Performance Diversified Fund v. Flatiron GP Group, 2016 ONSC 1133

Court File and Parties

CITATION: Performance Diversified Fund v. Flatiron GP Group, 2016 ONSC 1133

COURT FILE NO.: 447/14

DATE: 20160219

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

D.L. CORBETT, LEDERER and A.J. GOODMAN JJ.

B E T W E E N:

PERFORMANCE DIVERSIFIED FUND

Harvin D. Pitch, for the Plaintiff /Appellant

Plaintiff/Appellant

• and -

FLATIRON GP GROUP, FLATIRON FUND MANAGEMENT LTD., FLATIRON CAPITAL MANAGEMENT PARTNERS, PARM KALIRAI, STEVE DUENKLER, MICHELLE MOORE, KALIRAI MANAGEMENT CORPORATION, DUENKLER MANAGEMENT COIRPORATION, MIMO MANAGEMENT CORPORATION, SEAN CHOPRA, SPROTT INC., SPROTT ASSET MANAGEMENT LP, FRONT STREET CAPITAL 2004, FRONT STREET MANAGEMENT INC. and KPMG LLP

Deborah Palter and Michael Shakra, for the Defendant Steven Duenkler

Melissa MacKewn, for Parm Kalirai and Michelle Moore

James D.G. Douglas, David Di Paolo and Kristen Riess for the remaining Defendants/Respondents other than KPMG

Defendants/Respondents

DECISION

D.L. Corbett J.:

1This is an appeal from the order of D.M. Brown J. (as he then was) removing Teplitsky Colson LLP (the “Firm”) as solicitors of record for the plaintiff because of conflict of interest.

Summary and Disposition

2The Firm was in a conflict of interest in suing a former client. This conflict was resolved by agreement between the Firm and its former client. Once this conflict was resolved, it no longer formed a basis on which to preclude the Firm from acting for the plaintiff in this case. Therefore, for the reasons that follow, I would set aside the order of the motions judge, dismiss the motion to remove the Firm as solicitors of record for the plaintiff in this action, with costs to the plaintiff throughout.

Background Facts

3The action concerns management of a hedge fund, Flatiron Market Neutral LP (the “Fund”). The plaintiff was the main investor in the fund. The defendants owned or managed the fund.

(a) This Proceeding

4The plaintiff is a long-time client of Martin Teplitsky, a senior partner in the Firm, which bears his name. In the fall of 2012, the plaintiff consulted with Mr Teplitsky, who sent two letters on its behalf to the defendant Sprott putting it on notice of the plaintiff’s potential claims for alleged breaches of various agreements. These letters were dated December 14 and December 17, 2012.¹

(b) The Employment Law Retainer

5In December 2012, an employee of Flatiron, Shawn Chopra, consulted with a different lawyer at the Firm, Michael Winterstein, about his employment situation at the defendant Flatiron. Chopra had been employed at Flatiron for about four years as a junior trader. His work included buying securities for the Fund and some research and analysis.²

6Mr Chopra consulted with Mr Winterstein again in February 2013, after receiving a letter from Sprott terminating his employment.³

(c) Original Statement of Claim in this Proceeding

7The original statement of claim in this proceeding named the Firm as plaintiff’s counsel and Mr Chopra as a defendant. It was issued on June 4, 2013.

(d) The Conflict in Acting Against Mr Chopra

8Mr Chopra objected to the Firm acting against him. The Firm’s initial response was that it saw no conflict, that it had sent Mr Chopra’s file to storage, and that lawyers working on the Flatiron file would not look at anything in Mr Chopra’s file.

9This response did not satisfy Mr Chopra. In November 2013, Mr Chopra brought a motion to remove the Firm on the basis that the firm had a conflict.

10In mid-November 2013, Mr Chopra withdrew his motion because the plaintiff discontinued this action as against him. The plaintiff executed a release in favour of Mr Chopra and Mr Chopra agreed to make himself available for examination by the plaintiff.

11Thus, in summary, Mr Chopra asserted the conflict, and the conflict was resolved by the action against him being withdrawn with prejudice. Mr Chopra no longer seeks to have the Firm removed from the record.

(e) The Alleged Conflict of Acting Against the Sprott and Flatiron Defendants

12The Sprott and Flatiron defendants alleged that the Firm came into possession of confidential information as a result of its retainer by Mr Chopra. They asserted that “[t]he information to which [the Firm] became a privy by virtue of its retainer with Mr Chopra was confidential to [the Sprott and Flatiron defendants]….”

The Moving Defendants Are Not Clients or “Near Clients” of the Firm

13The motions judge found that the moving defendants were not clients of the Firm. The motions judge also concluded that the moving defendants were not entitled to the expanded protection afforded to “near clients” under the Law Society rules and the case law. He considered and rejected the broad definition of “client” used by the Manitoba Court of Appeal in Roadrunner Apparel.⁴ I agree with the motions judge’s analysis and conclusions on all of these points.

No Misuse of Mr Chopra’s Confidential Information

14The motions judge concluded that it is likely that the Firm received information from Chopra that was confidential to him and that was related to issues in the current litigation. The motions judge found that:

(a) the Chopra retainer was “obviously a related matter both factually and temporally” to the current litigation;

(b) “it is more probable than not that Chopra provided Winterstein with confidential information which was relevant to the matter at hand in this litigation”;

(c) “… a reasonable person, looking at the matter from the outside, would think a risk existed in those circumstances that Chopra had provided his lawyer with confidential information relevant to the matter at hand”;

(d) it was not demonstrated by the Firm “that little or no risk exists that confidential information in the possession of the law firm could be used in an unfair or prejudicial way”.⁵

Findings (a), (b) and (c) are findings of fact, rooted in the record. I accept them. Finding (d), however, is another matter. The “unfairness” or “prejudice” in issue is unfairness or prejudice to Mr Chopra. He was the Firm’s client. He is the person who provided information to the Firm in confidence. If there is no unfairness or prejudice to him then, in my view, there can be no unfairness or prejudice justifying removal of the Firm.⁶

15The motions judge correctly stated the applicable test from the Supreme Court of Canada’s decision in MacDonald Estate v. Martin.⁷ He found on the facts that the first step on the MacDonald analysis was satisfied. He then moved to the second stage of the analysis:

But, as Binnie J. observed in Celanese: “Mistakes will be made. There is no such thing, in these circumstances, as automatic disqualification”.⁸ Which leads, then, to the second stage of the MacDonald Estate analysis: Is there a risk that the confidential information will be used to the prejudice of the client? Or, as I think it should be reframed in the present case, is there a risk that confidential information which should not have come into the hands of the firm will be used to the advantage of the firm’s client and the detriment of the opposing parties?⁹

16The test, as reframed by the motions judge, substitutes “detriment of the opposing parties” for “prejudice to the client”.

17Sopinka J., in MacDonald Estate, found that two questions typically arise in cases such as these:

(1) Did the lawyer receive confidential information attributable to a solicitor and client relationship relevant to the matter at hand?

(2) Is there a risk that it will be used to the prejudice of the client?¹⁰

Binnie J., in Celanese Canada, held that “[p]arties should be free to litigate their disputes without fear that their opponent [has] obtained an unfair insight into secrets disclosed in confidence to their legal advisors.” In both MacDonald Estate and Celanese Canada, the concern is prejudice to the client, and protection of information disclosed in confidence by the client. The interest protected is that of the client. This point has been emphasized repeatedly in the jurisprudence:

The third question, given that the appellants must be presumed to have received confidential information protected by solicitor-client privilege and to which they have no claim of right, there is a risk that this a information will be used to the prejudice of the respondents who hold that privilege.¹¹

18Where there is a conflict, the courts must act “swiftly and decisively” to “protect the integrity of the administration of justice”. The purpose, on a conflict motion, is to remove any unfair advantage, to restore “the level playing field” on which litigation is fought. “Remedial action in cases such as this is intended to be curative not punitive.”¹²

19The motions judge recognized that his approach was a “somewhat novel application of the conflict of interest jurisprudence in Ontario.”¹³ The motions judge rejected the “primary argument advanced by the moving parties”¹⁴ but was clearly concerned by shortcomings in the Firm’s general conflict procedures and with errors made in this particular case.

20I would not reframe the test in MacDonald Estate. On the facts, as found by the motions judge, Mr Chopra could have required that the Firm be removed from the record, to prevent misuse of his confidential information. Mr Chopra did not do that. Instead, he settled his issues and dropped his objection to the Firm continuing as solicitors of record for the plaintiff. And that, in my view, was an end to the issue. I agree with my colleague A.J. Goodman J. that the protection of a client’s confidential information survives the end of the solicitor-client relationship. However, it is the client’s information, and he may agree to make it available for use by another client of his solicitor’s, as was the case here.

21The appeal is allowed, the decision of the motions judge is set aside, the motion to remove the Firm as solicitors for the plaintiff in this proceeding is dismissed, with costs of the appeal to the plaintiff fixed at $15,000, as agreed, with costs of the original motion to be agreed between counsel or addressed in writing before this court.

D.L. Corbett J.

Lederer J.

A.J. Goodman J. (Dissenting):

22I have now had the opportunity to review my colleagues' reasons. With respect, I arrive at a different conclusion.

23On July 21, 2014 D.M. Brown J. (the “motions judge”), granted the relief sought by the defendants, Flatiron GP Inc., Flatiron Fund Management Ltd., Flatiron Capital Management Partners (“Flatiron”), Kalirai Management Corporation, Duenkler Management Corporation, Mimo Management Corporation, Sprott Inc. and Sprott Asset Management LP, and Front Street Capital 2004 and Front Street Management Inc., for an order removing Teplitsky, Colson LLP (the “Firm”) as counsel of record for the appellant.

Background:

24In order to address this appeal, it is important to provide some background to this case.

25As stated by the majority, this action concerns the management of the Flatiron Market Neutral LP fund (the “Fund”). The appellant, Performance Diversified Fund (“Performance”), was the main investor in the Fund. The respondents, Flatiron owned or managed the Fund.

26The Fund was terminated as of November 30, 2012. Performance commenced this action on June 4, 2013, alleging, inter alia, that from 2011 onwards the portfolio managers caused the Fund to make imprudent and unsuitable investments, resulting in the diminution of the Fund’s value and a corresponding loss in the appellant’s investments.

27At all material times, Shawn Chopra (“Chopra”) was employed as a trader and associate portfolio manager with the Fund. Chopra’s duties included executing trades in the Fund. In such capacity, the motions judge found that Chopra had access to highly confidential information, some of which has become the subject matter of this litigation. This information included but was not limited to: information pertaining to the trading and positions of funds managed by Flatiron; brokerage accounts and login/password identification; trading strategies for funds managed by Flatiron; trade portfolios of funds managed by Flatiron; client and beneficiary information; hedge rations, portfolio analysis and research pertaining to the positions of funds managed by Flatiron; names of the issuers and securities purchases for funds managed by Flatiron; and information regarding the daily trades of funds managed by Flatiron.

28The statement of claim originally named Chopra whom it was alleged was a principal of Flatiron, and part of the group of portfolio managers against which the plaintiff asserts allegations.

29In the fall of 2012, the Firm came into contact with the Fund in two ways. As set out by the motions judge in his decision, at paras. 8-9.

First, in the Fall of 2012, Performance approached Martin Teplitsky for advice. Martin Teplitsky wrote letters on behalf of Performance to Sprott dated December 14 and 17, 2012, putting Sprott on notice that Performance was alleging breaches of various agreements and that Performance intended to hold Sprott responsible for damages. Both letters were sent before the client file for Performance was opened on December 18, 2012. That retainer culminated in Martin Teplitsky commencing this action on behalf of Performance.

Second, in December, 2012, Chopra approached another Teplitsky Colson lawyer, Michael Winterstein, for legal advice about his employment situation with the Fund. At that time Chopra had been employed for about four years by Flatiron as a junior trader and part of his job had involved buying securities for the Fund, as well as performing some research and analysis. He was never an owner or partner of Flatiron.

30The legal advice to Chopra with respect to his employment issue was provided between December 2012 and February 2013. According to Chopra’s affidavit evidence, he retained and furnished Mr. Winterstein with “highly confidential” information about his employment and the “evolving situation at Sprott following Sprott’s December 3 announcement terminating Flatiron from management of the Fund”. Some of this information emanated from Flatiron. Mr. Chopra sought Mr. Winterstein’s advice again in February 2013 when he received a termination letter from Sprott. Again, Chopra “disclosed confidential information about the Fund, its performance, and other financial matters”.

31The statement of claim was issued on June 4, 2013, naming Chopra as a defendant. On July 9, 2013, Chopra’s counsel wrote to the Firm about the conflict of interest. Counsel, Martin Teplitsky responded on July 9, 2013:

[Chopra] did not consult either me or Brad. I have no idea whom he consulted. I will ensure that a protective wall is in place re any information he disclosed. This is all I will do. There will be no breach of confidentiality.

32On July 17, 2013, Brad Teplitsky sent a further response to Chopra’s counsel. The response stated Brad Teplitsky had been told by the Firm’s managing partner that Chopra had met with Bob Colson of the Firm, that neither he nor Martin Teplitsky had any knowledge of Chopra or what he may have discussed with either Mr. Colson or Mr. Winterstein. They explained that they did not work on any files with Mr. Colson, did not have access to his files, and spoke infrequently with Mr. Colson. Brad Teplitsky reiterated that Mr. Brunswick requested Mr. Colson ensure that any file be sent to storage and that they saw no conflict.

33In November 2013, Chopra brought a motion to remove the Firm as the plaintiff’s counsel. Contemporaneously, counsel for the various defendants advised the Firm that they supported Chopra’s motion and that, “it is our view that the conflict of interest alleged by Mr. Chopra extends to our client in light of the plaintiff’s allegations in the action, the nature of the information he says he discussed with Teplitsky Colson LLP and the relationship among the defendants”.

34In mid-November, Chopra’s motion was withdrawn because the appellant discontinued the action against him. The appellant executed a release in favour of Chopra in exchange for Chopra making himself available for examination by the appellant. This, notwithstanding, Chopra has not waived privilege or consented to the Firm acting in this matter.

The Reasons for the Motions Judge’s Decision:

35On July 21, 2014, D.M. Brown J. released his comprehensive decision removing the Firm as lawyers of record for the appellant. Amongst other things, the learned motions judge found the following:

(a) The Firm’s conflict checking process failed when Chopra first retained the Firm and again when Performance’s Claim was issued;

(b) Apart from putting Chopra’s file off-site in storage, the Firm took no steps to protect the Confidential Information contained in Chopra’s file;

(c) The Firm failed to take the basic step of opening a new client file when it was first contacted by Performance – something which is integral to an effective conflict checking system;

(d) It was very difficult to understand how the Firm could have taken Chopra’s retainer given that Performance and Chopra were adverse;

(e) Even after the Firm opened the Performance file, no red flags were raised when it became apparent that the Sprott parties appeared in both matter fields for the Chopra and Performance files;

(f) Despite the fact the Firm claimed that each partner in the firm operated as a separate entity, the Firm held itself out as a traditional partnership. Given this representation, the Firm was obliged but failed to ensure that proper, firm-wide conflict search policies were in place and used by all members of the Firm;

(g) An obvious conflict of interest existed between Chopra and the Firm;

(h) It is more probable than not that Chopra provided confidential information to a lawyer at the Firm which is relevant to the action Performance brought against the defendants;

(i) “[A] reasonable person looking at this matter from the outside” would conclude that there was a risk that Chopra provided confidential information to a lawyer at the Firm which is relevant to the action brought by Performance against the defendants;

(j) Confidential information Chopra provided the Firm “ended up in the wrong hands”;

(k) The Firm took no steps to ensure that lawyers at the firm who were conflicted on the Performance file did not have access to the Performance file;

(l) In addition to lacking a written conflict of interest policy, the Firm did not have a policy or system to construct confidentiality screens; and

(m) The appearance to the outside world that a law firm has put in place safeguards to protect confidential information from misuse is just as important as the actual handling of confidential information.

Discussion

36I have reviewed the appeal materials and counsel’s submissions.

37The Law Society of Upper Canada Rules of Professional Conduct address lawyer-client confidentiality. Under Rule 3.3-1, a lawyer is required to hold in strict confidence all information concerning the business and affairs of the client as such information is acquired in the course of the professional relationship. The lawyer shall not divulge any such information unless expressly authorized by the client or required by law to do so. It is not disputed that a lawyer cannot use – or put at risk of use – information he received in confidence for an ulterior or collateral purpose to the benefit of himself or other clients.

38After setting out the relevant facts, D.M. Brown J. discussed the governing legal principles with respect to disqualifying conflicts of interest on the basis of misuse of confidential information. The motions judge relied upon the relevant authorities, including the leading principles as set out in MacDonald Estate v. Martin, [1990] 3 S.C.R. 1235.

39In MacDonald Estate, at para. 47, Sopinka J. set out the appropriate test to determine what constitutes a disqualifying conflict of interest:

[T]he test must be such that the public represented by the reasonably informed person would be satisfied that no use of confidential information would occur. That, in my opinion, is the overriding policy that applies and must inform the court in answering the question: Is there a disqualifying conflict of interest?

40In MacDonald Estate, Sopinka J. went on to say at para. 48, typically, such cases require two questions to be answered: “(1) Did the lawyer receive confidential information attributable to a solicitor and client relationship relevant to the matter at hand? (2) Is there a risk that it will be used to the prejudice of the client?”

41In answering the first question, Sopinka J. explained at para. 49:

In my opinion, once it is shown by the client that there existed a previous relationship which is sufficiently related to the retainer from which it is sought to remove the solicitor, the court should infer that confidential information was imparted unless the solicitor satisfies the court that no information was imparted which could be relevant. This will be a difficult burden to discharge.

42The types of cases are very fact-specific and turn on a number of factors. This is not a “typical” case, in that the moving party is not the former client. However, the motions judge was cognizant of the overriding policy concerns with respect to the perceived use or misuse of confidential client information. He coherently and reasonably applied the legal principles to the facts of this case to conclude that the Firm should be removed.

43Justice Brown considered verifiable evidence and noted that relevant confidential information had come into the Firm’s possession because of the failure of the Firm’s conflict check system. Further, when the conflict was brought to the Firm’s attention, it failed to take any precautionary steps beyond sending Chopra’s file off-site.

44The motions judge then explained in great detail that, while the ethical conflict of interest rule extends beyond a person who is technically a client of a law firm, he did not find that the defendants fell into the category of “persons involved in or associated with the client in that matter”, under Rule 2.04 of the Rules of Professional Conduct.

45In his decision, the motions judge found that “[A]t no time did the firm inform Chopra of a potential conflict of interest or seek his consent to act for Performance against him.” The motions judge found that the Firm’s conflict search system failed to operate at two points of time. First, when Chopra consulted Winterstein in December 2012, whatever search was conducted did not disclose that Martin Teplitsky was giving advice at that time to Performance concerning the Fund, Chopra’s employer. Second, no conflict search was run against Chopra’s name before this action was commenced.

46With respect to this first question from the MacDonald Estate test, the motions judge concluded that the Chopra retainer was “obviously a related matter both factually and temporally” to the Performance retainer; “it is more probable than not that Chopra provided Winterstein with confidential information which was relevant to the matter at hand in this action”; and “a reasonable person, looking at the matter from the outside, would think a risk existed in those circumstances that Chopra had provided his lawyer with confidential information relevant to the matter at hand.”

47Justice Brown also declined to follow the decision of the Manitoba Court of Appeal in Roadrunner Apparel Inc. v. Gendis Inc., 2006 MBCA 137, in which the Court had found that “the client may be any person” for the purpose of the conflict of interest rule. Justice Brown clearly found that it was not necessary for the defendants to be former clients or near clients for there to be a basis for disqualification. I agree with the majority on this issue.

48The second question from the MacDonald Estate test is concerned with “whether the confidential information will be misused.” Justice Sopinka explained at para. 50 of MacDonald Estate:

No assurances or undertakings not to use the information will avail. The lawyer cannot compartmentalize his or her mind so as to screen out what has been gleaned from the client and what was acquired elsewhere. Furthermore, there would be a danger that the lawyer would avoid use of information acquired legitimately because it might be perceived to have come from the client. This would prevent the lawyer from adequately representing the new client. Moreover, the former client would feel at a disadvantage.

49In Stewart (Litigation Guardian of) v. Humber River Regional Hospital (2009), 2009 ONCA 350, 95 O.R. (3d) 161 (C.A.), at para. 31, the Court of Appeal stated: “the overriding policy requirement is that the public, represented by the reasonably informed person, should be satisfied that no use of confidential information would occur”.

50With respect to the Firm’s structure and conflicts system, the motions judge concluded the Firm’s informal conflict procedure is insufficient to demonstrate that little or no risk exists that confidential information in the possession of the law firm could be used in an unfair or prejudicial way. The Firm had not adduced sufficient evidence to satisfy the MacDonald Estate’s reasonably informed person test.

51Thus, the motions judge was persuaded that concerns with respect to the misuse of confidential information were not limited to prejudice to the client from whom the confidential information emanated. The concerns extended to how the lawyer’s possession of relevant, confidential information could affect the lawyer’s representation of his or her current client and how that might affect the conduct and perceived fairness of the trial.

52The motions judge recognized that, while typically the concern of the conflict of interest rule is to prevent prejudice to the former client, the overall goal is to prevent misuse, or the perception that confidential information could be misused. He concluded that the informality of the Firm’s structure and conflicts system was “insufficient to demonstrate that little or no risk exists that confidential information in the possession of the law firm could be used in an unfair or prejudicial way.”

53In MacDonald Estate, at para. 51, Sopinka J. explained that there is a “strong inference that lawyers who work together share confidences.” In this case, the motions judge concluded that the relevant confidential information came into the Firm’s possession because of the failure of the Firm’s conflict checking system and, when the conflict was brought to the Firm’s attention, it denied a conflict existed. While the Firm did send Chopra’s file to off-site storage, it took no other precautionary steps to ensure the confidentiality of the information obtained by Mr. Winterstein on behalf of the Firm.

54The motions judge made specific findings of fact. No confidentiality undertaking was circulated amongst the lawyers. The lawyers shared a common floor; it was unclear whether cabinets were locked, the Firm lacked a written conflict of interest policy, and the Firm “did not have in place any policy or system to construct confidentiality screens either before or after conflicts became known.” Accordingly, the motions judge was not satisfied that the public represented by a reasonably informed person would be satisfied that no use of confidential information would occur.

55The significance of this principle is reflected in case law. As recently stated by Strathy, C.J.O.: “The test on a motion to remove counsel is whether a fair minded and reasonably informed member of the public would conclude that the proper administration of justice compels the removal.” Counsel may be removed for myriad reasons that do not involve conflicts of interest or breaches of confidentiality if the public perception of the integrity of the system so requires: Mallory v. Werkmann Estate, 2015 ONCA 71, at para. 28. See also Maftoun v. Banitaba, 2012 ONCA 786, at para. 4, Everingham v. Ontario, 1992 CarswellOnt 421 (Gen. Div.).

56The importance of this tenet was also signalled in Celanese Canada Inc. v. Murray Demolition Corp., 2006 SCC 36, [2006] 2 S.C.R. 189. In Celanese, the Supreme Court of Canada adopted a non-exhaustive set of factors to use in determining whether a lawyer should be removed, including “how the documents came into the possession of the plaintiff or its counsel” and the “potential effectiveness of a firewall or other precautionary steps to avoid mischief”.

57My reading of the Reasons suggests that the prevalence of this principle was front and centre in the motion judge’s decision. At para. 70, he stated:

...it is important to stress that, as noted above, in recent years the conflict of interest jurisprudence has concerned itself not only with the public interest in maintaining the confidentiality of information passed by a client to his or her lawyer, but also with a second dimension of the duty of loyalty to clients – that involving the maintenance of public confidence in the administration of justice. In that respect, the appearance to the outside world that a law firm has put in place safeguards to protect confidential information from misuse is just as important as the actual handling of that confidential information.

58My colleagues rightly point out that Chopra is no longer a party to the action. However, I agree with the motions judge that this fact is not dispositive of the issue. Justice Brown found that Chopra provided confidential information to the Firm that is relevant to this action and he could not be satisfied no use of that confidential information would occur. Chopra had not waived privilege or consented to the Firm acting for the appellant.

59Notwithstanding the Firm’s position that their structure acts as an inherent “Chinese Wall”, Chopra, as a client of Mr. Winterstein, and Performance, as a client of Mr. Teplitsky were and are both clients of the Firm. It was not lost on the motions judge that before the action was discontinued against him, Chopra brought a motion to disqualify the Firm and swore an affidavit regarding the prejudice he suffered by the Firm acting in this matter. The motions judge could conclude that if the Firm continues to act for the appellant, there is a real risk that his confidential information could be used for reasons for which they were not intended to be communicated.

60In R. v. Sandhu, 2011 BCSC 1137, at paras. 61 and 65, the B.C. Supreme Court disagreed with the argument that because the impugned lawyer had obtained confidential information from a former client who was not a party to the proceeding, the considerations under MacDonald Estate did not arise. The court stated:

With respect, I disagree. The duties of loyalty, including the duty to refrain from breaching confidences, owed by lawyers to clients and former clients are broad. They are duties to be protected depending on the facts of each case, as will be discussed in more detail below. While these duties are usually considered within the strictures of client relationships and where those clients are directly involved in proceedings, I do not see that the Court is restricted in protecting a client or former client in other circumstances, as appropriate.

Just because OCA is not a party does not oust the jurisdiction of the Court to prevent counsel from potentially acting in breach of her duty of loyalty and duty not to disclose confidential information owed to OCA.

61The case of JAJJ v. 100337 Canada Ltd., 2014 ONSC 3411, emphasizes that the manner in which lawyers hold themselves out to the public is of significance in this analysis. In JAJJ, Stinson J. overturned the Master’s decision that held because the impugned lawyers had worked in an association structure, and not a typical law firm partnership, the presumption that lawyers who work together share confidences did not apply. Justice Stinson referred to the fact that the lawyers held themselves out as practicing under the same firm name, shared the same address, telephone number, fax number, email suffix, and did not disclose or publicize that their practices were somehow independent from one another, as in this case. In his reasons, Stinson J. concluded at para. 22:

As a result of the foregoing, the fact that another DLG lawyer is acting against the defendant in relation to the very same matter gives rise to an appearance of conflict. It is therefore not surprising that when Juejar learned that a DLG lawyer was acting against the defendant, he considered it improper and prejudicial. His reaction is an indication that such an arrangement would undermine the confidence of the public in the integrity of the profession and in the administration of justice.

62The Firm argued that its structure is somehow different than that of a typical law firm partnership, but this purported difference is not entirely clear to the public. It appears that the Firm’s lawyers had argued that the presumption of sharing confidential information should not apply because the lawyers’ practices are completely separate, even if the lawyers share some common expenses such as support staff, rent, or other costs of operating a law practice.

63The motions judge rejected the appellant’s assertions that, notwithstanding the lack of formal procedures to ensure the security of confidential information, the Firm’s structure acted as an “inherent Chinese Wall”. At para. 70 of his reasons, D.M. Brown J. stated:

Twenty-five years after MacDonald Estate, such a degree of informality toward conflicts and their consequences is not adequate in a firm with 25 or so lawyers. Such informality is insufficient to demonstrate that little or no risk exists that confidential information in the possession of the law firm could be used in an unfair or prejudicial way. On this point it is important to stress that, as noted above, in recent years the conflict of interest jurisprudence has concerned itself not only with the public interest in maintaining the confidentiality of information passed by a client to his or her lawyer, but also with a second dimension of the duty of loyalty to clients – that involving the maintenance of public confidence in the administration of justice. In that respect, the appearance to the outside world that a law firm has put in place safeguards to protect confidential information from misuse is just as important as the actual handling of that confidential information.

64The circumstances of the case under appeal are tantamount to one in which a lawyer’s former client is a witness in the lawyer’s present case, though not a party and could be seen to use the former client’s confidential information to the benefit of the new client. A motions judge is entitled to conclude that a lawyer or firm possessing confidential information from a previous relationship with the client or witness, to which the current client would otherwise not be entitled, may be in conflict situation. It is worth reiterating that in this case it is highly likely that Mr. Chopra will be a witness, given that he was originally named as a party and as part of his settlement with the plaintiff has promised to make himself available for examination.

65The motions judge concluded that “it is more probable than not that Chopra provided Winterstein with confidential information which was relevant to the matter at hand in this action”. On the record before him, the motions judge specifically determined that Chopra’s interests were adverse to the Fund.

66Absent some extricable error in the application of the legal principles, this Court should not intervene unless persuaded that there was some palpable and overriding error in the motion judge’s analysis.

67I respectfully disagree that Chopra’s settling his issues and dropping his objection to the Firm continuing as solicitors of record puts an end to this issue. Here, the motions judge found that Chopra’s confidential information came into the Firm’s possession as a result of the failure of the Firm’s conflict checking system. Chopra did not consent to the Firm acting for Performance and he did not waive privilege. He did not authorize the Firm to use his confidential information for the purposes of the Performance action. Although the action was discontinued against Chopra, he may be a witness at trial.

68The restrictions and safeguards put in place to protect a client’s confidential information are not extinguished upon the discontinuance of the action against the client. The duty survives the professional relationship and continues indefinitely after the lawyer has ceased to act.

69It may be open to debate whether the motions judge’s approach to the conflict question was “somewhat novel”. However, in my opinion, he correctly applied the law and set out the legal principles, including the MacDonald Estate test, and logically applied them in an overarching manner commensurate to the facts that he found from the materials filed before him.

70I do not find an overriding or palpable error warranting a reversal of the motions judge’s ruling. Justice Brown found that the two retainers were temporally and factually related and it was more probable than not that relevant, confidential information had been imparted to the Firm. Justice Brown held that the Firm failed to demonstrate that adequate safeguards were put in place to minimize or eliminate the risk of misuse of the confidential information and was not satisfied that the reasonably informed person would be satisfied that no use of confidential information would occur.

71Such conclusions are entitled to deference by this Court. I would dismiss the appeal.

A.J. Goodman J.

Footnotes

1. 1Reasons of the Motions Judge (“Reasons”), para.8.
2. 2Reasons, para 9.
3. 3Reasons, para. 10.
4. 4Roadrunner Apparel Inc. v. Gendis Inc., 2006 MBCA 137.
5. 5Reasons, paras. 59, 63, 70, 71.
6. 6See College of Veterinarians of Ontario v. Mitelman, 2015 ONSC 484 (Div. Ct.), para. 10.
7. 7MacDonald Estate v. Martin, [1990] 3 S.C.R. 1235.
8. 8Celanese Canada, 2006 SCC 36, [2006] 2 S.C.R. 189, para. 56.
9. 9Reasons, para.67.
10. 10MacDonald Estate, para. 48.
11. 11Stewart et al. v. Humber River Regional Hospital (2009), 2009 ONCA 350, 95 O.R. (3d) 161 (C.A.), para. 51 [emphasis added].
12. 12Celanese Canada, para. 34.
13. 13Reasons, para. 1.
14. 14Reasons, para. 2.