Judgments

[1993] 3 F.C. 619

A-1347-92

Rocky’s of B.C. Leisure Ltd. (Appellant) (Defendant)

v.

Feherguard Products Limited (Respondent) (Plaintiff)

Indexed as: Feherguard Products Ltd. v. Rocky’s of B.C. Leisure Ltd. (C.A.)

Court of Appeal, Mahoney, Stone and McDonald JJ.A.—Toronto, June 16; Ottawa, June 22, 1993.

Barristers and solicitors — Appeal from order dismissing application to remove solicitors for respondent from record — Solicitor, now with law firm representing respondent, conducting discovery as agent for firm representing appellant in 1988 — Application of MacDonald Estate v. Martin test — Instructions confidential, disclosing litigation strategy — Respondent not establishing all reasonable measures taken in timely fashion to prevent disclosure of confidential information — C.B.A. conflict of interest guidelines not applicable until formally adopted, binding on profession — Delay in seeking removal not erasing conflict of interest, but reflected in award of costs.

This was an appeal from an order dismissing an application for an order removing the respondent’s solicitors from the record on the ground of an alleged conflict of interest. In 1988 Timothy J. Sinnott, a Toronto lawyer, conducted a discovery of an officer of the plaintiff (respondent) company as agent for the Vancouver law firm Barrigar & Oyen, which represented the appellant. In 1991 he joined the law firm of Bereskin & Parr which represented the respondent. At that time the file was inactive and was in storage outside of Bereskin & Parr’s filing system. It was not accessible to Mr. Sinnott. The file was subsequently returned directly to the office of the solicitor who was responsible for the matter. The existence of a potential conflict of interest was not discussed with Mr. Sinnott at the time his employment began. Not long after his arrival working labels were placed on the files and later still dummy files were created and placed in the firm’s regular filing system to indicate that the actual file was being segregated from the firm’s other files. All personnel working on the file were instructed not to discuss the litigation with Mr. Sinnott. Mr. Sinnott gave his undertaking not to discuss the contents of the file with anyone in the office. In 1992 the appellant put the respondent on notice that a conflict of interest existed, and three months later commenced the application to remove Bereskin & Parr from the record.

Held, the appeal should be allowed.

In MacDonald Estate v. Martin the Supreme Court of Canada established a two-pronged test for determining whether a conflict of interest existed such as to disqualify a law firm from continuing to act in a case: (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? As to the first prong, once it is established 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. As to the second prong, there is a strong inference that lawyers who work together share confidences. Therefore, in answering the second question, the court should draw the inference, unless satisfied on the basis of clear and convincing evidence, that all reasonable measures have been taken to ensure that no disclosure will occur.

The respondent failed to show that no confidential information was imparted to the solicitor. The instructions as to the purpose of the questions, such as the admissions which were desired and the important areas which were to be investigated at the examination for discovery, were confidential and did disclose litigation strategy.

While some steps were taken to prevent disclosure of confidential information, it was not established that all reasonable measures were taken in a timely fashion by the respondent’s solicitors to prevent disclosure of the confidential information. The Canadian Bar Association’s conflict of interest guidelines should not be invoked until they are adopted and made binding on the profession. Statements by Mr. Sinnott and members of his firm that confidential information had not and would not be disclosed alone did not satisfy the heavy burden resting on them. Nothing indicated that Mr. Sinnott was instructed when he joined the firm that he was not to discuss the confidential information with anyone working on the file. Such independently verifiable steps are essential if a firm intends to continue to act.

The conflict of interest could not be erased by the delay in asserting a conflict of interest. However, in light of the substantial additional expenses which the respondent was likely to incur in retaining and instructing new solicitors to prepare for and to conduct the trial, the appellant should be ordered to pay to the respondent its solicitor-and-client costs incurred from the date Mr. Sinnott became associated with Bereskin & Parr until the date when the formal notice of objection to their continuing to act was given.

CASES JUDICIALLY CONSIDERED

APPLIED:

MacDonald Estate v. Martin, [1990] 3 S.C.R. 1235; (1990), 77 D.L.R. (4th) 249; [1991] 1 W.W.R. 705; 70 Man.R. (2d) 241; 48 C.P.C. (2d) 113; 121 N.R. 1.

REFERRED TO:

Calgas Investments Ltd. v. 784688 Ontario Ltd. (1991), 4 O.R. (3d) 459 (Gen. Div.); Princess Auto & Machinery Ltd. et al. v. Winnipeg (City) (1991), 73 Man.R. (2d) 311; 3 W.A.C. 311 (C.A.); Cullom Machine Tool & Die, Inc. v. Bruce Tile Inc. (1990), 34 C.P.R. (3d) 401; 39 F.T.R. 302 (F.C.T.D.); Michel v. Lafrentz et al. (1991), 120 A.R. 355; 85 Alta. L.R. (2d) 1; 4 C.P.C. (3d) 155; 8 W.A.C. 355 (C.A.); Ramsbottom v. Morning (1991), 48 C.P.C. (2d) 177 (Ont. Gen. Div.); Chin v. Wong (1991), 53 B.C.L.R. (2d) 288 (S.C.); Merck & Co. v. Interpharm Inc. (1993), 46 C.P.R. (3d) 513 (F.C.T.D.); J-Star Industries, Inc. v. Berg Equipment Co. (Canada), [1992] 3 F.C. 639 (T.D.).

APPEAL from order dismissing an application to remove the respondent’s solicitors from the record for conflict of interest ((1992), 45 C.P.R. (3d) 54 (F.C.T.D.)). Appeal allowed.

COUNSEL:

Bruce M. Green for appellant (defendant).

Michael E. Charles for respondent (plaintiff).

SOLICITORS:

Barrigar & Oyen, Vancouver, for appellant (defendant).

Bereskin & Parr, Toronto, for respondent (plaintiff).

The following are the reasons for judgment rendered in English by

Stone J.A.: In August of 1992, the appellant launched an application in the Trial Division for an order that the respondent’s solicitors be removed from the record on the ground of an alleged conflict of interest. That application was dismissed by order dated October 7, 1992 [(1992), 45 C.P.R. (3d) 54 (F.C.T.D.)]. This appeal is brought against that order.

The circumstances out of which a conflict of interest is alleged are summarized at pages 55-56 of the report that the learned Motions Judge gave for his order. They are as follows:

One Timothy J. Sinnott, a solicitor, now a partner in the firm of Bereskin& Parr, was until May of 1991, a lawyer practising with Barrigar & Oyen of Toronto. This firm had a rather loose association with a firm conducting legal business in Vancouver also known as Barrigar & Oyen.

A patent infringement action was instituted by the plaintiff herein against the defendant in June, 1986. In November of 1988, the Vancouver firm, having been retained by the defendant, requested Mr. Sinnott of Barrigar & Oyen of Toronto to conduct discovery on their behalf of one Mr. Wayne Guard, an officer of the plaintiff company.

Instructions concerning the manner of conducting the discovery were forwarded to Mr. Sinnott and are now contained in a sealed envelope in this file. (I have reviewed these instructions and I am personally satisfied that they do disclose litigation strategy.)

The discoveries were concluded and Mr. Sinnott forwarded to Vancouver the transcript together with his account for services rendered.

Mr. Sinnott left Barrigar & Oyen of Toronto in May of 1991 and joined the firm of Bereskin & Parr and subsequently became a partner in March of 1992.

From 1990 on, the file appeared dormant and the defendant advised the plaintiff in February of 1992, that if no further action was taken they would seek dismissal for want of prosecution. No reply was received and as a result the defendant launched a motion for dismissal in April of 1992; this was denied by Reed J. of this court in May of 1992.

It should be noted that pleadings are closed, discoveries concluded and a pre-trial conference with the Associate Chief Justice has been scheduled for October 15, 1992.

It now appears that the trial is scheduled to proceed in January of 1994.

In dismissing the application, the Motions Judge had this to say, at page 57:

I agree that the procedure outlined by the respondent firm in their affidavits leaves a lot to be desired but I am satisfied that no mischief was intended nor were there any circumstances that I find would give rise to a conflict situation.

Mr. Sinnott is not involved with the file nor is he communicating in any way in the conduct of the litigation. In fact, it is quite clear from his evidence that he did not even remember having been involved with the file of the defendant until being pressed during his cross-examination.

The defendant’s solicitors were aware as early as June of 1991, that Mr. Sinnott was joining the plaintiff’s firm and did not seek any redress until after their motion for dismissal was denied in May of 1992.

…

As I review the evidence, I am satisfied that Mr. Sinnott remembered very little or anything of his previous involvement; no information of a confidential nature had been disclosed except instructions for discovery and as a result I am persuaded that little could be used to the detriment of the defendant.

As to misuse of the information, it is quite clear that Mr. Sinnott is not acting nor is he actively engaged in the file.

To impute his knowledge to others in the firm is too strict a principle and as the Supreme Court suggests “it would be unrealistic in the era of mega-firms”. I am satisfied on “clear and convincing evidence, that all reasonable measures have now been taken by the other members of his law firm” (MacDonald Estate v. Martin, supra).

He also noted that the disqualification of the respondent’s solicitors would require the plaintiff to incur substantial additional legal expenses.

The steps Bereskin & Parr took after Mr. Sinnott joined the firm as an associate in May of 1991 to ensure that any information gained by him while acting as an agent for Barrigar & Oyen in 1988 would not be used to the prejudice of the appellant, are of first importance. The file was inactive and was in storage outside of Bereskin & Parr’s filing system as the firm’s filing space was limited. It was not accessible to Mr. Sinnott. Some time later the file was returned directly to the office of Mr. Everitt who together with another partner were responsible for the matter. The existence of a potential conflict of interest was not discussed with Mr. Sinnott at the time his employment began. However, not long after his arrival working labels were placed on the file boxes and later still dummy files were created and placed in the firm’s regular filing system to serve as indications that the actual file was being segregated and kept separate from the firm’s other files. It appears these were the only steps that were taken by the firm up until May of 1992 to ensure that any confidential information gained by Mr. Sinnott in 1988 would not be used to the appellant’s prejudice. In that month the appellant put the respondent on notice that a conflict of interest existed and asked that the solicitors withdraw. The application to remove them from the record was launched almost three months later.

By memorandum of July 22, 1992, the partners in charge of the file addressed a communication to Mr. Sinnott, which reads in part:

Upon your move to Bereskin & Parr it was conceivable that a conflict of interest may arise and steps have since been taken to eliminate such possibility. For your information, the files concerning this litigation were removed from the filing system and stored elsewhere with restricted access. We have also specifically instructed all lawyers, students and secretaries working on the file that they should not discuss any aspect of the litigation with you. In addition, a notation has been entered in the firm’s computer system identifying the file as being of “Restricted Access”.

Although it is somewhat unlikely that you had access to confidential information concerning the above litigation while at Barrigar & Oyen, and even more unlikely that you now recall any such information after approximately three and half years, we have implemented the above procedures in order that even the slightest possibility of a conflict is removed. We also believe it to be prudent to advise you of the procedures we have implemented as the Defendant has recently raised the issue for the first time.

All individuals who might be involved in the file were asked to sign and did sign an acknowledgement that “at no time have they discussed the contents of this file” with Mr. Sinnott, that “under no circumstances will I discuss the contents of this file with Tim Sinnott, or in his presence, and that the contents of details of the … litigation file are to be considered confidential with restricted access.” They acknowledged the extreme importance of the matter and agreed that failure to abide by the firm’s policy might result in disciplinary action including termination of employment. Mr. Sinnott was himself asked by the partners in charge of the file to give his undertaking, which he did on August 14, 1992, “that at no time have you nor will you discuss the contents of this file with anyone else in this office.”

In MacDonald Estate v. Martin, [1990] 3 S.C.R. 1235,[1] the Supreme Court of Canada considered the appropriate test to be applied in determining whether a conflict of interest exists such that should disqualify a law firm from continuing to act in a case. In speaking for the majority, Sopinka J. rejected the traditional approach of the English courts that a conflict of interest exists only where there is a “possibility of real mischief”. Nor would he accept the view of the minority that the knowledge of the solicitor in question should be irrefutably presumed to have become the knowledge of the new firm. In the view of the learned Justice, the Court was concerned with at least three basic and competing values, which he identifies at page 1243:

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.

After reviewing decided cases in England, Australia, Canada and the United States, Sopinka J. considered the appropriate test to be applied in this country. He emphasized the importance of confidential communications passing between a solicitor and his client, noting, at page 1244, that “[t]he legal profession has distinguished itself from other professions by the sanctity with which these communications are treated” and that a client “bares his or her soul in civil or criminal litigation… in the justifiable belief that nothing they say will be used against them and to the advantage of the adversary.” The loss of that confidence, in his view, “would deliver a serious blow to the integrity of the profession and to the public’s confidence in the administration of justice.” He expressed the view, at pages 1259-1260, that “the test must be such that the public represented by the reasonably informed person would be satisfied that no use of confidential information would occur.”

Sopinka J. went on to lay down the following two-pronged test at page 1260:

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?

He underlined the difficulty facing a solicitor in showing that confidential information had not been imparted in the old relationship but expressed the view that he or she should have the opportunity of doing so. He stated at pages 1260-1261:

… 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. This will be a difficult burden to discharge…. Nonetheless, I am of the opinion that the door should not be shut completely on a solicitor who wishes to discharge this heavy burden.

As for the second prong of the test, Sopinka J. drew a distinction between the position of a sole practitioner and partners or associates in a firm of solicitors and, in doing so, made it clear that there is a strong inference of disclosure. At page 1262 he stated:

Moreover, I am not convinced that a reasonable member of the public would necessarily conclude that confidences are likely to be disclosed in every case despite institutional efforts to prevent it. There is, however, a strong inference that lawyers who work together share confidences. In answering this question, the court should therefore draw the inference, unless satisfied on the basis of clear and convincing evidence, that all reasonable measures have been taken to ensure that no disclosure will occur by the “tainted” lawyer to the member or members of the firm who are engaged against the former client.

MacDonald Estate, supra, lays down a somewhat stringent test to be satisfied if solicitors are to continue to act whenever a conflict of interest may exist. The appellant contends that this case falls within both prongs of the test therein enunciated. The instructions enclosed in the sealed envelope, which I have read, satisfies me that they do concern the appellant’s litigation strategy. Their nature as such is made clear in the affidavit of Thomas W. Bailey of Barrigar & Oyen, Vancouver, in which he disposed, in paragraph 4, that: “Mr. Sinnott was sent particular instructions as to the purpose of the questions, such as the admissions which were desired, and the important areas which were to be investigated on the examination.” I view such instructions as confidential and, accordingly, cannot agree with the respondent that no confidential information was imparted to Mr. Sinnott such as if disclosed would be of no advantage to the respondent in advancing its patent infringement claim. Indeed, I am fully satisfied that this confidential information is attributable to a solicitor and client relationship relevant to the matter at hand and, accordingly, that the first prong of the MacDonald Estate test has been satisfied. Put another way, the respondent has not discharged the heavy burden of showing that no confidential information was imparted to the solicitor.

I turn now to the second prong of the test. In MacDonald Estate, supra, Sopinka J. was “not convinced that a reasonable member of the public would necessarily conclude that confidences are likely to be disclosed” where steps were taken to prevent such disclosure. The record should be considered with this in mind. While the evidence satisfies me that some steps were taken by the respondent’s solicitors to prevent disclosure of the confidential information shortly after Mr. Sinnott’s arrival at the firm in May of 1991, I am not persuaded that all reasonable measures were taken in a timely fashion to ensure that no disclosure would occur. I have come to the conclusion without the assistance of the draft “guidelines” of October 1991 prepared on behalf of the Canadian Bar Association in accordance with the suggestion of Sopinka J., in MacDonald Estate, supra, the name by which “Martin v. Gray” is indexed in the Supreme Court Reports. Both counsel advise that prior to the time the alleged conflict came into existence the Canadian Bar Association had not formally adopted these “guidelines”. Until they are adopted and made binding on the profession in a formal way, I do not think they should be invoked against a solicitor who it is claimed failed to comply with the standards they propose.

Mr. Sinnott and members of his new firm have given assurances in their affidavits that confidential information has not and will not be disclosed. While I have no reason to question the bona fides of the deponents, their statements taken alone do not satisfy the heavy burden resting upon them. As Sopinka J. stated in MacDonald Estate, supra, at page 1263:

… undertakings and conclusory statements in affidavits without more are not acceptable. These can be expected in every case of this kind that comes before the court. It is no more than the lawyer saying “trust me”. This puts the court in the invidious position of deciding which lawyers are to be trusted and which are not. Furthermore, even if the courts found this acceptable, the public is not likely to be satisfied without some additional guarantees that confidential information will under no circumstances be used.

In my view, nothing in the evidence indicates that Mr. Sinnott was instructed by his new firm at the time he joined it that he was not to discuss the confidential information either directly or indirectly with those working on the file. In similar circumstances Sopinka J. concluded in MacDonald Estate, supra, that the second prong of the test had not been met. He had this to say, at page 1264:

With respect to the second question, there is nothing beyond the sworn statements of Sweatman and Dangerfield that no discussions of the case have occurred and undertaking that none will occur. In my opinion, while, as stated by the courts below, there is no reason not to accept the affidavits of apparently reputable counsel, this is not sufficient to demonstrate that all reasonable measures have been taken to rebut the strong inference of disclosure. Indeed, there is nothing in the affidavits to indicate that any independently verifiable steps were taken by the firm to implement any kind of screening. There is nothing to indicate that when Ms. Dangerfield joined the firm, instructions were issued that there were to be no communications directly or indirectly between Ms. Dangerfield and the four members of the firm working on the case. While these measures would not necessarily have been sufficient, I refer to them in order to illustrate the kinds of independently verifiable steps which, along with other measures, are indispensable if the firm intends to continue to act.

The respondent submits that the appeal should be dismissed because of the delay which elapsed between the time Mr. Sinnott became employed by Bereskin& Parr and the making of the formal objection in May of 1992. I cannot see how the conflict of interest could be erased because of that delay alone. It may well be that delay or other factors are to be considered in determining the terms upon which a court will order the removal of a solicitor or solicitors from the record, but that is an entirely different matter. In the present case, I am of the view that the delay on the part of the respondent in asserting a conflict of interest should not go unnoticed and especially so in light of the substantial additional expenses which the respondent is likely to incur in retaining and instructing new solicitors to prepare for and to conduct the upcoming trial.

I would allow this appeal without costs, set aside the order of the Trial Division dated October 7, 1992 and order that the law firm of Bereskin & Parr be removed from the record in the action on the ground of a conflict of interest. I would also order that the appellant pay to the respondent, forthwith after taxation, its solicitor-and-client costs incurred from the date Mr. Sinnott became associated with Bereskin & Parr in May of 1991 up to May 27, 1992, when the formal notice of objection to their continuing to act was given by the appellant.

Mahoney J.A.: I agree.

McDonald J.A.: I agree.

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