A lawyer or law firm must not put his, her or their own business interests ahead of the client’s interests.

Law firm can’t fire client to work for more lucrative rival

by Michael MacKay

Toddglen Construction Ltd. v. Concord Adex Developments Corp.

Representation by solicitor • conflict of interest • law firm cannot terminate retainer of existing client to take on a new client

Toddglen Construction Limited was the general contractor for two large condominium projects (four high-rise buildings) beside the Skydome (now the Rogers Centre) in downtown Toronto. Toddglen brought a construction lien action against the owner Concord Adex Developments Corp., for about $7.7 million. Concord advanced a $25 million counterclaim for delay damages.

Concord retained the law firm Miller Thomson to represent it in the construction lien action. Toddglen objected, and applied for a court order to remove Miller Thomson as Concord’s solicitors in the action because Toddglen was also Miller Thomson’s client.

What Happened

In early September 2003, Concord asked Michael Tamblyn of Miller Thomson to defend the Toddglen v. Concord action.

Miller Thomson did not do Toddglen’s litigation work, however, Peter Smith, another partner, was the primary legal advisor to Toddglen and its founder Harry Todd on corporate matters. Although Toddglen’s legal work diminished after Harry Todd retired, Miller Thomson did bill various Toddglen companies $41,600 in 2000, $4,000 in 2001, $6,800 in 2002, and $2,800 in 2003.

It was not lost on Miller Thomson’s Conflict and Executive Committees that the revenue potential from Concord would be significant; not only from the Toddglen v. Concord lawsuit but from future real estate services, and that the Toddglen companies generated only a few thousand dollars a year in legal fees for routine corporate work.

Usually law firms cannot act for a specific client where there is a risk that confidential information obtained from another (former or current) client through the solicitor-client relationship will be used against that other client. However, the courts impose upon law firms a duty of loyalty to both former and current clients that includes a broad principle of avoidance of conflicts of interest in which confidential information may or may not play a role.

In R v. Neil, the Supreme Court of Canada articulated the “bright-line” rule, which drew a clear boundary in the two-existing-client scenario:

…a [law firm] 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)…. [Emphasis in original.]

In an effort to satisfy this rule, Miller Thomson asked Toddglen to consent to its representation of Concord. Toddglen refused. Nevertheless, Miller Thomson accepted Concord’s retainer. It fired Toddglen as a client by sending a “private and confidential” memo to Harry Todd that simply said “… Miller Thomson had accepted the Concord retainer and thereupon, can no longer act for members of the Toddglen Group.”

The Issue

Master Sandler framed the question to be decided as:

…[C]an a law firm ‘dump’ one client in order to take on another ‘conflicted’ proposed client whose file is felt to be more attractive?

His answer was: no, it cannot.

The Reasons

Toddglen was an existing, not former, client of Miller Thomson, in September 2003, when Concord was in the process of becoming a client. Therefore, the applicable rule is the Neil “bright line” rule that applies to two existing clients, not the less stringent MacDonald Estate v. Martin rule that applies as between an existing client and a former client, which precludes representation only where there is a risk that confidential information will be misused. (The distinction is important: unlike in Neil, here there was no suggestion that Miller Thomson might actually misuse Toddglen’s confidential information or that there was actual, as opposed to merely appearance of, conflict.)

Nevertheless, “The law firm, as a fiduciary, could not serve two masters at the same time.” Master Sandler determined that Miller Thomson’s duty of loyalty to Toddglen could not be overcome by terminating its retainer:

…[T]he ‘duty of loyalty’ described in Neil does not permit a law firm to terminate the relationship of an existing client solely in order to take on the work of a more financially desirable client, where the two clients’ interests are adverse, although the mandates are unrelated, so as to avoid the Neil ‘bright line’ rule.

[If this] were allowed … many clients would be put in jeopardy and suffer much inconvenience by having their retainers terminated and by having to go out and retain and brief and pay extra for new lawyers just because of the financial interests of their former lawyer or law firm. [As Neil indicated:] A lawyer or law firm must not put his, her or their own business interests ahead of the client’s interests. [Emphasis added.]

The Remedy

Master Sandler ordered Miller Thomson removed as solicitors of record for Concord. (Concord appealed Master Sandler’s decision, but the issue was settled before the appeal was heard.)

Ontario Superior Court of Justice
   Master D.H. Sandler
   April 29, 2004