The Merriam-Webster dictionary defines the word absolute as “having no restriction, exception, or qualification.”
Fittingly, the word absolute was used to define the privilege enjoyed by lawyers, amongst others, from any liability for comments made during a judicial proceeding.
So sacrosanct was this principle to the administration of justice that courts have held that claims by third parties against lawyers for comments made during a judicial proceeding “must be stopped at once.”
Despite what has historically been seen as a privilege without exception, the Divisional Court, ruling in
Amato v. Welsh, permitted a claim to proceed as a possible exception to absolute privilege.
In a split decision, the majority held that in the unique facts of the case, it was possible that a court could find that the defining principle of the duty of loyalty trumps the “indispensable attribute” of absolute immunity.
In Amato, the plaintiffs commenced an action against their former solicitors and law firm for a breach of fiduciary duty, negligence, and breach of the duty of loyalty. The plaintiffs were the victims of an alleged Ponzi scheme.
They loaned money to the perpetrators of the scheme on the promise of returns of approximately 25 per cent. The alleged perpetrator of the scheme retained the defendant law firm and recommended that the plaintiffs also do so.
Subsequent to the retainer, the Ontario Securities Commission initiated an investigation into the scheme and interviewed the alleged perpetrator in the presence of counsel from the defendant law firm.
The plaintiffs allege that, during the interview with the alleged perpetrator, the solicitor failed to advise the OSC of the plaintiffs’ existence despite being aware that the defendant was operating a Ponzi scheme.
The plaintiffs claimed that had the defendant solicitor disclosed their existence, the OSC would have discovered the Ponzi scheme earlier and reduced the losses suffered. None of the allegations have been proven in court.
The defendants brought a Rule 21 motion to strike the pleading on the basis of absolute privilege. The defendants argued that the statement of claim contained pleadings that relied solely on what the defendant solicitor did and didn’t say during the course of the interview.
At first instance, the court dismissed the defendants’ motion. Justice Thomas Lederer then granted leave to appeal. In a split 2-1 decision, the Divisional Court upheld the motion judge’s ruling.
Justice Alexandra Hoy (now of the Court of Appeal), writing on behalf of the majority of the Divisional Court, held that the duty of loyalty owed by the defendant law firm to the plaintiffs could, in fact, trump absolute privilege.
Noting that earlier Ontario jurisprudence had held that the doctrine of absolute privilege didn’t preclude a former client from suing a solicitor for negligence during the course of a judicial proceeding, Hoy held that it wasn’t “plain and obvious” that absolute privilege precluded an action in the circumstances.
The minority decision, penned by Justice Peter Hockin, distinguished the earlier jurisprudence on the basis that “absolute privilege cannot protect [a] lawyer from claims of negligence or breach of fiduciary duty in the representation of a client, if it is that client whom the lawyer represented before the tribunal or court.
That is not the case here.” As the plaintiffs were third parties to the retainer in terms of the OSC investigation, they couldn’t claim liability for the conduct of the solicitor during the course of it.
The split decision represents the flipside of the interpretive coin of the duty of loyalty. On the facts of the case, the majority decision interprets the duty as including an obligation to protect the plaintiffs’ interests despite the fact that they hadn’t retained the defendant law firm for the OSC investigation.
Underlying the majority’s decision is an expansive view of the plaintiffs’ retainer with the defendant law firm. In that scenario, the related nature of the OSC investigation to the original retainer requires the defendant law firm to continue to represent the best interests of the plaintiffs during it.
The minority decision, on the other hand, interprets the duty of loyalty as solely to the alleged perpetrator. The defendant law firm had a duty to zealously represent the alleged perpetrator without any divided loyalty.
The minority decision interprets the plaintiffs’ retainer with the defendant law firm in a limited manner. In that scenario, the duty owed to the plaintiffs couldn’t interfere with the obligation to the perpetrator during the OSC investigation.
The defendant law firm has sought leave to appeal from the Court of Appeal. It has yet to render a decision on leave.
The Divisional Court’s split decision reflects the complicated nature of lawyers’ loyalty to their clients when acting on behalf of multiple parties in related matters.
Accepting the facts as pleaded, the decision reflects the importance of continually assessing whether there are conflicts that would cause divided loyalty between clients.
Oddly, it would appear that allowing the plaintiffs to commence a claim for the conduct of the lawyer during the OSC investigation actually creates a divided loyalty.
That fact is evident in the plaintiffs’ claim that the defendant solicitor should have revealed their existence to the OSC as this would have led to an earlier discovery of the Ponzi scheme.
But assisting the OSC in ascertaining the unlawful conduct would have been contrary to the solicitor’s duty to the alleged perpetrator. Permitting this exception to absolute privilege opens the door to divided loyalties that would otherwise not exist within the context of the OSC investigation.
The protection afforded by absolute privilege allows solicitors to represent their clients without divided loyalties. Creating an exception, no matter how unique the set of facts, runs the risk of fettering lawyers’ ability to zealously represent their clients’ interests.
The defendant law firm’s request for leave to appeal, then, provides the Court of Appeal with the opportunity to add clarity to the conflicting interpretation of the duty of loyalty and its application to the doctrine of absolute privilege.
On the facts of the Amato case as pleaded, the court found the defendants’ liability could be founded in a breach of loyalty that occurred outside of the OSC investigation.
Where liability can be founded outside of the judicial proceeding, I question the utility of expanding the scope of solicitors’ liability by creating exceptions to a doctrine intended to protect the zealous representation of a client.
Sunil Mathai is a lawyer with Falconer Charney LLP.
