COURT OF APPEAL FOR ONTARIO
O’Connor A.C.J.O.*, Simmons and Cronk JJ.A.
BETWEEN
Davide Amato and S.A. Capital Growth Corp.
Plaintiffs (Respondents)
and
Peter R. Welsh, Aylesworth LLP and Julia Dublin
Defendants (Appellants)
Peter C. Wardle and Simon Bieber, for the appellants
Alan B. Merskey and Rahool P. Agarwal, for the respondents
Heard: November 14, 2012
On appeal from the order of the Divisional Court (Justices Alexandra Hoy and Michael R. Dambrot, Justice Peter B. Hockin dissenting), dated January 12, 2012, with reasons reported at 2012 ONSC 334, dismissing an appeal from the order of Justice David R. Aston, of the Superior Court of Justice, dated March 1, 2011, with reasons reported at 2011 ONSC 1314.
I. Introduction
1The common law doctrine of absolute privilege protects judges, counsel, jurors, witnesses and parties from any action “for words spoken in the ordinary course of any proceedings before any court or judicial tribunal recognised by law”, so long as the words sought to be cloaked with the privilege were “uttered for the purposes of judicial proceedings by someone who has a duty to make statements in the course of the proceedings”.1
2This case involves an apparent clash between a lawyer’s right to invoke the absolute privilege doctrine to shield the lawyer and her law firm from possible liability in a civil action initiated by former clients, and the clients’ right to assert a claim against the lawyer and her law firm for alleged breaches of fiduciary duty and the duty of loyalty based on statements made or omitted by the lawyer and the law firm while representing different clients in a quasi-judicial proceeding. The sole issue for determination by this court is whether it is plain and obvious that the doctrine of absolute privilege operates to preclude such a claim.
3This is a matter of first impression for this court. A majority of the Divisional Court upheld the motion judge’s refusal to strike certain paragraphs in the clients’ statement of claim detailing the alleged statements and omissions. The appellant lawyer, Julia Dublin, and her law firm, Aylesworth LLP, argue that the impugned paragraphs should be struck because they offend the doctrine of absolute privilege.
II. Factual Background
4The respondents, Davide Amato and S.A. Capital Growth Corp., sued Aylesworth LLP and two of its lawyers, Peter R. Welsh and Julia Dublin, for damages in the amount of $14 million allegedly occasioned by the lawyers’ negligence and breaches of fiduciary duty and the duty of loyalty during their legal representation of the respondents.
5In their statement of claim, the respondents relied in part on statements allegedly made or omitted by Dublin during the examinations of two other Aylesworth clients conducted by Ontario Securities Commission (“OSC”) representatives in the course of a formal OSC investigation.
6After the action was initiated, the appellants Aylesworth and Dublin2 moved to strike certain paragraphs of the respondents’ pleading under rule 21.01(1)(b) or, alternatively, rule 25.11 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. They argued that the impugned paragraphs disclose no reasonable cause of action (rule 21.01(1)(b)) or, alternatively, are scandalous, frivolous and vexatious (rule 25.11), because the matters alleged in those paragraphs are protected by absolute privilege and, hence, are not actionable.
7On a motion to strike of this type, the facts as pleaded are taken to be true. The following is a brief summary of the relevant allegations in the respondents’ statement of claim.
(1) The Allegations
8According to the respondents, Robert Mander, Peter Sbaraglia and corporations under their control orchestrated a Ponzi scheme whereby unsecured loans were solicited from investors on the promise of, on average, 25 per cent annual returns. Dublin represented Mander and Sbaraglia, as well as several affiliated corporations, including C.O. Capital Growth Corp. (collectively, the “Mander Group”). The respondents claim that the Mander Group used the appellants to facilitate the Ponzi scheme.
9In about July of 2009, the OSC commenced an investigation of Mander and others. As part of that investigation, OSC representatives examined Mander and Sbaraglia. Dublin represented both men at their OSC examinations.
10Prior to the OSC examinations, the respondents had also retained the appellants, at Mander’s urging. The respondents told Dublin that their company, S.A. Capital, had invested more than $10 million, which Mander traded through his various corporations. They sought Dublin’s opinion on whether the existing arrangements between S.A. Capital, its clients and the Mander Group complied with applicable securities laws.
11As a result of their solicitor-client relationship, the appellants owed fiduciary duties and duties of care and loyalty to the respondents. The respondents claim that the appellants breached these duties in several ways: (1) they knew of Mander’s activities and those of the respondents; (2) they knew or should have known that the respondents’ “business interactions with Mander exposed the [respondents] to significant and unusual financial and legal risks”; (3) they failed to advise the respondents of those risks or otherwise suggest steps to mitigate those risks; and (4) they placed themselves in a conflict position by acting for both the respondents and the Mander Group, who had conflicting interests.
12The respondents’ statement of claim includes the following “Challenged Paragraphs” that the appellants sought to strike:
At the [examinations in aid of the OSC investigation], Dublin, along with another member of Aylesworth denied or acquiesced in the denial that Mander or the entities he controlled had any obligations to any parties other than C.O. [C.O. Capital Growth Corp.], Peter Sbaraglia and Mandy Sbaraglia. This denial was contrary to Dublin’s direct knowledge.
At the above examinations, Dublin also represented or acquiesced in the following re-presentations outlining the signs that the C.O./Mander arrangement was likely a ponzi scheme:
(a) people would lend C.O. money and C.O. was free to do whatever they want with the money;
(b) the interest rates promised by C.O. seemed “ridiculously high”; and
(c) it was important that the money of investors in C.O. “cease to be traceable or trackable the moment it got slipped into C.O.”.
Notwithstanding her recent meeting with Amato, Dublin denied the existence of the relationship between the [respondents and the Mander Group], before the OSC, and took steps to attempt to retroactively create a trust for the benefit of C.O. and to the detriment of the [respondents].
Dublin was obliged to disclose the existence of the [respondents] to the OSC but failed to. That failure was caused by conflicts between the collective interests of the Mander [Group] and the interests of the [respondents]. Failure to disclose the existence of the [respondents] was a breach of Dublin’s fiduciary duties and duties of loyalty to the [respondents] and resulted in substantial losses.
Aylesworth’s:
(d) failure to make proper disclosure to the OSC;
[is] the direct cause of the [respondents’ alleged] losses.
13In these paragraphs, the respondents effectively allege that the appellants were obliged to tell the OSC about their involvement as investors in the Ponzi scheme and that the appellants failed to do so, instead misrepresenting the facts to the OSC. The respondents contend that if the appellants had properly disclosed the respondents’ participation, the OSC would have realized that the Ponzi scheme was larger than represented and might have chosen to act. If this had occurred, the respondents say, their chances of recovering their investment would have been much greater. They also claim that, but for the appellants’ breaches of their duties, the respondents would have taken steps to protect themselves from the Ponzi scheme. Instead, they allege that they suffered damages in the amount of their total lost investment of $14 million.
(2) Court Rulings Below
(a) Motion to strike
14The motion judge accepted that the doctrine of absolute privilege applies to communications made during a proceeding before a quasi-judicial body like the OSC. He also recognized, at para. 15: “[t]here is no doubt that a client can sue his or her former lawyer based upon how that lawyer conducted an earlier proceeding.” This statement accords generally with the decision of Krever J. in Demarco v. Ungaro (1979), 1979 1993 (ON SC), 21 O.R. (2d) 673 (H.C.J.), holding that lawyers are not immune from a claim brought by their clients for negligence in the conduct of judicial proceedings. However, what was unclear to the motion judge was whether such a claim can be based on statements that the lawyer allegedly made in the course of a proceeding and whether absolute immunity applies to statements omitted by a lawyer, as opposed to statements said to have been uttered by a lawyer, during the proceeding.
15The motion judge concluded that the Challenged Paragraphs “merely support or buttress a cause of action based on other independent facts which have been pleaded” (at para. 18). As a result, he held that it was “preferable that a trial judge deal with this issue as a question of admissibility of evidence rather than hiving off part of the [respondents’] claims at this early stage” (at para. 18).3
16Accordingly, the motion judge dismissed the appellants’ motion to strike.
(b) Leave to appeal application
17The appellants sought and obtained leave from Lederer J. of the Superior Court of Justice to appeal the motion judge’s decision to the Divisional Court: 2011 ONSC 3364.
18The leave judge held that the issues before the court were novel and there was reason to doubt the correctness of the motion judge’s decision. He observed, at para. 22, that: “[t]here [is] no jurisprudence respecting the question of whether [a lawyer’s] duty of loyalty to a client should take priority over the protection afforded to a lawyer by the absolute immunity.” Further, “[i]t was not clear whether the cause of action could include statements made during a proceeding, conduct of which was the basis of the action.”
19The leave judge also concluded that the motion judge’s ruling raised a matter of importance. In his view, Demarco does not determine whether the doctrine of absolute privilege applies to what is said, as opposed to what is done, by counsel in the course of a judicial or quasi-judicial proceeding. He observed, at para. 15, that: “[t]here is nothing that says that the [duties owed to the respondents] should supersede those [owed to the Mander Group] such that the absolute privilege is lost and the [respondents] are able to sue over what was said in interviews where others were being represented.”
(c) Divisional Court
20A majority of the Divisional Court upheld the motion judge’s decision. Justice Hoy, writing for the majority, rejected the appellants’ argument, which the leave judge had accepted, that Krever J.’s decision in Demarcois distinguishable (at para. 12):
Counsel for the [appellants], and Lederer J. in granting leave to appeal, distinguished Demarco on the basis that it dealt with the manner in which the case was conducted, and not with what was said. With respect, a clear line between what a lawyer does or does not do in court, and what a lawyer says or does not say in court, cannot always be drawn. In my view, it is not plain and obvious that Demarco does not permit a client to sue his or her lawyer for negligence based, at least in part, on what the lawyer said, or did not say, in the course of a proceeding.
21The majority also rejected the argument that Demarco is distinguishable because it does not deal with a situation where a lawyer is being sued by a client based on her representation of another client (at paras. 13-16):
Counsel for the [appellants] and Lederer J. also focus on the fact that when the [appellants] are alleged to have made the statements at issue they were representing Mander, and not the [respondents], before the OSC. They argue that if Demarco applies, then it applies only to permit a client to sue his or her lawyer in respect of statements made when representing the client, and not to permit another client, not represented in the proceeding, to sue based on such statements. Moreover, they say that the [appellants] cannot be required to have preferred the interests of one client – the [respondents] – over that of the other, namely Mander.
Demarco speaks to the special relationship of lawyer and client. The [respondents] and the [appellants] had such a special relationship.
The Supreme Court of Canada in R. v. Neil, 2002 SCC 70, [2002] 3 S.C.R. 631, at para. 12, described the duty of loyalty that a lawyer owes to his or her client as the “defining principle”, and as essential to the integrity of the administration of justice.
It is not plain and obvious to me that a court would not conclude that, in limited circumstances, the “defining principle” of the duty of loyalty trumps the “indispensable attribute” of lawyer’s immunity.
22The majority, therefore, concluded that it is not plain and obvious that the Challenged Paragraphs disclose no reasonable cause of action. The majority dismissed the appeal and allowed the respondents’ claim to proceed to trial, to be determined on a full record.
23Justice Hockin dissented. He distinguished Demarco from this case, at para. 34, on the basis that it holds only that “absolute privilege cannot protect the lawyer from claims of negligence or breach of fiduciary duty in the representation of a client, if it is that client whom the lawyer represented before the tribunal or court.” In contrast, this case involves claims advanced by clients based on alleged conduct by the lawyer during her representation of other clients.
24Justice Hockin was also of the view that a lawyer’s fundamental duty of loyalty to a client, especially a lawyer’s duty of commitment to the client’s cause, required Dublin to provide her “undivided attention” to Mander and Sbaraglia during the OSC investigation. He concluded that in order to ensure that “her representation was effective”, the “absolute privilege rule attached to grant her immunity from action for what was said” during the OSC proceeding (at para. 31). Were it otherwise, and the application of the absolute privilege doctrine were left to be determined by the trial judge on the basis of evidentiary principles, then “the rule and importantly, the objective of maintaining the public’s confidence in the administration of justice” would be lost (at para. 32).
25The dissenting judge concluded that “the law which surrounds the absolute privilege rule is settled law” and it is plain and obvious that the Challenged Paragraphs are “incapable of supporting a cause of action and should be struck” (at para. 37).
III. Issue
26I would frame the issue on appeal in this fashion: is it plain and obvious that the absolute privilege doctrine precludes a client from asserting a cause of action against his or her lawyer for alleged breaches of fiduciary duty and the duty of loyalty based on statements made or omitted by the lawyer while representing different clients in a quasi-judicial proceeding?
IV. Analysis
27The appellants make three related submissions on this appeal. First, and foremost, they argue that there are no exceptions to the absolute privilege that attaches to a lawyer’s statements in court proceedings, regardless of the importance of the duty that is said to have been breached in a particular case by the statements at issue.
28Second, the appellants submit that, as a matter of public policy, there is no justification for the recognition of any exception to the privilege.
29Third, the appellants contend that the majority of the Divisional Court erred by holding that it is not plain and obvious that the appellants’ statements or omissions in the OSC proceeding on behalf of one group of clients are protected by the doctrine of absolute privilege and may not form the basis of claims against the appellants brought by other clients. In effect, the appellants contend that the majority of the Divisional Court erred by unjustifiably recognizing an exception to the absolute privilege doctrine.
30For the reasons that follow, I conclude that these arguments must fail at this stage of the respondents’ action. I begin by addressing the legal principles that are relevant to the issue on this appeal.
(1) Rule 21.01(1)(b) Test
31The pleading issue was dealt with by the parties and the courts below based on rule 21.01(1)(b) of the Rules. On a motion to strike under this rule, the court must answer the following question: “assuming that the facts as stated in the statement of claim can be proved, is it ‘plain and obvious’ that the plaintiff’s statement of claim discloses no reasonable cause of action?”: Hunt v. Carey Canada Inc., 1990 90 (SCC), [1990] 2 S.C.R. 959, at 980.
32Under this stringent test, only those claims that are certain to fail should be struck at the pleadings stage. If a plaintiff’s claim has a chance of success or is “fit to be tried”, it should be determined at trial with the benefit of a full factual record: Hunt, at p. 980. Further, neither the complexity of the issues, the novelty of the cause of action raised, nor the potential for the defendant to present a strong defence will prevent a plaintiff from proceeding with his or her case. Only where “the action is certain to fail because it contains a radical defect” should the impugned parts of a plaintiff’s statement of claim be struck: Hunt, at p. 980; Reynolds v. Kingston (City) Police Services Board, 2007 ONCA 166, 84 O.R. (3d) 738, at para. 10.
33Thus, the threshold to be met by a moving party on a rule 21.01(1)(b) motion is very high. In this case, to succeed on their motion to strike, the appellants bore the burden of establishing that the doctrine of absolute privilege applies to indisputably immunize them from potential liability for the matters alleged in the Challenged Paragraphs of the respondents’ pleading.
(2) Doctrine of Absolute Privilege
34The nature and scope of the doctrine of absolute privilege lies at the heart of this appeal. That this doctrine is well-established at common law is beyond dispute. This court has repeatedly endorsed the definition of the doctrine set out in Halsbury’s Laws of England, vol. 28, 4th ed. (London, U.K.: Butterworths, 1997), at para. 97, which reads:
- Absolute privilege. – No action lies, whether against judges, counsel, jury, witnesses or parties, for words spoken in the ordinary course of any proceedings before any court or judicial tribunal recognised by law. The evidence of all witnesses or parties speaking with reference to the matter before the court is privileged, whether oral or written, relevant or irrelevant, malicious or not. – The privilege extends to documents properly used and regularly prepared for use in the proceedings. Advocates, judges and juries are covered by this privilege. – However, a statement will not be protected if it is not uttered for the purposes of judicial proceedings by someone who has a duty to make statements in the course of the proceedings.
A separate action for malicious prosecution or the malicious institution or abuse of civil proceedings may lie independently of the law of defamation. [Citations omitted.]
This definition was adopted in Samuel Manu-Tech, at para. 19; Lowe v. Guarantee Co. of North America (2005), 2005 80693 (ON CA), 80 O.R. (3d) 222 (C.A.), at para. 57; and Reynolds, at para. 14.
35The doctrine has its roots in the early development of the law of defamation. However, in its modern form, its reach is considerably broader. Relying on Hargreaves v. Bretherton and Another, [1958] 3 All E.R. 122 (Q.B.D.), at 123, Feldman J.A. for this court in Samuel Manu-Tech confirmed, at para. 20, that: “[t]he immunity extends to any action, however framed, and is not limited to actions for defamation.” See also Lowe, at para. 58.
36Historically, public policy considerations, including the need to foster confidence in the administration of justice, have been viewed as justifying an absolute privilege protecting counsel and others from suits based on what is said by them in court. There is authority for the proposition that the justification for absolute privilege is acute in cases involving statements made by counsel: see Dooley v. C.N. Weber Ltd. (1994), 1994 7300 (ON SC), 19 O.R. (3d) 779 (Ont. Ct. (Gen. Div.)), per Reilly J., at 784 – 785; More v. Weaver, [1928] 2 K.B. 520, [1928] All E.R. Rep. 160 (Eng. C.A.), per Scrutton L.J., at 522; Munster v. Lamb (1883), 11 Q.B.D. 588 (Eng. C.A.), per Brett M.R., at 603 – 605.
37Protection of the integrity of the justice system lies at the core of the public policy rationales for absolute privilege. As explained by the majority of the High Court of Australia in Mann v. O’Neill, [1997] H.C.A. 28, 71 A.L.J.R. 903, at 907:
[A]bsolute privilege attaches to statements made in the course of judicial proceedings because it is an indispensable attribute of the judicial process. It is necessary that persons involved in judicial proceedings, whether judge, jury, parties, witnesses or legal re-presentatives, be able to discharge their duties freely and without fear of civil action for anything said by them in the course of the proceedings. Were civil liability to attach or be capable of attaching, it would impede inquiry as to the truth and justice of the matter and jeopardise the “safe administration of justice”. [Citations omitted. Emphasis added.]
38Thus, where applicable, the doctrine of absolute privilege affords complete immunity to advocates and others for statements made by them in the course of judicial or quasi-judicial proceedings. This extraordinary protection operates to bar a cause of action otherwise available at law: i.e., a claim for relief by a client who has suffered loss through the negligence of his or her counsel. For this reason, the High Court of Australia has warned that any extension of the privilege is “viewed with the most jealous suspicion, and resisted, unless its necessity is demonstrated”: Mann, at p. 907, citing Williams, “Absolute Privilege for Licensing Justices”, (1909) 25 Law Quarterly Review 188 at 200 (other citations omitted). I would echo these words of caution.
39In this case, the parties accept that the OSC examinations were quasi-judicial for the purpose of the application of the absolute privilege doctrine.
(3) The Ruling in Demarco: Advocates Have No Immunity from Professional Negligence Suits
40The respondents’ claims against the appellants sound in negligence, breach of fiduciary duty and breach of the duty of loyalty owed by a lawyer. As pleaded, these claims implicate the principle of an advocate’s immunity from professional negligence suits.
41In England, for some 200 years, the common law conferred immunity on barristers for liability in negligence suits brought by a client in respect of a barrister’s conduct of civil or criminal litigation. As with the doctrine of absolute privilege, judicial recognition in England of this immunity was anchored in the public interest in the integrity of the administration of justice.
42In Rondel v. Worsley, [1969] 1 A.C. 191, the House of Lords re-examined the immunity of barristers in England after the decision in Hedley Byrne & Co. v. Heller & Partners, [1964] A.C. 465 H.L. (Eng.), which recognized liability in tort for negligent advice. In Rondel, the immunity for counsel was reaffirmed but confined to claims regarding counsel’s work in the conduct and management of a case in court.4 The Law Lords viewed the continuation of the immunity, on this modified basis, as serving the public interest in at least four principal ways:
- by preventing the fear of subsequent litigation from eroding the barrister’s independent duties to the court where those duties conflict with the client’s interests, and by preventing wasteful defensive litigation tactics;
- by avoiding re-litigation, other than on appeal, of controversies already resolved by court decisions, which would unsettle public confidence in outcomes and prolong litigation;
- by recognizing that barristers cannot select their clients to minimize the risk of future recrimination and to promote the representation by counsel of anyone who needs representation, however difficult the person or distasteful the cause; and
- as an essential part of a wider scheme of immunity that applies to judges, jurors, and witnesses in court proceedings.
43The last consideration identified by the Law Lords in effect acknowledged that the public interest aims of the doctrine of absolute privilege supported the retention of advocates’ immunity from professional negligence claims. In the view of the Law Lords, it would be incongruous if counsel were immune from action by anyone in respect of his or her conduct in court, yet liable to be sued by clients for negligence.
44In the 1980s, the approach of the English courts to advocates’ immunity from professional negligence claims began to shift significantly. In Saif Ali v. Sydney Mitchell & Co., [1980] A.C. 198, a majority of the House of Lords clarified that the immunity extends only to the conduct of the client’s cause in court, and to pre-trial work intimately connected with it: per Lord Wilberforce, at p. 215, citing Rees v. Sinclair, [1974] 1 N.Z.L.R. 180 (C.A.), at 187.
45About two decades later, in Arthur J.S. Hall & Co. v. Simons, [2002] 1 A.C. 615, the House of Lords held that there are no public interest grounds – including those identified in Rondel – that justify retention of advocates’ immunity from suit for the negligent conduct of civil proceedings. A majority of the Law Lords also rejected the principle of advocates’ immunity in respect of the negligent conduct of criminal proceedings.
46A similar development soon occurred in New Zealand. In Chamberlains v. Lai, [2006] N.Z.S.C. 70, Elias C.J., writing for the majority of the Supreme Court, explained, at para. 1, that any immunity from legal suit must be based on some public policy consideration sufficiently compelling to outweigh the public policy interest in preserving access to the courts:
Access to the courts for vindication of legal right is part of the rule of law. Immunity from legal suit where there is otherwise a cause of action is exceptional. ... All cases of immunity require justification in some public policy sufficient to outweigh the public policy in vindication of legal right.
47Like the House of Lords in Arthur J.S. Hall, the majority of the Supreme Court of New Zealand held in Chamberlains, at para. 80, that there is no longer sufficient public policy justification for continuing “an anomalous immunity for one occupational group” protecting advocates from negligence claims in civil or criminal litigation. In so holding, the majority endorsed these comments by Lord Salmon in Saif Ali, at p. 230:
Once it is clear that the circumstances are such that no question of public policy is involved, the prospects of immunity for a barrister against being sued for negligently advising his client vanish into thin air, together with the ghosts of all the excuses for such immunity which were thought to exist in the past.
48Importantly, the majority in Chamberlains explained, at para. 54, that the rationale for the doctrine of absolute privilege is animated by different policy considerations than those that had been used previously to justify advocates’ immunity from negligence claims:
The absolute privilege which precludes defamation liability is limited to what is said in court and is directed to a different policy: the candour of participants in court proceedings. The immunities of other participants in court proceedings are not analogous because witnesses and the judge do not assume duties of care to a party. ... The case of the advocate who assumes the conduct of litigation on behalf of a client to whom he owes duties of care (often as a matter of contractual undertaking) is entirely different.
49The positions in England and New Zealand on advocates’ immunity from professional negligence suits are now aligned with the pre-existing law in Ontario.5 In this province, the courts have never recognized immunity from client negligence claims in respect of an advocate’s conduct of litigation. The seminal authority in this jurisdiction remains Demarco, which was cited with approval by this court in Wong v. Thomson, Rogers, 1994 841 and in Wernikowski v. Kirkland, Murphy & Ain (1999), 1999 3822 (ON CA), 50 O.R. (3d) 124. Demarco was also cited by several of the Law Lords in Arthur J.S. Hall in support of rejecting a public policy-based justification for the continuance of advocates’ immunity, as had been endorsed in Rondel.
50In Demarco, the plaintiff alleged that his lawyers were negligent in their conduct of the defence of a civil debt action on his behalf by reason of failing to lead evidence at trial that they allegedly knew was available and that would have supported the plaintiff’s position that no debt was owed. On a motion to strike the offending paragraphs in the statement of claim, the lawyers argued that the historical common law immunity enjoyed by English barristers from an action for negligence in the conduct of a trial, as reconfirmed in Rondel, was also the law in Ontario.
51In Demarco, Krever J. posed the central question on the motion in these terms, at para. 2: “[t]he question is whether a lawyer, in the conduct of a trial, or other proceeding in Court, is, alone among all other professional persons, incapable of being sued by the client for negligence.”
52Justice Krever concluded that to deprive clients of recourse for the negligent conduct of a civil case is inconsistent with the public interest. As later explained by Doherty J.A. of this court in Wernikowski, at para. 39, Krever J. regarded the following policy concerns as mandating that a client has the right to sue his or her lawyer for the negligent conduct of the client’s civil case in court:
- accountability: lawyers should be as accountable as anyone else for their misdeeds;
- fairness: those who suffer loss as a result of a lawyer’s negligence should be entitled to compensation through the tort system;
- the maintenance of minimum standards of competence: the potential exposure to negligence claims serves as a deterrent against incompetent representation; and
- the integrity of the justice system: lawyers should not appear to be given favoured treatment which is not extended to other professionals who have, arguably, at least as good a claim to immunity from negligence claims as do lawyers. [Emphasis added.]
53In Demarco, the court also rejected the premise that the doctrine of absolute privilege is inconsistent with a client’s claim against a lawyer for the negligent conduct of legal proceedings. Justice Krever stated, at pp. 695-96:
The last consideration to be dealt with is the perceived anomaly related to the absolute privilege enjoyed in respect of anything said in Court by a lawyer. I confess that I am unable to appreciate why it should follow from the existence of that privilege that a lawyer may not be sued by his or her client for the negligent performance of the conduct of the client’s case in Court. The privilege, a fundamental aspect of the law of slander, is not concerned with relationships among persons. It relates to legal proceedings in open Court. The special relationship of lawyer and client is not involved as it is, of course, when one is considering the law of negligence.
54The current law on the doctrine of absolute privilege in Ontario and the other Commonwealth jurisdictions to which I have referred, may be summarized as follows. In this province, the doctrine of absolute privilege has never been treated as a rationale for protecting lawyers from negligence suits by their own clients. In Ontario, lawyers can be sued by their clients for their negligent conduct of both civil and criminal litigation.
55The House of Lords previously accepted, in Rondel, that the doctrine of absolute privilege supports preserving advocates’ immunity for negligence in the conduct of litigation. However, in the years that followed, the House of Lords and the Supreme Court of New Zealand each refused to treat absolute privilege as a basis for maintaining advocates’ immunity from negligence suits by their own clients. Even in Australia, where the immunity continues to be recognized, the High Court of Australia anchored the rationale for advocates’ immunity in the public interest in the finality of judicial proceedings. That court squarely rejected absolute privilege as a public policy reason for upholding advocates’ immunity: see D’Orta-Ekenaike.
56In this case, the appellants do not question the respondents’ right to sue in negligence for the appellants’ alleged breaches of their duty of care to the respondents, including for an alleged conflict of interest. Nor do they attack the respondents’ claims of breaches of fiduciary duty and the duty of loyalty per se. Rather, they submit that the latter causes of action may be founded only on the fact of the appellants’ alleged competing retainer. They argue that it is not open to the respondents to found these claims on statements made or omitted by the appellants during the OSC proceeding, and that nothing in Demarco holds to the contrary.
57The appellants further submit that the lawyer’s duty of loyalty cannot be seen to abrogate the protection afforded by the doctrine of absolute privilege. They maintain in their factum that, “there is no basis to overturn a century of jurisprudence to except claims for breach of fiduciary duty [and claims for breach of the duty of loyalty] from the doctrine of absolute privilege.” In order to assess the merits of the appellants’ argument, it is necessary to address the legal principles concerning the lawyer’s duty of loyalty.
(4) Lawyer’s Duty of Loyalty
58The jurisprudence of the Supreme Court of Canada has repeatedly endorsed the importance to the administration of justice of the lawyer’s duty of loyalty to his or her client. In particular, the Supreme Court has emphasized the lawyer’s obligation to avoid conflicts of interest.
59In R. v. Neil, 2002 SCC 70, [2002] 3 S.C.R. 631, at paras. 12 and 16, Binnie J., writing for the Supreme Court, described a lawyer’s duty of loyalty to a client as a “defining principle” that is intertwined with the fiduciary nature of the lawyer-client relationship. As he observed, at para. 16, loyalty is frequently cited as one of the defining characteristics of a fiduciary. Justice Binnie explained, at para. 12, that the duty of loyalty has endured for almost two centuries precisely “because it is essential to the integrity of the administration of justice and it is of high public importance that public confidence in that integrity be maintained”. He elaborated:
Unless a litigant is assured of the undivided loyalty of the lawyer, neither the public nor the litigant will have confidence that the legal system, which may appear to them to be a hostile and hideously complicated environment, is a reliable and trustworthy means of resolving their disputes and controversies. [Citations omitted.]
60The content of the duty of loyalty is broad. Neil holds, at para. 19, that in addition to protecting confidential information, the duty of loyalty has “three other dimensions”:
(i) the duty to avoid conflicting interests ... including the lawyer’s personal interest;
(ii) a duty of commitment to the client’s cause (sometimes referred to as “zealous representation”) from the time counsel is retained, not just at trial, i.e. ensuring that a divided loyalty does not cause the lawyer to “soft peddle” his or her defence of a client out of concern for another client; and
(iii) a duty of candour with the client on matters relevant to the retainer. ... If a conflict emerges, the client should be among the first to hear about it. [Citations omitted. Emphasis in original.]
61To give effect to the duty of loyalty and the broad principle of avoiding conflicts of interest in which confidential information may or may not play a role, Binnie J. specified a “bright line” rule for avoiding conflicts. He stated, at para. 29:
[I]t is the firm 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 original.]
62In addition, Binnie J., at para. 31, adopted the formulation of a “conflict” set out in s. 121 of the American Law Institute’s Third Restatement, The Law Governing Lawyers (2000), vol. 2, at 244-45, as a “substantial risk that the lawyer’s representation of the client would be materially and adversely affected by the lawyer’s own interests or by the lawyer’s duties to another current client, a former client, or a third person”.
63More recently, the lawyer’s duty to avoid a conflict of interest was considered by the Supreme Court in Strother v. 3464920 Canada Inc., 2007 SCC 24, [2007] 2 S.C.R. 177. In Strother, the Supreme Court reaffirmed the “bright line” rule for the avoidance of conflicts articulated in Neil but concluded that it is inapplicable where there is no legal dispute between the competing clients. Instead, the court invoked the “substantial risk” principle discussed in Neil to ground its conclusion that the defendant’s financial interest in one of two business-competitor clients created a substantial risk that his representation of the client in which he was not so interested “would be materially and adversely affected by consideration of his own interests” (at para. 69).6
(5) Discussion
64In this case, the majority and the dissenting judges in the Divisional Court regarded the interplay between a lawyer’s obligations arising from his or her duty of loyalty to a client and the protection afforded to a lawyer by the doctrine of absolute privilege as central to the appellants’ attack on the Challenged Paragraphs. I agree.
65The appellants recognize the fundamental importance and necessity to the administration of justice of the lawyer’s duty of loyalty to his or her client. However, in contrast to their position concerning the doctrine of absolute privilege, they argue that this duty is not absolute and cannot be expanded so as to interfere with what they term the unqualified nature and ambit of the doctrine of absolute privilege. They further submit that their duty of loyalty to the Mander Group should not be weighed against the competing duty of loyalty arguably owed to the respondents. To do so, they maintain, would render meaningless their duty of loyalty to the Mander Group, thereby diminishing the administration of justice and creating an unwarranted and unprecedented exception to the absolute privilege doctrine.
66In my view, at this early stage of the respondents’ action, these arguments cannot succeed. I say this for the following reasons.
(a) The appellants’ proposed application of the absolute privilege doctrine is novel in the circumstances
67First, the appellants point to no authority for the proposition that absolute privilege applies to immunize statements made in judicial or quasi-judicial proceedings by a lawyer who is alleged, in the making of the statements, to have breached his or her duty of loyalty and fiduciary duties to another client.
68Moreover, in my view, the boundaries of the absolute privilege doctrine are not firmly set. As with other long-standing common law principles, although the absolute privilege doctrine has deep roots in the history of the common law, its scope and application continue to evolve. Indeed, when absolute privilege – an “indispensable attribute of the judicial process” (Mann, at p. 907) – is set on a potential collision course with the “defining principle” of a lawyer’s duty of loyalty (Neil, at para. 12), as in this case, I do not think that the outcome can be said to be a matter of settled law. To the contrary, the outcome of a competition between these foundational principles in a given case is far from certain.
69Thus, as essentially held by the majority of the Divisional Court, it is at least arguable that, in a proper case and on a full factual record, the duty of loyalty could be held to trump the immunity afforded by the doctrine of absolute privilege. In my opinion, when these two important principles come into conflict, the conclusion that absolute privilege necessarily overtakes the lawyer’s duty of loyalty is not inevitable.
70I find support for this conclusion in the stated reluctance of appellate courts to expand the reach of the absolute privilege doctrine. Recall again the admonition expressed by the High Court of Australia in Mann, at p. 907, that any extension of the doctrine is viewed with “the most jealous suspicion, and resisted”, absent a clear showing of its necessity.
(b) There is no authority for the application of absolute privilege to a lawyer’s omissions or silence
71Second, the facts alleged in the Challenged Paragraphs include assertions that rest in part on the appellants’ alleged omissions or silence, that is, on their non-disclosure of material facts in their dealings with the OSC.
72Even assuming that the doctrine of absolute privilege is available to the appellants in this case, they offer no authority to support its application to a lawyer’s omissions or silence. The doctrine is intended to ensure that counsel are able to zealously advocate on behalf of their clients without fear of recrimination or liability for doing so. As classically articulated in Halsbury’s Laws of England, at para. 97, and in Munster, at pp. 602 – 604, the doctrine applies to statements “spoken” or “uttered” in the ordinary course and for the purposes of any judicial proceeding.
73Given the doctrine’s origins in the law of defamation, the emphasis on what is said in a judicial proceeding is hardly surprising. Thus, on the current state of the law concerning absolute privilege, it cannot be said that it is plain and obvious that the respondents’ claims will be defeated by a defence of absolute privilege relating to the appellants’ alleged omissions or silence, as distinct from statements actually made by them, during the OSC proceeding.7
(c) The appellants’ interpretation of Demarco is overly restrictive
74Third, I regard the appellants’ urged interpretation of the principles articulated in Demarco as overly restrictive.
75The appellants seek to distinguish Demarco on two grounds: (1) Demarco recognizes only that a client can bring a negligence claim based on his or her lawyer’s conduct of the case, as opposed to what the lawyer said in court; and (2) Demarco stands for the proposition that an advocate’s immunity does not bar a client from suing his or her lawyer “based on negligent conduct while representing that same client in court” (emphasis by the appellants).
76The facts in Demarco involved an aspect of the actual conduct of a trial – a lawyer’s failure to call an allegedly material, available defence witness in the debt action against the defendants’ client. But, as the majority of the Divisional Court pointed out, at para. 12, “a clear line between what a lawyer does or does not do in court, and what a lawyer says or does not say in court, cannot always be drawn.”
77This comment accords with common sense and the dynamics of a contested proceeding. Often, steps taken by counsel to advance his or her client’s cause are manifest only through words uttered, orally or in writing, in preparation for or during the proceeding. To confine the concept of the “conduct” of a case to procedural steps or advocacy tactics evidenced by steps actually taken during the progress of the case diminishes the breadth of counsel’s role and the realities of an adversarial proceeding. I therefore agree with the view expressed by the majority of the Divisional Court, at para. 12, that: “it is not plain and obvious that Demarco does not permit a client to sue his or her lawyer for negligence based, at least in part, on what the lawyer said, or did not say, in the course of a proceeding.”
78The leading decisions that have considered the doctrine of advocates’ immunity from suit, discussed above (including Demarco), do not suggest that a client who sues his or her lawyer for negligence is precluded by the doctrine of absolute privilege from grounding the claim on words spoken by the lawyer: see Wernikowski; Arthur J. S. Hall; Chamberlains; and D’Orta-Ekenaike.
79The decision of this court in Wernikowski is illustrative. In that case, this court allowed an appeal from an order under rule 25.11 striking a plaintiff’s negligence claim against a law firm, a member of which had defended the plaintiff on charges of sexual interference and sexual assault. The plaintiff alleged, among other matters, that his trial counsel advanced a hopeless defence on the sexual interference charge, instead of the defence that the plaintiff had instructed counsel to advance.
80This court held, at para. 43, that the principles articulated in Demarco apply to the alleged negligent conduct of the defence of a criminal case. In allowing the plaintiff’s claim concerning the sexual interference defence to proceed as pleaded, Doherty J.A. reviewed at some length Krever J.’s decision in Demarco, as well as some of the Commonwealth jurisprudence that I have mentioned. Notably, Doherty J.A. made no reference to the doctrine of absolute privilege. This is significant because, for the plaintiff’s allegations to be proven, evidence of the lawyer’s oral submissions at trial on the defence to the sexual interference charge would need to be admitted. Yet, on the appellants’ argument, these statements would be protected by absolute privilege.
81I also do not agree with the appellants’ contention that Demarco necessarily applies only if the client bringing the professional negligence suit is also the client who was represented in the proceeding at issue. In my view, it cannot be said that this contention is plainly beyond dispute.
82Once again, no authority has been cited to support the argument advanced by the appellants. I know of no case (and the appellants point to none) that has considered or decided whether a client (“Client A”) may bring a claim against his or her lawyer based on the lawyer’s alleged statements or steps in a proceeding on behalf of another client (“Client B”). This question was not considered in Demarco.
83Notably, in Demarco, Krever J. did address the issue whether the doctrine of absolute privilege operates as a shield against negligence claims by clients against their lawyers. His comments in rejecting this proposition, at para. 29, bear repetition:
The last consideration to be dealt with is the perceived anomaly related to the absolute privilege enjoyed in respect of anything said in Court by a lawyer. I confess that I am unable to appreciate why it should follow from the existence of that privilege that a lawyer may not be sued by his or her client for the negligent performance of the conduct of the client’s case in Court.
84If, as Demarco holds, absolute privilege does not immunize Ontario lawyers from professional negligence suits by their clients, can it be said that the privilege indisputably applies when the suit is brought by Client A in respect of conduct by the lawyer on behalf of Client B? In such circumstances, a conflict arises between the public policy goals served by the doctrine of absolute privilege and those fostered by the lawyer’s duty of loyalty. And that conflict leads to my fourth ground for rejecting the appellants’ attack on the Challenged Paragraphs of the respondents’ pleading.
(d) There is no authority for the claim of the primacy of absolute privilege
85In this case, the appellants argue that the absolute privilege doctrine is absolute, whereas the lawyer’s duty of loyalty is not. In contrast, the respondents submit that the doctrine of absolute privilege is animated by and is a function of the duty of loyalty. They assert in their factum that the duty of loyalty “must take priority over absolute privilege”. They submit that otherwise, the doctrine of absolute privilege would permit lawyers “to ignore conflicts of interest with impunity – to act for one client while breaching their duty of loyalty to another”.
86As I have said, there appears to be no authority for the proposition that the absolute privilege doctrine extends to statements made by a lawyer on behalf of one client (Client B) when another client (Client A) seeks to rely on those statements to ground a cause of action against the lawyer. In the absence of settled law on this issue, the primacy of the doctrine of absolute privilege over the lawyer’s duty of loyalty remains an open question.
87Finally, and importantly, the jurisprudence on advocates’ immunity described above instructs that immunity from suit must be based on public policy considerations. For example, in Saif Ali, Lord Wilberforce explained, at p. 214: “[i]n fixing [the boundary of immunity from suit], account must be taken of the counter policy that a wrong ought not to be without a remedy.” Similarly, the Court of Appeal of New Zealand said in Rees, at p. 187: “[t]he protection [afforded by the principle of immunity] should not be given any wider application than is absolutely necessary in the interests of the administration of justice.”
88In my opinion, it is not plain and obvious that compelling public policy considerations require applying absolute privilege to prevent the respondents from proving that they were denied their lawyers’ undivided loyalty – not merely by reference to the fact of a competing retainer – but by relying on the manner in which the appellants conducted the OSC proceeding on behalf of other clients with allegedly conflicting interests.
(e) The rule 21.01(1)(b) test has not been met
89I therefore return to where I began– to the test on a motion to strike under rule 21.01(1)(b). It is not the function of the courts on a pleadings motion of this kind to resolve unsettled, complex or novel questions of law. In the present context, it is not the role of the courts on such a motion to determine a contest between, on the one hand, a defence based on the application of the absolute privilege doctrine and, on the other hand, a client’s right to advance a claim tethered to a lawyer’s alleged breaches of his or her fiduciary duty and duty of loyalty. As this court stated in Reynolds, at para. 13, there is abundant authority in Ontario for the proposition that: “[a]t the interlocutory stage of proceedings, the court should not dispose of matters of law that are not fully settled in the jurisprudence. Such issues should be decided at trial on the basis of a full evidentiary record.”
90The appellants argue that the majority of the Divisional Court erred by, in effect, resolving their appeal by recognizing a “duty of loyalty exception” to the absolute privilege doctrine. I would reject this submission.
91The majority did not determine the competition arising in this case between the absolute privilege doctrine and a lawyer’s duty of loyalty. The majority simply identified the contest between the two principles and ruled that the outcome of this competition is not plain and obvious. Accordingly, adjudication on the merits is necessary.
92I see no error by the majority of the Divisional Court in this ruling. In my opinion, it is not plain and obvious whether the administration of justice would be better served by vindicating the Mander Group’s right to zealous advocacy by the appellants or the respondents’ right to pursue relief for the appellants’ alleged breaches of their fiduciary duty and their duty of undivided loyalty based on statements or omissions in the OSC proceeding. In short, the respondents’ claims based on the Challenged Paragraphs, although not certain to succeed, are also not plainly and obviously destined to fail.
(f) The suggested solicitor-client privilege implications
93I conclude with brief consideration of the appellants’ claim that the failure to strike the Challenged Paragraphs at the pleadings stage will result in serious and, implicitly, insurmountable implications for solicitor-client privilege. They assert, for example, that the refusal to strike the Challenged Paragraphs will render them unable to defend the respondents’ claims without violating the Mander Group’s solicitor-client privilege.
94In my view, this is not a basis for striking the Challenged Paragraphs. Allowing the impugned paragraphs of the respondents’ statement of claim to stand at the pleadings stage will not necessarily allow the respondents to gain access to solicitor-client privileged information.
95It is open to the appellants, in defending the respondents’ action, to invoke solicitor-client privilege at the pleadings, production and discovery stages of the action. In order to obtain access to information that attracts solicitor-client privilege, the respondents will be obliged to satisfy a court that the information sought is relevant and necessary to prove their claim and that it falls within one of the recognized exceptions to solicitor-client privilege. It is not clear, at this juncture, that any of these exceptions is engaged. Further, it has not yet been established whether Mander and Sbaraglia will waive solicitor-client privilege.
96Conversely, the appellants’ ability to defend against the respondents’ allegations of breaches of fiduciary duty and the duty of loyalty may not require reliance on solicitor-client privileged material. On the state of the record to date – no statement of defence having been delivered and without any evidence – the appellants’ version of the fact, nature and scope of their retainer by the respondents is unknown. The appellants may not need to rely on information that is privileged in the Mander Group’s hands to establish that their relationship with the respondents did not run afoul of the bright line conflicts rule established in Neil, or to show that their conduct did not create a substantial risk of impairing the respondents’ interests. These are matters to be determined in the usual course as the respondents’ action proceeds.
V. Disposition
97For the reasons given, I conclude that while the respondents’ claims based on the Challenged Paragraphs may not succeed, they should be allowed to proceed to trial, to be considered on the basis of a complete factual record and in light of the other claims advanced by the respondents in their pleading against the appellants. Accordingly, I would dismiss the appeal.
98I would award the respondents their costs of the appeal and of the motion for leave to appeal to this court, fixed, as agreed by the parties, in the total amount of $13,500, inclusive of disbursements and all applicable taxes.
99I do not wish to leave this appeal without expressing appreciation for the able arguments of all counsel, which greatly assisted this court in its deliberations.
Released:
“APR 24 2013” “E.A. Cronk J.A.”
“I agree Janet Simmons J.A.”
- O’Connor A.C.J.O. took no part in the judgment.
Footnotes
- Halsbury’s Laws of England, vol. 28, 4th ed. (London, U.K.: Butterworths, 1997), at para. 97, adopted by this court in Samuel Manu-Tech Inc. v. Redipac Recycling Corp. (1991), 1999 3776 (ON CA), 124 O.A.C. 125 (C.A.), at para. 19.
- Welsh does not appear to have participated in the motion to strike, nor is he a party to this appeal. Accordingly, the respondents’ allegations against him are not at issue in this proceeding.
- The motion judge was also not persuaded that the appellants had any duty to make any statements during the OSC investigation, or even to attend the OSC examinations. In his opinion, if the appellants voluntarily attended and participated in the OSC examinations in a manner that breached their duties to the respondents, it was “manifestly unjust that they should be able to use the doctrine of absolute immunity as a shield” (at para. 19). The respondents do not advance this argument as a ground for resisting the appellants’ appeal.
- This restriction on the scope of the immunity recognized that counsel also engage in advisory work or the drafting of documents in circumstances where their public duties and their duties to their client are unlikely to conflict: see for example, the opinion of Lord Reid in Rondel. The immunity, therefore, was seen to be justified in those situations – like litigation – where counsel may be confronted with a conflict of duties.
- In contrast, the courts in Australia continue to recognize advocates’ immunity: see D’Orta-Ekenaike v. Victoria Legal Aid, [2005] H.C.A. 12. However, even in Australia, the doctrine of absolute privilege is not regarded as a reason for preserving the immunity. In D’Orta-Ekenaike, at paras. 40, 45 and 84, the majority identified the public interest in the finality of legal proceedings as the singular rationale for retaining the immunity.
- On January 24, 2013, the Supreme Court heard argument, and reserved its decision, in Canadian National Railway v. McKercher LLP, 2011 SKCA 108, leave to appeal to SCC granted, [2011] S.C.C.A. No. 59, which concerns the scope of the lawyer’s duty to avoid conflicts of interest. The appeal arose in the context of a disqualification motion brought by Canadian National Railway against its former law firm and lawyer, who were acting as counsel in a proposed class action against the railway company. Based on the facta filed in that case, the Supreme Court has been asked to clarify the interaction between the “bright line” rule and the “substantial risk” principle described in Neil and further considered in Strother.
- The motion judge was alive to this issue. He stated, at para. 16 of his reasons, that if he had applied the doctrine in this case, he would have struck only those parts of the Challenged Paragraphs that pertain to statements allegedly uttered by Dublin.
