2011 SKCA 108 Date:, 2011 SKCA 108

THE COURT OF APPEAL FOR SASKATCHEWAN Citation: 2011 SKCA 108 Date: 20110928 Between: Docket: 1859 Gordon Wallace Plaintiff (Non-Party) - and - Canadian Pacific Railway, Canadian National Railway, and Her Majesty the Queen as represented by The Minster of Transport; The Canadian Transportation Commission; The National Transportation Agency and The Canadian Transportation Agency Defendants (Non-parties) McKercher LLP Appellant (Respondent) - and -

Canadian National Railway Respondent (Applicant) Between: Docket: 1913 Gordon Wallace Appellant (Plaintiff) - and - Canadian National Railway Respondent (Defendant) - and - Canadian Pacific Railway, Canadian National Railway, and Her Majesty the Queen as represented by The Minster of Transport; The Canadian Transportation Commission; The National Transportation Agency and The Canadian Transportation Agency Defendants (Non-Parties) Coram: Lane, Ottenbreit and Caldwell JJ.A. Counsel:

Gavin MacKenzie for the Appellant Douglas Hodson, Q.C. for the Respondent Appeal: From: 2009 SKQB 369 Heard: September 8, 2010 Disposition: Allowed Written Reasons: September 28, 2011 By: The Honourable Mr. Justice Ottenbreit In Concurrence: The Honourable Mr. Justice Lane The Honourable Mr. Justice Caldwell Ottenbreit J.A. I.

Introduction [ 1 ] On December 17, 2008, McKercher LLP (“McKercher”) commenced a class action on behalf of Gordon Wallace (“Wallace”), as representative plaintiff, against Canadian National Railway (“CN”), the Canadian Pacific Railway and several other defendants (“the Wallace claim”) alleging the railways had overcharged western farmers for grain transportation during the previous 25 years and claiming damages, including aggravated and punitive damages. This matter comes before us because, at the time it commenced the Wallace claim, McKercher was acting for CN on a number of other unrelated matters.

Not unsurprisingly, when CN found out about the Wallace claim, it was chagrined, and it successfully applied to disqualify McKercher from acting on it.

The primary questions on this appeal are three: first, whether McKercher, as CN alleges, gained material confidential information about CN while acting for it prior to and at the time the Wallace claim was commenced which could result in prejudice to CN if McKercher were to continue to act for Wallace; second, whether McKercher by acting for Wallace breached its duty of loyalty to CN; and third, if the first two questions are answered in the affirmative, whether the resultant remedy should be disqualification of McKercher, as the chamber judge ordered. [ 2 ] As I view this case, McKercher did not gain, as a result of acting for CN, any confidential information which could prejudice CN if McKercher were to continue to act on the Wallace claim.

However, McKercher did breach its duty of loyalty in respect of its commitment to CN respecting its CN files and also in respect of its duty of candour about taking on the Wallace claim. That said, CN falls short on the remedy for that breach. Although CN may have a basis to complain to the Law Society, McKercher should not be disqualified from acting on the Wallace claim. I would accordingly allow the appeal. II. Facts and Background [ 3 ] CN received notice of the Wallace claim by receipt of registered mail at its Montreal office on January 9, 2009.

It is unknown when Wallace first retained McKercher as neither Wallace nor McKercher filed any evidence on this point. [ 4 ] On January 13, 2009, McKercher and Wallace held a press conference announcing the commencement of the Wallace claim against CN. The commencement was noted in the Saskatoon Star Phoenix and the

article stated that the action will potentially seek 1.75 billion dollars in damages, and quoted Joel Hesje (“Mr. Hesje”), the lawyer in charge of the Wallace claim, as saying that an earlier ruling involving CN “show[ed] that there had been serious and substantial overcharging of grain producers”. [ 5 ] CN is one of the largest corporations in Canada. It operates a railway across Canada and the United States as well as freight forwarding and customs brokerage operations around the world. It operates close to 21,000 miles of track in North America and generated over 8 billion dollars in revenue in 2008.

It has over 2,200 employees worldwide, roughly three quarters of whom are in Canada. It is a publicly-traded company that operates in a highly regulated environment. It requires legal services on a range of issues including litigation, regulatory matters, insurance, labour and employment, securities, commercial real estate, corporate governance, property damage, personal injuries and environmental matters. CN retains hundreds of millions of dollars of claim reserves in the U.S. and Canada and is involved in up to 50 new lawsuits per year in Canada.

[ 6 ] CN employs 23 in-house counsel plus support staff and regularly consults approximately 50 to 60 outside law firms across Canada. These outside law firms bill CN for approximately 600 individual files in any given year, roughly half of which involve litigation in non- regulatory matters. The fees paid to these firms total many millions of dollars annually. [ 7 ] McKercher had acted as legal counsel for CN in Saskatchewan since at least 1999, providing advice and legal representation to CN on a variety of corporate, commercial, tax, debt, collection, real estate and litigation matters.

In the five-year period 2004 to 2008, McKercher billed CN a total of $68,462. This figure represents less than one-third of the fees paid to Saskatchewan law firms during that time period by CN and approximately 0.1 percent of the annual fees paid by CN to outside legal counsel. [ 8 ] McKercher was not CN’s exclusive legal counsel in Saskatchewan, but was, according to the testimony of Olivier Chouc (“Mr. Chouc”), CN’s “go-to” legal counsel in the province for litigation matters and was given the first choice to act on new matters arising in Saskatchewan. Mr.

Hesje was CN’s primary contact at McKercher and lead counsel for Saskatchewan litigation matters. [ 9 ] An affidavit of search of Saskatchewan court records was filed by McKercher for actions for and against CN which showed that for the judicial centres of Saskatoon, Regina, Prince Albert, Swift Current, Melfort, Battleford and Yorkton, CN was a party to 32 actions in the period 1999 to 2009. Saskatchewan counsel for CN could be identified in 22 actions and of those 22 actions, MacPherson Leslie & Tyerman acted as counsel for CN in 18 actions.

McDougall Gauley acted as counsel in two actions, and Stevenson Hood Thornton Beaubier and McKercher each acted as counsel for CN in one action. The billings of CN by MacPherson Leslie & Tyerman for its work over the five-year period 2004 to 2008 were significantly higher than those of McKercher. [ 10 ] There was no written retainer agreement between CN and McKercher with respect to the terms of McKercher’s representation of CN in December 2008 on any matter in particular, or its representation of CN generally. [ 11 ] In December 2008, McKercher was representing CN on four matters.

Details of the CN matters handled by McKercher at the date it began acting for Wallace, the behaviour of McKercher respecting those matters, and its relationship and interaction with CN, provide context for CN’s application to disqualify the law firm in the court below. A. Personal Injury Matter [ 12 ] Prior to the Wallace claim, John Beckman (“Mr.

Beckman”) of McKercher had represented CN since 1999 in a personal injury claim (“the personal injury matter”) in which the plaintiffs were seeking significant damages against CN and other defendants arising from a fatality and personal injury that occurred near North Battleford in 1997. On December 5, 2008, CN was served with a letter and notice of withdrawal by Mr. Beckman on this claim. Prior to service of the notice of withdrawal, CN had received no notice or communication from McKercher advising of its intention to withdraw on this claim effective immediately.

As a result of the firm’s withdrawal, CN was required to obtain new counsel to represent it in this claim. [ 13 ] In respect of this matter, Mr. Chouc, in his affidavit filed in the court below, indicated that the examinations for discovery of the parties on the matter had been completed, but in light of recent additional documents that were in the process of being produced by the plaintiffs, supplemental discoveries may be required.

He indicated that when this additional production and any resulting supplemental examinations for discovery were complete that the matter would be ready to set down for a pre-trial conference. Mr. Chouc’s affidavit exhibited a letter of Mr. Beckman dated February 17, 2009 wherein Mr. Beckman indicated that McKercher was acting on the Wallace claim, that it was unrelated to any matters on which CN had retained McKercher, and McKercher would not have accepted any retainer where there was a substantial risk that its representation of CN would be materially or adversely affected.

The letter stated that he did attempt to contact CN to obtain its consent for continued representation in the personal injury matter or, alternatively, ensure full cooperation of the transfer of the file but, because the file had not been active and there had been numerous changes in personnel at CN, particularly in the legal department, he was unable to have such a discussion and, accordingly, McKercher withdrew from the claim. [ 14 ] Mr.

Chouc also stated that his co-in-house counsel advised him that on December 5, 2008, after receiving the notice of withdrawal by McKercher, she had asked Beckman in a phone conversation to explain why he withdrew. Mr. Beckman advised her that the personal injury file was not going anywhere, and that McKercher had merged with a firm in Regina which had a longstanding client who wanted to sue CN and a decision had been made to terminate representation of CN on the personal injury action. This phone call occurred before the Wallace claim was issued. B.

The Real Estate File [ 15 ] At the time the Wallace claim was issued, McKercher had been acting for CN since November 2007 in connection with the purchase of real estate in the Saskatoon area (“the real estate matter”). On February 3, 2009, Jim Gorkoff of McKercher sent a letter to CN’s Montreal office asking whether CN would consent to his continued representation of CN on the real estate matter, notwithstanding

McKercher’s representation of a client adverse in interest to CN. CN refused to grant the consent sought. C. The Power of Attorney [ 16 ] At the time the Wallace claim was issued, two Regina McKercher partners were registered powers of attorney for CN (“the power of attorney matter”). On January 12, 2009, CN received a letter from McKercher indicating that since it was “representing the plaintiff in a significant lawsuit in which CNR is a defendant… we feel it would be inappropriate to continue to act as powers of attorney for the corporation”.

McKercher advised it would cease to act as CN’s power of attorney effective as of January 15, 2010. D. The Meadow Lake Pulp Mill [ 17 ] In December 2008, Mr. Hesje represented CN on the receivership in respect of Meadow Lake Pulp Limited Partnership under the Companies’ Creditors Arrangement Act , R.S.C. 1985, c. C-36 (“the Pulp Mill matter”). Mr. Hesje received instructions on this matter from CN’s in-house counsel, John Patenaude (“Mr. Patenaude”), who is also in charge of CN’s defence of the Wallace claim.

The bulk of the work on this matter had been completed but the file was still active and being handled by McKercher in December 2008 when McKercher issued the Wallace claim. On January 5, 2009, Mr. Hesje wrote to the receiver’s counsel advising that he was no longer representing CN on the matter. Mr. Hesje did not advise CN of his withdrawal. It was not until March 6, 2009 that CN first became aware that Mr. Hesje had withdrawn as CN’s counsel on the matter when Mr. Patenaude received a call from the receiver’s counsel who provided CN with a copy of Mr. Hesje’s letter of withdrawal. E.

The McKercher-CN Solicitor-Client Relationship [ 18 ] On February 6, 2009, Mr. Chouc wrote to McKercher expressing CN’s concern with respect to McKercher’s representation of Wallace and asked McKercher to give an explanation why it had terminated CN as a client and whether it was to enable the firm to act against CN in the Wallace action. McKercher responded, but did not advise CN when it had been retained to commence the Wallace claim and why it had terminated CN as a client.

Nevertheless, McKercher acknowledged that, while it acted for CN, it also represented clients whose “interests may be adverse to the interests of CN”, but on unrelated matters which McKercher stated would not materially or adversely affect its representation of CN. [ 19 ] Mr. Chouc, when he was cross-examined on his affidavit, testified that McKercher’s decision to accept the Wallace retainer had a damaging effect on the firm’s solicitor-client relationship with CN and that CN felt betrayed by McKercher and considered the firm’s actions to be a breach of trust. Mr.

Chouc indicated that it would be impossible to restore the relationship to its former state. [ 20 ] Mr. Chouc also testified that CN does not have a “broad minded attitude when it comes to its legal counsel acting adverse to CN without obtaining CN’s informed express consent”. He testified that CN does not generally accept that its external counsel will act against it in unrelated matters and is particularly sensitive to potential conflicts of interests on litigation matters. Mr.

Chouc also testified that CN has a general expectation that its external counsel will contact CN to seek a waiver of conflict prior to accepting any retainer to act adverse to the company. He indicated that in all cases, CN expects full disclosure as to the nature of the proposed retainer in order to fully assess whether CN will grant a waiver of the conflict of interest and that waivers are granted on a case-by-case basis.

He testified that CN expected McKercher to advise it of the Wallace retainer prior to agreeing to act for Wallace on a matter which was adverse to CN. [ 21 ] There was no evidence that CN’s expectation that law firms retained by CN would not act for clients adverse to CN without CN’s prior expressed consent was ever communicated to McKercher or that it formed a term of any retainer or other agreement between CN and McKercher. F. Confidential Information [ 22 ] In his cross-examination on his affidavit, Mr.

Chouc expanded upon the evidence in para. 5 of his affidavit which asserts that, as a result of the solicitor-client relationship, McKercher has specialized and confidential knowledge. He testified that as CN’s counsel, McKercher received valuable specialized confidential information about CN’s approach to litigation, its business practices and its risk perspective and tolerance. Mr. Chouc testified that this confidential information gave McKercher an advantage in acting for Wallace against CN and much to CN’s prejudice.

When asked whether there was (or had been) any such knowledge transfer between the personal injury matter and the Wallace claim, Mr. Chouc indicated that it was not quite what they were dealing with. He did not answer directly but went on to answer the question in terms of the relationship which CN had built with McKercher over time. He stated that there was some degree of knowledge about their operations, their risk mitigation and management practices as well as tolerance to risk that could be transferred from one file to the other even if there was no bearing or connection between the two. Moreover, Mr.

Chouc was not forthcoming when invited to connect the supposed confidential information gained over the years by McKercher while acting on the personal injury matter to McKercher’s prosecution of the Wallace claim and to elaborate on its effect on CN. He did not elaborate further and declined to answer further.

[ 23 ] By letter dated April 15, 2009, signed by Mr. Hesje, McKercher indicated to CN that they did not intend to file an affidavit in response to the affidavit of Mr. Chouc and that they did not take issue with the facts set out in Mr. Chouc’s affidavit other than para. 5, which Mr. Hesje stated was Mr. Chouc’s opinion with which McKercher did not agree. G. Standing to Appeal [ 24 ] McKercher filed its notice of appeal on October 20, 2009, naming itself as appellant and Wallace as a non-party.

On March 2, 2010, CN filed a notice of motion to quash McKercher’s appeal on the basis that the firm was not a party to the Wallace action and thus had no standing to appeal the chamber judge’s decision. The motion to quash McKercher’s appeal was dismissed in chambers and leave was granted to bring a motion before the full panel. CN continues to take the position that McKercher has no right of appeal. Leave was granted to Wallace to extend the time to allow him to bring an appeal on the same grounds as the McKercher appeal and Wallace is now an appellant to these proceedings. III.

Decision Under Appeal [ 25 ] After reviewing the germane jurisprudence as articulated in R. v. Neil , 2002 SCC 70 , [2002] 3 S.C.R. 631 and Strother v. 3464920 Canada Inc. , 2007 SCC 24 , [2007] 2 S.C.R. 177, the chamber judge concluded at para. 47 of his decision that there was a substantial risk that CN’s representation by McKercher had been materially and adversely affected by its decision to represent Wallace because: (

a) there was a long-standing relationship between McKercher and CN; (

b) CN relied primarily on McKercher as its “go-to” firm in Saskatchewan; (

c) the magnitude of the Wallace claim was substantial and not minor and had the potential for significant damages; (

d) the Wallace claim was a litigation matter which would necessarily be adversarial; (

e) the Wallace claim was a class action, which would marshal numerous litigants against CN and the other defendants; (

f) the remedy sought included aggravated and punitive damages implying reprehensible behaviour on the part of CN; (

g) CN was especially sensitive to conflicts of interest among its counsel and felt betrayed by McKercher, which, in the course of acting for CN, had received information about attitudes and approaches to legal problems; and (

h) because of the nature of class actions, a law firm tends to gain or lose significantly on them and have a greater interest than being purely and simply an advocate. The chamber judge also determined that there was no evidence that CN was bringing the application for tactical reasons. [ 26 ] The chamber judge found that CN was a professional litigant as articulated in Neil ( supra ), but that McKercher could not avail itself of the implied consent of CN to allow McKercher to act against CN on the Wallace claim.

He indicated that consent could only usually be implied for minor, unrelated, non-contentious matters, and the Wallace action was not such a matter, and stated two additional reasons at paras. 56 and 57 of his decision: [56] First, it was not reasonable for the McKercher Firm to conclude that it had CN’s implied consent to act against it in the multi- billion dollar lawsuit. The solicitor and client had a longstanding relationship. CN used the McKercher Firm as the “go to” firm. Although there were at least two other firms in Saskatchewan that also did CN’s legal work, I accept the testimony of Mr.

Chouc, that the McKercher Firm was its primary firm within this province. CN sought to develop long-term relationships with the law firms that represent it in order to build knowledge and expertise in those law firms and to enhance the solicitor-client relationship by familiarizing the law firms with CN’s attitude towards risk management. The lawsuit commenced seeks huge damages against CN and alleges both aggravated and punitive damages, which connote a degree of moral turpitude on the part of CN.

Simply put, it is hard to imagine a situation that would strike more deeply at the loyalty component of the solicitor-client relationship. [57] Second, once an express refusal to waive the conflict has been communicated to the law firm, the implied consent, if it existed at all, is vitiated. The concept of implied consent is based on the premise that it is reasonable to assume that consent is present. However, that all changes when there is an express refusal to consent.

At that point, even if it was reasonable to presume that CN would consent to the conflict (which I have found that it was not), once the objection is made the law firm is caught. Once the objection was communicated, the McKercher Firm found itself in the unenviable position of either having to withdraw or assert that the objecting client’s complaint ought to be disregarded because of mala fides or some other basis. [ 27 ] This reasoning led to his conclusion that there was a breach of McKercher’s duty of loyalty to CN to avoid conflicting interests.

The chamber judge also concluded that McKercher was not entitled to terminate the relationship with CN just so it could take on a more desirable file and that this was an ethical breach which crossed the “Bright Line” enunciated in Neil and Strother . [ 28 ] The chamber judge determined that disqualification was the only appropriate remedy for the breach of loyalty at para. 68 of his decision: In the circumstances before me I conclude that, for reasons similar to those advanced by Master Sandler and Dawson J., the appropriate remedy is disqualification.

To permit the McKercher Firm to continue would be an “affront to fair play and decency”. The nature of the Wallace action drafted by the McKercher Firm conflicts fundamentally and directly with the duty of loyalty it owed to CN. . . The objection to the McKercher Firm continuing to act was immediate and there is no evidence from which it could reasonably be argued that CN’s motivation was tactical; rather as clearly articulated by Mr. Chouc, the objection was taken on a principled basis.

[ 29 ] The chamber judge also noted at para. 85 that this case raised confidentiality concerns: In this case the uncontroverted testimony of Mr. Chouc is that the McKercher Firm has received confidential information relating to its litigation practices, policies, risk tolerances and attitudes toward litigation. I find that confidential information of this nature has been imparted to the McKercher Firm such that its current client would have an unfair advantage if the McKercher Firm was permitted to continue to act against CN on the class action lawsuit.

Accordingly, I find that the McKercher Firm should be disqualified on the risk of misuse of confidentiality basis, in addition to the conflict of interest basis. He disqualified McKercher on this basis as well. IV. The Position of the Parties McKercher [ 30 ] McKercher argues that the chamber judge erred in finding it possessed disqualifying confidential information. It argues that CN failed to prove that its retainers with McKercher were “sufficiently related” to the Wallace claim, and therefore the court could not initially infer that confidential information was imparted to McKercher.

It argues that CN was required to lead evidence regarding its litigation strategy and practices and risk tolerances it alleged was confidential information and that was alleged to have been imparted to McKercher, and that it failed to do so. McKercher argues that the only confidential information identified by the chamber judge was the unique understanding of the strengths, weaknesses and attitudes of CN, but this was merely a “bald assertion” on CN’s part.

McKercher argues that, in any event, this kind of information in the circumstances of this case did not rise to the level of confidential information. [ 31 ] McKercher also submits that the “Bright Line” Rule as enunciated in Neil ( supra ) is flexible and permits a lawyer to act against a current client on unrelated matters when there is no risk of material and adverse effect on client representation.

McKercher argues that CN has not demonstrated any relationship, whether factual, legal or strategic, between the matters on which McKercher was representing CN and the Wallace retainer which would have a material and adverse effect on its representation of CN. Therefore, no conflict has been shown.

Alternatively, McKercher argues that the comments of the Supreme Court regarding the application of the “Bright Line” Rule to unrelated matters were merely obiter and therefore not binding on this Court. [ 32 ] McKercher also argues that although the chamber judge correctly found that CN was a professional litigant, he erred by (1) limiting the application of the principle to minor, non-contentious issues; and (2) holding that implied consent can be negated by an express ex post facto refusal to consent. [ 33 ] Lastly, McKercher argues that, in the absence of possession and misuse of confidential information, disqualification is not an appropriate remedy for a breach of the duty of loyalty, unless an injustice would otherwise occur or the integrity of the administration of justice would be compromised.

McKercher argues that here, where the complaining client has made it clear that it will not continue to retain the law firm, the only purpose of disqualification would be to deprive Wallace of counsel and penalize the firm. CN [ 34 ] CN disagrees with the chamber judge’s

interpretation of the “Bright Line” Rule and argues that it is an “absolute prohibition” and that therefore, absent the express informed consent of both clients, McKercher was prohibited from representing Wallace.

Alternatively, CN argues that the onus was on McKercher to demonstrate that there is no substantial risk that McKercher’s representation of CN would be materially and adversely affected and McKercher has failed to discharge this onus. [ 35 ] CN argues that the professional litigant exception only applies in exceptional cases in which there has been express or implied informed consent and that the chamber judge correctly found that McKercher did not have CN’s express or implied consent to act for Wallace. [ 36 ] CN further argues that the chamber judge correctly found that McKercher possessed confidential information and that, in determining whether McKercher possessed disqualifying confidential information, “it is sufficient that McKercher acquired an understanding of CN as its future opponent”.

[37] Finally, CN argues that disqualification is the only appropriate remedy in this case. CN argues that Wallace’s right to choose hiscounsel was restricted by the pre-existing relationship between McKercher and CN, that McKercher was ethically prohibited from“dumping” CN as a client and the chamber judge appropriately took these factors into account in ordering the disqualification ofMcKercher as counsel on the Wallace claim. V. Jurisdiction and Standard of Review [38] The parties agree that the standard of review for questions of law is correctness.

The standard of review for factual findings of achamber judge is usually palpable and overriding error. See: Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235. Findings of factmade on the basis of affidavit evidence alone are reviewable on the standard of reasonableness. See: Farm Credit Corp. v. Valley Beef Co-operative Ltd., 2002 SKCA 100, 218 D.L.R. (4th) 86 at para. 118. VI. Analysis A. Standing [39] The preliminary issue is whether McKercher lacks standing. In my view, the argument of CN cannot succeed on this point andMcKercher has standing in its own right on this appeal.

McKercher argues that it was named as a respondent by CN in the applicationbefore the chamber judge, it filed material and it made oral argument on the matter which oral argument was recognized by the Court ofQueen’s Bench and all of that truly indicates it has standing.

McKercher also notes that, in British Columbia, it appears to be a practicefor counsel to be named in applications such as this and for the named law firms to respond in their own right. [40] Rules 38(1) and (2) of The Queen’s Bench Rules state the following: 38(1) The court may, at any stage of the action, order any person who ought to have been joined as a party or whose presence as a partyis necessary to enable the court to adjudicate effectively and completely on the issues in an action be added as a party.

(2) An action shall not be defeated by reason of the misjoinder or non-joinder of a person, and (

a) the court may decide issues or questions in dispute so far as they affect the rights and interests of the persons who are parties andpronounce judgment without prejudice to the rights of persons who are not parties, and (

b) at any stage the court may grant leave to add, delete or substitute a party, or to correct the name of a party and such leaveshall be given, on such terms as may be just, unless prejudice will result which cannot be compensated for by costs or anadjournment. These rules apply mutatis mutandi to this Court and Queen’s Bench Rule 38 would apply in this case. [41] Although there was no express ruling made by the chamber judge designating McKercher as a party to the motion, McKercher wasin fact a party. CN’s motion was brought with McKercher as a respondent.

It was directed to McKercher and the intent of the motion isto bind McKercher as a party to any decision thereon. The motion clearly affects the rights and interests of not only Wallace, but alsoMcKercher. McKercher is in fact subject to any ruling the Court makes. The chamber judge clearly treated McKercher as a party and itwas implicit that McKercher was a party. For the purpose of the disqualification motion, McKercher undoubtedly has standing as a partyin its own right to appeal the decision of the chamber judge. It would not be fair and just to hold otherwise. B.

Introduction [42] The analysis of the issues can conveniently be approached generally using the issues as articulated by McKercher. This approachalso dovetails with CN’s statement of the issues. Those issues are as follows:

(1) Did McKercher possess relevant confidential information that could be used to the prejudice of CN?

(2) Is CN a professional litigant and can its consent to adverse representation be implied in the circumstances?

(3) Did McKercher breach a duty of loyalty to CN?

(4) If McKercher breached a duty of loyalty, what is the appropriate remedy? C. The Law [43] The Supreme Court of Canada has dealt with the duties of lawyers to their clients and the treatment and analysis of legal conflicts ofinterest in three important decisions: MacDonald Estate v. Martin, (SCC), [1990] 3 S.C.R. 1235 (“MacDonald Estate”),Neil, and Strother.

[ 44 ] MacDonald Estate laid the foundation for the modern Canadian approach to analysis of legal conflicts of interest. Sopinka J. for the court, at p. 1243, referred to the competing values underlying this analysis: In resolving this issue, the Court is concerned with at least three competing values. There is first of all the concern to maintain the high standards of the legal profession and the integrity of our system of justice. Furthermore, there is the countervailing value that a litigant should not be deprived of his or her choice of counsel without good cause.

Finally, there is the desirability of permitting reasonable mobility in the legal profession. The review of the cases which follows will show that different standards have been adopted from time to time to resolve the issue. This reflects the different emphasis placed at different times and by different judges on the basic values outlined above. [ 45 ] The Court at p. 1260 also set the appropriate test for determining when there would be a disqualifying conflict of interest where it was alleged confidential information was at risk: Typically, these cases require two questions to be answered:

(1) Did the lawyer receive confidential information attributable to a solicitor and client relationship relevant to the matter at hand?

(2) Is there a risk that it will be used to the prejudice of the client?

The focus of such an analysis is on whether the public, represented by the reasonably informed person, would be satisfied that no use of confidential information could occur. [ 46 ] On the first question, the court in MacDonald Estate determined at p. 1260 that “once it is shown by the client that there existed a previous relationship which is sufficiently related to the retainer from which it is sought to remove the solicitor, the court should infer that confidential information was imparted unless the solicitor satisfies the court that no information was imparted which could be relevant.” The court observed that this presumption, while rebuttable, is difficult to displace.

Acquisition of confidential information is therefore initially inferred not from the nature of the solicitor-client relationship, but rather from the relationship between the previous and current retainers. On the second question, the court determined that a lawyer who has relevant confidential information is automatically disqualified from acting against a client or former client. [ 47 ] In 2002, the Supreme Court of Canada developed the law in the area further when it addressed the nature of a lawyer’s duty of loyalty to his or her client in its unanimous decision in Neil .

The Supreme Court in Neil stated what has become known as the “Bright Line” Rule / “unrelated matter” rule at para. 29: Nevertheless, it is the firm, and 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 in the original] The “unrelated matter” aspect was an extension of the duty of loyalty as previously understood in the law of Canada. [ 48 ] Neil involved two independent conflicts.

Binnie J. described the first conflict as the law firm’s “attempt to act simultaneously for both the appellant and his eventual co-accused in the Canada Trust charges.” They were clearly adverse in interest. By this, the Supreme Court of Canada meant that they were adverse in interest in respect of the same matter . [ 49 ] The Court went beyond the issue of misuse of confidential information dealt with in MacDonald Estate to articulate and apply the broader and more onerous standard of a duty of loyalty.

The Court stated that the lawyer’s duty of loyalty to his or her current clients is “intertwined with the fiduciary nature of the lawyer-client relationship” (para. 16). When discussing the second conflict, the “ Doblanko ” charges, a case of fabrication of court documents, Binnie J. at para. 33 with this broader duty in mind pointed out that the retainers were strategically related: It was contended that the Doblanko and Canada Trust cases were wholly unrelated in the sense that Lazin could not have obtained in the Doblanko mandate confidential information that would be relevant in the Canada Trust mandate.

This, as stated, is not the test of loyalty to an existing client, and it is not entirely true either. While the two cases were wholly independent of each other in terms of their facts, Lambert’s cut-throat defence was helped by piling up the allegations of dishonest conduct in different matters by different complainants in a way that would make it easier for the jury to consider her a victim rather than a perpetrator. The linkage was thus strategic.

Neil therefore represented a conceptual shift: moving away from the negatively framed “avoidance of conflicts of interest” to the broader, more positively framed “duty of loyalty.” [ 50 ] The three aspects of this duty of loyalty enunciated by Binnie J. at para. 19 were: (

i) the duty to avoid conflicting interests, including a lawyer’s personal interests; (ii) a duty of commitment to the client’s cause (which includes an assurance that a lawyer’s

divided loyalties do not cause him or her to compromise his or her “zealous representation”); and (iii) a duty of candour with the client onmatters relevant to the retainer. [51] At para. 26, Binnie J. stated the rationale underlying the duty of loyalty: 26 The duty of loyalty was similarly expressed by Wilson J.A. (as she then was) in Davey v.

Woolley, Hames, Dale & Dingwall, supra[(1982), (ON CA), 35 O.R. (2d) 599], at p. 602: The underlying premise ... is that, human nature being what it is, the solicitor cannot give his exclusive, undividedattention to the interests of his client if he is torn between his client's interests and his own or his client's interests and those of another client to whom he owes the self-same duty of loyalty, dedication and good faith. [52] Binnie J. adopted the following formulation of disqualifying conflict arising from a breach of the duty of loyalty at para. 31: In my view the Venkatraman law firm, and Lazin in particular, put themselves in a position where the duties they undertook to otherclients conflicted with the duty of loyalty which they owed to the appellant.

I adopt, in this respect, the notion of a "conflict" in s. 121 ofthe Restatement Third, The Law Governing Lawyers (2000), vol. 2, at pp. 244-45, as a "substantial risk that the lawyer's representation ofthe client would be materially and adversely affected by the lawyer's own interests or by the lawyer's duties to another current client, aformer client, or a third person".

This is often referred to as the substantial risk principle. [53] Although Neil established a broad duty of loyalty, Binnie J. stated an exception to the “Bright Line” Rule at para. 28: In exceptional cases, consent of the client may be inferred. For example, governments generally accept that private practitioners who dotheir civil or criminal work will act against them in unrelated matters, and a contrary position in a particular case may, depending on thecircumstances, be seen as tactical rather than principled.

Chartered banks and entities that could be described as professional litigantsmay have a similarly broad-minded attitude where the matters are sufficiently unrelated that there is no danger of confidentialinformation being abused.

These exceptional cases are explained by the notion of informed consent, express or implied. [54] Binnie J. at para. 15 recognized that an application to disqualify a law firm based on a breach of loyalty involved a balancing ofinterests: he highlighted the link between the duty of loyalty and the policies it is intended to further, but implied that the development ofthe law of the duty of loyalty would be a delicate exercise: It is important to link the duty of loyalty to the policies it is intended to further.

An unnecessary expansion of the duty may be as inimicalto the proper functioning of the legal system as would its attenuation.

The issue always is to determine what roles are sensible andnecessary and how best to achieve an appropriate balance among the competing interests. [55] A legacy of Neil is that, in conflict analysis, primacy was given to the integrity of both the legal profession and the administrationof justice over the other two competing values enunciated in MacDonald Estate, i.e. the client’s choice of lawyer and lawyer mobility. [56] In Strother, the Court was divided and there was a difference in approach concerning the relationship, between a retainer agreementand fiduciary duties, in determining the origin, content and extent of obligations owed by a lawyer in a particular case.

The majoritysuperimposed fiduciary obligations on the retainer, while the minority thought the contractual terms were available to modify theexistence and content of any fiduciary obligation. Binnie J. for the majority at para. 58 again explained the function of the “Bright Line”Rule: 58 Exceptional cases should not obscure the primary function of the "bright line" rule, however, which has to do with the lawyer'sduty to avoid conflicts that impair the respective representation of the interest of his or her concurrent clients whether in litigation or inother matters, e.g., Waxman v.

Waxman (2004), (ON CA), 186 O.A.C. 201 (C.A.). [57] In addition to the case law, the analysis in this area is informed by the codes of professional conduct. While this Court is not boundby codes of professional conduct, the Supreme Court of Canada in MacDonald Estate recognized that “an expression of a professionalstandard in a code of ethics relating to a matter before the court should be considered an important statement of public policy.” [58] The Canadian Bar Association Code of Professional Conduct,

Chapter V, Commentary 12 and the Law Society of SaskatchewanCode of Professional Conduct,

Chapter V, Commentary 8 allow lawyers to act against former clients in a “fresh and independent matterwholly unrelated to any work the lawyer has previously done for that person.”

[59] The substantial risk principle at para. 31 of Neil is consistent with the Law Society of Saskatchewan Code of Professional Conduct.The Law Society of Saskatchewan has never adopted the literal

interpretation of the “Bright Line” Rule and does not prohibit lawyersfrom acting against current clients in the absence of an adverse effect upon client representation. [60] The CBA Task Force on Conflicts of Interest (CBA Task Force on Conflicts of Interest, Conflicts of Interest: Final Report,Recommendations & Toolkit (Ottawa: Canadian Bar Association, 2008)), at p. 43, pointed out the apparent conflict between thesubstantial risk principle (adopted in Neil at para. 31) and the “Bright Line”/ Unrelated Matter Rule (adopted in Neil at para. 29).

It wenton to propose a principled method for resolving the apparent conflict: We therefore conclude that the Unrelated Matter Rule and the Substantial Risk Principle are reconcilable. If there is a substantial riskthat the lawyer's representation of the current client would be materially and adversely affected by the matter, the lawyer may not act,whether or not the matters are unrelated. … Accordingly, we conclude that the appropriate

interpretation of Neil and Strother (which also reconciles the minority reasons in Strother)is that, absent proper consent, a lawyer may not act directly adverse to the immediate interests of a current client unless the lawyer isable to demonstrate that there is no substantial risk that the lawyer's representation of the current client would be materially andadversely affected by the new unrelated matter. The chamber judge adopted the CBA Task Force's report on this point at paras. 43 and 44 of his judgment.

In my view, this statement ofthe law is an appropriate statement of the applicable approach to conflict analysis for breaches of a lawyer’s duty of loyalty to clientspost-Neil and -Strother. [61] Although a good foundation for conflict analysis has been laid, as set out earlier, the factors informing the choice of an appropriateremedy where a solicitor’s duty is breached is a less developed part of the jurisprudence.

The court stated in Strother at para. 74: This Court has repeatedly stated that ‘[e]quitable remedies are always subject to the discretion of the court.’ How that discretion should be exercised is not often clear. In Neil, Binnie J. said at para. 36: “It is one thing to demonstrate a breach ofloyalty.

It is quite another to arrive at an appropriate remedy.” For example, although there had been a breach of a lawyer’s duty ofloyalty to the client in Neil, the court declined to grant the remedy requested, or indeed any remedy. [62] Where the adverse representation is with respect to an unrelated matter and there is no danger of misuse of confidential information,consideration can be given to an appropriate remedy, which is something other than disqualification.

As the Supreme Court said inStrother at para. 59: Conflict between concurrent clients where no confidential information is at risk can be handled more flexibly than MacDonald Estate v.Martin situations because different options exist at the level of remedy, ranging from disqualification to lesser measures to protect theinterest of the complaining client.

In each case where no issue of confidential information arises, the court should evaluate whether thereis a serious risk that the lawyer’s ability to properly represent the complaining client may be adversely affected, and if so, what stepsshort of disqualification (if any) can be taken to provide an adequate remedy to avoid this result. [Emphasis added] In short, in these kinds of cases, disqualification is neither automatic nor necessarily preferred. [63] Binnie J. at para. 37 of Neil observed that there are a variety of remedies available to a client where its lawyer has breached a dutyof loyalty: 37 A client whose lawyer is in breach of his or her fiduciary duty has various avenues of redress.

A complaint to the relevantgoverning body, in this case the Law Society of Alberta, may result in disciplinary action. A conflict of interest may also be the subjectmatter of an action against the lawyer for compensation, as in Szarfer v. Chodos, supra [(1986) (ON SC), 54 O.R. (2d)663]. Breach of the ethical rules that could raise concerns at the Law Society does not necessarily give grounds in a malpractice action orjustify a constitutional remedy.

The key elements informing the choice of remedy appear to be what measures are necessary to protect the interests of the complainingclient and whether there is a serious risk that the lawyer’s ability to properly represent the client may be adversely affected. Theoverarching consideration must of course be to maintain the high standard of the legal profession and the integrity of the justice system. [64] With this governing jurisprudence in mind, I turn now to the issues raised on this appeal. D.

Did McKercher possess relevant confidential information that could be used to the prejudice of CN? [65] The possession of confidential information was an alternate basis for disqualification of McKercher after the chamber judgedetermined that McKercher had breached its duty of loyalty. Most conflict of interest analyses in cases where lawyer disqualification issought would normally address this issue first where it arises, because a determination that there is possession of confidential

information to the prejudice of the client will almost always result in disqualification of the lawyer. [66] Using the test stated in MacDonald Estate, the questions on this part of the analysis are what was the confidential information, ifany, and is there a risk that it could be used to the prejudice of CN. CN cannot seek to disqualify McKercher from the new representationsimply by asserting that confidential information was imparted.

The onus is on CN to show that either the two retainers are sufficientlyrelated, thereby engaging the presumption that confidential information has been imparted and that there is likely some prejudice, or thatspecific confidential information was imparted and that there is a risk that such specific information could be used to CN’s prejudice. [67] The evidentiary foundation for an allegation that specific confidential information was imparted must be strong, having regard tothe values underlying conflict analysis enunciated in MacDonald Estate and the fact that a finding that confidential information wasimparted and resultant prejudice will inevitably disqualify counsel.

In Chapters Inc. v. Davies, Ward & Beck LLP (2001), (ON CA), 52 O.R. (3d) 566 (Ont. C.A.), Goudge J.A. stated at paras. 29-30: [29] It is clear from MacDonald Estate that the onus of showing the two retainers to be sufficiently related rests with the clientasserting the conflict of interest. It is also clear that it is not enough for that client to rest on a bald assertion that the retainers aresufficiently related.

There must be clear and cogent evidence from which the court can reach that conclusion. [Emphasis added] [30] In my opinion this inquiry must be guided by the need to avoid the evil addressed in MacDonald Estate, namely, the possiblemisuse by the lawyer of information acquired in confidence. There may be cases in which a simple description of the two retainers showsthem to be so closely connected that the court will infer the possible misuse of confidential information and hence find the retainers to besufficiently related.

More commonly, as in this case, an outline of the nature of the confidential information passed to the lawyerpursuant to the first retainer will be needed. In the end, the client must demonstrate that the possibility of relevant confidentialinformation having been acquired is realistic, not just theoretical. For the court to find that the retainers are sufficiently related, it mustconclude that in all the circumstances it is reasonably possible that the lawyer acquired confidential information pursuant to the firstretainer that could be relevant to the current matter.

Superficial similarities between retainers are not sufficient to support the inference that confidential information is at risk. For example,Binnie J. in Strother held at paras. 109-111 that lawyers are free to do similar work for clients adverse in economic interest, and use legalknow-how or precedents developed for one client to benefit another, as long as no specific confidential information is disclosed. [68] The chamber judge found, and CN admits, that McKercher did not receive confidential information factually connected to theWallace claim.

CN argues that a direct factual link between the retainers is unnecessary and that the two retainers are sufficiently relatedbecause McKercher acquired an understanding of CN as its future opponent. This argument must fail. [69] The chamber judge made no finding that any of the existing retainers with CN were sufficiently related to the Wallace claim toengage the presumption respecting confidential information.

The chamber judge correctly treated the information gained by McKercherwhile McKercher acted for CN as actual confidential information which arose out of the existence of the long-term relationship betweenthe parties and which CN argued had been specifically imparted to McKercher and to all of CN’s outside counsel as a matter of policy.However, the only specific confidential information he identified was the “unique understanding of the strengths, weaknesses andattitudes of CN”. [70] The chamber judge relied on the following cases for the proposition that litigation practices, policies, risk tolerances and attitudestoward litigation can constitute confidential information: Ramsbottom v.

Morning (1991), 48 C.P.C. (2d) 177 (Ont. Ct. (Gen. Div.)); GM& A Advertising Ltd. v. Chubb Insurance Co., [1994] O.J. No. 1676 (Ont. Ct. (Gen. Div.)) (Q.L.); and Ontario Hydro v. Ontario (Energy Board) (1994), (ON SCDC), 114 D.L.R. (4th) 341 (Ont. Div. Ct.). In two of the three cases, the lawyer wasdisqualified. In all these cases, either the subject matter of the two retainers was related, the issues were related, or the proceedings wererelated.

The foregoing cases establish little more than that in situations where the retainers are factually related or pertaining to the samekind of subject matter, knowledge of litigation strategy, risk tolerance or a client’s practices and procedures can rise to the level ofconfidential information.

They are of little other assistance in this case. [71] In a case such as this where none of the matters handled by McKercher for CN at the time McKercher took on the Wallace claimwere related either factually or by subject matter, the onus is on CN to adduce cogent evidence that McKercher acquired knowledge of itspractices, procedures and defence strategies that would rise to the level of confidential information so as to demonstrate a real risk that itcould be used to the prejudice of CN on the Wallace claim.

Whether CN has discharged its onus depends on the totality of the evidence. [72] A good discussion of the interplay of the relevant considerations when it is alleged litigation strategy rises to the level ofconfidential information is set forth at para. 52 of Walsh v. TRA Co., 2009 NLTD 9, 283 Nfld. & P.E.I.R. 94: Sobeys is a large business empire.

While it is possible that they manage their litigation according to some general principles, theevidence does not satisfy me that they have a confidential litigation strategy which applies to all of its litigation or that any strategydiscussed and/or developed during the Goodman & Carr LLP retainer sufficiently relates to the Walshes’ suit. Litigation strategydepends in large part on the facts and nature of the particular matters in dispute. In this case, Sobeys’ dispute with the Walshes is discrete

and defined by existing facts which surely dictate in large measure its strategy in defending the case. [73] The Manitoba Court of Appeal in Canadian Pacific Railway v. Aikins, MacAulay & Thorvaldson (1998), (MB CA), 157 D.L.R. (4th) 473 (Man. C.A.), dealt with a situation where Canadian Pacific Railway (“CPR”) argued that its former regionalcounsel, who subsequently worked with a law firm which was suing CPR, should be disqualified because he possessed confidentialinformation about CPR.

At para. 31, the Court, recognizing prior to Neil that railroads were in a special situation and alluding to thefuture concept of a professional litigant, stated: Although it may not be politic to do so, there is nothing wrong with a lawyer acting for and against a client at the same time - so long asthere is no connection between the matters being litigated and the lawyer has not been given privileged information by the clientconcerning the case in which he is acting against the client. It is not uncommon for this to happen where the client is large and involvedin different endeavours.

It could happen in the case of CPR. A lawyer acting for CPR in a suit over a right-of-way might acceptinstructions to sue CPR for damages alleged to arise from an accident involving a CPR train. CPR could, of course, terminate thelawyer's retainer in the right-of-way dispute, but it could not stop the lawyer acting against it in the other matter without identifying thenature of the privileged information which it alleges the lawyer has and its relevance to the suit arising from the accident.

At para. 26 the Court observed: There is a distinction between possessing information that is relevant to the matter at issue and having an understanding of the corporatephilosophy of a previous employer. The first scenario can bring about a disqualification because of conflict; the second does not. [74] In my assessment, the chamber judge erred in determining that CN had discharged its onus. The key findings upon which thechamber judge found a transfer of confidential information are at paras. 84 and 85 of his decision: [84] In his testimony before me, Mr.

Chouc testified that CN attempted to develop longstanding relationships with its outside counselso that it would become familiar with its risk tolerance and attitude to litigation. Mr. Chouc testified that, in his view, CN is particularlysensitive to litigation conflicts and is of the view that permitting the McKercher firm to continue would lead to the uncomfortablesituation where, he believes, the McKercher firm would obtain an unfair advantage by virtue of the general confidential information itreceived over the years. This evidence was not contradicted.

This is precisely the type of situation that Cory J. was speaking of in Martinwhen he stated at pages 1265-66: Lawyers are an integral and vitally important part of our system of justice. It is they who prepare and put their clients’cases before courts and tribunals. In preparing for the hearing of a contentious matter, a client will often be required to reveal tothe lawyer retained highly confidential information. The client’s most secret devices and desires, the client’s most frighteningfears will often, of necessity, be revealed.

The client must be secure in the knowledge that the lawyer will neither disclose nortake advantage of these revelations. Our judicial system could not operate if this were not the case. It cannot function properly if doubt or suspicion exists inthe mind of a public that the confidential information disclosed by a client to a lawyer might be revealed. [85] In this case the uncontroverted testimony of Mr. Chouc is that the McKercher firm has received confidential information relatingto its litigation practices, policies, risk tolerances and attitudes toward litigation.

I find that confidential information of this nature hasbeen imparted to the McKercher firm such that its current client would have an unfair advantage if the McKercher firm was permitted tocontinue to act against CN on the class action lawsuit. Accordingly, I find that the McKercher firm should be disqualified on the risk ofmisuse of confidentiality basis, in addition to the conflict of interest basis. [75] The primary witness for CN was Mr. Chouc, who in para. 5 of his affidavit lays the foundation for the confidential informationargument. I take Mr.

Chouc’s testimony on cross-examination as no more than a slight expansion of his general statement in para. 5 ofhis affidavit. The letter of Mr. Hesje of April 15, 2009 which is appended to Mr. Chouc’s affidavit clearly states, contrary to the chamberjudge’s findings, that McKercher takes issue with the contents of para. 5 of that affidavit and the purported facts on which it is based. [76] Unfortunately, Mr. Chouc’s evidence consists of bare and vague assertions of the transfer of confidential information consisting oflitigation strategies and general assertions of knowledge of risk management and tolerances.

Mr. Chouc’s testimonial and affidavitevidence is no more than a non-specific, bald assertion of transfer of confidential information devoid of any greater detail. Mr.

Chouc,when testifying, spoke in generalities, declined to confirm that there was specific transfer of knowledge, even when invited to do so, andhe failed to connect any supposed confidential information gained by McKercher to the Wallace claim. [77] Moreover, the evidence as a whole does not show a consistent handling of litigation matters by McKercher where the cumulativeimparting by CN of its litigation strategies might amount to confidential information.

Generally speaking, it is a safe assumption that themore litigation matters that a lawyer handles for a client and the greater the diversity of subject matter of those files, the more likely it isthat, during the relationship with the client, significant information about the client’s litigation strategies and tendencies as a matter ofpolicy would be imparted to counsel by the client.

The affidavit of Timothy Froese at para. 14 makes it clear that of the 22 litigationmatters in which counsel for CN could be identified, McKercher only acted as counsel for one in the period January 1, 1999 to the dateof the application, i.e. the personal injury matter, and that one appeared to have been dormant for a long while. In addition to this,

McKercher had acted on the Pulp Mill matter which might arguably be classified as litigation. Based on this evidence, the relationship of CN and McKercher, although long-term, was anemic in the litigation area. During the long-term relationship which Mr. Chouc cites as resulting in the imparting of significant confidential information respecting CN’s litigation policies, only one true litigation file handled by McKercher could be identified, and that was in relation to a fatal accident injury. It is a safe assumption that the imparting of CN’s litigation policies would be similarly anemic over that time period.

Although possible, it is unlikely that CN’s litigation strategies and practices would have been imparted to McKercher on the real estate or power of attorney matters. [ 78 ] In coming to his conclusion that confidential information had been imparted to McKercher, the chamber judge appears to have placed significant weight on his earlier finding that McKercher was CN’s “go-to” firm. This misapprehends the evidence as a whole, given the paucity of litigation files McKercher received from CN. That such a finding is not justified is put into glaring relief when one examines para. 4 of the affidavit of Mr.

Patenaude, one of CN’s in-house counsel. Mr. Patenaude swears that he was told by Mr. Chouc in about 2004 that McKercher was CN’s preferred litigation counsel in Saskatchewan. Curiously, of the Saskatchewan CN litigation files where counsel was identified since 2004, McKercher was not CN’s litigation counsel on any of them.

CN consistently chose to go to another firm to handle its litigation in Saskatchewan since 2004. [ 79 ] The risk of prejudice to CN in this case is small, even if some information regarding litigation practices were imparted, because the Wallace claim and the CN matters handled by McKercher are not related factually or by subject matter. There is no evidence that McKercher had at any time acted for CN on a matter that was factually or strategically similar or similar in subject matter.

The Wallace claim dealing with freight rate regulation will be defined by its existing facts and applicable law, which appear to be substantially different than the blend of facts and law one might expect in a fatality and injury action.

It is a safe assumption that CN’s strategy in the Wallace claim will in large measure be dictated by the facts and law of that action. [ 80 ] CN has not met its onus on the totality of the evidence tendered to establish that there was an imparting of what amounts to confidential information during McKercher’s retainer with CN and that there is as a result a sufficient risk of prejudice to CN in McKercher acting on the Wallace claim. E.

Is CN a professional litigant and can its consent to adverse representation be implied in the circumstances? [ 81 ] CN submits that the “Bright Line” Rule is an absolute prohibition and, absent express informed consent of both clients, McKercher may not represent Wallace, whose interests are directly adverse to its immediate interests, even if the two matters are unrelated. This formulation unfortunately does not reflect the state of the law. Neil does not create an absolute prohibition against law firms transacting adversely to the interest of its clients.

It is not the law, as CN argues, that the mere fact that McKercher acts for Wallace against it is sufficient to constitute a breach of the duty of loyalty and that it was not necessary for the chamber judge to do any further analysis. [ 82 ] The Codes of Professional Conduct, as mentioned earlier, allow lawyers to act adversely against current and former clients under certain conditions. Neil itself enunciates two exceptions to the “Bright Line” Rule. One is the Professional Litigant Exception, where acting adverse in interest is permissible where the client actually or impliedly consents.

The other exception is where the party seeking the disqualification does so for tactical reasons which, in this case, the chamber judge found did not occur.

If these exceptions do not apply, then the starting point for analysis is the “Bright Line” Rule / substantial risk principle adopted by the chamber judge. [ 83 ] As I will explain later, McKercher has breached its duty of loyalty to CN but, in my view, the breach of that duty is not its representation on the Wallace claim but rather its treatment of CN on the matters for which CN had retained it prior to the time and at the time McKercher took on the Wallace claim. To arrive at this conclusion, however, the applicability of the Professional Litigant Exception must be examined first.

The chamber judge determined that CN was a professional litigant. CN argues that the exception does not apply in this case. [ 84 ] The salient features of those exceptional cases mentioned in Neil when consent may be inferred or expressed to allow a law firm to act adverse in interest appear to be: (

a) the client is a larger corporate client such as a government or bank; (

b) the matters are sufficiently unrelated; and (

c) there is no danger of confidential information being abused. Binnie J.’s articulation of this exception in Neil implies that in those circumstances, it is reasonable to assume that the client will have a broad-minded attitude and generally accept that counsel may act adverse in interest. The corollary to this is that it is reasonable for the law firm to make such an assumption and act on it. There may be, in my view, a fourth factor bearing on when the Professional Litigant Exception will apply and that is whether, in the circumstances, its application is consistent with the high standards of the legal profession and the integrity of the justice system.

[85] The Professional Litigant Exception is grounded in

part in notions of the reasonable expectations of the lawyer and client. Thereasonableness of the client's expectations must be assessed objectively, not subjectively. The client seeking to disqualify a law firmbased on an allegation of breach of duty of loyalty will almost always assert a subjective expectation that the law firm would never actagainst them. However, the client’s policy or business practice that consent is always required is not determinative. This point is made inMoffat v. Wetstein, (1996) (ON SC), 29 O.R. (3d) 371 (Gen.

Div.) at p. 409: From a tactical perspective, there is some suggestion that Peter Sahagian is of the view that any time a firm which Peat Marwick hasretained in the past seeks to represent a party adverse in interest to Peat Marwick the law firm must apply for and receive Peat Marwick'sconsent, whether the matters are related or not. This is a rather “high handed” attitude and does not reflect the state of the law, and isseemingly more a “business” practice.

Perhaps, this motion may be viewed as an attempt to enforce the in-house business rule of PeatMarwick's legal department as opposed to being motivated by a fear of disclosure of confidential information.

This is especially so where the policy or practice has never been communicated to counsel. [86] The exception is also grounded in the notion that it may not be inimical to maintenance of the integrity of the administration ofjustice and the high standards of the legal profession to attenuate the rigours of the “Bright Line” where it is reasonable to do so.Certainly the context of this exception, placed as it is in Neil under the heading of “Duty of Loyalty to an Existing Client” and thereference to “no confidential information being abused” as a motivation for the exception, suggest such an attenuation. [87] Such an attenuation can be justified if one looks at the foundation of the duty of loyalty as outlined by Binnie J. in Neil.

Two keyconcepts are germane. In para. 12, Binnie J. states: Unless a litigant is assured of the undivided loyalty of the lawyer, neither the public nor the litigant will have confidence that the legalsystem, which may appear to them to be a hostile and hideously complicated environment, is a reliable and trustworthy means ofresolving their disputes and controversies: R. v. McClure, [2001] 1 S.C.R. 445, 2001 SCC 14 (S.C.C.), at para. 2; Smith v. Jones, (SCC), [1999] 1 S.C.R. 455 (S.C.C.). As O’Connor J.A. (now A.C.J.O.) observed in R. v. McCallen (1999), (ON CA), 43 O.R. (3d) 56 (Ont.

C.A.), at p. 67: ... the relationship of counsel and client requires clients, typically untrained in the law and lacking the skills of advocates, toentrust the management and conduct of their cases to the counsel who act on their behalf. There should be no room for doubtabout counsel’s loyalty and dedication to the client’s case. Additionally, at para. 16 Binnie J. states: The duty of loyalty is intertwined with the fiduciary nature of the lawyer-client relationship.

One of the roots of the word fiduciary isfides, or loyalty, and loyalty is often cited as one of the defining characteristics of a fiduciary: McInerney v. MacDonald, (SCC), [1992] 2 S.C.R. 138 (S.C.C.), at p. 149; Hodgkinson v. Simms, [1994] 3 S.C.R. 277 (S.C.C.), at p. 405. The lawyer fulfillssquarely 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 itis a person in whom trust and confidence is placed by another on whose behalf the fiduciary is to act.

The other (the beneficiary) isentitled 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. (D.W.M. Waters, “The Development of Fiduciary Obligations”, in R. Johnson et al. eds., Gérard v.

La Forest at the SupremeCourt of Canada – 1985-1997 (2000), 81, at p. 83.) In the context of these foundational ideas, the professional litigant exception can be justified on a principled basis where the client is notone “typically untrained in the law and lacking the skills of advocates”, and where in fiduciary law language there is less of a relationshipof “dependence or reliance of the beneficiary upon the fiduciary”. [88] Vulnerability of the client was, for example, an important factor in Neil.

An unsophisticated individual client who has reliedexclusively or even primarily on one lawyer or law firm for his or her representation is far more vulnerable if that lawyer or law firmshould choose to act against the individual than a legally sophisticated corporate client that has a large in-house legal department,employs many different outside law firms and is involved in frequent and varied litigation. [89] A further related rationale for the professional litigant exception is that the professional litigant often has sufficient resources andrequirements for legal services that it can, by spreading its work around, materially limit without intending to do so an opposing party’schoice of counsel.

Although Moffat, supra, dealt primarily with confidential information, the concern expressed by the Court appliesequally to assertions of duty of loyalty. In that case, the Court stated at p. 405: Another troubling aspect with respect to this case is the policy implications of ‘preemptive prevention of adverse representation’. It hasbeen shown that Peat Marwick has retained several large Toronto firms with respect to various matters since 1992.

If Peat Marwick issuccessful in asserting that the confidential information which is relevant to a matter at hand was its financial structure, litigationphilosophy and business practice of which McCarthy Tetrault has been privy given their relationship, it would lead to a practice where‘large institutional’ clients such as Peat Marwick could retain a number of ‘mega-firms’ and disclose information with respect to their

financial structure, etc. in order to prevent that firm from acting on a matter adverse to the institutional client, in the future. Such a practice is undesirable because it frustrates the legitimate opportunity of parties who are adverse in interest to retain counsel to represent them in an action against the institutional client. For example, in this case, Peat Marwick has, since 1992, retained over ten of the large and well-known firms in Toronto.

If Peat Marwick can establish a conflict with each firm based on such matters as general knowledge of insurance policies, financial structure and litigation philosophy, the plaintiffs will be unable to avail themselves of any of the talent and resources of those firms, with respect to the prosecution of their claim against Peat Marwick. [ 90 ] It is obvious that CN is not a client which is “typically untrained in the law and lacking the skills of advocates”, nor was its relationship with McKercher such that there was a substantive dependence or reliance on McKercher to do its legal work.

T he chamber judge therefore correctly determined that CN was a professional litigant. [ 91 ] However, he erred when he determined that it was not reasonable to infer consent to act pursuant to the exception. He opined that minor, non-contentious unrelated matters might lead a law firm to the conclusion that consent could be inferred. There is no indication in Neil that the professional litigant exception applies absolutely only to minor or non-contentious unrelated matters, nor do the principled bases for the exception imply such a limitation. Such a limitation would unduly restrict the ambit of this exception.

That said, the adverse retainer and the context of the adverse representation are relevant. [ 92 ] The crux of the chamber judge’s reasons for determining that there was no implied consent of CN can be found at paras. 56 and 57 of his decision: [56] First, it was not reasonable for the McKercher Firm to conclude that it had CN’s implied consent to act against it in the multi- billion dollar lawsuit. The solicitor and client had a longstanding relationship. CN used the McKercher Firm as the “go to” firm.

Although there were at least two other firms in Saskatchewan that also did CN’s legal work, I accept the testimony of Mr. Chouc, that the McKercher Firm was its primary firm within this province. CN sought to develop long-term relationships with the law firms that represent it in order to build knowledge and expertise in those law firms with CN’s attitude towards risk management. The lawsuit commenced seeks huge damages against CN and alleges both aggravated and punitive damages, which connote a degree of moral turpitude on the part of CN.

Simply put, it is hard to imagine a situation that would strike more deeply at the loyalty component of the solicitor-client relationship. [57] Second, once an express refusal to waive the conflict has been communicated to the law firm, the implied consent, if it existed at all, is vitiated. The concept of implied consent is based on the premise that it is reasonable to assume that consent is present. However, that all changes when there is an express refusal to consent.

At that point, even if it was reasonable to presume that CN would consent to the conflict (which I have found that it was not), once the objection is made the law firm is caught. Once the objection was communicated, the McKercher Firm found itself in the unenviable position of either having to withdraw or assert that the objecting client’s complaint ought to be disregarded because of mala fides or some other basis. [ 93 ] The chamber judge suggested that CN felt a sense of betrayal because of the magnitude of the Wallace claim, the type of matter it was, the nature of the matter and the remedy sought.

Although the sensitivity of CN in this case may play some

part in the analysis, the real question is the vulnerability of CN given the decision of McKercher to take on the Wallace claim. Whether the acceptance of a new retainer will have an adverse effect on the client must be determined objectively on all the circumstances, not on the client’s subjective reaction. [ 94 ] The first basis for the chamber judge deciding that the exception does not apply and that consent could not reasonably be implied relies on his misapprehension of the parties’ longstanding relationship; McKercher as CN’s “go-to” firm, and the acquiring of knowledge of CN’s risk management.

The chamber judge, as explained earlier, wrongly concluded that McKercher was CN's primary litigation counsel in Saskatchewan when this was clearly not so. He failed to give full effect to the evidence that CN is a very large and sophisticated client which regularly engages in litigation and requires legal services on a wide range of matters and has engaged multiple law firms in Saskatchewan and across Canada. This is especially significant because the Wallace claim is potentially a huge monetary claim.

There is no indication that there was a risk that its defence of the claim would be hindered or compromised by McKercher’s actions. CN was not dependent upon McKercher for legal representation despite its long relationship with that firm.

The cumulative effect of these errors is that the learned chamber judge failed to appreciate that the typical relationship of dependency and vulnerability and the risk of prejudice to the client that militated against implied consent did not exist in these specific circumstances. [ 95 ] Given the factual matrix in this case, it was reasonable for CN’s consent to McKercher acting on even a claim as large as Wallace’s to be implied.

The salient features of an exceptional case are present, i.e. , a large corporate client, a relatively low dependency on McKercher for legal services, low vulnerability related thereto, sufficiently unrelated matters, and no danger of confidential information being abused.

[96] The chamber judge’s second reason why McKercher could not avail itself of the exception relied on several cases suggesting thatconsent ought not to be implied in circumstances where a party has expressly spoken out and stated that it does not consent. None of thecases dealt with lawyer disqualification. [97] In Petro-Lon Canada Ltd. v. Petrolon Distribution Inc. (1995), (ON SC), 19 B.L.R. (2d) 123 (Ont. C.J. (Gen.Div.)), the Court, dealing with franchising contracts, held that it could not imply a term into a contract which contradicts or is inconsistent with the express terms of a written contract.

In Pennock v. United Farmers of Alberta, 2008 ABCA 278, 296 D.L.R. (4th)239, the Court dealt with employee termination and held that a term for reasonable notice of termination could not be implied in the faceof a clear express provision to the contrary. In Collins v. Wright, [1988] O.J. No. 389 (H.C.J.) (Q.L.), a case dealing with motor vehicleinsurance, the court concluded that the owner of the vehicle had expressly prohibited any other person from driving the vehicle andaccordingly consent to the driver of the vehicle driving could not be implied. Hebert v.

Vautour, (NB KB), 146N.B.R. (2d) 311 (Q.B.) is similar to Collins. [98] None of these cases, dealing as they do with the issue of whether in a contractual or tort situation consent can be implied in the faceof a prior prohibition, written or verbal, are of any assistance in understanding the functioning of implied consent pursuant to theprofessional litigant exception. [99] An ex post facto objection to acting on the new retainer is not determinative. In this case, it is common ground that the expressobjection by CN was made after McKercher began to act for Wallace.

Additionally, there was no retainer agreement between CN andMcKercher which governed whether McKercher could act for another party adverse in interest to CN. There is no evidence that CN’slack of broadmindedness in allowing its counsel to act adverse in interest or that its particular sensitivity to conflicts in respect oflitigation matters, was ever brought to the attention of the McKercher firm or reduced to writing in a retainer agreement at any time. [100] Implied consent operates in the absence of express consent, whether written or oral, where it is reasonable that it do so. Once it isconclude

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