



COURT OF APPEAL FOR ONTARIO

CITATION: Ontario v. Chartis Insurance Company of Canada,
    2017 ONCA 59

DATE: 20170124

DOCKET: C62200

Sharpe, Pepall and Hourigan JJ.A.

BETWEEN

Her
    Majesty the Queen in Right of

the Province of Ontario

Plaintiff (Respondent)

and

Chartis Insurance Company of Canada,

American Home Assurance Company
, Royal & Sun

Alliance
    Insurance Company of Canada, The Royal

Insurance
    Company of Canada, Royal Insurance Company Limited,

Aviva
    Canada Inc., Aviva Insurance Company of Canada,

General
    Accident Assurance Company of Canada,

Travelers
    Insurance Company of Canada, and

St. Paul Fire and Marine Insurance
    Company

Defendants (
Appellants
)

Gavin MacKenzie and Brooke MacKenzie, for the appellants

William Manuel and Jonathan Sydor, for the respondent

Heard: December 2, 2016

On appeal from the order of the Divisional Court (Justices
    Edward F. Then, Anne M. Molloy and Thomas R. Lederer), dated February 11, 2016,
    with reasons reported at 2016 ONSC 43, 347 O.A.C. 43, allowing an appeal from
    Justice Alfred J. OMarra of the Superior Court of Justice, dated July 16, 2014,
    with reasons reported at 2014 ONSC 4221, 38 C.C.L.I. (5th) 34.

Pepall J.A.:

A.

Introduction

[1]

This appeal concerns the disqualification of counsel due to an alleged
    conflict of interest. At issue is the possibility of inadvertent disclosure of
    confidential information arising from the close working relationship between
    two lawyers after one transferred law firms to work with the other. The
    integrity of counsel involved is unchallenged and there is no suggestion of any
    actual impropriety.

[2]

The respondent, Her Majesty the Queen in Right of the Province of
    Ontario (Ontario), sued the appellants, Chartis Insurance Company and
    American Home Assurance Company (collectively, AIG), as a result of an
    insurance coverage dispute.

[3]

Ontario retained the law firm of Theall Group LLP (TG) as its counsel
    in the coverage dispute. Michael Foulds is a lawyer who worked for TG and was
    intimately involved in working with senior counsel to Ontario on the dispute. Foulds
    then left that firm and joined the law firm of Lloyd Burns McInnis LLP (LBM)
    as a partner. LBM represents AIG in the coverage dispute. At his new firm, Foulds
    does not work on the coverage action but he spends 50 to 60 percent of his time
    working with Douglas McInnis, who is counsel to AIG on the dispute. Foulds also
    works on other files for AIG.

[4]

AIG moved for a declaration that the ethical screen put in place by Foulds
    new firm, LBM, was sufficient to prevent disclosure of Ontarios confidential
    information and that it was in the interests of justice that the firm continue
    to act in the action.

[5]

In turn, Ontario brought a cross-motion seeking an order that Foulds
    new firm, LBM, be disqualified from continuing to act for AIG due to an inherent
    conflict of interest caused by Foulds, who was formerly Ontarios counsel, joining
    his new firm to work with senior counsel to AIG.

[6]

The application judge agreed with AIGs position, granted its motion,
    and dismissed Ontarios cross-motion.

[7]

The Divisional Court overturned that decision.

[8]

For the reasons that follow, I would dismiss the appeal from the Divisional
    Courts order.

B.

Background Facts

[9]

Ontario was a defendant in four class actions. Ontario carried
    insurance, however a dispute arose over its insurance coverage with AIG and
    three other insurers. Ontario retained Laurence Theall of TG to act on its behalf.
    In 2012, Theall commenced an action against the insurers to compel coverage.

[10]

Foulds was an associate at TG and began working with Theall on the
    insurance dispute in November 2010. Foulds involvement included work on the
    actions and settlement negotiations with the insurers. These negotiations were
    successful with respect to all of the insurers except AIG. The settlements were
    finalized in August 2013. The action against AIG continues.

[11]

As a result of his involvement, Foulds is in possession of privileged
    and confidential information relating to the class actions, the coverage
    action, the negotiations, and the settlements. During the time he was with TG,
    Foulds docketed more than 160 hours on the coverage proceedings.

[12]

McInnis of LBM is opposing counsel and acts for AIG in the coverage dispute.
    He was retained in June 2009 and has been actively and directly involved in
    both defending AIG in the action brought by Ontario and in the unsuccessful
    settlement negotiations. McInnis has docketed more than 400 hours on matters
    relating to the coverage action.

[13]

McInnis has worked for AIG as coverage advisor and counsel since 1986. Since
    the early 1990s, he has represented AIG on more than 50 separate coverage files
    relating to the Ontario Insurance Program.

[14]

In the summer of 2013, McInnis approached Foulds to join LBM, a 14
    member Toronto litigation boutique, as a partner. Foulds and McInnis had
    previously worked together on AIG matters between 2004 and 2010, when they both
    worked at another law firm. Once he joined LBM, Foulds was to work with McInnis
    on AIG and other client matters, excluding the coverage action and any other Ontario-AIG
    matters.

[15]

In November 2013, Foulds told Theall that he intended to move his
    practice to LBM.

[16]

In early December 2013, McInnis contacted Theall by telephone to discuss
    the establishment of an ethical screen. On January 2, 2013, McInnis sent an
    e-mail outlining the safeguards to be put in place upon Foulds arrival at LBM.
    These would include:

(a)   Foulds
    would have no involvement in LBMs representation of AIG in the coverage action;

(b)   Foulds
    would not discuss any Ontario-AIG matters with anyone at LBM or AIG;

(c)   no one
    from LBM would discuss any Ontario-AIG matters with Foulds;

(d)   immediately
    upon arriving at LBM, Foulds would sign an undertaking confirming that he
    understood, and would adhere to, all elements of the ethical screen;

(e)   all LBM
    lawyers and staff involved in Ontario-AIG matters would sign a similar
    undertaking;

(f)    LBM
    would inform all personnel in writing of the ethical screen, of the requirement
    to adhere to it, and of the possible sanctions for failing to abide by the
    terms of the ethical screen, which sanctions could include dismissal;

(g)   Foulds
    office would be located several offices away from those LBM personnel working
    on Ontario-AIG matters; and

(h)   the
    ethical screen would be monitored and enforced by a senior partner with no
    personal involvement in Ontario-AIG matters.

[17]

Theall responded by requesting an opportunity to review the undertaking
    proposed in draft form. McInnis sent this to Theall in early January 2014.  McInnis
    asked that Ontario consent to LBM continuing to act for AIG on the coverage
    action.

[18]

Subsequently, as an extra precaution, LBM decided that Foulds would not
    work with McInnis assistant.

[19]

Foulds commenced work at LBM on January 6, 2014. Foulds estimates that
    one-half of his time is spent doing work for AIG and that 50 to 60 percent of
    his time is spent working with McInnis.

[20]

On February 7, 2014, Theall advised McInnis of Ontarios objection to
    LBM continuing to act on the coverage dispute because of the serious conflict
    of interest that arose from Foulds move to LBM. Theall wrote that Foulds had
    docketed over 160 hours on the case between Ontario and AIG and was privy to
    not only privileged information, but the entire litigation strategy. He went
    on to write:

Mr. Foulds assisted me in the very matter that is at issue
    between Ontario and Chartis, including both the allocation of defence costs and
    indemnity payments for the Huronia litigation. He was substantially involved in
    preparing an opinion for Ontario regarding allocation of defence costs,
    drafting the statement of claim, discussing settlement possibilities,
    attendance at client meetings, and meetings with the opposing insurers. Mr.
    Foulds is therefore in possession of very relevant confidential information.

[21]

Since he joined LBM, Foulds has not been involved in the class actions,
    the coverage action, the Ontario Insurance Program, or any Ontario-AIG matters.
    He does work on AIG files not involving Ontario.

C.

The Decisions Below

(1)

The Application Judges Decision

[22]

The application judge identified the test articulated by Sopinka J. in
MacDonald
    Estate v. Martin
,
[1990] 3
    S.C.R. 1235, considered the Law Society of Upper Canadas (LSUC) guidelines
    for protecting a clients confidential information, and reviewed cases that had
    considered comparable ethical screens. He then turned to the application of
    these principles to the case before him.

[23]

He noted that there was no requirement that the tainted lawyer (an
    unfortunate but apt descriptor)
[1]
have zero contact or involvement with lawyers working on the clients file. To
    hold otherwise would be particularly challenging for small firms.

[24]

He concluded that LBM had implemented all of the suggested measures
    under the LSUC guidelines in a timely manner and had appointed an independent
    senior partner to supervise and monitor the firms adherence to the
    requirements of the ethical screen.

[25]

He characterized the issue as being whether reasonable precautions have
    been taken to minimize risk (para. 41) and asked rhetorically what more could
    be done to protect the confidentiality of Ontarios information. At paras. 42
    to 44, he wrote:

Even if a doubt remains that there is the possibility of
    inadvertent disclosure, I consider in the balance, the impact of a disqualification
    order on the opposing parties right to counsel of choice. Mr. McInnis has not
    just been retained. He has been involved significantly as coverage counsel in
    AIG matters for many years. He has been their outside counsel on such matters
    since 1986. Since the early 1990s, AIG has retained Mr. McInnis exclusively for
    Ontario-AIG matters. He has been dealing with matters giving rise to the
    present coverage action for more than five years. He has docketed over 400
    hours in the matter, which has been described as a complex action involving the
    interpretation of his clients insurance policy and class actions involving a
    class period from the 1940s to 2009.



The parties are large sophisticated institutional interests. Although
    there are a number of experienced lawyers competent to undertake litigation of
    such complexity as in this case, as acknowledged by Mr. McInnis on examination,
    none have the depth of knowledge, experience and understanding of AIG and the
    Ontario Insurance Program as Mr. McInnis. AIG should not be denied its counsel
    of choice.

LBM has been pro-active in minimizing the risk of disclosure of
    confidential information. In considering the timely and comprehensive
    compliance by LBM with the institutional measures set out in the guidelines, in
    addition to appointment of a supervising senior partner, and isolating Mr.
    Foulds from any Ontario-AIG matters, I find that a reasonably informed person
    would be satisfied that the use of confidential information had not occurred or
    would likely occur, and it is in the interests of justice to allow Mr. McInnis
    to remain as AIGs counsel of choice.

[26]

The application judge therefore granted LBMs motion and dismissed
    Ontarios cross-motion.

[27]

On November 24, 2014, Nordheimer J. granted leave to appeal to the
    Divisional Court. In applying the test for granting leave to appeal, he was
    satisfied that there was good reason to doubt the correctness of the
    application judges decision. He noted that the application judge had appeared
    to have reversed the onus and engaged in a balancing act, rather than
    considering whether the presumption of disqualification had been rebutted.

(2)

Divisional Court Decision

[28]

The Divisional Court allowed the appeal and disqualified LBM from
    continuing to act for AIG in the coverage action. Lederer J., writing for a
    unanimous court, noted that an order seeking the removal of counsel is
    discretionary and therefore attracts deference. Nonetheless, he concluded that
    the application judge had erred in his application of the principles
    articulated in
MacDonald Estate
. At paras. 25 and 41, he wrote:

The implementation of the guidelines and the presence of the
    senior partner could be relied on to further a consideration of whether the
    inference of the delivery of confidential information prejudicial to Ontario
    had been rebutted. This is not how the motion judge employed these factors in
    the analysis he undertook or the determination that he made. Rather, he took
    the approach that if the firm had done everything possible to avoid the
    delivery of confidential information, the test had been met. He failed to go on
    and consider whether, notwithstanding all of the safeguards introduced, the
    presumption of tainting had been effectively rebutted.



In his reasons the motion judge approached this matter on the
    basis that the presumption that confidential information will be inevitably
    imparted to opposing counsel would be rebutted, i.e. that a reasonably informed
    person [would find] that the use of confidential information had not occurred
    or was likely to occur, if opposing counsel has implemented all reasonable
    precautions to minimize the risk. Moreover, the motions judge posits the
    proposition that any residual risk of inadvertent disclosure can be tolerated
    or balanced by consideration of the impact of disqualification on the opposing
    parties right to counsel of choice.

[29]

Lederer J. noted that there was nothing to suggest that the LSUC
    guidelines or some other ethical screen would successfully address every
    conflict in every case. There will be circumstances, such as in this case,
    where the public, represented by the reasonably informed person, could not be
    satisfied that no use of confidential information would occur.

[30]

He determined that the relationship was too close for comfort. The
    Divisional Court accordingly allowed the appeal.

[31]

This court granted leave to appeal on May 16, 2016.

D.

The Applicable Law

[32]

The
applicable test to
    determine whether a disqualifying conflict exists was set out in
MacDonald
    Estate
. Sopinka J. stated, at pp. 1259-60:

The test must be such that the public represented by the
    reasonably informed person would be satisfied that no use of confidential
    information would occur.

[33]

According to Sopinka J., that is the overriding policy and has to inform
    the court in answering whether there is a disqualifying conflict of interest. The
    questions to be answered are: (i) did the lawyer receive confidential
    information attributable to a solicitor and client relationship relevant to the
    matter at hand, and (ii) is there a risk that it would be used to the prejudice
    of the client?:
MacDonald Estate
, at p. 1260.

[34]

There is no issue in this appeal with respect to the answer to the first
    question. It is conceded that Foulds is in possession of such confidential
    information. The appeal therefore turns on the answer to the second question.

[35]

In assessing risk of prejudice to the client, the court is to infer that
    Foulds will impart confidential information to his new colleagues at LBM. However,
    as Sopinka J. explained in
MacDonald Estate
,

that inference is
    rebuttable:

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: p. 1262.

[36]

In this appeal, the inference is rebuttable if the measures instituted
    by LBM would satisfy a reasonably informed person that use of confidential
    information had not occurred or would not occur:
MacDonald Estate
, pp.
    1259-60.

[37]

In
MacDonald Estate
,

Sopinka J. invited lawyers
    professional regulatory bodies to address appropriate measures to prevent the
    disclosure of confidential information in circumstances where a lawyer
    transfers firms. He also noted that, since the legal profession is
    self-governing, the codes of conduct of lawyers governing bodies are an
    important statement of public policy with respect to the conduct of a barrister
    and solicitor: p. 1244.

[38]

The Canadian Bar Association and the Federation of Law Societies of
    Canada established rules and guidelines in response to Sopinka J.s invitation.
    The provincial governing bodies, including the LSUC, then promulgated their own
    rules and guidelines, which generally borrowed heavily from the model rules
    proposed by the Federation of Law Societies.

[39]

At the relevant time, the LSUCs approach to what constitutes adequate
    measures to prevent the disclosure of confidential information was set out in
    r. 2.05 of the LSUCs
Rules of Professional Conduct
under the
    heading Conflicts from Transfer between Law Firms, and more specifically in
    subsection (4) on Law Firm Disqualification:

Where the transferring lawyer actually possesses relevant
    information respecting the former client that is confidential and that, if
    disclosed to a member of the new law firm, may prejudice the former client, the
    new law firm shall cease its representation of its client in that matter unless

(a)

the former client consents to the new law firms continued
    representation of its client, or

(b)

the new law firm establishes that it is in the interests of justice that
    it act in the matter, having regard to all relevant circumstances, including,

(i)     the
    adequacy and timing of the measures taken to ensure that no disclosure to any
    member of the new law firm of the former clients confidential information will
    occur,

(ii)    the extent of prejudice
    to any party,

(iii)   the good faith of the
    parties,

(iv)   the availability of
    suitable alternative counsel, and

(v)    issues affecting the
    public interest.

[40]

Guidelines to protect confidential information are set out in the
    commentary to r. 2.05. In particular, guidelines 1, 10,11 and 12 state:

1.     The
    screened lawyer should have no involvement in the new law firms representation
    of its client.



10.  The screened lawyers office
    or work station and that of the lawyers support staff should be located away
    from the offices or work stations of lawyers and support staff working on the
    matter.

11.   The screened lawyer should
    use associates and support staff different from those working on the current
    matter.

12.   In the case of law firms
    with multiple law offices, consideration should be given to referring conduct
    of the matter to counsel in another office.

[41]

In
Robertson

v.
    Slater Vecchio
, 2008 BCCA 306, 81 B.C.L.R.
    (4th) 472
, the British Columbia Court of Appeal held that not every
    guideline must be followed to the letter.

[42]

Robertson
involved a conflicted lawyer who had acted for
    defendants in various lawsuits while at his old firm and who migrated to a nine-person
    law firm that acted for the plaintiffs. There was some delay in the
    implementation of the ethical screen, and two of the guidelines, which were
    identical to the LSUCs guidelines 11 and 12, were not followed. Despite these
    shortcomings, the application judge held that the test in
MacDonald Estate
was met, and he dismissed the application for disqualification.

[43]

There was no doubt that the tainted lawyer had received confidential
    information. On the issue of the tainted lawyers interaction with other lawyers,
    Newbury J.A. of the B.C. Court of Appeal stated, at para. 14:

The chambers judge noted, it was unclear on the evidence
    whether [the tainted lawyers] work at [his new law firm] was kept far enough
    away from other lawyers and staff, and whether he avoided working with
    associates and staff involved in the [appellants] lawsuits. Given this
    comment, we should assume for purposes of this appeal that [the tainted lawyers]
    work area was not a segregated one and that he is likely to have worked with lawyers
    and staff members who were working on those matters. [Citations omitted.]

[44]

Newbury J.A. also observed that guideline 11 was virtually irrelevant
    where the concern is disclosure of information
by
a lawyer as opposed
to
disclosure
to
him or her. She noted that
    guideline 12 was a particular challenge for small firms and stated, at para. 25:

The Guideline is limited to professional interactions and does
    not purport to prohibit purely social or even administrative contact, contrary
    to the suggestion of counsel for the appellants in this courtThe law does not
    purport to prohibit all interaction, such as participation in management
    activities or even socializing, between the lawyer and his new colleagues.

[45]

Newbury J.A. went on to note that if all interactions were prohibited,
    then disqualification would be a virtual given and the minority opinion of
    Cory J. in
MacDonald Estate
would become the de facto law.

[46]

Ultimately, the B.C. Court of Appeal in
Robertson
was unable to
    conclude that the application judge had misdirected himself, or that his
    decision was so clearly wrong as to amount to an injustice, and therefore dismissed
    the appeal.

[47]

Although
Robertson
involved noncompliance with the guidelines
    and a tainted lawyer who likely had worked with lawyers and staff who were
    working on conflicted matters, the
degree
of
    contact between the tainted lawyer and those working on the conflicted matters
    was dissimilar to that in the case under appeal. That said, the decision in
Robertson
does reiterate the discretionary nature of a determination of disqualification,
    and it also stands for the proposition that compliance with all of the
    guidelines is not mandatory.

[48]

However, implementation of the guidelines is a significant factor to
    consider when an application judge is exercising his or her discretion. Canadian
    courts have typically held that compliance with the guidelines provides
    sufficient protection for the migrating lawyers former client: see
Robertson
;
Dwyer v. Mann
, 2011 ONSC 2163, [2011] O.J. No. 1551; and
Bank of
    Montreal v. Dresler
, 2002 NBCA 69, 253 N.B.R. (2d) 37. That said, while
    highly persuasive, compliance is not determinative.

[49]

Counsel were unable to identify any case that was on all fours with the
    case under appeal.

E.

Positions of The Parties

[50]

The appellant, AIG, submits that it was not the application judge who
    applied the wrong test. Rather, the Divisional Court applied the dissenting
    test articulated by Cory J. in
MacDonald Estate
. The application judge
    properly gave precedence to the integrity of the justice system and only
    considered other values, such as choice of counsel, after he had determined the
    sufficiency of the ethical screen.

[51]

AIG also submits that the Divisional Court ignored post-
MacDonald
    Estate
jurisprudence and that Canadian courts have found that where a law
    firm implements an ethical screen in compliance with the LSUCs requirements in
    a timely manner, the presumption that lawyers share confidences is rebutted.

[52]

Lastly, AIG submits that the Divisional Court applied the wrong standard
    of review. The application judge came to the correct decision and, at the very
    least, it was a reasonable conclusion.

[53]

The respondent, Ontario, submits that the application judge failed to
    distinguish between inevitable incidental contact and a case such as this,
    where the tainted lawyer works closely with the lawyer working on the
    conflicted matter. Instead, he favoured a mechanical application of the LSUC
    guidelines. The concern should be whether a screen is effective, not whether it
    is comprehensive. Not every conflict of interest can be successfully met by
    following the LSUC guidelines.

[54]

Ontario also argues that no weight should be given to the value of AIG
    being represented by its counsel of choice, because the conflict of interest in
    this case was neither inadvertent nor unforeseen. Rather, it was created by
    LBMs own conduct.

[55]

Lastly, Ontario submits that the appellant has failed to refer to any
    case where the work of the two lawyers was so intertwined as in this case.

F.

Analysis

(1)      Standard of Review

[56]

The first issue to consider is whether the Divisional Court applied the
    correct standard of review. In my view, it did.

[57]

The Divisional Court properly identified a disqualification motion as
    being discretionary in nature. Such a decision is reversible where the court
    has misdirected itself, has come to a decision that is so clearly wrong that it
    amounts to an injustice, or where the court gives no or insufficient weight to
    relevant considerations:
Penner v. Niagara Regional Police Services Board
,
    2013 SCC 19, [2013] 2 S.C.R. 125, at para. 27.

(2)      Assessment of the Application Judges Decision

[58]

The Divisional Court spent some time focusing on the dissenting opinion
    in
MacDonald Estate
. The appellant relies on this fact to argue that
    it was simply substituting its discretion for that of the application judge.

[59]

Although its emphasis on the dissent in
MacDonald Estate
was
    unnecessary, I agree with the Divisional Court that the application judge
    misdirected himself. He did so in two respects.

(i)

LSUC Guidelines not Dispositive in Circumstances of this Case

[60]

First, having identified the proper test as described in
MacDonald
    Estate
, the application judge proceeded to treat the guidelines as an
    exhaustive answer and effectively reversed the onus of proof. The application
    judge acknowledged the applicable presumption that lawyers who work together
    share confidences. But, in considering whether that presumption had been
    rebutted, at para. 41, he asked the wrong question.: What more could be done
    to protect the confidentiality of [Ontarios] information?

[61]

To ask this question precludes the possibility that no measure could be
    sufficient to address the degree of professional contact between the two
    lawyers. The application judge assumed that every conflict could be
    successfully met by the imposition of the guidelines. This was in error.

[62]

As an example, as Mr. MacKenzie for AIG candidly acknowledged, no screen
    would effectively screen a firm of two lawyers having a familial relationship. Post-
MacDonald
    Estate
jurisprudence does not uniformly provide that compliance with
    regulatory guidelines precludes disqualification. For example,  in
Winford
    Insulations Ltd. v. Andarr Industries In
c.,
    1998 ABQB 1124, 243 A.R. 1
, where the court held that reasonable
    measures taken to prevent the disclosure of confidential information were
    insufficient to avoid disqualification in a case involving two lawyers who
    worked in close physical proximity in a firm of 10 to 11 lawyers.

[63]

Further, in the province of Ontario, the legal profession has expressly
    recognized that compliance with the rules and guidelines may not be adequate in
    every case. In the commentary to its
Rules of Professional Conduct
,
    the LSUC writes:

It is not possible to offer a set of reasonable measures that
    will be appropriate or adequate in every case. Instead, the new law firm that
    seeks to implement reasonable measures must exercise professional judgment in
    determining what steps must be taken to ensure that no disclosure will occur to
    any member of the new law firm of the former clients confidential
    information.



Adoption of only some of the guidelines may be adequate in some
    cases, while adoption of them all may not be sufficient in others.

[64]

Sopinka J. observed, at p. 1262 of
MacDonald Estate
, that it is
    not for the court to develop standards; that is the role of the governing
    bodies of the self-governing legal profession. The courts role is merely
    supervisory. But neither
MacDonald Estate
,
nor the guidelines themselves, suggest that the court
    should abdicate its supervisory responsibility. In fact, the Supreme Court
    recently reiterated the supervisory role of the courts in resolving conflicts
    of interest. In
Canadian National Railway Co. v. McKercher LLP
, 2013
    SCC 39, [2013] 2 S.C.R. 649, McLachlin C.J. stated, at para. 16:

Both the courts and law societies are involved in resolving
    issues relating to conflicts of interest  the courts from the perspective of
    the proper administration of justice, the law societies from the perspective of
    good governance of the profession. [Citations omitted.]

[65]

I would also add that this decision is not about small firms versus
    large firms. Admittedly, by Toronto standards, LBM is a small firm. It is a
    litigation boutique and consists of 14 lawyers. But, in this case, the size of
    the firm is irrelevant. What is relevant is the integrated nature of Foulds
    and McInnis practices. Foulds works with McInnis 50 to 60 percent of the time.
    While technology, such as e-mail, might serve to diminish face-to-face
    interaction, the potential for inadvertent disclosure is significant. Indeed,
    LBM recognized the potential for such disclosure by imposing a safeguard that
    Foulds office would be located several offices away from those LBM personnel
    working on Ontario-AIG matters. However, this precaution does little to address
    Foulds actual working relationship with McInnis. In addition, Foulds also
    continues to spend 50 percent of his time working for AIG, and AIG is a client
    he shares in common with McInnis.

[66]

Moreover, any disclosure of the subject matter of the confidential
    information held by Foulds has the potential to be very prejudicial to Ontario.
    The dispute between AIG and Ontario relates to coverage. Significantly, Foulds
    was privy to the failed negotiations with AIG and is in possession of the terms
    of the confidential settlements entered into between Ontario and the other
    insurers who were originally disputing coverage along with AIG.

[67]

While the appellants may have achieved technical compliance with the r.
    2.05 guidelines, in my view, compliance with the spirit of those guidelines is
    absent.

[68]

The objective of the guidelines is to limit or screen interaction. This
    is particularly evident from guidelines 10, 11 and 12.   The most striking
    feature of this case is that Foulds spends 50 to 60 percent of his time working
    with McInnis  In the face of that fact, it cannot be said that there is clear
    and convincing evidence that all reasonable measures are being taken to ensure
    that no disclosure would occur by Foulds to AIGs counsel. The public,
    represented by the reasonably informed person, could not be satisfied that no
    use of confidential information would occur between two people with such an
    intense working relationship.

(ii)

Paramountcy of the Integrity of Legal Profession

[69]

Secondly, the application judge treated the examination of the conflict
    issue as a balancing exercise between the three competing interests: protecting
    Ontarios confidential information, the integrity of the legal system, and the
    right to choose ones own counsel. In my view, he erred is so doing.

[70]

Although the right to ones choice of counsel is one of the three values
    identified in
MacDonald Estate
as bearing on the issue of conflict, it
    is not paramount. As noted in that case, and as rephrased by the Saskatchewan
    Court of Appeal in
Wallace v. Canadian National Railroad
, 2011 SKCA
    108, 340 D.L.R. (4th) 402, revd on other grounds (
sub nom. Canadian
    National Railway Co. v. McKercher LLP
) 2013 SCC 39, [2013] 2 S.C.R. 649) at
    para. 55, primacy [is] given to the integrity of both the legal profession and
    the administration of justice overa clients choice of lawyer and lawyer
    mobility.

[71]

While in
MacDonald Estate
,
at p. 1263, Sopinka J. mentions the word balance, it is in a different
    context. There, he was addressing standards to be developed by the Canadian Bar
    Association which would give precedence to the preservation of the
    confidentiality of information imparted to a solicitor, but would also reflect
    the interests relating to choice of counsel and mobility. He was not referring
    to the courts role in addressing a disqualification motion. A court is to give
    primacy to the integrity of the legal profession and the administration of
    justice.

G.

CONCLUSION

[72]

In its submissions, AIG raised the concern that concurrence with the Divisional
    Courts decision would result in uncertainty in the law. This concern lacks
    foundation.  Most cases that are guideline compliant will be unobjectionable.  However,
    this case is most unusual given the intense working relationship between Foulds
    and McInnis. The presumption is that lawyers who work together share
    confidences, absent clear and convincing evidence that all reasonable measures
    have been taken to ensure no disclosure will occur. The evidence in this case
    is neither clear nor convincing.

[73]

As mentioned, the concern of inadvertent disclosure should not be taken
    as a reflection of the integrity of either lawyer. Rather, it is the integrity
    of the justice system that is in issue.


H.

Disposition

[74]

For these reasons, the appeal is dismissed. AIG is to pay Ontarios
    costs of the appeal, including the leave to appeal motion, fixed in the amount agreed
    to by the parties, namely,  $25,000 inclusive of disbursements and applicable
    tax.

Released:

RJS                                                   S.E.
    Pepall J.A.

JAN 24 2017                                     I agree
    Robert J. Sharpe J.A.

I
    agree C.W. Hourigan J.A.





[1]
LSUC uses the less charged term screened in its guidelines.


