Has The Law Society of Manitoba every disbarred anyone?

Good Day Readers:

We pose that question because this is the nineth or tenth time (We've lost count!) Mr. Walsh has appeared on Truth To Power (www.accesstoinfo.blogspot.com) because of issues related to his law practice. Kind of makes one wonder doesn't it?

Sincerely,
Clare L. Pieuk
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Manitoba Lawyer Paul Walsh

Date: 2006 01 27
Docket: CI 05-01-42765
Indexed as: Bellan v. Curtis, et al
Cited as: 2006 MBQB 18
(Winnipeg Centre)

COURT OF QUEEN’S BENCH OF MANITOBA

B E T W E E N:

BERNARD W. BELLAN,
Plaintiff,

Gavin Wood,
for the Plaintiff.

- and -

CHARLES E. CURTIS, PETER OLFERT, WALDRON (WALLY) FOX-DECENT, LEA BATURIN, ALBERT R. BEAL, RON WAUGH, DIANE BERESFORD, SYLVIA FARLEY, ROBERT HILLIARD, ROBERT ZIEGLER, JOHN CLARKSON, DAVID G. FRIESEN, HUGH ELIASSON, SHERMAN KREINER, JAMES UMLAH, JANE HAWKINS, JANICE LEDERMAN, PRICEWATERHOUSECOOPERS LLP, NESBITT BURNS INC., WELLINGTON WEST CAPITAL INC., CROCUS CAPITAL INC., THE MANITOBA SECURITIES COMMISSION, and THE CROCUS INVESTMENT FUND,

Defendants.

Robert L. Tapper, Q.C. and Jason D. Kendall, for the
Defendant, James Umlah.

JUDGMENT DELIVERED:
January 27, 2006.

GREENBERG J.

[1] This is a motion by the defendant James Umlah for an order removing Paul Walsh, Q.C., and his firm, as counsel of record for the plaintiff because of a conflict of interest. Mr. Umlah also seeks to remove the plaintiff’s Toronto counsel, Harvin Pitch and Colin Stevenson and their firm, who became involved in the action through Mr. Walsh.

FACTS

[2] The underlying action in this case is a claim by the plaintiff for damages which he, as a shareholder in the Crocus Investment Fund, alleges he suffered because Crocus was mismanaged and the value of the shares was overstated. The plaintiff alleges that he and other shareholders (whom he is seeking certification to represent in a class action) purchased the shares at inflated prices. Crocus ultimately ceased trading and the value of the shares plummeted. Mr. Umlah is named as a defendant because he was the chief investment officer of Crocus from 1993 until the summer of 2004. The general basis for the claim is the failure of the defendants to apply reasonable skill in overseeing the affairs of Crocus and their misrepresentation about the value of the shares in various prospectuses which they issued.

[3] Crocus ceased trading on December 10, 2004. At or around that time, Mr. Walsh was retained by the plaintiff to act with respect to a potential lawsuit against Crocus. On December 13, 2004, Mr. Walsh called Mr. Umlah, for whom he had acted in the past, to discuss the Crocus situation. According to Mr. Umlah, he told Mr. Walsh that he had signed a confidentiality agreement that prevented him from talking about Crocus affairs except to his lawyer and that Mr. Walsh represented to him that he was Mr. Umlah’s lawyer so that their conversation was not in breach of that agreement. Mr. Umlah claims that he had detailed conversations with Mr. Walsh about Crocus on December 13th and in subsequent phone calls.

[4] Mr. Umlah also claims that Mr. Walsh told him that he would not and could not act against him if litigation did arise. Mr. Umlah says that he was shocked when this claim was filed by Mr. Walsh in July 2005 and he was named as a defendant.

[5] Mr. Walsh gives a different version of events. He admits that he called Mr. Umlah in December 2004 to discuss Crocus. In cross-examination on his affidavit, he described the conversation as follows:

I would have – I’m reconstructing so I can give you the gist without the exact words. I said, “I’ve been retained to act on this Crocus business because they’re going to freeze.” I’m sure he’d heard of that. And, “Is there anything you can tell me?” I said,”You’re not there any more. Is there anything you can tell me about it?”

[6] Mr. Walsh says that when Mr. Umlah told him that he had signed a confidentiality agreement, he made no further inquiries other than to ask questions about matters that were already in the public domain. Mr. Walsh says that lawyer/client confidentiality was never discussed and that he never told Mr. Umlah that he could not sue him, although he remembers Mr. Umlah expressing the hope that he would not be sued. Mr. Walsh acknowledges that he had further phone conversations with Mr. Umlah but says that the purpose of those calls was to discuss the estate of Mr. Umlah’s stepfather and, if Crocus was discussed, it would have been only “casually”.

[7] Mr. Umlah’s evidence that, during these phone calls, he spoke to Mr. Walsh as his lawyer must be understood in the context of their previous relationship. Mr. Walsh had acted for Mr. Umlah on two previous occasions. He had represented him in family proceedings from 1995 until 1998. More recently, until the spring of 2004, he represented Mr. Umlah in a matter with Canada Customs and Revenue Agency (“CCRA”). Mr. Walsh had also acted for Mr. Umluh’s stepfather for a period of 15 to 20 years ending in 2001. As well, Mr. Umlah retained Mr. Walsh to represent his son with respect to a charge under The Highway Traffic Act which went to trial in May 2004.

[8] Mr. Umlah says that Mr. Walsh obtained confidential information about him through the previous retainers. He says that, during the course of the family proceedings which involved custody and support issues, he obtained extensive information about Mr. Umlah’s financial circumstances, personality and background.

[9] With respect to the CCRA matter, Mr. Umlah had retained Mr. Walsh to negotiate the removal of liens which CCRA had registered against his property for tax arrears. Mr. Umlah says that, in order to accomplish this, he provided authorization to CCRA to provide information to Mr. Walsh. It is Mr. Umlah’s position that, as a result of the CCRA retainer, Mr. Walsh had confidential financial information about him. Mr. Walsh denies this. He claims to have received no information about Mr. Umlah’s financial circumstances at the time either from Mr. Umlah or from CCRA as a result of the authorization. With Mr. Umlah’s permission, Mr. Walsh produced his file for the court to confirm that the retainer involved nothing more than obtaining the discharge of the liens. However, while there is no documentation on the file relating to Mr. Umlah’s financial circumstances, after reading the file, it is apparent that not all discussions between Mr. Walsh and CCRA were documented. Moreover, I cannot conclude from reviewing the file that Mr. Umlah’s finances were not discussed between him and Mr. Walsh. One might have expected that, since the matter involved tax arrears, Mr. Umlah would have told his lawyer something about his financial situation. At the very least, one might have expected Mr. Umlah would have told his lawyer why it was necessary for him to have the liens removed at that time.

ISSUES

[10] The facts of this case raise two issues. First, do Mr. Walsh’s previous retainers with Mr. Umlah prevent him from acting against Mr. Umlah in this action? Second, do the conversations that Mr. Walsh had with Mr. Umlah after he was retained to act for the plaintiff give rise to a conflict?

THE LAW

[11] There is no absolute prohibition preventing a lawyer from acting against a former client. However, a lawyer cannot act against a former client where he has obtained confidential information from his relationship with the client that can be used in the new proceedings against him. In MacDonald Estate v. Martin, 1990 CanLII 32 (S.C.C.), [1990] 3 S.C.R. 1235, the Supreme Court held that once it is established that a lawyer received confidential information from the former client that is relevant to the proceedings against the former client, the lawyer’s disqualification is automatic. Sopinka J. stated (at par. 47):

A lawyer who has relevant confidential information cannot act against his client or former client. In such a case the disqualification is automatic. No assurances or undertakings not to use the information will avail. The lawyer cannot compartmentalize his or her mind so as to screen out what has been gleaned from the client and what was acquired elsewhere.

Furthermore, there would be a danger that the lawyer would avoid use of information acquired legitimately because it might be perceived to have come from the client. This would prevent the lawyer from adequately representing the new client. Moreover, the former client would feel at a disadvantage. Questions put in cross-examination about personal matters, for example, would create the uneasy feeling that they had their genesis in the previous relationship.

[emphasis added]

[12] The difficult issue to resolve where a lawyer acts against a former client is usually whether the lawyer did acquire confidential information that is relevant to the new proceedings. This is difficult because the lawyer usually cannot defend the assertion that he did without breaching lawyer/client privilege. In MacDonald Estate, Sopinka J. explained (at par. 46):

In my opinion, once it is shown by the client that there existed a previous relationship which is sufficiently related to the retainer from which it is sought to remove the solicitor, the court should infer that confidential information was imparted unless the solicitor satisfies the court that no information was imparted which could be relevant. This will be a difficult burden to discharge. Not only must the court's degree of satisfaction be such that it would withstand the scrutiny of the reasonably informed member of the public that no such information passed, but the burden must be discharged without revealing the specifics of the privileged communication. Nonetheless, I am of the opinion that the door should not be shut completely on a solicitor who wishes to discharge this heavy burden.

[13] Even in a situation, as in the case of the CCRA file here, where the client consents to the release of the lawyer’s file, it is difficult to establish that no confidential information was imparted since it would be rare that all conversations between the lawyer and the client were recorded. As Sopinka J. explained in MacDonald Estate, the court should not be in the position of deciding whether to rely on the lawyer’s assertions that his former client told him nothing of relevance. He said (at par. 50):

A fortiori undertakings and conclusory statements in affidavits without more are not acceptable. These can be expected in every case of this kind that comes before the court. It is no more than the lawyer saying "trust me." This puts the court in the invidious position of deciding which lawyers are to be trusted and which are not. Furthermore, even if the courts found this acceptable, the public is not likely to be satisfied without some additional guarantees that confidential information will under no circumstances be used. In this regard I am in agreement with the statement of Posner J. in Analytica, supra, to which I have referred above, that affidavits of lawyers difficult to verify objectively will fail to assure the public.

[14] Sopinka J. refers to the following quote from Analytica, Inc. v. NPD Research, Inc., 708 F. 2d 1263 (7th Cir. 1983), at 1269:

For a law firm to represent one client today, and the client's adversary tomorrow in a closely related matter, creates an unsavory appearance of conflict of interest that is difficult to dispel in the eyes of the lay public -- or for that matter the bench and bar -- by the filing of affidavits, difficult to verify objectively, denying that improper communication has taken place or will take place between the lawyers in the firm handling the two sides.

[15] In discussing the test to be applied in determining whether a lawyer can continue to act against a former client, Sopinka J. spoke not only of the interest of the client in ensuring that no conflict exists but of the interest of the public in maintaining the integrity of the justice system. The question in each case must be whether “the public represented by the reasonably informed person would be satisfied that no use of confidential information would occur” (at par. 44). Sopinka J. found there was a need to prevent not only the actual misuse of confidential information but also the appearance of impropriety (at par. 18).

[16] While the previous retainers between Mr. Walsh and Mr. Umlah raise the possibility of the misuse of confidential information, the conversations between Mr. Walsh and Mr. Umlah in December 2004, and after, raise questions relating to broader obligations. If there was an ongoing lawyer/client relationship, Mr. Walsh’s obligations towards Mr. Umlah go beyond concerns about the use of confidential information. In R. v. Neil, 2002 SCC 70 (CanLII), [2002] 3 S.C.R. 631, the Supreme Court described the “much broader” obligations of a lawyer to a current client as including a duty to avoid conflicting interests, a duty of commitment to the client’s cause and a duty of candour with the client.

[17] How then does one assess the nature of the relationship at that time and the implications of the conversations for Mr. Walsh’s ability to continue to act in this action? In my view, as with the assessment of the duty to former clients, it is necessary to determine how a reasonable person would view the relationship and whether a reasonable person would conclude that there was a danger that Mr. Walsh obtained confidential information that could be used against Mr. Umlah.

[18] Some guidance can be found in the law societies’ Codes of Professional Conduct. While courts are not bound by these codes in assessing conflicts, they do provide “important statements of public policy” (MacDonald Estate, par. 18).

[19] In R. v. Neil, the Court referred to the definition of “client” in the Code of Professional Conduct of the Law Society of Alberta which is as follows:

“client” generally means a person on whose behalf the lawyer renders professional services and with whom the lawyer has a current or ongoing lawyer/client relationship, but may also include a person who reasonably believes that a lawyer/client relationship exists although one or more of the customary indicia of such a relationship are absent.

[emphasis added]

[20] The definition of “client” in the Code of Professional Conduct of the Law Society of Manitoba is simply “a person on whose behalf a lawyer renders or undertakes to render professional services”. However, the commentary to the Code indicates that the relationship must be viewed objectively. The commentary to Chapter 6 (“Conflict of Interest Between Lawyer and Client”) states:

When Person to be Considered a Client

6. The question of whether a person is to be considered a client of the lawyer when such person is lending money to the lawyer, or buying, selling, making a loan to or investment in, or assuming an obligation in respect of a business, security or property in which the lawyer or an associate of the lawyer has an interest, or in respect of any other transaction, is to be determined having regard to all the circumstances. A person who is not otherwise a client may be deemed to be a client for purposes of this Rule if such person might reasonably feel entitled to look to the lawyer for guidance and advice in respect of the transaction. In those circumstances the lawyer must consider such person to be a client and will be bound by the same fiduciary obligations that attach to a lawyer in dealings with a client. The onus shall be on the lawyer to establish that such a person was not in fact looking to the lawyer for guidance and advice.

[emphasis added]

[21] The commentary to the definition of “client” in the Rules of Professional Conduct of the Law Society of Upper Canada is also instructive:

A solicitor and client relationship is often established without formality. For example, an express retainer or remuneration is not required for a solicitor and client relationship to arise. Also, in some circumstances, a lawyer may have legal and ethical responsibilities similar to those arising from a solicitor and client relationship. For example, a lawyer may meet with a prospective client in circumstances that impart confidentiality, and, although no solicitor and client relationship is ever actually established, the lawyer may have a disqualifying conflict of interest if he or she were later to act against the prospective client. It is, therefore, in a lawyer's own interest to carefully manage the establishment of a solicitor and client relationship.

[22] To protect the public interest in the integrity of the justice system and to ensure no appearance of impropriety, the nature of the relationship and the obligations that flow from it must be viewed from the perspective of the reasonable member of the public and not from a sterile determination of whether the lawyer has opened a file.

APPLICATION OF LAW TO THIS CASE

[23] Mr. Umlah argues that Mr. Walsh obtained confidential information through his previous retainers that could be used to his prejudice in the current action. Specifically, he says that Mr. Walsh has acquired financial information about him that could assist in the enforcement of a judgment against him. In addition, Mr. Walsh acquired intimate knowledge about many aspects of Mr. Umlah’s life that would put Mr. Umlah at a distinct disadvantage if cross-examined by Mr. Walsh.

[24] In looking at the previous retainers, Mr. Walsh argues that his most recent retainer with Mr. Umlah ended several months before he began to act for the plaintiff in this action and that he acquired no confidential information through his previous retainers that is of any relevance to the current action. Therefore, he argues, there is no danger of such information being used against Mr. Umlah in this action.

[25] Mr. Walsh argues that his relationship with Mr. Umlah’s stepfather and son are of no relevance since Mr. Umlah was not privy to either relationship. With respect to Mr. Umlah’s family proceedings, while Mr. Walsh did acquire detailed financial information about Mr. Umlah at that time, it is six years out of date. As for the CCRA file, Mr. Walsh contends that the retainer was limited to removing the CCRA liens on Mr. Umlah’s property and that he acquired no information through that retainer that has any bearing on the current action.

[26] I agree with Mr. Walsh that, insofar as there is a concern about misuse of confidential information, his relationship with Mr. Umlah’s stepfather and son are not relevant. However, I find that a reasonable person would believe that Mr. Walsh acquired information during the family proceedings and the CCRA matter that could be used against Mr. Umlah in the current action. The plaintiff in this action is claiming damages of $200,000,000. The ability to collect those damages will be a matter of significant concern to the plaintiff. As a result, information about Mr. Umlah’s financial circumstances would be very helpful to the plaintiff. While financial information obtained six years ago might be dated, information obtained six months ago would be relevant.

[27] Mr. Walsh produced his file to show that he acquired no such information through the CCRA retainer. However, I do not think that the information on that file would satisfy the reasonable person that Mr. Umlah’s financial circumstances were not discussed. In considering the potential for misuse of confidential information from the CCRA retainer, two facts are significant. First, Mr. Walsh became involved in the current action very soon after he completed the CCRA file. This is not a situation where, because of the lapse of time, he is not likely to remember matters that were not recorded in his file.

[28] Second, this is not a case involving imputed knowledge. Much of the case law in this area concerns situations where lawyer A acts against the former client of lawyer B, another member of lawyer A’s firm. In such cases, while lawyer A will be imputed with the confidential information acquired by lawyer B, a reasonable person might be satisfied that lawyer A did not acquire, or at least would not remember, information that was not documented on the file. Here, of course, Mr. Walsh directly acquired confidential information.

[29] There is no question that not all the information that flows between a lawyer and a client is recorded on a file. While some lawyers are better at recording than others, a reasonable person would assume that a client who had retained a lawyer to deal with a matter related to tax arrears would have imparted confidences to his lawyer relating to his financial circumstances. I do not think that a reasonable member of the public would be satisfied, considering the nature of the file and its recent vintage, that Mr. Walsh did not acquire information that could be used to Mr. Umlah’s prejudice. It is not sufficient for Mr. Walsh to say that he acquired no information that could be used to the prejudice of his former client. The question is what would a reasonable person think.

[30] Perhaps of more significance in assessing whether there is a conflict in this case is the personal and intimate information that Mr. Walsh would have acquired in representing Mr. Umlah in the family proceedings. The reasonable person would think that this information would give Mr. Walsh an advantage in his ability to cross-examine Mr. Umlah. As Mr. Umlah’s counsel states in his Motion Brief: “The point is that Walsh would have an insight into Umlah that would not be fair: his personality, his demeanour, his attitudes, all provide Walsh with a roadmap to examine Umlah.”

[31] In any event, even if I accepted Mr. Walsh’s argument that the previous retainers had not provided him with confidential information of any relevance to the current action, the phone calls in December 2004, and following, provide a more glaring reason why he should not continue to represent the plaintiff. As counsel for Mr. Umlah argued, the issue of conflict in this case really starts and ends with the December phone call. Certainly, if I accept Mr. Umlah’s version of what transpired, the conflict is obvious. According to Mr. Umlah, he told Mr. Walsh confidential information about Crocus on the understanding that the information was subject to lawyer/client privilege.

[32] Mr. Walsh says that lawyer/client privilege was not discussed and that the discussions about Crocus did not involve the disclosure of confidential information. However, even if there was no specific discussion of lawyer/client privilege, it would have been reasonable for Mr. Umlah to believe that when Mr. Walsh called him, he was doing so as his lawyer. Mr. Walsh had acted for Mr. Umlah, and members of his family, several times over a period of many years. Mr. Walsh had acted for Mr. Umlah as recently as several months before the phone call. While Mr. Walsh’s retainers with Mr. Umlah’s stepfather and son may not be relevant in determining whether he had acquired confidential information that could be used against Mr. Umlah, they do portray the appearance that Mr. Walsh was “the family lawyer”. And they are relevant to how Mr. Umlah would have perceived his relationship with Mr. Walsh in December 2004. Moreover, the Crocus matter was one of high profile in the community and, even according to Mr. Walsh’s version of the phone call, Mr. Umlah expressed concern about being sued. Considering that context, a reasonable person in Mr. Umlah’s place would assume that he was speaking to Mr. Walsh as his lawyer.

[33] In cross-examination on his affidavit, Mr. Walsh made it clear that he had no relationship with Mr. Umlah outside of his professional relationship. He was not Mr. Umlah’s friend. He was able to place the call to Mr. Umlah in December 2004 because he was Mr. Umlah’s lawyer. It was clear from Mr. Walsh’s evidence that his intent in calling Mr. Umlah was to get information about Crocus for the purpose of a potential lawsuit. While he claims that, in the end, he never did receive any confidential information, it would make no sense for him to have made the call to his former client for the purpose of acquiring information that was already in the public domain.

[34] As stated in MacDonald Estate, it is not enough for a lawyer to simply respond to an allegation of conflict by saying “trust me, I have no confidential information.” The question is how would the reasonable person perceive the situation. In my view, it would be difficult to convince the reasonable person that Mr. Walsh did not acquire confidential information in the December phone call which could be used to Mr. Umlah’s prejudice.

[35] It was reasonable for Mr. Umlah to assume that the lawyer/client relationship continued to exist in December 2004 and that Mr. Walsh’s duty of good faith and candour arising from that relationship would prevent him from attempting to obtain information from him that could then be used against him. Even accepting that Mr. Walsh was not Mr. Umlah’s lawyer at the time, as stated above, the objective in these situations is not just to prevent the actual misuse of confidential information, but to prevent the appearance of impropriety. To put it simply, a lawyer cannot call a former client to discuss a potential lawsuit and then turn around and sue him without creating an appearance of impropriety.

THE TORONTO COUNSEL

[36] I have concluded that Mr. Walsh cannot continue to represent the plaintiff in this action. Nor can any member of his firm represent the plaintiff. There is a presumption that all members of a firm are imputed with the confidential information acquired by other members of the firm, even when they have not worked together on a file. As stated in MacDonald Estate (at par. 49):

There is, however, a strong inference that lawyers who work together share confidences. In answering this question, the court should therefore draw the inference, unless satisfied on the basis of clear and convincing evidence, that all reasonable measures have been taken to ensure that no disclosure will occur by the "tainted" lawyer to the member or members of the firm who are engaged against the former client. Such reasonable measures would include institutional mechanisms such as Chinese walls and cones of silence.

[37] This comment applies with even greater force to those lawyers who are working together on a file, even if they are members of different firms. There was no attempt in this case to produce evidence that Mr. Pitch and Mr. Stevenson did not acquire confidential information from Mr. Walsh. While Mr. Umlah seeks to have them both removed as counsel of record, neither filed an affidavit to explain their involvement or to suggest they are not tainted by any knowledge that may have been acquired by Mr. Walsh.

[38] Therefore, I am granting an order removing Mr. Walsh, and the members of his firm, and Mr. Pitch, Mr. Stevenson and the members of their firm, as counsel of record in this action.

[39] Costs may be spoken to if they cannot be agreed upon.

__________________________________J