Wallace v. Canadian Pacific Railway et al., (2011) 375 Sask.R. 218 (CA)

• Judge: Lane, Ottenbreit and Caldwell, JJ.A.
• Court: Court of Appeal (Saskatchewan)
• Case Date: September 08, 2010
• Jurisdiction: Saskatchewan
• Citations: (2011), 375 Sask.R. 218 (CA);2011 SKCA 108

Wallace v. CPR (2011), 375 Sask.R. 218 (CA);

    525 W.A.C. 218

MLB headnote and full text

Temp. Cite: [2011] Sask.R. TBEd. OC.002

Gordon Wallace (plaintiff/non-party) v. Canadian Pacific Railway, Canadian National Railway, and Her Majesty the Queen as Represented by the Minster of Transport; The Canadian Transportation Commission; The National Transportation Agency and The Canadian Transportation Agency (defendants/non-parties) and McKercher LLP (appellant/respondent) and Canadian National Railway (respondent/applicant)

(1859)

Gordon Wallace (appellant/plaintiff) v. Canadian National Railway (respondent/defendant) v. Canadian Pacific Railway, Canadian National Railway, and Her Majesty the Queen as Represented by the Minster of Transport; The Canadian Transportation Commission; The National Transportation Agency and The Canadian Transportation Agency (defendants/non-parties)

(1913; 2011 SKCA 108)

Indexed As: Wallace v. Canadian Pacific Railway et al.

Saskatchewan Court of Appeal

Lane, Ottenbreit and Caldwell, JJ.A.

September 28, 2011.

Summary:

McKercher LLP (McKercher) had been representing CN for 10 years. Wallace hired McKercher to sue CN and others in a proposed class action. CN applied for an order removing McKercher as solicitors of record for Wallace due to an alleged conflict of interest. In support of its application, CN filed an affidavit of Chouc, its Assistant Vice-President, General Counsel and Managing Partner. McKercher opposed CN's application to have it removed and applied for leave to cross-examine Chouc on his affidavit.

The Saskatchewan Court of Queen's Bench, in a decision reported at 338 Sask.R. 174, allowed the application for leave to cross-examine.

The Saskatchewan Court of Queen's Bench, in a decision reported at 344 Sask.R. 3, ordered that McKercher be disqualified from acting further in the action against CN. McKercher appealed. CN filed a notice of motion to quash McKercher's appeal on the basis that it was not a party in the Wallace action and had no standing to appeal. Wallace filed a notice of motion to extend the time for him to bring an appeal, on grounds identical to those set out in McKercher's notice of appeal.

The Saskatchewan Court of Appeal, per Smith, J.A., allowed the application. See 350 Sask.R. 249; 487 W.A.C. 249.

The Saskatchewan Court of Appeal allowed the appeals. McKercher had not gained, as a result of acting for CN, any confidential information which could prejudice CN if McKercher continued to act on the Wallace claim. However, McKercher had breached its duty of loyalty to CN: (1) respecting its commitment to CN respecting its CN files; and (2) respecting its duty of candour about taking on the Wallace claim. That said, while CN might have a basis to complain to the Law Society, McKercher should not be disqualified from acting on the Wallace claim.

Barristers and Solicitors - Topic 787

Duty to court - Disqualification of counsel - When available - Grounds - The plaintiff (Wallace) commenced a proposed class action against the Canadian National Railway (CN) and others - CN applied for an order removing McKercher LLP (McKercher) as solicitors of record for Wallace due to an alleged conflict of interest - McKercher had acted for CN for over a decade - The chamber judge held that the appropriate remedy was disqualification - To permit McKercher to continue would be an "affront to fair play and decency" - The nature of the Wallace action drafted by McKercher conflicted fundamentally and directly with the duty of loyalty it owed to CN - Additionally, "dumping " an existing client in order to clear the deck to sue that client was an ethical breach - The Saskatchewan Court of Appeal agreed that McKercher had breached its duty of loyalty to CN: (1) respecting its commitment to CN respecting its CN files; and (2) respecting its duty of candour about taking on the Wallace claim - However, McKercher's disqualification would diminish the plaintiff's choice of counsel in Saskatchewan and might require him to retain counsel from outside the province - CN was not without a remedy - It had the option of suing for damages - CN could also complain to the Law Society respecting McKercher's alleged ethical breaches - The circumstances in their totality did not justify disqualification - The retainers were unrelated factually, legally and strategically - There was no element of confidential information which could be used to CN's prejudice - CN was not a vulnerable client but a professional litigant - The McKercher/CN relationship was terminated - The public's confidence in the legal system and the high standards of the legal profession would not be diminished by McKercher's continued representation of Wallace - See paragraphs 1 to 29 and 104 to 116.

Barristers and Solicitors - Topic 787

Duty to court - Disqualification of counsel - When available - Grounds - The plaintiff (Wallace) commenced a proposed class action against the Canadian National Railway (CN) and others - CN applied for an order removing McKercher LLP (McKercher) as solicitors of record for Wallace due to an alleged conflict of interest - McKercher had acted for CN for over a decade - The chamber judge granted the order, holding, inter alia, that McKercher was disqualified on the basis that it was in possession of confidential information - McKercher had received confidential information relating to CN's litigation practices, policies, risk tolerances and attitudes toward litigation - Confidential information of this nature had been imparted to McKercher such that its current client would have an unfair advantage if McKercher was permitted to continue to act against CN on the class action lawsuit - The Saskatchewan Court of Appeal disagreed - In a case such as this where none of the matters handled by McKercher for CN at the time McKercher took on the Wallace claim were related either factually or by subject matter, CN had the onus to adduce cogent evidence that McKercher had acquired knowledge of its practices, procedures and defence strategies that would rise to the level of confidential information so as to demonstrate a real risk that it could be used to CN's prejudice on the Wallace claim - CN had not done so - The chamber judge misapprehended the evidence - See paragraphs 1 to 29 and 65 to 80.

Barristers and Solicitors - Topic 788

Duty to court - Disqualification of counsel - Standing - The plaintiff (Wallace) commenced a proposed class action against the Canadian National Railway (CN) and others - CN applied for an order removing McKercher LLP (McKercher) as solicitors of record for Wallace due to an alleged conflict of interest - McKercher had acted for CN for over a decade - The chamber judge granted the order - McKercher and Wallace appealed - CN argued that McKercher lacked standing - The Saskatchewan Court of Appeal held that McKercher had standing in its own right on the appeal - Queen's Bench Rules 38(1) and 38(2) applied - The motion clearly affected the rights and interests of not only Wallace, but also McKercher - McKercher was in fact subject to any ruling the court made - The chamber judge clearly treated McKercher as a party and it was implicit that McKercher was a party - For the purpose of the disqualification motion, McKercher undoubtedly had standing as a party in its own right to appeal the chamber judge's decision - It would not be fair and just to hold otherwise - See paragraphs 39 to 41.

Barristers and Solicitors - Topic 1545

Relationship with client - Duty to client - General - Obligation of loyalty - [See first Barristers and Solicitors - Topic 787 and third Barristers and Solicitors - Topic 1610 ].

Barristers and Solicitors - Topic 1545

Relationship with client - Duty to client - General - Obligation of loyalty - The plaintiff (Wallace) commenced a proposed class action against the Canadian National Railway (CN) and others - CN applied for an order removing McKercher LLP (McKercher) as solicitors of record for Wallace due to an alleged conflict of interest - McKercher had acted for CN for over a decade - The chamber judge stated that "dumping " an existing client in order to clear the deck to sue that client was an ethical breach - The Saskatchewan Court of Appeal held that the chamber judge correctly characterized McKercher's behaviour as "dumping" CN - The court stated that "McKercher made no effort to continue to act on the Pulp Mill matter. CN had to learn of McKercher's termination of its retainer with CN from a third party. McKercher's efforts to contact CN respecting the personal injury matter in advance of acting on the Wallace claim were feeble at best. McKercher did make an effort to continue to handle the real estate matter. As it was, CN chose to terminate this retainer. ... McKercher's peremptory termination of all of its retainers with CN but one is surely a lack of commitment to the client's cause and a breach of the duty of loyalty to CN on those matters. It was incumbent on McKercher to continue to act where it could as long as CN wanted it to do so, or at least to explore the possibility of doing so." - See paragraph 106.

Barristers and Solicitors - Topic 1583

Relationship with client - Termination of relationship - Withdrawal by lawyer - General - [See second Barristers and Solicitors - Topic 1545 ].

Barristers and Solicitors - Topic 1610

Relationship with client - Conflict of interest or duties - Conduct of action against client - The Saskatchewan Court of Appeal stated that "The CBA Task Force on Conflicts of Interest (CBA Task Force on Conflicts of Interest, Conflicts of Interest: Final Report, Recommendations & Toolkit (Ottawa: Canadian Bar Association, 2008)), at p. 43, pointed out the apparent conflict between the substantial risk principle (adopted in Neil [2002 SCC], at para. 31) and the 'Bright Line'/ Unrelated Matter Rule (adopted in Neil at para. 29). It went on to propose a principled method for resolving the apparent conflict: 'We therefore conclude that the Unrelated Matter Rule and the Substantial Risk Principle are reconcilable. If there is a substantial risk that the lawyer's representation of the current client would be materially and adversely affected by the matter, the lawyer may not act, whether or not the matters are unrelated. ... 'Accordingly, we conclude that the appropriate interpretation of Neil and Strother [2007 SCC] (which also reconciles the minority reasons in Strother) is that, absent proper consent, a lawyer may not act directly adverse to the immediate interests of a current client unless the lawyer is able to demonstrate that there is no substantial risk that the lawyer's representation of the current client would be materially and adversely affected by the new unrelated matter.' The chamber judge adopted the CBA Task Force's report on this point at paras. 43 and 44 of his judgment. In my view, this statement of the law is an appropriate statement of the applicable approach to conflict analysis for breaches of a lawyer's duty of loyalty to clients post-Neil and -Strother." - See paragraph 60.

Barristers and Solicitors - Topic 1610

Relationship with client - Conflict of interest or duties - Conduct of action against client - The Saskatchewan Court of Appeal stated that "Where the adverse representation is with respect to an unrelated matter and there is no danger of misuse of confidential information, consideration can be given to an appropriate remedy, which is something other than disqualification. ... in these kinds of cases, disqualification is neither automatic nor necessarily preferred." - See paragraph 62.

Barristers and Solicitors - Topic 1610

Relationship with client - Conflict of interest or duties - Conduct of action against client - The plaintiff (Wallace) commenced a proposed class action against the Canadian National Railway (CN) and others - CN applied for an order removing McKercher LLP (McKercher) as solicitors of record for Wallace due to an alleged conflict of interest - McKercher had acted for CN for over a decade - The chamber judge granted the order - McKercher and Wallace appealed - CN submitted that the "Bright Line" Rule from Neil (2002 SCC) was an absolute prohibition and, absent express informed consent of both clients, McKercher could not represent Wallace, whose interests were directly adverse to its immediate interests, even if the two matters were unrelated - The Saskatchewan Court of Appeal rejected the submission - Neil did not create an absolute prohibition against law firms transacting adversely to the interest of its clients - It was not the law, as CN argued, that the mere fact that McKercher acted for Wallace against it was sufficient to constitute a breach of the duty of loyalty and that it was not necessary for the chamber judge to do any further analysis - The Codes of Professional Conduct allowed lawyers to act adversely against current and former clients under certain conditions - Neil itself enunciated two exceptions to the "Bright Line" Rule: (1) the Professional Litigant Exception, where acting adverse in interest was permissible where the client actually or impliedly consented; and (2) where the party seeking the disqualification did so for tactical reasons which, in this case, the chamber judge found did not occur - If these exceptions did not apply, then the starting point for analysis was the "Bright Line" Rule/substantial risk principle adopted by the chamber judge - See paragraphs 81 and 82.

Barristers and Solicitors - Topic 1610

Relationship with client - Conflict of interest or duties - Conduct of action against client - In Neil (2002 SCC) the court enunciated two exceptions to the "Bright Line" Rule: (1) the Professional Litigant Exception, where acting adverse in interest was permissible where the client actually or impliedly consented; and (2) where the party seeking the disqualification did so for tactical reasons - The Saskatchewan Court of Appeal discussed the Professional Litigant exception - The court stated that "The salient features of those exceptional cases mentioned in Neil when consent may be inferred or expressed to allow a law firm to act adverse in interest appear to be: (a) the client is a larger corporate client such as a government or bank; (b) the matters are sufficiently unrelated; and (c) there is no danger of confidential information being abused. Binnie, J.'s, articulation of this exception in Neil implies that in those circumstances, it is reasonable to assume that the client will have a broad-minded attitude and generally accept that counsel may act adverse in interest. The corollary to this is that it is reasonable for the law firm to make such an assumption and act on it. There may be, in my view, a fourth factor bearing on when the Professional Litigant Exception will apply and that is whether, in the circumstances, its application is consistent with the high standards of the legal profession and the integrity of the justice system." - See paragraph 84.

Barristers and Solicitors - Topic 1610

Relationship with client - Conflict of interest or duties - Conduct of action against client - The Saskatchewan Court of Appeal stated that "the professional litigant exception can be justified on a principled basis where the client is not one 'typically untrained in the law and lacking the skills of advocates', and where in fiduciary law language there is less of a relationship of 'dependence or reliance of the beneficiary upon the fiduciary'." - See paragraph 87.

Barristers and Solicitors - Topic 1610

Relationship with client - Conflict of interest or duties - Conduct of action against client - The plaintiff (Wallace) commenced a proposed class action against the Canadian National Railway (CN) and others - CN applied for an order removing McKercher LLP (McKercher) as solicitors of record for Wallace due to an alleged conflict of interest - McKercher had acted for CN for over a decade - The chamber judge granted the order - McKercher and Wallace appealed - The Saskatchewan Court of Appeal allowed the appeals - The court held, inter alia, that the Professional Litigant Exception to the Bright Line Rule applied - Given the factual matrix in this case, it was reasonable for CN's consent to McKercher acting on even a claim as large as Wallace's to be implied - The salient features of an exceptional case were present: a large corporate client, a relatively low dependency on McKercher for legal services, low vulnerability related thereto, sufficiently unrelated matters, and no danger of confidential information being abused - CN's subsequent expressed non-consent could not vitiate the finding of implied consent - If a professional litigant took the view that any counsel acting for it had to receive express consent before acting adverse in interest, it should be dealt with by contract or at least made known to the lawyer - Where McKercher handled relatively few CN files, it was not inimical to confidence in the profession and legal system to allow McKercher to act for other clients adverse in interest who might have specifically chosen McKercher to do so - See paragraphs 81 to 103.

Barristers and Solicitors - Topic 1611

Relationship with client - Conflict of interest or duties - Conduct of action against former client - [See third Barristers and Solicitors - Topic 1610 ].

Barristers and Solicitors - Topic 1617

Relationship with client - Conflict of interest or duties - Situations not resulting in a conflict - [See sixth Barristers and Solicitors - Topic 1610 ].

Barristers and Solicitors - Topic 1618

Relationship with client - Conflict of interest - Remedies - [See first Barristers and Solicitors - Topic 787 and second Barristers and Solicitors - Topic 1610 ].

Barristers and Solicitors - Topic 1619

Relationship with client - Conflict of interest or duties - Situations resulting in a conflict - [See first Barristers and Solicitors - Topic 787 ].

Barristers and Solicitors - Topic 1621

Relationship with client - Duty of confidentiality (or professional secrecy) - General - [See second Barristers and Solicitors - Topic 787 ].

Cases Noticed:

R. v. Neil (D.L.), [2002] 3 S.C.R. 631; 294 N.R. 201; 317 A.R. 73; 284 W.A.C. 73; 2002 SCC 70, appld. [para. 25].

3464920 Canada Inc. v. Strother et al., [2007] 2 S.C.R. 177; 363 N.R. 123; 241 B.C.A.C. 108; 399 W.A.C. 108; 2007 SCC 24, appld. [para. 25].

Housen v. Nikolaisen et al., [2002] 2 S.C.R. 235; 286 N.R. 1; 219 Sask.R. 1; 272 W.A.C. 1; 2002 SCC 33, refd to. [para. 38].

Farm Credit Corp. v. Valley Beef Producers Co-operative Ltd. et al. (2002), 223 Sask.R. 236; 277 W.A.C. 236; 218 D.L.R.(4th) 86; 2002 SKCA 100, refd to. [para. 38].

MacDonald Estate v. Martin and Rossmere Holding (1970) Ltd., [1990] 3 S.C.R. 1235; 121 N.R. 1; [1991] 1 W.W.R. 705; 70 Man.R.(2d) 241, refd to. [para. 43].

Chapters Inc. v. Davies, Ward & Beck LLP (2001), 141 O.A.C. 380; 52 O.R.(3d) 566 (C.A.), refd to. [para. 67].

Ramsbottom v. Morning (1991), 48 C.P.C.(2d) 177 (Ont. Gen. Div.), refd to. [para. 70].

GM & A Advertising Ltd. v. Chubb Insurance Co. of Canada, [1994] O.J. No. 1676 (Gen. Div.), refd to. [para. 70].

Ontario Hydro v. Ontario Energy Board (1994), 71 O.A.C. 227; 114 D.L.R.(4th) 341 (Div. Ct.), refd to. [para. 70].

Walsh v. TRA Co. et al. (2009), 283 Nfld. & P.E.I.R. 94; 873 A.P.R. 94; 2009 NLTD 9, refd to. [para. 72].

Canadian Pacific Railway Co. v. Aikins, MacAulay & Thorvaldson (1998), 123 Man.R.(2d) 281; 159 W.A.C. 281; 157 D.L.R.(4th) 473 (C.A.), refd to. [para. 73].

Moffat v. Wetstein (1996), 29 O.R.(3d) 371 (Gen. Div.), refd to. [para. 85].

Petro-Lon Canada Ltd. v. Petrolon Distribution Inc. (1995), 19 B.L.R.(2d) 123 (Ont. Gen. Div.), dist. [para. 97].

Pennock v. United Farmers of Alberta Co-operative Ltd. (2008), 433 A.R. 285; 429 W.A.C. 285; 296 D.L.R.(4th) 239; 2008 ABCA 278, dist. [para. 97].

Collins v. Wright, [1988] O.J. No. 389 (H.C.), dist. [para. 97].

Hebert v. Vautour et al. (1994), 146 N.B.R.(2d) 311; 374 A.P.R. 311 (T.D.), dist. [para. 97].

Statutes Noticed:

Queen's Bench Rules (Sask.) - see Rules of Court (Sask.), Queen's Bench Rules.

Rules of Court (Sask.), Queen's Bench Rules, rule 38(1), rule 38(2) [para. 40].

Authors and Works Noticed:

Canadian Bar Association, Code of Professional Conduct, c. 5, Commentary 12 [para. 58].

Canadian Bar Association, Task Force on Conflicts of Interest, Conflicts of Interest: Final Report, Recommendations & Toolkit (2008), p. 43 [para. 60].

Law Society of Saskatchewan, Code of Professional Conduct, c. 5, Commentary 8 [para. 58].

Counsel:

Gavin MacKenzie, for the appellant;

Douglas Hodson, Q.C., for the respondent.

These appeals were heard on September 8, 2010, by Lane, Ottenbreit and Caldwell, JJ.A., of the Saskatchewan Court of Appeal. Ottenbreit, J.A., delivered the following decision for the court on September 28, 2011.