The Bright Line Rule: The SCC Reconsiders Its Approach To Conflicts Of Interest

In a recent decision, Canadian National Railway Co. v. McKercher LLP, 2013 SCC 39, the Supreme Court of Canada revisited the "bright line" rule that applies to conflicts of interest among current clients. This rule, which was first articulated in R. v. Neil, [2002] 3 S.C.R. 631, provides that:

"... a lawyer may not represent one client whose interests are directly adverse to the immediate interests of another current client — even if the two mandates are unrelated — unless both clients consent after receiving full disclosure (and preferably independent legal advice), and the lawyer reasonably believes that he or she is able to represent each client without adversely affecting the other." (Neil, para. 29; emphasis in original)

The Supreme Court's decision in McKercher will be important for the legal profession across Canada. Perhaps most significantly, the Court clarified the scope of the bright line rule. In particular, the Court held that the rule is engaged only where the immediate interests of clients are directly adverse in the matters on which the lawyer is acting, and that the rule does not apply in unrelated matters where it is unreasonable for a client to expect that its law firm will not act against it. Additionally, the Court held that, even when the rule is engaged, disqualification is not automatic and should only be ordered when necessary (1) to avoid the risk of improper use of confidential information, (2) to avoid the risk of impaired representation, and/or (3) to maintain the repute of the administration of justice.

Background and Decisions Below

As discussed in two earlier posts (here and here), Gordon Wallace is the plaintiff in a proposed class action against the Canadian National Railway ("CN") and other defendants with respect to alleged overcharging of farmers for grain transportation. $1.75 billion in damages are sought. The McKercher firm represents Wallace.

At the time that McKercher accepted the retainer from Wallace, it was acting for CN on a few unrelated matters. Accordingly, CN—a "current client" of McKercher—moved for an order disqualifying McKercher from representing Wallace in the proposed class action.

The motion judge, Justice Popescul (now Chief Justice of the Saskatchewan Court of Queen's Bench), granted CN's motion and disqualified McKercher on two bases. Firstly, Justice Popescul held that there was a substantial risk that McKercher's representation of CN was materially and adversely affected by its...