Today the Supreme Court of Canada issued its judgment in Canadian National Railway Ltd. v. McKercher LLP 2013 SCC 30. The decision does not break new ground, but it does clarify the rules governing conflicts between two current clients of a law firm - i.e., that a law firm may not act for clients with directly adverse legal interests, even in matters that are unrelated, without the client's consent. That "bright line" rule had been the subject of debate and argument amongst the Canadian legal community, with the Canadian Bar Association arguing that the bright line should only create a rebuttable presumption. The Supreme Court held that the rule was still in place. At the same time, they arguably qualified its application insofar as they made it clear that "the bright line rule does not apply in circumstances where it is unreasonable for a client to expect that its law firm will not act against it in unrelated matters." (para 37). In addition, they were clear that disqualification of the law firm is not an automatic response to a finding of conflicts. Disqualification is required where there is a risk of misuse of confidential information, to avoid the risk of impaired representation or to protect the administration of justice. When the last of those is at stake the Court may take into account "(i) behaviour disentitling the complaining party from seeking the removal of counsel, such as delay in bringing the motion for disqualification; (ii) significant prejudice to the new client’s interest in retaining its counsel of choice, and that party’s ability to retain new counsel; and (iii) the fact that the law firm accepted the conflicting retainer in good faith, reasonably believing that the concurrent representation fell beyond the scope of the bright line rule and applicable law society restrictions." (para. 65)
The Supreme Court's decision is brief and relatively clear, which is a welcome change from some of its earlier decisions. Indeed, at least one of those decisions is so confusing that, in my view, the Supreme Court does not properly analyze it here. I am not entirely sure that the actual result is a good one (although I'm also not sure that it isn't), and certainly I think it will be burdensome for law firms to manage, with results that may not always be in the public interest. The results will depend on how lower courts apply it, and in particular whether they are willing not to disqualify.
On the facts of the case the law firm had acted for CNR on some matters, but CNR also employed other firms in Saskatchewan. The firm then took on a major class action against CNR without CNR's knowledge. When CNR objected the firm sought to withdraw from the files on which it had acted for the company. The Supreme Court found this to be a conflict, but remitted the question of whether the firm should be removed from the class action to the trial court. Removing the firm from the class action would, in my view, be potentially inhibitive to the administration of justice. CNR may not (as the Supreme Court says) have spread its work around Saskatchewan for tactical reasons, but it also seems plausible to think that it would be somewhat difficult for the class action plaintiffs to find qualified counsel willing or able to act against CNR. CNR may also (as the Supreme Court says) not have been tactical in its objection to the firm acting against them, but I also find it difficult to believe that their major concerns were not trying to interupt the progression of the class action. That isn't unacceptable of course, and is true in many conflicts cases, but it also seems clear that this is not a case where the law firm is the party with the most power in this relationship. It is once we know whether the firm is disqualified that the real implications of this decision will start to emerge.