It's complicated.1
So begins the discussion and analysis of whether a lawyer may act as counsel of record in both a class action and an individual action dealing with the same causes of action, albeit for different named individuals.
A lawyer's duties to her client include a duty to avoid conflicts of interest and a duty of loyalty. A conflict of interest arises where there is a substantial risk that a lawyer's loyalty to or representation of a client would be materially and adversely affected by the lawyer's own interest or the lawyer's duties to another client. Aspects of the duty of loyalty include duties of confidentiality, candour and commitment to the client's cause.2 Where a lawyer is appointed class counsel there are additional duties to fairly and adequately represent the interests of the class.3
In Vaeth v North American Palladium, 2016 ONSC 5015, a number of plaintiffs in an individual action and the proposed representative plaintiff in a class action were represented by the same counsel. Both actions alleged the same misrepresentations in corporate public disclosure documents and both advanced common law and statutory claims. Justice Perell considered motions to stay both actions temporarily.4 While this situation raised both conflict of interest issues and issues regarding a multiplicity of proceedings, in this posting, we focus on the conflict of interest problems.
Where a lawyer acts for plaintiffs in an individual action and a class action in respect of the same cause of action and claim, there is overlap as the individual plaintiffs are, unless and until they opt out, members of the class. Justice Perell found that a joint retainer in these circumstances contains conflicts of interest where the individuals who are advancing their own actions plan to and do opt out of the class action. He further found that these conflicts were irreconcilable and could not be waived.5
Justice Perell set out various assumptions and discussed a number of problems that arise:
- Individuals will opt out where they believe they will do better pursuing their own actions than results achievable within the class action;6
- Any discrepancy in recovery between the individual action and the class action may result in a perception of, if not actual, unfairness or disproportionate distribution;7
- Counsel's ability to recommend and negotiate settlement is compromised;8
- Individuals with significant losses have different incentives than class counsel and the representative plaintiff in negotiating settlement;9
- There is a danger of conflicting instructions;10 and
- The deemed undertaking rule mandates that all evidence or information gained through the discovery process of one action not be used for any purpose other than those in which it was obtained, without leave of the court.11
There are therefore very real competing interests that make it impossible for a lawyer to fulfil their duties to both sets of clients. The dangers include concerns not only that one action not be leveraged to favour the other but also considerations of the optics.
In the end, Justice Perell held that the lawyer could act for one or the other but not both. Temporary stay orders were granted directed towards ensuring that the lawyer would only be on the record for one action.
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1Vaeth v North American Palladium, 2016 ONSC 5015 (“Vaeth”) at para 29
2Commentary to Rule 3.4-1 of the Rules of Professional Conduct at paras 1-2
3See for example Fantl v Transamerica Life Canada, 2008 CanLII 17304 (ONSC) at para 71
4Vaeth at paras 1-3
5Vaeth at paras 31, 66-68 and 77
6Vaeth at para 67
7Vaeth at paras 68-72
8Vaeth at paras 72-73
9Vaeth at para 73
10Vaeth at para 75
11Vaeth at para 74