The 'Bright Line' Rule Is Dimmed By The Alberta Court Of Appeal In Statesman

Joint retainers are common in modern legal practice. But what happens when a dispute is brewing between two parties represented by the same law firm? How is a lawyer to know when the "bright line" of conflict of interest has been crossed? And when the duty of loyalty to a client is breached, when is disqualification of the law firm an appropriate remedy? The Alberta Court of Appeal addressed these issues in Statesman Master Builders Inc v Bennett Jones LLP, 2015 ABCA 142 ("Statesman").

1. Background

   Matco Investments Ltd. ("Matco") had used the same law firm (the "Law Firm") for over 25 years. Matco entered a partnership (the "Partnership") in 2006 to build condominiums in Calgary with the Statesman Group of Companies ("Statesman").

   In 2008, a third party contractor filed builders' liens against the condominium project. Matco and Statesman asked the Law Firm to represent the General Partner in the builders' lien dispute. The Law Firm agreed, but first emailed to Statesman's general counsel the following:

   As discussed, Matco is an important client of our firm, and I want to be careful that by this retainer we do not disqualify ourselves from assisting Matco in what I trust is the unlikely event of disagreement between it and the Statesman group in future. I confirm our agreement that this retainer is sufficiently limited in scope that you will take no objection to our continued freedom to act for Matco in such event.

   The Law Firm confirmed the limited scope of retainer with Statesman two more times in the subsequent two years. In late spring 2010, Statesman asked the General Partner to terminate the retainer with the Law Firm. The applications judge found that the Law Firm acted for the General Partner and Statesman until June 24, 2010.

   Around the same time, a dispute arose between Statesman and Matco. On June 21, 2010, Matco served a notice attempting to terminate the General Partner. On July 8, 2010, Matco commenced an oppression action against Statesman. The Law Firm represented Matco throughout. Statesman objected to the Law Firm representing Matco in the oppression action.

2. Decision at First Instance

   At first instance, the case management judge held that the Law Firm had breached its duty of loyalty to Statesman and should be disqualified from representing Matco in the oppression action. The judge held that the Law Firm ought to have told Statesman prior to June 21, 2010 that it was representing Matco in a dispute involving the...