CITATION: Ontario v. Chartis Insurance Company of Canada, 2016 ONSC 43

DIVISIONAL COURT FILE NO.: 530/14

DATE: 20160211

ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT

THEN, MOLLOY AND LEDERER JJ.

BETWEEN:

HER MAJESTY THE QUEEN IN RIGHT OF THE PROVINCE OF ONTARIO Plaintiff/Appellant

– and –

CHARTIS INSURANCE COMPANY OF CANADA and AMERICAN HOME ASSURANCE COMPANY Defendants/Respondents

-and-

ROYAL & SUN ALLIANCE INSURANCE COMPANY OF CANADA, THE ROYAL INSURANCE COMPANY OF CANADA, ROYAL INSURANCE COMPANY OF CANADA LIMITED, AVIVA CANADA INC., AVIVA INSURANCE COMPANY OF CANADA, GENERAL ACCIDENT ASSURANCE COMPANY OF CANADA, TRAVELERS INSURANCE COMPANY OF CANADA and ST. PAUL FIRE AND MARINE INSURANCE Defendants

Counsel:

Bill Manuel & Jonathan Sydor, for the Plaintiff/Appellant

Gavin MacKenzie & Brendan Clancy, for Chartis Insurance Company of Canada and American Home Assurance Company, Defendants/Respondents

HEARD at Toronto: May 19, 2015

LEDERER J.:

REASONS FOR DECISION

Introduction

[1] This is an appeal from the decision of A. O’Marra J. dated July 16, 2014.[^1] The motion judge refused to remove counsel for the defendants Chartis Insurance Company of Canada and American Home Assurance Company (hereinafter, collectively “AIG”) on the basis of an alleged conflict of interest. (It should be noted that counsel on this appeal are not counsel in the action itself).

Background

[2] This action involves a dispute between Her Majesty the Queen in Right of the Province of Ontario, (hereinafter “Ontario”) and several of its insurers relating to the defence of class actions in which Ontario is the defendant. Ontario was represented by an outside law firm, Theall Group LLP. One of the lawyers at Theall Group who had been working on this case for Ontario had accepted an invitation to become a partner at the firm that was acting as counsel for the defendants, AIG. After counsel for Ontario had been advised of the prospective change of firms but before the lawyer involved had taken up his new position, the principal counsel acting for AIG and counsel acting for Ontario discussed the apparent conflict. An “ethical screen” was proposed by AIG’s counsel. The safeguards it included were explained in an e-mail and “draft forms of various undertakings” were delivered.[^2]

[3] From the outset, counsel for Ontario demonstrated unease over the issue of the conflict. It was he who introduced the issue, expressed serious concern and requested that the terms of the proposed ethical screen be put in writing. Counsel for Ontario responded to the proposed terms a month after the migrating lawyer had begun working at his new firm. The letter he wrote outlined the involvement of the migrating lawyer in the file while he was employed with Theall Group, noted that he was in possession of relevant confidential information and advised that “Ontario objects to your continuing to act...”. The letter went on to say that: “Ontario believes that the conflict of interest cannot be sufficiently remedied by any ethical walls you propose may be constructed...This is a case where a lawyer who worked for the client (Ontario) on the specific case has now joined the firm which is representing the adverse party (Chartis), and is working closely with the specific lawyer who would continue to represent Chartis ”.[^3]

[4] Counsel for AIG moved for a declaration that “... an ethical screen put in place by its lawyers of record... is sufficient to prevent disclosure of the plaintiff’s confidential information and that it is in the interests of justice that [the lawyers of record] continue to act for AIG in the present action”. Ontario brought “… a cross-motion seeking an order to disqualify [those lawyers] from continuing to act for AIG due to an inherent conflict of interest...”.[^4] The motion judge concluded:

[Counsel for AIG] has been pro-active in minimizing the risk of disclosure of confidential information. In considering the timely and comprehensive compliance by [Counsel for AIG] with the institutional measures set out in the guidelines, in addition to appointment of a supervising senior partner, and isolating [the moving lawyer] from any Ontario-AIG matters, I find that a reasonably informed person would be satisfied that the use of confidential information had not occurred or would likely occur, and it is in the interests of justice to allow [the lawyer acting for AIG] to remain as AIG’s counsel of choice.[^5]

[5] On this basis, the motion for the declaration allowing counsel for AIG to continue was granted and the cross-motion to remove that firm was dismissed. The plaintiff, Ontario, sought and was granted leave to appeal.

Facts

[6] The facts, for the most part, are not in dispute. The lawyer had worked extensively on these proceedings while with Theall Group. He had, over a period of three years, docketed 160 hours on the file.[^6] He had assisted in drafting the Statement of Claim, attended client and settlement meetings, was on record as counsel for Ontario and privy to settlement agreements entered into with other parties.[^7] As a result, he had extensive knowledge of privileged and confidential information with respect to this action. He was recruited to join the firm representing AIG by the lawyer who is its primary counsel in these proceedings. He made the move in order to work with the lawyer who recruited him.[^8] They had worked together before, over a six-year period, at yet another law firm. During that time, they worked together on a number of AIG matters.[^9] They now work closely with each other: 50 to 60 percent of the practice of the lawyer who moved has him working with the counsel who sought to have him join the firm. Approximately 50 percent of the practice of the lawyer who moved is for AIG, albeit on other of its files.[^10]

[7] It is in the context of this relationship that the “ethical wall” or “screen” was proposed.

[8] I pause to observe, as did the motion judge, that Ontario did not and does not challenge the integrity of counsel for AIG or the migrating lawyer or suggest any impropriety on their part. The letter sent by counsel for Ontario registering the objection to counsel for AIG continuing to act ends with an expression of dismay: “We regret this unfortunate result, as it has been a pleasure working with you in this matter.”[^11] The proposition on which counsel for Ontario relies is that the closeness and nature of the working relationship between the two lawyers creates a substantial risk of inadvertent disclosure to the prejudice of the plaintiff.[^12]

[9] The ethical screen proposed by counsel for AIG and accepted by the motion judge included many of the provisions and protections generally recognized as being appropriate in such circumstances. For the period the file is to be active, the terms of the ethical screen seek to segregate the migrating lawyer from the file and any work or discussion involving the proceeding in question. Assurance that the ethical screen would hold and not fail was provided by the execution of undertakings by those involved, the education of the staff involved, along with the advice that a breach could result in dismissal and the appointment of a senior partner, with no involvement in the file, to supervise and monitor adherence to its requirements.[^13]

[10] The ethical screen contains the following safeguards:

(a) [Transferring counsel] would have no involvement in [the firm’s] representation of AIG in the Coverage Action;

(b) [Transferring counsel] would not discuss Ontario coverage matters with anyone at [the firm] or AIG;

(c) No one from the firm would discuss Ontario coverage matters with [transferring counsel];

(d) Immediately upon arriving on his start date, transferring counsel would sign a written undertaking confirming that he understood, and would hereto, all elements of the ethical screen;

(e) [The lawyers and staff of the firm] involved in Ontario coverage matters would sign a similar undertaking;

(f) [The firm] would inform all personnel in writing of the ethical screen, of the requirement to adhere to it, and of the possible sanctions for failing to abide by the terms of the ethical screen, which sanctions would include dismissal;

(g) [Transferring counsel’s] office would be located several offices away from those [firm] personnel working on Ontario coverage matters;

(h) The files pertaining to matters involving Ontario and AIG would be physically and electronically segregated from the other files at [the firm], and accessible only to personnel assigned to such matters; and

(i) The ethical screen would be monitored and enforced by a senior partner who had no personal involvement in Ontario coverage matters.

Standard of Review

[11] An order seeking the removal of counsel is discretionary.[^14] A discretionary decision of a motion judge will be reversible where that judge misdirected himself or herself, came to a decision that is so clearly wrong that it amounts to an injustice or gave no or insufficient weight to relevant considerations.[^15]

Test

[12] The test for the removal of counsel was set in MacDonald Estate v. Martin:

…the test must be such that the public represented by the reasonably informed person would be satisfied that no use of confidential information would occur. 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? In this regard, it must be stressed that this conclusion is predicated on the fact that the client does not consent to but is objecting to the retainer which gives rise to the alleged conflict.[^16]

[13] The questions to be answered were identified:

(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?[^17]

Analysis

[14] There is no issue with respect to the first of the two questions. The lawyer who changed firms had received relevant, confidential information that was attributable to the solicitor–client relationship between the plaintiff and its counsel, his previous employer.[^18] It is the second of the two questions which is of concern: Whether there is a risk the confidential information would be used to the prejudice of the plaintiff?

[15] The motion judge was aware of the injunction found in MacDonald Estate v. Martin to the effect that in assessing the risk of prejudice, the court should infer that the migrating lawyer has imparted confidential information of the former client to members of his or her new firm. However, the inference is rebuttable if the measures instituted by the tainted firm (in this case, counsel for AIG) would satisfy a reasonably-informed person that the use of confidential information had not occurred or was likely to occur.[^19]

[16] It is the motion judge’s application of this principle which raises a serious concern on this appeal and to which I will return later in these reasons.

[17] Are there factors that could contribute to an understanding that the inference that confidential information had been imparted had, in turn, been rebutted? The motion judge noted that consistent with recommendations of the Supreme Court of Canada found in MacDonald Estate v. Martin, the “legal profession and its regulatory bodies have established guidelines to assist lawyers and firms in structuring timely and effective institutional measures/ethical screens to protect confidential information where conflicts of interest arise.”[^20] In particular, he pointed out that the Law Society of Upper Canada in sub-rule 2.05(4) of the Rules of Professional Conduct has set out its approach as to what constitutes adequate “institutional measures”.[^21] In addition, the motion judge referenced the 12 guidelines for protecting confidential information found in the commentary to Rule 2.05 which are as follows:

1. The screened lawyer should have no involvement in the new law firm’s representation of its client.

2. The screened lawyer should not discuss the current matter or any information relating to the representation of the former client (the two may be identical) with anyone else in the new firm.

3. No member of the new firm should discuss the current matter or the previous representation with the screened lawyer.

4. The current matter should be discussed only within the limited group that is working on the matter.

5. The files of the current client, including computer files, should be physically segregated from the new law firm’s regular filing system, specifically identified, and accessible only to those lawyers and support staff in the new law firm who are working on the matter or who require access for other specifically identified and approved reasons.

6. No member of the new law firm should show the screened lawyer any documents relating to the current representation.

7. The measures taken by the new law firm to screen the transferring lawyer should be stated in a written policy explained to all lawyers and support staff within the firm, supported by an admonition that violation of the policy will result in sanctions, up to and including dismissal.

8. Undertakings should be provided by the appropriate law firm members setting out that they have adhered to and will continue to adhere to all elements of the screen.

9. The former client, or if the former client is represented in that matter by a lawyer, that lawyer, should be advised (a) that the screened lawyer is now with the new law firm, which represents the current client, and (b) of the measures adopted by the new law firm to ensure that there will be no disclosure of confidential information.

10. The screened lawyer’s office or workstation and that of the lawyer’s support staff should be located away from the offices or workstations of lawyers and support staff working on the matter.

11. The screened lawyer should use associates and support staff different from those working on the current matter.

12. In the case of law firms with multiple offices, consideration should be given to referring conduct of the matter to counsel in another office.

[18] The motion judge accepted and relied on the understanding that Counsel for AIG, in the ethical screen it proposed, complied with the guidelines and the rule they comment on:

Here, all of the suggested measures under the guidelines were implemented in a timely manner by [counsel for AIG].[^22]

[19] In furtherance of this, the motion judge followed an observation made by counsel acting for AIG on this appeal to the point that, since MacDonald Estate v. Martin and the institution of regulatory guidelines, in all but one case, Canadian courts have held that ethical screens provided sufficient protection for the former clients of migrating lawyers.[^23] He considered and distinguished the exception.[^24]

[20] The motion judge went on to consider the impact of the relatively small size of the firm sought to be removed. Ontario proposed that the size of the firm mitigated against the success of any ethical screen. This concern follows from Guideline 11 of the Commentary associated with Rule 2.05. It suggests that the “screened lawyer” should work with associates and support staff that are different from the ones working on the file impugned by the conflict.[^25]

[21] The motion judge referred to and quoted from Bank of Montreal v. Dresler:[^26]

On the issue of firm size, the court must be satisfied that the transferring lawyer can be effectively screened from those working on the tainted file. In an ideal legal world, the screened lawyer would not have daily contact with those working on the tainted file. Thus, lawyers in the same firm, but who work in different cities, do not pose the same risk as those who practise within the same office space. In effect, the screened lawyer must be able to practise law independently of those representing the current client. If the screened lawyer continues to work on other files with those working on the conflict file, does it make any sense to perpetuate the belief that compliance with the Law Society's rules and guidelines has the effect of sustaining public confidence in the integrity of the legal profession and the administration of justice? I think not.[^27]

[22] Counsel for AIG responded by pointing out that the comment quoted was obiter dictum (a remark by the judge which was not necessary to reaching the decision). The case goes on to make the contrary point.[^28] Counsel pointed out that there are other cases which have held that ethical screens can be effective in small firms even though it is certain that the migrating lawyer will have both professional and personal contact with those working on the file that is the subject of the conflict.[^29]

[23] In the end, the motion judge accepted that there was “...no authority for the proposition that a tainted law firm must comply with all 12 guidelines”.[^30] The intent of Guideline 11 is “...to limit professional interactions to prevent disclosure of confidential information, not to prohibit all contact. Disqualification is not automatic because of failure to comply with all of the Law Society’s guidelines.” In other words, the guidelines are not a comprehensive code of conduct; this would be “too impractical, because [this] is an area of the law that requires flexibility.” [^31]

[24] The motion judge went on to note that, quite apart from the implementation of the guidelines, counsel for AIG appointed the independent senior partner to supervise the adherence to the ethical screen.[^32]

[25] The implementation of the guidelines and the presence of the senior partner could be relied on to further a consideration of whether the inference of the delivery of confidential information prejudicial to Ontario had been rebutted. This is not how the motion judge employed these factors in the analysis he undertook or the determination that he made. Rather, he took the approach that if the firm had done everything possible to avoid the delivery of confidential information, the test had been met. He failed to go on and consider whether, notwithstanding all of the safeguards introduced, the presumption of tainting had been effectively rebutted.

[26] As the motion judge observed, in MacDonald Estate v. Martin, the Supreme Court of Canada indicated that there are three competing values to consider:

1. There is first of all the concern to maintain the high standards of the legal profession and the integrity of our system of justice.

2. There is the countervailing value that a litigant should not be deprived of his or her choice of counsel without good cause.

3. There is the desirability of permitting reasonable mobility in the legal profession.[^33]

[27] To understand the nature of the competition between these values, it is helpful to return to MacDonald Estate v. Martin. The court recognized that “...[t]he legal profession has changed with the changes in society”. In big urban centres, the sole practitioner had “virtually disappeared” with the tendency to larger and larger firms.[^34] “Merger, partial merger and the movement of lawyers from one firm to another are familiar features of the modern practice of law.” Even with these changes, the Supreme Court refused to accept that the standard applicable to what constitutes a conflict of interest should be slackened. “[T]o do so at the present time would serve the interest of neither the public nor the profession”[^35]:

When the management, size of law firms and many of the practices of the legal profession are indistinguishable from those of business, it is important that the fundamental professional standards be maintained and indeed improved. This is essential if the confidence of the public that the law is a profession is to be preserved and hopefully strengthened. Nothing is more important to the preservation of this relationship than the confidentiality of information passing between a solicitor and his or her client. The legal profession has distinguished itself from other professions by the sanctity with which these communications are treated.

[28] After one intervening sentence, the Court went on:

This tradition assumes particular importance when a client bares his or her soul in civil or criminal litigation. Clients do this in the justifiable belief that nothing they say will be used against them and to the advantage of the adversary. Loss of this confidence would deliver a serious blow to the integrity of the profession and to the public's confidence in the administration of justice.[^36]

[29] The Court examined the effort undertaken in various jurisdictions to meet the challenge.

[30] This can be seen as a battle between “the probability of real mischief” test, promulgated in the English case of Rakusen v. Ellis, Munday & Clarke[^37], and the stricter test of the “possibility of real mischief” test said to have been generally adopted in the Courts of the United States.[^38] The former reflects the idea that before counsel is removed on the basis of a conflict of interest, “...we must be satisfied that real mischief and real prejudice will in all human probability result if the solicitor is allowed to act”.[^39] The latter approach holds that “...once it is established that there is a ‘substantial relationship’ between the matter out of which the confidential information is said to arise and the matter at hand, there is an irrebuttable presumption that the attorney received relevant information.”[^40] This view relies on “... the need to prevent any representation that involves even an ‘appearance of impropriety’”.[^41]

[31] While the American cases referred to in MacDonald Estate v. Martin appear to recognize the value of the less stringent, more flexible “probability” test[^42], the Supreme Court of Canada concluded, from its review of the authorities, that “the clear trend is in favour of a stricter test”:

This trend is the product of a strong policy in favour of ensuring not only that there be no actual conflict but that there be no appearance of conflict.[^43]

[32] Consistent with this view the cases and articles referred to can be seen collectively as an attempt to bridge the gap. In Australia, the courts “appear to vacillate as to the proper test” .The view as expressed by one judge was that the Australian position was “...no less stringent than the American position”. This Australian judge referred to a paper in which the English position, as enunciated in Rakusen v. Ellis, Munday & Clarke, was said to be “untenable”.[^44] An article from New Zealand reviewed several judicial statements and concluded, in part:

It is the authors' submission that the appropriate test to be applied in this country in conflict of interest situations is the ‘possibility of real mischief or prejudice’ test, developed by the American Courts and adopted and approved in at least the Canadian jurisdiction. Even if the American test is not followed to its fullest extent, it is at the very least essential that the Courts now place a greater onus on solicitors (and counsel) to avoid situations of conflict of interest including situations where there may be only the appearance of a conflict. Times have changed dramatically since Rakusen... [^45]

[33] As the Supreme Court saw it in MacDonald Estate v. Martin, some courts in Canada had applied Rakusen v. Ellis, Munday & Clarke, but “...the trend was to apply a stricter test which reflects the concern for the appearance of justice”[^46]:

The applicant in proceedings of this kind must come to Court with clean hands and justice must not only be done but it must be seen to be done.

In my view it would be almost impossible for them to cleanse from their minds any information which they may have received while acting on behalf of any of the defendants in the past relating in any way to the subject-matter of these proceedings. It is true that there has been no allegation or submission made by counsel for the defendants herein indicating any specific use or misuse of information obtained confidentially by reason of a solicitor-and-client relationship, but the fact remains that the possibility of that occurring is very real.[^47]

and

From this judgment [Rakusen] I come to the conclusion that the Court must be satisfied that real mischief and real prejudice will, in probability, result if the solicitor is allowed to act.

I must apply this principle in light of present day practices and decisions with respect to conflict of interest, justice and the appearance of justice and even the concept of ‘fairness’. My observation is that the Courts are requiring higher and stricter standards in all these areas. [Emphasis added][^48]

and

Of more importance, however, is the fact that the principles involved herein are designed not only to protect the interests of the individual clients but they also protect the public confidence in the administration of justice. This is particularly so when the litigation involves a family dispute. Furthermore, when the public interest is involved, the appearance of impropriety overrides any private interest claimed by waiver.[^49]

[34] It is from this foundation that the Supreme Court of Canada rejected the “probability of mischief” test (the less stringent test). Instead, the Court accepted that there is a strong inference that lawyers who work together share confidences but was, nonetheless, not convinced that a reasonable member of the public would necessarily conclude that confidences are likely to be disclosed in every case despite the institutional efforts to prevent it. Thus, the determination was made that there should be an inference drawn that confidences will be shared unless all reasonable efforts have been taken to ensure that no disclosure will occur.

[35] The thrust behind the concern, the analysis of the courts and academics and the solution as outlined by the Supreme Court reflects on the first of the three “competing” values referred to in MacDonald Estate v. Martin (the integrity of our system of justice):

I conclude, as well, that to permit the plaintiff's law firm to continue to act in this case would be perceived by the public as placing the defendant in an unfair position when this action goes to trial. The sina qua non [sic] [an absolute prerequisite] of the justice system is that there be an unqualified perception of its fairness in the eyes of the general public. In order to sustain that salutary precept, it is essential that the integrity and absolute independence of the courts and its [sic] officers be maintained in such a way as to assure a discerning public that the principle of equality before the law is not in danger of being comprised [sic]. The door must remain firmly shut against any possibility of comprising [sic] that principal [sic]. To allow the plaintiff's law firm to continue to act in this case would open that door, albeit ever so slightly, to the possibility of compromising the impartial administration of justice -- something which a court is duty bound to prevent.[^50]

[36] Little is said of either of the two remaining values. The Supreme Court noted that the criticisms of a test that is founded on an irrebuttable presumption of the likelihood of a breach of confidential information is that its rigidity and over-inclusiveness would deprive clients’ of their first choice of counsel (the second of the “competing” values) and act as an impediment to the mobility of young lawyers (the third of the “competing” values). Beyond this, the Court notes only that these concerns would have a significant impact on the careers of lawyers.[^51]

[37] The Supreme Court confirmed that the integrity of the administration of justice is the governing value. Precedence is given to the preservation of the confidentiality of information imparted to a solicitor. In this way, the confidence of the public in the integrity of the profession and in the administration of justice will be maintained. The interest of a member of the public in retaining the solicitor of her or his choice, and the concern of the profession in permitting lawyers to move from one firm to another, both retain a measure of flexibility. A solicitor is permitted to act against a former client, but only when it can be determined, as judged by a reasonable member of the public who is in possession of the facts, that no unauthorized disclosure of confidential information has or will occur.[^52]

[38] I note that, in MacDonald Estate v. Martin, there is a further set of reasons representing the determination of three of the seven judges. It concurs in the result but goes further in its recognition of the importance of the first of the three “competing” values, the need to maintain the integrity of the administration of justice. Precedence is not enough:

Neither the merger of law firms nor the mobility of lawyers can be permitted to affect adversely the public's confidence in the judicial system. At this time, when the work of the courts is having a very significant impact upon the lives and affairs of all Canadians, it is fundamentally important that justice not only be done, but appear to be done in the eyes of the public.

My colleague stated that this appeal called for the balancing of three competing values, namely: the maintenance and integrity of our system of justice; the right of litigants not to be lightly deprived of their chosen counsel; and the desirability of permitting reasonable mobility in the legal profession.

Of these factors, the most important and compelling is the preservation of the integrity of our system of justice. The necessity of selecting new counsel will certainly be inconvenient, unsettling and worrisome to clients. Reasonable mobility may well be important to lawyers. However, the integrity of the judicial system is of such fundamental importance to our country and, indeed, to all free and democratic societies that it must be the predominant consideration in any balancing of these three factors[^53]

[Emphasis added]

[39] For these judges, predominance leads to the following conclusion:

The judicial system and the confidence of the public in its operation are too important to be put at risk by any appearance of unfairness. Unfortunately, no matter how scrupulously ethical an individual lawyer or firm may be, the appearance of unfairness will always be present when, as in this case, one or more lawyers who had a substantial relationship with a client become members of a firm acting for an opposing party. The opportunities for disclosure, even of an inadvertent nature, are too frequent and the possibility of discovering such disclosures too minimal to permit anything less than the irrebuttable presumption that the knowledge of one member of a law firm constitutes the knowledge of all of the lawyers in that firm. Only such a test will ensure the public's confidence in the administration of justice.[^54]

[40] For the purposes of these reasons, this concurrence does nothing other than confirm that the primary concern in considering whether a lawyer or law firm should be removed is the integrity of the administration of justice.

[41] In his reasons the motion judge approached this matter on the basis that the presumption that confidential information will be inevitably imparted to opposing counsel would be rebutted, i.e. that a reasonably informed person that the use of confidential information had not occurred or was likely to occur, if opposing counsel has implemented all reasonable precautions to minimize the risk. Moreover, the motions judge posits the proposition that any residual risk of inadvertent disclosure can be tolerated or balanced by consideration of the impact of disqualification on the opposing parties’ right to counsel of choice. At paras. 39-43 the motions judge stated the following:

[39] In addition to the 12 guideline measures, LBM has appointed an independent senior partner, with no involvement with the client's file, to supervise and monitor adherence to the requirements of the ethical screen, and the migrating lawyer (Foulds) has been excluded from involvement in any Ontario AJG matters.

[40] Although there may be continuing professional contact between Mr. Foulds and Mr. McInnis, it involves non Ontario-AIG matters. Even with the ethical screen in place, the absolute prevention of inadvertent disclosure can never be assured. Inadvertent disclosure could occur in even the most structured of professional environments. The·issue is whether reasonable precautions have been taken to minimize the risk.

[41] As asked rhetorically by Cavarzan J. in Dwyer v. Mann, 2011 ONSC 2163, [2011] OJ. No. 1551 (SCI), a similar case to this one, what more could be done to protect the confidentiality of the plaintiff’s information.

[42] Even if a doubt remains that there is the possibility of inadvertent disclosure, I consider in the balance, the impact of a disqualification order on the opposing parties’ right to counsel of choice. Mr. McInnis has not just been retained. He has been involved significantly as coverage counsel in AIG matters for many years. …

[43] … Although there a number of experienced lawyers competent to undertake litigation of such complexity as in this case, as acknowledged by Mr. McInnis on examination, none have the depth of knowledge, experience and understanding of AIG and the Ontario Insurance Program as Mr McInnis. AIG should not be denied its counsel of choice.

(emphasis added)

[42] In my view, the motions judge erred in adopting the wrong test in attempting to balance the three competing values and thereby failing to give the concern for the integrity of the administration of justice the precedence required. In the paragraph that immediately precedes his determination that any possibility of inadvertent disclosure is balanced by the impact a disqualification order would have on the defendant’s right to counsel of their choice, the motion judge asked rhetorically: “What more could be done to protect the confidentiality of the plaintiff’s information”.[^55] The implied answer is that there was not anything more. There is nothing that suggests that every conflict which arises can be successfully met by the imposition of the guidelines found in the Rules of Professional Conduct or some alternate form of ethical screen. To think otherwise circumvents the precedence of maintaining the integrity of the administration of justice. It replaces it with a concern for the presence of a screen which is comprehensive, not one that will necessarily work. There will be circumstances where the conflict of concern may not be overcome by whatever protective measures can be put in place. “The test must be such that the public represented by the reasonably informed person would be satisfied that no use of confidential information would occur”.[^56] There will be circumstances where such a person cannot be satisfied, where the relationships are just too close and the appropriate segregation cannot be made or its presence maintained. In suggesting that there was nothing more that the law firm could have done, the motion judge relied on Dwyer v. Mann et al.[^57], which made the same observation.[^58] The circumstances there were different than they are here. In that case, the file of concern was moved out of the office of the firm and to the home of one of its partners. That is where the work was to be done. Unlike the situation in this case, there was no suggestion that the lawyer moving to the firm and those working on the file would have any substantial contact on any other files much less those of the same client.

[43] In this case, the idea is that all of the protections imposed will appropriately guard against a breach between two lawyers where 50 to 60 percent of the practice of the migrating lawyer will be working with counsel continuing to have carriage of this file for AIG and 50 percent of the practice of the migrating lawyer will have him acting for AIG. For all of the protections proposed, this case is reduced to whether a member of the public, properly informed, will accept that two lawyers can work this closely and no breach of confidential information, inadvertent or otherwise, will occur and no use of such information made.

[44] The following quotation is apposite:

It reduces itself to a matter of appearance and perception: The plaintiffs' former solicitors have now joined the other side. They have a great deal of confidential information going to the very heart of the plaintiffs' case which would be of inestimable value to the opposition. I have already said that I am confident that they have not and will not divulge this information; however, the Code of Ethics says that they should not be in a position where they might be tempted or appear to be tempted to do so. I don't say they might be tempted to do so, but to the plaintiffs and to interested members of the public, they might very well appear to be tempted.[^59]

[45] The case from which the quotation is taken predates MacDonald Estate v. Martin by three years. Nonetheless, here, the proposition is the same. The closeness of the working relationship is such that the prospect of a breach will not be set aside by the ethical screen that is proposed, at least not to the informed and reasonable member of the public. The integrity of the administration of justice will be impaired if counsel is allowed to continue.

[46] This can be more easily understood from the following. Insurance companies such as AIG are frequent litigators. This arises from the nature of their business. This is a “coverage action”. The plaintiff seeks a finding as to its insurance coverage in respect of three class actions commenced against it.[^60] This is hardly an unusual issue to find its way to court. What if a similar issues arises in some other case in which counsel for AIG is retained to act for it and the migrating lawyer is involved in that representation? The same strategic considerations could arise. It is not difficult to see the experience in one case assisting in the other and the threat of an inadvertent breach, despite all the care that has been taken, being real. I venture to say that the hypothetical member of the public would not be satisfied that the use of confidential information would not be imparted and used. The idiom “too close for comfort” is, if anything, a cliché. Certainly, it is not a legal principle. Nonetheless, it has application to this appeal.

[47] For the reasons reviewed, the appeal is granted.

Costs

[48] If the parties are unable to agree as to costs, we will consider written submissions on the following terms:

1. On behalf of the plaintiff/appellant, Ontario, such submissions are to be delivered no later than 15 days following the release of these reasons and to be no longer than 4 pages, double-spaced, not including any Costs Outline, Bill of Costs or case law that may be referred to.

2. On behalf of the defendant/respondent, AIG, such submissions are to be delivered no later than 10 days thereafter and to be no longer than 4 pages, double-spaced, not including any Costs Outline, Bill of Costs or case law that may be referred to.

3. If necessary, in reply, on behalf of the plaintiff/appellant, Ontario, such submissions are to be delivered no later than 5 days thereafter and to be no longer than 2 pages, double-spaced.

___________________________ LEDERER J.

THEN J.

MOLLOY J.

RELEASED:

CITATION: Ontario v. Chartis Insurance Company of Canada, 2016 ONSC 43

DIVISIONAL COURT FILE NO.: 530/14

DATE: 20160211

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

THEN, MOLLOY AND LEDERER JJ.

BETWEEN:

HER MAJESTY THE QUEEN IN RIGHT OF THE PROVINCE OF ONTARIO Plaintiff/Appellant

– and –

CHARTIS INSURANCE COMPANY OF CANADA and AMERICAN HOME ASSURANCE COMPANY Defendants/Respondents

• and –

ROYAL & SUN ALLIANCE INSURANCE COMPANY OF CANADA, THE ROYAL INSURANCE COMPANY OF CANADA, ROYAL INSURANCE COMPANY OF CANADA LIMITED, AVIVA CANADA INC., AVIVA INSURANCE COMPANY OF CANADA, GENERAL ACCIDENT ASSURANCE COMPANY OF CANADA, TRAVELERS INSURANCE COMPANY OF CANADA and ST. PAUL FIRE AND MARINE INSURANCE Defendants

REASONS FOR JUDGMENT

LEDERER J.

RELEASED: February 11, 2016

[^1]: Her Majesty the Queen v. Chartis Insurance Company of Canada, 2014 ONSC 4221 [^2]: Reasons of the motion judge [^3]: Affidavit of Lawrence Theall, at paras.11 and 12; and Affidavit of Douglas McInnis, at Exhibit “F” (Letter from Theall to MacInnis, dated February 7, 2014). [^4]: Her Majesty the Queen v. Chartis Insurance Company of Canada, supra, (fn. 1) at para. 1. [^5]: Ibid, at para. 44. [^6]: Her Majesty the Queen v. Chartis Insurance Company of Canada, supra, (fn. 1), at paras. 4 and 7. [^7]: Ibid, at para. 19. [^8]: Ibid, at para. 1. [^9]: Ibid, at para. 7. [^10]: Ibid, at para. 15. [^11]: Affidavit of Douglas McInnis, at Exhibit “F” (Letter Theall to MacInnis, dated February 7, 2014). [^12]: Her Majesty the Queen v. Chartis Insurance Company of Canada, supra, (fn. 1), at para. 30 . [^13]: Ibid, at para. 39 and Affidavit of Douglas McInnis, at para. 34, where these safeguards are outlined. [^14]: Kaiser (Re) 2011 ONCA 713, 209 A.C.W.S. (3rd) 223, at paras.19 and 21. [^15]: Penner v. Niagara Regional Police Services Board 2013 SCC 19, 2013 S.C.C. 19, [2013] 2 S.C.R. 125, 118 O.R. (3d) 800 (note), at para. 27 referring to Elsom v. Elsom, 1989 100 (SCC), [1989] 1 S.C.R. 1367 (S.C.C.), at p. 1375; and Friends of the Oldman River Society v. Canada (Minister of Transport), 1992 110 (SCC), [1992] 1 S.C.R. 3 (S.C.C.), at pp. 76-77. [^16]: MacDonald Estate v. Martin, supra, (fn. 7) at para. 44, and quoted by the motion judge at Her Majesty the Queen v. Chartis Insurance Company of Canada, supra, (fn. 1), at para. 18. [^17]: Ibid, at para. 45, and quoted by the motion judge at Her Majesty the Queen v. Chartis Insurance Company of Canada, supra, (fn. 1), at para. 18. [^18]: Her Majesty the Queen v. Chartis Insurance Company of Canada, supra, (fn. 1), at para. 19. [^19]: Ibid, at para. 21, and MacDonald Estate v. Martin, supra, (fn. 7), at para. 46, as quoted at para. [12], herein and para. 49, as quoted at fn. 7, herein. [^20]: Her Majesty the Queen v. Chartis Insurance Company of Canada, supra, (fn. 1), at para. 22. [^21]: Ibid, at para. 22. [^22]: Her Majesty the Queen v. Chartis Insurance Company of Canada, supra, (fn. 1), at paras. 38 and 44, quoted at para. [4]. [^23]: Ibid, at para. 24, which also lists the cases to which the motion judge was apparently referred. [^24]: Ibid, at paras. 26-29. [^25]: See fn. 27. [^26]: 2002 NBCA 69, [2002] N.B.J. No. 324, 224 D.L.R. (4th) 337, 253 N.B.R. (2d) 37, also cited as Freyn v. Bank of Montreal, 2002 N.B.C.A. 69 (C.A.). [^27]: Ibid, at para. 81. [^28]: Bank of Montreal v. Dresler, supra, (fn. 31), para. 83, where the following is said: There are approximately twenty lawyers in McInnes Cooper's Fredericton office. No one has suggested that it should be disqualified from acting for the defendant Freyn because of firm size. I agree. Nothing in the record leads me to question the viability of the screen erected by McInnes Cooper... [^29]: Davidova-Perez v. Lombard General Insurance Co. of Canada, 2006 63724 (ON SC), [2006] O.J. No. 2456 (S.C.J.), at para. 10, and Robertson v. Slater Vecchio, [2008] B.C.J. No. 1353 (C.A.), at para. 18. [^30]: Her Majesty the Queen v. Chartis Insurance Company of Canada, supra, (fn. 1), at para. 33. [^31]: Ibid, at para. 34. [^32]: Ibid, at para. 39. [^33]: MacDonald Estate v. Martin, supra, (fn. 7), at para. 13. [^34]: Ibid, at para. 14. [^35]: Ibid, at para. 15. [^36]: Ibid, at para. 15. [^37]: [1912] 1 Ch. 831 referred to in Ibid, at para. 20. [^38]: MacDonald Estate v. Martin, supra, (fn. 7). [^39]: Ibid, at para. 20, quoting from Rakusen v. Ellis, Munday & Clarke, supra, (fn. 43,) at p. 845 (per Cozens-Hardy M.R.). [^40]: Ibid, at para. 22. [^41]: Ibid, at para. 24, quoting form Developments in the Law--Conflicts of Interest in the Legal Profession, op. Cit., at pp. 1355-59. [^42]: MacDonald Estate v. Martin, supra, (fn. 7), at paras. 23-26. [^43]: Ibid, at para. 42. [^44]: Ibid, at para. 27, referring to National Mutual Holdings Pty. Ltd. v. (1989), 87 A.L.R. 539; and to Finn, Conflicts of Interest and Professionals (published by the New Zealand Research Foundation in the volume Professional Responsibility). [^45]: Ibid, at para. 29. [^46]: Ibid, at para. 30. [^47]: Ibid, at para. 31, quoting from Steed & Evans Ltd. v. MacTavish (1976), 1976 640 (ON SC), 12 O.R. (2d) 236, at pp. 237-38. [^48]: Ibid, at para. 33, quoting from Falls v. Falls (1979), 1979 3614 (ON SC), 12 C.P.C. 270 at pp. 272-73. [^49]: Ibid, at para. 34, quoting from Goldberg v. Goldberg (1982), 1982 3235 (ON CA), 141 D.L.R. (3d) 133 at pp. 135-36. [^50]: Ibid, at para 36, quoting from O’Dea v. O’Dea (1987), 68 Nfld. & P.E.I.R. 67 (Nfld. Unif. Fam. Ct.), 1987 5105 (NL SCTD), at para. 37, aff’d Nfld. C.A. June 6, 1988 (unreported). [^51]: Ibid, at para. 24, quoting from Developments in the Law--Conflicts of Interest in the Legal Profession, supra, (fn. 47), and para. 26, quoting from Analytica, Inc. v. NPD Research Inc., 708 F. 2D 1263 (7th Cir. 1983) at p. 1277. [^52]: Ibid, at para 51. [^53]: Ibid, at paras. 56, 57 and 58. [^54]: Ibid, at para. 69. [^55]: Her Majesty the Queen v. Chartis Insurance Company of Canada, supra, (fn. 1), at para. 41. [^56]: See para. [12], quotation from MacDonald Estate v. Martin, supra, (fn. 7), at para. 44. [^57]: 2011 ONSC 2163 [^58]: Ibid, at para. 30. [^59]: MacDonald Estate v. Martin, supra, (fn. 7), at para. 40, quoting from Morton v. Asper, 1987 6910 (MB QB), [1987] 49 Man. R. 167, aff’d (1987), 1987 6912 (MB CA), 51 Man. R. 207 at p. 174. [^60]: Her Majesty the Queen v. Chartis Insurance Company of Canada, supra, (fn. 1), at paras. 2 and 3.