INTRODUCTION
Whilst systems exist to enable fee-earners to highlight potential conflicts at an early stage, it is a far more complex matter to decide on the action to be taken once a problem is identified.
Not only may a firm’s conception of what amounts to a conflict be different from that of the Law society, commercial factors may also come into play.[356] Firm 30 provided an example of some of these complexities. First, conflicts can create tension between individual fee-earners within the firm:Certain partners will guard their clients zealously and if you identify a potential conflict in relation to one of those clients, problems can arise. If the firm can either act for the new client or for your colleague’s established client on a particular matter, even if the established client has only instructed the firm for a small proportion of their legal work over the last four years and the new client is bringing in a sizeable piece of work, your colleague may not be happy about upsetting his client. He will therefore oppose any decision that is made about the conflict. The result is that neither of the partners will want to give up their client, each arguing that the other should be ‘conflicted out’. A decision will have to be reached as to whether we can accommodate both partners’ wishes and, if not, which client should be turned away. Conflicts can therefore sometimes create bad feeling between the fee-earners and no-one is keen to upset colleagues or turn their own clients away.
secondly, deciding whether to proceed can involve a commercial calculation. The firm may need to weigh up the value of the business it will lose if it refuses to act against the chance that a complaint will be made in the future. At the same time it must take into account the views of the prospective client. Firm 30 was one which made this point:
Reaching a decision is more often than not the culmination of several different balancing acts.
On the one hand, you have to consider how much business you are going to lose if you turn down the work. On the other hand, you must calculate the likelihood of the other side challenging your right to act should they object to the potential conflict. The decision is even harder to reach when your client is adamant that they wish you to represent them.[357]It seems, therefore, that the decision to act involves much more than a consideration of the legal position. The interests of individual fee-earners may need to be taken into account, as well as the overall risk for the firm. All this is rendered more complex because the one term ‘conflict of interest’ may cover a range of circumstances. In the questionnaire issued to firms, the term ‘potential conflict’ was used. No definition of conflict was given and thus each firm provided answers based on their own understanding of the issues. As it turned out, conflicts identified by fee-earners in the search process can be divided into five categories.
1. Direct Conflict
A direct conflict of interest can arise either by clients directly opposing one another or because clients have directly competing interests. For example:
Partner A has always acted for both Tom and Jerry. A dispute arises between Tom and Jerry and both clients instruct the firm to handle the matter.[358]
Monarchs Forever Ltd wishes to sell a large section of its business. It decides to conduct the sale by holding a quasi-auction and invites offers from potential purchasers. The twenty bidders closest to the required price are asked to bid again. The process is then repeated until there are only two remaining bidders. The rival bidders instruct the same firm to prepare the bids.
Where there is a direct conflict between two or more clients, the firm may wish to consider whether there is any way in which it can accommodate the needs of both. If, however, it is considered inappropriate to act for both clients, perhaps because they are in direct conflict (as in the case of Tom and Jerry), a choice will have to be made as to which client will be turned away.
This decision may involve a calculation as to which client will bring in more work for the firm in the future. It may even be the case that the firm has to evaluate whether it is appropriate to act for either client, as it may be in possession of confidential information relating to both. On the other hand, if both Tom and Jerry are happy for the firm to act for both parties, the likelihood of the one or other of the them complaining at a later date may be considered minimal.Similar considerations apply where the rival bidders are involved. If one party wins the bid, the other may feel aggrieved and consider complaining because the firm acted in a direct conflict. Yet the ‘conflict’ in these circumstances may be assessed differently by the firm given that the clients are not suing one another. It may, therefore, be feasible to act for both sides should they each consent.
2. Potential Conflict
A potential conflict is the term generally used when the search process has produced a name or a fact which must be investigated further. For example:
A firm is instructed by a new client, Monica’s Models Ltd, to issue proceedings against Starr Incorporated. The conflict search has brought up Monica’s name in relation to a case being dealt with by a partner in a different department on behalf of Jones & Co.
The relevant considerations in this type of conflict are even more complicated. The fee-earner has no way of knowing whether there is a conflict without investigating the matter further. It may simply be that Monica’s name has come up in the search because the firm had considered using Monica’s managing director as a witness in the proceedings involving Jones & Co. Alternatively, the feeearner dealing with Jones & Co may have information about Starr Incorporated because Jones & Co are involved in litigation against Starr’s subsidiary company, Clinton Incorporated. The fee-earner carrying out the search would have a fair idea of the facts in relation to Monica’s Models Ltd, but in order to establish whether there was a conflict, the partner acting for Jones & Co would have to reveal certain information to him. At that point, should there be a conflict, information has moved within the firm.
Not only may it then be too late for measures to be taken to enable the firm to act for both clients, but the firm may also have to turn away both Monica’s Models Ltd and Jones & Co. jointly approach a single firm to handle the matter for them, the firm is placed in a potential conflict situation. For example, say a new motorway is to be constructed in Eastern Europe. A firm is instructed by the bank financing the project, the bondholders putting up the bonds to create the security documents and the main constructor. All wish to use the same firm to complete the necessary documentation.An assessment of all the relevant considerations is not easy in these circumstances. Deciding whether the firm should act for all the parties may involve judging the likelihood of their falling out.[359] This, in turn, may reflect the ease or difficulty of the project. However, even with the most straightforward project, problems can occur. The firm may risk this on the understanding that they will have to send one of the parties elsewhere if a major dispute arises.[360] Again, the decision may not be easy if the work would produce good income for the firm.
4. Confidential Information Conflict
If, somewhere in the firm, there is confidential information received from one client which may be relevant to another client, the firm may find itself in a conflict situation. Three examples may be given:
Last year a firm acted for BSE Ltd in a dispute with Herd & Co. The dispute was settled amicably and the firm has carried out no other work for them since. Now Heifer & Sons have instructed the firm to act against BSE.
A firm is acting for John Brown in a dispute with Wood Enterprises. Wood is represented by the firm of Wallis Williams and Partners. Two weeks’ before the case is due to be heard, Robert Gibbs, a former partner at Wallis Williams, starts work at the firm representing John Brown.
clients are looking to the lawyer either to act as the scrivener of an agreement the parties have reached themselves or to present the various options from which the parties can choose.’
5 J Flintoff, ‘What Conflict?’, Legal Business, March 1997, p 39: ‘Every so often, the suggestion comes from clients.
They actually ask law firms to take more than one role on a transaction, in a bid to keep down the overall cost of the deal. “One benefit of using a single firm is that you will get some economics” reports one banker. And a non-lawyer at a leading trustee company adds, “if there is only one firm, the co-ordination with the documentation all in one place—that expedites the transaction.”’ See also The Lawyer, Editorial, ‘Clifford Chance denies conflict of interest charge’, 18 March 1997, where Clifford Chance’s managing partner, Geoffrey Howe stated: ‘These are not private clients but sophisticated institutions. They realise that transactions can be done more cheaply with one firm.’6 See further, SP Shapiro, Conflicting Responsibilities: Manoeuvring Through the Minefield of Fiduciary Obligations, (American Bar Foundation, Chicago, 1995).
Partner X is acting for ABC Ltd in a contractual dispute with Read UK Ltd. Partner Y, in a different department, is advising the Bright Books Company in an entirely separate matter. During the course of the case, partner X receives information from ABC Ltd which would be of interest to Bright Books.
In the first of these examples, even if the firm thinks that it has no relevant confidential information, it will have to consider the chances of BSE Ltd complaining about its decision to act. This is a valid consideration because the firm does not want to involve Heifer & Sons in the additional expense and inconvenience which would be involved in fighting off an injunction. On the other hand, the firm may be in possession of relevant information gained from BSE but believe that as the information was given to partner X, whilst it is partner Y who will be dealing with Heifer & Sons’ case, it will be able to act.
A similar difficulty arises in the example involving John Brown. It is quite possible that Robert Gibbs was not involved in the Wood Enterprises case when he was employed by Wallis Williams and Partners.
However, should he have been involved, John Brown would not be pleased to have to instruct new solicitors so close to the trial. The firm might, therefore, risk continuing to act for him, at the same time taking measures to ensure that Robert Gibbs has no contact with the staff working on the case. There would always be the danger, however, of Wood Enterprises bringing an action to prevent Wallis Williams from acting.In the final example, Bright Books may complain if they discover that the firm obtained information which was relevant to them but was not passed on. On the other hand, ABC Ltd may fear that there is a risk of the information passing within the firm. Again, one or other client may have to be turned away. The question then would be, which one. Neither partner will want to lose his client. If Bright Books is more profitable and the firm decides to continue to act for them, there is a risk that ABC will contend that the firm should not act.
A firm is held on retainer by a large and well-known enterprise called Blair & Co. In the last four years, the firm has carried out 10% of Blair’s legal work. Smith Ltd., a competitor of Blair & Co, approaches the firm with a profitable piece of work. The firm knows that if they accept work from Smith Ltd, Blair will never instruct them again.
Again, a judgement as to whether in the long run it would be more profitable for the firm to stay with Blair & Co will have to be made. Pressure is likely to be brought to bear on the decision-maker from the fee-earners in charge of the Smith and Blair accounts.