Dow Chemical Canada Inc. v. Nova Chemicals Corporation, 2011 ABQB 509

Court of Queen ’ s Bench of Alberta Citation: Dow Chemical Canada Inc. v. Nova Chemicals Corporation, 2011 ABQB 509 Date: 20110812 Docket: 0601 07921 Registry: Calgary Between: Dow Chemical Canada Inc. and Dow Europe Gmbh Plaintiffs - and - Nova Chemicals Corporation Defendant _______________________________________________________ Reasons for Judgment Chief Justice Neil Wittmann _______________________________________________________ INTRODUCTION [ 1 ] Courts have decided many cases on the issue of a disqualifying conflict of interest when one lawyer moves to a new firm.

Most of the authorities address the issue in fact situations where pre-transfer retainers exist. That is, those situations where the moving or transferring lawyer comes from a firm retained by an involved party in a law suit and the lawyer’s new firm had been retained before the move by another party to the suit. [ 2 ] This case is somewhat unique, at least in Alberta, in that it involves the situation of a post-transfer retainer. That is the situation where after the moving lawyer moves, the new firm is retained by a party to the litigation, while the lawyer’s former firm remains retained by one of the parties.

Central to the disposition of the issue is a consideration of the proper test to be applied in these

circumstances and the application of it. FACTS [ 3 ] The material facts in this matter are not in dispute. The Claims [ 4 ] Dow Chemical Canada Inc. and Dow Europe GmbH (“Dow”) are Plaintiffs in an action against Nova Chemicals Corporation (“Nova”). Dow and Nova are co-owners of a plant near Joffre, Alberta where ethylene is processed. The plant is operated by Nova.

Dow claims against Nova pursuant to a Joint Venture Agreement and other agreements to be entitled to a sum in excess of $300 million as the result of Nova breaching those agreements. [ 5 ] Nova brought counter-claims against Dow seeking damages in the amount of approximately $700 million. Dow’s Statement of Claim was issued in June of 2006, and has been amended twice. Dow’s latest Amended Amended Statement of Claim dated September 17 th , 2010, was the subject of a contested application: Dow Chemical Canada Inc. v. Nova Chemicals Corporation 2010 ABQB 524 . The pleadings appear closed on January 31 st , 2011.

History of Counsel for Nova [ 6 ] Nova retained Osler, Hoskin & Harcourt in Calgary (“Oslers”), on or about June 8 th , 2006, to advise in relation to issues that had arisen in relation to the operation and co-ownership of the ethylene plant and its pending dispute with Dow, and in July 2006 with respect to the defence of Dow’s Statement of Claim in this matter which was filed in June 2006. From the commencement of the retainer until late 2007, James H. Smellie and Andrew Little, partners at Oslers in Calgary, were responsible for representing Nova’s interests in the action.

In late 2007, Smellie left Oslers to join another law firm, Gowlings LLP, and Little was in charge of the retainer for a brief period of time, until November 19 th , 2007, at which time John J. Marshall, Q.C. of Macleod Dixon LLP in Calgary was retained by Nova to act as co-counsel with Oslers, to represent Nova in this action. History of Counsel for Dow [ 7 ] Burnet, Duckworth and Palmer was retained by Dow in July 2004, in relation to the dispute in the current action and will continue to be co-counsel of record with Bennett Jones, in the event that Bennett Jones is permitted to accept its retainer by Dow.

The lead counsel for Dow at Burnet, Duckworth and Palmer is Barry Crump. On December 14 th , 2010, Dow retained Len Sali, Q.C., and Blair Yorke-Slater, Q.C., partners at Bennett Jones in Calgary, to represent them as co-counsel in the action. On December 24 th , 2010, Crump notified Oslers that Bennett Jones had been retained by Dow to act as co-counsel in the action. Circumstances of the Bennett Jones retainer [ 8 ] The evidence of Mark Bradley, General Counsel for Dow Canada, details why Dow felt it necessary to search for and obtain co-counsel with Burnet, Duckworth and Palmer.

He states that by 2010, the litigation had been pending for 4 years and had not then advanced to the discovery stage. He stated that Dow determined it was necessary to retain additional trial and litigation counsel with the skills, experience and resources to cull through an enormous record, isolate the relevant and material records and master those materials for presentation to the Court. The decision to obtain co-counsel was based on the complexity of the case, the money at issue, and a stated requirement that Dow wanted a counsel with outstanding trial and litigation skills and resources.

Bradley referred in his evidence to the necessity to quickly review hundreds of thousands of pages of documents and facts. He referred to Dow seeking trial counsel with a “proven track record of being able to work productively with opposing counsel to expeditiously bring complete litigation to an end.”

[ 9 ] Bradley says that he identified candidates meeting those requirements and after preliminary screening, identified six Calgary firms, including Bennett Jones and one Edmonton firm. Of these seven firms, three declined because of a conflict. Dow ultimately interviewed counsel from three firms including Bennett Jones. Bradley’s evidence goes on to state that the only firm which met the requirements of Dow was Bennett Jones and that one of the most important factors in Dow’s decision to retain Bennett Jones was “the availability and commitment of Mr.

Sali to take the role as lead litigator and trial counsel”. [ 10 ] Bradley stated that Sali “not only had the required skill and experience, but had specific and extensive experience with stepping into other complex matters and expeditiously preparing them for trial or other court resolution - the exact set of qualifications Dow was seeking in the action.” Further, Bradley stated that at the time Dow retained Bennett Jones, it was unaware that a former counsel to Nova in the litigation was a current partner in the Toronto office of Bennett Jones, that no representative of Dow has had any contact with Andrew Little with respect to Nova since he joined Bennett Jones, nor would they contact him in the future.

Circumstances of the Transfer of Andrew Little from Oslers to Bennett Jones [ 11 ] Little joined the Toronto office of Bennett Jones from the Calgary office of Oslers on June 1 st , 2008. Bradley G. Nemetz, Q.C. as Chair of Bennett Jones’ Conflicts Committee provided Little with a copy of the firm’s Conflicts Policy on or about May 13 th , 2008, together with a copy of an undertaking that Little executed prior to joining the firm as a partner. The Conflicts Policy of Bennett Jones is detailed and lengthy.

It explains the duty of loyalty owed to all current clients and the duty of confidentiality owed to potential clients, and all current and former clients. It also sets out applicable rules, including a description of its screening devices or ethical walls, where sensitive and confidential information must be protected. [ 12 ] Attached as schedules to the Conflicts Policy of Bennett Jones is the Law Society of Alberta Code of Professional Conduct,

Chapter 6 - “Conflicts of Interest” and

Chapter 7 - “Confidentiality”, the Law Society of Upper Canada Rules of Professional Conduct, Rule 2.04 and 2.05.

The undertaking that Bennett Jones required Little to acknowledge was that he had been provided with a copy of the Conflicts Policy and included Little’s agreement that he “will not disclose to Bennett Jones or use for the benefit of Bennett Jones or its clients, confidential information obtained in my prior employment.” As stated, the undertaking and Conflicts Policy was sent to Little in May 2008, before he transferred to Bennett Jones and the undertaking was signed and returned to Bennett Jones before June 1 st , 2008.

Details of Oslers’ Representation of Nova [ 13 ] According to the evidence, including Little’s own admissions on cross-examination on his Affidavit, he appeared on at least two motions related to the Nova pleadings, was involved in document issues and in drafting a number of key memoranda. He also attended key meetings with James Smellie and Nova personnel. [ 14 ] In addition, Little was the primary drafter of Nova’s pleadings.

He also helped develop the positions taken in Nova’s Statement of Defence and Counterclaim and generally advised Nova with respect to it’s relationship with Dow while the action progressed. He worked on other matters for Nova from 1998 to 2008. Nova Evidence [ 15 ] Two affidavits were filed on behalf of Nova, one by Ronald Kemle, Vice-President and Deputy General Counsel for Nova and the other, by Graham Flint, Vice-President Olefins Business Development for Nova. The evidence of Flint corroborated Little’s involvement with Nova as detailed above.

Flint’s expression of concern over Bennett Jones’ representing Dow includes this statement at paragraph 10 of his Affidavit: When I engage a lawyer to prosecute a dispute on behalf of NOVA Chemicals, I do not expect that lawyer to join our enemy’s law firm. Similarly, when a lawyer who has been deeply involved with NOVA Chemicals in the early but very formative strategic stages of a very significant lawsuit against Dow, goes to a law firm that has not been previously involved in the lawsuit, in my opinion that law firm should not be allowed to take on representation of Dow.

It should be important that not only justice should be done, but that justice should be seen to be done.

[16] Kemle’s affidavit also details the involvement of Little and Smellie at Oslers representing Nova and the retainer of Marshallat Macleod Dixon as co-counsel after the departure of Smellie in late 2007. Kemle also indicated that he reviewed correspondence between Marshall and Yorke-Slater of Bennett Jones, including a letter from Yorke-Slater to Marshall, January 5th, 2011 that stated: We have a Neil consent permitting us to act adverse to Nova and it’s affiliates in matters unrelated to existing mandates.

The Dow matteris unrelated. [17] That letter referred to a retainer letter January 21st, 2009 which set forth the retainer of Bennett Jones by Nova on animmigration matter which included an agreement that Nova would allow “Bennett Jones to act against Nova on matters unrelated to itscurrent retainers.” [18] Kemle indicated that he was prepared to have Bennett Jones act against Nova but that consent of Nova was never intended toextend to the present situation whereby Bennett Jones could act against Nova in this action.

He further stated that had he contemplatedthis situation developing, he would not have given the consent contained in the “Immigration Retainer” in its current form, because hewould be unable and unwilling to accept any risk of Little inadvertently leaking Nova’s confidential information to members of BennettJones who would be representing Dow. [19] Kemle also indicated he has reviewed the affidavits of Nemetz and Little and does “appreciate that Bennett Jones LLP hastaken steps to establish an ‘ethical wall’ to isolate Mr.

Little’s confidential information from those at Bennett Jones LLP proposing to actfor Dow.” He goes on to state that despite these steps, he has concern, as does Nova’s senior management, about the Bennett Jonesretainer. The Ethical Wall [20] The evidence discloses that in January 2011, upon becoming aware of Nova’s concerns expressed through Marshall, primarily to Yorke-Slater, Yorke-Slater made a statutory declaration on January 6th, 2011 detailing 12 persons in addition to himself and in somecases their assistants, who were working on the Dow file.

The statutory declaration states that he will not discuss the file with anyone atBennett Jones except those members of the team involved in the file and he attached undertakings signed by those working on the fileincluding Sali. All electronic documents are to be protected by an ethical wall with access only to those working on the file. Alsoincluded is an undertaking to report any breach to the Conflicts Committee of Bennett Jones. He makes the statutory declaration pursuantto

Chapter 6 of the Code of Professional Conduct of the Law Society of Alberta and states he makes the declaration conscientiously,believing it to be true, and knowing it is of the same force and effect as if made under oath. The evidence includes statutory declarationsfrom all persons who will work on the file. THE APPLICATION [21] The application before me, brought by Bennett Jones, is for a declaration that Bennett Jones is permitted to represent Dow inthis action.

THE LAW [22] It is not unusual in matters where there is little if any factual dispute for counsel to cite many of the same authorities insupport of a position that urges an opposite result. This case is no exception. Both counsel cite the following: The Law Society ofAlberta, Code of Professional Conduct,

Chapter 6, Rules 1, 4; MacDonald Estate v. Martin, (SCC), [1990] 3 S.C.R.1235; Canada Southern Petroleum v. Amoco Canada Petroleum Co. (1996), (AB KB), 195 A.R. 1, (Q.B.), aff’d(1997), 1997 ABCA 71 , 193 A.R. 273 (C.A.); Bank of Montreal v. Dresler, 2002 NBCA 69; Dreco Energy Services Ltd. v.Wenzel Downhole Tools Ltd., 2006 ABQB 718; Robertson v. Slater Vecchio (A Partnership), 2008 BCCA 306. [23] The seminal case is MacDonald Estate. In that case, a junior lawyer, who was formerly counsel for the appellant, transferredher employment to Thompson Dorfman Sweatman, the law firm acting for the respondent. The junior lawyer was actively involved in

the case assisting senior counsel from 1983 to 1985 and was privy to many confidences disclosed by the appellant, assisting in the preparation of many documents, prepared and attended at Examinations for Discovery and was present when settlement was discussed with representatives of the opposing law firm. She also participated in an Examination de bene esse .

The junior lawyer joined another firm upon the appointment of senior counsel for the appellant to the bench in 1985, but then in 1987 joined Thompson Dorfman Sweatman. [ 24 ] The majority of the Supreme Court of Canada, per Sopinka J., determined the appropriate standard to be applied in deciding whether Thompson Dorfman Sweatman was disqualified from continuing to act. Three competing values were identified at paragraph 16. First, the maintenance of the high standards of the legal profession and the integrity of the justice system.

Secondly, the value to a litigant in choosing counsel, not to be deprived of that choice without good cause and thirdly, the desirability of permitting reasonable mobility in the legal profession. Of note, in the reasons of Sopinka J., is the following: 1. Merger and the movement of lawyers from one firm to another are familiar attributes of the modern practice of law (paragraph 18). 2. Fundamental professional standards must be maintained and improved as essential to public confidence in the legal profession. (paragraph 18). 3.

The codes of ethics or codes of conduct of the governing bodies of the legal profession in each province are to be considered an important statement of public policy (paragraph 21). 4. The Courts have an inherent jurisdiction to remove the lawyer having a disqualifying conflict of interest and are not bound to apply a code of ethics or a code of conduct (paragraph 21). 5.

Imputed knowledge of confidential information from one member to the rest of the firm, is an important issue (paragraphs 46, 50). [ 25 ] The appropriate test ... “must be such that the public, represented by the reasonably-informed person, would be satisfied that no use of confidential information would occur”.

This is an overriding policy that applies and must inform the Court in answering the question whether there is a disqualifying conflict of interest in any case where the client does not consent to, but is rather objecting to, the retainer which gives rise to the issue (paragraph 47). [ 26 ] Sopinka J. went on to indicate that typically two questions must be answered.

One, whether the transferring lawyer received confidential information attributable to a solicitor-client relationship relevant to the matter in dispute and two, whether there is a risk that it will be used to the prejudice of the client. [ 27 ] With respect to the second question, Sopinka J. was clear in stating that a lawyer who has relevant confidential information cannot act against his client or former client, and went so far as to declare that in those cases disqualification is “automatic” (paragraph 50).

This is so, regardless of any assurances or undertakings not to use the information. [ 28 ] However, Sopinka J. went on to state as follows in paragraph 50: The answer is less clear with respect to the partners or associates in the firm. Some courts have applied the concept of imputed knowledge. This assumes that the knowledge of one member of the firm is the knowledge of all. If one lawyer cannot act, no member of the firm can act. This is a rule that has been applied by some law firms as their particular brand of ethics.

While this is commendable and is to be encouraged, it is, in my opinion, an assumption which is unrealistic in the era of the mega-firm. Furthermore, if the presumption that the knowledge of one is the knowledge of all is to be applied, it must be applied with respect to both the former firm and the firm which the moving lawyer joins. Thus there is a conflict with respect to every matter handled by the old firm that has a substantial relationship with any matter handled by the new firm irrespective of whether the moving lawyer had any involvement with it.

This is the ‘overkill’ which has drawn so much criticism in the United States ...” [ 29 ] To resolve this issue, Sopinka J. indicated that he was not convinced that a reasonable member of the public would necessarily conclude the confidences are likely to be disclosed in every case, despite institutional efforts to prevent it, but that there was a strong inference that lawyers who work together share confidences.

That inference ought to be drawn unless the court is satisfied on the basis of “clear and convincing evidence” that all reasonable measures have been taken to ensure that no disclosure will occur by the “tainted” lawyer to the member or members of the firm who are engaged against the former client. These reasonable measures would include what are now referred to as ethical walls (paragraph 51).

Sopinka J. also concluded that the standards were “sufficiently flexible to permit a solicitor to act against a former client provided that a reasonable member of the public who is in possession of the facts would conclude that no unauthorized disclosure of confidential information had occurred or would occur” (paragraph 52).

[ 30 ] In MacDonald Estate no screening devices or ethical walls were in place. Thompson Dorfman Sweatman was declared disqualified from its continuing representation. [ 31 ] Canada Southern Petroleum involved a transferring lawyer who had represented the plaintiff in the action as the Canadian general counsel in the early 1970s until February 1995, when he left the Toronto offices of Fasken Campbell Godfrey to join the Toronto office of Bennett Jones Verchere.

He possessed confidential information about the plaintiff which could be prejudicial to the plaintiff if communicated, resulting from his long relationship as the Canadian general counsel to the plaintiff.

There was in fact no flow of information between the transferring lawyer and the litigation group in Bennett Jones Verchere and ethical walls were set to ensure that no transfer would occur in the future. [ 32 ] A number of factors specific to the case resulted in Moore C.J. refusing to disqualify Bennett Jones Verchere from acting, including the fact that the application was made 3 weeks into a trial scheduled to last for one year, that parties other than the plaintiff and Bennett Jones Verchere’s client Amoco were affected, because they were co-defendants in the action, and the plaintiff failed to put forward the best evidence it could to suggest that it was or would be prejudiced. [ 33 ] Canada Southern Petroleum is a recognition by the Court of Appeal of Alberta that an important distinguishing feature between MacDonald Estate and the case before it included the fact that the transferring lawyer in MacDonald Estate worked in “the very same office as the lawyers who were working on the litigation at issue but that in Canada Southern Petroleum , the transferring lawyer joined Bennett Jones Verchere in its Toronto office “far removed from the Litigation Group working out of the Calgary office” (at paragraph 32, CA).

In addition, in Canada Southern Petroleum , the Court of Appeal stated that the governing bodies of the profession have put in place detailed rules and guidelines to deal with conflict situations since MacDonald Estate and concluded “... the rules in Alberta require that, where a transferring lawyer possesses confidential information, the new firm must cease to act unless there is compliance with certain requirements set out in the accompanying commentary.

That commentary requires that a court (or the Law Society) be satisfied that the interests of justice require the representation to continue and that reasonable measures have been taken to ensure that no disclosure will occur” (paragraph 38, C.A.). [ 34 ] Canada Southern Petroleum was cited by Lefsrud, J. in the Dreco Energy case which involved an application by the defendant Wenzel Downhole Tools Ltd. to have Fraser Milner Casgrain LLP (“FMC”) disqualified from acting as counsel for Dreco Energy Services Ltd. and Vector Oil Tool Ltd. on the basis of a disqualifying conflict of interest.

FMC acted for Dreco and Vector, the plaintiffs in the action, since July 2002 when the lawsuit originated. Dreco and Vector sued Kenneth H. Wenzel Oilfield Consulting Inc. and KW Downhole Tools Inc. for the breach of a Share Purchase Agreement and a Employment Agreement, which resulted in an injunction against the Wenzel entities in February 2004. [ 35 ] Since March 2004, James Rooney, Q.C. of Rooney Prentice, a Calgary law firm, represented Wenzel Downhole Tools Inc. in connection with an application for re-listing before the Alberta Securities Commission.

Rooney Prentice and its 5 lawyers merged with FMC effective November 1 st , 2005. As the result of a number of mishaps, FMC’s Conflict Policy was not strictly adhered to until December 2005 when FMC implemented a screening mechanism. In January 2006, all of Wenzel Downhole’s Alberta Securities Commission files were sent to another law firm.

In March 2006, Wenzel Downhole brought the application asking the Court to declare that Dreco and Vector’s lawyers at FMC were in a conflict of interest and that FMC be disqualified from acting. [ 36 ] Lefsrud J. indicated that where there was a delay in implementing a screening device, the particular circumstances of the case must be considered in determining whether a late screen is a full answer to the allegation of a conflict of interest.

He reverted to the test of whether a reasonably informed person would be satisfied that no confidential information was communicated to other counsel or used during the material time, so as to undermine the efficacy of the subsequent screen and that this required clear and convincing evidence to discharge the onus on the respondent (paragraph 41).

On the particular facts of the case, he concluded that a reasonably informed person would be satisfied that there was no risk that any confidential information within the knowledge of any Rooney Prentice lawyer would be used to the prejudice of Wenzel Downhole Tools Ltd. and thus dismissed the application for disqualification. [ 37 ] In Slater Vecchio , the transferring lawyer was working as counsel for the defendants in various law suits. He joined the new firm, and was in possession of confidential information. The new firm was acting as counsel for the plaintiffs.

The defendants applied to restrain the new firm from acting. The new firm was a firm of nine lawyers. The new firm set up ethical walls and the transferring lawyer was asked to supply a list of all files in which his former firm was acting for the defence. The Chambers judge had focussed on the issue of firm size and the question of delay in setting up the ethical walls. The appeal also centered around whether the new firm had complied with all of the guidelines set forth in Appendix 5 to the Law Society of British Columbia’s Professional Conduct Handbook

entitled “Conflicts Arising as a Result of Transfer Between Law Firms”, which set out 12 Guidelines adapted from a Canadian Bar Association Task Force report “ Conflict of Interest Disqualification: Martin v. Gray and Screening Methods ” dated February 1993 (The CBA Task Force, 1993)(paragraph 3). Not all of the 12 Guidelines were followed in this case.

In response to the argument that the 12 Guidelines were not followed, Newbury J.A. speaking for the unanimous Court said at paragraph 24: The court must determine, then, not whether each of the Guidelines has been followed to the letter, but whether on the facts of the case the lawyer and his or her firm have met the “difficult burden” of the “reasonable member of the public” test formulated by the majority in MacDonald Estate . [ 38 ] She concluded on the facts of the case before her that the Chambers judge had made no error that he had properly instructed himself with respect to the relevant law both in terms of MacDonald Estate and the Law Society of British Columbia Rules and the Guidelines in Appendix 5.

In the result, the new firm was not disqualified from acting. [ 39 ] In Bank of Montreal , the plaintiff’s lawyer transferred to the defendants’ law firm. The transferring lawyer possessed confidential information, that if disclosed, would prejudice the plaintiff’s case.

In an application for a disqualification order against the transferring lawyer’s new law firm, what was in issue was whether effective and timely screening mechanisms were in place to rebut the inference that lawyers working together share confidences. [ 40 ] In this case, the New Brunswick Court of Appeal applied MacDonald Estate and considered the Law Society of New Brunswick’s “Rules Respecting Conflicts Arising as a Result of a Transfer Between Law Firms” including the CBA Task Force, 1993.

In Bank of Montreal , the transferring lawyer had carriage of the bank’s action against the 3 defendants and then moved to the law firm representing the defendants. At the time, the litigation had advanced no further than the exchange of pleadings, which the transferring lawyer had prepared on behalf of the bank. She moved to the McInnes Cooper firm, counsel for the defendants, in April 2000.

In February of 2001, just prior to the scheduled Examinations for Discovery in March of 2001, the transferring lawyer’s former firm wrote McInnes Cooper and indicated that they objected to the continuing representation of McInnes Cooper because of the conflict that arose because of the lawyer transferring to that firm. [ 41 ] The New Brunswick Court of Appeal considered the law as articulated by the majority of the Supreme Court of Canada in MacDonald Estate as well as the Law Society of New Brunswick’s adoption, with some modifications, of the Federation of Law Societies Model Rule Guidelines developed in 1998 with respect to conflict of interest when lawyers transfer law firms.

As stated by Robertson J.A., the Guidelines were “plagiarized” from the Federation of Law Societies which “followed closely” those crafted by the CBA Task Force, 1993 (paragraphs 21 and 24). [ 42 ] In Bank of Montreal , the Chambers judge disqualified McInnes Cooper from acting.

The New Brunswick Court of Appeal set aside the disqualification order and dismissed the motion on the basis that the Chambers judge did not consider the viability of the ethical screen, reasoning that because of the transferring lawyer’s “intimate involvement” in the litigation, despite the assurances given, were insufficient to rebut the inference that lawyer’s working together share confidences. The Chambers judge made no reference to the screening mechanisms that McInnes Cooper had put in place. Robertson J.A. considered the viability of the screen in terms of its timing and the size of McInnes Cooper.

Robertson J.A. noted at paragraph 83 that there were approximately 20 lawyers in McInnes Cooper’s Fredericton office but that there was no evidence that would suggest that the transferring lawyer could not and did not work independently of the lawyers representing the defendants and that indeed, the affidavit evidence was to the contrary. [ 43 ] Robertson J.A. also discussed disqualification as a tactical weapon in that the CBA Task Force, 1993 was concerned that disqualification applications may be brought solely for tactical reasons and not on the basis of a genuine concern to maintain the integrity of the legal profession and public confidence in the administration of justice.

He declined to comment adversely on the conduct of the litigants or their counsel “except in the clearest of cases”. Ultimately, he applied the MacDonald Estate test of whether the public represented by the reasonably informed person would be satisfied that no use of confidential information would occur. Interestingly, Robertson J.A. posed the test this way at paragraph 96: Bluntly stated, a judge adjudicating on a disqualification motion must look at the issue from the perspective of the disinterested third person lacking legal acumen, but not common sense ... What is paramount is public perception.

As the Task Force observed, the question is not whether in fact the duty of confidentiality has been or will be breached, but whether it appears to the public that the duty has been or will be breached. Justice must be seen to be done (at paragraph 96).

[44] A case involving a post-transfer retainer arose in Saskatchewan in Hill v. Klyveld Peat Marwick Goerdeler (1999) (SK KB), 181 Sask.R. 216 (Q.B.), aff’d (1999) (SK CA), 189 Sask.R. 271 (C.A.). [45] The applicant Klyveld Peat Marwick Goerdeler (“KPMG”) applied for a declaration that the law firm, MacPherson, Leslie &Tyerman (“MLT”), be entitled to continue to represent them in an action. When the action was commenced, KPMG had differentcounsel.

That counsel informed KPMG he was retiring, resulting in KPMG hiring a resident of the Saskatoon office of MLT as counselin July, 1998. [46] Gauley & Company were solicitors of record for Hill. In March 1998 Rachelle Verret moved from Gauley & Company andbecame associated with MLT in its Regina office. Obviously MLT was not acting for KPMG at that time and were retained only in July1998. [47] In February 1999, counsel for Hill raised the issue that Ms.

Verret’s possession of confidential information, having been withGauley & Company and representing Hill, gave rise to a disqualifying conflict of interest preventing MLT from acting. [48] Matheson, J. found there was a disqualifying conflict of interest, that had this conflict of interest been revealed to MLT in July1998, “it seems rather improbable that MLT could have accepted its proposed retainer by the applicant” (paragraph 24). Also, Matheson,J. found this was a different situation than that which arose in MacDonald Estate v.

Martin (a pre-transfer retainer of the lawyer) and thatthe “Rules do not contemplate the erection of a ‘Chinese wall’ to enable a law firm to be retained by a new client when a conflict ofinterest will thereby arise” (paragraph 25). [49] The Saskatchewan Court of Appeal dismissed the appeal but in so doing stated: Ms. Verret was in essentially the same position as the lawyer in MacDonald Estate v.

Martin ... during the period of approximately sixmonths between the date upon which the law firm undertook to act on the file and the date upon which it was notified by the respondentthat it was in a situation of conflict, whereafter a ‘Chinese wall’ was put into place. (paragraph 1) The Court of Appeal simply held that Ms. Verret’s swearing an affidavit that no discussions of the case with other members of the firmhad taken place during the period was “not sufficient” (paragraph 1) and that the result reached by the learned chambers judge wascorrect.

The Court of Appeal also stated that they did not wish to be taken to have approved the suggestion that a law firm can neverundertake a case where it is in a position of conflict at the time of the proposed retainer because that was unnecessary to their conclusion(paragraph 2). [50] In a case not cited by either party, Alcan Inc. v.

Farris, Vaughan, Wills & Murphy, 2004 BCSC 784 , [2004] 9W.W.R. 617 (BCSC), Alcan Inc. (“Alcan”) applied to the court for a declaration that Farris, Vaughan, Wills & Murphy (“Farris & Co.”)was in a conflict of interest and was disqualified from continuing to represent the District of Kitimat (“Kitimat”) in its action againstAlcan. Kitimat had retained Farris & Co. to act on its behalf in August 2002.

An associate at Lawson Lundell Lawson & MacIntosh(“Lawson Lundell”), Christopher Gora, represented Alcan in matters “closely and substantially related” to the Kitimat action whichFarris & Co. conceded resulted in Gora acquiring confidential information from Alcan relevant to the Kitimat action. Gora joined Farris& Co. in December 2000.

As stated, Farris & Co. did not accept the Kitimat retainer until August 2002, but it was not until February2004 that Farris & Co. became aware of the conflict and there was no explanation given as to why it did not discover the conflict earlier. [51] In February 2004, Alcan advised MacIntosh of Gora’s previous involvement with the related litigation and Farris & Co.responded that Gora had had no discussion with any member of the firm or any litigation files involving the Kitimat action since joiningthe firm and that the firm would implement ethical screens consistent with guidelines set out in the Professional Conduct Handbook ofthe Law Society of British Columbia to ensure that Gora would be isolated from the Kitimat action in the future. [52] The adequacy of the screens was not challenged by Alcan; Alcan simply asserted that the erection of the screens was too late,since by February 2004 Farris & Co. had acted for Kitimat for about 17 months.

Also, in this case, there was no evidence before the

court as to what procedures, if any, Farris & Co. had in place to prevent conflicts from arising (paragraph 53). Kirkpatrick, J. reviewedthe authorities extensively including MacDonald Estate.

He noted that it was stated by Sopinka, J. in MacDonald Estate that the courtswould be unlikely to accept the effectiveness of devices such as screening mechanisms until the profession, through its governing bodiesdetermined whether they were effective (paragraph 63) and that the Law Society of British Columbia dealt only with the situation wherethe new firm had “already been retained by a client who is adverse in interest to a former client of the transferring lawyer” (paragraph64). That is, a pre-transfer retainer situation.

He stated that in the case before him, there was no conflict at the time Gora transferred toFarris & Co. but that it was only when Farris & Co. accepted the retainer in the Kitimat action that a conflict arose, that there was noconsent and concluded at paragraph 67: ... it appears that the Law Society of British Columbia’s present position is that, in this province, ethical screens are not an appropriateresponse to a conflict arising, as here, where the firm seeks to represent a party against the former client of one of its members. [53] The learned judge went on to state, however, that even if ethical screens were an appropriate response, they could not in thatcase correct the gap of 17 months and that the 17 months delay was fatal, it was not a timely implementation.

He concluded that askingthe question to balance the three competing values identified in MacDonald Estate, the preservation of the integrity of the justice systemrequired that Farris & Co. be disqualified from continuing to act in the Kitimat action. Consent [54] Several of the cases cited by both parties deal with the issue of consent as do the Codes of Conduct by various Law Societiesincluding instances where the client consents and where it is in the client’s best interests that the lawyer act: e.g. Law Society of AlbertaCode of Professional Conduct,

chapter 6, “Conflicts of Interest” Rule 7. Several authorities were cited by the parties on the issue of Novaconsenting to Bennett Jones’ acting and whether that consent is applicable to the proposed retainer by Dow. [55] In a case not cited by either party, Alberta Union of Provincial Employees v. United Nurses of Alberta, Local 168, 2009ABCA 33, our Court of Appeal has summarized the issue of conflict of interest and consent beginning at paragraph 27. In delivering thejudgment of the majority of the Court, Slatter, J.A. referred to MacDonald Estate, R. v.

Neil, 2002 SCC 70 , [2002] 3 S.C.R. 631and Strother v. 3464920 Canada Inc., 2007 SCC 24 , [2007] 2 S.C.R. 177. In Alberta Union of Provincial Employees (“AUPE”)hired the law firm of Chivers Carpenter on the basis that that law firm would be free to act for the United Nurses of Alberta (“UNA”) inregard to any matter that might adversely affect AUPE. Both AUPE and UNA represented workers in the health care sector.

As a resultof a decision by the Alberta Labour Relations Board (“the Board”) it became apparent that because of a finding by the Board thatmembers of an auxiliary nursing care bargaining unit worked under the supervision of a registered nurse generally, AUPE would have aconcern adverse to UNA. AUPE ultimately applied to the Board for an order disqualifying Chivers Carpenter and withdrew its previousconsent. [56] On appeal, in a judicial review application, Slatter, J.A. considered the validity of the consent in the generic agreement madeprior to the decision of the Board giving rise to the concern of AUPE.

He referred to the seeking of consent and the granting of it withrespect to a “discrete and presently identified file” (paragraph 33) but that a generic consent is not contrary to any principle of publicpolicy and that the withdrawal by AUPE of its consent on the particular facts of the case before him was not sufficient to disentitleChivers Carpenter to act. [57] However, he did not eliminate the possibility of a conflict being so pronounced that even prior consent could not save theretainer (paragraph 49). THE LAW SOCIETY OF ALBERTA’S CODE OF PROFESSIONAL CONDUCT

CHAPTER 6 CONFLICTS OF INTEREST STATEMENT OF PRINCIPLE In each matter, a lawyer’s judgment and fidelity to the client’s interests must be free from compromising influences. RULES 4. When:

(

a) a lawyer transfers from one firm (“former firm”) to another (“new firm”), and (

b) either the transferring lawyer or the new firm is aware at the time of the transfer or later discovers that: (

i) the new firm represents a client in a matter that is the same as or related to a matter in respect of which the former firm represents its client (“former client”), (ii) the interests of those clients in that matter conflict, and (iii) the transferring lawyer possesses relevant information respecting that matter, then the following rules apply: (

c) If the transferring lawyer does not possess confidential information respecting the former client that, if disclosed to a member of the new firm, could prejudice the former client (“prejudicial confidential information”), the new firm and the transferring lawyer must comply with the requirements set forth in the commentary relating to this paragraph (c). (

d) If the transferring lawyer possesses prejudicial confidential information, the new firm must cease to act in the matter unless the new firm and the transferring lawyer have complied with the requirements set forth in the commentary relating to this paragraph (d). COMMENTARY R.4 When: (

a) a lawyer transfers from one firm (“former firm”) to another (“new firm”), and (

b) either the transferring lawyer or the new firm is aware at the time of the transfer or later discovers that (

i) the new firm represents a client in a matter that is the same as or related to a matter in respect of which the former firm represents its client (“former client”), (ii) the interests of those clients in that matter conflict, and (iii) the transferring lawyer possesses relevant information respecting that matter, then the following rules apply: (

c) If the transferring lawyer does not possess confidential information respecting the former client that, if disclosed to a member of the new firm, could prejudice the former client (“prejudicial confidential information”), the new firm and the transferring lawyer must comply with the requirements set forth in the commentary relating to this paragraph (c). (

d) If the transferring lawyer possesses prejudicial confidential information, the new firm must cease to act in the matter unless the new firm and the transferring lawyer have complied with the requirements set forth in the commentary relating to this paragraph (d). C.4 As noted in Commentary G.1, “firm” and “firm member” are defined broadly for the purposes of this Code and, in particular, this chapter. (see

Interpretation ) The increasing movement of lawyers among firms creates particular concerns in the area of conflicts. The priority of a firm engaging an

experienced lawyer must be to minimize fear of former clients of the lawyer with respect to disclosure of confidential information while maintaining the fact and appearance of propriety. Paragraph (

d) of Rule #4 : If the transferring lawyer possesses prejudicial confidential information, the new firm must cease representation of its client in the matter unless: (

a) The former client consents to the continued representation; or (

b) The new firm establishes the following to the satisfaction of the Law Society or a court of law, as the case may be, after notifying its client and the former client (or the former client’s counsel, if represented) of the relevant circumstances and intended action: (

i) It is in the interests of justice that the representation continue having regard to all relevant circumstances, including the adequacy of the measures taken under paragraph (

b) below, the extent of prejudice to any party, the good faith of the parties and the availability of suitable alternative counsel; and (ii) The new firm has taken reasonable measures to ensure that no disclosure to any member of the new firm of the former client’s confidential information will occur. “Consent” comprises several elements, including full disclosure. See the

definitions of “consent” and “disclosure” in

Interpretation . Anyone who has an interest in or who represents a party in a matter referred to in Rule #4 may apply to the Law Society, if a suitable mechanism exists, or to a court of law for a determination of any matter arising under Rule #4. The primary purpose of the rules of this

chapter is protection of the client’s interests. It is unethical for a lawyer to challenge the continued representation of a client by another firm as a tactic and in the absence of any genuine concern as to impropriety. ANALYSIS [ 58 ] Nova has argued that Rule 4 has no application to a post-transfer retainer. A literal

interpretation of the Rule and an examination of the Commentary may support that position. I do not accept the argument that Rule 4 and its Commentary is irrelevant to a post-transfer retainer. Indeed, Rule 4 references the possibility that “either the transferring lawyer or the new firm ... later discovers ... the new firm represents a client in a matter that is the same ...”. Similarly the Commentary contemplates a later discovery. [ 59 ] From the foregoing, the following principles emerge: 1.

A disqualifying conflict of interest arises when a member of a firm is in possession of confidential information, which if disclosed to other members of the firm, may prejudice the former client of that member. 2. Respect for three competing values is necessary to resolve issues where a lawyer moves from one firm to the other where a conflict of interest arises. Those competing values are: a. the right of a client to counsel of choice; b. the right of a client to be faced by opposing counsel who can never use confidential information to the prejudice of the client; c. the right of counsel to mobility. 3.

Consent of clients may enable counsel to act in a situation which would otherwise be a disqualifying conflict of interest but that consent, even if express, may not always vitiate the conflict.

4. In the era of the megafirm, national or international law firm, imputing the knowledge of one member to all members of the firm is a legal fiction if based solely on the premise that all the lawyers “work together”. 5. Related to the imputed knowledge issue is the proposition that lawyers who work together share information and talk about their cases among and between themselves. A close examination of the size of the firm, the number of locations where the firm is physically located, the residences of the relevant lawyers, are all important considerations. 6.

Screening devices to ensure the isolation and the compartmentalization of confidential information of a moving lawyer if approved by Law Society Codes of Conduct, are relevant to deciding whether a firm can continue an existing retainer or accept a new retainer. 7. The timing of the erection of screening devices is an important and usually determining factor in deciding whether they are effective in addition to the efficacy of the screening devices themselves, once erected. 8.

Notwithstanding all of the foregoing, ultimately the question a court must ask is whether a reasonable member of the public, in possession of all of the facts, would conclude that no unauthorized disclosure of confidential information has occurred or will occur. [ 60 ] With these principles in mind, I now turn to the facts of this case. Both parties conceded that Andrew Little is in possession of confidential information which, if disclosed to Bennett Jones personnel involved in the proposed Dow retainer, will be prejudicial to Nova. Bennett Jones has a detailed and thorough Conflicts Policy.

Andrew Little signed an undertaking before he became a partner at Bennett Jones and has sworn that he has not discussed the relevant Nova retainer with anyone at Bennett Jones since his arrival there, nor will he in the future. So far, so good. This is not enough. According to Sopinka, J. in MacDonald Estate , the public perceives the sworn statement of moving lawyers as nothing more than a “trust me” statement. This is a harsh indictment of the integrity of members of the legal profession who swear or affirm as to the facts.

Nevertheless, that kind of declaration is not sufficient, without more. [ 61 ] Perhaps the test might be better stated by suggesting that statements under oath or affirmation are an essential part of the continuance of a retainer or acceptance of a new retainer in the circumstances of a moving lawyer with prejudicial confidential information, but that alone is not enough. Screening devices are also necessary, absent consent of the other party or parties. [ 62 ] On the consent issue, it has been argued on behalf of Dow that Nova has consented to Bennett Jones acting against them for any client.

The January 21 st 2009 retainer letter from Bennett Jones to Nova, which contains a paragraph that its representation of Nova in an immigration matter will not prevent Bennett Jones from representing clients’ interests or acting adverse to Nova in other matters. Nova’s purported consent does not, in my view, qualify as a consent of Nova for Bennett Jones to accept the Dow retainer. It does not attain the status of the kind of generic agreement referred to in Alberta Union of Public Employees .

All the more so with respect to this specific retainer, because the specific retainer now contemplated was never within the contemplation of the parties when the immigration retainer letter was agreed to. [ 63 ] There has been no challenge to the affidavit of Kemle.

It is clear and obvious from that affidavit, paragraphs 20 through 26, that the immigration retainer by Nova of Bennett Jones was never intended to apply to the present situation in terms of consent. [ 64 ] Moreover, it is noted that in the Law Society of Alberta’s Code of Professional Conduct, ‘consent’ is defined, as is ‘disclosure’, under the heading

INTERPRETATION, sections 4(

f) and (

i) state as follows: (f) “consent” means fully informed and voluntary consent after disclosure; (i) ‘disclosure’ means full and fair disclosure of all information relevant to a person’s decision (including, where applicable, those matters referred to in commentary of this Code), in sufficient time for the person to make a genuine and independent decision, and the taking of reasonable steps to ensure understanding of the matters disclosed; [ 65 ] These

definitions support my finding that Nova did not consent to the proposed Dow retainer. [ 66 ] Nova argued that Rule 4(

d) of

Chapter 6 of the Law Society of Alberta Code of Professional Conduct requires, according to the commentary on it, that it is in the interests of justice that the representation continue as well as the taking of reasonable measures to ensure that no disclosure will occur. Aside from arguing that Rule 4(

d) does not apply to the instant case because it is a post-transfer retainer, Nova says that “it is difficult to imagine that no other firm, either in Calgary or Alberta more generally, would have the ability

or expertise necessary to assist Burnet Duckworth & Palmer in continuing to move this litigation forward for Dow”. [ 67 ] But, as stated, the unchallenged evidence is that no other firm in Alberta has the ability desired by Dow to represent it to be co-counsel with Burnet Duckworth & Palmer. Many firms were considered and interviewed and there were many specific reasons given for the retainer of Bennett Jones, paramount among them, the expertise and skill of Sali in this kind of litigation.

Nova does not appear to challenge the efficacy of the screening devices which the Court finds to be elaborate and effective, or the timing of them. It simply says that in the circumstances of this case Nova should not be “required to run the risk that there might be inadvertent disclosure of prejudicial confidential information”. [ 68 ] Counsel referred to in oral argument, but did not put before me, a document entitled “Conflicts of Interest: Final Report Recommendations and Tool Kit, August 2008", published by the Canadian Bar Association (“CBA Task Force on Conflicts of Interest 2008").

I have reviewed that document and find some passages useful and informative. With respect to law firm size and confidential information, it is stated at page 81: Law firm size can be important in two respects. When a firm is very large with a number of offices and a number of practice areas, many of the lawyers in the firm do not in fact work together. Accordingly, the inference that those lawyers share information has little force.

Although this reality of the large firm does not argue against the application of protective measures to preserve client confidences, it may be relevant to the selection of the appropriate measures and to the question of disqualification in the face of an allegation of conflict. [ 69 ] The CBA Task Force on Conflicts of Interest 2008 also refers to the issue of post-transfer retainers and discusses the Alcan case.

It states at page 89: Alcan effectively indicates that all lawyers in a firm must be canvassed for potential conflicts each time a new file is opened, an action which occurs dozens of times a day in large firms. While new matter lists are commonly circulated by larger firms, we think it unrealistic to believe that new matter lists effectively deal with the issue of transferring lawyers and subsequent retainers.

The decision in Alcan is also of concern because of the apparent conclusion that the transferring lawyer rule in British Columbia applies only to client retainers in existence at the time of the transfer but not to subsequent retainers. [ 70 ] What should be remembered is that codes of professional conduct or guidelines are helpful, useful and may be persuasive in a proper case. As acknowledged in MacDonald Estate , they do not however bind the courts.

Thus, the absence of a specific rule for post- transfer retainers in the context of moving lawyers in the Law Society of Alberta’s Code of Professional Conduct does not oust the scrutiny of the court from examining the fundamental principles in any given case to obtain a just and fair result. [ 71 ] The ultimate question is whether the public, represented by the reasonably informed person, would be satisfied that no use of confidential information would occur. [ 72 ] I have weighed all of the factors including the eight principles I have summarized above and find that the answer to this question is yes, the reasonably informed person is satisfied that no use of confidential information has occurred or will occur in the circumstances of this case. [ 73 ] I therefore grant the application and declare that Bennett Jones may accept the proposed retainer of Dow in this action.

Costs of this application may be spoken to if necessary. Heard on the 18 th day of May, 2011.

Dated at the City of Calgary, Alberta this 12 th day of August, 2011. Neil Wittmann C.J.C.Q.B.A. Appearances: Phyllis A. Smith, Q.C. for the Plaintiff /Applicants J.J. Marshall, Q.C./B. Walker for the Defendant/Respondent