In Merchant v. Law Society of Saskatchewan, 2022 SKCA 2 (CanLII), the lawyer acted for a client with respect to her residential school claim. The layer’s law firm also provided unrelated legal services to the client and her son, which the lawyer alleged the client promised to pay from her residential school settlement. When the Indian Residential School Settlement Agreement (IRSSA) was reached in 2006, it contained an article prohibiting the assignment of settlement proceeds paid in accordance with the agreement. The lawyer submitted two requests to the Law Society about the propriety of applying settlement proceeds to legal fees for matters unrelated to a settlement claim. The Law Society declined to answer the question on the basis that it was a legal question rather than an ethical question.

The lawyer sought instructions from the client and received a direction to pay the outstanding unrelated accounts from the settlement funds. The lawyer acted upon the direction to pay and gave the client the balance of the settlement. The client complained of the lawyer’s conduct to the Chief Adjudicator for the Independent Assessment Process under the IRSSA. The lawyer was instructed to return the withheld funds to the client. The lawyer promptly applied to the B.C. Supreme Court for a direction that he was entitled to retain the withheld funds. The Court found that the funds had been improperly assigned pursuant to the IRSSA and instructed that they be returned to the client. The lawyer complied with the Court’s direction.

The client also filed a complaint about the lawyer’s conduct with the Law Society of Saskatchewan. The Hearing Committee’s conduct decision found the lawyer guilty of conduct unbecoming a lawyer and suspended him from practising law for eight months. The lawyer appealed the conduct decision.

Ryan-Froslie J.A., for the Saskatchewan Court of Appeal, found that the Hearing Committee erred in finding that:

1. a mere direction to pay necessarily amounted to an assignment;
   
2. the law at the relevant time was “clear” that the lawyer was prohibited by the IRSSA from acting on the direction to pay; and
   
3. the lawyer could not have had an honest but mistaken belief that the direction to pay was enforceable due to his specialized knowledge and involvement in the IRSSA negotiations. 

The Court of Appeal found that it was not conduct unbecoming a lawyer to raise a legitimate question of law, despite the fact that the question was ultimately decided against them. The Hearing Committee’s conduct decision was set aside.