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CCCA_V4No2_Danger-FIN.qxd:CCCA_V1No1_DriversSeat-FIN.qxd 4/29/10 4:27 PM Page 28 Feature Wayne Egan, a partner at the Toronto law firm WeirFoulds saysWaitzer.“It’s very hard to differentiate the lawyer from the LLP, acted as legal counsel for Aspen from February 1995 and law firm.” served on its board from 1996 onwards. The representative Barry Reiter, a partner in the corporate law group in the plaintiff, Charles Allen, alleges the existence of misrepresenta- Toronto office of Bennett Jones LLP says there is “nothing tions and omissions in the takeover bid circular prepared by wrong with lawyers joining corporate boards provided they Mr. Egan. He argues that his liability, both for his work and in do not personally give legal advice.” Reiter regularly advises his capacity as a director, extends to WeirFoulds. boards, directors and management on governance issues and At the certification motion last September, WeirFould’s sits on several boards.“Never, ever give legal advice when sit- defence lawyer Les O’Connor responded that Mr. Egan was ting as a director.” acting in his capacity as a director and not as a lawyer for At the certification stage of the class action, Justice Strathy WeirFoulds. For the defence,“to hold the law firm liable for did not address whether remuneration paid to the lawyer or the lawyer’s actions as a director will have a chilling effect on his firm was a factor in potentially extending liability. But it the legal profession and will result in a nationwide flood of is a line of inquiry that might be considered.“If the [director’s] resignations of directorships.” remuneration went only to lawyer and didn’t flow into the It wasn’t enough for Justice Strathy, who found that the firm’s partnership pool, the law firm can argue there’s no lia- plaintiff’s pleading disclosed a potential cause of action reason- bility on the part of the firm,” Devereux says. ing that it was arguable that a lawyer acting both as a director “Most law firms regard directors’ compensation as a firm and external counsel to a company may be doing so in the asset,” says Reiter.“While it may not necessarily be definitive “ordinary course of business of the law firm” — a rationale in assessing liability, I’d see it as a factor.” Mercer concurs: that could support extending liability to the firm. “One of the ways in which the role of lawyer as director can get confused is if the compensation that the lawyer receives is Protecting the law firm from liability turned over to the firm.” “Twenty years ago all of the senior corporate lawyers tended Waitzer says that some law firms take the view that any to serve on clients’ boards, because they wanted to strengthen remuneration received by partners acting as directors goes to the relationship with their clients,” says Ed Waitzer, a partner the law firm since it is a partnership while others take the at Stikeman Elliott LLP and the chair in corporate governance opposite view and do not want to touch any remuneration and director of the Hennick Centre for Business and Law at from directorships. However, says Waitzer, where the remu- Osgoode Hall Law School. He cautions:“Now the norm has neration goes in assigning liability is irrelevant since it’s only shifted. It’s not done without careful consideration.” “tinkering at the margin.” Today, many firms discourage lawyers from serving on clients’ boards due to the perils of personal liability for the The impact of Allen v. Aspen Group Resources lawyer and the potential conflicts of interest for the firm.The For now it is difficult to assess the significance of Allen v.Aspen ruling in Allen v. Aspen Group Resources “highlights another Group Resources, since it has only cleared certification and lia- level of potential risk that should be considered” says Jeremy bility has not been found yet, says Mercer.The test for certifi- Devereux,a partner and chair of the litigation group at Ogilvy cation of a class proceeding against a defendant is quite low. Renault LLP inToronto.“The risk to the law firm as a whole.” Under Ontario’s Class Proceedings Act, the pleading need only Can law firms somehow insulate themselves from potential “disclose a cause of action” and the Act has been interpreted liability for a partner or associate sitting on a corporate board? liberally with absolutely no assessment made on the merits of “From the law firm’s perspective we must make it clear the action at the certification stage. whether a lawyer is on a board of directors in a personal “Judges tend to bend over backwards on certification, so I capacity or not,” advises Malcolm Mercer, general counsel for wouldn’t read too much into [the case],”Waitzer says. McCarthy Tétrault LLP and a partner in its litigation group. Even so, he suspects that law firms may insist on waivers But distinguishing between acting as a director and a lawyer as protection from liability for lawyers sitting on boards in and between the lawyer and the law firm poses challenges the future. PAUL EEKHOFF since the lines are often blurry.“Wearing two hats is difficult,” And according to Devereux “at a minimum the decision 28 CCCA Canadian Corporate Counsel Association SUMMER 2010