Chaos Water Hauling Inc. v. Build-All Contracting Ltd., 2012 ABQB 321

Court of Queen ’ s Bench of Alberta Citation: Chaos Water Hauling Inc. v. Build-All Contracting Ltd., 2012 ABQB 321 Date: 20120515 Docket: 0804 00782 Registry: Grande Prairie Between: Chaos Water Hauling Inc. formerly known as Chinook Hotshot & Oilfield Services Inc. Plaintiff/Respondent - and - Build-All Contracting Ltd. Defendant/Applicant _______________________________________________________ Memorandum of Decision of the Honourable Madam Justice J.B. Veit _______________________________________________________

Summary [ 1 ] Build-All Contracting Ltd., the defendant in these proceedings, asks the court to order the law firm Stefura, Greber & Beal LLP (“SGB”) to be removed as the plaintiff’s lawyer of record in these proceedings. The defendant alleges that a lawyer who is now at SGB was formerly at the law firm which represents the defendant in the proceedings and that when he was with the former firm, he dealt with this file and therefore received confidential information relating to these proceedings.

The defendant therefore contends that, in the absence of evidence of compliance with the Law Society’s Code of Conduct provisions relating to conflicts arising from transfers of lawyers between law firms, SGB must cease to act in the matter. [ 2 ] SGB responds that the application is strategic only: the lawyer in question was acting only as agent for the Saskatchewan

lawyer of record, that the lawyer in question had no substantive discussions about this file with the plaintiff’s law firm, and that theplaintiff could be greatly prejudiced by the order requested since the two year time limitation period for doing something that advancesthe proceedings will expire in November 2012 and that it may be difficult for the plaintiff to find a new lawyer who will be in a positionto take steps before then. [3] The application is granted. In MacDonald Estate the Supreme Court of Canada established the type of analysis required inthese situations.

Here, since the lawyer who was originally with the law firm that represents the defendant was the lawyer from that firmwho had responsibility for the file in these very proceedings, it is clear that the first question - whether there was a solicitor-clientrelationship sufficiently related to these proceedings - has been answered positively.

In such circumstances, the Supreme Courtestablishes that the onus then turns to the new partner or associate of that lawyer to establish that adequate measures, presumably at leastthose proposed by the Law Society, to maintain the confidentiality of the information the lawyer who has changed law firms acquired atthe first law firm have been established. Here, the new law firm has offered no evidence about any such measures. In the result, theapplication is granted and SGB is removed as the plaintiff’s lawyer of record.

Cases and authority cited [4] By the applicant: Dow Chemical Canada Inc. v Nova Chemicals Corporation 2011 ABQB 509; MacDonald Estate vMartin (SCC), [1990] 3 S.C.R. 1235; Law Society of Alberta, Code of Conduct, art. 2.04 (5). Appendix A.

Article 2.04(5) Law Society of Alberta, Code of Conduct 1. Background [5] In approximately February 2009, Kay, McVey, Smith & Carlstrom LLP was retained by a Saskatchewan lawyer to act as hisAlberta agent in representing the defendant, Build-All Contracting Ltd., in these proceedings. The Saskatchewan lawyer filed theaffidavit of records for the defendant and has never filed a notice of ceasing to act. The work done by KMSC on behalf of theSaskatchewan lawyer of record includes representing the defendant at discoveries in 2009.

The lawyer from that firm who conductedthe discoveries left KMSC in June 2010. [6] Chad Sawatzky, a lawyer, began working for KMSC in July 2010; KMSC asserts that, during that month, he assumedresponsibility for the defendants’s file. [7] In March, 2011, Mr. Van Tassell, a lawyer with the law firm Stefura Greber & Beal LLP, which represents the plaintiff,Chaos Water Hauling Inc., contacted KMSC to inquire who was dealing with this file since the departure of the lawyer who had beenhandling the file. He received a reply from Mr. Sawatzky who asked for an offer of settlement.

No offer of settlement was made by Mr.Van Tassell to Mr. Sawatzky. [8] At the end of June 2011, Mr. Sawatzky left his employment at KMSC and began employment with Stefura Greber & BealLLP, the firm which represents the plaintiff in these proceedings. There is no information before the court about Mr. Sawatzky’sposition at the firm, i.e. whether he was an associate or a partner. In the circumstances here, the precise nature of Mr. Sawatzky’s statusat SGB is not relevant. [9] As of the beginning of July, 2011, Owen Lewis from KMSC assumed responsibility for Build-All. Mr.

Van Tassellsubsequently made an offer to Mr. Lewis. [10] In June, 2011, Mr. Lewis wrote to Mr. Van Tassell raising the issue of Mr. Sawatzky’s past representation of the defendantand assumed that some type of “Chinese wall” would be created at SGB. [11] In July 2011, Mr. Lewis again wrote to Mr. Van Tassell informing him that Build-All requested that the plaintiff, Chaos

Water Hauling Inc, retain a different law firm because of the conflict issue. [ 12 ] On November 29, 2011, Mr. Lewis renewed his request in writing to Mr. Van Tassell to have the plaintiff engage new counsel because of the conflict. [ 13 ] On December 8, 2011, Mr. Van Tassell replied, stating that, to the best of his knowledge, Mr. Sawatzky had been on the file from late March 2011 until late June 2011 only and that nothing of significance had happened on the file while Mr. Sawatzky had responsibility for it. [ 14 ] No evidence has been filed by Mr.

Sawatzky or by SGB concerning steps that may have been taken within SGB to protect the confidentiality of information in Mr. Sawatzky’s possession. [ 15 ] Both law firms operate in Grande Prairie, and both have 10 or 11 lawyers on staff. 2. Did Mr. Sawatzky receive confidential information attributable to a solicitor and client relationship relevant to the matter at hand? [ 16 ] In MacDonald Estate , the Supreme Court of Canada reviewed the conflicts problems that can arise when lawyers change law firms.

It noted that a principled approach to the problems required the court to balance many interests including the right of a litigant to counsel of their choice. After analyzing those issues, the Court identified two questions that must be answered where a potentially disqualifying conflict arises as a result of the move of a lawyer from one firm to another.

The first of those questions is whether the lawyer in question received confidential information attributable to a solicitor and client relationship relevant to the matter at hand. [ 17 ] Here, Build-All has shown that there existed a previous relationship between itself and Mr. Sawatzky that is sufficiently related to these proceedings: indeed, both parties agree that Mr. Sawatzky was responsible for this very file while he was at KMSC. [ 18 ] Nonetheless, Mr. Van Tassel argues that while Mr.

Sawatzky may have been responsible for the file for at least a relatively short period of time, he did not, in fact, do anything on the file and therefore he has no confidential information. With respect, that is the wrong approach. The issue of the length of time during which Mr. Sawatzky was responsible for the file is not relevant to the notion of whether the relationship itself was “sufficiently related to these proceedings”. Here, the solicitor-client relationship could not have been more closely related to the proceedings: the relationship arose in these very proceedings.

In other words, the relationship here was exactly the same type of relationship as was the subject of the dispute in MacDonald Estate itself. As the court said in that case, once it is established that a lawyer worked on the very file that is the subject of the inquiry, there is “no problem” in concluding that confidential information was received. [ 19 ] Not only has Build-All established that the previous solicitor-client relationship existed in relation to these very proceedings, Build-All has also filed evidence to the effect that Mr.

Sawatzky had actually received confidential information relating to these proceedings. SGB does not file any evidence with respect to Mr. Sawatzky’s information, or lack thereof; it merely argues that the only contact it had with Mr. Sawatzky on this file before Mr. Sawatzky came to work for them was a request from Mr. Sawatzky for an offer, which request they ignored. Here again, in my view the approach of the respondent is wrong.

The focus at this stage of the conflict inquiry is whether the lawyer who changed offices had confidential information, not whether, before changing offices, he had discussed confidential information with the respondent. [ 20 ] On the question of having confidential information, the Supreme Court tells us that once it is established that there was a relationship from which such information could come to the lawyer’s attention, the court should infer that confidential information was imparted, unless the lawyer establishes that he received no such information.

Note that the Supreme Court says that it is the lawyer who must satisfy the requirement, not the lawyer’s new firm. Here, Mr. Sawatzky has provided no evidence whatever. For that reason alone, the court should infer that he did receive confidential information while he was at KMSC. Moreover, it is to be hoped that no member of the bar would ask for an offer of settlement of a lawsuit without making themselves at least somewhat familiar with the file. Mr. Sawatzky’s request for an offer of settlement heightens the obligation on him to establish that he had no confidential information about these proceedings.

3. Is there a risk that the confidential information received will be used to the prejudice of the former client? [ 21 ] The Supreme Court established, in MacDonald Estate that not only is Mr. Sawatzky prevented from acting against his former client, but that any of Mr. Sawatzky’s current partners or associates became privy to Mr.

Sawatzky’s confidential information, and therefore cannot act in the matter, unless those partners and associates establish that all reasonable measures have been taken to ensure that no disclosure will occur by what the SCC described as the “tainted” lawyer to other members of the firm. Here, SMG has provided no evidence concerning confidentiality measures taken. [ 22 ] As to the kind of confidentiality measures that should have been taken, we can turn to the Law Society’s Code of Conduct, a portion of which is attached hereto as Appendix A.

There is no evidence from SMG that any of these mechanisms were adopted by their firm when Mr. Sawatzky joined them. 4. Prejudice to the plaintiff [ 23 ] In MacDonald Estate , the Supreme Court concluded that the answers to the above two questions also answered concerns with respect to a litigant’s right to counsel of their choice.

It noted that a litigant could have a law firm of its choice continue to represent it, despite the arrival into that firm of a lawyer who had previously acted for a party opposite, so long as the appropriate safeguards against sharing of confidential information of the former client had been put into place: In giving precedence to the preservation of the confidentiality of information imparted to a solicitor, the confidence of the public in the integrity of the profession and in the administration of justice will be maintained and strengthened.

On the other hand, reflecting the interest of a member of the public in retaining counsel of her choice and the interest of the profession in permitting lawyers to move from one firm to another, the standards are 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. [ 24 ] In other words, if a law firm chooses not to put the usual safeguards into place, the inconvenience to their client of having to replace the firm is required to strike the appropriate balance amongst the three competing values of maintaining the high standards of the legal profession, of allowing litigants their choice of counsel and of permitting reasonable mobility in the legal profession . [ 25 ] In any event, while there will undoubtedly be inconvenience to the plaintiff as a result of having to change law firms, there is sufficient time between now and the end of October for a new law firm to take appropriate steps on the plaintiff’s behalf. 5.

Conclusion [ 26 ] In the result, the continued representation of the plaintiff by SMG would create the appearance of impropriety; the court grants the order requested.

6. Costs If the parties are not agreed on costs, I may be spoken to within 30 days of the release of these reasons. Heard on the 14 th day of May, 2012. Dated at the City of Grande Prairie, Alberta this 15 th day of May, 2012. J.B. Veit J.C.Q.B.A. Appearances: Narnia King, Kay McVey Smith & Carlstrom LLP For Applicant, Build-All Contracting Ltd. Derek Van Tassell, Stefura Greber & Beal LLP For Respondent, Chaos Water Hauling Inc. Appendix A Conflicts from Transfer Between Law Firm

2.04(5) When: (

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

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

i) the new law firm represents a client in a matter that is the same as or related to a matter in respect of which the former law 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 law firm, could prejudice the former client (“prejudicial confidential information”), the new law firm and the transferring lawyer must comply with the requirements set forth in the commentary relating to this paragraph (c). (

d) If the transferring 1awyer possesses prejudicial confidential information, the new law firm must cease to act in the matter unless the new law firm and the transferring lawyer have complied with the requirements set forth in the commentary relating to this paragraph (d). Commentary Code of Conduct 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 fears of former clients of the lawyer with respect to disclosure of confidential information while maintaining the fact and appearance of propriety. If the transferring lawyer does not possess prejudicial confidential information, the following procedures must be followed: (

a) The transferring lawyer must execute an affidavit or sworn declaration to that effect; (

b) The new law finn must notify its client and the former client (or the former client’s counsel, if represented) of the relevant circumstances and intended action and must deliver to each of those persons a copy of the transferring lawyer's affidavit or sworn declaration; (

c) The transferring lawyer must not participate in any manner in the new law firm's representation of its client in that matter nor disclose any confidential information respecting the former client unless the former client consents; and (

d) No member of the new law firm may, unless the former client consents, discuss with the transferring lawyer the new law firm’s representation of its client or the former law firm’s representation of the former client.

If the transferring lawyer possesses prejudicial confidential information, the new law firm must cease representation of its client in the matter unless: (

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

b) The new law firm establishes the following to the satisfaction of a court of law, 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 (ii) 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 law firm has taken reasonable measures to ensure that no disclosure to any member of the new law 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 “Definitions”. Anyone who has an interest in or who represents a party in a matter referred to in this rule may apply to a tribunal for a determination of any matter arising under this rule. Page 41 of 108 Law Society of Alberta