That’s why many law firms are now wondering whether they should discreetly dump their old clients to avoid getting caught in conflict situations if they happen to take on new clients with adverse interests.
It’s a dilemma that brings conflict of interest policies in conflict with law firm marketing strategies, according to Simon Chester, Heenan Blaikie LLP’s senior conflicts partner for English Canada. He notes that marketers urge lawyers to keep in touch with all their former clients, since you’re many times more likely to get work from them than from a complete stranger. He says it’s offensive and counterproductive to send clients termination letters.
But the risk is that maintaining a relationship — playing golf, meeting for lunch, and, perhaps, even sending Christmas cards — could send the wrong signal and suggest that the firm still owes a duty of loyalty to someone it no longer represents.
“It’s very difficult for a lawyer to admit to himself or herself that it’s over,” says Chester, who observes that law firms may sometimes keep open files on clients for whom they have not done any work for years.
The problem is that lawyers and their firms can easily find themselves burned by old relationships that they thought were over but didn’t formally end. They may find that they have to turn down lucrative new work because of a perception of conflict of interest, even though they and their old clients lost interest in one another long ago.
Or worse, the law firm may take on the new work only to discover an unforeseen conflict with a long lost client.
It’s a problem that seems to be growing almost out of control in today’s fast-moving interconnected global economy. Some lawyers may still enjoy lifelong relationships with some of their clients, as was the norm in your grandfather’s law firm. But this is an age of promiscuity. Clients are often fickle, spreading their work around by using one law firm for one matter and another for the next.
Lawyers, in turn, tend to be more specialized, thus working with more clients and often with numerous partners, many of whom may be in different practice areas and in different parts of the country. Add to this mix a global business environment rife with interconnections, mergers, takeovers, and multiple partnerships, and you have the makings of a veritable virus of conflicts of interest.
Law firms across Canada are plagued with conflict problems. On the East Coast, plans for a major regional law firm merger last year were complicated by concerns about potential client conflicts that led several lawyers to opt out of the newly formed firm Cox & Palmer.
In Ontario, the Lawyers’ Professional Indemnity Company (LAWPRO) reports a significant increase in conflict-related claims and costs over the past three years. Caron Wishart, the company’s vice president of claims, says six per cent of all claims arise out of conflicts of interest situations, but costs associated with these claims have increased to about 12 per cent, up from seven per cent four years ago. She says this is largely because of the cost of the complex litigation that can arise in conflict issues.
Lawyers everywhere in the country have been waiting anxiously for the Supreme Court of Canada decision in the British Columbia case involving Robert Strother, a former tax lawyer with Davis & Company LLP, ordered to pay a former client the millions of dollars in profits he made on a business venture judged to be in conflict of interest.
Particularly alarming in the Strother case is the prospect of lawyers finding themselves on the hook for profits made by a former partner in a deal they had nothing to do with because of a conflict they were unaware of. But law firms are also hoping the Supreme Court ruling will provide some guidance on the tricky question of how far the duty of loyalty extends to former clients.
The case serves as a reminder that firms should be more diligent about ending relationships with clients, says Gary Luftspring, chairman at Goodman and Carr LLP. He says the best way to do this is by defining the scope and term of each piece of work in a retainer letter beforehand. But, he admits, lawyers tend not to do this “because we’re not business-like enough. There’s a feeling that we don’t want to alienate the client; it’s all a goodwill relationship; and we’re so happy to get the work.”
Luftspring and Scott Jolliffe, national managing partner at Gowling Lafleur Henderson LLP, both want law societies to develop guidelines recommending a standard engagement letter for all lawyers to use with clients.
“In a perfect situation, it would be better for the courts to approve it. But if at least the law society or bar association would approve it, it would give a level of comfort for lawyers and clients,” says Jolliffe.
In the meantime, says Chester, “It’s a matter that requires firms to think very carefully, to analyze their relationships, to train their lawyers, and talk to their clients.”
