"The Bright Line: The Decision of R. v. Neil and its Impact on the Business of Law in Canada", Harper Grey LLP Law Bulletin

April 2003

By Kimberly J. Jakeman and Shanti M. Davies

The Supreme Court of Canada decided the case of R. v. Neil ("Neil")1 on November 1, 2002, and declared that a business conflict is now a legal conflict. As a result, the landscape of client relationships, particularly for national law firms, must change.

Lawyers and their firms were told they owe a full three-dimensional duty of loyalty—not just confidentiality—to their clients. The dimensions: the duty of avoiding conflicting interests,2 the duty of committing to the client's cause3 and the duty of being candid with the client on matters relevant to the retainer, or in other words, conflicts of interest.4

II. The Duty of Loyalty from Martin v. Gray to Neil
The Neil decision expands the concept of conflict of interest explained by the Supreme Court of Canada in its earlier decision, MacDonald Estate v. Martin better known as Martin v. Gray.5 In that case, the Court concentrated on conflicts of interest that might arise when lawyers transfer from one firm to another, taking with them confidential information about their former clients. The various judgements in this case focused on misusing confidential information as the crucial element in defining a lawyer's disqualifying conflict-of-interest.6 Sopinka J., speaking for the Court majority, said that the test to determine whether a lawyer or firm ought to be disqualified was whether "the possibility of real mischief" existed in a way that, "the public, represented by the reasonably informed person, would be satisfied that no use of the confidential information would occur."

A fundamental theme in Martin v Gray is that maintaining the integrity of the legal profession sets a standard of professional conduct that ensures there is not even the appearance of impropriety in the practice of law. This theme goes beyond the protection of confidences; it extends to the fairness, integrity and appearance of judicial administration.7

The two cases, Neil and Martin v. Gray, rest on the shoulders of even earlier Canadian cases suggesting that confidentiality is not the exclusive criterion for disqualifying a lawyer or firm from acting against a former client. Those cases list disloyalty and breach of fiduciary duty as operative factors to be considered.8

One such case is R. v. Speid.9 The case involved the murder of an infant, Latoya Nugent, allegedly by Speid. He had been involved with the infant's mother, Ms. Nugent, who was now the Crown's chief witness against him at his trial.

Ms. Nugent had previously been charged with the murder of her daughter. Her lawyer, Lockyer, talked to her about her defence, but he and his partner, Pinofsky, also conferred about the matter. Ms. Nugent later changed solicitors and pleaded guilty to manslaughter in exchange for the information that prompted the murder charge against Speid. Pinofsky accepted a retainer to defend Speid. The prosecutor asserted that Speid's new lawyer would have a conflict of interest in taking an adversarial position in cross-examining his firm's former client.

Dubin J.A., as he then was, agreed and stated:

A client has the right to professional services. Miss Nugent had the right as well as Mr. Speid. It was fundamental to her rights that her solicitor respect her confidences, and that he exhibit loyalty to her. A client has every right to be confident that the solicitor retained will not subsequently take an adversarial position against the client with respect to the same subject-matter that he was retained on. That fiduciary duty… is not terminated when the services rendered have been completed.

In Stewart v. Canadian Broadcasting Corp. et al,10 the Ontario Court General Division considered whether a criminal lawyer could work on a television program based on a case handled by the lawyer. Stewart, the lawyer's client, was convicted of criminal negligence causing death during a motor-vehicle accident. A decade later, his former lawyer helped the CBC recreate the case dramatically, even acting as host. Stewart objected strenuously. When he could not stop the show from airing, he sued the lawyer and the broadcaster. He won $2,500 for emotional suffering, plus $3,250 for disgorgement—the amount of compensation CBC provided the lawyer to act as the host. The case is not one of conflict of interest, but it explores a situation when the fiduciary duty that a lawyer owes to a client extends beyond the termination of the retainer.

MacDonald, J. in Stewart said in his decision:

Fiduciary duties implicit in a counsel-and-client relationship are not terminated by the conclusion of the… relationship, they continue. In such circumstances, the issue is one of determining whether any new interaction between counsel and former client is subject to any duty arising out of, and continuing from, the… relationship.11

III. A Closer Look at the Neil Decision
Now, more than ten years after its seminal decision in Martin v. Gray, the Supreme Court of Canada had the opportunity in Neil to address the concepts of loyalty and the dimensions of this concept as the doctrinal basis for disqualification. It's decision also declares that defining a disqualifying conflict-of-interest involves more than the issue of confidentiality. In Neil, the Court says that a law firm and its lawyers owe a duty to avoid conflicting interests, a duty of commitment to the client's cause and a duty of candour.

The facts are complex. David Neil ran a paralegal business in Edmonton for years, assisted by Helen Lambert. He regularly consulted solicitor "Pops" Venkatraman about issues arising in his files. When Mr. Venkatraman told him that matters exceeded his competence, he referred clients to Venkatraman's law firm. The Law Society of Alberta saw things differently, and considered that Neil was acting in many instances as a lawyer. In October 1999, it supplied the prosecutor's office in Edmonton with complaints that Neil provided legal advice contrary to the Alberta Legal Profession Act.12 The police investigation ultimately led to a 92-count indictment against Neil.

The conflict-of-interest aspect mainly concerned the activities of Venkatraman's associate, Gregory Lazin. He shared office space and some facilities with the firm in 1994. The trial judge found that by January 1, 1995, Lazin was a member of the firm for purposes of conflict of interest and confidentiality, and that by May 1, 1995, his practice had merged with Venkatraman's firm; Lazin had become an employee.

The 92 counts against Neil were divided into five separate indictments. The appeal to the Supreme Court of Canada was concerned with two of them. The first trial involved charges that Neil fabricated court documents in a divorce case called Doblanko. A second group of charges related to an alleged scheme to defraud a trust company. Neil and Lambert were said to have combined their efforts to obtain mortgages from the trust company on behalf of clients whose credit-worthiness would have been rejected if their identity had been disclosed.

The conflicts of interest involving the Venkatraman firm sprang from two sources:

(i) In the trust-company indictment, the law firm acted simultaneously for Neil in the criminal proceedings and his business associate, Helen Lambert, in the Doblanko divorce at a time when it knew, or ought to have known, that she would also be charged in the trust-company case, with an interest adverse to Neil. Two members of the firm visited Neil at the Remand Centre on April 18, 1995, including Lazin, the lawyer from Venkatraman. At the time, he was the lawyer for Neil's assistant, Lambert. The trial judge concluded that Lazin was only there to collect information from Neil that would be useful to him in his defence of Lambert in the anticipated criminal proceedings. Lazin's plan was to run a "cut-throat defence"; he would paint Neil as the manipulative criminal and Lambert as an innocent target. He later became her defence counsel and eventually offered the Crown a deal: Lambert would testify against Neil in return for dropping the charges against her. Obviously, none of this was in Neil's interest.

(ii) About three months later, Lazin, as a member of the law firm, was approached by Darren Doblanko, whose wife had obtained a divorce some years earlier with Neil's help. She had innocently relied on two court documents, prepared by Neil, that were false. At the suggestion of the trial judge in Doblanko's divorce, Lazin urged his client to report the forgery to the police. Lazin even steered Doblanko to the same officer responsible for the trust company file and other cases pending against Neil.

A jury convicted Neil of the Doblanko charges but the judge delayed sentencing by agreement until after the four indictments concluded. During the trust-company trial, the Venkatraman firm tried to avoid testifying and the conflict came to light. The trial judge declared a mistrial on the trust-company charges, stayed the Doblanko proceedings and declined to preside over the re-trial of trust-company case, saying those proceedings ought to be stayed as well.

The Crown took the matter to the Alberta Court of Appeal. That Court concluded the lawyers did not disclose to Doblanko "any confidential information attributable to a solicitor-and-client relationship" with an existing client.13 Accordingly, it ruled the stay was unwarranted, vacated it and remitted the Doblanko matter back to the trial judge for sentencing.

Neil appealed the Alberta Court of Appeal's decision to the Supreme Court of Canada. The SCC found that the Venkatraman firm owed a duty of loyalty to Neil at the material time. Therefore, the firm should have refused Doblanko's retainer, since he was one of Neil's alleged victims in proceedings before civil court at the same time as it "maintained" a solicitor-client relationship with Neil in the trust-company matters simultaneously pending in criminal court. In doing so, it said the Doblanko mandate, while factually and legally unrelated to the trust-company matters, was adverse to Neil's interest. Binnie J., speaking for the court, held that the Venkatraman firm, as fiduciary, could not serve two masters at the same time. However, he said that this was not a case that warranted a stay of proceedings since the conduct of the law firm did not affect the fairness of the Doblanko trial. Given that the charges were serious and would almost certainly have been laid in any event, and considering that there was no issue of confidential information, the prosecution of the Doblanko charge was not an abuse of process.

He explained the duty of loyalty in the legal profession by noting its advancement back in the 1800s:

The defining principle-the duty of loyalty-is with us still. It endures because it is essential to the integrity of the administration of justice, and it is of high public importance that public confidence in that integrity be maintained…14 Unless the litigant is assured of the undivided loyalty of the lawyer, neither the public nor the litigant will have confidence that the legal system, which may appear to them to be a hostile and hideously complicated environment, is a reliable and trustworthy means of resolving their disputes and controversies.15

Binnie J. went on to discuss the scope of the duty of loyalty. He noted that while the Court is most often preoccupied with the uses and misuses of confidential information where there's an effort to disqualify a lawyer from further acting in the matter, as in Martin v. Gray, the duty of loyalty to current clients includes a much broader principle of avoiding conflicts of interest in which confidential information might play a role. He cited the decision of Drabinsky v. KPMG16 where Drabinsky sought an injunction restraining the accounting firm he retained from further investigating the financial records of a company in which he was an executive. Ground J., grouping together lawyers and accountants, said at p. 567:

I am of the view that the fiduciary relationship between the client and the professional advisor, either a lawyer or an accountant, imposes duties on the fiduciary beyond the duty not to disclose confidential information. It includes a duty of loyalty and good faith and a duty not to act against the interests of the client.

Next, Binnie J. agreed with the trial judge that the solicitor-client relationship between Venkatraman and Neil predated the events in question, and continued through them. He then considered the House of Lords decision in Prince Bolkiah v. KPMG,17 which dealt specifically with the basis for disqualification where conflicts arise between existing clients of accountants. The House of Lords observed on page 234 that, "the duties of an accountant cannot be greater than those of a solicitor, and may be less," and went on to compare the duty owed by accountants to former clients, where the concern is largely with confidential information, and the duty owed to current clients, where the duty of loyalty prevails, no matter whether there is a disclosure of confidential information.

IV. The Importance of the Neil Decision 
Neil reinforces the fact that a lawyer's fiduciary duty to a client involves more than simply protecting client confidences, and that a lawyer's duty of loyalty is linked with the fiduciary nature of the lawyer-client relationship. Neil mirrors Professor Donovan Waters' definition of a fiduciary:

In putting together words to describe a "fiduciary," there is of course no immediate obstacle. Almost everybody would say that it is a person in whom trust and confidence is placed by another on whose behalf the fiduciary is to act. The other (the beneficiary) is entitled to expect that the fiduciary will be concerned solely for the beneficiary's interests, never the fiduciary's own. The "relationship" must be the dependence or reliance of the beneficiary upon the fiduciary.18

At paragraph 19 of the Neil judgement, Binnie J. says, "the aspects of the duty of loyalty relevant to this appeal do include issues of confidentiality… but also engage more particularly three other dimensions: the duty to avoid conflicting interests; a duty of commitment to the client's cause; and a duty of candour."

Conflict of Interest
The duty to avoid conflicting interests requires lawyers to avoid situations where their personal interests conflict with those of their clients, or where the interests of one client conflict with the interests of another client. In the Neil case, loyalty required the Venkatraman firm to focus on the interests of Neil without being distracted by other interests—including personal ones.

Binnie J. suggested that part of the reason the conflict arose may have been Venkatraman lawyer Lazin's desire to hold on to a piece of litigation. He observed that "Lazin's response, when asked about the ethical issue of acting for Helen Lambert, was that maybe `it was a question of not wanting to give up the file.'" From the point of view of Binnie J., "the duty of loyalty includes putting the client's business ahead of the lawyer's business."

It seems clear that lawyers ought to take a prudent approach in determining whether a new retainer has the possibility of conflicting with an existing one. A lawyer's desire to hold on to a particular file that is likely to give rise to divided loyalties is unacceptable given that the lawyer, as fiduciary, is duty-bound to avoid conflicting interests.

Commitment
The duty of commitment to the client's cause requires lawyers and their firms doing whatever they can properly do on the client's behalf, just as surely as if the client had the skills and training to do the job personally. The duty of commitment necessarily prohibits representing two or more clients, to whom the lawyer cannot give complete dedication. Human nature being what it is, Neil shows that solicitors cannot give their exclusive, undivided attention to the interests of their clients if they are torn between the interests of one client and those of another to whom he also owes the same duty of loyalty, dedication and good faith.

Candour
The duty of candour requires the client be among the first to hear about a conflict, as soon as practicable after one emerges. Of particular significance in the judgement are Binnie J.'s comments regarding the duties of law firms in protecting their clients from conflict-of-interest situations. At paragraph 28, he states:

It is the firm, not just the individual lawyer, that owes a fiduciary duty to its clients, and a bright line is required. The bright line is provided by the general rule that 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 after receiving full disclosure (and preferably independent legal advice), and the lawyer reasonably believes that he or she is able to represent each client without adversely affecting the other. [emphasis added]

The duty to be candid with a client is an important element of the duty of loyalty. Neil belatedly learned that his lawyer put evidence before the divorce court of his client's further wrongdoing: forgeries of Doblanko divorce documents. Understandably, Neil felt betrayed by the lawyers he had trusted to act in his best interests. Lazin failed to be candid with Neil, at a time when Lazin knew, or ought to have known, that there was a "substantial risk" that his firm's representation of Neil would be materially and adversely affected by his duties to Lambert.

V. Consequences for National and Regional Law Firms, and their Clients
The decision in Neil acknowledges that conflict searches in a national firm's records may belatedly turn up files in another office, which a lawyer may not have been aware of. In addition, the lawyer conducting the search might not even be acquainted with the partner on the other side of the country who is in charge of the file. Further, conflict searches involving several offices of the same firm are often inefficient and do not turn up conflicts before they become a problem. Nonetheless, the Supreme Court of Canada held that business-development strategies must adapt to legal principles regarding conflict of interests, rather than the other way around.

In Neil, the Court places the spotlight on national law firms and their duty of loyalty owed to clients. The law firm, as well as the individual lawyer, is a fiduciary, and therefore, cannot serve two masters at the same time. Even unrelated actions may conflict with the duty of loyalty owed to the client, and the clients' interests need not be directly opposite. In the decision, Binnie J. adopts the notion of conflict as a "substantial risk that the lawyer's representation of the client would be materially and adversely affected by the lawyer's own interests or by the lawyer's duties to another current client, a former client, or a third person."19

Screening methods such as Chinese Walls may have some use in limiting access to confidential client information; however, they cannot overcome a firm's duty to give absolute loyalty to its clients. It may be that the Chinese Wall defence can, in some cases, rebut the presumption that lawyers who work together share confidences. However, this theory only works in successive representation cases, not in cases of concurrent representation where there is a conflict of loyalties.20

In some circumstances, a lawyer who faces a conflict may be able to obtain consent-preferably after obtaining independent legal advice-from all parties involved in the conflict, and continue the representation. These situations will be the exception because the majority of clients will not knowingly consent to have their counsel act concurrently for another client with adverse interests. Furthermore, in some cases client consent itself may not be sufficient to establish that the ethical obligations have been met. The recent decision of Mr. Justice A. Campbell, in Chiefs of Ontario v. Ontario is one such case. In that decision the scope of the consent obtained by the firm was found to be inadequate to cover the "degree of adversity"21 between the firm and the former client, which the court found was "direct and extreme."22 Further the Chinese wall the firm erected was "at least two months too late" and was "inadequate because it did not address the nature and scope of the earlier or proposed retainer or the potential conflict."23 The judgement also makes it clear that the evidentiary onus is upon the law firm "when it wants to attack a former client." 24

As Binnie J. recognizes, his 'bright line' prohibition is likely to have a major impact on the way in which large law partnerships, and especially national firms, conduct business. Certainly, national firms, with offices in major centres across Canada, will have to be more cautious before accepting retainers likely to cross the bright line.

ENDNOTES

1. (October 20, 1998), Doc. Edmonton 9603 - 0497C0 (Alta Q.B.) reversed (October 6, 2000) Doc. Edmonton Appeal 9803 - 0536 - A, (Alta. C.A.) which was affirmed (November 1, 2002), Doc. 28282 (S.C.C.).
2. Davey v. Wooley, Hames Dale & Dingwall (1982), 35 O.R. (2d) 599 (C.A.) and Services environmentaux Laidlaw (Mercier) Ltee. v. Quebec (Procurer general), [1995] R.J.Q. 2393 (C.A.), including the lawyer's personal interest: Szarfer v. Chodos (1986), 54 O.R. (2d) 663 (H.C.) aff'd (1988), 66 O.R. (2d) 350 (C.A.); Moffat v. Wetstein (1996), 29 O.R. (3d) 371 (Gen. Div.); Stewart v. Canadian Broadcasting Corp. (1997), 150 D.L.R. (4th) 24 (Ont. Ct. (Gen. Div.)).
3. This is sometimes referred to as "zealous representation", and it starts from the time counsel is retained, not just at trial, i.e. ensuring a divided loyalty does not cause lawyers to "soft peddle" their defence of a client out of concern for another client, as in R. v. Silvini (1991), 5 O.R. (3d) 545 (C.A.); R. v. Widdifield (1995), 25 O.R. (3d) 161 (C.A.); R. v. Graham, [1994] O.J. No. 145 (QL) (Prov. Div.)
4. R. v Henry (1990), 61 C.C.C. (3d) 455 (Que. C.A.) per Gendreau J.A., at page 465; Spector v. Ageda, [1971] 3 All E.R. 417 (Ch. D.), at page 430; Canadian Bar Association, Code of Professional Conduct (1988), c. 5, Commentary 4-6. If a conflict emerges, the client should be among the first to hear about it.
5. (March 17, 1989), Doc. 452188, [1989] 3 W.W.R. 653, 58 D.L.R. (4th) 67, 57 Man. R. (2d) 161 (Man. C.A.) reversed, [1991] 1 W.W.R. 705, 77 D.L.R. (4th) 249, 121 N.R. 1, [1990] 3 S.C.R. 1235, 48 C.P.C. (2d) 113, 70 Man. R. (2d) 241 (S.C.C.).
6. Disqualifying Conflicts of Interest in the Legal, Accounting, and Consulting Professions in Canada and in England, (Case Comm.) Drabinsky v. KPMG (1998), 10 C.B.R. (4th) 130 (Ont. Div. Ct.); Bolkiah v. KPMG, [1999] 1 All E.R. 517 (U.K.H.L.) by Paul M. Perell. (Jan. 2001) 24 Advocates' Quarterly. 109-120.
7. Perell, Paul M., Drabinsky v. KPMG and Prince Jefri Bolkiah - Disqualifying Conflicts of Interest in the Legal Accounting and Consulting Professions in Canada and England (2001) 24 Advocates' Quarterly 109.
8. Sinclair v. Ridout [1955] O.R. 167 (H.C.); MTS International Services Inc v. Warnat Corporation Ltd. (1980), 118 D.L.R. (3d) 561, 31 O.R. (2d) 221, 18 C.P.C. 212 (H.C.J.); Dzamba v. Hurst (1988), 63 O.R. (2d) 790, 25 C.P.C. (2d) 103 (S.C.); Canada Trustco Mortgage Co. v. Corkum (1991), 105 N.S.R. (2d) 230, 49 C.P.C. (2d) 90 (S.C.); R. v. (B.P.) (1992), 71 C.C.C. (3d) 392 (B.C.S.C.); Ontario Hydro v. Ontario (Energy Board) (1994), 114 D.L.R. (4th) 341, 71 O.A.C. 227, 25 Admin. L.R. (2d) 211 (Div. Ct.), leave to appeal to Ont. C.A. refused 25 Admin. L.R. (2d) 211n, leave to appeal to S.C.C. refused 89 O.A.C. 319n; La Banque provincial du Canada v. Adjutor Levesque Roofing Ltd. (1968), 68 D.L.R. (2d) 340 (N.B.C.A.); R. v. Robillard (1986), 28 C.C.C. (3d) 22, 14 O.A.C. 314, 23 C.R.R. 364 (C.A.); Enerchem Ship Management Inc. v. Coastal Canada (The), [1988] 3 F.C. 421, 83 N.R. 256 (C.A.); Moffat v. Westein (1996), 135 D.L.R. (4th) 298, 29 O.R. (3d) 371, 5 C.P.C. (4th) 128 (Gen. Div.), leave to appeal to refused 144 D.L.R. (4th) 188 (Ont. Ct. (Gen. Div.)).
9. (1983), 43 O.R. (2d) 596, 37 C.R. (3d) 220, 3 D.L.R. (4th) 246, 8 C.C.C. (3d) 18 (C.A.).
10. (1997), 150 D.L.R. (4th) 24, additional reasons 152 D.L.R. (4th) 102 (Ont. Gen. Div.).
11. Stewart v. Canadian Broadcasting Association et al. (1997), 150 D.L.R. (4th) 24, additional reasons 152 D.L.R. (4th) 102 (Ont. Gen. Div.), quoting at Re R. and Speid (1983), 43 O.R. (2d) 596, 3 D.L.R. (4th) 246, 37 C.R. (3d) 220, 8 C.C.C. (3d) 18 (C.A.).
12. Alberta Legal Profession Act, S.A. 1990, c. L-9.1
13. ((2000). 266 A.R. 363, 2000 ABCA 266 at para. 4).
14. Binnie J. cited the decision of MacDonald Estate v. Martin, [1990] 3 S.C.R. 1235 at pp. 1243 and 1265 and Tanny v. Gurman, [1994] R.D.J. 10 (Que. C.A.) for this proposition.
15. R. v. McClure, [2001] 1 S.C.R. 445, 2001 (S.C.C.) 14, 151 C.C.C. (3d) 321, 195 D.L.R. (4th) 513, at para. 2; Smith v. Jones, [1999] 1 S.C.R. 455, 132 C.C.C. (3d) 225, 169 D.L.R. (4th) 385, As O'Conner J.A. (now A.C.J.O.) observed in R. v. McCallen (1999), 43 O.R. (3d) 56 at p. 67, 131 C.C.C. (3d) 518: …the relationship of counsel and client requies clients, typically untrained in the law and lacking the skills of advocates, to entrust the management and conduct of their cases to the counsel who act on their behalf. There should be no room for doubt about counsel's loyalty and dedication to the client's case.
16. (1998), 41 O.R. (3d) 565, 45 B.L.R. (2d) 196 (Gen. Div.), affd 10 C.B.R. (4th) 130, 56 C.L.A.S. 382, 33 C.P.C. (4th) 318 (Ont. Div. Ct.)
17. [1999] 2 A.C. 222; [1999] 2 All E.R. 517 (H.L.).
18. D.W.M. Waters, "The Development of Fiduciary Obligations", in R.. Johnson et al eds., Gerard V. La Forest at the Supreme Court of Canada - 1985-1997 (2000), 81, at p. 83.
19. The Law Governing Lawyers (2000), vol. 2, at pp. 244-45; para. 121 of the Restatement Third
20. Anon., The Chinese Wall Defense to Law Firm Disqualification, (1980) 128 U. Pa. L. Rev. 677.
21. Chiefs of Ontario v. Ontario [2003] O.J. No. 580, pg 10
22. Chiefs of Ontario v. Ontario [2003] O.J. No. 580, pg 11
23. Chiefs of Ontario v. Ontario [2003] O.J. No. 580, pg 16
24. Chiefs of Ontario v. Ontario [2003] O.J. No. 580, pg 18