Code of Professional Conduct

CHAPTER VI

CONFLICT OF INTEREST BETWEEN LAWYER AND CLIENT

RULE

(a) The lawyer should not enter into a business transactions with the client or knowingly give to or acquire from the client an ownership, security or other pecuniary interest unless:

(i) the transaction is a fair and reasonable one and its terms are fully disclosed to the client in writing in a manner that is reasonably understood by the client;
(ii) the client is given a reasonable opportunity to seek independent legal advice about the transaction, the onus being on the lawyer to prove that the client's interests were protected by such independent advice; and
(iii) the client consents in writing to the transaction.

b) The lawyer shall not enter into or continue a business transaction with the client if:

(i) the client expects or might reasonably be assumed to expect that the lawyer is protecting the client's interests;
(ii) there is a significant risk that the interests of the lawyer and the client may differ.

(c) The lawyer shall not act for the client where the lawyer's duty to the client and the personal interests of the lawyer or an associate are in conflict.

(d) The lawyer shall not prepare an instrument giving the lawyer or an associate a substantial gift from the client, including a testamentary gift, unless there is proof the client has received independent legal advice or in the case where the client is a family member, there is no appearance of undue influence.

Commentary

Guiding Principles
1. The principles enunciated in the Rule relating to impartiality and conflict of interest between clients apply mutatis mutandis to this Rule.

2. A conflict of interest between lawyer and client exists in all cases where the lawyer gives property to or acquires it from the client by way of purchase, gift, testamentary disposition or otherwise. Such transactions are to be avoided. When they are contemplated, the prudent course is to insist that the client either be independently represented or have independent legal advice.

3. This Rule applies also to situations involving associates of the lawyer. Associates of the lawyer within the meaning of the Rule include the lawyer's spouse, children, any relative of the lawyer (or of the lawyer's spouse) living under the same roof, any partner or associate of the lawyer in the practice of law, a trust or estate in which the lawyer has a substantial beneficial interest or for which the lawyer acts as a trustee or in a similar capacity, and a corporation of which the lawyer is a director or in which the lawyer or an associate owns or controls, directly or indirectly, a significant number of shares.¹

Debtor-Creditor Relationship to be Avoided
4. The lawyer should avoid entering into a debtor-creditor relationship with the client. The lawyer should not borrow money from a client who is not in the business of lending money.² It is undesirable that the lawyer lend money to the client except by way of advancing necessary expenses in a legal matter that the lawyer is handling for the client.

Joint Ventures
5. The lawyer who has a personal interest in a joint business venture with others may represent or advise the business venture in legal matters between it and third parties, but should not represent or advise either the joint business venture or the joint venturers in respect of legal matters as between them.

When Persons to be Considered a Client
6. The question of whether a person is to be considered a client of the lawyer when such person is lending money to the lawyer, or buying, selling, making a loan to or investment in, or assuming an obligation in respect of a business, security or property in which the lawyer or an associate of the lawyer has an interest, or in respect of any other transaction, is to be determined having regard to all the circumstances. A person who is not otherwise a client may be deemed to be a client for purposes of this rule if such person might reasonably feel entitled to look to the lawyer for guidance and advice in respect of the transaction. In those circumstances the lawyer must consider such person to be a client and will be bound by the same fiduciary obligations that attach to a lawyer in dealings with a client. The onus shall be on the lawyer to establish that such a person was not in fact looking to the lawyer for guidance and advice.

NOTES

1. Cf. ABA-COD 5. As to corporations, cf. ABA-MR 1.13; ABA EC 5-18: "A lawyer employed or retained by a corporation or similar entity owes his allegiance to the entity and not to a stockholder, director, officer, employee, representative, or other person connected with the entity. In advising the entity, a lawyer should keep paramount its interests ...".

2. Cf Ont. 5; Alta. 34; and B.C. B-13: "... in a number of instances of professional misconduct ... the borrowing of money by [the lawyers] in question has been a factor leading to the ... misconduct. [A lawyer] should not borrow money from his clients save in exceptional circumstances, and in that case the onus of proving that the client's interests were fully protected by the nature of the case or by independent legal advice will rest upon [the lawyer] .... [Attention is called to] the various transactions and dealings that the courts have held to be improper or reprehensible conduct in violation of these principles, and which, in addition to their consequences at law, constitute professional misconduct."
Cf. ABA EC 5-8.

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