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Nortel fraud trial to hear from lawyers for accused

Lawyers for Nortel’s former chief financial officer Douglas Beatty and its CEO have been subpoenaed.

Fernando Morales/: The Globe and Mail/Fernando Morales/: The Globe and Mail

The fraud trial of three former Nortel Networks Corp. executives will hear this week from a most unusual group of witnesses: the lawyers for the accused.

The Crown has subpoenaed three lawyers who represented Nortel's chief executive officer Frank Dunn and chief financial officer Douglas Beatty in 2004, when they were being investigated and then subsequently fired from the company. The Crown wants to question them about interviews their clients gave in 2004 to investigators hired by Nortel's board to probe accounting irregularities.

By all indications, the lawyers – including prominent Bay Street veteran Tom Heintzman – are not happy about being subpoenaed to testify for the Crown. At a pretrial hearing last June, the accused unsuccessfully fought an attempt to have their lawyers added to the witness list.

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Crown attorney Robert Hubbard has already alerted trial judge Frank Marrocco that the lawyers have since refused to comply with a subpoena asking for their notes of the interviews with investigators.

Both the Crown and defence told Judge Marrocco they anticipate there will be an argument over producing the notes at the trial on Tuesday, signalling there may finally be a modicum of tension at the long-running trial, which so far has been almost entirely lacking in fireworks.

The trial of Mr. Dunn, Mr. Beatty and former controller Michael Gollogly began in January and has so far heard evidence only from former Nortel employees. The men are accused of manipulating Nortel's accounting reserves in 2002 and 2003 to push the company to profitability and trigger payouts under a special "return to profitability" bonus plan.

Lawyers for the men have denied the allegations and have argued they believed the use of reserves was appropriate.

The Crown's unusual decision to call the lawyers who represented Mr. Dunn and Mr. Beatty in 2004 stems from pretrial legal rulings last year before the fraud trial began.

Mr. Justice Ian Nordheimer of the Ontario Superior Court ruled last year that the Crown could not enter as evidence the investigative report prepared for Nortel's board by U.S. law firm Wilmer Cutler Pickering Hale & Dorr LPP. A summary of the report, released by Nortel in January, 2005, lays out Wilmer Cutler's conclusions about accounting problems that occurred at Nortel while the company was under the leadership of Mr. Dunn and Mr. Beatty.

Judge Nordheimer concluded the report was filled with conclusions that did not meet the tests for evidence in a criminal trial.

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The Crown, however, is particularly keen to introduce evidence about comments made by Mr. Dunn and Mr. Beatty in interviews with Wilmer Cutler for the preparation of the report.

Mr. Hubbard, who is leading the Crown team at the trial, told Judge Marrocco last Wednesday that the pretrial decision blocking the use of Wilmer Cutler's work meant the Crown concluded it would have to find another way to introduce evidence about the interviews, and decided instead to call other people who witnessed them – the lawyers who were present to represent the accused.

University of Toronto business professor Richard Powers, who is also a lawyer, said the Crown's move to call the lawyers is an extremely unusual tactic in a criminal case, but the circumstances surrounding the interviews and the notes are unusual.

"I've never heard of lawyers being asked to testify against their clients," Mr. Powers said. "You'd just assume it would be covered by solicitor-client privilege, so that sort of stuff never comes out."

The Crown has argued the lawyers are not protected under solicitor-client privilege in this case because they are not being asked about conversations they had with their clients.

However, defence lawyer David Porter, who is representing Mr. Dunn, told Judge Marrocco last week that the lawyers being called to testify will cite "litigation privilege" in their refusal to hand over the notes of the interviews.

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The term litigation privilege typically refers to protection from disclosure of documents that were prepared by experts for use in lawsuits.

Mr. Hubbard also told Judge Marrocco that if the lawyers don't have to hand over their notes, he will argue he has the right to use the Wilmer Cutler report to prompt the lawyers about what was said in the interviews, even if he cannot introduce the report itself as evidence.

"If they do not produce their notes and the only stimulus is the [Wilmer Cutler]document, then I have the right to refresh their memory with it, even if it is not admissible," Mr. Hubbard said.

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Real Estate Reporter

Janet McFarland is the real estate reporter for The Globe and Mail’s Report on Business, with a focus on residential real estate trends. She joined Report on Business in 1995, and has specialized in reporting on corporate governance, executive compensation, pension policy, business law, securities regulation and enforcement of white-collar crime. More

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