SIMON CHESTER HEENAN BLAIKIE LLP THE CONFLICTS REVOLUTION MARTIN V. GRAY AND FIFTEEN YEARS OF CHANGE LEADING THE CANADIAN LAW FIRM IN THE 21ST CENTURY: MANAGING THE FUTURE The State of Play in Canada in 2006................................................................................. 1 Law Moves From Profession to Business ......................................................................... 8 The Traditional Approach to Conflicts .......................................................... 10 Commonwealth Evolution of the Law of Conflicts ....................................... 11 The Rakusen Decision....................................................................................... 11 Canada breaks from Rakusen............................................................................................................... 14 Martin v. Gray – The Case of the Migrating Junior ...................................................... 14 The Strict Canadian Test................................................................................. 16 Australia follows suit........................................................................................ 20 Mallesons Stephen Jaques v. KPMG Peat Marwick: Acting Against Former Clients .................... 21 Grounds for Injunctive Relief.......................................................................................................... 21 Privileged Information and Potential Prejudice............................................................................... 22 Imputing Knowledge to Partners – Can Chinese Walls Stop the Flow? ......................................... 23 Carindale Country Club: The New Law Solidifies.......................................................................... 24 Privileged Information: The Controlling Tests................................................................................ 24 New Zealand opts for pragmatism.................................................................. 25 Conflicts in a Tighter Market for Legal Services ............................................................................ 27 The Court of Appeal’s Pragmatic Approach to Conflicts................................................................ 28 The Commonwealth Consensus Asserts Itself in the Dissenting Judgment .................................... 30 Russell McVeagh in Context........................................................................................................... 31 The Saga of Prince Jefri Bolkiah v. KPMG ................................................................... 31 The Courts Learn from the Commonwealth ................................................. 34 The Principled High Court................................................................................................................... 34 The Pragmatic Court of Appeal........................................................................................................... 35 The House of Lords: Tougher Standards............................................................................................. 35 The Solicitor’s Duty to Former Clients Under English Law........................................................... 37 The Degree of Permissible Risk: The Solicitor’s Duty Defined...................................................... 38 Prince Jefri, KPMG, and the New Test in Action ........................................................................... 38 A Bright Line Test?......................................................................................................................... 43 The Dangers of Entrepreneurial Models of Lawyering ................................................. 47 “Directly adverse interests” and “immediate interests”: Strother’s predicament ............................ 48 The bright line test: candour, commitment, and the avoidance of conflicts .................................... 48 Duty of loyalty and duty to disclose material information beyond the retainer agreement............. 50 Time and effort dedicated to a mandate: how much should a lawyer disclose?.............................. 50 Remedies and Personal Liability..................................................................................................... 51 The Firm’s Liability for Strother’s Improper Conduct.................................................................... 53 Liability for legal fees earned as a result of the breach of duty of loyalty....................................... 53 Where Will Strother Take the Canadian Law on Conflicts of Interests?............................................. 55 What is Consent? ............................................................................................................. 58 Solicitor-client relationships and the duty of loyalty: from current to former clients.......................... 59 The Meaning of Informed Consent Requirements............................................................................... 60 Public information and legal advice: how relevant to confidential information? ................................ 61 Duty Of Loyalty And Confidential Information ............................................................. 62 2 The nexus of relevance: the “sufficient relationship” revised.............................................................. 62 Imparting confidential information: the lawyer’s heavy burden.......................................................... 63 Towards a doctrine of imputed knowledge in Canadian courts? ......................................................... 64 Loyalty to Former Clients................................................................................ 64 The enduring obligation to protect confidential information............................................................... 65 Proximity of relationship: duty of loyalty owed to third parties.......................................................... 65 Doctrine of imputed knowledge and timing in implementing screening measures ............................. 67 Duties to a Non-Client ...................................................................................... 68 “Immediate interest” and the pursuit of similar objectives.................................................................. 69 Imputed Knowledge............................................................................................................................. 70 Duties Owed To Non-Clients – Canadian Law Evolves...................................................................... 71 The Court tackles “what is an immediate interest? ......................................................................... 72 The “limited loyalty” owed to parties “involved in or associated with” the firm’s client ............... 73 The converging interests of client and third party........................................................................... 73 Termination of the retainer and subsequent motion to disqualify ................................................... 74 Chinese Walls or Potemkin Villages? ............................................................................. 75 Walls in the United States................................................................................ 79 The Consenting Client...................................................................................... 82 Towards an Empirical Look at Conflicts Management in Canadian Law Firms......... 83 A Practical Guide to Wall Construction.......................................................................... 85 Conclusions ...................................................................................................................... 91 Schedule A - Conflicts Survey Results ............................................................................ 97 Standard Procedures and Protocols for Conflicts ............................................................................ 97 Elements of Information Barriers.................................................................................................... 97 Improving Screens........................................................................................................................... 98 Walls Constructed and Dismantled in 2005 .................................................................................... 99 Conflicts Decision-Making ........................................................................................................... 101 Attitudinal Responses.................................................................................................................... 102 Impact of Conflicts Rules on the Firm .......................................................................................... 104 Conflicts – Coming Priorities........................................................................................................ 104 Schedule B : Conflict Of Interest Checklist.................................................................. 106 New Business .................................................................................................................................... 106 Ongoing Matters ................................................................................................................................ 107 Staff ................................................................................................................................................... 107 Hiring................................................................................................................................................