer has a conflict of interest but fail to order disqualification, there is a real risk of a loss of public trust in the integrity of the administration of justice. In McKercher, McLachlin CJ rightly noted: "Disqualification may be required to send a message that the disloyal conduct involved in the law firm's breach is not condoned by the courts, thereby protecting public confidence in lawyers and deterring other law firms from similar practices." (12) Observing the result of cases like Neil and McKercher, in which no remedy was ordered in respect of a lawyer's conflict of interest, it is difficult not to conclude that, at times, lawyers are able to breach their duty of loyalty and professional responsibilities with impunity."

The legal profession and litigants require a better understanding of the circumstances in which counsel will be disqualified from acting due to a conflict of interest.

This paper discusses the findings of a comprehensive empirical study examining how courts across Canada have understood and applied the law respecting lawyers' conflicts of interest. Specifically, the study considered the decisions in 1,283 motions for the removal of counsel between 1990 and 2018 -- all Canadian reported decisions on disqualification motions since the Supreme Court of Canada's decision in MacDonald Estate v Martin (14)--evaluating: the basis on which the motion was asserted; the basis on which any conflict was found; the court's findings regarding any screening mechanisms employed; any findings that the motion was brought for tactical reasons; and the remedy ordered.

The data collected and analyzed in this study discloses prevailing trends in the judicial determination of conflict of interest allegations and helps demystify when and why courts will order the disqualification of counsel.

Part I of this article summarizes how Canadian common law has developed to address allegations that lawyers ought to be disqualified from continuing to act due to a conflict of interest, considering four leading Supreme Court of Canada decisions--MacDonald Estate v Martin, R v Neil, Celanese Canada Inc v Murray Demolition Corp'' and Canadian National Railway Co v McKercher LLP (16)--as well as two decisions of the Court of Appeal for Ontario. Part II outlines the study's goals and methodology. Part III reviews the data and examines the study's findings. Part IV discusses conclusions drawn from the data, as well as insights gleaned from the study that lawyers can consider when advising clients and managing their practices.

  1. Background: Development of the Law Respecting Lawyers' Conflicts of Interest

    1. Former Clients and Other Conflicts Arising from the Possession of Relevant Confidential Information

      (i) MacDonald Estate v Martin

      The starting point on any motion for disqualification of counsel is the Supreme Court of Canada's 1990 decision in MacDonald Estate v Martin. (17) Martin arose in the context of an action in which a junior lawyer who had acted for the appellant took a job with the law firm acting for the respondent. The appellant sought to remove the firm due to the risk that her confidential information could be disclosed or used against her. (18)

      Although divided on how to approach the issue, the Supreme Court of Canada was unanimous that the law firm had to be disqualified from acting. (19)

      Writing for the majority, Sopinka J noted that the Court must be concerned with competing policy values that arise when one party...

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