Ontario Court Clarifies Conflict of Interest Rules

The Ontario Superior Court of Justice has clarified conflict of interest rules, concluding that a law firm is not necessarily precluded from acting against the subsidiary of its client.

In McKenna v. Gammon Gold Inc., plaintiff Ed McKenna retained Siskinds LLP to act as counsel to the putative class in a securities class action against Gammon Gold, certain of its directors and officers and its underwriting syndicate, which included BMO Nesbitt Burns Inc. and TD Securities Inc. The action alleges secondary market misrepresentation and stock options manipulation.

At the time the action was commenced, Siskinds was acting for the Bank of Montreal and TD Bank in respect of certain consumer mortgage enforcement actions and personal bankruptcies. BMO Nesbitt Burns and TD Securities Inc. brought a motion to remove Siskinds as counsel of record, alleging that Siskinds' relationship with their parent banks created a conflict of interest. They alleged that Siskinds was in breach of its duty of loyalty to the banks.

Justice Joan Lax of the Ontario Superior Court of Justice dismissed the motion on January 6, 2009. She found that the underwriters and banks are separate and sophisticated legal entities that are individually governed and autonomous. They are not alter egos of one another. She found that the banks could have, but did not, seek any restrictions in their retainers with Siskinds to prohibit it from acting against their subsidiaries. The banks had no reasonable expectation that their subsidiaries would be treated as clients.

On the issue of confidential information, Justice Lax found that the duty of confidentiality can extend to “near-clients,” and non-clients when they have disclosed confidential information to a lawyer in the course of a retainer. However, she concluded that there was no realistic possibility that Siskinds received, or could have received, confidential information relevant to the putative class action in the course of its retainers with the banks. Any suggestion that Siskinds gained strategic knowledge of the banks' practices on risk tolerance, litigation strategy or settlement approach was, she found, “fanciful.”

Justice Lax found that there may be situations where the duty of loyalty will require a lawyer not to act against an affiliate to protect its relationship with the client, but this was not such a case. She concluded that the allegation of conflict in this case was tactical, and raised the spectre of imposing exaggerated and unnecessary client loyalty demands, which would have serious and unwelcome consequences for access to justice and the right of a litigant to counsel of his or her choice.

Earl A. Cherniak, QC, and Jasmine T. Akbarali of Lerners LLP acted for the plaintiff on this motion. Michael Peerless, A. Dimitri Lascaris and Scott Selig of Siskinds LLP are counsel to the plaintiff in the putative class action.

The underwriters were represented by Ronald G. Slaght, QC, Mark Veneziano and Jordan Goldblatt of Lenczner Slaght Royce Smith Griffin LLP. C. William Hourigan and Laura F. Cooper of Fasken Martineau DuMoulin LLP represented Gammon Gold Inc. and its named officers and directors, but their clients took no position on the motion.