Case a Reminder Law Firms Must Have Comprehensive Conflict Systems

A Federal Court judge, citing Lawson Lundell LLP’s failure to take adequate or timely measures to prevent information confidential to a dispute from being shared internally in the face of a conflict of interest, has disqualified the firm from acting on judicial review applications against the party to whom the information belonged.

The twist in the case (GCT Canada Limited Partnership v. Vancouver Fraser Port Authority 2019 FC 1147), is that GCT Canada Limited Partnership, the party that successfully sought Lawson’s removal, was never a client of the firm. GCT claimed that Lawson’s conflict of interest arose because it gained access to confidential matters about issues relevant to the judicial review application in the context of a due diligence review on behalf of the British Columbia Investment Management Corporation (BCI), which was considering acquiring a minority stake in GCT.

“The case is a reminder that law firms must have a comprehensive conflicts system in place, one that records not only the names of clients but other parties from whom confidential information may have been derived,” said Gavin Mackenzie of MacKenzie Barristers Professional Corporation in Toronto, a prominent expert on legal ethics. “And when a name comes up that could give rise to a conflict, the firm must ascertain whether it has confidential information and what can be done about it.”

The conflicts issue arose in the context of a dispute between GCT, the Vancouver Fraser Port Authority (VFPA) and the Attorney General of Canada about a proposed expansion of Vancouver’s container port.

VFPA wore several hats in relation to the port: it was the landlord who leased facilities to various tenants, including GCT; it was one of the port’s “regulators”; and it was a proponent and developer of the port.

In its role as proponent and developer, VFPA had been seeking approval from the Canadian Environmental Assessment Agency (CEAA) for the expansion. GCT opposed the project as it wanted to proceed with its own expansion project.

In its role as regulator, VFPA denied approval for GCT’s project. GCT sought judicial reviews of the VFPA’s decision.

Lawson had acted for VFPA since 2014 both in the environmental process and with regard to its decision to deny approval for GCT’s project. The firm continued its representations on the judicial reviews.

In April 2018, while the port expansion proceedings were extant, BCI hired Lawson to perform due diligence on its proposed acquisition of an interest in GCT. GCT released confidential information under the terms of a comprehensive confidentiality agreement. It contained an addendum requiring professional advisers to acknowledge that members of the due diligence team would not provide any other services to VFPA and that the firm would establish “the customary information barriers” to prevent disclosure of the confidential information to any in the firm not involved in the due diligence review.

Justice William Pentney noted that the confidentiality rules did not require a direct solicitor-client relationship between the law firm and the party complaining of the conflict. As he put it, the proper question was “Did the lawyer receive confidential information attributable to a solicitor and client relationship relevant to the matter at hand?”

In this case, the answer was in the affirmative.

“There is no dispute that GCT was never a ‘client’ of Lawson,” Pentney wrote. “In this case, however, I find that the conflict rules do apply to Lawson because GCT imparted confidential information to Lawson in the context of a solicitor-client relationship between Lawson and BCI. Indeed, the very nature of the BCI retainer required Lawson to examine confidential and proprietary information about GCT in order to provide advice to its client. … I accept that the [conflicts] rules must be considered and applied with a degree of flexibility in view of the fact that this is a situation involving a non-client, but I find they do apply.”

Pentney also concluded that the confidential information obtained was relevant to the matters in issue between GCT and VFPA.

“Indeed, Lawson obtained confidential information about GCT’s position and legal strategy relating to the very matters in dispute between the parties in the CEAA Review Panel as well as the underlying judicial review,” Pentney noted.

This having been established, the issue became one of identifying the point at which GCT and VFPA’s relationship evolved from being merely competitors to becoming adverse in legal interest. As Pentney saw it, that occurred in February 2019, when GCT’s submissions to the CEAA left no doubt that it opposed VFPA’s expansion plans.

From that point in, Lawson was obliged to take special steps to prevent the sharing of the confidential information. But the firm had not done so.

“ … I find that GCT has met its onus of establishing a substantial risk that confidential information would be misused, and Lawson has failed to meet its burden of demonstrating that it took timely, adequate and objectively verifiable steps to prevent the sharing of the information within the firm,” Pentney wrote.

And disqualification of Lawson from acting on the judicial review application was the “only appropriate remedy that will ensure that the public confidence in the integrity of the legal system is maintained.”

From Pentney’s perspective, the situation could clearly have been avoided.

“Lawson did not take adequate and timely steps to prevent any sharing of, or access to, this confidential information because it had not identified the situation of conflict,” Pentney wrote.

MacKenzie is of similar mind. The discovery of a conflict, MacKenzie added, is not necessarily the end of the potential retainer.

“As long as the firm isn’t acting on both sides of the dispute, most conflicts can be managed,” he said. “But the key is to identify that the law firm has confidential information, even if it’s from a non-client.”

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