A-1157-87
(T-2031-87)
Enerchem Ship Management Inc. (Appellant)
(Plaintiff)
v.
Owners and all others interested in the Ship
"Coastal Canada", The Ship "Coastal Canada"
and Greater Sarnia Investment Corporation
(Respondents) (Defendants)
INDEXED AS: ENERCHEM SHIP MANAGEMENT INC. v. COAST
AL CANADA (THE)
Court of Appeal, Heald, Marceau and MacGuigan
JJ.—Toronto, January 14; Ottawa, February 16,
1988.
Barristers and solicitors — Professional conduct — Appeal
from dismissal of application for order restraining law firm
from acting for respondents — Solicitor for respondents acting
for both parties when reducing contract to writing — Parties to
divide solicitor's account — Solicitor not receiving confidential
information from appellant — Solicitor causing breakdown of
drafting session — Whether solicitor-client relationship be
tween appellant and solicitor — Whether probability of trans
mission of confidential information or unfairness to aggrieved
party — Appeal allowed.
Judges and Courts — Court asked to restrain law firm from
acting in order to exercise due control over own process —
Whether proper administration of justice jeopardized if firm
continuing to act — Motions Judge denying injunction —
Lawyer advising both sides in drafting contract — Contract-
drafting breaking down — Solicitor-client relationship —
Conflict of interest — Appeal allowed.
This was an appeal from the dismissal of an application for
an order restraining the law firm of Campbell, Godfrey &
Lewtas from further acting for the respondents in this action.
The appellant and another company were each negotiating with
the respondent company for exclusive use of the vessel "Coastal
Canada" in order to gain an advantage one over the other.
Each has commenced an action to enforce alleged contractual
rights. On September 24, 1987, the appellant and respondents
came to an agreement concerning charter of the ship. Ian
MacGregor of Campbell, Godfrey & Lewtas, solicitor for the
respondents, agreed to act for both parties in drafting the
contract upon assurances that there was nothing further to
negotiate. The parties proposed sharing his account. At the
beginning of the session, Mr. MacGregor expressed his opinion
that there was no contract between the respondents and the
other prospective charterer. The drafting session disintegrated
when Mr. MacGregor identified a problem in the governing
law clause. Although there was never any private consultation
between the appellant and Mr. MacGregor, there was between
Mr. MacGregor and the respondents.
The issues to be determined in order to decide whether an
injunction should issue in a conflict of interest situation are
whether there was a solicitor-client relationship between the
solicitor and the aggrieved party, and whether there was a
probability either of the transmission of confidential informa
tion or some other unfairness to the prejudice of aggrieved
party.
A subsidiary issue was whether Mr. MacGregor was in a
conflict of interest situation because the respondent was in
directly related to the appellant. Campbell, Godfrey & Lewtas
act for the managers of the Dofasco Employees' Savings and
Profit Sharing Fund, which is a shareholder of a company
related to the appellant. The appellant reports daily on its
business, including its litigation strategy against the respon
dents. Managers of Dofasco receive such reports and they
report to all those connected with Dofasco, so the appellant's
reports could conceivably reach Campbell, Godfrey & Lewtas.
Held (Marceau J. dissenting): the appeal should be allowed.
Per MacGuigan J. (Heald J. concurring): There was a
solicitor-client relationship between Mr. MacGregor and the
appellant. Mr. MacGregor acted as a solicitor, rather than as a
mere scribe, as he had to choose the appropriate drafting
language on the basis of his professional knowledge, and it was
agreed that his account would be shared.
The Motions Judge held that there was no transmission of
confidential information, since the parties were always in the
presence of each other. On this basis, he held that the solicitor
was not in a conflict of interest situation. However, Mr. Mac-
Gregor himself was the source of the breakdown of the drafting
session when he realized that the other prospective charterer
might have prior rights under Québec law, about which he was
not knowledgeable. At that time, he was acting for the respond
ents, and therefore had acted to the detriment of the appellant
while in a solicitor-client relationship with it. An unfairness was
inflicted on a client during the currency of a solicitor-client
relationship, which effectively prejudiced the client by bringing
about the breakdown of the contract-drafting. A solicitor has a
duty to protect both his clients, and if he cannot do that, to
withdraw from acting for both clients. Here, the solicitor's
judgment was exercised on behalf of another client, thus
depriving the appellant of his loyalty. Once the prejudice to the
appellant occurred and the solicitor did not cease to act for
both clients, the appellant's right to an injunction could not be
affected by its minor delay in bringing the application.
Per Marceau J. (dissenting): This motion invited the Court
to use its control over its proceedings and refuse to allow
Campbell, Godfrey & Lewtas to represent the respondents in
the action because the proper administration of justice would
be jeopardized by their participation. The Court was called
upon to deny the right of a party to retain the solicitor of its
choice and the right of a lawyer to practice his profession, on
the ground that the proper administration of justice required it.
There was no solicitor-client relationship between the appel
lant and Mr. MacGregor. It was never expected that Mr.
MacGregor could receive any confidence from the appellant, or
be called upon to represent the exclusive interest of the appel
lant. The proper administration of justice was not at risk. There
was no possibility of any prejudice or mischief resulting from
Campbell, Godfrey & Lewtas being allowed to remain on the
record.
It was not clear whether the adage that justice must not only
be done, but also be seen to be done, which refers to the real
and perceived objectivity required of those who are called upon
to render justice, applied to govern the role of lawyers before a
tribunal. Even in cases where the "probability of mischief' test
appears to have been broadened, the Court has always been
called upon to protect some form of real or potential confiden
tiality. No passing of confidential information took place here.
There was no connection between any inappropriate behavi
our on the part of Mr. MacGregor during the September 24
meeting and the motion before the Court. Perhaps such behav
iour could give the appellant a cause of action in damages or a
basis for a complaint to the Law Society governing the profes
sional conduct of solicitors. But an injunction removing them
from the case would simply constitute a sanction for past
actions and not a means for preserving the propriety of the
administration of justice.
As to the subsidiary argument, the party to object to its
solicitors acting for the respondents would be Dofasco, but it
has not done so. It also was in the appellant's control to prevent
information relating to the litigation from getting into the
respondents' solicitors hands.
CASES JUDICIALLY CONSIDERED
APPLIED:
Ernie Industries, Inc. v. Patentex, Inc., 478 F.2d 562 (2d
Cir. 1973).
REFERRED TO:
Can. Southern Ry. v. Kingsmill, Jennings (1978), 8
C.P.C. 117 (Ont. H.C.); MTS International Services Inc.
v. Warnat Corporation Ltd. (1980), 31 O.R. (2d) 221;
118 D.L.R. (3d) 561; 18 C.P.C. 212 (H.C.); Davey v.
Woolley, Hames, Dale & Dingwall; Woolley et al.
(Third Parties) (1982), 35 O.R. (2d) 599 (C.A.); United
States Surgical Corporation v. Downs Surgical Canada
Limited, [1983] 1 F.C. 805 (T.D.); Lukic et al. v.
Urquhart et al. (1984), 47 O.R. (2d) 463; 45 C.P.C. 19
(H.C.); affd (1985), 50 O.R. (2d) 47; Diamond v. Kauf-
man 1984, 45 C.P.C. 23 (Ont. H.C.); Bank of Montreal
v. MacKenzie (1984), 45 C.P.C. 29 (Ont. H.C.) (affd
(1984), 46 C.P.C. (Ont. Div. Ct.)); Flynn Development
Ltd. et al. v. Central Trust Co. (1985), 51 O.R. (2d) 57
(H.C.); Negro v. Walker (1986), 7 C.P.C. (2d) 215 (Ont.
Dist. Ct.); Rakusen v. Ellis, Munday & Clarke, [1912] 1
Ch. 831; [1911-13] All E.R. Rep. 813 (C.A.).
AUTHORS CITED
Kryworuk, Peter W. "Acting Against former Clients—A
Matter of Dollars and Common Sense" (1984-85), 45
C.P.C. 1.
The Law Society of Upper Canada, Professional Con
duct Handbook. Toronto, 1987.
COUNSEL:
Sean J. Harrington for appellant (plaintiff).
Kristine A. Connidis for respondents (defend-
ants).
SOLICITORS:
McMaster Meighen, Montréal, for appellant
(plaintiff).
Campbell, Godfrey & Lewtas, Toronto, for
respondents (defendants).
Langlois Trudeau Tourigny, Montréal, for
intervenant Socanav Inc.
The following are the reasons for judgment
rendered in English by
MARCEAU J. (dissenting): The importance of
the matter now before the Court can hardly be
overstated, it being directly concerned with funda
mental fairness in the administration of justice and
ethical conduct in the course of legal proceedings.
An application on behalf of the plaintiff in the
present action (the appellant, herein) was made in
the Trial Division for an order removing the
Ontario law firm Campbell, Godfrey & Lewtas
from the record and restraining them from con
tinuing to act as the solicitors for the defendants/
respondents. Strongly opposed by the Toronto law
yers, the application was denied by the Motions
Judge and this is an appeal against that decision.
The facts are somewhat involved but those that
need to be known to understand the situation and
to deal with the appeal are straightforward and not
in real dispute. They ought to be set out first as
regards the general background and then as they
relate more directly to the application at issue.
Two competing companies, in fact the two most
important Canadian companies operating domestic
flag tanker fleets for the transportation of oil,
Enerchem Ship Management Inc., the appellant
(hereinafter "Enerchem") and Socanav Inc., are
both greatly interested in chartering the "Coastal
Canada" a Canadian tanker owned by the
respondent, Greater Sarnia Investment Corpora
tion (hereinafter "Greater Sarnia"), of Sarnia,
Ontario. They have both been involved, for some
time, in discussions and negotiations with Greater
Sarnia, each being anxious to get exclusive use of a
ship particularly well suited for certain types of
carriage because of its size, and by so doing to
acquire a favourable position over the other. These
parallel dealings, of which both companies were
fully aware, came to an abrupt end on September
24, 1987. At that time, both companies were
trying to get from Greater Sarnia a final acknowl
edgment (in the form of a written contract) of an
agreement that both were contending had finally
been entered into verbally. On that day, Socanav
Inc. served on greater Sarnia an interim injunction
enjoining it from selling or bareboat chartering its
ship, which injunction it had sought and obtained
on commencing an action in rem and in personam
for the enforcement of its alleged contractual
rights. Enerchem immediately sought leave to
intervene in the proceedings and a few days later
commenced its own action against Greater Sarnia,
also in rem and in personam, for the enforcement
of its own alleged rights. Socanav Inc., of course,
in turn sought and was granted leave to intervene
in Enerchem's action, the one we are concerned
with here. So much for the general background;
now the facts more directly related to the motion.
I do not suppose I can give of those facts a
recital more favourable to the application than the
one prepared by the appellant's counsel them
selves. So I will simply here reproduce verbatim
some paragraphs of their memorandum.
Shortly after midnight on September 24, 1987, the Defendant-
RESPONDENT Greater Sarnia Investment Corporation ("Great-
er Sarnia") agreed to let and the Plaintiff-APPELLANT Ener-
chem Shipmanagement Inc. ("Enerchem") agreed to charter
the Defendant ship M.V. COASTAL CANADA on a ba'reboat
basis. Enerchem, represented by two of its Officers, Anthony
Airey and George Iskandar, obtained assurances from Greater
Sarnia's Lucio Sandrin that Greater Sarnia was in a position to
let the ship. It was known that Greater Sarnia had also been in
negotiation with Socanav Inc., Plaintiff in action T-1989-87.
The Parties re-convened at Enerchem's offices in Montreal at
about 1130 hours on September 24, 1987 to reduce their
agreement to writing. Amongst those in attendance for Greater
Sarnia was its solicitor, Ian MacGregor, of Campbell, Godfrey
& Lewtas, Toronto.
It was proposed that Mr. MacGregor act for both Greater
Sarnia and Enerchem in drafting their contract, and that his
account would be shared by them. Mr. MacGregor agreed to so
act, when assured by Greater Sarnia's Mr. Sandrin that there
was, indeed, nothing further to negotiate. It was only a question
of "papering the deal". Mr. MacGregor also stated that, in his
opinion, the negotiations between Greater Sarnia and Socanav
did not give rise to a contract, as there were at least six points
of financial implication which had never been agreed.
The drafting session continued until clause 31 of the agreed
form, the Barecon A form, the governing law clause, was
reached. The Enerchem/Greater Sarnia contract called for
Canadian Maritime Law. Mr. MacGregor stated the Socanav
draft provided for application of the laws of the Province of
Quebec.
Mr. MacGregor withdrew, apparently to take advice on this
point, and inter alia, with Captain Iskandar's assistance, was
put into communication with Jacques Demers of McMaster
Meighen, a member of the Quebec Bar.
During this same time frame, representatives of Socanav were
calling the Greater Sarnia representatives at Enerchem's offices
threatening to take legal proceedings.
The drafting session disintegrated.
The only difficulty with this recital is that it
does not sufficiently stress certain facts the pres
ence of which must be fully appreciated in order to
have a complete and accurate view of the situation.
As was to be expected, counsel for the respondents
took care to complete the picture in their own
memorandum and here again I will allow myself to
borrow from their presentation.
Mr. MacGregor attended the meeting of September 24 in his
capacity as the Respondent's lawyer. This was clear to the
Appellant.
At the meeting, Mr. George Iskandar of the Appellant suggest
ed that Mr. MacGregor act for both parties in simply reducing
the terms of the agreement they had reached to writing, so that
it could be signed as quickly as possible that day, on assurances
that there was nothing contentious outstanding between the
parties.
There was at no time during the meeting, any private consulta
tion between representatives of the Appellant and Mr. Mac-
Gregor. On the other hand, there was during the meeting
private consultation between Mr. MacGregor and the Respon
dent, and by telephone between Mr. MacGregor and Mr.
Strathy of his law firm. Similarly, during the meeting there was
private consultation between representatives of the Appellant
and its own solicitors at McMaster Meighen.
Immediately following the meeting, the Appellant instructed its
own solicitors to act for it in this and the related action.
The Respondent has been represented by the law firm in
respect of its maritime law matters, for at least the last five
years.
With respect to the matters in issue in this action, the Respon
dent's law firm has acted for the Respondent since July 1987 on
both the commercial and litigation aspects of the matter.
The Appellant has never consulted, been represented by or had
any relationship or contact whatsoever with the Respondent's
law firm, with the sole exception of the meeting of
September 24.
The Appellant's own solicitors, McMaster Meighen in Toronto
and Montreal, have represented the Appellant since its incep
tion in both corporate and litigation matters.
A last point needs to be made. Not only is it
readily acknowledged by the appellant that noth
ing confidential was received by Mr. MacGregor
at the September 24 meeting, it is clear on the
evidence that at no time could it be thought, by
any of those present, that anything confidential
could or would pass to him.
So these are the particulars of the factual back
ground, and we can now come to the motion.
Immediately a preliminary question arises: what is
the real nature of this motion and, more precisely,
what is its purported legal purpose and founda
tion? Without a clear view of what the motion is
about, the issue it involves may be too easily
misunderstood.
The motion does not ask the Court to make a
judicial pronouncement as to the nature and scope
of the duties owed by a solicitor to his client. The
appellant does not seek the acknowledgement and
enforcement of any right it may have as a result of
some relationship with Campbell, Godfrey &
Lewtas, nor does it assert directly or indirectly a
possible or eventual breach of some fiduciary duty
on the part of the law firm. Counsel for the
appellant referred us to Davey v. Woolley, Hames,
Dale & Dingwall; Wooley et al. (Third Parties)
(1982), 35 O.R. (2d) 599 (C.A.), but that was a
case concerned with an action in damages by an
unsatisfied client against his solicitor: it can have
little bearing on the case before us. Likewise, the
rules of professional conduct established by provin
cial law societies, in so far as they are directed to
governing the conduct of solicitors toward their
clients, can be of no immediate help.
Neither does the motion relate in any way to the
Court's disciplinary jurisdiction over solicitors
appearing before it. There can of course be no
suggestion that by acting for the respondents in
this action the law firm would be in breach of its
duty as officers of the Court. The rules of profes
sional conduct governing the behavior of solicitors
before the Court, those established by the general
rules of court practice as well as by the Law
Society, are not involved.
What the motion asks is clear and simple. It
invites the Court to use its control over its proceed
ings and refuse to allow Campbell, Godfrey &
Lewtas to represent the respondents in the action
because the proper administration of justice would
be jeopardized by their participation. The excep
tional gravity of the motion, when reduced to its
most simple terms, is striking. The Court is called
upon to intervene and deny, not only the normal
right of a party to retain the solicitor of its choice,
but also the right of a lawyer to practice his
profession and carry on his business as he sees fit
(so long, of course, as he does it honestly and
according to the rules), on the sole basis that the
proper administration of justice requires that it be
so. I suppose it need not be emphasized that for a
motion of this gravity to succeed, the grounds
alleged in support thereof must be serious indeed.
So what are they?
Two grounds are advanced, a principal one and
a subsidiary one. The latter is not related to the
facts recited above and may be disposed of
summarily.
The facts which would establish this subsidiary
ground in the appellant's submission can briefly be
summarized as follows. Campbell, Godfrey &
Lewtas have as clients the managers of the Dofas-
co Employees' Savings and Profit Sharing Fund
and Dofasco Supplementary Retirement Income
Plan ("Dofasco"), which is a shareholder of a
company related to the appellant, namely Ener-
chem Transport Inc. Now, the appellant reports
daily on all aspects of its business, including the
litigation strategy of its suit against Greater
Sarnia, and amongst the normal addressees of
those reports are the managers of Dofasco. Since
the managers of Dofasco may very well report in
turn to all those connected with Dofasco, it follows
that the appellant's reports may reach Campbell,
Godfrey & Lewtas.
I simply fail to see how these facts can in any
way affect the proper administration of justice. If
anyone could be concerned by the fact that Great
er Sarnia is represented, in this action, by solicitors
who have acted in the past for Dofasco, and may
still do so in the future, it could only be Dofasco,
not the appellant, and Dofasco did not raise any
difficulty. On the other hand, if the appellant's
fear is that some information contained in its
reports relating to the litigation may somehow get
into the hands of Greater Sarnia's solicitors, it is
within its control to take the appropriate steps to
ensure that this does not occur. I need say no more
about the subsidiary ground.
The principal ground advanced by counsel for
the appellant in support of the motion is that,
Campbell, Godfrey & Lewtas having acted,
through Mr. MacGregor, as Enerchem's solicitors
during the September 24 meeting, it would be
inappropriate that they now be allowed to repre
sent its opponent in this law suit to which the
events of September 24 are certainly not unrelat
ed. This ground might have more appeal on gener
al principle than the one I have just summarily
rejected but, on the facts of the case, I do not think
that it has any more merit.
First, I seriously doubt that there ever existed,
during the September 24 meeting, a solicitor-client
relationship between the appellant and Mr. Mac-
Gregor. It is true that Mr. MacGregor had to use
his professional knowledge in "papering the deal",
although his role in that respect was limited by the
fact that there was already a draft, prepared by
the appellant's officers, which only had to be
reviewed. It is true also that Mr. Iskandar for the
appellant testified to an agreement that the law-
yer's account for this task would be shared by both
parties, although the evidence is silent as to exactly
how this agreement came about and to what extent
the lawyer himself participated in it. In my view
however a true solicitor-client relationship with
full enforceable effect requires more than that. It
requires, it seems to me, on one side a lawyer who
has assumed, or has had imposed upon him by law,
a fiduciary duty and on the other a client who has
reposed a confidence in and reliance upon the
lawyer for the protection of a special interest. As
explained above, at no time was it ever expected
that Mr. MacGregor could receive any confidence
from the appellant or be called upon to represent
the exclusive interest of the appellant in any
circumstances.
But even if I am wrong in thinking that no real
solicitor-client relationship existed, I am simply
unable to understand how the proper administra
tion of justice in this litigation could in any way be
at risk if Campbell, Godfrey & Lewtas are not
restrained from continuing to act for the respon
dents. As I see it, there is absolutely no possibility
of any prejudice or mischief resulting from their
being allowed to remain on the record and this to
me is decisive.
Counsel for the appellant has urged the Court to
follow a small number of recent Canadian deci
sions which, in line with some American jurispru
dence, seem to have favoured a broader test than
the traditional one requiring "probability of mis
chief' (a test found, as is well known, in the
leading decision of the English Court of Appeal in
Rakusen v. Ellis, Munday & Clarke, [1912] 1 Ch.
831; [1911-13] All E.R. Rep. 813). We are told
that the new test finds its meaning and authority
in the old adage that justice must not only be done
but must also be seen to be done. I am not sure
that the principle embodied in this adage, which is
essentially concerned with the real and perceived
objectivity required of those who are called upon
to render justice, may easily be adapted to govern
the role of the lawyers before a tribunal. It could
be called upon, I suppose, in support of the strict
duty of solicitors to respect, at all times and in
appearance as well as in reality, the adversarial
character of our system of administration of jus
tice, but I have difficulty in assigning to it any
other possible application. Be that as it may, even
among those few cases where the test of "probabil-
ity of mischief" appears to have been somewhat
broadened, I am not aware of any one where the
Court was not clearly moved by a desire to protect
some form of real or potential confidentiality.
Here, as mentioned above, it is clear, for any
observer aware of the facts, that such a preoccupa
tion would be totally out of place, no passing of
confidential information having ever been possible.
In the course of argument before the Court, it
was suggested that the fact Mr. MacGregor had
been instrumental in the breakdown in the drafting
of the contract, during the September 24 meeting,
was determinative. It will be recalled that, indeed,
the session disintegrated when, on considering one
of the clauses, Mr. MacGregor became concerned
and advised Mr. Sandrin of Greater Sarnia to
refrain from signing the document. The point
made at the hearing was that Mr. MacGregor had
thus acted to the detriment of the appellant Ener-
chem while in a solicitor-client relationship with it.
I have already expressed my doubt as to whether a
solicitor-client relationship ever existed between
Mr. MacGregor and Enerchem. I will add that I
see nothing wrong in the conduct of Mr. MacGre-
gor during the meeting, his attitude having been,
at all times, consistent with the position taken by
him at the outset the significance of which was
clear to everyone present. The short answer to the
argument is however, in my judgment, even more
simple; there is no connection between any inap
propriate behaviour, on the part of Mr. MacGre-
gor, during the September 24 meeting, and the
motion now before the Court. It might be that
such behaviour could give Enerchem a cause of
action in damages or a basis for a complaint to the
Society governing the professional conduct of
solicitors. But an injunction against MacGregor
and his firm removing them from the case would
simply constitute a sanction for past actions and
not a means for preserving the propriety of the
administration of justice.
In my view, the Trial Judge was right in refus
ing to grant the appellant's motion and I would
dismiss the appeal with costs.
* * *
The following are the reasons for judgment
rendered in English by
MACGUIGAN J.: This is one of those rare cases
where a Court is asked to rule on professional
conduct, normally the purview of the governing
bodies of the provincial law societies, in order to
exercise due control over its own process.
The appellant's application is for an order
restraining Messrs. Campbell, Godfrey & Lewtas,
barristers and solicitors of Toronto, from further
acting for the respondents in this action (T-2031-
87) and in a closely related action (T-1989-87). In
denying this request for an injunction on Novem-
ber 10, 1987, Addy J. gave the following reasons
(Appeal Book, pp. 200-1):
On the 24th of September 1987 Mr. McGregor [sic] agreed to
reduce to writing the terms of a proposed contract between the
parties. They had agreed in substance to its terms in the early
hours of that morning. Mr. McGregor undertook the task on
the distinct understanding that no further negotiations were
required. There was no dispute or any contentious matter
existing between the parties at that time.
As soon as it became evident that there might be some difficul
ty arising from the threatened action of a third party namely as
SOCANAV INC., Mr. McGregor ceased to act for the plaintiff,
who consulted its own solicitor. All of the information given by
the plaintiff to Mr. McGregor on the 24th of September was
given in the presence of the defendants. Therefore this informa
tion cannot be considered as confidential. There is no evidence
of any past solicitor-client relationship ever having existed
between the plaintiff and the firm of solicitors sought to be
enjoined. On the contrary, the evidence establishes quite posi
tively that no such relationship ever existed either previously or
subsequently to that date. The evidence also indicates that the
plaintiff considered Mr. McGregor throughout as the solicitor
for the defendants.
Since there was no confidential information divulged to Mr.
McGregor as a result of any solicitor-client relationship exist
ing between him and the plaintiff a conflict of interest cannot
exist on those grounds.
The defendants' solicitor acted in the past and continues to act
for certain shareholders of the plaintiff company. Its sharehold
ers have been apprised of the litigation and have indicated that
they have no objection to his firm acting for the defendants.
The plaintiffs allegations that the administration of justice
requires that those solicitors be prevented from acting for the
defendants is without foundation at law. The relationship of
Mr. McGregor's firm is with the shareholders and not with the
company. Any right to object to his representing the defendants
on the grounds of a solicitor-client relationship would be
restricted to the shareholders.
For the most part, the facts necessary on this
appeal are sufficiently set out by the Motions
Judge, but it should also perhaps be made clear
that the respondent Greater Sarnia Investment
Corporation had also been in negotiation with
Socanav Inc., the plaintiff in action T-1989-87, for
the chartering of the same ship, and that the
solicitor, Mr. MacGregor, stated at the beginning
of the meeting on September 24 that in his opinion
those negotiations did not give rise to a contract.
In the argument of the case reference was made
by both parties to Rule 5, "Conflict of Interest," of
the Rules of Professional Conduct of The Law
Society of Upper Canada, even though the events
underlying the issue took place in Montréal, for
the reason that the respondents' solicitors are
members of The Law Society of Upper Canada.
Rule 5 and the relevant paragraphs of the COM
MENTARY are as follows (Professional Conduct
Handbook, January 30, 1987, pp. 9-13):'
Rule 5
The lawyer must not advise or represent both sides of a
dispute and, save after adequate disclosure to and with the
consent of the client or prospective client concerned, should not
act or continue to act in a matter when there is or there is likely
to be a conflicting interest.
COMMENTARY
Guiding Principles
1. A conflicting interest is one which would be likely to
affect adversely the lawyer's judgment on behalf of, or loyalty
to a client or prospective client, or which the lawyer might be
prompted to prefer to the interests of a client or prospective
client.
2. The reason for the Rule is self-evident; the client or the
client's affairs may be seriously prejudiced unless the lawyer's
judgment and freedom of action on the client's behalf are as
free as possible from compromising influences.
3. Conflicting interests include but are not limited to the
financial interest of the lawyer or an associate of the lawyer,
and the duties and loyalties of the lawyer to any other client,
including the obligation to communicate information.
1 The rule and the commentaries in Chapter V, "Impartiality
and Conflict of Interest" in the Code of Professional Conduct
adopted by the Council of the Canadian Bar Association on
August 25, 1974, is substantially identical with Rule 5 of the
Law Society of Upper Canada. The only real difference is in
the numbering, headings, and sentence structure.
Disclosure and Consent
4. The Rule requires adequate disclosure to enable the client
to make an informed decision about whether to have the lawyer
act despite the presence or possibility of the conflicting interest.
As important as it is to the client that the lawyer's judgment
and freedom of action on the client's behalf should not be
subject to other interests, duties or obligations, in practice this
factor may not always be decisive. Instead it may be only one of
several factors which the client will weigh when deciding
whether or not to give the consent referred to in the Rule.
Other factors might include, for example, the availability of
another lawyer of comparable expertise and experience, the
extra cost, delay and inconvenience involved in engaging
another lawyer and the latter's unfamiliarity with the client and
the client's affairs. In the result, the client's interests may
sometimes be better served by not engaging another lawyer.
For example, when the client and another party to a commer
cial transaction are continuing clients of the same law firm but
are regularly represented by different lawyers in that firm.
5. Before the lawyer accepts employment for more than one
client in a matter or transaction, the lawyer must advise the
clients concerned that the lawyer has been asked to act for both
or all of them, that no information received in connection with
the matter from one can be treated as confidential so far as any
of the others are concerned and that, if a conflict develops
which cannot be resolved, the lawyer cannot continue to act for
both or all of them and may have to withdraw completely. If
one of such clients is a person with whom the lawyer has a
continuing relationship and for whom the lawyer acts regularly,
this fact should be revealed to the other or others with a
recommendation that they obtain independent representation.
If, following such disclosure, all parties are content that the
lawyer act, the latter should obtain their written consent, or
record their consent in a separate letter to each. The lawyer
should, however, guard against acting for both sides where,
despite the fact that all parties concerned consent, it is reason
ably obvious that an issue contentious between them may arise
or their interests, rights or obligations will diverge as the matter
progresses.
6. If, after the clients involved have consented, an issue
contentious between them or some of them arises, the lawyer,
although not necessarily precluded from advising them on other
non-contentious matters, would be in breach of the Rule if the
lawyer attempted to advise them on the contentious issue. In
such circumstances the lawyer should ordinarily refer the cli
ents to other lawyers. However, if the issue is one that involves
little or no legal advice, for example a business rather than a
legal question in a proposed business transaction, and the
clients are sophisticated, the clients may be permitted to settle
the issue by direct negotiation in which the lawyer does not
participate. Alternatively, the lawyer may refer one client to
another lawyer and continue to advise the other if it was agreed
at the outset that this course would be followed in the event of a
conflict arising.
Acting against Former Client
13. A lawyer who has acted for a client in a matter should
not thereafter act against the client (or against persons who
were involved in or associated with the client in that matter) in
the same or any related matter, or when the lawyer has
obtained confidential information from the other party in the
course of performing professional services. It is not, however,
improper for the lawyer to act against a former client in a fresh
and independent matter wholly unrelated to any work he has
previously done for that person, and where such confidential
information is irrelevant to that matter.
Law Firms
16. For the sake of clarity, the foregoing paragraphs are
expressed in terms of the individual lawyer and the lawyer's
client. However, it should be understood that the term "client"
includes a client of the law firm of which the lawyer is a
partner or associate whether or not the lawyer handles the
client's work.
Burden of Proof
17. Generally speaking, in disciplinary proceedings under
this Rule the burden will rest upon the lawyer of showing good
faith and that adequate disclosure was made in the matter and
the client's consent obtained.
In my view, neither the Ontario Rules of Profes
sional Conduct nor (and still less) the Commentar
ies on the Rules can be treated as legislative texts.
Nevertheless, they, and in particular the Rules
themselves, generally embody the principles laid
down by the courts over the years and must be
treated with great respect.
It is clear from the precedents that injunctions
will be granted in cases of conflict of interest only
when there is a solicitor-client relationship be
tween the solicitor and the aggrieved party and
when there is also a probability 2 either of the
transmission of confidential information or some
other unfairness to the prejudice of the aggrieved
party: Can. Southern Ry. v. Kingsmill, Jennings
(1978), 8 C.P.C. 117 (Ont. H.C.); MTS Interna
tional Services Inc. v. Warnat Corporation Ltd.
(1980), 31 O.R. (2d) 221; 118 D.L.R. (3d) 561; 18
C.P.C. 212 (H.C.); Davey v. Woolley, Hames,
Dale & Dingwall; Wooley et al. (Third Parties)
(1982), 35 O.R. (2d) 599 (C.A.); United States
2 It may be that the more current trend is to consider a real
possibility of mischief sufficient: see Kryworuk, Peter W. "Act-
ing Against former Clients—A Matter of Dollars and Common
Sense" (1984-85), 45 C.P.C. 1. The distinction is not relevant
in the case at bar.
Surgical Corporation v. Downs Surgical Canada
Limited, [ 1983] 1 F.C. 805 (T.D.); Lukic et al. v.
Urquhart et al. (1984), 47 O.R. (2d) 463; 45
C.P.C. 19 (H.C.) (aff'd (1985) 50 O.R. (2d) 47
(C.A.); Diamond v. Kaufman (1984), 45 C.P.C.
23 (Ont. H.C.); Bank of Montreal v. MacKenzie
(1984), 45 C.P.C. 29 (Ont. H.C.) (aff'd (1984), 46
C.P.C. 1 (Ont. Div. Ct.)); Flynn Development Ltd.
et al. v. Central Trust Co. (1985), 51 O.R. (2d) 57
(H.C.); Negro v. Walker (1986), 7 C.P.C. (2d)
215 (Ont. Dist. Ct.). These cases do not support
the appellant's contention that the mere fact of a
solicitor-client relationship is enough. There must
also be the transmission of information or some
other form of unfairness.
While the Motions Judge made no finding as to
the existence of a solicitor-client relationship be
tween Mr. MacGregor and the appellant, I am of
the view that such a relationship clearly existed.
Even though it was agreed at the start of the
meeting on September 24, 1987, that there was
nothing further to negotiate, in "papering the
deal" Mr. MacGregor was acting as a solicitor
rather than as a mere scribe, since it was he who
had to choose the appropriate drafting language on
the basis of his professional knowledge. Moreover,
it was agreed that his account would be shared
between the two parties.
The Motions Judge nevertheless found that
there was no transmission of confidential informa
tion by which the appellant could have been pre
judiced, since the parties were at all times in the
presence of each other. On this basis he held that
the solicitor was not in a conflict of interest.
In my respectful view, the Motions Judge was
correct in his finding that no confidential informa
tion passed, and also in his legal conclusion, in
relation to the arguments raised before him.
However, in the exchange between counsel and
this Court, it became apparent that the breakdown
in the drafting of the contract, which occurred
when clause 33 dealing with the governing law was
reached, arose not from some extraneous source,
or from the parties, but from the solicitor himself,
to whom at that point it seems to have occurred
that, since the respondents' draft agreement with
Socanav, the other prospective charterer, called for
Québec law (rather than the Canadian Maritime
Law agreed to previously between the appellant
and the respondents), Socanav might possibly have
prior rights under Québec law, a subject on which
as an Ontario solicitor he was not knowledgeable.
The drafting session disintegrated and Mr. Mac-
Gregor forthwith ceased to act for the appellant. It
is not disputed that Mr. MacGregor withdrew as
soon as the contract breakdown became apparent,
but he was nevertheless himself the source of the
breakdown, acting at the crucial moment in the
interest of the respondents, as their counsel admit
ted in the course of argument, and from knowledge
that he otherwise had of their affairs. Mr. Mac-
Gregor therefore acted to the detriment of the
appellant while in a solicitor-client relationship
with it.
It was argued on the solicitor's behalf that any
unfairness to the appellant did not result from the
solicitor-client relationship with the appellant, that
there is no precedent proscribing this kind of
unfairness, and that, since there is no continuing
unfairness or on-going risk of conflict of interest, it
would be illogical to restrain his firm from con
tinuing to act for its primary clients and to deprive
those clients of their solicitors of choice.
Nevertheless, an unfairness was inflicted on a
client during the currency of a solicitor-client rela
tionship, which effectively prejudiced the client by
bringing about the breakdown of the contract-
drafting. In such circumstances I am not minded
to take a narrow view of the solicitor's duty to
protect both his clients, and if he cannot do that, to
withdraw from acting for both clients. As it is put
by paragraph 13 of the above-mentioned COM
MENTARY: "A lawyer who has acted for a client in
a matter should not thereafter act against [him]
... in the same or any related matter." Paragraph
3 makes it clear that in cases involving solicitors
"Conflicting interests include but are not limited
to the financial interest of the lawyer," and in
paragraph 1, which states the foremost guiding
principle, it is stated that "A conflicting interest is
one which would be likely to affect adversely the
lawyer's judgment on behalf of, or loyalty to a
client ..." In the case at bar the solicitor's judg-
ment was exercised on behalf of another client,
thus depriving the appellant of his loyalty. I
believe that Judge Kaufman in the United States
captured the fundamental principle at stake in this
kind of case when he said for the Second Circuit
Court of Appeals in Ernie Industries, Inc. v.
Patentex, Inc., 478 F.2d 562 (1973), at page 571:
The dynamics of litigation are far too subtle, the attorney's role
in that process is far too critical, and the public's interest in the
outcome is far too great to leave room for even the slightest
doubt concerning the ethical propriety of a lawyer's representa
tion in a given case.
Once the prejudice to the appellant occurred, and
the solicitor did not cease to act for both clients,
the appellant's right to an injunction could not be
affected by its minor delay in bringing its
application.
Given this result on the appellant's first argu
ment, it is not necessary to consider its second
argument that the Motions Judge erred in finding
no conflict of interest arising from the respondents'
solicitors acting for shareholders of the appellant.
I would therefore allow the appeal with costs
both here and in the Trial Division. I would set
aside the decision of the Trial Division dated
November 10, 1987, and grant an order restrain
ing Messrs. Campbell, Godfrey & Lewtas, barris
ters and solicitors, Toronto, from acting further for
the respondents in actions Nos. T-1989-87 and
T-2031-87.
HEALD J.: I agree.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.