Conflict of Interest

Introduction

It is the lawyer’s duty to act within the interest of their client(s). This seems easy to understand but can be quite complex when putting to practice. The purpose of this article is to help sole practitioners with the question of how to avoid situations of conflicting interests that harm their ability to do their job properly. This is important because, pursuant to section 3.4-1 of the Rules of Professional Conduct, “A lawyer shall not act or continue to act for a client where there is a conflict of interest…” (1) Since lawyers generally do not want to lose their clients due to a conflict of interest, it might be beneficial to know how to avoid conflicts that affect their judgment.

Conflict of Interest

The Law Society of Ontario stated that a conflict of interest means “the existence of a substantial risk that a lawyer’s loyalty to or representation of a client would be materially or adversely affected by the lawyer’s own interest or the lawyer’s duties to another client, a former client, or 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.” (2) So according to this definition a conflict of interest occurs when a lawyer’s loyalty and representation is hindered by the conflicting interests between the client and themselves, other clients, former clients, and other parties. This alludes to four categories of conflict:

  1. Personal Interest Conflict
  2. Current Client Conflicts
  3. Former Client Conflicts
  4. Conflicts arising from Duties to Third Persons


Personal Interest Conflict

A lawyer’s own interest is capable of harming client representation and loyalty. This is relatively easy to understand in abstraction. Though the factual matrixes that may arise in this context are virtually infinite, just as there are virtually infinite numbers between one and two, a few examples should suffice. A good example is provided by the Law Society of Ontario, who stated, “where a lawyer is asked to advise the client in respect of a matter in which the lawyer, the lawyer’s partner or associate or a family member has a material direct or indirect financial interest”, the lawyer’s interest can impair client representation and loyalty. (3)

Another simple example is when lawyers charge or accept fees or disbursements. Normally, it is within the interest of a buyer to pay as little as possible for a purchase while it is within the interest of a service provider or ‘seller’ to earn as much as possible. So naturally there is some degree of a conflict of interest when determining the appropriate price, for all transactions contain some degree of conflict. However, pursuant to section 3.6-1, “A lawyer shall not charge or accept any amount for a fee or disbursement unless it is fair and reasonable and has been disclosed in a timely fashion.” (4) This puts the client first, for if the lawyer is to be paid any fee or disbursement, then it must be fair, reasonable, and disclosed in a timely manner. If either of these necessary conditions are not met, whereby for instance the lawyer failed to charge a fair or reasonable fee against the client, then the lawyer ought be paid nothing in accordance with this section of the Rules of Professional Conduct.

Current Client Conflicts

A lawyer may have several clients. However, they may not have any clients whose interests are relevantly in conflict with another client’s. The exception will be addressed near the end of this article. An example of a strong rule against the representation of conflicting clients is the well-known section 3.4-3, which stipulates that “a lawyer shall not represent opposing parties in dispute.” (5) The rationale for this is quite clear: that “If the lawyer were permitted to act for opposing parties in such circumstances even with consent, the lawyer’s advice, judgment and loyalty to one client would be materially and adversely affected by the same duties to the other client or clients. In short, the lawyer would find it impossible to act without offending the rule in Section 3.4”, which is that lawyers may not act for a client where there is conflict of interest. Thus, since the lawyer’s obligation to loyalty and proper representation may be hindered by the circumstances, a lawyer shall not be permitted to act for opposing parties.

A less obvious example is where a lawyer attempts to divide the fees and disbursements between clients. Similar to the earlier example regarding the natural existence of conflicts in pricing interests between buyer and seller, clients may also be in conflict when a multiple of them are all interested in the ‘best price.’ To address this, section 6.4-4 may be applied, whereas the lawyer acting for multiple clients in the same matter should divide the fees and disbursements equitably between them unless they agree for otherwise.  

In addition to these rules written by the Law Society of Ontario, the lawyer also has a common law fiduciary duty to act within the interest of their clients. In the case of Roth Estate v. Juschka, 129 O.R. (3d) 261, the Ontario Court of Appeal questioned whether a respondent lawyer breached his fiduciary duty to the appellants by acting for all parties where there was a conflict of interest and by failing to send them for independent legal advice. The respondent suggested a critical term in a transaction remain undocumented and perhaps unenforceable for the benefit of one client and to the detriment of another client. (6) The Court found the respondent liable to the appellants on the grounds that they breached their fiduciary duty and were negligent within the circumstance of conflicting interests. The lawyer failed to recognize the actual or potential conflict of interest between the clients which precluded him from acting for all clients. He also failed to ensure that the parties received independent legal advice.

Former Client Conflicts

Pursuant to section 3.4-10 of the Rules of Professional Conduct, “Unless the former client consents, a lawyer shall not act against a former client in (a) the same matter, (b) any related matter, or (c) … any other matter if the lawyer has relevant confident information arising from the representation of the former client that may prejudice that client.” (7) The decision in MacDonald Estate v Martin, [1990] 3 S.C.R. 1235 is a great example of this type of matter. In this case, Sopinka J. stated that “the test [for determining a disqualifying conflict of interest] must be such that the public represented by the reasonably informed person would be satisfied that no use of confidential information would occur.” (8) In other words, the reasonable person must be satisfied that no use of confidential information would occur. If there is no satisfaction in this regard, then disqualification is due.

There are two questions for applying this test: (i) whether the lawyer received confidential information attributable to a solicitor and client relationship relevant to the matter at hand; and if so, (ii) whether there is a risk that such information will be used to the prejudice of the client. (9) Once both questions were answered in the affirmative, the Court concluded that there exists a conflict of interest which risks the prejudice of the former client.

Conflicts Arising from Duties to Third Persons

In addition to themselves and clients, it is possible that lawyers may hold others’ interests before the client to the detriment of their proper practice through representation and loyalty. As an illustration, suppose that a lawyer may act as the director of a company while being a trustee. If the lawyer acts against such a corporation or trust on behalf of a client, there may be a conflict of interest. (10) If acting for such a corporation or trust may affect the lawyer’s judgment and obligations to the client who goes against the corporation or trust, then there is a serious risk that the lawyer may jeopardize the protection of lawyer and client privilege.

Other Considerations

Some may have noticed, from the above categories, that there is a major exception to the rule which prevents a lawyer from acting or continuing to act for a client or clients where there is a conflict of interest. (11) The main exception to note is consent. Pursuant to section 3.4-2, “A lawyer shall 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 and the lawyer reasonable believes 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.” (12)

If a lawyer is ever allowed to represent or continue representing a client where there is a conflict of interest, there must be fully informed and voluntary consent. If there is no consent, the removal of the lawyer may not be overridden by this section. So in practice, if a lawyer comes across a situation of conflicting interests, and if it is in their best interest to represent and continue to represent their client, it is in their best interest to ensure that they obtain fully informed and voluntary consent for their representation. Besides this, at all times, it is an obligation of the lawyer to avoid putting themselves, other clients, former clients, or third parties before their client.

(1) Law Society of Ontario, Rules of Professional Conduct, at s 3.4-1. https://lso.ca/about-lso/legislation-rules/rules-of-professional-conduct/complete-rules-of-professional-conduct

(2) Ibid at s 1.1-1.

(3) Commentary, Ibid at s 3.4-1.

(4) Ibid at s 3.6-1.

(5) Ibid at s 3.4-3.

(6) Roth Estate v. Juschka, 129 O.R. (3d) 261, at para 43.

(7) Law Society of Ontario, supra note 5, at s 3.4-10.

(8) MacDonald Estate v Martin, [1990] 3 SCR 1235, [1990] 3 RCS 1235, [1990] SCJ No 41, [1990] ACS no 41, 1990 CanLII 32, at para 44.

(9) Ibid at para 45.

(10) Law Society of Ontario, supra note 7, Commentary at s 3.4-1.

(11) Ibid at s 3.4-1.

(12) Ibid at s 3.4-2.

1 Comments

  1. […] few weeks ago, we at Wolf Law Chambers published an article on how legal practitioners can navigate the law to fulfill their duty to avoid conflicts of interest. We finished the article subtly hinting at the idea that the removal of a lawyer due to conflict of […]