Obligations of In-House Lawyers Under the New Alberta Code of Conduct
As of November 1, 2011, in-house counsel in Alberta will be governed by a New Code of Conduct (New Code) based on a model code developed by the Federation of Law Societies of Canada. The purpose of adopting the New Code in Alberta is to facilitate lawyer mobility across provinces by developing increasingly standardized rules of conduct and to promote public confidence in a self-regulated legal profession across the country.
How will the New Code affect the practice of in-house counsel specifically? At least four observations can be made. Firstly, the New Code continues to provide that the primary client of in-house counsel is the lawyer’s organization. Secondly, the New Code expands upon the circumstances in which in-house counsel will be required to consider conflict of interest rules when considering acting for a person affiliated with the lawyer’s organization. Thirdly, the New Code expands the duty of in-house counsel to inform the lawyer’s organization of new and potentially material information. Lastly, the New Code imposes specific procedures where in-house counsel suspects advice is being sought which could be used by the organization to commit a fraud or other crime.
The Old Alberta Code of Conduct
Chapter 12 of the previous Alberta Code of Professional Conduct (Old Code) imposed four rules (Old Rules) on lawyers in corporate or government service. The Old Code provided that:
- Rule 1: A lawyer in corporate or government service must consider the corporation or government to be the lawyer's client.
- Rule 2: A lawyer may act in a matter for another employee of a corporation or government only if the requirements of Rule 2 of Chapter 6, Conflicts of Interest, are satisfied.
- Rule 3: If a lawyer while acting for a corporation or government receives information material to the interests of the corporation or government, the lawyer must disclose the information to an appropriate authority in the corporation or government.
- Rule 4: A lawyer must not implement instructions of a corporation or government that would involve a breach of professional ethics or the commission of a crime or fraud.
Under the New Code, there is no specific chapter addressing in-house counsel, whether in corporate or government service or otherwise; instead, the equivalent rules are contained in Chapter 2, Relationship to Clients. These cover the same basic ground as Chapter 12 of the Old Rules, but also institute several modifications of which in-house counsel should take note.
The New Code: Who Is the Client of In-House Counsel?
New Code Rule 2.02(6), Quality of Service, provides the equivalent to Chapter 12 Rule 1 of the Old Code. It provides:
2.02(6) Although a lawyer may receive instructions from an officer, employee, agent or representative, when a lawyer is employed or retained by an organization, including a corporation, the lawyer must act for the organization in exercising his or her duties and in providing professional services.
New Code Rule 2.02(6) therefore seemingly expands upon Old Code Chapter 12 Rule 1 by explaining that, while in-house may receive instructions from various representatives of their organization, the lawyer stills acts only for the organization when providing legal services. However, as this information is contained in the commentary to Old Code Rule 1, this amendment is merely cosmetic and the two rules remain functionally equivalent.
The New Code: When Can In-House Counsel Act for a Person Affiliated With the Organization?
There is no immediate equivalent of Old Code Chapter 12 Rule 2 in the New Code. Instead, the matter of acting for a person affiliated with the in-house counsel’s organization is addressed exclusively in the New Code’s commentary. Further to Rule 2.02(6), as set out above, the New Code’s commentary states that counsel may act for a person associated with the lawyer’s organization so long as conflict of interest rules are complied with. Notably, however, the commentary employs the broad phrase "person associated with the organization" where the Old Code specifies "another employee." The New Code therefore widens the applicability of this rule by increasing the scope of persons who may be considered to be affiliated with counsel’s organization and consequently increases the likelihood it will be necessary to consider potentially applicable conflict of interest rules. Furthermore, while the Old Code requires only that in-house counsel comply with a single conflict of interest rule (Rule 2 of Chapter 6) when considering acting for another employee of the organization, the commentary to Rule 2.02(6) refers to the rules regarding the avoidance of conflicts of interests generally. These include not only the New Code equivalent to Old Code Chapter 6 Rule 2 – that a lawyer must not act for more than one party in a potential conflict situation unless all such parties consent and it is in the best interests of the parties that the lawyer so act – but also such other conceivably applicable New Code rules such as 2.04(10). This provides that "[a] Lawyer must not act personally in a matter when the lawyer’s objectivity is impaired to the extent that the lawyer would be unable to properly and competently carry out the representation." This again expands the realm of what may be considered a possible conflict situation pursuant to the New Code where in-house counsel considers acting for a third party alongside the lawyer’s organization.
The New Code: What Information Must Be Disclosed to the Organization by In-House Counsel?
As with Old Code Chapter 12 Rule 2, neither is Chapter 12 Rule 3 reproduced in the New Code. However, New Code Rule 2.02(2), Honesty and Candour, covers near identical terrain. It provides:
2.02(2) When advising a client, a lawyer must be honest and candid and must inform the client of all information known to the lawyer that may affect the interests of the client in the matter.
Both rules therefore address the duty of in-house counsel to apprise the lawyer’s organization of newly received relevant information. However, while Old Code Chapter 12 Rule 3 requires only that counsel transmit "information material to the interests of the corporation or government"; New Code Rule 2.02(2) expands this duty to include "all information… that may affect the interests of the client in the matter." Stated differently, the former standard of "materiality" is replaced with the less stringent standard of potential applicability. This widens the disclosure obligation of in-house counsel as it is no longer necessary to make a judgement concerning the materiality of information; rather, all information which "may" impact the organization must be passed on. Furthermore, unlike the Old Code, the New Code provides little insight regarding how this obligation should be met within an organizational setting. In particular, whereas the Old Code speaks of informing a person of "appropriate authority" within the organization who will give the information "appropriate consideration," the New Code, by failing to distinguish between a client that is a natural person and a client that is an organization, is silent on this matter.
The New Code: Duty of In-House Counsel Upon Suspected Crime or Fraud
Old Code Chapter 12 Rule 4 is dealt with by New Code Rule 2.02(11), Fraud when Client is an Organization. It provides:
2.02 (11) A lawyer who is employed or retained by an organization to act in a matter in which the lawyer knows that the organization has acted, is acting or intends to act fraudulently, criminally or illegally, must do the following, in addition to his or her obligations under Rule 2.02 (10):
- advise the person from whom the lawyer takes instructions and the chief legal officer, or both the chief legal officer and the chief executive officer, that the conduct is or would be fraudulent, criminal or illegal and should be stopped;
- if necessary because the person from whom the lawyer takes instructions, the chief legal officer or the chief executive officer refuses to stop the conduct, advise progressively the next highest persons or groups, including ultimately, the board of directors, the board of trustees, or the appropriate committee of the board, that the conduct is or would be fraudulent, criminal or illegal and should be stopped; and
- if the organization, despite the lawyer’s advice, continues with or intends to pursue the unlawful conduct, withdraw from acting in the matter in accordance with Rule 2.07.
Both the Old Code and the New Code therefore prevent in-house counsel from advising or assisting the lawyer’s organization in committing a crime or fraud, or otherwise pursuing a course of conduct that would breach the lawyer’s ethical obligations. Both the Old Code and the New Code also require counsel to withdraw from the matter where the organization persists in the criminal, fraudulent or unethical activity regardless of counsel’s admonitions or remonstrations. However, the New Code expands upon the Old Code by mandating a specific procedure to be adopted by in-house counsel in these circumstances. In particular, Rule 2.02(11)(a) requires first that counsel advise specific individuals, including either the chief legal officer and the chief executive officer, or the person providing the instructions and the chief legal officer. Secondly, Rule 2.02(11)(b) requires that, should counsel’s initial objections go unheeded, counsel must bring such objections to progressively more senior executive organs. All together, these represent unambiguous directions that impose hard obligations which, although capable of being reasonably inferred from Chapter 12 Rule 4, remain otherwise absent in the Old Code.
The obligations imposed on in-house counsel by the New Code generally follow from those instituted by the Old Code. However, counsel should nonetheless take note of several minor, yet potentially important, modifications that have been made. In particular, counsel should be careful to consult the New Code (i) where counsel considers acting for a person affiliated with the organization; (ii) where counsel receives new and potentially material information concerning the organization or its business; or (iii) where counsel suspects that advice is being sought which could be used by the organization to commit a fraud or other crime.