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| By Doug Mitchell |
A recent judgment of the Quebec
Superior Court[1]
from Mr. Justice Stephen Hamilton could have important consequences for how
lawyers conduct initial meetings with potential clients[2].
The case of Jennings v. Bazinet[3] involves
a shareholders dispute. In December 2015, one of the parties, Michel Bazinet
approached a representative of Dentons, Pierre Lortie, who was not a lawyer. Mr.
Lortie, while a member of Dentons, is a business advisor. Furthermore Mr.
Bazinet approached Mr. Lortie with a view to possibly having him sit on the
board of the company in question and be somewhat of a mediating presence during
the tense times, given the relationship between the shareholders.
The meeting lasted approximately
45 minutes. No terms of a mandate were agreed to and to the extent that
anything was agreed to, Mr. Bazinet and Mr. Lortie agreed to keep in touch. Mr.
Lortie did no conflict search and did not discuss the matter with anyone else
within Dentons. There were no further discussions between the two.
Approximately one month
later, Mr. Bazinet found out when he was served with proceedings that Dentons
was acting for Jennings. An ethical wall was immediately put in place within
the firm.
In spite of this, Mr. Bazinet
presented a motion to disqualify on the basis that confidential information had
been disclosed and the ethical wall had been put in place too late.
Mr. Justice Hamilton reviewed the
principles based on the criteria of MacDonald
Estate and concluded that the ethical wall put in place by Dentons was
effective and not too late. Accordingly, he dismissed the argument based on the
risk that confidential information disclosed by Bazinet would be used against
him.
However, Mr. Justice Hamilton
then turned to the issue of the duty of loyalty (an argument not raised in the
motion). He concluded:
In the present matter,
the court has found that Bazinet was a client of Dentons. Section 72 does not
require that Bazinet be a client of the lawyer within the firm. While that
mandate was in place, Dentons accepted a mandate from Jennings to sue Bazinet.
In doing so, Dentons breached its duty of loyalty to Bazinet. The fact that the
mandate from Bazinet and a mandate from Jennings deal with exactly the same
matter only worsens the breach.
Again Dentons did not
act deliberately. They did not know about the prior mandate because no file had
been opened.
While it is clear that
an ethical wall can resolve the problem of confidential information received
from a former client, an ethical wall is not adequate to resolve the loyalty
issue. A law firm that decides to sue to an existing client must obtain consent
from that client whether in advance or at the same time that the issue arises.
Mr. Justice
Hamilton then moves on to determine whether disqualification is the remedy and
concludes:
Dentons did not
deliberately breach its duty of loyalty, but did so unknowingly as a result of
a failure to open a file. The conflict was discovered within a couple of weeks.
Moreover it is clear
that Jennings will suffer a prejudice if Dentons is disqualified and he is
required to hire a new lawyer. This prejudice is always present when a lawyer is
disqualified. The prejudice is lessened in the present case by the fact that
the case is at an early stage. The risk of prejudice to Bazinet is limited
because the court is considering at this stage only the prejudice arising from
the breach of the duty of loyalty.
The overriding factor
in this case and in most cases is the higher interests of justice. In the
present matter the court considers that higher interests of justice require that
Dentons be disqualified. If the court allows Dentons to continue to act despite
the existing relationship with the Bazinet at the time that Dentons instituted
proceedings against him on behalf of another client in exactly the same matter,
the reputation of lawyers and of the legal system itself in the eyes of the
reasonable person will be hurt.
While it should be noted that
leave to appeal this judgment has been granted, the decision nonetheless could
have important consequences for the conduct of initial meetings with potential
clients.
Clearly there is a premium in
engaging in a conflict search immediately, before engaging in any discussion
with the potential client. This can
often be a problem for national and international firms, however, where is can
take time to obtain the results from the search, which may result in the
potential client going elsewhere.
It was already accepted law that
the fact that a formal mandate is not concluded is not a determining factor in
matters regarding the disclosure of confidential information. However, I would
argue (and did) that the same cannot be said of the duty of loyalty which
should not arise where a) there is no risk of confidential information being
disclosed and b) no formal mandate was concluded.
In addition, the Supreme Court of
Canada notes in McKercher that
disqualification is not always the automatic remedy in the case where there is
a breach of the duty of loyalty.
Nonetheless, the message is clear
that lawyers need to be careful before enthusiastically wanting to listen to
the potential clients’ problems and solve them and that a conflict search is
truly a preliminary matter to be performed in all cases.
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