Two-tier test for conflicts?

Justice Ian Nordheimer, sitting as a single judge of the Divisional Court, recently granted leave to appeal from a decision of Justice Alfred J. O’Marra. The latter had declared that the boutique law firm Lloyd Burns McInnis LLP (“LBM”) could continue as counsel for a group of insurers despite the fact that a lawyer who had acted for the opposing party had joined LBM.

The case is H.M.Q. v. Chartis Insurance, 2014 ONSC 6792 (CanLII). The action is between Her Majesty the Queen (as plaintiff) and two insurance companies. (A number of other insurers are third parties.)

A particular lawyer, Michael Foulds, was practising with the firm Theall Group LLP, which represented Her Majesty. He was heavily involved in the file.

According to the reasons of Nordheimer J., at “the urging of” Douglas McInnis of LBM,  Mr. Foulds left the Theall Group and joined LBM. It is apparently intended that he will work closely with Mr. McInnis (although not, obviously, on this file).

LBM proposed that an ethical screen be erected to address the conflict of interest that would result from Mr. Foulds’ move. However, the plaintiff did not consider that any ethical screen could adequately deal with the situation and asked that McInnis withdraw as lawyers for the defence. The firm refused and applied for a declaration that it was entitled to continue.

Justice O’Marra stressed the right of a litigant to counsel of his or her choice and noted that Mr. McInnis had expended 400 hours on this case already. He was satisfied that the measures proposed by LBM would adequately address the conflict situation and that the plaintiff would be prejudiced by having to retain new counsel.

HMQ sought leave to appeal the decision. Justice Nordheimer thought that his colleague might have reversed the onus dictated by the Supreme Court’s decision in MacDonald Estates v. Martin, 1990 CanLII 32 (CSC), [1990] 3 S.C.R. 1235. Justice Nordheimer said that “it is not clear to me that the motion judge approached this matter from the perspective that there was a presumption that LBM should be disqualified, unless LBM could rebut that presumption. Instead, the motion judge appears to have treated the matter as a balancing act between the moving party’s concern over the imparting of its confidential information to opposing counsel and the responding parties’ right to counsel of their choice”.

Justice Nordheimer concluded that there was good reason to doubt the correctness of Justice O’Marra’s decision and granted leave to appeal. However, I was struck by one comment that he made, in which he appeared to be of the view that the presumption of conflict would be less easily discharged by a boutique law firm than by a larger firm:

LBM is a fourteen member boutique firm. This is not a law firm of hundreds of lawyers operating out of multiple offices. The potential for inadvertent disclosure of confidential information is therefore heightened in this case. When one adds to that reality the fact that it was, and is, intended that Mr. Foulds will work closely with Mr. McInnis on other matters, including on matters for the responding parties, the potential for inadvertent disclosure of confidential information increases even more.

This is an interesting issue. Might it be the case that, no matter how airtight the conflict screen, LBM or firms like them will simply be incapable of rebutting the presumption of conflict due to their size? If so, what is the threshold size of firm at which this would start to become a concern? And what evidence, if any, could be marshalled to address the issues arising from a firm’s small size? Would the lawyer in question have to give evidence about his or her personal relationship with the lawyer in the firm still working on the file? About their other files together?

And would someone from a large firm be expected to provide the same sort of evidence, or would the simple fact of the firm’s large size be sufficient?

The appeal decision should be interesting.

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