Tom Jarmyn

State of Mind and Privilege

This decision from the BC Supreme Court in the matter of Canadian Community Reading v. Ewanchyna et al., canvasses two issues: 1) can there be a partial waiver of privilege; and, 2) what happens when a party puts its legal state of mind in play.

Ewanchyna was a member of the Board of the Canadian Community Reading Plan (CCRP).  CCRP was attempting to decide whether to negotiate the sale of a portion of its business to a competitor.  Ewanchyna was unhappy with this and consulted counsel.  That counsel commenced a petition alleging oppression which was discontinued three weeks later.  CCRP commenced an action against Ewanchyna alleging that he had disclosed confidential information, violated his fiduciary duty as a director and adversely affected the sale prospects of CCRP.  Ewanchyna defended on the grounds that the petition was filed by mistake and without his instruction.

CCRP sought production of a number of document and communications between Ewanchyna and his solicitors.  Ewanchyna disclosed some documents in redacted form but, in general, resisted the application.  One of the interesting things to note is that Ewanchyna appears to have been represented in this application by the same solicitors who are alleged to have mistakenly filed the position.  Given that is their advice, actions and evidence that are at the heart of the matter I am surprised that they tried to stay on the record.

In responding to the application Ewanchyna did not file an affidavit testifying that he did not give instructions to file the petition.  

The court concluded two things: 1) it is not possible to partially waive privilege.  Once it is waived it is gone; and, 2) when a party puts their legal state of mind into issue then all of the advice that goes into the making up of that legal state of mind is in play.  

New Cdn Bar Association Report on Conflict of Interests

I am just in the process of digesting the report of the CBA Task Force on Conflicts of Interest.  But my first gut reaction is that the CBA, having had their submissions largely ignored by the Supreme Court of Canada in Neil and Strother, is trying to put the genie back in the bottle.  It seems that they have done some good work on duties after termination of a retainer which was really undefined.  But I am afraid that they have really undone that good work by trying to assert the proposition that lawyers can act against current clients.

At p. v of the report the task force falls for an amendment to law society rules that would:

4.   provide that a lawyer may act in a matter which is adverse to the interests of a current client provided that:
     a. the matter is unrelated to any matter in which the lawyer is acting for the current
client and
     b.  no conflicting interest is present;

This is unreasonable.  Lawyers should not be permitted to act against the interests of present clients.  Simply by virtue of that representation a lawyer gains personal information about his/her client.  S/he learns about frailties and sensitivities.  S/he also cannnot be certain that the matters will not be related at some time in the future. 

I could understand a rule that attempted to deal with a situation where it was not apparent that the interests were adverse and therefore a benchmark needed to be established as to how and when a lawyer would be required to terminate a relationship or carry on.  But establishing a broad rule that permits a lawyer to act against a current client is over the top.  I presume then, that if a lawyer acts against a current client on the grounds that there is not conflict of interest and that lawyer turns out to be wrong, that the lawyer will be prepared to reimburse all of the fees paid and be responsible for the damages flowing from their misjudgment.

The other part of the discussion about engagement letters was essentially - really good idea but we are not certain that it would be convenient for lawyers.  Funny, I used engagement letters for all of my clients.

Conflict of Interest

Lubs v Ahmad is a decision of the Saskatchewan Queens Bench on the issue of conflict of interest.  The plaintiff Lubs was married to Marc Baltzan until 1980 when they separated and entered into a detailed separation agreement.  Baltzan then married the defendant Ahmad.  The plaintiff alleges that before Baltzan died Ahmad induced him to breach the separation agreement and that she received a benefit as a result of those breaches.

The detailed separation agreement was drafted by Tom Gauley.  The Plaintiffs retained the firm of MacDougall Gauley to represent her in the litigation.  MacDougall Gauley put in place practices to ensure that Tom Gauley received no information and the evidence was clear that all of the files with respect to the drafting of the agreement had been destroyed.

MacDougall Gauley received notice of the alleged conflict and went to the Law Society's ethics committee to get an advisory opinion on this.  A majority of the committee was of the opinion there was no conflict and the plaintiffs choice of counsel should be deferred to.

I find this conclusion astonishing.  The practical reality is that the terms of the agreement were going to be in play in the litigation.  The fact that Baltzan had died meant that one of the only sources of information with respect to Baltzan's state of mind when he entered into the agreement was Gauley.  This is the best evidence of the understanding of the agreement.  The other issue is that it is plain that Gauley would have confidential information about Baltzan's assets and affairs.

Ahmad made an application to Court to disqualify MacDougall Gauley.  The court concluded there was a conflict and that this condition could not persist.  The court agreed that chinese walls were a useful tool but they were a tool to be used to ameliorate a conflict that had arisen and not something that should be used to create a situation where a conflict could exist.

Why must a lawyer keep information confidential?

An individual is charged with a crime.  A lawyer's client tells him/her a piece of information prior to trial.  That information will establish the guilt of the client.  The lawyer is not permitted to disclose this information to anyone.  Why not?

The Crown calls a witness who testifies to the critical event.  The client directs the lawyer to impeach the witness even though he knows that the witnesses testimony is correct.  Should the lawyer proceed to impeach the witness?

I am going to try and work through these issues over the next few days.

Non-Competition Clauses

Hargraft Schofield v Schofield et al is a November 2007 decision from the Ontario Superior Court of Justice regarding non-competition clauses and an application for an interim injunction giving effect to a non-competition clause.  The Plaintiff, Hargraft Schofield (HS) was an insurance company that had purchased the business of John Schofield for a substantial sum of money.  The agreement of purchase and sale stipulated a three year non-compete for Mr. Schofield.  Mr. Schofield's employment was extended twice by agreement between the parties.  There was falling out and Mr. Schofield left HS in November 2006 and joined a competing insurance business owned by his wife (also a former employee of HS).

The Court adopted the reasoning in Singh v 3829537 Canada Inc (2005) which said that in an application to enforce a non-competition clause in an agreement of purchase and sale the court is simply enforcing a contractual term and therefore the moving party need only show a strong prima facie case and not irreparable harm and that the balance of convenience favours an injunction. 

(19)  The basis of upholding the negative covenants without inquiring as to the question of damages and the balance of convenience is that the court is merely upholding a contract entered into between two parties of equal bargaining power.

The Court then goes on to say that it is interested in whether the covenant is reasonable in the interests of the parties and the public and places the onus on the moving party of establishing this.  It also notes that the ambiguity in the clause is construed against the drafter of the clause.

Despite finding that irreparable harm is not a necessary consideration the Court did conclude that the moving party would suffer irreparable harm as a result of the actions of the defendant.  This was found even though the Court also concluded there was no risk that HS would go out of business if the injunction was refused.

The essence of the decision is that the injunction was merited because the language of the covenant was plain and obvious, the deal was honoured for a period of time by both sides, the plaintiff was suffering clear harm and the defendants had an alternate field of business they could pursue.  In order to bullet proof the decision the Court went further and concluded that the plaintiff would suffer irreparable harm if the injunction was not granted and that the balance of convenience also was in favour of granting the injunction. 

While the Court did note that there was a triable issue related to whether the non-compete was extended at the same time as the employment agreement one cannot help but be struck by the clear decision in favour of the injunction.  The inescapable conclusion is that the defendant came off very badly in the evidence that was before the Court.

Disclosure of Information

Jack Goldsmith was the head of the Office of Legal Counsel in the White House and has written a book called the Terror Presidency in which he discusses his tenure and in particular the issues arising from the so-called 'Torture Memo'.  The ethical issues arising from a lawyer writing a book about his tenure as legal counsel, his advice and events in which he as involved are discussed in some detail at Legal Ethics Forum and in detail here by Michael Paulsen at Balkinization.

People at focal points in history often want to make the case regarding their involvement and the decisions they made - Lawyers (particularly those who are explicitly acting as legal counsel) are greatly limited in what they can do.  Contemporary recitations like Mr. Goldsmith's are very problematic as they must relate legal advice and analysis that are current and often provide context based upon conversations and events that the author would not have been privy to if that person was not a lawyer.

As time passes this becomes less problematic (particularly as others write books or the events become commonly known) but writing this book four years after the events that form its basis is questionable.

Fiduciary Duty Persists

Skerpjen v Johnson is a decision from BC regarding fiduciary duties.  In this case the applicant had retained the law firm on a number of unrelated proceedings.  The last two (most recent) retainers were litigation around the breakdown of business relationships.  Both retainers seemed to be relatively complicated.  This action also related to the breakdown of the business relationship.

The Applicant said that the lawyers had gained detailed confidential information about him, the way that he conducted litigation, his tolerance for risk and his business interests.  His evidence related directly to the factors listed in Macdonald v Martin Estate.  The Court concluded that while the matters were unrelated they were sufficiently similar that "...the disclosure falls within a category of confidential information that might permit the law firm to take advantage of him in the current litigation" (para 25).  As a result the court found that the fiduciary duty of the firm to the lawyer was breached by their acting against him.

Fiduciary Duty

The decision of the BC Court of Appeal in Foreman v Chambers is interesting in that it endorses the commonly held, but not often articulated, view that acute vulnerability and dependence are not alone sufficient to give rise to a fiduciary relationship.  The relationship must be “in the context of a sufficiently valuable or necessary social or economic interaction of high trust and confidence” (quoting the monograph of Professor Rotman Fiduciary Law (2005)).

As noted by the Court individuals are in a whole series of relationships where they are absolutely dependent upon the other person and his/her failure would have dramatic consequences - the Court adopts the example of the mechanic - but if the relationship is going to be labelled as fiduciary it has to be something where trust and confidence are necessary.  I suggest that anything where a detailed opinion is going to be provided based upon technical or specialized expertise and then the recipient will make a decision of significant economic consequence will likely be fiduciary.