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Incorporating the Duty of Loyalty Into the Model Code of Conduct

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Incorporating the Duty of Loyalty Into the Model Code of Conduct Dalhousie Law Journal Volume 39 Issue 1 Article 2 4-1-2016 Of Lodestars and Lawyers: Incorporating the Duty of Loyalty into the Model Code of Conduct Colin Jackson Dalhousie University Richard Devlin Dalhousie University Brent Cotter University of Saskatchewan Follow this and additional works at: https://digitalcommons.schulichlaw.dal.ca/dlj Part of the Legal Profession Commons Recommended Citation Colin Jackson, Richard Devlin, and Brent Cotter, "Of Lodestars and Lawyers: Incorporating the Duty of Loyalty into the Model Code of Conduct" (2016) 39:1 Dal LJ 37. This Article is brought to you for free and open access by the Journals at Schulich Law Scholars. It has been accepted for inclusion in Dalhousie Law Journal by an authorized editor of Schulich Law Scholars. For more information, please contact [email protected]. Colin Jackson* Of Lodestars and Lawyers: Incorporating Richard Devlin** and the Duty of Loyalty into the Model Code Brent Cotter *** of Conduct The "conflicts quartet" of cases decided by the Supreme Court of Canada can be understood as part of a long-standing tension in Anglo-Canadian jurisprudence between two competing conceptions of a lawyer's professional identity In the most recent of these cases, C.N. Railway v. McKercher, the Supreme Court conclusively preferred the loyalty-centred conception of the practice of law over the entrepreneurial conception. While the Federation of Law Societies of Canada amended its Model Code of Professional Conduct in 2014 in response to the Supreme Court's decision in McKercher, this article argues that those amendments did not go far enough. The authors propose a more substantial set of modifications to the Model Code to better entrench the duty of loyalty as a foundational principle of legal ethics. These amendments, they argue, would better reflect the reasoning in McKercher and would provide lawyers with a lodestar to guide their ethical judgement. Les quatre arr~ts de la Cour suprdme du Canada dans des affaires de conflit d'intbr~ts peuvent 6tre considdrds comme s'inscrivant dans la tension qui existe depuis longtemps dans la jurisprudence anglo-canadienne entre deux conceptions de I'identit6 professionnelle de I'avocat. Dans le plus recent de ces arr~ts, Compagnie des chemins de fer nationaux du Canada c. McKercher LLP, la Cour supreme a prdfr6 la conception de la pratique du droit axde sur la loyaut6 a la conception entrepreneuriale. La Fedration des ordres professionnels de juristes du Canada a modifid, en 2014, son Code type de deontologie professionnelle en reaction a I'arrt McKercher mais les auteurs avancent que ces modifications ne vont pas assez loin. Ils proposent un ensemble plus cors6 de modifications au Code type pour y intdgrer davantage le devoir de loyaut6 en tant que principe fondamental de I'6thiquejuridique. Ces modifications, affirment- ils, refldteraient mieux le raisonnement dans I'arrt McKercher et seraient, pour les avocats, une reference qui guiderait leur jugement 6thique. * PhD Candidate, Schulich School of Law, Dalhousie University. ** Professor, Schulich School of Law, Dalhousie University. * Professor andformerDean, College of Law, University of Saskatchewan. This essay commenced life as a background paper prepared for the Nova Scotia Barristers' Society. Thanks to Molly Ross and Lindsey Wareham for their excellent assistance; Angus Gibbon, Darrel Pink and Victoria Rees for their thoughtful criticisms; and two anonymous reviewers who have helped us to more clearly present our arguments. This project was supported in part by the Schulich Academic Excellence Fund, the Nova Scotia Barristers' Society, and the Law Foundation of Saskatchewan Endowment Fund. 38 The Dalhousie Law Journal Introduction I. The historicalcontext 1. Overview 2. The early development offiduciary obligations (1780-1860) 3. Fiduciary obligations take shape (1860-1910) 4. "The landmark" (1910-1920) 5. Canadain the early 20th century (1910-1950) 6. Canadain the mid-20th century (1950-1970) 7. Canadain the late 20th century (1970-1990) 8. Summary II. The quartet 1. MacDonald Estate v. Martin 2. R. v. Neil 3. Strother v. 3464920 Canada Inc. 4. CN Railway v. McKercher III. Incorporatingthe duty of loyalty into the Code Conclusion Introduction In 2009, after several years of negotiations with the various Canadian law societies, the Federation of Law Societies of Canada (FLSC) launched its Model Code of Professional Conduct (Code).' This was a major achievement insofar as it presented a unified national vision of the core ethical obligations of Canadian lawyers. The hope was that each provincial and territorial law society would adopt the Code. However, at that time there was one conspicuous omission from the Code, the section on conflicts of interest. The reason for this, as others have explained in detail, 2 is because the FLSC was embroiled in a controversy with the Canadian Bar Association (CBA) as to the substance of the conflicts rules. The essence of the disagreement was whether the chapter should be constructed to echo two recent decisions of the 1. Federation of Law Societies of Canada, Model Code ofProfessionalConduct (10 October 2014), online: FLSC <fisc.ca/wp-content/uploads/2014/12/conductl.pdf>. As of the date of writing every province and territory, with the exceptions of Quebec and the Yukon, has either adopted or agreed to adopt the Code. 2. Adam Dodek, "Conflicted Identities: The Battle over the Duty of Loyalty in Canada" (2011) 14:2 Leg Ethics 193. Of Lodestars and Lawyers: Incorporating the Duty 39 of Loyalty into the Model Code of Conduct Supreme Court of Canada (R. v. Neil3 and Strotherv. 346920 CanadaInc') which had advanced a positive duty of loyalty or whether it should be constructed more narrowly to focus on the negative injunction to avoid conflicts of interest. In December 2011, the FLSC did issue its section on conflicts of interest and in the commentaries referenced the Supreme Court's jurisprudence on the positive duty of loyalty.' It did not, however, articulate a free-standing duty of loyalty. In 2013, the Supreme Court of Canada issued another decision on the ethical obligations of law firms, CanadianNational Railway Co. v. McKercherLLP, 6 and this time unequivocally endorsed the duty of loyalty as a foundational ethical principle.' In response, the FLSC made some minor amendments to the conflicts section of the Code in the fall of 2014. In this paper we argue that these amendments did not go far enough to entrench the duty of loyalty in the Code and that further modifications are required. We advance this argument for three reasons. First, while an ethical principle is distinct from a legal rule, it is essential that a code of conduct, at a minimum, should clearly and accurately reflect the basic legal obligations of lawyers. A code of conduct may seek to go beyond basic legal obligations, but it cannot embrace something less than those obligations. Secondly, we believe that if the Code were to adopt and clearly articulate a foundational duty of loyalty, it would bring greater analytical coherence to a variety of existing principles and duties already embedded in the Code, such as confidentiality, commitment, resolute advocacy, candour and the avoidance of conflicts of interest. Thirdly, we suggest that as a matter of professional identity and ethical decision-making it is important whether a lawyer filters his or her understanding of the obligations to the client through the negative injunction "avoid conflicts of interest" or the positive mandate "be loyal." Decisions about potential conflicts of interest situations can be complex and economic incentives may nudge lawyers towards accepting retainers in moments of doubt. McKercher is the star example. If lawyers internalize the positive "duty of loyalty" as a 3. 2002 SCC 70, [2002] 3 SCR 631 [Neil]. 4. 2007 SCC 24, [2007] 2 SCR 177 [Strother]. 5. Federation of Law Societies of Canada, Standing Committee on the Model Code of Professional Conduct, Report on Conflicts ofInterest, 21 November 2011, online: FLSC <docs.fisc.ca/Conflicts-of- Interest-Report-Nov-201 1.pdf>. 6. 2013 SCC 39, [2013] 2 SCR 649 [McKercher]. 7. Alain Roussy, "Conflicts of Interest in Canada: The McKercher Decision" (2014) 17:2 Leg Ethics 306. 40 The Dalhousie Law Journal norm-rather than the negative "avoid conflicts"-this might help offset the economic pressures lawyers (and their firms) often encounter. To advance our argument, the paper will proceed in three stages. First, in Part I, we suggest that ambivalence about, or even resistance to, the idea that there is a freestanding duty of loyalty has a long history in Anglo-Canadian jurisprudence. Specifically, we will argue that the case law demonstrates an historic tension between two competing conceptions of a lawyer's professional identity: a loyalty-centred conception and an entrepreneurial conception. The loyalty-centred approach emphasizes that a lawyer is a professional who is in a trust-like relationship with his or her client, and therefore must subordinate her interests (economic and otherwise) to those of the client. The entrepreneurialist approach is more mercantilist in orientation in that it conceives of the practice of law as essentially a business enterprise, although one that is burdened with some particular constraints because of potential inequalities between the lawyer and the client. In Part II, we provide a concise overview of the "conflicts quartet" that emerged from the Supreme Court of Canada between 1990 and 2013 to argue that while
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