The Cozy Bank-Law Firm Relationship May Not Be So Cozy After All…These days Anyway, Part II.

By: Ainsley Brown

McKenna v. Gammon Gold Inc.

This is case that has the potential to redefine the very cozy relationship law firms have with their banker clients. No longer will bankers be given blanket coverage under conflict of interest rules to prevent law firms from being representatives in claims brought against them.

The operative word here being potential, as you shall will see.

The relevant facts of the case in brief are as follows:  the defendants in the case included the underwriting syndicate of Gammon Gold´s public share offering. Two member of the syndicate included BMO Nesbitt Burns Inc. and TD Securities Inc., both subsidiaries of BMO and TD respectively. It just so happens that Siskinds, who represented the representative plaintiff, McKenna, in the class action, was concurrently retained by BMO and TD to undertake debt enforcement and personal bankruptcy matters. As a result the defendants raised the issue of conflict of interest, seeking to get Siskinds removed from the case.

The judge in the case, Madame Justice Lax, was having none of it; holding that there was no conflict. In her ruling Justice Lax made it clear that ¨the underwriters and banks are separate and sophisticated business and legal entities that are individually governed and autonomous. She went on to say further that ¨the banks had no reasonable expectation that their subsidiaries would be treated as clients.¨

And rightly so.  While I fully agree with the judgment, it still remains unclear how it will be received by banks but more importantly, law firms.  This is why I said it has the potential to redefine the bank-law firm relationship. It will all depends on how it is read.  If the case is read very narrowly and confined to the particular facts of the case, that is where there is a parent and subsidiary relationship and they are separate, sophisticated business and legal entities, individually governed and autonomous, then there is no conflict.  This is the extreme and I don’t believe that it will be this narrowly read.  However, I do believe that there is the strong potential for it to be read narrowly enough as to preserve largely if not totally the existing regime. It will all depend on the mood (i.e. economic conditions) of the law firms I guess.

On the other hand, if the decision is read more globally, it could usher in a new era of freedom to act o the part of law firms. I hope it is the latter; however, I would not be surprised if it is some form of the former.

In a passing note in Part I of this post I referred to lawyers as attack dogs, this was meant as no offence – I even referred to myself as an attack dog in training. However it was said to provoke some self examination and self evaluation on the part of myself and those more senior in the profession. All too often clients see us in that role and we sometimes do little or nothing to disprove this perception.  While I know that I have a long way to go in the profession, I am after all only an articling student, for me; a lawyer is an advocate, a professional that aggressively safeguards the interest s of their clients, however, this duty must be balance against other professional and personal considerations.

Am I wrong or just being naive?

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  • I want to thank you for this post as I am presently writing an article on lawyer-client relationships from the perspective of banks and law firms. Usually the conflict situation never gets to court because law firms tend to conflict themselves out an early stage. When I say conflict out that should be in inverted commas because law firms don’t like to upset bank clients or potential ones so are reluctant to act against them. We may be seeing a change since the financial crisis, but it will revert I’m sure later on.

    On another note I am professor of law and sociology at the University of Westminster and we are now running a blog for the postgraduate department which you were in. We would like to exchange links with you. Our blog is at: http://alswestminster.blogspot.com/. Do let me know. And keep up the very good work with your blog.

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