Let’s say that you are a good lawyer whose client did something bad. Should you snitch on them to the authorities? What if they did something really bad? What if someone offered to pay you millions of dollars if you ratted them out?
If these questions were asked on a bar exam, the answers would be clear. A good lawyer who abides by the Rules of Professional Conduct cannot disclose any information about the business or affairs of his or her client except in very limited and specified circumstances, such as where there is an imminent risk of death or serious bodily harm, and disclosure is necessary to prevent the death or harm.
In this context, it was surprising to learn that the Ontario Securities Commission is currently considering a Whistleblower Policy designed to encourage certain individuals, including in-house counsel, to report serious securities or derivatives-related misconduct to the Commission in exchange for a financial reward of up to $5,000,000.
To be fair, the proposed policy contains a number of exclusions which appear to be designed to recognize and respect lawyers’ professional obligations. In particular, the definition of “original information” in section 1 of the proposed policy excludes, inter alia, information obtained either “(i) through a communication that was subject to solicitor-client privilege” or “(ii) in connection with the provision of legal advice to a client or employer, on whose behalf the whistleblower or the whistleblower’s firm acts or provides services.” Additionally, under section 15(1)(c) and (d), external and in-house counsel are excluded from acting as whistleblowers if they have obtained information in connection with providing legal services to, or conducting the legal representation of, the subject of the whistleblower submission, unless disclosure of that information would otherwise be permitted by a lawyer under applicable provincial or territorial barreau or law society rules.
Although the OSC should be commended for including these exclusions, they do not appear to provide adequate recognition of, and respect for, lawyers’ professional obligations for a number of reasons:
(1) One possible interpretation of the exclusions in relation to the definition of “original information” is that they exclude all information that an in-house lawyer would receive in his or her capacity as an in-house lawyer. Given this interpretation, the later position that lawyers may disclose provided doing so is in accordance with applicable provincial or territorial barreau or law society rules is inconsistent, and also risks confusing lawyers into inaccurately believing that they can disclose information;
(2) To the extent that the exclusions in relation to the definition of “original information” do not exclude all information that an in-house lawyer would receive in his or her capacity as an in-house lawyer, disclosure under the proposed policy would appear to violate a lawyer’s confidentiality obligations under the Law Society of Upper Canada’s Rules of Professional Conduct to “hold in strict confidence all information concerning the business and affairs of the client acquired in the course of the professional relationship and shall not divulge any such information” (Rule 3.3-1), subject to specified narrow exceptions. On this point, it is important to note that, while often conflated, solicitor-client privilege and the ethical duty of confidentiality are two distinct legal concepts, with the latter applying to a broader set of communications and information (for further discussion, see Adam M. Dodek, Solicitor-Client Privilege (Markham: LexisNexis Canada Inc., 2014) at 21-23);
(3) Although lawyer whistleblowing is justified under the narrow exceptions provided for in the Rules of Professional Conduct, insofar as the proposed policy provides financial awards in exchange for disclosure, the presence of a financial incentive risks creating a conflict with lawyers’ duty of commitment to a client’s cause, recently recognized by the Supreme Court of Canada to be a principle of fundamental justice (Canada (Attorney General) v. Federation of Law Societies of Canada,  1 SCR 401) and risks placing the lawyer in a conflict of interest with his or her client contrary to his or her fiduciary obligations and obligations under the Law Society of Upper Canada’s Rules of Professional Conduct;
(4) The further exclusions found in section 15(1) that prohibit disclosures impermissible under law society rules do not appear to adequately remediate the above issues. First, a lawyer’s ethical obligations are defined not only by law society rules but by common law provisions set out by the courts. This is particularly true in the areas of solicitor-client privilege, fiduciary obligations and conflicts of interest. Second, section 15(2) renders the exception for an in-house lawyer found in section 15(1)(d) inapplicable in three circumstances, namely where:
(i) the whistleblower has a reasonable basis to believe that disclosure of the information to the Commission is necessary to prevent the subject of the whistleblower submission from engaging in conduct that is likely to cause substantial injury to the financial interest or property of the entity or investors;
(ii) the whistleblower has a reasonable basis to believe the subject of the whistleblower submission is engaging in conduct that will impede an investigation of the misconduct; or
(iii) at least 120 days have elapsed since the whistleblower provided the information to the relevant entity’s audit committee, chief legal officer, CCO (or their functional equivalents) or the individual’s supervisor.
These nullifications conflict with a lawyer’s professional obligations for the reasons set out in (2) and (3) above.
To be sure, there is precedent for the suggestion that in-house counsel ought to be eligible for whistleblowing awards. The U.S. Securities and Exchange Commission (“SEC”) allows for lawyers to collect whistleblower awards and the exceptions found in section 15 of the OSC policy appear to mirror exceptions found in the SEC rule. Here it is worth noting several distinctions in the legal and regulatory contexts of Canada and the United States.
First, in the United States, the American Bar Association’s Model Rules of Professional Conduct permit a lawyer for an organization to disclose confidential information in cases where the lawyer knows that someone associated with the organization is acting illegally and in a manner that is likely to result in substantial injury to the organization, so long as the lawyer has first pursued internal channels to deal with the issue (see Rule 1.13). In contrast, the Law Society of Upper Canada Rules of Professional Conduct only permit a lawyer for an organization to silently withdraw from representation upon knowledge that an organization has acted, is acting or intends to act dishonestly, fraudulently, criminally or illegally (see Rule 3.2-8).
Second, in the United States, the American Bar Association’s Model Rules of Professional Conduct provide an exception to a lawyer’s ethical duty of confidentiality to prevent future financial harm (see Rule 1.6). In contrast, the Law Society of Upper Canada Rules of Professional Conduct only permit a lawyer to disclose confidential information in order to prevent death or serious bodily harm (see Rule 3.3-3).
Insofar as section 15(2) of the policy permits disclosures that might be permitted under American ethics rules but are not permitted under Canadian ethics rules, the proposed policy risks conflict with the existing law governing lawyers in our country and could create a messy situation for lawyers trying to determine how to conduct themselves in accordance with the law.
Finally, it is worth noting that the American experience with the SEC rule has not been without controversy. For example, in a 2014, an American lawyer who had worked whistleblowing cases was quoted in an article as saying:
The state bars around the country have not hesitated to punish lawyers who blow the whistle on their clients outside of the narrow circumstances permitted by the rules. And for good reason. One of the most important attributes of an attorney is his or her ability to maintain client confidentiality. If corporate counsel disclosed confidences at will, the attorney-client relationship as a whole would be greatly damaged….
Whistleblower programs can serve important policy interests, but lawyers generally should not be part of them unless they are acting ethically under the lawyer-conduct rules that have been formulated over centuries.
The OSC recently requested comment on its proposed whistleblowing policy and specifically welcomed responses to the question: Do you agree with in-house counsel being eligible for a whistleblower award? If not, why?
In a letter submitted in response to this request, myself, along with fellow legal ethics Slaw columnists, Adam Dodek, Alice Woolley, and Malcolm Mercer, along with Brent Cotter, submitted that the OSC should not include in-house counsel in its proposed whistleblowing policy for reasons including those outlined here.
Time will tell if the OSC will rethink its inclusion of in-house counsel in its proposed whistleblowing policy. If they do not, there may be some challenging and confusing times ahead for in-house counsel in Canada.