Torys LLPDecember 18, 2002 BY E-MAIL: rule-comments@sec.gov Jonathan G. Katz
Dear Mr. Katz:
This comment letter addresses two elements of the proposed rule as they would apply to foreign attorneys: its definition of "appearing and practicing before the Commission" and its requirement of "noisy withdrawal." It is written from the perspective of a law firm whose attorneys practicing in Toronto, Ontario, Canada are subject to legal and ethical rules based on principles that are fundamentally incompatible with the noisy withdrawal requirement. This letter makes two main points. First, the definition of "appearing and practicing before the Commission" would result in an unwarranted extension to foreign attorneys of the Commission's regulatory authority. Second, it would be highly inappropriate to subject foreign attorneys to a requirement of noisy withdrawal. This letter begins with a brief description of our firm and its practice. It proceeds to address in turn the two elements of the proposed rule that are the main focus of our concern. Our Firm and its Practice Torys LLP is a cross-border, U.S.-Canada law firm with offices in New York and Toronto. Of the firm's approximately 319 lawyers, 235 practice in the Toronto office as Ontario solicitors and barristers. The Toronto office has an extensive Canadian securities practice. We act for both issuers and underwriters on a wide variety of equity and debt offerings. "Appearing and Practicing before the Commission" As Ontario lawyers, our primary concern with this definition is with paragraph (a)(4), which would bring within the proposed rule any attorneys
The other portions of paragraph (a) would at least require some direct nexus between the attorney's conduct and the Commission. But as the Commission's release recognizes, paragraph (a)(4) raises serious issues regarding foreign attorneys retained by foreign issuers. These issues arise principally from the "incorporated into" portion of the paragraph. For example, we commonly prepare documents for submission to Canadian securities regulatory authorities. We recognize that, on occasion, these documents might later be used by other attorneys in preparing documents for filing with the Commission. But in preparing and filing these documents, we are acting solely in our capacity as Ontario lawyers, bound to act in accordance with Canadian law and Canadian regulatory and ethical requirements. Any subsequent use of these documents is a matter for the attorneys responsible for filings with the Commission. To subject foreign attorneys engaged in preparing documents for use in their home jurisdiction to the proposed rule on the basis that these documents are later used in filings with the Commission would be an unwarranted extension of the Commission's authority and an unwarranted imposition of U.S. law and standards on the practice of law outside the U.S. Whether or not it is fair and appropriate to apply paragraph (a)(4) in its current form to U.S. attorneys, it is neither fair nor appropriate to apply it to foreign attorneys. If paragraph (a)(4) is to be retained, it should include an express exclusion for foreign attorneys. At a minimum, they should not be subject to the "incorporated into" portion of paragraph (a)(4). The Requirement of Noisy Withdrawal In its release, the Commission invites comment on whether there are statutes, rules and ethical standards in foreign jurisdictions governing the conduct of foreign attorneys that are different from, and potentially incompatible with, the requirements of Part 205. The Commission also asks whether there are provisions in Part 205 that could not be given effect, or would be nullified, under statutes, rules or ethical standards in foreign jurisdictions. The requirement of noisy withdrawal is fundamentally incompatible with the legal and ethical rules that govern our conduct as Ontario lawyers. The requirement would place us and our clients in an invidious and impossible position. If adopted at all, the requirement should not apply to Ontario or other foreign attorneys. To explain why this requirement should not apply, we will describe the relevant legal and ethical rules that govern our practice in Toronto and the principles and public interest considerations that underlie them. We will then return to the potential impact of the requirement. Governing Legal and Ethical Rules As Ontario solicitors and barristers, our lawyers practicing in Toronto are subject to the legal and ethical rules that govern the practice of law and the attorney-client (in Canada, the solicitor-client) relationship in Ontario. These rules accord the highest importance to solicitor-client privilege and confidentiality. Solicitor-Client Privilege The Supreme Court of Canada has described solicitor-client privilege as "a principle of fundamental justice and civil right of supreme importance in Canadian law." It has affirmed that "solicitor-client privilege must remain as close to absolute as possible if it is to retain relevance." It has "[labeled] as unreasonable any legislative provision that interferes with solicitor-client privilege more than is absolutely necessary." It has stated that "even where public safety is at stake, there must be a clear and imminent risk of serious bodily harm or death to an identifiable person or group before solicitor-client privilege can be compromised."1 Far from treating solicitor-client privilege as an impediment to law enforcement, Canadian law sees the privilege as promoting the interests of a fair, just and efficient law enforcement process.2 Canadian law recognizes that the client's access to the protection afforded by the law depends on having "the aid and guidance of those skilled in the law untrammeled by any apprehension that the full and frank disclosure by him of all his facts and thoughts to his legal adviser might somehow become available to third persons so as to be used against him."3 Canadian law understands that "[i]f the confidences clients share with counsel were not protected by privilege, it seems apparent that [they] would hesitate to confide in their legal advisors, who in turn could not adequately represent them."4 Confidentiality The ethical rules governing Ontario lawyers reinforce the requirement to maintain the confidentiality of client information. These rules are set out in the Rules of Professional Conduct adopted and administered by the Law Society of Upper Canada, exercising regulatory authority over the legal profession conferred by the Legislature of Ontario.5 Rule 2.03 of the Rules of Professional Conduct (copy attached) addresses the confidentiality of client information. Rule 2.03(1) requires, subject only to very limited exceptions for permitted or justified disclosure, that a lawyer
The Commentary to the rule sets out its rationale:
The limited circumstances in which disclosure is permitted or justified demonstrate the value ascribed to maintaining confidentiality. For example, by rule 2.03(3), a lawyer may disclose confidential information where he or she believes upon reasonable grounds that there is an imminent risk to an identifiable person or group of death or serious bodily harm, and it is necessary to make the disclosure in order to prevent the death or harm. Even then, the lawyer is required to obtain a judicial order authorizing disclosure where practicable, and may not disclose more information than is required. Whistle-Blowing The confidentiality rule contained in the Rules of Professional Conduct specifically addresses both the extent to which Ontario lawyers should engage in whistle-blowing where they become aware of possible misconduct, and the limits on whistle-blowing required by the ethical obligation to maintain confidentiality. It requires internal whistle-blowing, but prohibits breaching confidentiality to "blow the whistle." Under the commentary to rule 2.03(3), Ontario lawyers, whether employed in-house or acting as external counsel, are subject to an "up the ladder" reporting requirement where they become aware that the organization by which they are employed or retained may commit a dishonest, fraudulent, criminal or illegal act. They must recognize that their duties as lawyers are owed to the organization and not to any individual within it. They are obliged if necessary to bring the proposed misconduct to the attention of a higher and ultimately the highest authority in the organization despite any directions to the contrary. If these measures fail, then they may find it appropriate to resign. But the commentary to rule 2.03(3) makes it clear that noisy withdrawal is not ethically permitted. It states:
It goes on to specify the internal, "up the ladder" measures that are ethically appropriate. Impact of Imposing a Noisy Withdrawal Requirement on Ontario Lawyers Imposing a noisy withdrawal requirement on Ontario lawyers would require them to breach both the ethical and the legal obligations governing their practice in Ontario. It would require them to breach their ethical obligations because a noisy withdrawal amounts to "[disclosing] to the appropriate authorities an employer's or client's proposed misconduct", expressly contrary to the commentary to rule 2.03(3) of the Rules of Professional Conduct. It would require them to breach their legal obligations because a noisy withdrawal inevitably amounts to the communication of information obtained by the lawyer under the protection of solicitor-client privilege. The Commission suggests in the portion of its release dealing with section 205.3(d) that the requirement "does not require even an outside attorney retained by the issuer to disclose evidence of the reported material violation, only to make a `noisy withdrawal'." But this is a distinction without a difference. The very purpose of imposing a noisy withdrawal requirement is to require the attorney to make "noise." The "noise" is a communication concerning some possible material violation. The communication is based on information that the attorney acquired in a confidential relationship protected by privilege. The communication must, where section 205.3(d)(1)(i)(C) applies, include a disaffirmation of an "opinion, document, affirmation, representation, characterization or the like." Even where it does not, the communication will result in the implicit if not also the explicit disclosure of information that the attorney is required by privilege to keep confidential. It might be suggested that there would be no breach of the attorney's ethical and legal obligations because both are subject to an "except as required by law" proviso. This suggestion would be highly problematic. Particularly when the proposed rule would reach so far into the regulation of the professional conduct of foreign attorneys, this suggestion would raise serious issues about the extraterritorial application of the Commission's rules in effect to modify the substantive law of Canada and Ontario. Treating the Commission's proposed rule as "law" for purposes of the proviso would also place Ontario lawyers and their clients in an invidious position. To comply with the Commission's "law" Ontario lawyers would have to surrender the confidentiality that their clients have a right to expect, and to which their clients would otherwise be entitled, under Canadian and Ontario law. Once confidential information is disclosed for one purpose it is ordinarily disclosable for any other. Compliance with the Commission's noisy withdrawal requirement would therefore risk depriving clients of Ontario lawyers of any protection afforded by privilege and confidentiality relating to the subject matter of the "noisy withdrawal." Whatever the Commission may decide is appropriate for U.S. attorneys, it should not impose the noisy withdrawal requirement on foreign attorneys. ****** We trust that these comments will be of some assistance to the Commission. If you have any questions or would like to discuss further any aspect of this comment letter, please contact John B. Laskin at 1.800.505.TORY (8679), extension 4317 or jlaskin@torys.com.
JBL/dv Attachment Law Society of Upper Canada,
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Commentary |
A lawyer cannot render effective professional service to the client unless there is full and unreserved communication between them. At the same time, the client must feel completely secure and entitled to proceed on the basis that, without any express request or stipulation on the client's part, matters disclosed to or discussed with the lawyer will be held in strict confidence. This rule must be distinguished from the evidentiary rule of lawyer and client privilege concerning oral or documentary communications passing between the client and the lawyer. The ethical rule is wider and applies without regard to the nature or source of the information or the fact that others may share the knowledge. A lawyer owes the duty of confidentiality to every client without exception and whether or not the client is a continuing or casual client. The duty survives the professional relationship and continues indefinitely after the lawyer has ceased to act for the client, whether or not differences have arisen between them. Generally, the lawyer should not disclose having been consulted or retained by a particular person about a particular matter unless the nature of the matter requires such disclosure. A lawyer should take care to avoid disclosure to one client of confidential information concerning or received from another client and should decline employment that might require such disclosure. A lawyer should avoid indiscreet conversations, even with the lawyer's spouse or family, about a client's affairs and should shun any gossip about such things even though the client is not named or otherwise identified. Similarly, a lawyer should not repeat any gossip or information about the client's business or affairs that is overheard or recounted to the lawyer. Apart altogether from ethical considerations or questions of good taste, indiscreet shop-talk between lawyers, if overheard by third parties able to identify the matter being discussed, could result in prejudice to the client. Moreover, the respect of the listener for lawyers and the legal profession will probably be lessened. Although the rule may not apply to facts that are public knowledge, nevertheless, the lawyer should guard against participating in or commenting on speculation concerning the client's affairs or business. In some situations, the authority of the client to disclose may be implied. For example, some disclosure may be necessary in court proceedings, in a pleading or other court document. Also, it is implied that a lawyer may, unless the client directs otherwise, disclose the client's affairs to partners and associates in the law firm and, to the extent necessary, to non-legal staff, such as secretaries and filing clerks. But this implied authority to disclose places the lawyer under a duty to impress upon associates, employees, and students the importance of non-disclosure (both during their employment and afterwards) and requires the lawyer to take reasonable care to prevent their disclosing or using any information that the lawyer is bound to keep in confidence. A lawyer may have an obligation to disclose information under subrule 4.06(3)(Security of Court Facilities). If client information is involved in those situations, the lawyer should be guided by the provisions of Rule 2.03. The rule prohibits disclosure of confidential information because confidentiality and loyalty are fundamental to the relationship between a lawyer and client and legal advice cannot be given and justice cannot be done unless clients have a large measure of freedom to discuss their affairs with their lawyers. However, there are some very exceptional situations identified in the following subrules where disclosure without the client's permission might be warranted because the lawyer is satisfied that truly serious harm of the types identified is imminent and cannot otherwise be prevented. These situations will be extremely rare, and, even in these situations, the lawyer should not disclose more information than is required. |
Justified or Permitted Disclosure
2.03 (2) When required by law or by order of a tribunal of competent jurisdiction, a lawyer shall disclose confidential information, but the lawyer shall not disclose more information than is required.
2.03 (3) 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, the lawyer may disclose, pursuant to judicial order where practicable, confidential information where it is necessary to do so in order to prevent the death or harm, but shall not disclose more information than is required.
Commentary |
A lawyer employed or retained to act for an organization, including a corporation, confronts a difficult problem about confidentiality when he or she becomes aware that the organization may commit a dishonest, fraudulent, criminal, or illegal act. This problem is sometimes described as the problem of whether the lawyer should "blow the whistle" on his or her employer or client. Although the Rules of Professional Conduct make it clear that the lawyer shall not knowingly assist or encourage any dishonesty, fraud, crime, or illegal conduct (rule 2.02 (6)), it does not follow that the lawyer should disclose to the appropriate authorities an employer's or client's proposed misconduct. Rather, the general rule, as set out above, is that the lawyer shall hold the client's information in strict confidence, and this general rule is subject to only a few exceptions. Assuming the exceptions do not apply, there are, however, several steps that a lawyer should take when confronted with the difficult problem of proposed misconduct by an organization. The lawyer should recognize that his or her duties are owed to the organization and not to the officers, employees, or agents of the organization. The lawyer should therefore ask that the matter be reconsidered, and the lawyer should, if necessary, bring the proposed misconduct to the attention of a higher (and ultimately the highest) authority in the organization despite any directions from anyone in the organization to the contrary. If these measures fail, then it may be appropriate for the lawyer to resign in accordance with the rules for withdrawal from representation (rule 2.09). |
2.03 (4) Where it is alleged that a lawyer or the lawyer's associates or employees are:
(a) guilty of a criminal offence involving a client's affairs;
(b) civilly liable with respect to a matter involving a client's affairs; or
(c) guilty of malpractice or misconduct,
a lawyer may disclose confidential information in order to defend against the allegations, but the lawyer shall not disclose more information than is required.
2.03 (5) A lawyer may disclose confidential information in order to establish or collect the lawyer's fees, but the lawyer shall not disclose more information than is required.
Literary Works
2.03 (6) If a lawyer engages in literary works, such as a memoir or an autobiography, the lawyer shall not disclose confidential information without the client's or former client's consent.
Commentary |
The fiduciary relationship between lawyer and client forbids the lawyer from using any confidential information covered by the ethical rule for the benefit of the lawyer or a third person or to the disadvantage of the client. |
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| 1 | Lavallee, Rackel & Heintz v. Canada (Attorney General), 2002 SCC 61, 216 D.L.R. (4th) 257 ¶36 |
| 2 | Ibid |
| 3 | Smith v. Jones, [1999] 1 S.C.R. 455 ¶5 |
| 4 | Id ¶6 |
| 5 | Law Society Act, R.S.O. 1990, c. L.8 |