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Judges hijacking law firm business

|Written By Gail J. Cohen

HALIFAX - Law firms have been hijacked by judges on the Supreme Court of Canada who are dictating how law firms should do business, says the chairman of one of Canada''s big business law firms.

Lawyers need rules that will take confidentiality and loyalty conflicts out of the courts and back into their business, says Simon Chester.

Speaking to a group of about 50 managing partners at a conference in Halifax, Goodman and Carr's Gary Luftspring said judges who don't understand the business of running a law firm are making decisions that hugely impact the way law firms operate.

He's referring to rulings such as R. v. Neil on conflicts of interest. Neil set a "bright line" test for conflicts by establishing a "general rule that a lawyer may not represent one client whose interests are directly adverse to the immediate interests of another or current client - even if the two mandates are unrelated - unless both clients consent after receiving full disclosure (and preferably independent legal advice), and the lawyer reasonably believes that he or she is able to represent each client without adversely affecting the other."

Luftspring said the "bright line" is really rather muddy and many issues remain debatable. But what he feels is the biggest problem with having to follow the court's rulings is that "now the duty of loyalty and confidentialty are being used as a tactical advantage" in litigation.

"Many of the cases you hear about are exactly that," he said. "There's no chance of harm or conflict" but if it "smells" like a conflict, you're gone.

Scott Jolliffe, national managing partner of Gowling Lafleur Henderson LLP, said, "We have judges across Canada not taking into account the many changes in our profession when ruling on practice issues."

Neil takes the duty of loyalty and makes it practically unreasonable, said Luftspring. In Canada, with its limited numbers of lawyers, particularly in certain practice areas, trying to follow the "bright line" is "unworkable." In some cases, he added, it's impossible to make it work even if you get consent from the clients.

And these issues - conflict management and loyalty - are taking up more and more of law firms' time and money. In an ongoing survey conducted by Heenan Blaikie LLP's Simon Chester, he's found that law firms are spending hundreds to thousands of hours a year on managing conflicts.

"We need rules that will take these matters out of the courts and back into our business," said Chester.

On that front, Jolliffe made it clear he was keen to pursue some kind of lobbying effort to set down rules of engagement between lawyers and their clients that would help ward off conflict problems from the start of the relationship. There was a lot of support from other managing partners in the room to create at least some model rules that work for lawyers and law firms.

In Ontario right now, for instance, the Rules of Professional Conduct do not state definitively the fiduciary duty owed by lawyers to clients.

At the meeting, Joan Bercovitch, senior director for legal and government affairs for the Canadian Bar Association, said she will put the idea of creating a task force on conflict reform to the CBA's board. It would be up to the board whether it chose to move ahead, but from the meeting in Halifax it appears there is strong support for it from those lawyers who run law firms.

Also taking part in the panel on managing conflicts was Gavin MacKenzie, treasurer of the Law Society of Upper Canada and one of the country's foremost experts on professional conduct issues. He agreed that many problems law firms face in trying to manage conflicts come from the courts, and noted that if there were standards set, the court would probably be more inclined to defer to them.

In order to get changes made to law societies' rules of professional conduct, law firms have to come forward with arguments that confidentiality and loyalty are core principles of all law firms, not just the big ones, suggested MacKenzie.

And Luftspring was clear that conflict avoidance is now as much of a problem for small firms as it is for big firms.

For the time being, however, law firms still have to deal with conflict management. Building on a rule that's been instituted in about half the states in the U.S., Torys LLP has introduced a firm rule that requires a written engagement letter from the firm to the client at the start of all matters. This means that even a long-term client will get an engagement letter each time a new matter begins.

"If you are to do only one thing to protect yourself from risk," said James Tory of Torys, it's to put such a rule in place.

The letter is in the best interests of the lawyers and the client, he said. Each Torys' letter sets out exactly who the client is; the scope of engagement (what work they'll be doing); a termination clause; from whom instructions will come; and most importantly it addresses the issues of conflict, consent, and confidentiality.

Tory said most clients welcome the engagement letter, and Murray P. Aust, senior counsel with the Royal Bank of Canada, who said he's signed a number of such letters from Torys, agreed.

"We like it," he said. "I think building in discussion about estimates of the cost is also good."

Aust is a big proponent of open communications between outside counsel and his legal department at the bank, saying it is the most important part of the relationship. For him, engagement letters are a great way for law firms to communicate with them as clients.

"We've seen over and over again how issues and misunderstandings get smoked out early" and can be dealt with more easily than down the road, said Tory.

The engagement letter is a good start, but the fact remains that conflicts are a big issue and the stakes are getting higher, said Chester. The number of motions to disqualify is increasing, the remedies (think Strother) are getting bigger, and more clients are making conflict-based malpractice claims against their counsel. So law firms have to take steps to protect themselves.

He suggested setting up systems to: check conflicts in the hiring process, particularly for lateral hires; create ethical walls to protect confidential information that could be in conflict with other clients; and raise the firm's consciousness about doing everything at all times to avoid conflicts. (See his 10 tips in fact box.)

"All of it's manageable, but we have to take it seriously," concluded Chester.


To take part in Chester's brief 20-question survey taking the pulse of the profession on conflicts of interest, go to www.zoomerang.com/survey.zgi?p=WEB225JS6MKUXG

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