Conflicting interests a ‘growing problem’

OTTAWA – When two litigators started a new life after McCarthy Tétrault LLP wound down its Ottawa office, they drew attention to a costly, complicated, and growing headache for Canada’s largest law firms.

Tom Conway and Colin Baxter chose a boutique litigation partnership as their next firm, citing a desire to avoid the inevitable problem of conflicting interests that arise in some large enterprises.

The issue is that litigators in large firms are sometimes unable to accept retainers from certain clients because other partners in the same firm already have clients whose interests conflict with those of the litigators’ prospective files.

Errol Mendes, who has reflected about the growing issue from his professorial perch at the University of Ottawa, says that as the conflict potential has grown, along with the size of many firms, he has become more sympathetic to the plight of the big firms.

In fact, Mendes no longer believes the simplest solution, turning down certain clients, is a practical option.
“I don’t think that is an alternative because, obviously, the firm’s viability depends on it,” Mendes tells Law Times.

“We have to look at it from their perspective,” he adds. “One of the big challenges they face is when a law firm gets big, it is almost inevitable there will be conflicts on almost anything that comes along because
lawyers have so many clients.

“Because the country is relatively small, and the base of potential clients is not that big compared to the United States, this is a growing problem.”

A 2008 report from a Canadian Bar Association task force that conducted an exhaustive study on conflicting interests contains data that reveals the size and complexity of the issue.

At the outset, the report says the raw numbers suggesting there is a lawyer for every 415 residents of Canada indicate a conflict would be easy to avoid.
But it quickly addresses a very different reality.

Although there are roughly 75,000 lawyers in Canada, only 50,000 are in private practice. Ninety-one per cent of them practise in British Columbia, Alberta, Ontario, and Quebec.

Furthermore, nearly half of the lawyers practise in Vancouver, Calgary, Toronto, and Montreal.
Of the 3,500 law firms in the country, 11 have more than 400 lawyers and have offices in several of the largest cities, a development that took place over the past two decades.

The task force, led by Scott Jolliffe, chairman and chief executive officer of Gowling Lafleur Henderson LLP, came up with 21 major recommendations in its book-length report.
The recommendations included eight proposals for amendments to the CBA code of professional conduct.
Among them was a call for more precise definitions of conflicting

interests along with amendments that stipulate circumstances in which a lawyer would be able to continue a retainer even when a conflict is present.

Those circumstances include “adequate disclosure to and with the consent of the client” and acting in matters that might be adverse to the interests of a current client but which are unrelated to any case in which the lawyer is already acting.

The task force also looked at the potential for conflicting interests for in-house counsel; for government lawyers whose public sector obligations remain in place “in perpetuity” even when they transfer to private practice; and for sole practitioners in small towns where conflicting interests may lead to a point where people have to go elsewhere for representation.

“Is it a big issue? Absolutely, particularly for firms that have a large number of clients,” says Domenic Crolla, firm managing partner at Gowlings.
“Any major firm has to deal with this,” he tells Law Times, adding that three major Supreme Court of Canada rulings have made conflict avoidance an inescapable necessity.

“The net result of the Supreme Court of Canada’s decisions has meant that we have to be particularly vigilant to avoid conflicts of interest and have to regularly engage both our professionals to make sure their awareness is at a high level on the state of the law and also engage with our clients to make sure that we are free and clear.”

Darryl Cruz, litigation practice group leader at McCarthys, says conflicting interests sometimes arise in the midst of separate retainers even if none existed at the outset.

“You can have a scenario where there are two clients that are not in a conflict and then, because things change over time, a conflict arises,” he says. “You have to speak to both parties and then figure it out. Sometimes, it means that the law firm has to stop acting for both.”

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