The days when a casual attitude to conflicts of interest could be allowed to permeate a law firm are well and truly over. Since the Supreme Court of Canada''s decision in R. v. Neil, sensitivity to the duty of loyalty and duty of confidentiality, courts have been making the duty increasingly pervasive.
It is no longer just one's current client whose interests must be kept inviolate, but former clients, affiliates, subsidiaries, clients of clients, as well as future clients who the firm may be precluding itself from acting for by accepting current files. While the problem appears overwhelming, there are things a firm can do to protect itself.
Stikeman Elliott LLP is probably the best-known firm for conflicts of interest, having fallen foul of the interpretation of duty of loyalty twice in recent years.
In the Ontario Superior Court's 2004 ruling GMP Securities Ltd v Stikeman Elliott LLP and The Ontario Securities Commission's 2004 Re Universal Market Integrity Rules and Re Credit Suisse First Boston Canada Inc., Stikemans lost lucrative cases that it had in good faith considered were conflict-free.
It is no wonder that partner Kathryn Chalmers, who is co-chair of the professional and ethics committee in the Toronto office, talks about the necessity of everyone becoming more alert to the likelihood of a conflict.
"It sounds like going back to Conflicts 101," says Chalmers, "but the main, practical measure is to keep making sure everyone in the firm is very sensitive to conflicts."
It is the job of her committee to keep the issue constantly in the field of vision of busy practitioners.
"On our intranet between our offices we have an ongoing live memo that is constantly updated. It is becoming so huge that we have links so you can go into individual issues that are of relevance to you. It includes all the new cases and significant developments. While that is a boring practical effort on our part, it really is essential."
Stikemans is tackling the expanded definition of client by expanding the file opening form with required fields of any related entities. It also includes the individuals related to the client, such as CEOs and other officers and directors, so that the firm does not take on the individual as a client when they are acting for the company.
"It's always devastating to get the form back where the related entities go for pages and pages," says Chalmers. In fact the P&E committee has had to increase its numbers to cope with the increase in calls and situations.
Chalmers and her committee are also investigating technology that will track name changes and mergers that could have a hidden company in them. They also urge lawyers to keep file names fresh and current and to make note of any new affiliates.
No file gets opened until the form is properly completed and a conflict search performed.
"It all has to be searched out before you get started," Chalmers stresses. "You can't have a meeting where you might get confidential information before you have checked for potential conflicts."
This is where the firms' systems earn their keep.
"If you get a phone call and something has to be done right away, you need a conflicts checking system than can react 24/7," she says. Stikemans' conflict searching process switches over to the Vancouver office late at night because of the time difference. "Many a time I get a call very late on a Sunday night because something is happening already."
Gavin MacKenzie, the treasurer of the Law Society of Upper Canada and a partner at Heenan Blaikie LLP, agrees. He sees an effective conflict search performed before each new file is opened as key.
"You must ensure that your database is populated adequately and searched at the earliest possible stage," he says.
He suggests entering all corporate names, trade names, alternate names, and affiliated companies. The database must also be updated whenever a new company becomes involved as transactions develop or litigation progresses.
One wonders whether the software used for conflict searches has had to be upgraded to meet the widening threat. Scott Baird, director of sales and marketing at Software Technology, says that the company's Practice Master software was ready for the broader searches.
"It has often been used to locate general business relationship conflicts rather than just solicitor-client conflicts," he points out. "Our software will search automatically through e-mail, calendar appointments, saved documents, billing records, history and notes to find people likely to have a strong interest in your particular case."
Ruth Wahl, a research lawyer at Ogilvy Renault LLP in Toronto, suggests harnessing the power of law clerks to make sure the firms' obligation is implemented on the ground.
However, she adds, "It is not realistic to go through all the firm's history. The most practical answer is to be vigilant on a going forward basis. The more thorough you are, the more you protect the next person."
If a potential conflict is identified, it doesn't always have to end in doom and gloom.
"Many conflicts can be managed if you act immediately," says MacKenzie. "You can obtain informed consent, obtain a limited retainer, or direct the setup of an ethical screen."
On the issue of consents evidenced by letters and retainers, the waters are muddied because fiduciary duties are not limited to the firms' contractual arrangements.
"The retainer letter doesn't always work," says Chalmers. "Case law and law society rules say that consent up front isn't necessarily valid. The client needs current information so you must revisit to get refreshing consents."
MacKenzie recommends that independent legal advice be obtained if the client is unsophisticated, but he is confident that where a sophisticated client makes an arrangement with a law firm with adequate advice and disclosure, the courts will enforce the terms of a retainer.
He awaits with interest the decision from the Supreme Court of Canada in Canada Inc. v Strother, expected this fall. "It will canvass the relationship between lawyers' fiduciary duties and the terms of retainers."
Ethical screens are a routine part of legal practice these days, according to MacKenzie. They focus on keeping lawyers and information on sensitive files physically separate from lawyers who may pose a conflict threat, such as new arrivals or merger partners.
Chalmers warns that screens need to be monitored.
"We are focusing now on being much more proactive in monitoring screens," she says.
All of these problems need to be managed by a proactive conflicts committee that can shield the firm from the pressures and temptations that individual lawyers face. MacKenzie recommends a committee of at least three partners who are not personally involved with the matter, who keep written reasons for their decisions.
It is no longer just one's current client whose interests must be kept inviolate, but former clients, affiliates, subsidiaries, clients of clients, as well as future clients who the firm may be precluding itself from acting for by accepting current files. While the problem appears overwhelming, there are things a firm can do to protect itself.Stikeman Elliott LLP is probably the best-known firm for conflicts of interest, having fallen foul of the interpretation of duty of loyalty twice in recent years.
In the Ontario Superior Court's 2004 ruling GMP Securities Ltd v Stikeman Elliott LLP and The Ontario Securities Commission's 2004 Re Universal Market Integrity Rules and Re Credit Suisse First Boston Canada Inc., Stikemans lost lucrative cases that it had in good faith considered were conflict-free.
It is no wonder that partner Kathryn Chalmers, who is co-chair of the professional and ethics committee in the Toronto office, talks about the necessity of everyone becoming more alert to the likelihood of a conflict.
"It sounds like going back to Conflicts 101," says Chalmers, "but the main, practical measure is to keep making sure everyone in the firm is very sensitive to conflicts."
It is the job of her committee to keep the issue constantly in the field of vision of busy practitioners.
"On our intranet between our offices we have an ongoing live memo that is constantly updated. It is becoming so huge that we have links so you can go into individual issues that are of relevance to you. It includes all the new cases and significant developments. While that is a boring practical effort on our part, it really is essential."
Stikemans is tackling the expanded definition of client by expanding the file opening form with required fields of any related entities. It also includes the individuals related to the client, such as CEOs and other officers and directors, so that the firm does not take on the individual as a client when they are acting for the company.
"It's always devastating to get the form back where the related entities go for pages and pages," says Chalmers. In fact the P&E committee has had to increase its numbers to cope with the increase in calls and situations.
Chalmers and her committee are also investigating technology that will track name changes and mergers that could have a hidden company in them. They also urge lawyers to keep file names fresh and current and to make note of any new affiliates.
No file gets opened until the form is properly completed and a conflict search performed.
"It all has to be searched out before you get started," Chalmers stresses. "You can't have a meeting where you might get confidential information before you have checked for potential conflicts."
This is where the firms' systems earn their keep.
"If you get a phone call and something has to be done right away, you need a conflicts checking system than can react 24/7," she says. Stikemans' conflict searching process switches over to the Vancouver office late at night because of the time difference. "Many a time I get a call very late on a Sunday night because something is happening already."
Gavin MacKenzie, the treasurer of the Law Society of Upper Canada and a partner at Heenan Blaikie LLP, agrees. He sees an effective conflict search performed before each new file is opened as key.
"You must ensure that your database is populated adequately and searched at the earliest possible stage," he says.
He suggests entering all corporate names, trade names, alternate names, and affiliated companies. The database must also be updated whenever a new company becomes involved as transactions develop or litigation progresses.
One wonders whether the software used for conflict searches has had to be upgraded to meet the widening threat. Scott Baird, director of sales and marketing at Software Technology, says that the company's Practice Master software was ready for the broader searches.
"It has often been used to locate general business relationship conflicts rather than just solicitor-client conflicts," he points out. "Our software will search automatically through e-mail, calendar appointments, saved documents, billing records, history and notes to find people likely to have a strong interest in your particular case."
Ruth Wahl, a research lawyer at Ogilvy Renault LLP in Toronto, suggests harnessing the power of law clerks to make sure the firms' obligation is implemented on the ground.
However, she adds, "It is not realistic to go through all the firm's history. The most practical answer is to be vigilant on a going forward basis. The more thorough you are, the more you protect the next person."
If a potential conflict is identified, it doesn't always have to end in doom and gloom.
"Many conflicts can be managed if you act immediately," says MacKenzie. "You can obtain informed consent, obtain a limited retainer, or direct the setup of an ethical screen."
On the issue of consents evidenced by letters and retainers, the waters are muddied because fiduciary duties are not limited to the firms' contractual arrangements.
"The retainer letter doesn't always work," says Chalmers. "Case law and law society rules say that consent up front isn't necessarily valid. The client needs current information so you must revisit to get refreshing consents."
MacKenzie recommends that independent legal advice be obtained if the client is unsophisticated, but he is confident that where a sophisticated client makes an arrangement with a law firm with adequate advice and disclosure, the courts will enforce the terms of a retainer.
He awaits with interest the decision from the Supreme Court of Canada in Canada Inc. v Strother, expected this fall. "It will canvass the relationship between lawyers' fiduciary duties and the terms of retainers."
Ethical screens are a routine part of legal practice these days, according to MacKenzie. They focus on keeping lawyers and information on sensitive files physically separate from lawyers who may pose a conflict threat, such as new arrivals or merger partners.
Chalmers warns that screens need to be monitored.
"We are focusing now on being much more proactive in monitoring screens," she says.
All of these problems need to be managed by a proactive conflicts committee that can shield the firm from the pressures and temptations that individual lawyers face. MacKenzie recommends a committee of at least three partners who are not personally involved with the matter, who keep written reasons for their decisions.
