The case is Stewart v. Hosack, and the essential facts aren't particularly complicated: The defendants are lawyers. Stewart, her husband (Tank) and their company (JS) were long-time clients of the firm, and in particular of Bob Nightingale (now Justice Nightingale). On August 12, 2012, a former employee of JS was charged with uttering a death threat to Ms. Reece, and Mr. Hosack, assisted by the firm's criminal lawyer Mike McArthur, accepted a retainer to defend Ms. Reece in the criminal proceedings.
Suffice it to say that Ms. Stewart was not thrilled to discover that her own lawyers were defending the woman who allegedly threatened her life.
More Background
It's a little more complicated than that, of course: There's some issue as to whether she had any active files into 2012. There were a couple of real estate files, but the lawyers claim that Stewart's husband was the sole client on those matters. And then there are some question about the circumstances in which those retainers were terminated. (It almost sounds like an employment law file: Why did you fire us as clients?") The judge ultimately concluded that Stewart was a client on the real estate files, and that the matters were terminated as a result of the Reece file.
And the facts get delightfully convoluted indeed when you bear in mind the 'small town' factor - it all took place in Norfolk County, where I practiced for a time, earlier in my career. (So yes, I personally know most of the lawyers involved here. There really aren't many lawyers in town, and very few firms, so conflicts of interest can get a bit tricky. The reality is that if Hosack and McArthur didn't defend Reece, there were only a few other lawyers in the community to whom she could have gone.)
By way of 'small town' factor elements, the death threat in question was allegedly made at the Norfolk Tavern in Port Dover, of which Hosack is a part owner. (As an unrelated piece of trivia, I understand that McArthur is a partial owner of a local winery. Lawyers and alcohol, eh?) There was an allegation that Hosack "withheld for a time" video evidence of the incident giving rise to the charge(s) against Ms. Reece, on the basis that he had immediate access to the Norfolk Tavern's video surveillance system. (This appears to me to be likely a frivolous allegation, but I won't go into detail on that at the moment.)
After the Crown threatened to bring a motion to disqualify the firm because of the supposed conflict of interest, the firm helped Reece obtain new counsel. Later, the charges were withdrawn by the Crown, for "no reasonable prospect of conviction".
Ms. Stewart, for her part, sued the firm, alleging a breach of fiduciary duty.
The Court's Findings
As I noted above, the Court concluded that Stewart was, in fact, an ongoing client of the firm when the firm took on the Reece retainer. However, on the question of whether or not that generated a conflict of interest, the Court concluded that it did not: Ms. Stewart was not actually a party adverse in interest: though an alleged 'victim' in the criminal proceedings, victims are not parties, and do not typically have an interest in the outcome of the proceedings. As well, none of Stewart's confidential information, coming out of the solicitor-client relationship, was relevant in the criminal proceedings.
However, "there is still no doubt that Ms. Stewart has been badly treated by the firm", primarily because they unexpectedly terminated her retainers as a means of circumventing conflict of interest rules, and thus they breached their duty of loyalty, and their duty of candour by "failing to disclose their intention to represent Ms. Reece and allow Ms. Stewart to make her own decisions about continuing her retainer with the firm or going elsewhere." Justice Lemon concluded that the refusal to act for her, on those circumstances, constituted a breach of fiduciary duty.
However, no damages flowed. On the facts, she established no damages, and no entitlement to punitive damages: "If there were a conflict, it was one upon which reasonable people might disagree." The breach of fiduciary duty was not based on profit, but simply an error of judgment. In finding that Stewart's emotional consequences were not compensable, the Court quoted the following passage from Taerk:
As I explained to Plaintiffs' counsel at the hearing, a court cannot order the Defendants to be nice to the Plaintiffs. Litigation must focus on legal wrongs and legal rights - commodities which are in very short supply in this action. As my colleague Perrell J. put it in High Parklane Consulting Inc. v. Royal Group Technologies Ltd., "[i]t is trite to say that living is a stressful activity and that much of life can be nasty and brutish. Tort law does not provide compensation for all stress-causing and nasty conduct that individuals may suffer at the hands of another..."Accordingly, the action was dismissed. (However, there may be LSUC proceedings ongoing.)
Commentary
The judge's reasoning on the conflict of interest issue, on the facts as set out, appears to be sound. I can certainly imagine cases where the issue might fall the other way, though. It's not hard for me to imagine a scenario where an employer might actually have an interest in the resolution of criminal charges against a former employee, though I'm not sure it's really legitimate to allow that to make the employer an interested party. In this case, it would be particularly strained, as the employer is discrete from the victim, and the alleged criminal conduct arose post-employment. Likewise, it isn't hard to imagine a case where a criminal defence might be able to make use of confidential solicitor-client communications involving the victim, but that doesn't appear to have been the case here.
Thus, on these facts, I think the judge is right that there's no conflict.
That being said, I find it difficult to reconcile that finding with the conclusion that there was a breach of fiduciary duty, and in particular of the duty of candour.
Accepting, for a moment, that they were not prohibited by the Rules of Professional Conduct's conflict of interest rules from taking on the Reece retainer, it's hard to see how taking it on would have generated additional duties on the lawyers in connection with Stewart. If the Reece retainer does not generate a conflict, then no consent is required by Stewart for them to take it on...and as for the finding that Stewart should have had an opportunity to decide whether to stay with the firm in light of the Reece retainer, that can't be right: The implication would be that a client is entitled to know what new retainers an existing firm is taking on - entitled to know the identities of the firm's other clients. For the non-lawyers in the audience, the very existence of a solicitor-client relationship is confidential and subject to solicitor-client privilege. For the firm to tell Stewart, as Justice Lemon seems to think they should have, "We're taking on Reece's defence" would have straightforwardly violated their professional obligations to Reece.
"How do you obtain consent without telling clients about each other?" is an age-old catch-22 for lawyers trying to resolve a conflict of interest. If I have two clients adverse in interest, then even if I think that they might consent to me acting for both, how do I even approach the subject without breaching the other's confidentiality? The answer is often "I can't", and therefore I have to stop acting for one or both while telling them nothing beyond "a conflict of interest has arisen". However, in this case, if there's no conflict of interest, then there's actually no legitimate reason to decline the Reece retainer, and no good faith reason for them to turn Reece down.
The finding that the firm treated their client unfairly is, perhaps, entitled to deference as being mostly a finding of fact (i.e. that they fired a client suddenly and unexpectedly because they took on a different client), but the extension of that to a finding of breach of fiduciary duty is based on the premise that "a law firm should not summarily and unexpectedly terminate a retainer as a means of circumventing the conflict of interest rules".
That premise is sound, but the conclusion does not necessarily follow: If there was no conflict of interest, then why would the firm need to circumvent conflict of interest rules? Moreover, that principle seems more apt to a scenario of a new (better?) client walking in the door, and the lawyer firing an existing client with an adverse interest in order to be able to take on the new retainer. That's kind of different from what appears to have happened here, even on Stewart's theory of the case.
*****
This blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer.
The author is a lawyer practicing in Newmarket, primarily in the areas of labour and employment law and civil litigation. If you need legal assistance, please contact him for information on available services and billing.
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