Amendments to the Rules of Professional Conduct -- Transactions with Clients
The Rules of Professional Conduct (the “Rules”) with respect to Doing Business with a Client (now called Transactions with Clients) were amended on May 26, 2016.
The term “transaction with a client” is now defined in rule 3.4-27 as follows:
a transaction to which a lawyer and a client of the lawyer are parties, whether or not other persons are also parties, including lending or borrowing money, buying or selling property or services having other than nominal value, giving or acquiring ownership, security or other pecuniary interest in a company or other entity, recommending an investment, or entering into a common business venture.
Borrowing from Clients
A lawyer is prohibited from borrowing from a client, unless the lawyer is borrowing from a regulated lender or from a related person (r. 3.4-28.1). New definitions for the terms “regulated lender” and “related person” are set out in rule 3.4-27.
Lawyers are also prohibited from circumventing theRules by doing indirectly what they cannot do directly (r. 3.4-28.2). Transactions between a client and (a) a related person to the lawyer, (b) a trust or estate for which a lawyer is a beneficiary, or (c) a trust or estate for which the lawyer acts as both trustee and lawyer will ordinarily be treated as if the lawyer is a party to the transaction. However, the commentary to rule 3.4-28.2 explains that some transactions will fall outside the scope of this rule.
Requirements for Transactions with Clients
A lawyer must not enter into a transaction with a client unless the transaction is fair and reasonable to the client (r. 3.4-28). In a transaction with a client that is permitted under rules 3.4-28 to 3.4-36, rule 3.4-29 describes the requirements that apply. The essential requirements are
- disclosure of the nature of any conflicting interest and how and why it might develop later;
- independent legal advice or independent legal representation; and
Whether independent legal advice or independent legal representation is required will vary based on the nature of the transaction:
- If a lawyer lends money to a client who is not a related person, the lawyer must require that the client receives independent legal representation (r. 3.4-29(b)(i)).
- If a lawyer lends money to a client who is a related person, the lawyer must require that the client receive independent legal advice (r. 3.4-29(b)(ii)).
- If a lawyer borrows money from a client who is a “regulated lender”, the lawyer need not recommend independent legal advice or independent legal representation (r. 3.4-29(b)(iii).
- The circumstance in which a corporation, syndicate, or partnership borrows money from a client of the lawyer and either the lawyer or the lawyer’s spouse have a direct or indirect substantial interest in the transaction is addressed in rule 3.4-33.1. In that situation, the lawyer must require that the client receives independent legal representation (r. 3.4-29(iv)).
- In all other cases not described in rule 3.4-29(b)(i) through (iv), the lawyer must recommend that the client receive independent legal advice. If the circumstances reasonably require, the lawyer must recommend or require that the client receives independent legal representation.
Fiduciary Relationship and No Conflict of Interest
As the relationship between a lawyer and client is a fiduciary one, a lawyer has a duty to act in good faith (commentary to r. 3.4-29). A lawyer should be able to demonstrate that the transaction with the client is fair and reasonable to the client.
Even if the requirements for transactions with clients set out above are satisfied, the lawyer cannot act in a transaction with a client where there is a substantial risk that the lawyer’s loyalty to or representation of the client would be materially and adversely affected by the lawyer’s own interest, unless the client consents and the lawyer reasonably believes that he or she is able to act for the client without having a material adverse effect on loyalty or on the representation (commentary  of r. 3.4-29; see also rr. 1.1-1 and 3.4-1).
The commentary following rule 3.4-29 provides additional guidance about when a person is considered to be lending money to a lawyer, the documentation of a client’s decision to decline independent legal advice or independent legal representation, and the possibility that a client is vulnerable and declines independent legal advice or independent legal representation.
The Rules in this area are complex. For more information on the amendments and a lawyer’s obligations in transactions with clients, please consult the Rules and the resources below.
- 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.
New! The LSUC Store
The Law Society has launched an updated online platform called the LSUC Store. Law Society merchandise, certificates and letters are available for purchase. You will be able to purchase CPD programs from the fall 2016 calendar later this month.
While it functions much like the current CPD website, additional features make the ordering process easier and more convenient, including manual discounts, cancellations, group orders and access to store credit. Read the FAQs to learn more.
Treasurer Election on June 23
The following benchers have been nominated for the office of Treasurer:
The Treasurer is elected through secret ballot by the benchers of the Law Society. The election will take place at Convocation on June 23, 2016.
The newly elected Treasurer will succeed Treasurer, Janet E. Minor, who was first elected in June, 2014.
Moving forward with proactive entity regulation
At May Convocation, a report was approved outlining the development of options for a compliance-based regulatory framework, with consultation with lawyers and paralegals starting later this year.
With a rapidly changing legal landscape in Ontario, regulators and the professions are facing a progressively complex environment that will bring both opportunities and challenges. Considerable transformation is taking place as a result of technology, globalization and a downward pressure on the cost of providing legal work.
To address these issues, the Law Society continues to be committed to finding new regulatory approaches that may enhance professional conduct and position the Law Society to respond more effectively to innovations in legal service delivery. More information.
Law Society releases free legal resources in First Nation languages
The Law Society has released a quick reference legal guide and two fact sheets in Cree, Oji-Cree and Northwestern Ojibwe, in addition to English and French. The resources provide information about Law Society services and sources of free and low-cost legal information and advice, and are geared towards Indigenous people. To request hardcopies, please call 416-947-3413 or email firstname.lastname@example.org. The materials are available for download at www.lsuc.on.ca/indigenous-initiatives.
Equity Legal Education Series
June 23 – Celebration of Indigenous Peoples Event: What Does Reconciliation Mean to You? More information and to register.
June 28 – Pride Month 2016 Celebration: Fair Play: LGTBQ Inclusion in Sport. More information and to register.
More information on the Equity Legal Education Series.
June 23 - Convocation - check this month's web page for the link to online viewing of Convocation and the archived webcast.
July 31 - LAWPRO Risk Management Credit deadline: Complete the online declaration at www.lawpro.ca by this date to receive the Risk Management Credit on your 2017 insurance premium.
September 15 - LAWPRO Risk Management Credit deadline: Complete the online declaration at www.lawpro.ca by this date to receive the Risk Management Credit on your 2017 insurance premium.
September 22 - Convocation - check this month's web page for the link to online viewing of Convocation and the archived webcast.