Monday, October 3, 2011

Canadian Firm Breaches Duty of Loyalty, but Fends off Disqualification

Hit tip to Malcolm Mercer, Partner and General Counsel at McCarthy Tétrault, for pointing us to this interesting Canadian disqualification decision from the Court of Appeal for Saskatchewan (See: Wallace v. Canadian Pac. Ry., 2011 SKCA 108 (Ct. App. Sask. Sept. 28, 2011):
  • Law firm (McKercher LLP) takes on class action suit against several railways, including the Canadian National Railway (CN), claiming 25 year history of overcharging clients. In published accounts it was reported damages could potentially reach 1.75 billion dollars.
  • At the time, the firm was acting for CN on several unrelated matters (corporate, commercial, tax, debt, collection, real estate and litigation). So the railway moved to disqualify the firm.
The court evaluated three factors:
  • Did the firm obtain confidential information which could prejudice CN
  • Did the firm breach its duty of loyalty to CN?
  • If yes to both, should it be disqualified?
It ruled that no confidential information was shared, but that the firm did breach its duty of loyalty.

CN argued that the firm had confidential knowledge of the company’s “approach to litigation, its business practices and its risk perspective and tolerance.” But the court found answers to questions asking for specifics to be a bit evasive.

Given the standard set for disqualification, the firm was not disqualified. (Though the decision suggested CN complain to the Law Society about the firm’s breach.) See the extensive written decision for additional detail.

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