Don’t Shoot the Messenger: Solicitor-Client Privilege vs. Fraud Prevention

by Kaitlin Bradley

[footnotes omitted; available on request]

Solicitor-client privilege must yield to prevention of economic harm. Law society rules should provide the option to breach solicitor-client privilege in cases of impending fraud. It appears that there are three main arguments supporting a position against allowing an economic harm exception: that it is not the lawyer’s responsibility; that interference with solicitor-client privilege would irreparably harm solicitor-client relationships; and finally that economic harm is “a risk you take” when investing. This paper will begin with a brief overview of the movement in the legal profession to recognize an economic harm exception, followed by an analysis of the opposition.

In 2010, the Federation of Law Societies of Canada (FLSC) drafted a rule that would give lawyers the option to breach solicitor-client privilege

when the lawyer believes on reasonable grounds that there is an imminent risk of…substantial financial injury to an individual caused by an unlawful act that is likely to be committed, and disclosure is necessary to prevent the injury.

This proposed rule would fill in the gap left by current rules which only justify breach of privilege in circumstances

where a lawyer believes upon reasonable grounds that there is an imminent risk to an identifiable person or group of death or serious bodily harm, including serious psychological harm that substantially interferes with health or well-being … where it is necessary to do so in order to prevent the death or harm.

Does this gap in the FLSC rules exist because the legal profession does not see the link between fraud and potentially devastating harm? Perhaps it was more convenient for those drafting the rules to ignore the reality of the matter, because the importance of protecting the status quo of solicitor-client privilege was held to outweigh the importance of preventing the financial ruin of a few unfortunate individuals. As a law student aspiring toward a career in the legal profession, I am discouraged by the prevailing view that privilege trumps all. The importance of solicitor-client privilege in the justice system should not be minimized; but at the same time, it should not be employed to excuse failure to act when an identifiable class of persons is at risk of falling victim to fraud.

One of the main opposing arguments to come out in class discussion was that the proposed rule would unfairly place responsibility on lawyers, when there may be other players, like accountants, who know about the hypothetical impending fraud. My disagreement with this position is informed by my undergraduate education in accounting, which emphasized the importance of ethics in financial services. I have worked as a corporate accountant and also an auditor for one of the “Big Four” accounting firms. During my training for these positions, special emphasis was placed on the importance of ethics in the financial sector and also on fraud detection. While it is true that accountants and other business professionals share an ethical obligation to disclose fraud, I would argue that the obligation is heightened for lawyers because of lawyers’ relationship to the administration of justice. The LSUC Rule 4.01(2)(b) states,

when acting as an advocate, a lawyer shall not knowingly assist or permit the client to do anything that the lawyer considers to be dishonest or dishonourable.

Failure to act in such circumstances brings the administration of justice into disrepute, and contravenes Rule 4.01(2)(b).

Another argument against the economic harm exception is that it would damage the solicitor-client relationship. The problem with this argument is that the proposed rule merely provides the option for the lawyer to report fraud, and it does not enforce disclosure. In practice, unfortunately, many lawyers would probably not take advantage of this new rule in situations where disclosure is warranted. Reasons for hesitancy to breach solicitor-client privilege might include factors like pressure from superiors to keep the client, fear of adverse impact on career advancement, and potentially ostracism by other lawyers. These are powerful disincentives from acting as a “whistleblower” and if the economic harm exception rule is implemented, these disincentives will likely continue to prevent lawyers from taking the risk of breaching solicitor-client relationship. In summary, I believe this new rule would have little impact on the future of solicitor-client relationships because too few lawyers would take advantage of the rule.

The final, and in my opinion, most outrageous argument against the economic harm exception rule is that investing is inherently risky business, and economic harm and insolvency due to fraud is simply “a risk you take” in today’s market. It is true that the stock market is volatile and unpredictable, therefore the possibility of losing money is an assumed risk for any investor. However, losing money as a result of lies, deception and thievery is not an investment risk, but the result of a calculated criminal act. The fact that fraud is considered a market norm and assumed risk by my peers is highly troubling and I hope that amendments to the FLSC rules will clarify this misconception.

Investors deserve every reasonable means of protection against financial crime. If a situation warrants intervention by a lawyer, the lawyer should not be in a position where making the ethical choice is harmful to his or her career and betrays the rules of privilege and confidentiality in the FLSC rules. Not only does the lack of discretion to disclose impending economic harm place unnecessary emotional strain on the lawyer, but it goes against the very nature of the legal profession by enabling crime.

[Kaitlin Bradley wrote this paper for a course in Professional Responsibility taught by Professor Adam Dodek at Ottawa University Faculty of Law]

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Comments

  1. Suppose that I have a client that sells — what else? — widgets. The client buys its raw material from a supplier and sells the completed product to its customers. One large customer has just declared bankruptcy, leaving my client with a huge loss. It cannot now pay its supplier and may itself face bankruptcy, forcing it to dismiss all its employees and default on other obligations. If my client comes to me for advice, must I now, since I now “[believe] on reasonable grounds that there is an imminent risk of … substantial financial injury to an individual caused by an unlawful act that is likely to be committed,” disclose what my client is about to do? To whom do I disclose it? The police?, the Law Society?, the Securities Commission?, Issue a press release? Can I not, without saying a word to anyone, try to help my client to find a new investor, postpone or compromise some payment obligations or temporarily lay-off some employees and offer it the chance to come through a very difficult time? While these efforts may not be succesful, what possible value is forwarded by imposing on me this absolutely fatuous obligation of disclosure?

    Since damages can be awarded for breaches of contract, a breach has to be an “unlawful” act, i.e., an act that attracts a sanction, the proposed rule would be impossibly wide: we recognize the unlawful element when we refer to wrongful dismissals. (Ms. Bradley refers only to fraud, but that’s not how the proposed rule is drafted or limited.) The practice of law would be impossible without solicitor-client privilege and clients would be denied the help that it is the function of the solicitor to provide. In any case, Rule 2.02(5)and (5.1) of the Law Society of Upper Canada Rules of Professional Conduct would seem appropriate to deal with the examples that bother Ms. Bradley.