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* THE CANADIAN LAWYER CODE OF PROFESSIONAL CONDUCT
Section 2 of 5
* THE CANADIAN LAWYER CODE OF PROFESSIONAL CONDUCT
Section 2 of 5
| THE CANADIAN BAR ASSOCIATION | |
IMPARTIALITY AND CONFLICT OF INTEREST BETWEEN CLIENTS
RULE
The lawyer shall not advise or represent both sides of a dispute and, except after adequate disclosure to and with the consent of the clients or prospective clients concerned, shall not act or continue to act in a matter when there is or is likely to be a conflicting interest.1
Commentary
Guiding Principles
1. A conflicting interest is one that would be likely to affect adversely the lawyers judgment on behalf of, advice to, or loyalty to a client or prospective client.2
2. The reason for the Rule is self-evident. The client or the clients affairs may be seriously prejudiced unless the lawyers judgment and freedom of action on the clients behalf are as free as possible from compromising influences.3
3. Conflicting interests include, but are not limited to, the duties and loyalties of the lawyer or a partner or professional associate of the lawyer to another client, whether involved in the particular matter or not, including the obligation to communicate information.4
4. A lawyer may not represent one client whose interests are directly adverse to the immediate interests of another current client, even if the two matters are unrelated, unless both clients consent after receiving full disclosure and, preferably, independent legal advice.
Disclosure of Conflicting Interest
5. The Rule requires adequate disclosure to enable the client to make an informed decision about whether to have the lawyer act despite the existence or possibility of a conflicting interest. As important as it is to the client that the lawyers judgment and freedom of action on the clients behalf should not be subject to other interests, duties or obligations, in practice this factor may not always be decisive. Instead it may be only one of several factors that the client will weigh when deciding whether to give the consent referred to in the Rule.
Other factors might include, for example, the availability of another lawyer of comparable expertise and experience, the extra cost, delay and inconvenience involved in engaging another lawyer and the latters unfamiliarity with the client and the clients affairs. In the result, the clients interests may sometimes be better served by not engaging another lawyer. An example of this sort of situation is when the client and another party to a commercial transaction are continuing clients of the same law firm but are regularly represented by different lawyers in that firm.5
6. Before the lawyer accepts employment from more than one client in the same matter, the lawyer must advise the clients that the lawyer has been asked to act for both or all of them, that no information received in connection with the matter from one can be treated as confidential so far as any of the others is concerned and that, if a dispute develops that cannot be resolved, the lawyer cannot continue to act for both or all of them with respect to the matter and may have to withdraw completely. Where a lawyer has a continuing relationship with a client for whom the lawyer acts regularly, before the lawyer accepts joint employment for that client and another client in a matter or transaction, the lawyer must advise the other client of the continuing relationship and recommend that the other client obtain independent legal advice about the joint retainer. If, following such disclosure, all parties are content that the lawyer act for them, the lawyer should obtain their consent, preferably in writing, or record their consent in a separate letter to each. The lawyer should, however, guard against acting for more than one client where, despite the fact that all parties concerned consent, it is reasonably obvious that a contentious issue may arise between them or that their interests, rights or obligations will diverge as the matter progresses.6
7. Although commentary 6 does not require that, before accepting a joint retainer, a lawyer advise each client to obtain independent legal advice about the joint retainer, in some cases, especially those in which one of the clients is less sophisticated or more vulnerable than the other, the lawyer should recommend doing so to ensure that the less sophisticated or more vulnerable clients consent to the joint retainer is informed, genuine, and uncoerced.7
8. If a contentious issue arises between clients on a joint retainer, the lawyer, although not necessarily precluded from advising them on other non-contentious matters, would be in breach of the Rule if the lawyer attempted to advise them on the contentious issue. In such circumstances the lawyer should ordinarily refer the clients to other lawyers. However, if the issue is one that involves little or no legal advice, for example, a business rather than a legal question in a proposed business transaction, and the clients are sophisticated, they may be permitted to settle the issue by direct negotiation in which the lawyer does not participate. Alternatively, the lawyer may refer one client to another lawyer and continue to advise the other if it was agreed at the outset that this course would be followed if a conflicting interest arose.8
Lawyer as Arbitrator
9. The Rule will not prevent a lawyer from arbitrating or settling, or attempting to arbitrate or settle, a dispute between two or more clients or former clients who are sui juris and who wish to submit to the lawyer.9
Prohibition Against Acting for Borrower and Lender
10. Subject to commentary 11, a lawyer or two or more lawyers practising in partnership or association should not act for or otherwise represent both lender and borrower in a mortgage or loan transaction.10
11. A lawyer may act for or otherwise represent both lender and borrower in a mortgage or loan transaction if:
(a) the lawyer practises in a remote location where there is no other lawyer whom either party could conveniently retain for the matter;
(b) the lender is selling real property to the borrower and the mortgage represents part of the purchase price;
(c) the lender is a bank, trust company, insurance company, credit union or finance company that lends money in the ordinary course of its business;
(d) the consideration for the mortgage or loan does not exceed $50,000; or
(e) the lender and borrower are not at arms length as defined in the Income Tax Act (Canada).11
Acting Against Former Client
12. A lawyer who has acted for a client in a matter should not thereafter, in the same or any related matter, act against the client (or against a person who was involved in or associated with the client in that matter) or take a position where the lawyer might be tempted or appear to be tempted to breach the Rule relating to confidential information. It is not, however, improper for the lawyer to act against a former client in a fresh and independent matter wholly unrelated to any work the lawyer has previously done for that person.12
13. For the sake of clarity the foregoing paragraphs are expressed in terms of the individual lawyer and client. However, the term client includes a client of the law firm of which the lawyer is a partner or associate, whether or not the lawyer handles the clients work. It also includes the client of a lawyer who is associated with the lawyer in such a manner that they are perceived as practising in partnership or association, even though in fact no such partnership or association exists.13
Acting for More Than One Client
14. In practice, there are many situations where persons have a conflicting interest even though no actual dispute exists between them. A common example in a conveyancing practice is where the lawyer is asked to represent both vendor and purchaser. In cases where the lawyer is asked to act for more than one party in such a transaction, the lawyer should recommend that each party be separately represented. In all such transactions the lawyer must observe the rules prescribed by the governing body.
15. There are also many situations where more than one person may wish to retain the lawyer to handle a transaction and, although their interests appear to coincide, a conflicting interest potentially exists. An example would be persons forming a partnership or corporation. Those cases will be governed by commentaries 5, 6 and 7 of this Chapter.
16. A lawyer who is employed or retained by an organization represents that organization through its duly authorized constituents. In dealing with the organizations directors, officers, employees, members, shareholders or other constituents, the lawyer must make clear that it is the organization that is the client whenever it becomes apparent that the organizations interests are adverse to those of a constituent with whom the lawyer is dealing. The lawyer representing an organization may also represent any of its directors, officers, employees, members, shareholders or other constituents, subject to the provisions of this Chapter.
Requests for Proposals and Other Enquiries
17. Prospective clients often interview or seek proposals from several firms about potential retainers. During the course of such a process, a prospective client may provide confidential information about the potential retainer. As a result, there is a risk that it will be suggested that a lawyer who unsuccessfully participates in such a process should be disqualified from acting for another party to the matter. Discussing a potential retainer with a prospective client or participating in a request for proposals process does not itself preclude a lawyer from acting in the matter for another party. Where the prospective client wishes to disclose confidential information as part of such a process, the lawyer and the prospective client should expressly agree whether the disclosure will prevent the lawyer from acting for another party in the matter if the lawyer is not retained by the prospective client. If the prospective client and the lawyer are unable to agree, the lawyer should insist that the prospective client not disclose confidential information unless and until the lawyer is retained.
Confidential Government Information
18. A lawyer who has information known to be confidential government information about a person, acquired when the lawyer was a public officer or employee, shall not represent a client (other than the agency of which the lawyer was a public officer or employee) whose interests are adverse to that person in a matter in which the information could be used to that persons material disadvantage.143
Burden of Proof
19. Generally speaking, in disciplinary proceedings arising from a breach of this Rule the lawyer has the burden of showing good faith and that adequate disclosure was made in the matter and the clients onsent was obtained.15
Conflicts Arising as a Result of Transfer Between Law Firms
Definitions
20. In this commentary:
client includes anyone to whom a member owes a duty of confidentiality, whether or not a solicitor-client relationship exists between them;
confidential information means information obtained from a client which is not generally known to the public;
law firm includes one or more members practising,
(a) in a sole proprietorship,
(b) in a partnership,
(c) in association for the purpose of sharing certain common expenses but otherwise as independent practitioners,
(d) as a professional law corporation,
(e) in a government, a Crown corporation or other public body, and
(f) in some other corporation or body.
matter means a case or client file, but does not include general know-how and, in the case of a government lawyer, does not include policy unrelated to a particular case;
member means a member of a law society, and includes an articled law student registered in a governing bodys pre-call training program.
Application of Commentary
21. This commentary applies where a member transfers from one law firm (former law firm) to another (new law firm),16 and either the transferring member or the new law firm is aware at the time of the transfer or later discovers that:
(a) the new law firm represents a client in a matter which is the same as or related to a matter in respect of which the former law firm represents its client
(former client);
(b) the interests of those clients in that matter conflict; and
(c) the transferring member actually possesses relevant information respecting that matter.17
22. Paragraphs 23 to 26 do not apply to a member employed by the federal, a provincial or a territorial Attorney General or Department of Justice who, after transferring from one department, ministry or agency to another, continues to be employed by that Attorney General or Department of Justice.18
Firm Disqualification
23. Where the transferring member actually possesses relevant information respecting the former client that is confidential and disclosure of it to a member of the new law firm might prejudice the former client, the new law firm shall cease its representation of its client in that matter unless:
(a) the former client consents to the new law firms continued representation of its client; or
(b) the new law firm establishes that,
(i) it is in the interests of justice that its representation of its client in the matter continue, having regard to all relevant circumstances, including,
(A) the adequacy of the measure taken under (ii),
(B) the extent of prejudice to any party,
(C) the good faith of the parties,
(D) the availability of alternative suitable counsel, and
(E) issues affecting the national or public interest; and19
(ii) it has taken reasonable measures to ensure that no disclosure to any member of the new law firm of the former clients confidential information will occur.20
Transferring Lawyer Disqualification
24. Where the transferring member actually possesses relevant information respecting the former client and, although the information is not confidential, disclosure of it to a member of the new law firm might prejudice the former client,21
(a) the member should execute an affidavit or solemn declaration to that effect, and
(b) the new law firm should,
(i) notify its client and the former client, or if the former client is represented in that matter by a member, notify that member, of the relevant circumstances and its intended action under this commentary, and
(ii) deliver to the persons referred to in (i) a copy of the affidavit or solemn declaration executed under (a).22
25. A transferring member described in the opening clause of paragraph 23 or 24 shall not, unless the former client consents,23
(a) participate in any manner in the new law firms representation of its client in that matter, or
(b) disclose any confidential information respecting the former client.24
26. No member of the new law firm shall, unless the former client consents, discuss with a transferring member described in the opening clause of paragraph 23 or 24 the new law firms representation of its client or the former law firms representation of the former client in that matter.25
Determination of Compliance
27. Anyone who has an interest in, or who represents a party in, a matter referred to in this commentary may apply to a court of competent jurisdiction for a determination of any aspect of this commentary.26
Due Diligence
28. A member shall exercise due diligence in ensuring that each member and employee of the members law firm, and each other person whose services the member has engaged:27
(a) complies with this commentary; and
(b) does not disclose
(i) confidences of clients of the firm, and
(ii) confidences of clients of another law firm in which the person has worked.28
Application
29. The purpose of this commentary is to deal with actual knowledge. Imputed knowledge does not give rise to disqualification.29
A. Lawyers and support staff
This commentary is intended to regulate lawyers and articled law students who transfer between law firms. It also imposes a general duty on members to exercise due diligence in the supervision of non-lawyer staff, to ensure that they comply with the commentary and with the duty not to disclose:
(a) confidences of clients of the members firm; or
(b) confidences of clients of other law firms in which they have worked.
B. Government employees and in-house counsel
The definition of law firm includes one or more lawyers practising in a government, a Crown corporation, any other public body or a corporation or other entity. Thus, this commentary applies to members transferring to or from government service and into or out of an in-house counsel position, but does not extend to a purely internal transfer after which the employer remains the same.
C. Law firms with multiple offices
This commentary treats as one law firm such entities as the various legal services units of a government, a corporation with separate regional legal departments, an inter-provincial law firm and a legal aid program with many community law offices. The more autonomous that each unit, department, or office is, the easier it should be, in the event of a conflict, for the new firm to obtain the former clients consent, or to establish that it is in the public interest, that it continue to represent its client in the matter.
D. Practising in association
The definition of law firm includes one or more lawyers practising in association for the purpose of sharing certain common expenses but who are otherwise independent practitioners. This recognizes the risk that lawyers practicing in association, like partners in a law firm, will share client confidences while discussing their files with one another.30
Matters to Consider When Interviewing a Potential Transferee
30. When a law firm considers hiring a lawyer or articled law student (transferring member) from another law firm, the transferring member and the new law firm need to determine, before transfer, whether any conflicts of interest will be created.
Conflicts can arise with respect to clients of the firm that the transferring member is leaving, and with respect to clients of a firm in which the transferring member worked at some earlier time. After completing the interview process and before hiring the transferring member, the transferring member and the new law firm need first to identify all cases in which:
(a) the new law firm represents a client in a matter which is the same as or related to a matter in respect of which the former law firm represents its client;
(b) the interests of these clients in that matter conflict; and
(c) the transferring member actually possesses relevant information respecting that matter.
When these three elements exist, the transferring member is personally disqualified from representing the new client, unless the former client consents. Second, they must determine, with respect to each such matter, whether the information that the transferring member possesses is confidential, and whether disclosure of it to a member of the new law firm might prejudice the former client.
If this element exists, then the transferring member is disqualified unless the former client consents, and the new law firm is disqualified unless the former client consents or the new law firm establishes that its continued representation is in the public interest. In this commentary, confidential information refers to information obtained from a client that is not generally known to the public. The obligation to keep such information confidential should be distinguished from the general ethical duty to hold in strict confidence all information concerning the business and affairs of the client acquired in the course of the professional relationship, which duty applies without regard to the nature or source of the information or to the fact that others may share the knowledge.
In determining whether the transferring member possesses confidential information, both the transferring member and the new law firm need to ensure that they do not, during the interview process itself, disclose client confidences.31 Matters to Consider Before Hiring a Potential Transferee 31. After completing the interview process and before hiring the transferring member, the new law firm should determine whether a conflict exists.
A. Where a conflict exists32
If the new law firm concludes that the transferring member does actually possess relevant information respecting a formerclient which is confidential and its disclosure to a member of the new law firm might prejudice the former client, then the new law firm will be prohibited, if the transferring member is hired, from continuing to represent its client in the matter unless,
(a) the new law firm obtains the former clients consent to its continued representation of its client in that matter; or
(b) the new law firm complies with paragraph 23(b) and, in determining whether continued representation is in the interests of justice, both clients interests are the paramount consideration.33
If the new law firm seeks the former clients consent to the new law firms continuing to act it will, in all likelihood, be required to satisfy the former client that it has taken reasonable measures to ensure that no disclosure to any member of the new law firm of the former clients confidential information will occur. The former clients consent must be obtained before the transferring member is hired.
Alternatively, if the new law firm applies under paragraph 27 for a determination that it may continue to act, it bears the onus of establishing the matters referred to in paragraph 23(b). Again, this process must be completed before the transferring person is hired. The circumstances enumerated in paragraph 23(b)(i) are drafted in broad terms to ensure that all relevant facts will be taken into account. While clauses (B) and (D) are selfexplanatory, clause (E) addresses governmental concerns respecting issues of national security, cabinet confidence and obligations incumbent on Attorneys General and their agents in the administration of justice.
B. Where no conflict exists
If the new law firm concludes that the transferring member actually possesses relevant information respecting a former client, but that information is not confidential information, which, if disclosed to a member of the new law firm, might prejudice the former client, then,
(a) the transferring member should execute an affidavit or solemn declaration to that effect; and
(b) the new law firm must notify its client and the former client/former law firm of the relevant circumstances and its intended action under this commentary, and deliver to them a copy of any affidavit or solemn declaration executed by the transferring member. Although this commentary does not require that the notice be in writing, it would be prudent for the new law firm to confirm these matters in writing.
The new law firm might, for example, seek the former clients consent that the transferring member act for the new law firms client in the matter because in the absence of such consent, the transferring member may not act. If the former client does not consent that the transferring member act, it would be prudent for the new law firm to take reasonable measures to ensure that no disclosure to any member of the new law firm of the former clients confidential information will occur. If those measures are taken, it will strengthen the new law firms position if it is later determined that the transferring member did in fact possess confidential information that might prejudice the former client.
A transferring member who possesses no such confidential information, by executing an affidavit or solemn declaration to that effect and delivering it to the former client, puts the former client on notice. A former client who disputes the allegation that there is no such confidential information may apply under paragraph 27 for a determination of that issue.34
Reasonable Measures to Ensure Non-Disclosure of Confidential Information
32. As noted above, there are two circumstances in which the new law firm should consider the implementation of reasonable measures to ensure that no disclosure to any member of the new law firm of the former clients confidential information will occur:
(a) where the transferring member actually possesses confidential information respecting a former client, disclosure of which to a member of the new law firm
might prejudice the former client; and
(b) where the new law firm is not sure whether the transferring member actually possesses such confidential information, but wants to strengthen its position if it is later determined that the transferring member did in fact possess such confidential information. It is not possible to offer a set of reasonable measures that will be appropriate or adequate in every case. Rather, the new law firm which seeks to implement reasonable measure must exercise professional judgment in determining what steps must be taken to ensure that no disclosure to any member of the new law firm of the former clients confidential information will occur.
In the case of law firms with multiple offices, the degree of autonomy possessed by each office will be an important factor in determining what constitutes reasonable measures. For example, the various legal services units of a government, a corporation with separate regional legal departments, an interprovincial law firm or a legal aid program may be able to argue that, because of its institutional structure, reporting relationships, function, nature of work and geography, relatively fewer measures are necessary to ensure the nondisclosure of client confidences.
The guidelines at the end of this commentary, adapted from the Canadian Bar Associations Task Force report, entitled Conflict of Interest Disqualification: Martin v. Gray and Screening Methods (February 1993), are intended as a checklist of relevant factors to be considered. Adoption of only some of the guidelines may be adequate in some cases, while adoption of them all may not be sufficient in others.
Where a transferring lawyer joining a government legal services unit or the legal department of a corporation actually possesses confidential information respecting a former client, which, if disclosed to a member of the new law firm, might prejudice the former client, the interests of the new client (i.e. Her Majesty or the corporation) must continue to be represented. Normally, this will be effected either by instituting satisfactory screening measures or, when necessary, by referring conduct of the matter to outside counsel. As each situation will be unique, flexibility will be required in the application of subparagraph 23(b), particularly clause (E).35
Guidelines36
1. The screened member should have no involvement in the new law firms representation of its client.
2. The screened member should not discuss the current matter or any information relating to the representation of the former client (the two may be identical) with anyone else in the new law firm.
3. No member of the new law firm should discuss the current matter or the prior representation with the screened member.
4. The current matter should be discussed only within the limited group that is working on the matter.
5. The files of the current client, including computer files, should be physically segregated from the new law firms regular filing system, specifically identified, and accessible only to those lawyers and support staff in the new law firm who are working on the matter or who require access for other specifically identified and approved reasons.
6. No member of the new law firm should show the screened member any document relating to the current matter.
7. The measures to be taken by the new law firm to screen the transferring member should be stated in a written policy explained to all the firms lawyers and support staff, supported by an admonition that violation of the policy will result in sanctions, up to and including dismissal.
8. Affidavits should be provided by the appropriate firm members, setting out that they have adhered to and will continue to adhere to all elements of the screen.
9. The former client, or if the former client is represented in that matter by a member, that member, should be advised,
(a) that the screened member is now with the new law firm, which represents the current client, and
(b) of the measures adopted by the new law firm to ensure that there will be no disclosure of confidential information.
10. The screened members office or work station and that of the members secretary should be located away from the offices and work stations of lawyers and support staff working on the matter.
11. The screened member should use associates and support staff other than those working on the current matter.
Subscripts
1 Alta. 6-S.O.P., 6-R.1; ABA-MC EC5-14, 5-15, DRs 5-101(A), 5-105; ABA-MR 1.7, 1.8, 1.9; B.C. 6(1) to 6(3); N.B. 6-R, 6-C.1; N.S. 6; Ont. 2.04(2); Que. 3.06.06.
2 Ont. 2.04(1); N.S. 6-1; Que. 3.06.07; M.M. Orkin, Legal Ethics: A Study of Professional Conduct (Toronto: Cartwright & Jane, 1957) at pp. 98-101.
3 Ont. 2.04(3) Commentary.
4 Two fundamental duties underlie any analysis of conflict of interest problems: the duty of confidentiality and the duty of loyalty. The Supreme Court of Canada emphasized the former in MacDonald Estate v. Martin, [1990] 3 S.C.R. 1235 and the latter in R. v. Neil, [2002] 3 S.C.R. 631. See also Bolkiah v. KPMG, [1999] 2 A.C. 222 (H.L.).
5 Alta. 6-R.2; ABA-MC EC 5-16, 5-19; ABA-MR 1.7 (b)(4); Ont. 2.04(3)
Commentary.
6 B.C. 6(4); N.B. 6-C.1(C), 6-C.2; N.S. 6-2, 6-3; Ont. 2.04(6), 2.04(7) Commentary.
7 Ont. 2.04(6) Commentary.
8 B.C. 6(5); N.S. 6-4; Ont. 2.04(9).
9 N.B. 6-C.5; N.S. 6-6; Ont. 2.04(9).
10 Ont. 2.04(11).
11 Ont. 2.04(12).
12 Alta. 6-R.3; N.B. 6-C.4; N.S. 6-8, 6-9; Ont. 2.04(4).
13 Ont. 2.04(5) Commentary.
14 B.C. 5(9), 5(10).
15 N.B. 6-C.8; N.S. C-6.8.
16 N.B. 6-C.7.
17 Alta. 6-R.4; ABA-MR 1.9(b), (c); B.C. 6(7.2); N.S. 6a-2; Ont. 2.05(2).
18 B.C. 6(7.3); N.S. 6a-3; Ont. 2.05(3).
19 Ont. 2.05(4).
20 B.C. 6(7.4); N.S. 6a-4.
21 N.S. 6a-5; Ont. 2.05(6).
22 B.C. 6(7.5).
23 N.S. 6a-6; Ont. 2.05(7).
24 B.C. 6(7.6).
25 B.C. 6(7.7); N.S. 6a-7; Ont. 2.05(8).
26 B.C. 6(7.8); Ont. 2.05(9).
27 N.S. 6a-8.
28 B.C. 6(7.9); Ont. 2.05 (10); Que. 3.06.04.
29 Ont. 2.05(3) Commentary.
30 N.S. C-6A.1.
31 B.C. Appendix 5(1); N.S. C-6A.2; Ont. 2.05(10) Commentary.
32 N.S. C-6A.3; Ont. 2.05(10) Commentary; Alta. 6-R.4(d).
33 B.C. Appendix 5(2)(a); N.S. C-6A.3(a).
34 Alta. 6-R.4(c); B.C. Appendix 5(2)(b); N.S. C-6A.3(b).
35 B.C. Appendix 5(3); N.S. C-6A.4 ; Ont. 2.05(10) Commentary.
36 B.C. Appendix 5 Guidelines; N.S. 6 Guidelines; Ont. 2.05(10) Commentary.
CHAPTER VI
CONFLICT OF INTEREST BETWEEN LAWYER AND CLIENT
RULE
1. The lawyer should not enter into a business transaction with the client or knowingly give to or acquire from the client an ownership, security or other pecuniary interest unless:1
(a) the transaction is a fair and reasonable one and its terms are fully disclosed to the client in writing in a manner that is reasonably understood by the client;2
(b) the client is given a reasonable opportunity to seek independent legal advice about the transaction, the onus being on the lawyer to prove that the clients interests were protected by such independent advice; and
(c) the client consents in writing to the transaction.3
2. The lawyer shall not enter into or continue a business transaction with the client if:
(a) the client expects or might reasonably be assumed to expect that the lawyer is protecting the clients interests;4
(b) there is a significant risk that the interests of the lawyer and the client may differ.5
3. The lawyer shall not act for the client where the lawyers duty to the client and the personal interests of the lawyer or an associate are in conflict.6
4. The lawyer shall not prepare an instrument giving the lawyer or an associate a substantial gift from the client, including a testamentary gift.7
5. The lawyer must comply with the terms of all professional liability insurance policies.8
Commentary
Guiding Principles
1. The principles enunciated in the Rule relating to impartiality and conflict of interest between clients apply mutatis mutandis to this Rule.
2. A conflict of interest between lawyer and client exists in all cases where the lawyer gives property to or acquires it from the client by way of purchase, gift, testamentary disposition or otherwise. Such transactions are to be avoided. When they are contemplated, the prudent course is to insist that the client either be independently represented or have independent legal advice.9
3. This Rule applies also to situations involving associates of the lawyer. Associates of the lawyer within the meaning of the Rule include the lawyers spouse, children, any relative of the lawyer (or of the lawyers spouse) living under the same roof, any partner or associate of the lawyer in the practice of law, a trust or estate in which the lawyer has a substantial beneficial interest or for which the lawyer acts as a trustee or in a similar capacity, and a corporation of which the lawyer is a director or in which the lawyer or an associate owns or controls, directly or indirectly, a significant number of shares.10
Debtor-Creditor Relationship to be Avoided
4. The lawyer should avoid entering into a debtor-creditor relationship with the client. The lawyer should not borrow money from a client who is not in the business of lending money. It is undesirable that the lawyer lend money to the client except by way of advancing necessary expenses in a legal matter that the lawyer is handling for the client.11
Joint Ventures
5. The lawyer who has a personal interest in a joint business venture with others may represent or advise the business venture in legal matters between it and third parties, but should not represent or advise either the joint business venture or the joint venturers in respect of legal matters as between them.
When Person to be Considered a Client
6. The question of whether a person is to be considered a client of the lawyer when such person is lending money to the lawyer, or buying, selling, making a loan to or investment in, or assuming an obligation in respect of a business, security or property in which the lawyer or an associate of the lawyer has an interest, or in respect of any other transaction, is to be determined having regard to all the circumstances. A person who is not otherwise a client may be deemed to be a client for purposes of this Rule if such person might reasonably feel entitled to look to the lawyer for guidance and advice in respect of the transaction. In those circumstances the lawyer must consider such person to be a client and will be bound by the same fiduciary obligations that attach to a lawyer in dealings with a client. The onus shall be on the lawyer to establish that such a person was not in fact looking to the lawyer for guidance and advice.12
Subscripts
1 ABA-MC Canon 5, DR 5-101(A), (B); ABA-MR 1.8(a); Ont. 2.06(2).
2 N.S. 7(c)(ii).
3 Alta. 6-R.9; N.B. 11-R(a); N.S. 7(c)(iii).
4 N.B. 11-R(b).
5 N.S. 7(b).
6 N.S. 7(a).
7 ABA-MR 1.8(c); N.S. 7(f).
8 Alta. 6-R.8; B.C. 7.
9 N.S. R-7(e); Que. 3.05.13.
10 As to corporations, cf. ABA EC 5-18: A lawyer employed or retained by a corporation or similar entity owes his allegiance to the entity and not to a stockholder, director, officer, employee, representative, or other person connected with the entity. In advising the entity, a lawyer should keep paramount its interests....
11 Ont. 2.06(4)(a); Que. 3.05.12.
12 N.B. 11-C.6; N.S. C-7.1.
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