Financial Services Commission of Ontario
Neutral Citation: 2011 ONFSCDRS 97 FSCO A10-003016
BETWEEN:
JULIAN HOTCHKISS Applicant
and
KINGSWAY GENERAL INSURANCE COMPANY Insurer
DECISION ON A PRELIMINARY ISSUE
Before: John Wilson Heard: October 17 and 19, 2011, at the offices of the Financial Services Commission of Ontario in Toronto.
Appearances: Gregory Neinstein for Mr. Hotchkiss R. Shawn Stringer for Kingsway General Insurance Company
The Applicant, Julian Hotchkiss, was injured in a motor vehicle accident on July 20, 2007. He applied for accident benefits under the Schedule.1 The parties were unable to resolve their disputes through mediation, and Mr. Hotchkiss applied for arbitration at the Financial Services Commission of Ontario under the *Insurance Act*, R.S.O. 1990, c.I.8, as amended.
In response to Mr. Hotchkiss’ application for arbitration, Kingsway named Ms. Marlett Dobson of Brown & Korte Barristers as their solicitor to defend them from Mr. Hotchkiss’ claims for accident benefits.
Concurrently, at some point in 2008, a Statement of Claim was issued by Christy Fedirchuk against Julian Hotchkiss for damages arising out of the July 20, 2007 motor vehicle accident.
On October 22, 2008, Beard Winter filed a Statement of Defence on behalf of Mr. Hotchkiss in action CV-08-00353915-0000.
A pre-hearing in the accident benefit matter was held on February 3, 2011 before Arbitrator Muzzi. Ms. Dobson participated in the pre-hearing for Kingsway. At that pre-hearing certain orders were made and the hearing dates set, commencing October 17, 2011.
On September 28, 2011, Beard Winter wrote to FSCO advising that they had been retained by Kingsway to defend them in the upcoming arbitration. Mr. March, who signed the letter on behalf of Beard Winter, also indicated that Kingsway would be requesting an adjournment of the arbitration.
Ms. Muzzi, the pre-hearing arbitrator, responded to Mr. March’s adjournment request on October 7, 2011. Since Mr. Hotchkiss opposed the adjournment, and Ms. Muzzi found that the hearing dates had been set on consent by both parties, the adjournment request was tardy and “no acceptable reason for granting an adjournment” existed, she denied the request.
On October 13, 2011, Mr. Neinstein, counsel for Mr. Hotchkiss, wrote to Mr. March, with a copy to FSCO, stating that “It has just come to our attention this morning that Beard Winter is presently defending Julian Hotchkiss in an ongoing tort matter.” Mr. Neinstein continued:
Based on the plethora of information Beard Winter has in defending Mr. Hotchkiss, this is a clear conflict of interest to have the same firm represent Mr. Hotchkiss in an ongoing tort claim and to assign the same firm to act adverse in interest in his AB matter.
Mr. March responded on the same date acknowledging Mr. Neinstein’s letter, but only requesting “further details as to the ‘clear conflict’ alleged in your letter.”
Mr. Neinstein responded on the same day that “It must be patently obvious that your firm cannot act for and against Mr. Hotchkiss.”
On October 14, 2011, Mr. March responded, acknowledging that “Mr. Aucoin is currently defending a claim involving Julian Hotchkiss” but that “our position remains that there is no conflict in this matter.”
On October 14, Mr. Neinstein, in turn, wrote to FSCO, with a copy to Mr. March stating:
Further to our correspondence of October 13, 2011, Mr. Hotchkiss has been apprised of Mr. March’s conflict of interest. He is extremely distraught over the fact that his law firm is acting for and against him out of matters arising from July 20, 2007. At no time did anyone ask his consent to waive this conflict. … As such, we have instructions to bring a preliminary objection on Monday removing Mr. March from representing Jevco [Kingsway] in this matter.
Jevco still has the opportunity to have their former counsel or new counsel present on Monday to represent them.
At the commencement of the arbitration hearing on Monday, October 17, Mr. March appeared as counsel for Kingsway. As promised, Mr. Neinstein then raised an objection to his presence in that capacity due to what he described as a clear conflict of interest.
The preliminary issue is:
Is Mr. March precluded from representing Kingsway at arbitration due to an apparent conflict of interest arising because his law firm already represents Mr. Hotchkiss in a tort matter arising from the same accident?
If so, what are the consequences of this conflict?
Result:
Mr. March is precluded from representing Kingsway in this arbitration.
This arbitration is adjourned sine die, with terms to be decided following written submissions.
ANALYSIS:
Both the law and the Rules of Professional Conduct deal with the issue of a lawyer’s conflict of interest.
The fundamental principle is set out in Rule 2.04 of the Rules of Professional Conduct:
Avoidance of Conflicts of Interest
(2) A lawyer shall not advise or represent more than one side of a dispute.
(3) A lawyer shall not act or continue to act in a matter when there is or is likely to be a conflicting interest unless, after disclosure adequate to make an informed decision, the client or prospective client consents.
Rule 2.04 (4) continues more specifically:
Acting Against Client
(4) A lawyer who has acted for a client in a matter shall not thereafter act against the client or against persons who were involved in or associated with the client in that matter.
(a) in the same matter
(b) in any related matter, or
(c) save as provided in subrule (5) in any new matter, if the lawyer has obtained from the other retainer relevant confidential information unless the client involved in or associated with the client consent.
Subrule 5 referred to above provides for a limited range of circumstances in which a lawyer who has acted for a former client may act in a new matter against the former client.
The commentary on the rule emphasizes that “The term ‘client’ is defined in rule 1.02 to include a client of the law firm of which the lawyer is a partner or associate.”
While it is obvious that the Law Society has a clear interest in regulating the conduct of lawyers, so do courts and tribunals in this province.
A leading case on the issue of conflict of interest is MacDonald Estate v. Martin, a decision of the Supreme Court of Canada. Sopinka J., writing for the majority, noted the older cases which focused on whether or not an actual conflict of interest had arisen through a verifiable exchange of confidential information and commented:
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.
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.
Clearly Sopinka J. was concerned as to whether the appearance of conflict might bring the legal process into disrepute.
The reasons of Cory J. in the same matter make this public interest criterion even more clear:
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.
From the point of view of Ontario courts, the Divisional Court has noted:
It is within the inherent jurisdiction of a superior court to deny the right of audience to counsel when the interests of justice so require by reason of conflict or otherwise. This power does not depend on the rules of professional conduct made by the legal profession and is not limited to cases where the rules are breached.2
Viewed strictly from the point of view of regulating the professional conduct of a lawyer, there is an argument for leaving the setting of standards, and indeed their enforcement to the professional association.
Dunnet J. in Skye3 agreed with the proposition that:
the legal profession is a self-governing body and the legislature has entrusted to it and not to the court the responsibility for developing standards that will satisfy the need to maintain confidence in the integrity of the profession.
In so doing he described Sopinka J.’s position in MacDonald Estate4 as stating that the court’s role was merely supervisory and that it would be wrong to shut out the governing body of a self-regulating profession by the imposition of an inflexible and immutable standard in the exercise of a supervisory jurisdiction. In other words, in all cases of alleged conflict one should look at the Rules of Professional Conduct for guidance in resolving the issue.
On the other hand, Wilson J., citing the Supreme Court of Canada in R. v. Neil5, concluded that there is a “bright line” which discourages nuances when a conflict of interest is in issue between an existing client of the firm and another client, which must apply when there is a current solicitor-client relationship.6
Indeed, Binnie J., in R. v. Neil, in an analysis that focused on the fiduciary duty of a lawyer or a law firm to a client, stated:
Nevertheless it 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 reasonable believes that he or she is able to represent each client without adversely affecting the other.7
It is clear that the characterization of the solicitor/client relationship as active or past can be of some importance in deciding a conflict motion. Under the Rules of Professional Conduct, section 2.04(5) provides an exception where “a lawyer has acted for a former client.”
Likewise in MacDonald Estate, Sopinka J.’s comments upon rebuttable presumptions appear in the context of references to “former clients.”
Indeed, in this matter, counsel for Kingsway has taken the position that, notwithstanding the ongoing nature of the tort action in which Mr. Hotchkiss is the defendant, Mr. Hotchkiss is not or is no longer the true party. Given that Kingsway (Jevco) retained the lawyer and defended the lawsuit, and will ultimately pay any settlement or judgement as the case may be, Kingsway should be considered the true client of the law firm in the tort matter.
Whichever standard is applied, that of the law society, or one derived from the jurisprudence, it is clear that courts may rely on their inherent jurisdiction to make an appropriate order where a conflict is found to exist.
In this matter, it is agreed that both Mr. March and Mr. Aucoin are members of the Beard Winter law firm. It is also agreed that Mr. Aucoin was retained and filed a defence in a lawsuit in which Mr. Hotchkiss was a defendant, arising from the same motor vehicle accident as his AB claim. The tort matter is ongoing.
Counsel for Kingsway submits, however, that although Mr. Hotchkiss is nominally Mr. Aucoin’s client in the tort matter arising from the accident, the real client is Kingsway General Insurance, who in fact retained Mr. Aucoin, and pays the legal bills.
On the basis of Mr. March’s affidavit, Mr. Stringer also suggested that since the tort matter was now restricted to policy limits and liability was not in issue, Mr. Hotchkiss had no potential downside from the lawsuit. His involvement then was negligible.
Negligible or not, he remains a client of the law firm, and a named party in an action. He is primarily responsible for any court order determining the issue, and is primarily responsible for satisfying any judgement, subject of course to indemnity from Kingsway.
Mr. Neinstein also pointed to ongoing participation by Mr. Hotchkiss in discoveries in the tort matter. Clearly his involvement in the tort matter is somewhat more than the legal fiction that Mr. Stringer would have us believe.
I find, therefore, that Mr. Hotchkiss was and is a client of the Beard Winter firm as a result of his ongoing solicitor/client relationship with Mr. Aucoin of that firm.
If one looks at the protocol set out by Sopinka J. in MacDonald Estate, it would seem that the next step is to undertake an enquiry to answer the following questions:
(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?8
According to Kingsway, the answers to these two questions would determine the issue of whether Mr. March is in a position of conflict.
Relying on Mr. March’s sworn affidavit, Kingsway submits that given the “Chinese Walls” erected in the law firm to impede the spread of confidential information, the answer to the two questions must be “no.”
Mr. Hotchkiss’ position is that the information in Mr. March’s affidavit is of little probative value, and indeed, since it indicates that Mr. March did speak to Mr. Aucoin about the conflict, the risk of cross-contamination was real and not speculative.
More importantly, Mr. Hotchkiss takes the position that R. v. Neil, a much later decision of the Supreme Court, prevails in any analysis inasmuch as it explains and elucidates the propositions explored in MacDonald Estate.
The importance of this comes back to the application of the saving provisions in both the decision of Sopinka J. and in the Rules of Professional Conduct which may apply in cases where there is a “former client” involved.
R. v. Neil makes it abundantly clear that in the case of a current solicitor/client relationship, there must be a bright line drawn to prevent conflict and a breach of the duty of loyalty. I agree.
Having found that Mr. Hotchkiss was already in a solicitor/client relationship with Beard Winter arising out of the ongoing tort matter, it follows necessarily that it was improper for Mr. March and Beard Winter to accept a retainer against their existing client in this concurrent accident benefit matter.
Mr. Hotchkiss has asked that I make an order barring Mr. March and his firm from appearing in this matter on behalf of Kingsway.
While Rule 9.9 deals with the exclusion of a representative due to incompetence, there is no specific provision in the Dispute Resolution Practice Code (4th Ed., Updated – August 2011) (DRPC) that sets out a procedure for dealing with issues of conflict of interest amongst counsel.9
The jurisprudence speaks to the inherent jurisdiction of the superior courts in sanctioning the conduct of lawyers. Statutory tribunals such as arbitrators at FSCO have no inherent jurisdiction. Rather, only those powers granted either expressly or implicitly by statute may be exercised by an arbitrator.
Section 20(2) of the *Insurance Act* provides:
(2) A person referred to in subsection (1) has exclusive jurisdiction to exercise the powers conferred upon him or her under this Act and to determine all questions of fact or law that arise in any proceeding before him or her and, unless an appeal is provided under this Act, his or her decision thereon is final and conclusive for all purposes.
An arbitrator thus has a clear mandate to determine any question of fact or law that arises from a proceeding, including this preliminary issue.
Another source of power is section 23(1) of the Statutory Powers Procedure Act (SPPA), which provides:
A tribunal may make such orders or give such directions in proceedings before it as it considers proper to prevent abuse of its process.
Following Cory J.’s reasoning that the appearance of a conflict of interest in a matter before a tribunal is an affront to the integrity of the judicial system, it is but one further step to characterize such a conflict as an abuse of process.
Indeed, in R. v. Scott, McLachlin J. stated that an abuse of process may be established where:
(1) the proceedings are oppressive or vexatious; and, (2) violate the fundamental principles of justice underlying the community’s sense of fair play and decency. The concepts of oppressiveness and vexatiousness underline the interest of the accused in a fair trial. But the doctrine evokes as well the public interest in a fair and just trial process and the proper administration of justice. I add that I would read these criteria cumulatively.10
If there is a dominant public interest in a fair and just trial process, and the proper administration of justice, then a breach of that interest could well constitute an abuse of process and allow a tribunal to “make such orders or give such directions in proceedings before it as it considers proper to prevent abuse of its process.”
I note that the Divisional Court in Volfson11 has found that under section 23(1) of the SPPA, arbitrators have a broad mandate to control and sanction abuse of process. In Volfson, an arbitrator had made an expense order against a representative who had wrongfully engaged the arbitration process, even though the *Insurance Act* and regulations dealing with expenses did not expressly provide a foundation for that order.
A robust interpretation of section 23(1) would also support the power of an arbitrator to control and resolve a conflict of interest as an abuse of process,
I am satisfied that I have jurisdiction under both section 20(2) of the *Insurance Act* and section 23(1) of the SPPA to deal with the issue of conflict of interest raised by Mr. Hotchkiss and to make any necessary orders to deal with the allegations.
Consequently, I order that Mr. Darrell March, and his law firm, Beard Winter, withdraw forthwith from this matter as counsel of record, and that Kingsway retain new counsel, untainted by this conflict, should it wish to continue to defend this arbitration.
I will also order that the arbitration be adjourned sine die, with conditions.
I note again that Mr. Hotchkiss has requested the payments of benefits and arrears and his expenses (costs). Noting Kingway’s position at the hearing as to adjournment, I did not ask for full particulars of either the costs or benefits to be requested.
I request therefore that the parties provide written submissions as to the conditions to be attached to the adjournment and the duration of same. The details and timelines of the submissions will be communicated to the parties by letter.
EXPENSES:
The parties shall include any claims for expenses incurred in this preliminary issue hearing in their written submissions.
October 28, 2011
John Wilson Arbitrator
Financial Services Commission of Ontario
Neutral Citation: 2011 ONFSCDRS 97 FSCO A10-003016
BETWEEN:
JULIAN HOTCHKISS Applicant
and
KINGSWAY GENERAL INSURANCE COMPANY Insurer
ARBITRATION ORDER
Under section 282 of the *Insurance Act*, R.S.O. 1990, c.I.8, as amended, it is ordered that:
Mr. Darrell March, and his law firm, Beard Winter, withdraw forthwith from this matter as counsel of record, and that Kingsway retain new counsel, untainted by this conflict, should it wish to continue to defend this arbitration.
The arbitration shall be adjourned sine die, with conditions to be set following further written submissions.
October 28, 2011
John Wilson Arbitrator
Footnotes
- The Statutory Accident Benefits Schedule - Accidents on or after November 1, 1996, Ontario Regulation 403/96, as amended.
- Everingham v. Ontario 1992 CanLII 7681 (ON CTGD), 8 O.R. (3d) 121 Divisional Court
- Skye Properties Ltd. et al. v. Wu 2002 CanLII 62444 (ON SCDC), 58 O.R. (3d) 154, Dunnet J.
- MacDonald Estate v. Martin, 1990 CanLII 32 (SCC), [1990] 3 S.C.R. 1235 (S.C.C.)
- (2002), 2002 SCC 70, 168 C.C.C. (3d) 321 (S.C.C.)
- First Property Holdings Inc. v. Beatty 2003 CanLII 43494 (ON SC), 66 O.R. (3d) 97, Wilson J.
- R. v. Neil (supra)
- MacDonald Estate supra
- Rule 81 of the DRPC does give a certain discretion to arbitrators to waive a particular rule as the case may be.
- R. v. Scott, [1990] 3 S.C.R. 9, McLachlin J. (dissenting)
- Royal & SunAlliance Insurance Co. of Canada v. Volfson 2005 CanLII 38902 (ON SCDC), [2005] O.J. No. 4523, Divisional Court J.R.R. Jennnings J.