Garcin, Inez and Estelle are the three damned souls in No Exit, the play by Jean-Paul Sartre. They are brought to the same room by Valet, the taciturn representative of the devil. They cannot escape from the room. They make each other miserable. Forgetting that they are dead, Estelle tries to kill Inez. Shocked at the absurdity of their fate, Garcin concludes that “hell is other people.”
The problems that confront lawyers are generally not characterized by the surrealism of Sartre’s play. One exception, however, would be conflicts of interest. Conflicts permeate every aspect of practice. They are maddening. There is no exit.
Conflicts even surface in the world of pop music. Michael Bolton is a well-known singer and songwriter. He has sold over 52 million albums and singles worldwide. He is also no fool with respect to business.
Robert Sugarman is a partner at Weil, Gotshal & Manges LLP, the New York-based legal powerhouse with 1,200-plus lawyers. Sugarman defended Bolton in a 1994 copyright infringement suit brought by the Isley Brothers, a rhythm and blues group. At issue was Love is a Wonderful Thing, Bolton’s 1991 hit. The Isley Brothers had written a similar song with the same name in 1964.
Unfortunately Sugarman also represented Warner-Chappell Music, which released Bolton’s song. Even more unfortunately, a Los Angeles jury awarded the Isley Brothers $5.4 million. The award triggered an indemnification provision in Bolton’s contract with Warner-Chappell.
Bolton now claims that Sugarman was conflicted in representing both Warner-Chappell and himself. He argues that Sugarman co-operated with TIG Insurance Co., Warner’s insurer, in taking the case to a jury rather than settling it. A settlement would not have triggered the indemnification clause.
Among the cases cited in the continuing litigation is R. v. Neil, the landmark 2002 decision of the Supreme Court of Canada which determined that a “business conflict” could also be a “legal conflict.” Justice Ian Binnie, writing for a unanimous court, held that lawyers owe a duty of loyalty, as distinct from and in addition to a duty of confidentiality, to current clients. Further, this duty, absent informed consent, extended even to unrelated matters that directly affected existing clients adversely.
That a Canadian conflicts case could make it to the US, where jurisprudence relating to conflicts is far more evolved, is remarkable. As noted by Lucian Pera, a Tennessee lawyer at Armstrong Allen who specializes in matters of ethics, “Dealing with legal and business conflicts is an operational fact of life in the States.”
The decision in Neil has increasing importance in the Canadian legal marketplace, which has undergone recent significant consolidation by way of merger. Neil also has Canada/US cross-border importance. As Barry Leon at Torys LLP explains, “Just before Neil came out, an American client’s corporate counsel told me he had been astounded to discover that the duty of loyalty, as recognized by American courts, was not recognized in Canada. But we have definitely moved in the direction of higher American standards.”
So have the British. In May of last year, Freshfields Bruckhaus Deringer, the global UK-based legal giant with 2,200-plus lawyers, announced they had been retained to act for a consortium led by Philip Green on an £8 billion bid for Marks & Spencer (M&S). Days later, High Court Justice Lawrence Collins enjoined Freshfields from acting on the takeover. The Court of Appeal upheld the decision.
As Justice Collins pointed out, Freshfields had been advising M&S on its contract with a leading designer who produced some of the department chain’s most profitable fashion lines. Since there was a “degree of relation” between this mandate and the takeover, the firm was in a conflict of interest. This conflict was quite apart from Freshfields being privy to confidential information that could prove useful to Philip Green. And even if confidentiality had been the only concern, Chinese walls “cannot be or be seen to be—perception is very important here—sufficient.”
The Marks & Spencer decision came as a somewhat rude awakening in the UK where, according to research published in 2003 by Bristol University professor Janine Griffiths-Baker, two-thirds of the leading 100 law firms routinely break Law Society professional conduct rules. These firms, Griffiths-Baker concluded, paid little or no attention to the rules governing the use of Chinese walls, also known as information barriers or ethical screens.
Lara Oyesanya, director of standards for the Commerce & Industry Group, the organization sanctioned by the Law Society as representing in-house counsel, recently wrote that “law firms generally accept that the processes they have in place to deal with the ever-increasing number of conflicts they are faced with do breach the current rules on conflicts.”
As a result of the Marks & Spencer decision UK firms have a new respect for conflicts, if for no other reason than it could cost them millions in fees, damages and lost reputation. The real shot across the bow, as usual, comes from the US where in 1992 an Oklahoma court awarded $145 million against conflicted attorneys in an oil industry dispute, the largest damage award in a conflicts claim.
“We now routinely impose contractual obligations on law firms in relation to conflicts,” notes Anthony Armitage, director of First Law, a UK consulting company that provides tendering and cost-containment services to law firms and legal departments. “Law firms who wish to be considered for inclusion on panels are asked in advance whether they are unlikely to act in particular cases. If they are retained they must undertake regular conflict checks and notify the client of actual or potential conflicts as soon as they arise, and propose ways of resolving conflicts by applying the principle of preference to the clients whose instruction was placed earlier in time rather than considerations of income.”
As Julian Allen, in-house counsel with London-based Ansbacher Fund Services, points out, “Law firms have been much more careful about giving initial advice to new clients since Marks & Spencer came down. They’re afraid of jeopardizing large retainers from existing or more important clients. They are also afraid of ending up on the front pages of the major newspapers, like Freshfields did.”
The importance of conflicts is changing the nature of practice in the UK. A March survey conducted by Legal Week, a UK publication, found that over the past five years 95 per cent of firms had become more active in their client base management. Two-thirds are dropping existing clients that do not provide enough work or whose representation interferes with larger more lucrative retainers.
Clients are similarly exercising a new caution. As Claire Wilkinson, in-house counsel with London-based Abingworth Management Ltd., explains: “We police our law firms to make sure they don’t have conflicts.”
An earlier UK survey conducted in mid-2004 by Legal Week and Ernst & Young found that 37 per cent of companies had encountered a conflict of interest situation with their legal advisers during the past 12 months. The survey also found that over the past two years 34 per cent of these companies had been forced to appoint new counsel as a result of a conflict. And, at the end of the day, three per cent had fired their lawyers for failing to disclose a potential conflict of interest.
Yet the situation remains confused. The Law Society of England and Wales has spent two years without concluding its investigation into a complaint that Allen & Overy was conflicted when it acted for two parties in the 2003 takeover bid for Safeway. Now Allen & Overy is taking no chances. Despite securing consent from both bidder and target to act on a public transaction in the Netherlands, the firm has requested clearance from the Law Society for its dual role.
Other UK firms, including Linklaters, Clifford Chance and Freshfields, are rewriting their engagement letters to provide themselves with greater room to act for competitors of clients. The conditions under consideration include allowing firms to act against the interest of clients in the future, stipulating that the solicitor-client relationship terminates when a transaction closes, and laying out the ground rules for the use of ethical screens. The London office of Shearman & Sterling LLP is reviewing its client lists so that, in the words of one partner speaking off the record, “We can back the right horse.”
US firms, on the other hand, have long been accustomed to dealing with the pervasiveness of conflicts. This is particularly the case after the American Bar Association (ABA) tightened its Model Rules in 2002. As Milt Strom, a partner at the New York office of Skadden, Arps, Slate, Meagher & Flom LLP, unhappily notes, “Our conflicts committee is in session 24 hours a day.” This doesn’t surprise George Kuhlman, the ABA’s ethics counsellor. “Conflicts are the largest internal problem that American firms have.”
However, clients seeking US representation have a significant advantage over their Canadian counterparts. They can choose from a much larger pool of legal talent. As Seymour Trachimovsky, now chief legal officer at Zenon Environmental Inc., a water-treatment company in Oakville, Ontario, and formerly general counsel at DuPont Canada, points out: “It’s not that difficult to find an alternative firm in the US if your first choice is conflicted out.”
However in Canada there are only a relatively a small number of national firms to serve a consolidating corporate market. Like Skadden, Arps, Canadian firms appear headed in the direction of around-the-clock conflicts committees, although this wasn’t apparent from the divided initial reactions to Neil. Naysayers were quick to point out that Neil was a criminal case and an unusual one at that. They also noted that the Supreme Court itself had pointed out that the duty of loyalty was nothing new.
True. As the Supreme Court observed, the duty was first enunciated by Henry Brougham, later Lord Chancellor, in his 1820 defense of Queen Caroline on a charge of adultery brought by her husband, King George IV.
Nevertheless, Neil was the first time the Supreme Court of Canada had addressed the parameters of the duty of loyalty. In doing so, the Court made it clear that the duty of loyalty precluded lawyers from acting against the interests of current clients even in unrelated matters. Commentators writing in the National Post and The Globe and Mail treated Neil as revolutionary in its potential impact on legal markets.
As it turned out, these commentators were right. It didn’t take long for lower courts and administrative tribunals to explore and expand the duty of loyalty. As University of Ottawa law professor Vern Krishna, former treasurer of the Law Society of Upper Canada and now counsel to Borden Ladner Gervais LLP (BLG), observes: “The net is being cast wider and wider.”
The following post-Neil decisions are illustrative:
• Expanding the duty of loyalty to former clients, even when the parties are not “clients” in the strict sense of the word (Re Credit Suisse First Boston Canada Inc.);
• Upholding the duty of loyalty towards a former client even when the conflicted lawyer has left the firm and has no confidential information (Schwaber v. Walker);
• Prohibiting law firms from avoiding conflict rulings by terminating a client relationship in order to take on a client with an adverse position (Toddglen Construction Ltd. v. Concord Adex Development Corp.);
• Extending the duty of loyalty to clients of a law firm’s client (GMP Securities Ltd. v. Stikeman Elliott LLP);
• Confirming that some matters are beyond consent and some conflicts cannot be waived (Chiefs of Ontario v. Ontario);
• Raising the possibility of disqualification from litigation following a lateral move by a lawyer who had acted on the other side two years earlier even where the conflicted firm is unaware of the conflict (Alcan Inc. v. Farris, Vaughan, Wills & Murphy);
• Declaring that merely acting as an agent for another firm does not shield the agent firm from the duty of loyalty owed to the principal’s client (Uniform Custom Countertops Inc. v. Royal Designer Tops Inc.);
• Similarly, acting as a securities filing agent for an in-house law department does not shield the agent from the duty (First Property Holdings Inc. v. Beatty);
• Disqualifying a law firm from acting when a merger of firms has given rise to a conflict (Skye Properties Ltd. v. Wu); and
• Preventing lawyers from representing both a company and its majority shareholders if a potential for conflict exists (Jorgensen v. San Jose Mines Ltd.).
Among the notable national firms prohibited from acting by these decisions are Blake, Cassels & Graydon LLP, Fasken Martineau DuMoulin LLP, Gowling Lafleur Henderson LLP, Miller Thomson LLP and Stikeman Elliott LLP. In other words, national firms are parties in six of these decisions. Stikeman Elliott was involved in two and an important regional firm, Farris LLP, was involved in a seventh. Clearly the conflicts issue has centred on major firms.
Despite this considerable litigation, it has, however, taken a $32 million judgment against a senior Vancouver tax practitioner at a prominent firm to finally send managing partners scrambling for cover. Any way you slice it, $32 million is a lot of money.
The case is Monarch v. Strother. Monarch Entertainment Corporation, now 3464920 Canada Inc., retained Robert Strother, then a partner at Vancouver-based Davis & Company, to set up tax-sheltered syndication deals to finance film productions. In 1996, Strother and Monarch signed an agreement that prohibited Strother from acting for Monarch’s competitors.
In November 1997, Ottawa ended the program that permitted these shelters. The written agreement between Strother and Monarch expired at the end of that year, but Strother continued to provide legal services to Monarch on tax planning and corporate matters throughout 1998.
What Strother did not tell Monarch was that at the end of 1997 he learned that tax-sheltered film financings were still feasible, provided they complied with new rules. He also did not tell Monarch that in early 1998, he had signed an agreement with a former Monarch executive, Paul Darc. Under this arrangement Strother obtained a favorable tax ruling that allowed Sentinel Hill, a new company, to sell tax-sheltered film financing limited partnerships. Strother left Davis & Company to work for Sentinel Hill under an agreement that gave him 55 per cent of the profits on the first $2 million earned and 50 per cent on further profits.
The venture was very successful. Sentinel raised $40 million in 1998 and $600 million in 1999. The company then merged with Alliance Atlantis Equipcap. In 2000, $1.6 billion was raised and in the first six months of 2001 a further $500 million was raised. During this period Strother was said to have earned more than $32 million under his agreement.
Monarch, who had not discovered the Sentinel Hill tax ruling until early 1999, sued Strother and Davis & Company. The trial judge found for the defendants noting that Monarch’s exclusivity agreement with Strother had expired. The BC Court of Appeal, however, held that the solicitor-client relationship with Monarch had continued. Arguments about the “scope of the retainer,” the Court concluded, could not void overreaching duties of loyalty and avoidance of conflicts of interest.
The Court ordered Strother to submit to an accounting of the alleged $32 million in profits arising from his conflict of interest. More significantly, perhaps, the Court ordered further submissions on the vicarious liability of Davis & Company. Brian Baynham, Q.C., of Vancouver-based Harper Grey LLP, who has followed the case closely, believes it unlikely that Davis will be on the hook for $32 million. He is of the view that the firm will be required to disgorge the fees it earned from Strother’s work. “Still, that could amount to millions,” Baynham notes.
There is ample precedent for Baynham’s opinion. In the US, Willkie Farr & Gallagher LLP had to forfeit $3.6 million in fees in 1998 and Millbank, Tweed, Hadley & McCloy LLP was forced to return $2.3 million to a client in 1997 after both firms failed to disclose conflicts. The real significance of Strother lies in the decision’s impact on the way in which law firms will do business in the future.
“Considering Strother’s personal interest in the advice he gave and the fact that he was advising two competing clients, the judgment against him is unsurprising,” explains Gavin MacKenzie of Heenan Blaikie LLP in Toronto. MacKenzie, an authority on legal ethics, goes on to note that “What is interesting is how far the principles enunciated in Strother might apply. It’s important to remember that there were two conflicts in Strother: the personal interest conflict and the conflict in advising both clients. Logically the result should be the same even if the lawyer had no personal financial interest in the matter.”
MacKenzie posits a case involving two different lawyers in the same firm who are advising different clients on the same point but are not aware of each other’s activities. “If there was a lawyer in Vancouver who told the client there’s no fix to his problem and a partner in Toronto who gives advice to the contrary, but no disclosure is made to the Vancouver client, innocently or not, the Strother principles should apply.”
What MacKenzie terms “this harsh result” is also one that is difficult to guard against. “It’s very hard, if not impossible, to monitor all the advice given in national law firms and to determine whether that advice is always consistent.”
This can make acting for competitors a problematic business. After all, the Supreme Court made it clear in Neil that even strategic considerations can be “direct interests” which may be the subject of a conflict. In MacKenzie’s opinion, “Neil leaves open the argument that it is impermissible for me to act for a competitor of a client whom another member of my firm represents in circumstances where my representation has the potential to harm the economic or business interests of my partner’s client.”
As Allan Hutchinson, associate dean for research at Osgoode Hall Law School and the author of Legal Ethics & Professional Responsibility, points out: “The message from Strother is that the courts are looking seriously not only at fiduciary duties but also at the consequences flowing from a breach. And we’re still at the beginning so far as the development of the duty of loyalty in this country is concerned.”
Ed Waitzer, chairman of Stikeman Elliott, is not happy that he spends “a disproportionate amount on time on conflicts issues, which is one of the key challenges facing Canadian law firms today.”
No kidding. On consecutive days in the summer of 2004, Waitzer’s firm ended up on the wrong end of two conflict decision. On June 23, 2004, in GMP Securities Ltd. v. Stikeman Elliott LLP Justice Alexandra Hoy of the Ontario Superior Court enjoined the firm from acting for Coeur D’Alene Mines on a hostile takeover bid for Wheaton River Minerals. The bid had initially been friendly. Hoy held that Stikeman Elliott had breached its duty of loyalty to GMP Securities by accepting the Coeur retainer while representing GMP on a transaction in which GMP was providing investment banking and underwriting services to Wheaton. When GMP heard of the Coeur retainer it fired Stikeman Elliott. It was clear that if the Coeur offer was successful, the GMP/Wheaton transaction would not proceed.
Perhaps more importantly, Hoy ruled that Stikeman Elliott also owed a duty of loyalty to Wheaton, who was clearly not Stikeman Elliott’s client. Justice Hoy wrote that “I was influenced in this conclusion by the fact that an investment bank and its counsel are often in essence part of a team which includes the investment banker’s client and its counsel, working together with the common objective of effecting the particular transaction the client company seeks to complete.”
Hoy dismissed Stikeman’s argument that the application for disqualification was a “strategic play by Wheaton to hinder Coeur’s hostile bid for it.” Waitzer insists that the decision opens a Pandora’s Box. “Law firms have become the meat in the middle in these types of situations. The notion that one client who has known all along that we’re acting for another client can use Neil to advance its negotiating position is now a problem I run into every week.”
Less than 24 hours after the GMP decision was released, the Ontario Securities Commission’s (OSC) decision in Re Credit Suisse First Boston barred Stikeman from acting for Credit Suisse in defence of charges that the brokerage firm violated the universal market integrity rules regarding certain off-market transactions.
Stikeman Elliott had been retained by the Toronto Stock Exchange (TSE) to prepare draft agreements between it and the Investment Dealers Association of Canada. The agreements were aimed at setting up a new corporate entity to carry on the regulatory functions previously carried on separately by both organizations. During this process lawyers from Stikeman Elliott had a number of telephone conversations and meetings with people from the TSE. They also reviewed opinion letters from other counsel. The retainer ended after the firm prepared certain draft documents.
Eventually the parties, with the assistance of other law firms, set up Market Regulation Services Inc. (RS). The TSE and Investment Dealers Association were each 50 per cent shareholders in the new corporation and each had representatives on the RS board.
Some time after RS began functioning, and well after the point where Stikemans had ceased to act for the TSE on the matter, RS charged Credit Suisse First Boston (CSFB) with market violations. CSFB retained Stikeman Elliott to represent them. Stikeman Elliott challenged the jurisdiction of RS to hold a hearing and impose penalties against CSFB. The firm also argued that RS was institutionally biased in favour of the TSE because of its corporate and governance structure. RS responded that Stikemans should be removed from the record because its defence of CSFB amounted to an attack on its previous advice, placing the firm in a conflict of interest.
The OSC agreed that Stikemans could not act despite the fact that the firm had obtained the TSE’s oral consent “to take on other mandates that could be adversarial to the TSE’s interest.” In so doing the Commission’s decision, like Justice Hoy’s in GMP, expanded the duty of loyalty to former clients, including those who were not “clients” in the strict sense of the word.
Waitzer maintains that Re Credit Suisse is further evidence that use of Neil has become a negotiating tactic. “RS didn’t object to our mandate for CSFB for the months we were trying to settle the charges. Only after it became clear that a settlement could not be reached did they seek our disqualification.”
Waitzer’s comments echo the views of Hugh Crisp, chief executive at Freshfields, on the Marks & Spencer decision. “The judgment emphasized a perception of risk, but that risk did not come to pass. I do not believe Slaughters [counsel for M&S] and M&S thought we would disclose confidential information. It was good for them to get the team of first choice off the deal.”
Some may see this as sour grapes, but not Winn Oughtred, coordinator of the Toronto business advisory group at BLG. Oughtred says Waitzer has identified a serious problem. “The worst thing in the world that can happen to a client is to discover at the courtroom steps or in the midst of an important transaction that a motion has been brought to remove their lawyer. It is a situation that’s to be avoided at all costs.”
Garth Girvan, a senior corporate partner at McCarthy Tétrault in Toronto, is equally supportive of Waitzer. “The fallout from Neil is pernicious. It is causing problems for all of the big firms and is leading to a lot of strife internally and with clients who want choice among their legal suppliers.”
What may be worse is the uncertainty. As Malcolm Ruby at Gowlings points out, “We’re supersensitive to conflicts issue and we don’t want to get into quarrels where we can avoid them. But no one knows what the boundaries of the duty of loyalty are.”
But this much is clear. As they have perhaps already demonstrated, Canadian courts are unlikely to have much more empathy for the dilemma than American and British courts have demonstrated. Strong views are held regarding the issue.
Hutchinson at Osgoode is representative of one camp. “I’d like someone to point to a case where someone other than the conflicted law firm regards a decision ousting them from a brief as outrageous. Dealing with conflicts problems is a cost of doing business that affects all large firms. These are wealthy and sophisticated entities who must accept the responsibilities that go with their privileges and their decision to become huge firms. And the emerging conflicts rules apply to all of them equally, so what’s the problem?”
The people best able to answer this question are undoubtedly the clients.
“Conflicts is not my favourite subject.” So says David McAusland, senior vice-president and chief legal officer at Alcan Inc. in Montreal. McAusland’s distaste for conflicts may arise from Alcan’s application to have Farris removed as counsel for the District of Kitimat, BC, in an action against Alcan.
The problem arose when Farris hired associate Christopher Gora from Lawson Lundell, where he had worked for three years. At Lawson Lundell, Gora had represented Alcan in matters related to the Kitimat action.
Farris accepted Kitimat’s retainer in August 2002 but did not become aware of the conflict and did not alert Gora until February 2004. At this point Farris immediately put in place ethical screens to isolate Gora from the Kitimat action.
According to the BC Supreme Court, too little and too late. The lack of knowledge on the part of Farris that Gora had previously acted for Alcan was no defence to the motion for disqualification. And the 17-month gap between the potential for disclosure of confidential information and the implementation of protective measures meant that the firm had not taken all reasonable steps to ensure that no confidential disclosure would occur.
McAusland’s distaste for conflicts mirrors the general difficulty that corporate clients have with the issue. The 2004 UK survey conducted by Legal Week and Ernst & Young, referred to earlier, found that in-house counsel are polarized when it comes to conflicts. Thirty per cent of respondents found it unacceptable that a firm work on both sides of a transaction. Forty per cent found it acceptable as long as they gave consent and 20 per cent said whether consent was required depended on the circumstances. The final 10 per cent did not think consent was necessary.
Given a situation where a firm has previously acted for the other side on an unrelated transaction, 30 per cent of counsel responded that this represented an “ethical conflict” and 30 per cent felt there was a “commercial” conflict. The authors of the survey concluded that “As a rule of thumb, it would appear that approximately one-third of clients are applying a hard line towards conflicts.”
In Canada, where Neil catches both “ethical” and commercial “conflicts,” the number of hardliners would probably be closer to 60 per cent.
“I take a hard line on legal and business conflicts because I don’t want to end up having to get a new lawyer at some point in a lawsuit or a transaction.” These are the off-the-record views of an in-house lawyer at one of Canada’s major insurance companies. Our senior corporate counsel goes on to note that “Firms are throwing Chinese walls at the problem, but these are band-aid solutions that are increasingly going off in their faces. The real problem is that there are not enough firms to go around in Canada.”
According to Brian Baynham at Harper Grey, this attitude isn’t unique. “We’re beginning to see the ramifications of Neil. Previous and existing clients are insisting that their interests come before those of the new clients or the law firm itself.”
Somewhere in the middle are companies like SAP Canada, represented by McCarthys. “We have a list of companies for whom we will not allow our lawyers to act,” says Barry Michael Fisher, SAP’s vice-president, general counsel and corporate secretary. “But sometimes, like when we’re negotiating a licensing agreement, we allow them to act on both sides because we’re better off dealing with lawyers who understand our industry and its pressure points.”
Even more open-minded are people like Claude Bergeron, vice-president for legal affairs at the Caisse de Dépôt. “We retain the lawyer, not the firm. The fact that a conflict might exist in principle because another lawyer in the firm is acting for someone else is not a consideration for us. If we know our lawyer well, we will trust him and we will accept Chinese Walls. We will not, however, accept that our own lawyer ever acts against us, except in special situations where we have waived the conflict in advance. The reality is that we work with all the large firms and it is not reasonable for us to ask them to refrain from accepting all mandates against us.”
Brian Leck, general counsel at the Toronto Transit Commission, takes a similar approach. “I’m not interested in creating headaches for lawyers. What I want to know is whether a real issue exists. If there is no confidential information that will come back to bite us, I’m not concerned about the technical side of whether a conflict exists.”
The attitudes adopted by clients have much to do with the nature of their industry. As Winn Oughtred at BLG points out, “The major banks have policies that are fairly enlightened. There’s no problem when we’re talking about routine banking, such as loan transactions. But they don’t want us to act against them in matters involving allegations of fraud, the reputation of the bank, and lender liability. And that’s no problem, because we don’t want to be there in any event.”
A similar perspective exists in the forestry and investment banking sectors, where law firms regularly act for a number of major players. But this is not the case where sensitive information is critical, where competitive tendering is common, or in concentrated industries where competitors are fractious and emotions run high. As Girvan at McCarthys notes, “If you act for Molson’s, you don’t act for Labatt’s. The same is true for the auto manufacturers.”
There is one end result. Conflicts management is a cumbersome, expensive ordeal. As Susan Shapiro points out in her highly praised Tangled Loyalties: Conflict of Interest in Legal Practice, the transaction costs of conflict management can be substantial. These costs include tracking systems, retainers declined, unbillable administrative time, lost time on mandates where a conflict is discovered late in the day, and educating new lawyers when the conflicted firm withdraws.
The American experience suggests that, if anything, these costs will increase. This is particularly the case in a growing cross-border market for legal services. It may be difficult to agree with Jean-Paul Sartre when he had Garcin conclude that “hell is other people.” For managing partners, however, conflicts are a hell from which there is no exit.
Julius Melnitzer is a freelance legal affairs writer.
The problems that confront lawyers are generally not characterized by the surrealism of Sartre’s play. One exception, however, would be conflicts of interest. Conflicts permeate every aspect of practice. They are maddening. There is no exit.
Conflicts even surface in the world of pop music. Michael Bolton is a well-known singer and songwriter. He has sold over 52 million albums and singles worldwide. He is also no fool with respect to business.
Robert Sugarman is a partner at Weil, Gotshal & Manges LLP, the New York-based legal powerhouse with 1,200-plus lawyers. Sugarman defended Bolton in a 1994 copyright infringement suit brought by the Isley Brothers, a rhythm and blues group. At issue was Love is a Wonderful Thing, Bolton’s 1991 hit. The Isley Brothers had written a similar song with the same name in 1964.
Unfortunately Sugarman also represented Warner-Chappell Music, which released Bolton’s song. Even more unfortunately, a Los Angeles jury awarded the Isley Brothers $5.4 million. The award triggered an indemnification provision in Bolton’s contract with Warner-Chappell.
Bolton now claims that Sugarman was conflicted in representing both Warner-Chappell and himself. He argues that Sugarman co-operated with TIG Insurance Co., Warner’s insurer, in taking the case to a jury rather than settling it. A settlement would not have triggered the indemnification clause.
Among the cases cited in the continuing litigation is R. v. Neil, the landmark 2002 decision of the Supreme Court of Canada which determined that a “business conflict” could also be a “legal conflict.” Justice Ian Binnie, writing for a unanimous court, held that lawyers owe a duty of loyalty, as distinct from and in addition to a duty of confidentiality, to current clients. Further, this duty, absent informed consent, extended even to unrelated matters that directly affected existing clients adversely.
That a Canadian conflicts case could make it to the US, where jurisprudence relating to conflicts is far more evolved, is remarkable. As noted by Lucian Pera, a Tennessee lawyer at Armstrong Allen who specializes in matters of ethics, “Dealing with legal and business conflicts is an operational fact of life in the States.”
The decision in Neil has increasing importance in the Canadian legal marketplace, which has undergone recent significant consolidation by way of merger. Neil also has Canada/US cross-border importance. As Barry Leon at Torys LLP explains, “Just before Neil came out, an American client’s corporate counsel told me he had been astounded to discover that the duty of loyalty, as recognized by American courts, was not recognized in Canada. But we have definitely moved in the direction of higher American standards.”
So have the British. In May of last year, Freshfields Bruckhaus Deringer, the global UK-based legal giant with 2,200-plus lawyers, announced they had been retained to act for a consortium led by Philip Green on an £8 billion bid for Marks & Spencer (M&S). Days later, High Court Justice Lawrence Collins enjoined Freshfields from acting on the takeover. The Court of Appeal upheld the decision.
As Justice Collins pointed out, Freshfields had been advising M&S on its contract with a leading designer who produced some of the department chain’s most profitable fashion lines. Since there was a “degree of relation” between this mandate and the takeover, the firm was in a conflict of interest. This conflict was quite apart from Freshfields being privy to confidential information that could prove useful to Philip Green. And even if confidentiality had been the only concern, Chinese walls “cannot be or be seen to be—perception is very important here—sufficient.”
The Marks & Spencer decision came as a somewhat rude awakening in the UK where, according to research published in 2003 by Bristol University professor Janine Griffiths-Baker, two-thirds of the leading 100 law firms routinely break Law Society professional conduct rules. These firms, Griffiths-Baker concluded, paid little or no attention to the rules governing the use of Chinese walls, also known as information barriers or ethical screens.
Lara Oyesanya, director of standards for the Commerce & Industry Group, the organization sanctioned by the Law Society as representing in-house counsel, recently wrote that “law firms generally accept that the processes they have in place to deal with the ever-increasing number of conflicts they are faced with do breach the current rules on conflicts.”
As a result of the Marks & Spencer decision UK firms have a new respect for conflicts, if for no other reason than it could cost them millions in fees, damages and lost reputation. The real shot across the bow, as usual, comes from the US where in 1992 an Oklahoma court awarded $145 million against conflicted attorneys in an oil industry dispute, the largest damage award in a conflicts claim.
“We now routinely impose contractual obligations on law firms in relation to conflicts,” notes Anthony Armitage, director of First Law, a UK consulting company that provides tendering and cost-containment services to law firms and legal departments. “Law firms who wish to be considered for inclusion on panels are asked in advance whether they are unlikely to act in particular cases. If they are retained they must undertake regular conflict checks and notify the client of actual or potential conflicts as soon as they arise, and propose ways of resolving conflicts by applying the principle of preference to the clients whose instruction was placed earlier in time rather than considerations of income.”
As Julian Allen, in-house counsel with London-based Ansbacher Fund Services, points out, “Law firms have been much more careful about giving initial advice to new clients since Marks & Spencer came down. They’re afraid of jeopardizing large retainers from existing or more important clients. They are also afraid of ending up on the front pages of the major newspapers, like Freshfields did.”
The importance of conflicts is changing the nature of practice in the UK. A March survey conducted by Legal Week, a UK publication, found that over the past five years 95 per cent of firms had become more active in their client base management. Two-thirds are dropping existing clients that do not provide enough work or whose representation interferes with larger more lucrative retainers.
Clients are similarly exercising a new caution. As Claire Wilkinson, in-house counsel with London-based Abingworth Management Ltd., explains: “We police our law firms to make sure they don’t have conflicts.”
An earlier UK survey conducted in mid-2004 by Legal Week and Ernst & Young found that 37 per cent of companies had encountered a conflict of interest situation with their legal advisers during the past 12 months. The survey also found that over the past two years 34 per cent of these companies had been forced to appoint new counsel as a result of a conflict. And, at the end of the day, three per cent had fired their lawyers for failing to disclose a potential conflict of interest.
Yet the situation remains confused. The Law Society of England and Wales has spent two years without concluding its investigation into a complaint that Allen & Overy was conflicted when it acted for two parties in the 2003 takeover bid for Safeway. Now Allen & Overy is taking no chances. Despite securing consent from both bidder and target to act on a public transaction in the Netherlands, the firm has requested clearance from the Law Society for its dual role.
Other UK firms, including Linklaters, Clifford Chance and Freshfields, are rewriting their engagement letters to provide themselves with greater room to act for competitors of clients. The conditions under consideration include allowing firms to act against the interest of clients in the future, stipulating that the solicitor-client relationship terminates when a transaction closes, and laying out the ground rules for the use of ethical screens. The London office of Shearman & Sterling LLP is reviewing its client lists so that, in the words of one partner speaking off the record, “We can back the right horse.”
US firms, on the other hand, have long been accustomed to dealing with the pervasiveness of conflicts. This is particularly the case after the American Bar Association (ABA) tightened its Model Rules in 2002. As Milt Strom, a partner at the New York office of Skadden, Arps, Slate, Meagher & Flom LLP, unhappily notes, “Our conflicts committee is in session 24 hours a day.” This doesn’t surprise George Kuhlman, the ABA’s ethics counsellor. “Conflicts are the largest internal problem that American firms have.”
However, clients seeking US representation have a significant advantage over their Canadian counterparts. They can choose from a much larger pool of legal talent. As Seymour Trachimovsky, now chief legal officer at Zenon Environmental Inc., a water-treatment company in Oakville, Ontario, and formerly general counsel at DuPont Canada, points out: “It’s not that difficult to find an alternative firm in the US if your first choice is conflicted out.”
However in Canada there are only a relatively a small number of national firms to serve a consolidating corporate market. Like Skadden, Arps, Canadian firms appear headed in the direction of around-the-clock conflicts committees, although this wasn’t apparent from the divided initial reactions to Neil. Naysayers were quick to point out that Neil was a criminal case and an unusual one at that. They also noted that the Supreme Court itself had pointed out that the duty of loyalty was nothing new.
True. As the Supreme Court observed, the duty was first enunciated by Henry Brougham, later Lord Chancellor, in his 1820 defense of Queen Caroline on a charge of adultery brought by her husband, King George IV.
Nevertheless, Neil was the first time the Supreme Court of Canada had addressed the parameters of the duty of loyalty. In doing so, the Court made it clear that the duty of loyalty precluded lawyers from acting against the interests of current clients even in unrelated matters. Commentators writing in the National Post and The Globe and Mail treated Neil as revolutionary in its potential impact on legal markets.
As it turned out, these commentators were right. It didn’t take long for lower courts and administrative tribunals to explore and expand the duty of loyalty. As University of Ottawa law professor Vern Krishna, former treasurer of the Law Society of Upper Canada and now counsel to Borden Ladner Gervais LLP (BLG), observes: “The net is being cast wider and wider.”
The following post-Neil decisions are illustrative:
• Expanding the duty of loyalty to former clients, even when the parties are not “clients” in the strict sense of the word (Re Credit Suisse First Boston Canada Inc.);
• Upholding the duty of loyalty towards a former client even when the conflicted lawyer has left the firm and has no confidential information (Schwaber v. Walker);
• Prohibiting law firms from avoiding conflict rulings by terminating a client relationship in order to take on a client with an adverse position (Toddglen Construction Ltd. v. Concord Adex Development Corp.);
• Extending the duty of loyalty to clients of a law firm’s client (GMP Securities Ltd. v. Stikeman Elliott LLP);
• Confirming that some matters are beyond consent and some conflicts cannot be waived (Chiefs of Ontario v. Ontario);
• Raising the possibility of disqualification from litigation following a lateral move by a lawyer who had acted on the other side two years earlier even where the conflicted firm is unaware of the conflict (Alcan Inc. v. Farris, Vaughan, Wills & Murphy);
• Declaring that merely acting as an agent for another firm does not shield the agent firm from the duty of loyalty owed to the principal’s client (Uniform Custom Countertops Inc. v. Royal Designer Tops Inc.);
• Similarly, acting as a securities filing agent for an in-house law department does not shield the agent from the duty (First Property Holdings Inc. v. Beatty);
• Disqualifying a law firm from acting when a merger of firms has given rise to a conflict (Skye Properties Ltd. v. Wu); and
• Preventing lawyers from representing both a company and its majority shareholders if a potential for conflict exists (Jorgensen v. San Jose Mines Ltd.).
Among the notable national firms prohibited from acting by these decisions are Blake, Cassels & Graydon LLP, Fasken Martineau DuMoulin LLP, Gowling Lafleur Henderson LLP, Miller Thomson LLP and Stikeman Elliott LLP. In other words, national firms are parties in six of these decisions. Stikeman Elliott was involved in two and an important regional firm, Farris LLP, was involved in a seventh. Clearly the conflicts issue has centred on major firms.
Despite this considerable litigation, it has, however, taken a $32 million judgment against a senior Vancouver tax practitioner at a prominent firm to finally send managing partners scrambling for cover. Any way you slice it, $32 million is a lot of money.
The case is Monarch v. Strother. Monarch Entertainment Corporation, now 3464920 Canada Inc., retained Robert Strother, then a partner at Vancouver-based Davis & Company, to set up tax-sheltered syndication deals to finance film productions. In 1996, Strother and Monarch signed an agreement that prohibited Strother from acting for Monarch’s competitors.
In November 1997, Ottawa ended the program that permitted these shelters. The written agreement between Strother and Monarch expired at the end of that year, but Strother continued to provide legal services to Monarch on tax planning and corporate matters throughout 1998.
What Strother did not tell Monarch was that at the end of 1997 he learned that tax-sheltered film financings were still feasible, provided they complied with new rules. He also did not tell Monarch that in early 1998, he had signed an agreement with a former Monarch executive, Paul Darc. Under this arrangement Strother obtained a favorable tax ruling that allowed Sentinel Hill, a new company, to sell tax-sheltered film financing limited partnerships. Strother left Davis & Company to work for Sentinel Hill under an agreement that gave him 55 per cent of the profits on the first $2 million earned and 50 per cent on further profits.
The venture was very successful. Sentinel raised $40 million in 1998 and $600 million in 1999. The company then merged with Alliance Atlantis Equipcap. In 2000, $1.6 billion was raised and in the first six months of 2001 a further $500 million was raised. During this period Strother was said to have earned more than $32 million under his agreement.
Monarch, who had not discovered the Sentinel Hill tax ruling until early 1999, sued Strother and Davis & Company. The trial judge found for the defendants noting that Monarch’s exclusivity agreement with Strother had expired. The BC Court of Appeal, however, held that the solicitor-client relationship with Monarch had continued. Arguments about the “scope of the retainer,” the Court concluded, could not void overreaching duties of loyalty and avoidance of conflicts of interest.
The Court ordered Strother to submit to an accounting of the alleged $32 million in profits arising from his conflict of interest. More significantly, perhaps, the Court ordered further submissions on the vicarious liability of Davis & Company. Brian Baynham, Q.C., of Vancouver-based Harper Grey LLP, who has followed the case closely, believes it unlikely that Davis will be on the hook for $32 million. He is of the view that the firm will be required to disgorge the fees it earned from Strother’s work. “Still, that could amount to millions,” Baynham notes.
There is ample precedent for Baynham’s opinion. In the US, Willkie Farr & Gallagher LLP had to forfeit $3.6 million in fees in 1998 and Millbank, Tweed, Hadley & McCloy LLP was forced to return $2.3 million to a client in 1997 after both firms failed to disclose conflicts. The real significance of Strother lies in the decision’s impact on the way in which law firms will do business in the future.
“Considering Strother’s personal interest in the advice he gave and the fact that he was advising two competing clients, the judgment against him is unsurprising,” explains Gavin MacKenzie of Heenan Blaikie LLP in Toronto. MacKenzie, an authority on legal ethics, goes on to note that “What is interesting is how far the principles enunciated in Strother might apply. It’s important to remember that there were two conflicts in Strother: the personal interest conflict and the conflict in advising both clients. Logically the result should be the same even if the lawyer had no personal financial interest in the matter.”
MacKenzie posits a case involving two different lawyers in the same firm who are advising different clients on the same point but are not aware of each other’s activities. “If there was a lawyer in Vancouver who told the client there’s no fix to his problem and a partner in Toronto who gives advice to the contrary, but no disclosure is made to the Vancouver client, innocently or not, the Strother principles should apply.”
What MacKenzie terms “this harsh result” is also one that is difficult to guard against. “It’s very hard, if not impossible, to monitor all the advice given in national law firms and to determine whether that advice is always consistent.”
This can make acting for competitors a problematic business. After all, the Supreme Court made it clear in Neil that even strategic considerations can be “direct interests” which may be the subject of a conflict. In MacKenzie’s opinion, “Neil leaves open the argument that it is impermissible for me to act for a competitor of a client whom another member of my firm represents in circumstances where my representation has the potential to harm the economic or business interests of my partner’s client.”
As Allan Hutchinson, associate dean for research at Osgoode Hall Law School and the author of Legal Ethics & Professional Responsibility, points out: “The message from Strother is that the courts are looking seriously not only at fiduciary duties but also at the consequences flowing from a breach. And we’re still at the beginning so far as the development of the duty of loyalty in this country is concerned.”
Ed Waitzer, chairman of Stikeman Elliott, is not happy that he spends “a disproportionate amount on time on conflicts issues, which is one of the key challenges facing Canadian law firms today.”
No kidding. On consecutive days in the summer of 2004, Waitzer’s firm ended up on the wrong end of two conflict decision. On June 23, 2004, in GMP Securities Ltd. v. Stikeman Elliott LLP Justice Alexandra Hoy of the Ontario Superior Court enjoined the firm from acting for Coeur D’Alene Mines on a hostile takeover bid for Wheaton River Minerals. The bid had initially been friendly. Hoy held that Stikeman Elliott had breached its duty of loyalty to GMP Securities by accepting the Coeur retainer while representing GMP on a transaction in which GMP was providing investment banking and underwriting services to Wheaton. When GMP heard of the Coeur retainer it fired Stikeman Elliott. It was clear that if the Coeur offer was successful, the GMP/Wheaton transaction would not proceed.
Perhaps more importantly, Hoy ruled that Stikeman Elliott also owed a duty of loyalty to Wheaton, who was clearly not Stikeman Elliott’s client. Justice Hoy wrote that “I was influenced in this conclusion by the fact that an investment bank and its counsel are often in essence part of a team which includes the investment banker’s client and its counsel, working together with the common objective of effecting the particular transaction the client company seeks to complete.”
Hoy dismissed Stikeman’s argument that the application for disqualification was a “strategic play by Wheaton to hinder Coeur’s hostile bid for it.” Waitzer insists that the decision opens a Pandora’s Box. “Law firms have become the meat in the middle in these types of situations. The notion that one client who has known all along that we’re acting for another client can use Neil to advance its negotiating position is now a problem I run into every week.”
Less than 24 hours after the GMP decision was released, the Ontario Securities Commission’s (OSC) decision in Re Credit Suisse First Boston barred Stikeman from acting for Credit Suisse in defence of charges that the brokerage firm violated the universal market integrity rules regarding certain off-market transactions.
Stikeman Elliott had been retained by the Toronto Stock Exchange (TSE) to prepare draft agreements between it and the Investment Dealers Association of Canada. The agreements were aimed at setting up a new corporate entity to carry on the regulatory functions previously carried on separately by both organizations. During this process lawyers from Stikeman Elliott had a number of telephone conversations and meetings with people from the TSE. They also reviewed opinion letters from other counsel. The retainer ended after the firm prepared certain draft documents.
Eventually the parties, with the assistance of other law firms, set up Market Regulation Services Inc. (RS). The TSE and Investment Dealers Association were each 50 per cent shareholders in the new corporation and each had representatives on the RS board.
Some time after RS began functioning, and well after the point where Stikemans had ceased to act for the TSE on the matter, RS charged Credit Suisse First Boston (CSFB) with market violations. CSFB retained Stikeman Elliott to represent them. Stikeman Elliott challenged the jurisdiction of RS to hold a hearing and impose penalties against CSFB. The firm also argued that RS was institutionally biased in favour of the TSE because of its corporate and governance structure. RS responded that Stikemans should be removed from the record because its defence of CSFB amounted to an attack on its previous advice, placing the firm in a conflict of interest.
The OSC agreed that Stikemans could not act despite the fact that the firm had obtained the TSE’s oral consent “to take on other mandates that could be adversarial to the TSE’s interest.” In so doing the Commission’s decision, like Justice Hoy’s in GMP, expanded the duty of loyalty to former clients, including those who were not “clients” in the strict sense of the word.
Waitzer maintains that Re Credit Suisse is further evidence that use of Neil has become a negotiating tactic. “RS didn’t object to our mandate for CSFB for the months we were trying to settle the charges. Only after it became clear that a settlement could not be reached did they seek our disqualification.”
Waitzer’s comments echo the views of Hugh Crisp, chief executive at Freshfields, on the Marks & Spencer decision. “The judgment emphasized a perception of risk, but that risk did not come to pass. I do not believe Slaughters [counsel for M&S] and M&S thought we would disclose confidential information. It was good for them to get the team of first choice off the deal.”
Some may see this as sour grapes, but not Winn Oughtred, coordinator of the Toronto business advisory group at BLG. Oughtred says Waitzer has identified a serious problem. “The worst thing in the world that can happen to a client is to discover at the courtroom steps or in the midst of an important transaction that a motion has been brought to remove their lawyer. It is a situation that’s to be avoided at all costs.”
Garth Girvan, a senior corporate partner at McCarthy Tétrault in Toronto, is equally supportive of Waitzer. “The fallout from Neil is pernicious. It is causing problems for all of the big firms and is leading to a lot of strife internally and with clients who want choice among their legal suppliers.”
What may be worse is the uncertainty. As Malcolm Ruby at Gowlings points out, “We’re supersensitive to conflicts issue and we don’t want to get into quarrels where we can avoid them. But no one knows what the boundaries of the duty of loyalty are.”
But this much is clear. As they have perhaps already demonstrated, Canadian courts are unlikely to have much more empathy for the dilemma than American and British courts have demonstrated. Strong views are held regarding the issue.
Hutchinson at Osgoode is representative of one camp. “I’d like someone to point to a case where someone other than the conflicted law firm regards a decision ousting them from a brief as outrageous. Dealing with conflicts problems is a cost of doing business that affects all large firms. These are wealthy and sophisticated entities who must accept the responsibilities that go with their privileges and their decision to become huge firms. And the emerging conflicts rules apply to all of them equally, so what’s the problem?”
The people best able to answer this question are undoubtedly the clients.
“Conflicts is not my favourite subject.” So says David McAusland, senior vice-president and chief legal officer at Alcan Inc. in Montreal. McAusland’s distaste for conflicts may arise from Alcan’s application to have Farris removed as counsel for the District of Kitimat, BC, in an action against Alcan.
The problem arose when Farris hired associate Christopher Gora from Lawson Lundell, where he had worked for three years. At Lawson Lundell, Gora had represented Alcan in matters related to the Kitimat action.
Farris accepted Kitimat’s retainer in August 2002 but did not become aware of the conflict and did not alert Gora until February 2004. At this point Farris immediately put in place ethical screens to isolate Gora from the Kitimat action.
According to the BC Supreme Court, too little and too late. The lack of knowledge on the part of Farris that Gora had previously acted for Alcan was no defence to the motion for disqualification. And the 17-month gap between the potential for disclosure of confidential information and the implementation of protective measures meant that the firm had not taken all reasonable steps to ensure that no confidential disclosure would occur.
McAusland’s distaste for conflicts mirrors the general difficulty that corporate clients have with the issue. The 2004 UK survey conducted by Legal Week and Ernst & Young, referred to earlier, found that in-house counsel are polarized when it comes to conflicts. Thirty per cent of respondents found it unacceptable that a firm work on both sides of a transaction. Forty per cent found it acceptable as long as they gave consent and 20 per cent said whether consent was required depended on the circumstances. The final 10 per cent did not think consent was necessary.
Given a situation where a firm has previously acted for the other side on an unrelated transaction, 30 per cent of counsel responded that this represented an “ethical conflict” and 30 per cent felt there was a “commercial” conflict. The authors of the survey concluded that “As a rule of thumb, it would appear that approximately one-third of clients are applying a hard line towards conflicts.”
In Canada, where Neil catches both “ethical” and commercial “conflicts,” the number of hardliners would probably be closer to 60 per cent.
“I take a hard line on legal and business conflicts because I don’t want to end up having to get a new lawyer at some point in a lawsuit or a transaction.” These are the off-the-record views of an in-house lawyer at one of Canada’s major insurance companies. Our senior corporate counsel goes on to note that “Firms are throwing Chinese walls at the problem, but these are band-aid solutions that are increasingly going off in their faces. The real problem is that there are not enough firms to go around in Canada.”
According to Brian Baynham at Harper Grey, this attitude isn’t unique. “We’re beginning to see the ramifications of Neil. Previous and existing clients are insisting that their interests come before those of the new clients or the law firm itself.”
Somewhere in the middle are companies like SAP Canada, represented by McCarthys. “We have a list of companies for whom we will not allow our lawyers to act,” says Barry Michael Fisher, SAP’s vice-president, general counsel and corporate secretary. “But sometimes, like when we’re negotiating a licensing agreement, we allow them to act on both sides because we’re better off dealing with lawyers who understand our industry and its pressure points.”
Even more open-minded are people like Claude Bergeron, vice-president for legal affairs at the Caisse de Dépôt. “We retain the lawyer, not the firm. The fact that a conflict might exist in principle because another lawyer in the firm is acting for someone else is not a consideration for us. If we know our lawyer well, we will trust him and we will accept Chinese Walls. We will not, however, accept that our own lawyer ever acts against us, except in special situations where we have waived the conflict in advance. The reality is that we work with all the large firms and it is not reasonable for us to ask them to refrain from accepting all mandates against us.”
Brian Leck, general counsel at the Toronto Transit Commission, takes a similar approach. “I’m not interested in creating headaches for lawyers. What I want to know is whether a real issue exists. If there is no confidential information that will come back to bite us, I’m not concerned about the technical side of whether a conflict exists.”
The attitudes adopted by clients have much to do with the nature of their industry. As Winn Oughtred at BLG points out, “The major banks have policies that are fairly enlightened. There’s no problem when we’re talking about routine banking, such as loan transactions. But they don’t want us to act against them in matters involving allegations of fraud, the reputation of the bank, and lender liability. And that’s no problem, because we don’t want to be there in any event.”
A similar perspective exists in the forestry and investment banking sectors, where law firms regularly act for a number of major players. But this is not the case where sensitive information is critical, where competitive tendering is common, or in concentrated industries where competitors are fractious and emotions run high. As Girvan at McCarthys notes, “If you act for Molson’s, you don’t act for Labatt’s. The same is true for the auto manufacturers.”
There is one end result. Conflicts management is a cumbersome, expensive ordeal. As Susan Shapiro points out in her highly praised Tangled Loyalties: Conflict of Interest in Legal Practice, the transaction costs of conflict management can be substantial. These costs include tracking systems, retainers declined, unbillable administrative time, lost time on mandates where a conflict is discovered late in the day, and educating new lawyers when the conflicted firm withdraws.
The American experience suggests that, if anything, these costs will increase. This is particularly the case in a growing cross-border market for legal services. It may be difficult to agree with Jean-Paul Sartre when he had Garcin conclude that “hell is other people.” For managing partners, however, conflicts are a hell from which there is no exit.
Julius Melnitzer is a freelance legal affairs writer.
Lawyer(s)
Ian Binnie
Barry Leon
Milton G. Strom
Vern Krishna
Bryan G. Baynham
Gavin MacKenzie
Edward J. Waitzer
Alexandria Hoy
Garth (Gary) M. Girvan
David L. McAusland
Christopher E. Gora
Barry Michael Fisher
Claude Bergeron
Brian M. Leck
Robert G. Sugarman
Firm(s)
Weil, Gotshal & Manges LLP
Supreme Court of Canada
Torys LLP
Freshfields Bruckhaus Deringer LLP
Ernst & Young Orenda Corporate Finance Inc.
Linklaters LLP
Clifford Chance Rogers & Wells LLP
Shearman & Sterling LLP
American Bar Association
Skadden, Arps, Slate, Meagher & Flom LLP
GE Water & Process Technologies Canada (Zenon Membrane Solutions)
Du Pont Canada Inc.
National Post
Globe and Mail (The)
University of Ottawa
Law Society of Ontario (The)
Borden Ladner Gervais LLP (BLG)
Credit Suisse First Boston Corporation
Toddglen Construction Limited
Griffiths McBurney & Partners
Stikeman Elliott LLP
Chiefs of Ontario
Rio Tinto Alcan Inc.
Robert Cash Management
Blake, Cassels & Graydon LLP
Fasken Martineau DuMoulin LLP
Miller Thomson LLP
FARRIS
Monarch Entertainment
Sentinel Hill Entertainment
B.C. Court of Appeal
Harper Grey LLP
Willkie Farr & Gallagher LLP
Milbank, Tweed, Hadley & McCloy LLP
Osgoode Hall Law School, York University
Superior Court of Justice
Coeur D'Alene Mines Corporation
Wheaton River Minerals Ltd
Ontario Securities Commission
Canadian Investment Regulatory Organization (CIRO)
Market Regulation Services Inc.
McCarthy Tétrault LLP
SAP Canada Inc.
Toronto Transit Commission
Molson Coors Canada
Labatt Brewing Co.
Warner Chappel Music