Nunavut – No lawyer disqualification for near-client relationship in prior arbitration – #841

In The Government of Nunavut v. Stantec Architecture Ltd., 2024 NUCJ 11, the Court dismissed the application of Defendant Stantec Architecture Ltd. (“Stantec”) to disqualify the lawyers of the Plaintiff, Government of Nunavut (“Nunavut”), from acting in the litigation. The dispute arose from the construction of an arena (“Project”). Stantec, the architect for the Project, argued that the Nunavut’s lawyers were in a conflict of interest because of a confidential cooperation agreement in which Nunavut’s counsel had assisted Stantec in a previous arbitration in which Stantec and the construction company hired for the Project were parties. That construction company was not a party to this action. Stantec alleged a “near-client” relationship with Nunavut’s lawyers arising from this cooperation agreement which disqualified them from acting for Nunavut in this litigation. The Court dismissed the application because the cooperation agreement specifically excluded the creation of a solicitor-client relationship between Stantec and Nunavut’s lawyers and expressly reserved the parties’ rights and recourses against each other concerning the Project.

The Arbitration – The construction company hired to build the Project commenced an arbitration against the Nunavut, claiming $1.6 million in damages and unpaid fees. To support Nunavut’s defence, Nunavut and Stantec entered into a confidential cooperation agreement, pursuant to which they worked closely during the whole arbitration in contesting the construction company’s claim. The arbitration was settled before the hearing on the merits on terms that were not disclosed to Stantec.

The alleged conflict – Following the settlement, Nunavut sued Stantec for damages it claimed it suffered as a result of Stantec’s involvement in the Project. Nunavut was represented in the action by the same lawyers who acted for it in the arbitration and with whom Stantec worked closely in contesting the construction company’s claim against Nunavut.

The Application to Disqualify – Stantec brought an application to disqualify Nunavut’s lawyers because of the relationship created during the cooperation agreement. Stantec had given Nunavut broad access to its documents and employees while it defended the arbitration. Therefore, Stantec argued there was a near-client relationship between Stantec and Nunavut’s lawyers and that this relationship gave rise to a conflict of interest that was sufficient for their disqualification.

The Court reviewed the applicable criteria:

“[17]   Typically, these cases require two questions to be answered: (1) Did the lawyer receive confidential information attributable to a solicitor and client relationship relevant to the matter at heart?; and (2) Is there a risk that it will be used to the prejudice of the client?”

Then, the Court examined the parties’ cooperation agreement itself. The Court concluded the following:

  • The Parties were both highly sophisticated and represented by specialized lawyers for the negotiation and conclusion of the cooperation agreement;
  • The Parties expressly agreed that the cooperation agreement would not create any solicitor-client relationship;
  • The Parties expressly reserved their rights and recourses against each other within the agreement; and
  • The Parties were represented by lawyers throughout the execution of the cooperation agreement. Therefore, the execution of the agreement has been monitored and managed knowing that Stantec’s liability may be at risk.

The Court dismissed the application for disqualification of Nunavut’s lawyers because the parties had negotiated clear wording that left no doubt about the possibility that a dispute could arise between them afterwards. Therefore, the Court ruled as follows:

“[25]   […] I infer from the evidence that Stantec’s lawyers advised and explained the parameters of Stantec’s cooperation with [Nunavut] to Stantec’s employees and management in the arbitration through that lens; and with a view to shielding Stantec from any liability.

[26]   Given the express and unambiguous agreements negotiated and agreed to by the Parties, I am satisfied that Stantec cooperated with [Nunavut] throughout the arbitration knowing that [Nunavut] had expressly reserved its rights against Stantec and that the current situation was always a realistic possibility.

[27]   Each side cooperated with the other during the arbitration to further their own individual interests. Stantec could not have entertained any expectation of loyalty from [Nunavut] and its lawyers.”

Contributor’s Notes:

It is interesting that the Court did not, in fact, address the elements of the test it set out for itself.

However, this case is interesting because it confirms that the applicable test for counsel’s disqualification remains the same in an arbitration or litigation context. The attorney-client relationship analysis depends mostly on the circumstances of each case.

In this case, the wording of the agreement concluded between the Parties was a deciding factor. This was also the case in Glen Eagle Resources Inc. v. GEM Global Yield, 2023 QCCS 3144. In Glen Eagle, the transaction wording specifically identified who the counsel was acting for, which was a deciding factor for the Court in dismissing the application for disqualification. (See Case Note Québec-Arbitration counsel not disqualified, despite opposing party paying underlying transaction fees – #771)

The importance given to the parties’ agreement in these cases brings to light the application of a very well-known fundamental principle of arbitration: the autonomy of the parties. (GreCon Dimter inc. v. J.R. Normand inc., 2005 SCC 46.)