Supreme Court rules on what is a breach of the "bright line rule."

In Canadian National Railway Co. v. McKercher LLP, McKercher LLP was acting for CN on several matters when, without CN’s consent or knowledge, it accepted a retainer to act for the plaintiff in a $1.75 billion class action against CN. CN first learned that McKercher was acting against it in the class action when it was served with the statement of claim. McKercher hastily terminated all retainers with CN, except for one which CN terminated. CN applied to strike McKercher as the solicitor of record in the class action due to an alleged conflict of interest. The motion judge granted the application and disqualified McKercher. The Court of Appeal overturned the motion judge’s order. The S.C.C. allowed the appeal & remitted back to the Court of Queen’s Bench for redetermination of a remedy.

Chief Justice McLachlin wrote as follows (at paragraphs 2-5, 9-11, 66-67):

“McKercher LLP (“McKercher”) is a large law firm in Saskatchewan. The Canadian National Railway Company (“CN”) retained McKercher to act for it on a variety of matters. In late 2008, McKercher was acting for CN on three ongoing matters: a personal injury claim concerning a rail yard incident in which children had been injured; the purchase of real estate; and the representation of CN’s interests as a creditor in a receivership. As well, two of its partners held power of attorney from CN for service of process in Saskatchewan.

At the same time, the McKercher firm accepted a retainer from Gordon Wallace (“Wallace”) to act against CN in a $1.75 billion class action based on allegations that CN had illegally overcharged Western Canadian farmers for grain transportation. It is not contested on appeal that the Wallace action was legally and factually unrelated to the ongoing CN retainers.

The McKercher firm did not advise CN that it intended to accept the Wallace retainer. CN learned this only when it was served with the statement of claim on January 9, 2009. Between December 5, 2008, and January 15, 2009, various McKercher partners hastily terminated their retainers with CN, except on the real estate file, which was terminated by CN.

Following receipt of the statement of claim, CN applied for an order removing McKercher as solicitor of record for Wallace in the class action against it, on the grounds that the McKercher firm had breached its duty of loyalty to CN by placing itself in a conflict of interest, had improperly terminated its existing CN retainers, and might misuse confidential information gained in the course of the solicitor-client relationship.

…McKercher’s concurrent representation of CN and Wallace fell squarely within the scope of the bright line rule. The bright line rule was engaged by the facts of this case: CN and Wallace were adverse in legal interests; CN has not attempted to tactically abuse the bright line rule; and it was reasonable in the circumstances for CN to expect that McKercher would not concurrently represent a party suing it for $1.75 billion. McKercher failed to obtain CN’s consent to the concurrent representation of Wallace, and consequently breached the bright line rule when it accepted the Wallace retainer.

In addition to its duty to avoid conflicts of interest, a law firm is under a duty of commitment to the client’s cause which prevents it from summarily and unexpectedly dropping a client in order to circumvent conflict of interest rules, and a duty of candour which requires the law firm to advise its existing client of all matters relevant to the retainer. I conclude that McKercher’s termination of its existing retainers with CN breached its duty of commitment to its client’s cause, and its failure to advise CN of its intention to accept the Wallace retainer breached its duty of candour to its client. However, McKercher possessed no relevant confidential information that could be used to prejudice CN.

As regards the appropriate remedy to McKercher’s breaches, I conclude that the only concern that would warrant disqualification in this case is the protection of the repute of the administration of justice. A breach of the bright line rule normally attracts the remedy of disqualification. This remains true even if the lawyer-client relationship is terminated subsequent to the breach. However, certain factors may militate against disqualification, and they must be taken into consideration. As the motion judge did not have the benefit of these reasons, I would remit the matter to the Queen’s Bench for redetermination in accordance with them.

…The motion judge concluded that the appropriate remedy was to disqualify McKercher from the Wallace action. He based this conclusion on a variety of factors — in particular, he focused on what he perceived to be CN’s justified sense of betrayal, the impairment of McKercher’s ability to continue to represent CN on the ongoing retainers, and the risk of misuse of confidential information. Some of these considerations were not relevant. Here, disqualification is not required to prevent the misuse of confidential information. Nor is it required to avoid the risk of impaired representation. Indeed, the termination of the CN retainers that McKercher was working on ended the representation. The only question, therefore, is whether disqualification is required to maintain public confidence in the justice system.

As discussed, a violation of the bright line rule on its face supports disqualification, even where the lawyer-client relationship has been terminated as a result of the breach. However, it is also necessary to weigh the factors identified above, which may suggest that disqualification is inappropriate in the circumstances. The motion judge did not have the benefit of these reasons, and obviously could not consider all of the factors just discussed that are relevant to the issue of disqualification. These reasons recast the legal framework for judging McKercher’s conduct and determining the appropriate remedy. Fairness suggests that the issue of remedy should be remitted to the court for consideration in accordance with them."

Note: This summary is drawn from Eugene Meehan’s SupremeAdvocacy Weekly Updates for the Law Community.