Ashley Kandestin
Articles du même auteur
09 Juil 2012

10 essential judgments for corporate lawyers concerning conflicts of interest and how best to avoid them

Par Ashley Kandestin, DeGrandpré Chait S.E.N.C.R.L/LLP

by Ashley Kandestin, Articling Law Student, 
De Grandpré Chait S.E.N.C.R.L./LLP
Among the first things that
students learn about at the École du Barreau are the underpinnings of the
lawyer-client relationship, and specifically the duty of loyalty owed by all lawyers
to their clients. This relationship is fiduciary in nature, meaning that a
lawyer must always act in the best, and more importantly, the sole, interest of
its client. This duty of undivided loyalty is what should guide lawyers in
accepting mandates from existing or from potential clients. Conflicts of
interest must be avoided at all costs, for the moment that a lawyer is at risk
of putting either personal interests or those of a third party or another
client above those of the client for whom the lawyer acts in a given situation,
the fiduciary duty is compromised and the pillar of the relationship crumbles.

Articles 3.06.06 and
following of the Code of Ethics of
, R.R.Q., c. B-1, r. 3 (Code
of Ethics
) are the cornerstones of this rule:

“3.06.06. An advocate shall avoid any situation of
conflict of interest.

3.06.07 An advocate is in a conflict of interest
where, in particular:

(1) he represents conflicting interests;

(2) the interests he represents are such that he might
tend to favour certain among them or that his judgment and loyalty may be
unfavourably affected;

(3) he acts as the advocate of a syndic or of a
liquidator, except as an advocate of a liquidator appointed under the
Winding-up Act (R.S.Q., c. L-4), and represents the debtor, the company or the
partnership that is winding up, a secured creditor or a creditor whose claim is
contested or has represented one of these persons in the 2 preceding years,
unless he discloses in writing to the creditors or the inspectors any previous
contract for professional services received from the debtor, the company or the
partnership or from their creditors during that period.

In all cases in which an advocate engages in his
professional activities within a partnership or joint-stock company, conflict
of interest situations shall be assessed with regard to all clients of the
partnership or joint-stock company.”

“3.06.08 To decide any question relating to a conflict
of interest, consideration must be given to the higher interests of justice, the
explicit or implicit consent of the parties, the extent of prejudice for each
of the parties, the time elapsed since the origin of the situation that could
give rise to the conflict, as well as the good faith of the parties.”

In corporate matters, the diverging
interests of a corporation’s many players create a climate for potential
disputes or litigation. Corporate lawyers must be wary about representing
parties with opposing interests. A law firm representing a corporation in
contractual matters, for instance, may find itself unable to represent the
corporation and its directors against an oppression remedy exercised by certain
shareholders, given the diverging interests of the parties and the confidential
information to which the lawyers may have been privy. 

Conflicts can only be
identified on a case by case basis, depending on the interests of the parties
and the nature of the professional relationships the lawyer or the firm had
with the corporation in the past. The following is a brief overview of rulings
on conflicts of interest, beginning with the most general decisions, and then
moving on to decisions rendered specifically within a corporate context.

1. Macdonald Estate v. Martin,
[1990] 3 S.C.R. 1235
, AZ-91111018

In this decision, Justice Sopinka defines the three competing values at
play when deciding if a lawyer should be disqualified to act on behalf of a
client by reason of conflict of interest. They are described as follows:

is first of all the concern to maintain the high standards of the legal
profession and the integrity of our system of justice.  Furthermore, there
is the countervailing value that a litigant should not be deprived of his or
her choice of counsel without good cause.  Finally, there is the
desirability of permitting reasonable mobility in the legal profession. 
The review of the cases which follows will show that different standards have
been adopted from time to time to resolve the issue.  This reflects the
different emphasis placed at different times and by different judges on the
basic values outlined above.” (Page 1243)
The evaluation of the conflict is twofold. First, it must be decided if
the lawyer was given any confidential information by a client that may be
relevant to the matter in which it is sought to disqualify the lawyer. Second,
the court must decide if there is a risk that the lawyer will use this
information to the prejudice of its client. 

In regards to the
first part of the test, a presumption exists to the effect that confidential
information was imparted to the lawyer. The lawyer has the burden of proving to
the court that the reasonably informed member of the public would believe that
no such information was passed. Such a burden is difficult to discharge, making
the presumption almost impossible to rebut.

Secondly, once it is found that a lawyer has received relevant
confidential information, the lawyer cannot act against its old client. As
Justice Sopinka writes: “In such a case the disqualification is
automatic.  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.”

2. R. v. Neil, 2002 SCC 70, [2002] 3 S.C.R. 631

In this case, the
Supreme Court puts an emphasis on the obligation of lawyers, as fiduciaries, to
avoid conflicts of interest whether or not confidential information plays a
role. Here, the interpretation of a lawyer’s duty of loyalty is more broad,
with the accent put on the basic principles of confidence, trust, good faith,
full disclosure to one’s client and independence. A lawyer, and even a law
firm, cannot act simultaneously for two “masters” with opposing interests. 

[29] The general prohibition is undoubtedly a major
inconvenience to large law partnerships and especially to national firms with
their proliferating offices in major centres across Canada. Conflict searches
in the firm’s records may belatedly turn up files in another office a lawyer
may not have been aware of. Indeed, he or she may not even be acquainted with
the partner on the other side of the country who is in charge of the file.
Conflict search procedures are often inefficient. 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 reasonably believes that he or she is able to
represent each client without adversely affecting the other.”
Intersuivi inc.
v. Logiciels
Teamcoordination inc.
, J.E.
98-711 (S.C.)

Justice Dalphond explains in this case that the Code of Ethics is a legally binding norm that constitutes the law
in Quebec. The Code of Ethics is more
than an internal rulebook of the Barreau, and it reaches far beyond
disciplinary hearings. Courts must apply the Code of Ethics’ rules in order to preserve the integrity of the
justice system.

“La prévention des conflits
d’intérêts et le devoir de loyauté de  »l’avocat envers son client sont
nécessaires à la qualité et à la réputation de l’administration de la justice
(Succession MacDonald c. Martin, [1990] 3 R.C.S 1234, et Morissette-Paré c.
Gestion des rebuts DMPInc., J.E. 97-516 (C.A.)).

de cette nécessité, le Barreau du Québec a mis en place depuis longtemps un Code
de déontologie des avocats
(R.R.Q. 1981, c. B-1, r. 1), lequel a été amendé
suite au prononcé de l’arrêt Succession MacDonald afin de répondre aux
exigences énoncées par la Cour Suprême en matière de conflit d’intérêts. Dans
l’arrêt Castor Holdings Limited (syndic de), [1995] R.J.Q. 1665, la Cour
d’appel a reconnu à la page 1669, que le Code de déontologie semblait
«rencontrer tous les principes dégagés par les tribunaux».

Code de déontologie est plus qu’un simple règlement interne adopté par
la profession, dont le respect est imposé aux avocats par les instances du
Barreau. En effet, il est devenu suite à son adoption par le Gouvernement du
Québec conformément à l’article 16 de la Loi du Barreau (L.R.Q., ch.
B-1) et à l’article 95 du Code des professions (L.R.Q., ch. C-26), «un
acte normatif, de caractère général et impersonnel édicté en vertu d’une loi et
qui, lorsqu’il est en vigueur, a force de loi», conformément à la Loi sur
les règlements
(L.R.Q. ch. R-18.1, art. 1). Or, ce règlement, le Tribunal
en a une connaissance d’office (art. 2897 C.c.Q.).

s’ensuit que les dispositions du Code de déontologie concernant les
conflits d’intérêts, le devoir de loyauté, et l’inhabilité d’un procureur
assigné comme témoin, font partie du droit en vigueur au Québec et que le
Tribunal doit les appliquer. (Il se peut donc que la situation soit différente
au Québec, de celle d’autres provinces où les normes de conduite édictées par
le Barreau local n’ont pas nécessairement force de loi).” (Page 3)

4. Strother v. 3464920
Canada inc.
, 2007
SCC 24, [2007] 2 R.C.S. 3

A lawyer can
adequately represent two corporations that compete against one another
commercially. Commercial conflicts are not necessarily legal ones, and a
lawyer’s ability to represent its client’s legal interests will not necessarily
be compromised, despite the lawyer’s knowledge of both corporations’
confidential information.

[59] The spectre is flourished of
long-dormant files mouldering away in a lawyer’s filing cabinet that are
suddenly brought to life for purposes of enabling a strategically minded client
to assert a conflict for tactical reasons. But a court is well able to withhold
relief from a claim clearly brought for tactical reasons. Conflict between
concurrent clients where no confidential information is at risk can be handled
more flexibly than MacDonald Estate situations because different options
exist at the level of remedy, ranging from disqualification to lesser measures
to protect the interest of the complaining client. In each case where no issue
of confidential information arises, the court should evaluate whether there is
a serious risk that the lawyer’s ability to properly represent the complaining
client may be adversely affected, and if so, what steps short of
disqualification (if any) can be taken to provide an adequate remedy to avoid
this result.”
5. Cogismaq International inc. v. Lafontaine,
2008 QCCA 2044

In this case, the
Court of Appeal dismissed a judgment that granted a motion to disqualify a law
firm from representing a corporation in the context of an oppression remedy.
This case highlights the fact that the appointment of separate lawyers for the
corporation and for the majority shareholders can be “both superficial and
unnecessary”, specifically in cases in which the interests of the co-defendants
converge or where the majority shareholders appointed the board of directors,
who in turn are the ones giving instructions to the lawyer.

“[26] En
matière de déclaration d’inhabilité, les faits importent. Chaque cas est un cas
d’espèce. S’agit-il ici
d’un cas qui commande de faire exception et de mettre en place des mesures pour
procéder au remplacement des avocats de l’appelante? Avec égards, je ne le
crois pas.

[27] Le juge de première instance n’a abordé la requête en inhabilité que
sous l’angle du recours entre l’actionnaire minoritaire et les actionnaires
majoritaires. En matière de recours entre actionnaires, je conviens que le rôle
de l’avocat qui représente la société est limité, mais une dimension non
négligeable semble avoir ici échappé à l’attention : le recours intenté contre
l’appelante n’en est pas un qui oppose uniquement les actionnaires entre eux et
où la société n’est que mise en cause.”

6. Y.C. c. Gestion
immobilière A
, 2011 QCCS 644

by the reasoning of Cogismac
, justice Gascon reiterates that it is not simply because a
lawyer has represented a corporation that it may not act on behalf of one
faction of its shareholders in the context of an oppression remedy. Without a
clear demonstration a lawyer’s lack of impartiality, and without establishing
that a true divergence of interests exists among a lawyer’s several clients, a
demand for disqualification will not be granted.
“[27] La Cour d’appel l’a affirmé dans deux arrêts récents.
Dans une situation comme celle qui prévaut dans ce dossier, il n’y a pas de
règle absolue et inflexible voulant que chaque fois où il y a litige entre une
société et des factions opposées de son actionnariat, la société et ses
actionnaires doivent être représentés par des avocats distincts.

[28] Selon la Cour d’appel, ni les exigences réglementaires de la déontologie,
ni celles de la jurisprudence n’imposent une telle conclusion. Chaque situation
commande plutôt une appréciation circonstancielle qui tienne compte, entre autres,
du droit de chaque justiciable de choisir son avocat.

[29] À ce
chapitre, la Cour d’appel énonce d’ailleurs ceci :
[19] Le droit du justiciable de retenir les services de
l’avocat de son choix est un principe bien établi qui ne cède sa préséance qu’en
cas de conflit d’intérêts réel ou, du moins, manifeste.

[30] De fait, la jurisprudence enseigne qu’avant de priver une partie de
l’avocat de son choix, il faut des raisons graves, contraignantes et sérieuses.
Un tribunal doit intervenir avec prudence avant d’écarter un avocat choisi par
une partie.”

7. Gold c. Avocats
(Ordre professionnel des)
, 2006 QCTP 43

In this decision rendered by
the Tribunal des professions, on appeal from the Comité
de discipline du Barreau du Québec, it is explained that a corporation is a
juridical entity unto itself, with interests that may diverge from those of its
shareholders. Once a dispute between shareholders arises, the corporation’s
lawyer cannot represent the interests of one block of shareholders, to the
detriment of another block, and all the while represent the company in the same
matter. Loyalty cannot purportedly be owed to both the shareholders and to the
company. Doing so would violate the rules set forth in R. v. Neil, that is, to avoid possible conflicts even before they

“[124] L’intimé en
agissant de cette façon n’agit pas de façon à éviter de se placer en situation
de conflit d’intérêts.

[125] Sa décision le
prive de la liberté et de l’autonomie qu’il doit en tout temps conserver à
l’égard de ses clients.

[126] Comment
l’intimé pourra-t-il, en cours de mandat, mener adéquatement des interventions
qui pourraient lui prouver, ou à tout le moins semer un doute chez lui, que ses
clients Panzara et Manousos ont peut-être tort et que c’est M. Metzen, et
possiblement la Compagnie, qui est victime de leur conduite?

[127] Comment
l’intimé pourra-t-il objectivement prendre uniquement les intérêts de la
Compagnie, sans aucune influence de la part de ses clients Panzara et Manousos?”

8. Lixo Investments Limited v. Acmon Ltée, J.E. 99-1899 (C.S.)

After preparing a
corporation’s unanimous shareholders agreement which included a non-competition
clause, a lawyer cannot represent that corporation and its majority
shareholders in respect of their demand for an injunction against the minority
shareholder who violated the clause. Once again, the court reminds us that a
lawyer having at one point acted in the interests of all of the shareholders of
a corporation cannot later be pitted against the interests of a certain number
of them. 

9. Hornstein v. Hornstein, J.E. 2006-284 (S.C.)

In the context of
an oppression remedy, a lawyer whose colleague once sat on the board of
directors of one of the corporations implicated in the litigation was allowed
to remain on the file. The firm itself was not disqualified, despite the fact
that one of its lawyers could potentially have been called upon to testify in
the matter as a person having knowledge of boardroom discussions. The court
preferred the fundamental right of a client’s choice of representation to
article 3.05.06 of the Code of Ethics
which prohibits a lawyer from acting in a case “if it is evident he will be
called as a witness” – mainly because it was not clear whether or not his
testimony was in fact necessary. Article 3.05.06 is not absolute, and must be
balanced with the client’s personal interests. 

“[25] L’avocat membre d’un conseil d’administration d’une compagnie
ne verra pas son témoignage devenir « essentiel » du simple fait qu’il est en
mesure de témoigner quant aux délibérations de ce conseil. La nécessité du
témoignage de l’avocat doit s’apprécier en rapport à l’ensemble des
circonstances, en considération des autres alternatives à son témoignage,
lesquelles permettraient de prouver le fait que l’on cherche à établir.
[26] Bref, le Tribunal ne pourra qualifier un témoignage
d’« essentiel », de « nécessaire » ou même d’« utile », si les faits que
l’on veut mettre en preuve, peuvent l’être par d’autres moyens. Le cas échéant,
l’avocat dont le témoignage est envisagé pourra continuer à représenter
lui-même son client. Dans un tel cas, la prochaine question, soit celle de
l’inhabilité des membres du même cabinet, devient sans objet.” 

10. Miller Thomson v.
, 2012 QCCA 147

In this case, the
Court of Appeal upheld the decision of Justice Nolet to disqualify a law firm
from representing the directors and majority shareholders of a company against
an oppression remedy exercised by a minority shareholder. In 2006 and in 2007, a
lawyer of the firm imparted legal advice to the shareholder, an employee of the
company, and prepared legal documents on his behalf (namely, his employment
contract). It was thus decided that another lawyer of the same firm could not
defend the directors nor the company against the shareholder’s oppression
remedy, due to the passing on of privileged information and the obvious
opposing interests involved.

“[11] Je
souligne également que le contexte du recours en oppression ajoute au caractère
délicat de la situation d’autant, qu’en l’espèce, la requérante représentait
non seulement les intérêts de la société, mais également ceux des autres
actionnaires et dirigeants.”

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