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Appeal panel rules Hollinger Group lawyers were not in conflict of interest

Conrad Black exits an Ontario Securities Commission hearing in Toronto on Monday October 6, 2014.

aaron vincent elkaim The Globe and Mail

The conflict-of-interest allegations that have hung over two former lawyers for Conrad Black's Hollinger Group for almost a decade have been tossed out a second time, in a ruling by a Law Society of Upper Canada appeal panel.

Lawyers Darren Sukonick, still with Torys LLP, and Elizabeth DeMerchant, who has since retired from the firm, were first exonerated last year by a three-member law society discipline panel. They were then awarded $500,000 in legal costs in a subsequent decision that also chastised the legal regulator for continuing to pursue the pair despite having "no reasonable chance of success."

The law society, which regulates lawyers in Ontario, appealed the ruling. But on Wednesday, a five-member appeal panel upheld the original decision's finding that the law society had failed to establish a single conflict of interest in any of the transactions involved in the case.

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The long-running saga centred on a series of controversial deals beginning with the $80-million in "non-compete payments" reserved for Hollinger companies and executives in the $3.8-billion sale of much of Mr. Black's newspaper empire to CanWest Global Communications Corp. in 2000. Mr. Black, who was later convicted of fraud and obstruction of justice in the United States, pocketed $19-million.

After a four-year investigation that began in 2006, the law society alleged that Mr. Sukonick and Ms. DeMerchant acted in a conflict of interest by offering advice to the executives on these payments while working for Hollinger. The advice included whether the payments would be tax exempt, since they benefited the executives at the expense of Hollinger's other shareholders. Ethical rules prohibit lawyers from acting for two clients with adverse interests.

However, the appeal panel ruled on Wednesday that the law society failed to show that the lawyers' "judgment or loyalty" to Hollinger was impaired by the interests of another client, concluding that the relationships with Hollinger executives did not create a conflict.

The case is not over yet, as both sides appealed the decision from last year awarding the two lawyers $500,000 in costs. (They had demanded $3.6-million.) Both sides agreed that those arguments should be heard after the appeal panel ruled on the allegations in the case.

While it agreed on the outcome, the appeal panel took issue with key points in the original discipline ruling, dismissing the notion that lawyers would rarely be in a conflict of interest on a transaction if the lawyer advises on legal, and not commercial, issues and the idea that the "general practice in a sector of the legal community may determine the standard for finding a conflict."

Philip Campbell, a lawyer for Ms. DeMerchant, said his client is relieved that the ordeal appears to be at an end, with eight elected benchers of the law society on the two disciplinary panels agreeing his client did nothing wrong: "It has gone on for over nine years and has consumed her practice and affected her life in every dimension."

Ian Smith, who acts for Mr. Sukonick, said the ruling's "unequivocal" finding that there was no conflict of interest comes after a near-decade long battle that clearly damaged his client's career: "These lawyers … come out of this ruling as they actually are, and that is as fabulous lawyers who did great work for a difficult and complicated client in difficult and complicated circumstances."

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The law society has the right to appeal the ruling to Ontario's Divisional Court, but would not say on Wednesday if it would do so.

"This decision by the appeal panel provides a valuable clarification of the principles of the law," law society spokeswoman Denise McCourtie said in an e-mailed statement. "We are reviewing the reasons respecting the application of those reasons to the facts in this case."

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