Acting against former clients – the view from an appellate court

The Nova Scotia Court of Appeal’s decision in Brookville Carriers Flatbed GP Inc. v. Blackjack Transport Ltd., 2008 NSSC 22, is an instructive look into when a matter for which a law firm is retained is sufficiently related to a previous matter that the firm will not be permitted to carry on the representation against its former client.

The background facts are fairly simple.

The first action

Brookville’s lawyers had previously represented Brookville, Wayne Jenkins and Jason Jenkins in a lawsuit by a Mr. Charabi wherein Charabi alleged that the Jenkins and other Brookville employees forced Charabi to pay bribes by threatening to reduce the amount of work he would be assigned for Brookville if he failed to pay.  The allegation was that Brookville knew about the scheme and wrongfully terminated Charabi’s contract when Charabi complained.

The law firm filed a common defence denying that bribes had been demanded or paid, and stated that Brookville had no knowledge of the allegations until Charabi complained.

The essence is that the lawsuit accused the Jenkins of dishonesty in the course of their employment for Brookville.  The defence denied any dishonest activity.

That action was eventually dismissed by consent.

The second action

Six months later, the same law firm purported to represent Brookville in a new action wherein they sued the Jenkins and the Jenkins’ company, Blackjack.

The essence of that action is that the Jenkins defrauded Brookville of certain profits, charged unauthorized commissions and charges in respect of certain over-sized trucking loads, and diverted corporate opportunities away from Brookville to companies owned and controlled by the Jenkins.

The time period relevant to the second action overlaps the time period involved in the first action.

The Jenkins and Blackjack applied to have Brookville’s lawyers disqualified based on the former retainer.

The principle in issue

The case is interesting because the Jenkins were no longer clients of Brookville’s law firm when the second action was begun.

Justice Cromwell carefully reviews the case law, and distinguishes the Supreme Court of Canada in MacDonald Estate v. Martin, [1990] 3 S.C.R. 1235, and R. v Neil, [2002] 3 S.C.R. 631, on the basis that there was no danger in this case that client confidences would be put at risk.  In addition, he points out that the clients were not current clients of the firm.

Thus, the only issue was whether the second action was sufficiently related to the first retainer to disqualify the firm.

His Lordship then goes on to fully review the case law setting out the duty not to act against former clients in a related matter.  He finds that absent a danger that client confidences will be at risk, the duty on a law firm not to act in a related matter is very narrow.

Reasoning

The essence of Justice Cromwell’s reasoning is that a firm should be disqualified where its retainer in a subsequent action will undermine or attach the legal work that the firm did for the client in the first retainer.  Alternately, the Court seeks to avoid the spectre of a lawyer effectively changing sides and taking an adversarial position against a former client on an issue that was central to the previous retainer.

In this case, the law firm’s previous retainer involved, at its core, allegations of dishonesty against its former clients, the Jenkins.  The firm was retained to defend against those allegation, and was not at liberty, in the second action, to allege dishonesty against those same clients.

The Court’s reasoning is founded on the principle that a client has a right to feel secure that his or her lawyers will not, at some point in the future, attack the very work and advice for which the client paid and relied.

Commentary

The Canadian Bar Association has been examining the scope of these duties, with a view to seeking some reform.  See here.

The principles enunciated by the Nova Scotia Court of Appeal in Brookville are sound, and have worked very well to protect the public, who have a right to expect loyalty from counsel.

To permit counsel to “change sides” by loosening the rules for conflict of interest risks the profession taking on a more mercenary role, which would not be in either its own long term interests, or in the long term interests of the public.