by Scarlett Forest
2022 winner of the "In the Public Interest" Student Essay Contest
The fiduciary relationship between solicitors and their clients necessitates that lawyers be completely committed to advocating for their client’s cause. Conflicts of interest must be avoided to ensure lawyers are able to fulfill their duty of loyalty to their client. The Supreme Court of Canada has outlined the contours of the duty of loyalty in the so-called “conflicts quartet” of jurisprudence. All four of these decisions discuss lawyers who are in private practice. However, the practice of law within an organizational setting, where lawyers serve one main client, is increasingly shaping the present and future of the legal profession in Canada.1 Many of these lawyers work as in-house counsel for a corporate employer or public body. Others are government lawyers who serve the Crown. Lawyers who work in public settings need to uphold the same ethical and legal duties as their private practice counterparts, including the obligation to avoid conflicts of interest.
Public institutional lawyers should be familiar with the conflict of interest framework for private in-house counsel and the conflict of interest challenges which are unique to their role as government counsel. Alternative business structures (ABS) present new practice structure possibilities and conflict of interest challenges for all lawyers, especially in-house and government counsel who engage with external firms for their specialized knowledge and expertise. Research into legal ethics and professionalism for in-house counsel and government lawyers is important and necessary not only because of the sheer number of lawyers who work in these practice settings, but because the contexts in which they practice raise special and unique issues.2 Public in-house counsel, private in-house counsel, and government lawyers are more likely than their counterparts in private practice to find that the rules of professional conduct do not directly or adequately address their circumstances. Due to this lack of guidance and tools, in-house counsel and government lawyers who practice in public settings are at a significant disadvantage when attempting to meet the highest standards of ethical conduct, including their duty to avoid conflicts of interest.3 Greater attention must be paid to the unique circumstances experienced by in-house counsel and government lawyers to ensure their ethical commitments, especially their duty to avoid conflicts of interest, can be maintained.
The Lawyer’s Duty to Avoid Conflicts of Interest
Loyalty is the core moral requirement or value traditionally associated with legal practice.4 Loyalty has three defining features: that the lawyer be neutral towards the client’s goals, that the lawyer not be morally accountable for the client’s goals, and that the lawyer act as partisan to accomplish the client’s goals.5 The duty of loyalty means the lawyer must place the interests of the client above those of other people.6 As stated by Binnie J in Strother v 3464920 Canada Inc, “A fundamental duty of a lawyer is to act in the best interest of his or her client to the exclusion of all other adverse interests, except those duly disclosed by the lawyer and willingly accepted by the client.”7 The lawyer’s duty of loyalty ensures clients are able to trust their solicitor, which is a key component of the lawyer-client relationship.
One of the ways lawyers maintain loyalty to their clients is through their duty to avoid conflicting interests.8 The duty to avoid conflicts reinforces the lawyer’s duty of confidentiality, which is a distinct duty on its own.9 A lawyer has a duty to a former client to maintain their loyalty and refrain from misusing confidential information.10 For a current client, the lawyer must neither misuse confidential information, nor place themselves in a situation that jeopardizes their effective and zealous representation of their client.11 Conflicts of interest may occur when a lawyer’s loyalty to one client impacts their ability to fulfill their duty of loyalty to another client.
The Federation of Law Societies of Canada’s Model Code of Professional Conduct provides guidance to identify a conflict of interest. Rule 3.4-1 states that “A lawyer must not act or continue to act for a client where there is a conflict of interest, except as permitted under this Code.”12 Commentary [6] to Rule 3.4-1 notes that a “client must be assured of the lawyer’s undivided loyalty, free from any material impairment of the lawyer and client relationship.”13 A lawyer’s duty to avoid conflicts of interest is an ongoing obligation. Commentary [10] to Rule 3.4-1 sets out a list of some of the factors a lawyer should consider to determine whether a conflict exists:
- the immediacy of the legal interests;
- whether the legal interests are directly adverse;
- whether the issue is substantive or procedural;
- the temporal relationship between the matters;
- the significance of the issue to the immediate and long-term interests of the clients involved; and
- the clients' reasonable expectations in retaining the lawyer for the particular matter or representation.
Rule 3.4-2 states that a “lawyer must not represent a client in a matter when there is a conflict of interest unless there is express or implied consent from all affected clients” and the lawyer reasonably believes they can effectively represent both clients.14 A lawyer must uphold their duty to avoid conflicts of interest, regardless of the setting in which they practice.
The ability for lawyers to provide legal representation free from conflicts of interest has become complex in today’s legal environment.15 As noted by now Justice Alice Woolley of the Alberta Court of Queen’s Bench, “[p]erhaps no area of law governing lawyers consumes more time, creates more confusion and frustration, or causes lawyers more difficulty in their practices, than the rules governing conflicts of interest.”16 Jurisprudence has been developed to help refine the lawyer’s duty to avoid conflicts of interest, especially in relation to client-client conflicts.
The Supreme Court of Canada’s Conflicts Quartet
The Supreme Court of Canada has released four major decisions which help define the rules and obligations of lawyers who face a conflict of interest. Known as the “conflicts quartet,” each decision discusses a different practice setting. The tests and fundamental values illuminated in the quartet remain relevant to organizational counsel and provide the “most meaningful jurisprudential consideration of conflicts in Canada.”17
i) MacDonald Estate v Martin Lays the Foundation
The first decision in the quartet, MacDonald Estate v Martin, involved a lawyer who transferred to a new private law firm. The case discussed a potential conflict between the transferring lawyer’s duty to his or her former client and the lawyer’s duty to current clients at their new firm.18 Prior to MacDonald, a conflict of interest analysis used the “probability of real mischief” test.19 This test deemed a conflict to exist if the lawyer possessed, or might possess, confidential information that might prejudice their representation of the client.20 MacDonald approached the question of conflicts of interest from a different perspective. Sopinka J, writing for a slim majority, identified three relevant public policy issues – respect for the integrity of the administration of justice, the interest of lawyers in reasonable mobility within the legal profession, and the right of clients to have a choice of counsel.21 Respect for the administration of justice was identified as the paramount public policy value. Sopinka J found that the “probability of mischief” standard was not high enough to satisfy the public requirement of the appearance of justice.22 Instead, a reasonably informed member of the public should be satisfied that no use of confidential information would occur.”23 Two questions should be answered to determine whether there is a conflict of interest. Firstly, did the lawyer receive confidential information attributable to a solicitor and client relationship relevant to the matter at hand? And secondly, is there a risk that this confidential information will be used to prejudice the client?24 Following MacDonald, law society rules and commentaries developed extensive professional rules to better protect confidential information, reduce the risk of its inappropriate disclosure within a law firm, and reduce the subsequent risk of disqualification of a lawyer or law firm from representation of a client adverse in interest.25
ii) R v Neil Establishes the Bright Line Rule
The Supreme Court next considered conflicts of interests in R v Neil, which asked whether a lawyer or law firm can ethically represent two related clients at essentially the same time.26 Binnie J writing for a unanimous Court elevated the standards to be applied where there is a possible conflict of interest. Binnie J’s analysis is grounded in the lawyer’s duty of loyalty and fiduciary obligations.27 The lawyer’s duty of loyalty includes a duty to preserve confidences, a duty to avoid conflicts of interest, a duty of commitment to the client’s cause, and a duty of candour.28 According to Binnie J, a lawyer’s duty of loyalty can be violated even though confidential information was not compromised.29
The test defined in Neil to be applied to current client conflicts of interest, also known as the bright line rule, states:
The bright line is provided by the general rule that a lawyer may not represent one client whose interests are directly adverse to the immediate interests of another current client – even if the two mandates are unrelated — unless both clients consent after receiving full disclosure (and preferably independent legal advice), and the lawyer reasonably believes that he or she is able to represent each client without adversely affecting the other.30
The bright line rule states that a lawyer, or law firm, cannot represent two clients who have adverse legal interests without first obtaining their informed consent. If the bright line rule does not apply, a conflict may still be found to exist where there is a “substantial risk that the lawyer’s representation of the client would be materially and adversely affected” by their representation of the other matter.31 Both the bright line and substantial risk tests apply to lawyers who work in organizations.
Neil generated much discussion and confusion in the legal community. To use Professor Adam Dodek’s words, if MacDonald “was an earthquake, Neil was treated more like a tsunami threatening Canadian legal practice.”32 Binnie J explicitly considered and rejected pragmatic considerations about how big firms operate and insisted that the firm, not the individual lawyer, owes a fiduciary duty to its clients.33 Neil also does not comment on the specific conflict challenges of an institutional lawyer who serves multiple internal clients with contrary, yet unrelated, interests.
iii) Strother v Monarch Entertainment Ltd Refines the Bright Line Rule
Strother v Monarch Entertainment Ltd, the third case in the “conflicts quartet,” refined the bright line rule and addressed uncertainty around business conflicts.34 Strother concerned a lawyer who launched a business with a former executive of a past client and was later sued for breach of fiduciary obligations. Binnie J writing for the majority concluded that a lawyer’s fiduciary duties can extend beyond the strict terms of a retainer. The fiduciary duty between the lawyer and their client is rooted in the contractual retainer, however, the duty of loyalty is also imposed in addition to the contract’s expressed terms.35 In Strother, Binnie J clarified that conflict of interest principles do not preclude a firm or lawyer from acting concurrently for different clients who are in the same business or who compete with one another for business.36 This update to the definition of “direct adversity” between clients makes clear that a conflicting business interest between clients is not necessarily a legal conflict.37 Strother clarified that in-house counsel can serve multiple departments who are part of one client without a conflict simply due to the overlapping nature of the business. Heated debate, especially between the Canadian Bar Association (CBA) and the Federation of Law Societies of Canada (FLSC), continued following Strother. Further judicial guidance was needed about which test should be used to assess a potential conflict of interest.38
iv) Canadian National Railway Co v McKercher LLP Provides New Guidance
The Supreme Court was called on to further clarify the bright line test from Neil in Canadian National Railway Co v McKercher LLP.39 In McKercher, a law firm brought a class action proceeding on behalf of a farmer against the Canadian National Railway (CN). However, the same firm represented CN in other unrelated legal matters. CN brought an application to disqualify the law firm from representing the class action against it.
In a unanimous decision, McLachlin CJ explained the limited scope of the bright line rule. Firstly, McLachlin CJ confirmed that if the bright line test from Neil applies to assess a potential conflict of interest, the substantial risk inquiry is not used. Only when the bright line rule does not apply should the substantial risk inquiry be completed.40 Secondly, the bright line rule applies where the immediate legal interests of clients are directly adverse.41 This means the bright line rule only becomes engaged when clients are adverse in legal interest, not commercial interest.42 The rule does not apply when it is reasonable to expect that the lawyer will concurrently represent adverse parties in unrelated legal matters.43 Finally, a party cannot raise the bright line rule solely as a litigation method to deprive their adversaries of their choice of counsel.44 In the case of McKercher, the bright line rule was applicable as the immediate interests of CN and the class action plaintiff were directly adverse. These interests were legal in nature and it was reasonable in the circumstances for CN to expect McKercher would not act as counsel for the class action.45 McKercher was found to be in a conflict of interest.
A substantial risk assessment must be completed when a situation falls outside the scope of the bright line rule. A substantial risk exists when the lawyer’s representation of the client would be materially and adversely affected by concurrent representation of both matters.46 This risk assessment determination is contextual and fact-specific. The existence of a substantial risk will deem that the lawyer is in a conflict of interest.
The McKercher decision brings clarity to the conflict of interest discussion. The client unreasonableness factor brings an objective perspective to the conflict of interest analysis and is practical for all lawyers to use.47 The use of the descriptor “scope” in the McKercher analysis rather that stricter terms such as “rules and exceptions” could lead to further confusion and legal debate.48 That said, McKercher provides an improved roadmap for lawyers to approach conflict of interest issues, including those who practice as in-house counsel, in government, and other institutional settings.49
The Ethical Obligations of In-House Counsel
In-house counsel are lawyers who work for a single organizational client. For private in-house counsel, the client is their corporate employer. For public in-house counsel, the client is a public body. Public in-house counsel need to uphold the same ethical and legal duties as their private practice counterparts, including the obligation to avoid conflicts of interest. Public institutional lawyers should be familiar with the conflict of interest framework for private in-house counsel. Firstly, these guidelines apply to their role as public servants who are employees of a single, organizational employer. Secondly, public in-house lawyers may interact with private in-house counsel who represent an opposing party in a dispute. All lawyers involved in the matter need to ensure that no conflicts of interest exist for any counsel involved. Finally, public lawyers may seek assistance from external in-house counsel on a file to gain their specialized knowledge and expertise. These interactions between public in-house counsel and the private in-house sector need to remain conflict free to uphold each lawyers’ ethical duties.
In-house counsel in Canada are regulated in the same manner as all other lawyers through Codes of Professional Conduct of provincial bars and law societies. As such, in-house lawyers must uphold the duty of loyalty to their clients and avoid conflicts of interest. In Alfred Crompton Amusement Machines Ltd v Commissioners of Customs and Excises (No 2), Lord Denning characterized the position of the in-house counsel as being no different from the one of the outside counsel:
“Many barristers and solicitors are employed as legal advisers, whole time, by a single employer. Sometimes the employer is a great commercial concern. At other times it is a government department or a local authority. …They are regarded by the law as in every respect in the same position as those who practice on their own account. The only difference is that they act for one client only, and not for several clients. They must uphold the same standards of honor and of etiquette. They are subject to the same duties to their client and to the court.”50
Even though in-house counsel are subject to the same ethical duties as their private counterparts, lawyering within an organization has some distinct differences. The first difference is the implications that come with having a single client. Another difference is that the lawyer is also an employee of the institution and he or she must provide legal services in accordance with the rules found in workplace policies and employee codes of conduct.51
In the wake of numerous corporate scandals that have involved in-house counsel, such as the Enron and WorldCom collapses in the U.S. and the Livent scandal in Canada, ethical issues pertaining to in-house counsel have become more pressing.52 The adoption of the Sarbanes-Oxley Act of 2002 in the U.S, the Keeping the Promise for a Strong Economy Act in Ontario, and similar corporate governance legislation passed in other provinces, are attempts to address both securities fraud and the corporate counsel relationship.53 However, concerns remain that because in-house counsel are financially dependent on their single client employer they may place themselves in a situation of personal conflict of interest.54
i) Who is the Client for In-House Counsel?
For in-house counsel, their client is the corporation, partnership, organization, or legal entity that the individual represents.55 A client does not include a “near-client,” such as an affiliated entity, director or shareholder, unless there is objective evidence which demonstrates that the individual had a reasonable expectation that a lawyer-client relationship would be established.56 Rule 3.2-3 of the Model Code establishes that the lawyer’s ultimate duty is to the organization as a whole:
3.2-3 Although a lawyer may receive instructions from an officer, employee, agent or representative, when a lawyer is employed or retained by an organization, including a corporation, the lawyer must act for the organization in exercising his or her duties and in providing professional services.57
Commentary [1] to Rule 3.2-3 explains that the organizational client has a distinct legal personality from its shareholders, officers, directors, and employees. The lawyer must ensure that the interests of the organization are served and protected at all times.58 Given the roles of various stakeholders, a lawyer’s duty to avoid conflicts of interest can become complex quickly.59 Even though the lawyer may provide legal advice to only one organizational client, conflict rules regarding joint retainers and ensuring appropriate consent may be required.60 The in-house counsel must recognize that the interests of individual agents of the organization can frequently clash with the interests of the organization itself.61 The triangular relationship between in-house counsel, the organization, and the institutions’ individual agents accounts for most of the ethical complications in the lives of organizational lawyers.62
ii) The Bright Line Test Applied to the In-House Counsel Context
When the bright line rule from McKercher is applied to lawyers who practice as in-house counsel, the conflict of interest line becomes murkier. Even though the lawyer works for one organization, the lawyer will likely advise multiple sub-clients from different departments within the organization. A conflict of interest may arise from representing these multiple departments within the same organization if their interests are opposed or confidential information is given to the lawyer.
Conflict of interest rules may be applied less strictly where in-house counsel are concerned. The Manitoba Court of Appeal in Canadian Pacific Railway Company v Aikins, MacAulay & Thorvaldson overturned the disqualification order for a private law firm, Aikins, because one of their lawyers formerly served as regional counsel for Canadian Pacific Railway.63 Monnin JA first noted that even though MacDonald is not a case which deals with a situation which involves corporate in-house counsel, the basic principles dealing with positions of conflict are the same whether dealing with in-house corporate counsel or counsel in private practice.64 That said, conflict of interests principles might have somewhat different applicability because the perception of the reasonable person referred to in MacDonald might well be different:
While the onus on the party alleging the conflict is no higher in the case of in-house counsel, the burden of discharging it does requires a more precise and definite evidentiary basis. In the world of private practice, it is relatively easy to identify specifically the client by whom a solicitor was retained and what the exact nature of the retainer was. In the case of a monolith, like CPR, the exercise is much more complicated. …There is a distinction between possessing information that is relevant to the matter at issue and having an understanding of the corporate philosophy of a previous employer. This first scenario can bring about a disqualification because of conflict; the second does not.65
Monnin JA also raised concerns that the proceeding involved removal litigation and stated that it “is incumbent to ask if there is genuinely an issue conflict, or is the issue simply being raised as a strategic tool” to delay the proceeding or for another positioning purpose.66
Aikins stands for the proposition that the responsibilities and role of an in-house counsel must be carefully scrutinized to determine to what, if any, confidential information, he or she became privy.67 The bolded section in the passage quoted above was cited with approval in McKercher to support the idea that a lawyer must have information capable of being used against the former client in some tangible manner in order for a conflict to exist.68 In-house counsel may be privy to historical matters and general business information of the past client but still remain conflict of interest free. There is nothing wrong for an in-house counsel to act for and against a client at the same time, so long as there is no connection between the matters being litigated and the lawyer has not been given privileged information concerning the other client.69
iii) Closely Held Subsidiaries Present Additional Conflict Challenges
Public lawyers should be aware that today’s modern corporations often have complex business structures which involve wholly- or partially-owned subsidiaries for legal, tax, and other business reasons. In-house counsel may be asked to work with and provide legal advice to both the parent corporation and its subsidiaries. These situations can cause conflict of interest concerns for in-house counsel. If the subsidiary is wholly-owned, then conflicts of interest are less likely as the lawyer continues to serve the same main organizational client. Should the subsidiary be sold off or no longer be affiliated with the parent corporation, the lawyer’s duties and loyalties can become conflicted.70
One example of a parent-subsidiary conflict issue is the U.S. decision Re Teleglobe Communications Corporation, where the Court found that a parent company has a right to assert solicitor-client privilege against its subsidiaries in certain circumstances and identifies effective steps that corporate counsel may take to protect the privilege.71 The parent company, Bell Canada Enterprises (BCE) had a wholly owned subsidiary named Teleglobe Inc. Teleglobe itself had a group of wholly owned U.S. subsidiaries. The Teleglobe subsidiaries sought access to documents containing legal advice provided to BCE and Teleglobe in the course of litigation. BCE asserted solicitor-client privilege over the materials. The Court explained that joint-client privilege is solicitor-client privilege where two or more people consult a single lawyer on the same matter.72 For the joint-client privilege to be effective, there must be no substantial risk of the lawyer being unable to fulfill their ethical and professional duties to both co-clients. When a corporate parent and subsidiary each consult the same in-house counsel regarding the same legal matter, joint-client privilege exists because each organization is a separate legal entity. As the Teleglobe subsidiaries had never been parties to this joint-client relationship, they were not entitled to see the documents setting out in-house counsel’s legal advice to BCE and Teleglobe. The Court identified three principal proactive means of protecting a parent company’s privilege. Firstly, parents can take care not to begin joint representations except where necessary. Secondly, the parent can take steps to limit the scope of any joint retainer involving their subsidiaries. Finally, the parent can ensure that separate counsel are retained for subsidiaries on matters in which corporate affiliates are adverse to the parent.73
Canadian in-house lawyers should pay close attention the Teleglobe decision. Not only does the case discuss a major Canadian company, BCE, but also “because it is assumed that there was no difference between Canadian and American law on the issues before the Court.”74 Joint retainers for parents and subsidiaries may be cost effective and efficient for business purposes. However, parents and subsidiaries who use the same counsel may open themselves up to conflict of interest concerns should the relationship between the organizations become strained. In-house counsel, including public lawyers who interact with or retain external legal expertise, should be on the look-out for potential conflicts of interests when parent organizations and their subsidiaries are involved.
The Ethical Obligations of Government Lawyers
Government lawyers must uphold their duty to avoid conflicts of interest. Government lawyers are public lawyers who work for a single client, the federal or provincial Crown. While both government lawyers and in-house counsel both work for a single, organizational client, the underlying core interests of their employers differ. Government lawyers have an obligation to uphold the public interest as they discharge their duties. The analysis that follows focuses on federal government lawyers who serve the federal Crown. However, similar principles, duties, and obligations are placed on provincial government lawyers and other public sectors lawyers who serve government clients.
Government counsel carry additional duties to those of private practitioners and in-house counsel. Firstly, they must be members of their respective law societies and uphold their professional duties as members of the profession. Secondly, government lawyers carry the public law duties derived from the ancient, constitutional office of the Attorney General now codified in statute and duties which stem from their role as public servants employed by the government.75 As stated in the Supreme Court’s decision Krieger v Law Society of Alberta, lawyers working within government must be members of a provincial or territorial law society and are subject to the same ethical obligations as other members of the bar.76 The Ontario Divisional Court in Everingham v Ontario held that there is no indication in the rules that government lawyers have a higher professional obligation than other lawyers.77 While the legal profession and Rules of Professional Conduct have been built largely on the model of private practitioners, government counsel, who now constitute a substantial part of the legal profession, may arguably use a different model.78 New guidelines need to be developed that help government lawyers identify when internal, institutional conflicts of interest exist and how they should act when presented with conflicting instructions and/or interests from the various sub-constituencies they serve.
i) Conflicts of Interest with the Crown as Client
The sole client of government lawyers is the Crown. Section 9 of the Constitution Act, 1867 vests the Executive Government and Authority of and over Canada in the Queen, who is symbolized by her Crown.79 The Department of Justice Act refers to the Crown directly and in section 4(c) makes the Minister of Justice responsible to advise the Crown on all legal matters.80
Unlike in-house counsel who must work in the interests of a single organization, the Crown must represent the interests of all members of Canadian society.81 As observed by John Mark Keyes, “loyalty to an individual client cannot be replicated in the context of a complex government client that acts through a variety of individuals who may shift over time as members and governments are elected and defeated.”82 Government lawyers, like all lawyers, also have ethical obligations beyond their client which include an obligation to support the administration of justice.83 Government lawyers serve the public interest and represent the interests of all members of Canadian society,
Government lawyers must be mindful that their ultimate client is the Crown acting through the executive branch, represented by elected and changing governments.84 Government counsel may interact with multiple ministries, committees, and officials throughout the legislative process. These government lawyers need to ensure they avoid any internal conflicts of interest as they serve the Crown and the executive branch of government in the legislative process.
Government counsel must ensure that the Crown’s legal positions are coherent over time and must ensure that legal advice is consistent across government as a whole.85 As counsel advises on everything from elected members’ human resource concerns to proper compliance with standing orders, government lawyers need to be aware of potential impacts of advice given in one part of government on mandates of other parts of the greater legislative branch. Government lawyers do employ internal mechanisms to maintain a consistent Crown legal position on an issue. However, to get to this unified position, government lawyers have to negotiate potential conflicts of interest that may exist between and within government departments and ministries.
While Commentary [3] of Model Code Rule 3.4-17 states that the various legal services units of government should be treated as one “law firm,” a government lawyer may fulfil multiple, possibly conflicting roles such as advisor, lawyer, or advocate.86 For example, as advocates in civil litigation matters government counsel are usually acting as defendant’s counsel.87 In criminal matters, however, there is no identifiable client and the government lawyer is seeking justice.88 These conflicts can be characterized as an “institutional tension rather than a conflict of interest” since “it is sanctioned by legislation that creates government institutions and defines the roles of those who act for them.”89 To avoid conflicts of interest, government lawyers who stop working for a public body should not act for a client who has a connection to any matter for which they had substantial responsibility prior to leaving office. Similarly, lawyers who acquire confidential information while holding public office should keep such information confidential after leaving their government role.
Internal processes exist to help government lawyers arrive at a single, coherent legal position for the Crown which helps ensure government counsel provide advice free from conflicts of interests.90 However, a staff lawyer employed by the Ministry of the Attorney General who is asked “Who is your client?” may answer their immediate superior, the Deputy Attorney General, the Attorney General, the agencies or other ministries on whose behalf the lawyer appears before the courts and tribunals, the government, and the public are their client(s).91 In addition, during the process of coming to a consensus opinion, a government lawyer may receive instructions and input from a variety of sources which may conflict. Amendments to the Model Code and Rules of Professional Conduct would be helpful to clarify the professional duties of government lawyers, especially when the lawyer receives diverging instructions from various government constituencies.92
Alternative Business Structures – An Emerging Area for Conflicts of Interest
As lawyers increasingly practice in multidisciplinary, alternative business forms, conflict of interest concerns may increase. Traditionally, lawyers have been required to provide their services to the public exclusively through entities owned by lawyers themselves. Model Code Rule 3.6-7(a) also forbids lawyers to split or share their fees with non-lawyers.93 In these business structures, lawyers are not able to enjoy the benefits of corporate limits on personal liability. Alternative business structures (ABS) present new opportunities for lawyers to practice in new business forms. ABS are defined as any entity through which lawyers provide services to the public, but which lawyers do not entirely own and manage.94 Some examples of ABS options include a law firm that is a publicly traded corporation, a privately held corporation where the shares are all held by non-lawyers, and a partnership of equals between lawyers and non-lawyers.95 In-house counsel who work for public bodies and government lawyers may soon encounter opposing counsel and/or retain external counsel with particular expertise who render services as part of an ABS. These public institutional lawyers need to have the tools and knowledge to identify and address conflicts of interest that relate to ABS business structures.
In Ontario, some ABS options already exist. Ontario’s Law Society Act allows for a lawyer to practice through a professional corporation, but all shares in the corporation must be owned by licensed lawyers or paralegals.96 Under By-Law 7 made under subsections 62(0.1) and (1) of the Law Society Act, lawyers and paralegals can also provide professional services to the public as employees of charities and not-for-profit corporations after being registered by the law society.97
The Law Society of Ontario’s “Regulatory Sandbox for Innovative Technological Legal Services” pilot project also presents new approaches to delivering legal services.98 Technological advancements in the legal sector have accelerated during the COVID-19 pandemic from the creation of new digital tools to the movement of the justice system online. Business demands and challenges presented by the digital economy may mean that lawyers will soon provide specialized legal services in multi-disciplinary settings.
Conflict of interest concerns need to be addressed as lawyers begin to practice in new organizational business structures. In an Ontario Bar Association report which considered ABS and the Legal Profession in Ontario, conflict of interest worries were a central concern of discussions with members.99 Members expressed apprehension that conflicts of interests might be very difficult to identify in an ABS, especially as an entity’s business operations and investments increase in scope.100 Lawyers also worried that if non-lawyer ownership occurs, the regulatory responsibility for compliance with professional standards would not be shared equally among lawyers and non-lawyers because only lawyers are accountable to their law society regulator. The members did recognize how in-house counsel across the province have been successful at maintaining their professional and ethical responsibilities while dealing with business imperatives from their organizational client.101 Future conversations about ABS and the practice of law in a digital economy need to address the concerns and needs of in-house counsel who practice in public organizations and in government.
The Ethical Organization-Based Counsel – Beyond the Rules of Professional Conduct
More discussion and attention needs to be paid to the conflict of interest challenges experienced by lawyers who work in organizations. Public in-house counsel, government lawyers, and lawyers who practice in an ABS that interact with these public institutional lawyers need to apply the guidance provided by the Supreme Court in the “conflicts quartet” in order to avoid conflicts of interest. Jurisprudence and a handful of model rules which guide institutional lawyers is a good start, but more can and should be done to help lawyers who work in organizations uphold their ethical duties. Amending the Rules of Professional Conduct to speak more directly to institutional lawyers and their challenges would provide additional clarity and guidance to in-house and government counsel. In addition, organizations can develop conflict of interest procedures for in-house counsel which lay out how to identify, report, and consent to a conflict of interest. The main difficulty for organizational counsel will continue to be how to identify a conflict of interest in the first place.102 However, guidance for institutional lawyers should not stop at this initial identification stage. Organizational counsel need to also be confident about how to report a conflict to their lawyer and non-lawyer colleagues and be prepared to address the conflict of interest once identified.
Lawyers are in a unique position to shape legal and organizational change. As noted in Model Code Rule 3.2-8 Commentary [6], lawyers are in a central position to guide organizations in ways that are legal, ethical, reputable, and consistent with the organization’s responsibilities to its constituents and to the public.103 Regulators and the public should recognize the unique challenges which face organizational lawyers and support these professionals as they promote the administration of justice by avoiding conflicts of interest.
Bibliography
Legislation
Constitution Act, 1867, (UK), 30 & 31 Vict, c 3, reprinted in RSC 1985, App II, No 5.
Department of Justice Act, RSC 1985, c J-2.
Law Society Act, RSO 1990, c L 8.
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Everingham v Ontario, (1992) 88 DLR (4th) 755, 8 OR (3d) 121.
Krieger v Law Society of Alberta, 2002 SCC 65.
MacDonald Estate v Martin, [1990] 3 SCR 1235, 77 DLR (4th) 249.
R v Neil, 2002 SCC 70.
Strother v 3464920 Canada Inc, 2007 SCC 24.
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Jurisprudence: Foreign
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Re Teleglobe Communications Corporation, 493 F 3d 345 (3d Cir 2007).
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Dodek, Adam, “Conflicted Identities: The Battle Over the Duty of Loyalty in Canada” (2011) 14:2 Leg Ethics 193.
Keyes, John Mark, “Professional Responsibilities of Legislative Counsel” (2011) 5 JPPL 11.
MacNair, Deborah, “In Service of the Crown: Are Ethical Obligations Different for Government Counsel?” (2006) 84:3 Can Bar Rev 501.
Malamiry, Mahnam A, The General Counsel, Gatekeeping, and the Investor Public: Uneasy Bedfellows? (MA Thesis, Carelton University, 2013) [unpublished].
Martin, Andrew Flavelle, “Where Are We Going? The Past and Future of Canadian Scholarship on Legal Ethics For Government Lawyers” (2021) 99:2 Can Bar Rev 322.
Roussy, Alain, “Conflicts of Interest in Canada: The McKercher Decision” (2014) 17:2 Leg Ethics 132.
Sibold, Stephen P, “Assessing Canada’s Regulatory Response to the Sarbanes-Oxley Act of 2002: Lessons for Canadian Policy Makers” (2009) 46:3 Alta L Rev 769 at 784-85.
Secondary Sources: Electronic Sources
Law Society of Ontario, “Civil Society Organizations” (16 December 2021), online: LSO.
---, “Report on Regulatory Sandbox for Innovative Technological Legal Services”, online: LSO.
Ontario Bar Association, “Alternative Business Structures and the Legal Profession in Ontario” (30 January 2015) at 9, online (pdf): OBA.
O'Sullivan, Terrence J & Gavin MacKenzie, “Conflicts for In-house Counsel are Unavoidable and Complex” (1 September 2014), online: Lexpert.
Codes And Model Codes of Professional Conduct
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Endnotes
1 See Pascale Chapdelaine, “The Regulation of In-House Counsel: Opening the Pandora’s Box of Professional Independence” (27 May 2011) [unpublished, archived at University of Windsor, Faculty of Law, Open Access Scholarship] at 2.
2 See Andrew Flavelle Martin “Where Are We Going? The Past and Future of Canadian Scholarship on Legal Ethics For Government Lawyers” (2021) 99:2 Can Bar Rev 322 at 323.
4 See Alice Woolley, Richard Devlin & Brent Cotter,
Lawyers’ Ethics and Professional Regulation, 4th ed (Toronto: LexisNexis, 2021) at 17.
7 2007 SCC 24 [
Strother].
8 Canadian National Railway Co v McKercher LLP, 2013 SCC 39 at para 19 [
McKercher];
R v Neil, 2002 SCC 70 at para 19 [
Neil].
9 McKercher, supra note 8 at para 24.
12 Ottawa: FLSC, 2019 [
Model Code].
15 See Richard Devlin, “Governance, Regulation and Legitimacy: Conflicts of Interest and the Duty of Loyalty” (2011) 14:2 Leg Ethics iii at iii.
16 See Alice Woolley,
Understanding Lawyers’ Ethics in Canada, 2nd ed (Toronto: LexisNexis, 2016) at 241.
17 See Brent Cotter & Richard Devlin, “Three Strikes and You’re Out… Or Maybe Not: A Comment on
Canadian National Railway Co v McKercher LLP” (2014) 92:1 Can Bar Rev 123 at 124.
18 [1990] 3 SCR 1235, 77 DLR (4th) 249 [
MacDonald].
19 Cotter & Devlin,
supra note 17 at 124.
20 MacDonald,
supra note 18 at 1246-47.
23 Ibid at 1260. Cory J, in a concurring judgment, would have set the standard higher and found there should be an irrefutable presumption that lawyers who work together share each other’s confidence; see
ibid at 1266-67.
25 Cotter & Devlin,
supra note 17 at 125.
30 Ibid at para 29 [emphasis in original].
32 See Adam Dodek, “Conflicted Identities: The Battle Over the Duty of Loyalty in Canada” (2011) 14:2 Leg Ethics 193 at 203.
33 Ibid at 203-04;
Neil,
supra note 8 at para 29.
34 Strother,
supra note 7.
37 Cotter & Devlin,
supra note 17 at 128.
39 McKercher,
supra note 8.
40 Ibid at paras 8, 38-40.
41 Ibid at para 32 [emphasis in original].
42 Ibid at para 35 [emphasis in original].
47 Cotter & Devlin,
supra note 17 at 137-38.
49 See Alain Roussy, “Conflicts of Interest in Canada: The
McKercher Decision” (2014) 17:2 Leg Ethics 132 at 135.
50 1972 2 All ER 373 (CA) at 376.
51 See Deborah DeMott, “The Discrete Roles of General Counsel” (2005) 74:3 Fordham L Rev 955.
52 Chapdelaine,
supra note 1 at 4; Mahnam A Malamiry,
The General Counsel, Gatekeeping, and the Investor Public: Uneasy Bedfellows? (MA Thesis, Carelton University, 2013) [unpublished] at 68-74.
53 Chapdelaine,
supra note 1 at 4-5; Stephen P Sibold, “Assessing Canada’s Regulatory Response to the
Sarbanes-Oxley Act of 2002: Lessons for Canadian Policy Makers” (2009) 46:3 Alta L Rev 769 at 784-85.
54 Chapdelaine,
supra note 1 at 11.
55 Model Code,
supra note 12 at r 1.1-1, commentary 2.
56 Ibid at r 1.1-1, commentary 3.
57 Model Code,
supra note 12.
59 Woolley, Devlin & Cotter,
supra note 4 at 538.
60 Model Code,
supra note 12 at rs 3.4-5-3.4-9, 3.4-2.
61 See Gavin MacKenzie,
Lawyers & Ethics: Professional Responsibility and Discipline (Toronto: Thomson Reuters, 2021) at § 20:5 (WL).
63 [1998] 6 WWR 351, 157 DLR (4th) 473 [
Aikins].
65 Ibid at para 26 [emphasis added].
68 McKercher,
supra note 8 at para 54;
Aikins,
supra note 63 at para 26.
69 Aikins,
supra note 63 at para 31. See also
Winnipeg (City of) v The Neighbourhood Bookstore and Café Ltd, 2018 MBQB 79 at paras 29-34;
Consulate Ventures Inc v Amico Contracting & Engineering (1992) Inc, 2010 ONCA 788 at para 30-31.
70 Woolley, Devlin & Cotter,
supra note 4 at 538.
71 493 F 3d 345 (3d Cir 2007).
74 See Adam M Dodek,
Solicitor-Client Privilege (Markham: LexisNexis, 2014) at § 11.49.
75 See Elizabeth Sanderson,
Government Lawyering: Duties and Ethical Challenges of Government Lawyers (Toronto: LexisNexis, 2018) at 2.
76 2002 SCC 65 at para 41.
77 (1992) 88 DLR (4th) 755, 8 OR (3d) 121 at 7-8.
78 MacKenzie,
supra note 61 at § 21:2.
79 (UK), 30 & 31 Vict, c 3, reprinted in RSC 1985, App II, No 5.
81 Sanderson,
supra note 75 at 105.
82 “Professional Responsibilities of Legislative Counsel” (2011) 5 JPPL 11 at 32.
83 Sanderson,
supra note 75 at 109-117.
86 See Deborah MacNair, “In Service of the Crown: Are Ethical Obligations Different for Government Counsel?” (2006) 84:3 Can Bar Rev 501 at 517.
89 Keyes,
supra note 82 at 20-21.
90 Sanderson,
supra note 75 at 135.
91 MacKenzie,
supra note 61 at § 21:2.
93 Model Code,
supra note 12.
94 Woolley, Devlin & Cotter,
supra note 4 at 740.
102 Chapdelaine,
supra note 1 at 46.
103 Model Code,
supra note 12.