The case against two of Conrad Black's former lawyers accused of breaking conflict-of-interest rules is based on a "serious misunderstanding" of the law, their disciplinary hearing was told on Thursday.
The Law Society of Upper Canada accuses Beth DeMerchant, now retired from Torys LLP, and Darren Sukonick, still with the firm, of professional misconduct for their role in the sale of Lord Black's Hollinger newspaper empire in 2001.
The allegations centre on the $80-million handed to Lord Black and some of his key executives in controversial "non-compete" payments. The Law Society alleges that the two lawyers violated the profession's conflict-of-interest rules while acting for Lord Black and his executives as well as Hollinger International Inc. and its subsidiaries in the deal.
In his opening statement, Ms. DeMerchant's lawyer, Philip Campbell, told the three-member disciplinary panel that the pair were "excellent lawyers with excellent ethical standards."
Mr. Campbell said the non-compete payments were only a small part of the massive deals to sell Hollinger newspapers to CanWest Global Communications Corp. and Osprey Media Holdings Inc.
"These are garden-variety transactions … to which they brought to bear the standards in which they were trained and in which Bay Street, the milieu in which they were trained, practises and has always practised," Mr. Campbell said.
He acknowledged that on the issue of the non-compete payments, the interests of Hollinger and its subsidiaries were clearly opposed to those of Lord Black and his executives. But he argued that a "commercial conflict" between two clients doesn't on its own mean a lawyer acting for both is caught in a conflict of interest.
Only when a conflict actually impairs the ability of a lawyer to do his or her job properly, or causes a lawyer to prefer one client's interests over another, should it be considered a conflict-of-interest, he said. Mr. Campbell said the interpretation of the rules implied by the Law Society's allegations would represent a "seismic shift" in what was expected of corporate counsel.
Noting that Hollinger, Lord Black and his executives were "sophisticated clients," he said Ms. DeMerchant and Mr. Sukonick were not asked to approve the non-compete payments or other major business aspects of the deals. He said they did advise that the payments be flagged for the audit committee of Hollinger International's board in Chicago, which was supposed to ensure that such "related-party transactions" were fair to all shareholders.
The disciplinary hearing, which was supposed to start in April, has been hit by repeated delays. First, the two sides squabbled over the last-minute discovery of more than 160 boxes of key Torys LLP files on the CanWest deal. Then, Law Society lawyers, trying to avoid having to hold a closed-door hearing, scrambled to secure waivers of solicitor-client privilege from the Torys lawyers' former clients. (Lord Black refused.)
If the two lawyers are found to have broken the rules, they could face fines, suspensions, or be banned for practising law. The hearing is to continue Friday and then resume in September.