Amid the media frenzy over the morality play unfolding in an Ottawa courtroom, the bar has a lesson to glean from the argument over the interaction between the Canadian Senate’s expense rules and the Criminal Code. (“Blame the rules, not Mike Duffy, defence says“; “Mike Duffy trial: Defence to continue attack on vagueness of Senate rules.”)
Mr. Duffy’s defence lawyer contends the Senate’s self-imposed rules permitted practices such as claiming housing expenses for property in the province of a senator’s appointment, even though the senator resided in another province most of the time. The Crown argues strict observance of this expense rule, to satisfy a questionable appointment of an Ontario resident to a P.E.I. Senate seat, amounted to a breach of trust. The legal stratum of this debate is divergence between the rules of an antiquated self-regulating body and the law of the land. Does meeting the minimum requirement of an self-regulating body shield the member from operation of law?
For over a decade, the law of conflicts of interest for lawyers has laboured with this very same issue. It has flown under the radar only because a relative few lawyers and judges have been actively involved.
Most lawyers have heard of the “bright line rule” in the law of conflicts of interest, but few are aware of the political tug of war, mainly with the judiciary but also within the bar. The public expectation of lawyers is that if the lawyer or firm acts for a client in a litigious matter, they will not act for the client’s adversary, either in the same matter or in an unrelated matter. The new client’s right to choose counsel, however, has meant that the unrelated matter part of that expectation has to be curtailed in an exercise of balancing and assessment of risk of harm to the clients. Explanation of this concept and its permutations can and does fill volumes of law books. For present purposes, however, it is not hard to see that the rule against conflicts is a barrier to the creation of the lawyer-client retainer. So the brighter the line, the greater the impact on the right to appoint counsel and, consequently, on the opening of new files at the law office.
Disagreements over the nature of the rule pits large firms against mid-size firms, clients against their erstwhile trusted advisers, and the bar against the judiciary. As an example, an associate or junior partner with the opportunity to act for a new client may not act, if there is a conflict of interest with an existing client retained by more senior lawyers. This impediment to building a ‘book of business’ is a recurrent and common reason for lawyers in large firms to set off on their own, or seek lateral appointments in other firms. The clearer the injunction against conflicts of interest, the more it impedes the growth of law firms. On the other hand, as long as the bar lags behind the judiciary in modernizing the rule, the issue damages public confidence in an independent self-regulating bar and ultimately breeds cynicism among clients.
McKercher and Its Aftermath
The example I gave above was turned on its head when, in 2008, Saskatchewan’s McKercher LLP summarily fired its blue-chip client, CN Rail, to accept a new, one-off retainer from Gordon Wallace, a representative plaintiff in a $1.75 billion class action against CN for allegedly unlawful overcharging farmers for grain transportation. In a move that tarnished the ‘trusted adviser’ role of the bar, the law firm’ play for short-turn riches was a plot that could have been written by Aesop himself.
The battle to keep the new retainer endured five years. The Supreme Court of Canada, in Canadian National Railway Co. v. McKercher LLP,  2 SCR 649, held the firm had breached its duty of loyalty to CN in an effort to sidestep conflict of interest rules. In the aftermath of this ruling, law societies across Canada have attempted to plaster over flaws in regulatory standards governing conflicts of interest.
McKercher immediately added further fodder to a debate concerning the interpretive commentaries the Model Code of Professional Conduct of the Federation of Law Societies of Canada (FLSC). For years, internal debates within the bar, between the Canadian Bar Association (CBA) and the FLSC, as well as regional divisions within the FLSC, had been waged in response to the Supreme Court’s articulation of a ‘bright line’ between conflicting and non-conflicting retainers in unrelated matters, in R. v. Neil,  3 SCR 631 and Strother v. 3464920 Canada Inc.,  2 SCR 177. In his 2011 paper, “Conflicted Identities: The Battle Over the Duty of Loyalty in Canada,”(2011) 14:2 Legal Ethics 193, Adam Dodek describes the emergence of competition between the bar and the judiciary over the regulation of lawyers. In that paper, Dodek described the CBA as showing little deference to the Supreme Court’s pronouncements in Neil.
In McKercher, the court maintained the bright line rule and held that a lawyer owes her client a duty of loyalty, consisting of:
- a duty to avoid conflict of interests,
- a duty of commitment to the client’s cause, and
- a duty of candour.
The ‘bright line rule’ from Strother, according to the McKercher court, means that a law firm cannot act for a client whose interests are adverse to those of another existing client, unless both clients consent. It applies regardless of whether the client matters are related or unrelated. The rule applies where the immediate legal interests of clients are directly adverse. It does not apply to condone tactical abuses. It does not apply in circumstances where it is unreasonable to expect that the lawyer will not concurrently represent adverse parties in unrelated legal matters.
This ‘clarification’ of the rule, as with many pronouncements of the top court, have served to superimpose shades of matte to the brightness of the line. At the time of its release, legal commentators hailed McKercher as a partial vindication of the bar’s reluctance to embrace the dicta in Strother and Neil. The triumphalism that seemed to accompany the bar’s reaction to the dulling of the bright line is not likely to bring honour to our profession.
Whither the Bar, after McKercher?
The debate over the commentaries arises in the context of the following basic rule in the FLSC’s Model Code:
Duty to avoid conflicts of interest
3.4-1 A lawyer must not act or continue to act for a client where there is a conflict of interest, except as permitted under this Code.
With slight contextual changes, this text has been in place for many years in the rules of conduct of provincial law societies. The current FLSC commentary is based on the McKercher articulation of the rule, and reads:
 Lawyers have an ethical duty to avoid conflicts of interest. Some cases involving conflicts of interest will fall within the scope of the bright line rule as articulated by the Supreme Court of Canada. The bright line rule prohibits a lawyer or law firm from representing one client whose legal interests are directly adverse to the immediate legal interests of another client even if the matters are unrelated unless the clients consent. However, the bright line rule cannot be used to support tactical abuses and will not apply in the exceptional cases where it is unreasonable for the client to expect that the lawyer or law firm will not act against it in unrelated matters. See also rule 3.4-2 and commentary.
In Ontario, the Law Society of Upper Canada’s rule 3.4-1 does not contain this commentary. In contrast, British Columbia Law Society’s version currently employs a pre-McKercher wording that embraces the rule stated in Neil and Strother:
 The rule reflects the principle articulated by the Supreme Court of Canada in the cases of R. v. Neil 2002 SCC 70 and Strother v, 3464920 Canada Inc. 2007 SCC 24, regarding conflicting interests involving current clients, that a lawyer must not represent one client whose legal interests are directly adverse to the immediate legal interests of another client without consent. This duty arises even if the matters are unrelated. The lawyer client relationship may be irreparably damaged where the lawyer’s representation of one client is directly adverse to another client’s immediate 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. The prohibition on acting in such circumstances except with the consent of the clients guards against such outcomes and protects the lawyer client relationship.
As these rules currently stand, the next battle will involve the harmonization of the patchwork of the position stated in the B.C. commentary and the absence of one in Ontario, with the FLSC sitting somewhere between them.
Without getting into the differences in principle, it is safe to say that the articulation of the bar’s position will have an impact on the legal landscape. A line that is less bright will allow firms to grow larger and larger, and thus increase the risk to the public that their lawyers may cause their loyalties to be divided. It is a cycle of diminished confidence. CN Rail, for example, was not impressed by its lawyers’ strict observance of the rules of its self-governing body, and kept up the litigation as far as it could go. McKercher was hardly a victory for the bar, in an argument that the rules should be looser than how the nation’s top court stated it in 2002 and 2007. A brighter line, in contrast, benefits mid-size firms and smaller law practices because it encourages more competition in the legal marketplace. That side of the debate has not been altogether articulated, even by those in legal leadership who claim to represent a “small and solo” constituency.
Instead of reacting to court decisions involving law firm abuses of conflicts regulation, the bar needs to have a widely-held debate about conflicts of issue and show leadership in the public interest. The brightest line would be a formulation of the 3.4-1 commentary that goes back to first principles and thoughtfully balances the duty of loyalty to existing and former clients against the right of new clients to be represented by their counsel of choice. It should not be a reluctant compromise but a legislative act of self-government: a stance of professional principle.