Avoiding Conflicts of Interest Claims

Hi everyone. I’m very pleased to become a member of the SLAW community.

For my first post I want to talk about conflicts of interests claims. They are a key area of risk as I detailed in an article I recently penned on The Biggest Malpractice Claims Risks for LAWPRO Magazine. LAWPRO provides legal malpractice coverage for the 21,800 lawyers in private practice in Ontario. Over the last eleven years in the LAWPRO claims portfolio, conflicts of interest claims ranked fifth by both count (1,322 claims) and cost ($6.0 million), accounting for 6.4 per cent of claims reported and 9.7 per cent of costs, respectively. Conflicts claims are proportionally more costly to defend and indemnify as they tend to be complex and involve multiple parties. In recognition of this, under the terms of the LAWPRO policy, a double deductible applies in the case of a conflicts of interest claim.

There are two types of conflicts claims we see: The first arises when conflicts occur between multiple current or past clients represented by the same lawyer or firm. The second is a conflict that arises when a lawyer has a personal interest in the matter. Multi-client conflicts claims have been on a general downwards trend for most of the last 10 years. During the same period, lawyer self-interest conflicts claims have occurred at the same rate. However, since the Supreme Court of Canada’s decisions in R. v. Neil and Strother v. 3464920 Canada Inc., there is clearly increased sensitivity to the duties of loyalty and confidentiality that lawyers owe their clients.

As they regularly act for multiple clients and/or entities, real estate and corporate commercial lawyers experience more conflicts claims than other areas of law. In contrast, litigators seem to do a better job of recognizing real or potential conflicts and have a relatively low rate of conflicts claims.

LAWPRO is seeing more conflicts arise with the lateral hiring of partners and associates. Conflicts issues are often not investigated in detail until the deal is more or less done, and in a strong desire to bring on the new person, real or potential conflicts are ignored or overlooked. This often results in the loss of clients for both the new lawyer and the firm.

So then – how do you avoid finding yourself in a conflicts mess? A great starting point is the recently released report of the CBA Conflicts of Interest Task Force. In particular I wanted to point out the excellent collection of precedent documents and checklists in the CBA Conflicts Task Force Toolkit. A full list of the documents in the toolkit is here.

To avoid conflicts of interest, make sure your firm has procedures and systems in place for checking conflicts at the earliest possible point in time. Ideally it should be an electronic system and include more than just client names. A system that includes individuals and entities related to the client, including corporations and affiliates, officers and directors, partners, and trade names etc. will flag more real and potential conflicts.

Often, firm conflicts-checking systems do catch real or potential conflicts. Unfortunately, decisions are made to overlook these conflicts, either to please the client (often to keep fees down) and/or to keep the matter at the firm for the fees it will generate. In the end these decisions come back to haunt firms.

The requirements for successfully managing conflicts of interest are quite basic: be aware of your obligations; exercise good judgment; and effectively communicate and document the decisions you make and actions you take when dealing with conflicts of interest. The guidelines, checklists and precedents in CBA Toolkit should assist you in achieving this objective.

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