Amendments to the Conflict of Interest Rules
Convocation amended the Rules of Professional Conduct (the “Rules”) on February 25, 2016 to reflect the Supreme Court of Canada’s decision in Canadian National Railway Co. v. McKercher LLP (“McKercher”), other developments in the law, and changes made to the Federation of Law Societies of Canada’s Model Code of Professional Conduct.
This e-Bulletin outlines three of the changes to the conflict of interest rule: the clarification of the meaning of substantial risk; the expanded discussion of current client conflicts and the bright light rule; and the enhanced guidance about the disclosure required to obtain client consent to act in a conflict. A link to a resource that assists lawyers in analyzing conflicts of interest is also provided below.
“Substantial Risk” of Conflict of Interest
As defined in r. 1.1.-1 of the Rules, a conflict of interest exists when there is a substantial risk that a lawyer’s loyalty to or representation of a client would be materially and adversely affected by the lawyer’s own interest or the lawyer’s duties to another client, a former client, or a third person. The risk must be more than a mere possibility; there must be a genuine, serious risk to the duty of loyalty or to client representation arising from the retainer. A lawyer is prohibited from acting or continuing to act in a conflict of interest, except as permitted under s. 3.4 of the Rules.
A client may be unable to judge whether the lawyer’s duties have actually been compromised. Even a well-intentioned lawyer may not realize that performance of his or her duties has been compromised. Accordingly, commentary  to r. 3.4-1 now explains that the conflict of interest rule addresses the risk of impairment rather than actual impairment. The expression “substantial risk” in the definition of conflict of interest describes the likelihood of the impairment, as opposed to its nature or severity. A substantial risk is one that is significant and plausible, even if it is not certain or even probable that it will occur. There must be more there a mere possibility that the impairment will occur. Except as otherwise provided in r. 3.4-2, it is for the client and not the lawyer to decide whether to accept this risk.
Current Client Conflicts and the Bright Line Rule
The amended Rules provide an expanded discussion about the ways in which current client conflicts may arise as well as the analysis to be conducted in such cases. The following are examples of situations where conflicts of interest involving current clients may or will arise:
- Representing opposing parties in a dispute;
- Acting in a joint retainer where the jointly represented clients’ interests diverge;
- Representing more than one client in separate but related matters; and
- Acting for clients in unrelated matters where the duty of confidentiality owed to one client may be inconsistent with the duty of candour owed to another client.
A bright line rule has been developed by the courts to protect the representation of and loyalty to current clients (McKercher) and is now codified in commentaries  to  of r. 3.4-1 of the Rules. The bright line rule holds that a lawyer cannot act directly adverse to the immediate legal interests of a current client, without the clients’ consent. The main areas of application of the bright line rule are in civil and criminal proceedings. The bright line rule applies even if the work done for the two clients is completely unrelated. The rule does not apply in circumstances where it is unreasonable for a client to expect that the client’s law firm will not act against the client in unrelated matters.
The bright line rule recognizes that the lawyer-client relationship may be irreparably damaged where the lawyer’s representation of one client is directly adverse to another client’s immediate legal interests. One client may legitimately fear that the lawyer will not pursue the representation out of deference to the other client, and an existing client may legitimately feel betrayed by the lawyer’s representation of a client with adverse legal interests. This type of conflict may also arise outside a law partnership, in situations where sole practitioners, who are in space-sharing associations and who otherwise have separate practices, hold themselves out as a law firm and lawyers in the association represent opposite parties to a dispute.
A lawyer should understand that there may be a conflict of interest arising from the duties owed to another current client even if the bright line rule does not apply. In matters involving another current client, lawyers should take care to consider not only whether the bright line rule applies but whether there is a substantial risk of impairment. In either case, there is a conflict of interest.
Disclosure and Consent
The amendments to the Rules provide additional guidance on the disclosure required prior to obtaining client consent to act where there is a conflict of interest. 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 consent, which must be fully informed and voluntary after disclosure, from all affected clients. In addition, the rule requires that the lawyer reasonably believe that he or she is able to represent each client without having a material adverse effect upon the representation of or loyalty to the other client. Disclosure is therefore an essential requirement to obtaining a client’s consent and arises from the duty of candour owed to the client. Where it is not possible to provide the client with adequate disclosure because of the confidentiality of the information of another client, the lawyer must decline to act (r. 3.4-2).
Disclosure means full and fair disclosure of all information relevant to a person’s decision in sufficient time for the person to make a genuine and independent decision, and the taking of reasonable steps to ensure understanding of the matters disclosed. The lawyer should therefore inform the client of the relevant circumstances and the reasonably foreseeable ways that the conflict of interest could adversely affect the client’s interests. This would include the lawyer’s relations to the parties and any interest in or connection with the matter (r. 3.4-2).
While this rule does not require that a lawyer advise a client to obtain independent legal advice about the conflict of interest, in some cases the lawyer should recommend such advice. This is to ensure that the client’s consent is informed, genuine, and uncoerced, especially if the client is vulnerable and not sophisticated (r. 3.4-2[2A]).
 Please note that additional amendments were made to the conflict of interest rule on February 25, 2016. Lawyers should consult the amended Rules and/or review the Professional Regulation Committee, Report to Convocation (the latter provides background information as well as a redline showing all the amendments made).
- Visit the Your Practice section of the Law Society Gazette for Rules Recap: quarterly updates of Law Society rule and by-law amendments.
- For assistance interpreting your obligations under the Rules, please contact the Practice Management Helpline at 416-947-3315 or 1-800-668-7380, ext 3315.
Annual General Meeting
The Law Society’s Annual General Meeting will be held at Osgoode Hall, 130 Queen Street West, Toronto, on Wednesday, May 11, 2016, beginning at 5:15 p.m. All members of the Law Society are invited to attend. The Annual General Meeting will be webcast so please check the Law Society’s website closer to the date for the link to online viewing of the Annual General Meeting. More information.
Conflicts of Interest in your Civil Litigation Practice 2015
It's inevitable that a conflict of interest will arise in one of your civil litigation files. Do you know how to handle it? Can you spot a potential conflict before it develops? In this e-Course, host Paul Michell (Lax O'Sullivan Scott Lisus LLP) walks you through case scenarios that stem from joint retainers, migrating lawyers, and firm mergers to show you how to prepare yourself and react with confidence. More information.
Career Coaching Program for Women Lawyers and Paralegals
Career Coaching for Women Lawyers and Paralegals is a program for women lawyers and paralegals who meet specified eligibility criteria to receive, without charge, up to six hours of career coaching from a qualified professional career coach. The purpose of the Career Coaching Program is to assist women lawyers who are sole practitioners or in firms of five lawyers or less and women paralegals who are sole practitioners or in firms of five paralegals or less to maintain their practice while taking a parental or compassionate care leave. More information.
Join Now or Renew Your Law Society Referral Service Membership
The Law Society Referral Service (LSRS) continues to support access to justice by connecting people who have a legal need with a lawyer or paralegal who can assist them. LSRS offers immediate referrals at any time of the day at www.findlegalhelp.ca. Trained legal professionals assist callers in need through a new crisis line: 416-947-5255 or toll free 1-855-947-5255. The cost to join the service is $282.50 per year (including applicable taxes). Applicants who join now will have their fee pro-rated monthly. More information.
Federation of Law Societies Consulting on Model Code Amendments
The Federation of Law Societies of Canada is seeking feedback on draft amendments to its Model Code of Professional Conduct. The proposed amendments involve rules on competence, dishonesty/fraud, and incriminating physical evidence. Feedback is also being sought on a new rule addressing responsibilities that arise when a lawyer leaves a law firm. The deadline for providing feedback to the Federation on the proposed amendments is June 30, 2016. More information.
Equity Legal Education Series
April 28 - Earth Day Event: The Right to be Cold. Climate Change – how it is affecting Inuit, the North, all of us, and legal strategies to address these issues. More information.
May 3 – Mental Health Week Event – a panel discussion in honour of Mental Health Week. More information.
May 5 – Holocaust Remembrance Day Event - a discussion of the lessons of the Holocaust in examining modern day refugee crises. More information.
More information about the Equity Legal Education Series.
Osgoode Hall Restaurant Launches New Website
The Osgoode Hall Restaurant website launched recently. Now visitors can quickly make a lunch reservation, browse the menu and learn more about catering and venue rentals. More information.
April 28 - Convocation - check this month's web page for the link to online viewing of Convocation and the archived webcast.
April 30 - LAWPRO 2016 Real Estate and Civil Litigation Levy Surcharge annual exemption form due.
April 30 - LAWPRO 2016 First Quarter Real Estate and Civil Litigation Levy Surcharge filings and applicable payments due.
May 11 - Law Society Annual General Meeting.
May 26 - Convocation - check this month's web page for the link to online viewing of Convocation and the archived webcast.
May 30 - Final date to file the 2015 Lawyer Annual Report, Paralegal Annual Report and Class L3 Licence Annual Report. Failure to file by this date will result in a $100 late fee on or about this date and referral for suspension.
May 31 - Final date to file the 2015 Multi-Discipline Partnership Report. Failure to file by this date may result in referral for suspension on or about this date.
May 31 - Final date to file the 2015 Affiliation Report. Failure to file by this date may result in referral for suspension on or about this date.