The Conflict Over Conflicts

Of all the ethical minefields for lawyers, conflicts of interest rules are the most confusing, complex, and potentially costly. The premise underlying conflicts rules – thou shalt be loyal to one's client – seems pretty basic. And yet it's taken nearly three years for the Federation of Law Societies of Canada to finalize the conflicts portion of its new model code of professional conduct. In mid-December 2011, Federation Council approved new code provisions that deal with law firms acting against current clients, a full two and a half years after the rest of its new model code had been announced.

Why the delay? One reason: politics. The Federation and the Canadian Bar Association have been sparring nearly that entire time about what the new conflicts rules should look like. At risk of oversimplifying, the Federation's approach has been to follow a principle distilled from a series of Supreme Court of Canada decisions: a lawyer must not represent a client whose immediate legal interests are adverse to those of a current client, even if the matters are unrelated (the “bright line” test).

The CBA's Task Force on Conflicts of Interest rejected that approach, saying it would “freeze” an evolving area of law where the Supreme Court was badly split. Instead, it advocated that, absent a substantial risk of material and adverse effect on representation, a lawyer may act adversely to a current client in an unrelated matter.

The whole mess began a while back. In March 2007, the CBA established a Task Force on Conflicts of Interest to try sorting out the confusion. But the June 2007 release of the Supreme Court's 5-4 decision in Strother made matters worse. A client had sued its lawyer, Strother, and his firm, Vancouver's blue chip Davis & Company, for breach of fiduciary duty and confidence when Strother took a financial interest in a second client in the same line of business as the first.

As Chief Justice Beverly McLachlan put it, the issue before the court was simple: “whether, on the facts of this case, a conflict arose.” The majority held it had; the dissenting judges (including McLachlan) found no palpable and overriding error in the trial judge's decision that it hadn't. And the fact that the Supreme Court judges themselves were so divided further reinforced how difficult this area had become.

In August 2008 the CBA Conflicts Task Force released its report, recommendations (21 of them) and a “toolkit.” The report unapologetically concluded that “current conflict rules not only create unnecessary inefficiencies in the delivery of legal services but they also appear to be having a negative impact on clients, limiting the choice of and access to counsel.” The report noted that conflicts rules were serving as a barrier to “unbundled” legal services to clients, and signalled that sophisticated clients needed more than a “one size fits all” approach.

The CBA Task Force was criticized as the tool of Big Law, despite the fact that its 16 members came from small, medium and large law firms, from both urban and rural settings, and from different practice backgrounds, including government and in-house counsel. But technical arguments about its recommendations for a more liberalized approach to conflicts rules have been thinly layered over the deeper and more profound concerns: that the CBA was sell ing out, abandoning professional loyalty to clients just to be able to earn more fees.

The battle over conflicts isn't unique to Canada. A March 2011 submission to the American Bar Association's Ethics 20/20 Commission argued for a separate set of conflicts rules for “sophisticated clients.” And a series of US cases in 2011 upheld complex agreements between lawyers and clients providing for advance waivers of conflicts, essentially now casting professional conduct rules as something to be “contracted around.”

Whatever the result of the technical battle, the fault lines are clear. Moving forward, however, here's hoping the highfalutin rhetoric about the moral high ground gets dropped in favour of a critical evaluation of what would best serve clients and the public interest.
I'm not holding my breath.

Paul Paton is a professor at the University of the Pacific's McGeorge School of Law in Sacramento, California. He can be reached at (916) 739-7284 or ppaton@pacific.edu.