It was, according to Canadian National Railway Co., a "betrayal." A law firm in Saskatchewan doing work for CN turned around and filed a potential class-action case against the railway and other defendants in 2008, demanding up to $1.75-billion on behalf of 100,000 Western farmers who were allegedly charged too much for grain haulage.
On Friday, the Supreme Court of Canada will release its ruling in the much-watched fight, not over the overcharging allegations, but over the railway's attempt to have Saskatchewan firm McKercher LLP disqualified from acting for the farmers against CN.
Lawyers across the country expect the decision to clarify what critics say are the murky rules that govern when a law firm can and cannot act for a client against another of its current clients – rules that have been the subject of intense debate for more than a decade.
With most large firms employing dedicated staff to do detailed conflict checks before they take on new clients, and national firms continuing to get bigger – potentially multiplying the risk of conflicts – clearing up the confusion is a key issue for lawyers on Bay Street and beyond.
"I don't think they could make it more confusing than it is already," said Scott Jolliffe, chairman and chief executive officer of Gowling Lafleur Henderson LLP, who chaired a Canadian Bar Association task force on the conflict issue. "… I think we are bound to see some clarity come out of this decision."
The current debate over conflict rules began with the 2002 Supreme Court decision in R. v. Neil, which appeared to establish what the court called a "bright line rule" that bars a law firm from acting for a client whose immediate legal interests directly clash with any of the law firm's other current clients – even if the two matters at issue are unrelated – unless both clients consent.
But critics say the complex ruling, and another on lawyer conflicts from 2007, attempted to import a U.S. rule – foreign to the established practice in other Commonwealth countries – and created confusion in the profession.
The rulings also prompted a clash between the Federation of Law Societies of Canada, the umbrella group for the legal profession's provincial regulators, and the Canadian Bar Association, which speaks out for lawyers. The bar association argued for a more flexible rule that would declare a conflict only if there was a "substantial risk" that a client's interests would be affected.
In the case at hand, CN argues that McKercher owed the railway a "duty of loyalty." CN initially won before a lower court but lost its bid to have McKercher tossed off the case before the Saskatchewan Court of Appeal. Both lower courts still described McKercher's actions as an ethical breach.
The lawyer acting for CN, Douglas Hodson of MacPherson Leslie & Tyerman LLP in Saskatoon, told the Supreme Court in oral arguments in January that McKercher's move was a "betrayal." He declined to comment for this story.
McKercher, which retained former Law Society of Upper Canada treasurer Gavin MacKenzie, argued that it was acting for CN only on a few completely unrelated files, such as a "dormant" defence to a personal-injury claim. It argued that CN is so big and sophisticated – using 50 to 60 law firms – that it cannot expect all of them to avoid taking cases against it. To rule otherwise would unfairly limit a plaintiff's ability to find a suitable law firm to take on the railway, McKercher argued.
McKercher also argued that no confidential information from CN was involved, although the railway argued that it is unfair for its opponent to have so-called "playbook" information about litigation strategies.
"It's an issue that's far broader than the immediate dispute between the parties," said McKercher partner Joel Hesje, the lawyer at the centre of the case. "It's an issue of considerable concern to the whole profession."
Lawyer Malcolm Mercer of McCarthy Tétrault LLP, who made the bar association's case before the Supreme Court, said a strict approach as advocated by CN and others would invite large corporations or governments that use dozens of law firms to make "tactical" use of conflict rules.
For example, they could spread legal work around to ensure that top-tier law firms cannot work for their opponents. Or they could engage in what are called "beauty contests" to interview a wide range of prospective law firms for a retainer, simply to disqualify them from acting for the other side.
"Over-broad rules apply where they shouldn't," Mr. Mercer said in an interview. "Maybe there are times when you have to have an over-broad rule because you don't have a better alternative. This isn't one of them."