Indecent Proposal?: Whistleblowing and Putting a Price on Breaching the Rules of Professional Conduct
Earlier this year, I wrote a column expressing concerns about a proposed Ontario Securities Commission (“OSC”) policy designed to encourage certain individuals, including in-house lawyers, to report serious securities or derivatives-related misconduct to the OSC in exchange for financial rewards of up to $5 million. Similar concerns were relayed directly to the OSC in January 2016 in a letter I co-signed with other legal ethics scholars and practitioners and in a letter from Janet Minor, the then-Treasurer of the Law Society of Upper Canada (“LSUC”).
One major concern raised was that the proposed policy would allow, and indeed, encourage in-house counsel to reveal their employers’ confidential information to the OSC in express violation of the rules of professional conduct.
The OSC has now released its final whistleblowing policy. The conflict between what an in-house lawyer is permitted to do under the policy and what the rules of professional conduct allow him or her to do remains in place.
While the policy excludes any whistle-blower from being paid to share information subject to solicitor-client privilege, it does not exclude the disclosure of confidential information obtained in a lawyer-client relationship from its scope. This failure is consequential.
Although we often toss around the phrase “privileged and confidential” as if the two terms are one and the same, confidentiality obligations in law society rules of professional conduct cover different information than the concept of solicitor-client privilege. Under LSUC’s Rules of Professional Conduct, for example, lawyers must “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” subject to narrow exceptions. As a result of this broad definition, in-house lawyers are privy to a considerable amount of information that is not privileged but which is still covered by confidentiality obligations.
The OSC policy also excludes in-house lawyers from disclosing information “in connection with providing legal services to, or conducting the legal representation of” their employer if such a disclosure would violate law society rules of professional conduct. The policy, however, specifies three circumstances in which this exclusion can be overridden:
(a) 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 or continue to cause substantial injury to the financial interest or property of the entity or investors;
(b) 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
(c) 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 respective functional equivalents) or the individual’s supervisor, or, at least 120 days have elapsed since the whistleblower received the information, if in the circumstances the whistleblower received the information, the whistleblower became aware that one or more of those individuals were already aware of the information.
These are not exceptions contained in the rules of professional conduct and, in some cases, contradict what the rules provide. For example, Rule 3.2-8 of LSUC’s Rules of Professional Conduct directs in-house counsel who know that their employer “has acted, is acting or intends to act dishonestly, fraudulently, criminally or illegally” to report the misconduct up the governance ladder and then silently withdraw if the misconduct persists. In contrast, the policy encourages in-house counsel to report misconduct to the OSC if they have reported up the chain and 120 days have elapsed.
So where does this leave us?
It would appear that we are now faced with a state of affairs in which a public body exercising statutory authority has put in place significant financial incentives for in-house lawyers to violate their professional obligations.
It seems possible that some lawyers would be willing to take up the policy’s offer of significant financial reward notwithstanding if doing so would require them to breach their professional obligations.
Moreover, even for those lawyers who take seriously complying with their professional obligations, the apparent conflict between the two regimes may generate confusion and risk inadvertent breaches of the rules.
It’s not a great situation. It also is one that appears open to legal challenge.
Roughly 15 years ago, in Wilder v. Ontario Securities Commission, the Court of Appeal for Ontario rejected the proposition that LSUC had exclusive and exhaustive jurisdiction over the regulation of the professional conduct of lawyers. However, the circumstances of that case involved the powers of the OSC to reprimand lawyers who acted inappropriately within the context of an OSC proceeding. The current whistleblower policy represents a significantly different factual and legal scenario. It seems unlikely that Wilder would be binding if LSUC chose to mount a jurisdictional challenge.
In Wilder, the Court of Appeal also did not have the benefit of the Supreme Court of Canada’s 2015 decision in Canada (Attorney General) v. Federation of Law Societies of Canada, wherein the Court elevated “a lawyer’s duty of commitment to a client’s cause” to a principle of fundamental justice. In light of this jurisprudence, it seems possible that an individual subject to sanctions because an in-house lawyer disclosed confidential information for reward under the policy could successfully argue a violation of his or her section 7 rights.
As was the case with the regulatory scheme at issue in the Federation of Law Societies case which targeted money laundering and terrorist financing, the public protection goals behind the OSC’s whistleblowing policy should be lauded. The operative question in both cases, however, is how much one can interfere with features deemed fundamental to the lawyer-client relationship – like the maintenance of client confidences or commitment to a client’s cause – in order to pursue these goals.
Time will tell what the practical effect of this new OSC policy will be in relation to in-house lawyers and whether the policy is doomed to fail a legal challenge. There’s a good chance that the story is far from over.