Steps for Dealing with Conflicts of Interest under Section 3.4 of the Rules of Professional Conduct

 To determine whether there is a conflict of interest that would prevent you from acting for a client:

PART 1  

Is there a conflict of interest?   

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PART 2   

If there is a conflict of interest, can you act despite the conflict of interest?  

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STEP 1  

Determine who your client is.

Who is a client?   

The term “client” is a defined term in the Rules. A client is a person who

• consults a lawyer and on whose behalf the lawyer renders or agrees to render legal services; or
• having consulted the lawyer, reasonably concludes that the lawyer has agreed to render legal services on their behalf.

A lawyer-client relationship may arise only if there has been a consultation between the lawyer and the client. It may arise without formality even if there is no written retainer.

Furthermore, a client includes a client of the law firm of which the lawyer is a partner or associate whether or not the lawyer handles the client’s work.

(Rule 1.1-1, definition of “client”)   

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STEP 2  

Consider the nature of your retainer and the duties to your client arising from your retainer.

What are a lawyer’s duties to a client arising from the retainer?

In addition to the duty of representation arising from the retainer, the law imposes other duties on the lawyer, particularly the duty of loyalty. Aspects of the duty of loyalty include: the duty of commitment to the client’s cause, the duty of candour and the duty of confidentiality. The rule on conflicts protects all of these duties from impairment from a conflicting duty or interest.

Duty of commitment to the client’s cause  

The lawyer’s duty to commit to the client’s cause prevents the lawyer from withdrawing from representation of a current client, especially summarily and unexpectedly in order to circumvent the conflict-of-interest rules. This duty is reflected in Rule 3.7-1 dealing with withdrawal from representation.

Duty of candour

The duty of candour requires a lawyer or law firm to advise an existing client of all matters relevant to the retainer. Even where a lawyer concludes that there is no conflict of interest in acting against a current client, the duty of candour may require that the client be advised of the adverse retainer in order to determine whether to continue the retainer. This duty is reflected in Rule 3.2-2 dealing with honesty and candour.

Duty of confidentiality

Rule 3.4-2 permits a lawyer to act in a conflict in certain circumstances with the clients’ consent. The duty of confidentiality reflected in Rule 3.3-1 owed to both current and former clients may limit a lawyer’s ability to obtain client consent as permitted under Rule 3.4-2 because the lawyer may not be able to disclose the information required for proper consent. Where there is a conflict of interest and consent cannot be obtained for this reason, the lawyer must not act. In this regard, Rule 3.4-2 provides that client consent does not permit a lawyer to act where there would be actual impairment rather than merely the risk of impairment.

(Rule 3.4-1, commentary [2] and [13])

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STEP 3  

Determine whether the duties that you owe to current clients, former clients and any third persons might affect the duties owed to your client. Similarly, determine whether you have any personal interests that might affect the duties owed to your client.

In what situations, do conflicts of interest commonly arise?  

Current Client Conflicts

Duties owed to another current client can impair client representation and loyalty. The following are examples of situations where conflicts of interest involving current clients may or will arise:

• acting for opposing parties in a dispute;
• acting in a joint retainer where the interests of the parties diverge;
• acting for more than one client in separate but related matters because of the nature of the retainers; 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 depending on whether information obtained by the lawyer during either retainer would be relevant to both retainers.

A bright line rule has been developed by the courts to protect the representation of and loyalty to current clients (Canadian National Railway Co. v. McKercher LLP, [2013] 2 S.C.R. 649). 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 bright line rule applies even if the work done for two clients is completely unrelated. The scope of the bright line rule is limited. It provides that a lawyer cannot act directly adverse to the immediate legal interests of a current client. Accordingly the main area of application of the bright line rule is in civil and criminal proceedings. Exceptionally, the bright line 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 snd lawyers in association represent opposite parties to a dispute.

A conflict of interest may arise from 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.

(Rule 3.4-1, commentary [6] to [9])

Joint Retainers

Joint retainers are dealt with in Rules 3.4-5 to 3.4-9, 3.4-12 to 3.4-16, and 3.4-16.7 to 3.4-16.9. Appendix 1, Compliance with the Joint Retainer Rules, contains some resources to assist lawyers with the application of these rules.

Personal Interest Conflicts 

A conflict of interest may also arise as a result of the lawyer’s personal interest in the client’s affairs or in the matter in which the lawyer is asked to act for the client. A personal interest includes not only the lawyer’s own personal interests, but also the interests of others connected to the lawyer, such as the lawyer’s partners, associates or family members.

(Rule 3.4-1, commentary [4])

Former Client Conflicts

Duties owed to a former client reflected in Rule 3.4-10 can also impair client representation and loyalty. Since the duty of confidentiality continues after the retainer has been completed, the duty of confidentiality owed to a former client may conflict with the duty of candour owed to a current client if information from the former matter would be relevant to the current matter. Lawyers also have a duty not to act against a former client in the same or a related matter even where the former client’s confidential information is not at risk. In order to determine the existence of a conflict of interest, a lawyer should consider whether the representation of the current client in a matter includes acting against a former client. Rules 3.4-10 and 3.4-11 deal specifically with the lawyer’s obligations when acting against a former client.

(Rule 3.4-1, commentary [10])

Other Conflicts

The Rules also contain specific obligations with respect to certain conflicts-of-interest situations. Some examples include: doing business with a client (Rules 3.4-27 to 3.4-36); acting for a borrower and lender (Rules 3.4-12 to 3.4-16); and acting for a transferor and transferee in transfers of title (Rules 3.4-16.7 to 3.4-16.9).

Conflicts Arising from Duties Owed to Other Persons

Duties owed to other persons can also impair client representation and loyalty. For example, a lawyer may act as a director of a corporation or as a trustee. If a lawyer acts against such a corporation or trust, there may be a conflict of interest. But even acting for such a corporation or trust may affect the lawyer’s independent judgment and fiduciary obligations in either or both roles, make it difficult if not impossible to distinguish between legal advice from business and practical advice, or jeopardize the protection of lawyer-client privilege. Lawyers should carefully consider the propriety and the wisdom of wearing “more than one hat” at the same time.

(Rule 3.4-1, commentary [11])

Duty of Confidentiality to Third Parties

When determining whether there is a conflict of interest, lawyers should also consider the duty of confidentiality that may be owed to third parties. The Rules provide that a lawyer owes a duty of confidentiality to anyone seeking advice or assistance on a matter invoking a lawyer’s professional knowledge, although the lawyer may not render an account or agree to represent that person. A solicitor-client relationship is often established without formality. A lawyer should be cautious in accepting confidential information on an informal or preliminary basis since possession of the information may prevent the lawyer from subsequently acting for another party in the same or a related matter.

(Rule 3.3-1, commentary [4])

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STEP 4  

Determine if there is a substantial risk that your duty of loyalty to the client or the representation of the client would be materially and adversely affected by your own interest or your duties to another client (current, former or joint clients) or a third person. If so, there is a conflict of interest. 

When is the risk substantial?

A “conflict of interest” is defined in the Rules as the existence of 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.

The 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 than a mere possibility that the impairment will occur. Except as otherwise provided in Rule 3.4-2 dealing with consent, it is for the client and not the lawyer to decide whether to accept the risk.

(Rule 3.4-1, commentary [1]; Rule 1.1-1, definition of “conflicts of interest,” commentary [1])

A lawyer should examine whether a conflict of interest exists not only from the outset but throughout the duration of the retainer because new circumstances or information may establish or reveal a conflict of interest. For example, the addition of new parties in litigation or in a transaction can give rise to new conflicts of interest that must be addressed.

(Rule 3.4-1, commentary [12])

If you do not reasonably believe that you are able to represent each client without having a material adverse effect on the duties owed to the other client, then you cannot act.

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STEP 8  

If you reasonably believe that you are able to represent each client without having a material adverse effect on the duties owed to the other client, then you may act if there is consent from all of the affected clients, which consent must be fully informed and voluntary after disclosure.    

What is “consent” under the conflicts-of-interest rule?  

Rule 1.1-1 provides that “consent” must be in writing or confirmed in writing where consent is provided orally.

Disclosure is 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.

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. In making disclosure, 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.

Furthermore to ensure that the client’s consent is informed, in some circumstances, such as when the client is vulnerable or not sophisticated, the lawyer should recommend that a client obtain independent legal advice.

(Rule 3.4-2, commentary [1] to [2A]; Rule 1.1-1, definition of “consent”)

Consent in Advance

In certain circumstances the lawyer may be able to obtain the client’s consent in advance to conflicts that may arise in the future. However, the effectiveness of such consent is generally determined by the extent to which the client reasonably understands the material risks that the consent entails. Therefore the more comprehensive the explanation of the types of future representations that might arise and the actual and reasonably foreseeable adverse consequences of those representations, the greater the likelihood that the client will have the requisite understanding. A general, open-ended consent will ordinarily be ineffective because it is not reasonably likely that the client will have understood the material risks involved. If the client is an experienced user of the legal services involved and is reasonably informed regarding the risk that a conflict may arise, such consent is more likely to be effective, particularly if, for example, the client is independently represented by other counsel in giving the consent and the consent is limited to future conflicts unrelated to the subject of the representation.

While not a prerequisite to advance consent, in some circumstances it may be advisable to recommend that the client obtain independent legal advice before deciding whether to provide consent. Advance consent must be recorded, for example in a retainer letter.

(Rule 3.4-2, commentary [4] and [5])

Consent and the “Bright Line Rule”

The “bright line rule” developed by the courts to protect the representation of and loyalty to current clients does not apply in circumstances where it is unreasonable for a client to expect that its law firm will not act against it in unrelated matters. No issue of consent arises in such circumstances absent a substantial risk of material and adverse effect on the lawyer’s loyalty to or representation of a client. Where such a risk exists, consent is required even though the bright line rule does not apply.   

(Rule 3.4-2, commentary [6])

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The rules on conflicts of interest are contained in Section 3.4 of the Rules. This resource has been prepared to assist lawyers to comply with some of their obligations under the conflicts-of-interest rules. Lawyers should refer to the actual Rules to determine the full extent of their obligations.

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