Potential Conflict of Interest Situations and the Codes

A. Litigation

The Criminal Defence Service Regulations encourage one solicitor to represent two or more co-defendants as it is more economical. Pressure is often put on solicitors by the court to act for more than one defendant in the same case.

Even in situations where there is no breach of confidence, it would be inconsistent for solicitors to act for co-defendants when one pleads guilty and the other not guilty to an offence based on the same facts. It would imply acceptance in one case that evidence was probative whereas in the other case the evidence was contested. Even when co-defendants clients plead guilty, conflicts of interest can arise when pleas in mitigation are considered and one defendant claims a lesser part in the offence. The 2007 Code took a stronger line than the common law, the guidance stating that solicitors should cease to act for one ‘and possibly all’ clients.^[1757] The Criminal Law Solicitors’ Association resisted changes to the rule, pointing out the human rights implications for the defendant.^[1758]

The SRA Handbook is not particularly helpful on the issue of litigation conflicts of interest. There is one, relevant, indicative behaviour that suggests the outcomes will be met by ‘declining to act for clients whose interests are in direct conflict, for example claimant and defendant in litigation’.^[1759] Outcome 3.3 is, however, generally relevant to more nuanced situations, such as joint criminal defence.

The situation is less clear in a Rakusen situation, where a client consults, but does not instruct, a firm, which is then instructed by the other side in litigation. The outcomes on conflict are addressed to the individual solicitor (by use of the term ‘you’), so it is possible that firms may not be prohibited from acting. As in Rakusen, the issue could be treated as one of confidentiality only, in which case an information screen, between the lawyer previously consulted and the lawyer handling the matter, may be sufficient.

A contrary argument would have to be based on the indicative behaviour suggesting that solicitors should decline to act for those ‘whose interests are in direct conflict, for example claimant and defendant in litigation’.^[1761] This clearly envisages a prohibition on one solicitor representing two clients involved in opposite sides of the same suit simultaneously. It would arguably not prevent what happened in Rakusen, because the solicitors were different solicitors in the same firm.

B. Acting for Organisations

In acting for a company, partnership or other organisation, a solicitor must be clear who gives the instructions. There is a danger that the solicitor might become involved in conflicts within the organisation, for example, between shareholders and the board of directors or between partners. There was no guidance in the 2007 Code, but a start­ing point for solicitors is to make sure that the board of directors has approved the instructions or authorised the instructor.

Where a solicitor has acted for the company, and for directors of the company as individuals, it is unlikely that he will be able to act for either party in a subsequent dis­pute between directors and shareholders.

C. Conveyancing

The conflict of interest arising from acting for more than one party in the same or related conveyancing matters might be thought to be an obvious example of a con­flict of interest. Ambivalence and anxiety over the issues are longstanding.^[1763] There are considerable pressures from within and beyond the profession to continue with conflict of interest rules that allow joint representation for conveyancing. There is also external pressure to relax the conflict of interest rules in this area.

Abolishing joint representation in conveyancing would lose solicitors business and fees and make conveyancing more expensive for clients. Thus, when the SRA con­sulted on the SRA Handbook 2011, the Legal Services Board Consumer Panel argued that conflict rules should be minimal, allowing conveyancers more freedom to act for both buyer and seller.^[1764] In the event, the SRA’s new Handbook followed this path. It allowed firms to act where there is a non-substantive client conflict of interests, and subject to certain conditions, such as obtaining each client’s informed consent. No specific outcomes refer to conveyancing situations, although several indicative behaviours do.

While the SRA abandoned the focus on conveyancing in the Code of Conduct, it treated conveyancing as a distinct arm of the enforcement strategy published in April

2011. ^[1765] This noted that about 50 per cent of the value of professional indemnity claims arising against firms arose from conveyancing. There was a substantial increase in Fund payments, from £9.23 million in 2008 to £21.2 million for 2010. This was linked to the economic cycle and, through it, a downturn in the conveyancing market.

While the SRA Handbook 2011 trod lightly around conveyancing, the SRA promised that its enforcement strategy would be particularly vigilant in considering conveyancing practices.

i. Acting for Buyer and Seller

Detailed rules on acting for buyer and seller dominated the Solicitors’ Practice Rules

1990. ^[1766] The length and complexity of the rules resulted from the fact that, in reality, these situations were riven with conflict, scope for unprofessional conduct and the risk of negligence claims. The Solicitors’ Practice Rules on acting for both parties in conveyancing contexts were largely transferred into the 2007 Code.^[1767] The position was different depending on whether or not the transaction was one at ‘arm’s length’. In transactions not ‘at arm’s length’ solicitors could act for both buyer and seller, provided there was no actual conflict or significant risk of it.^[1768] In transactions at arm’s length more stringent requirements had to be met.

A transaction was at arm’s length if it was between related persons, settlor and trustee, trustee and beneficiary, personal representatives and beneficiaries, sole traders and their companies and associated companies.^[1769] In transactions at arm’s length, the solicitor could potentially act for both the buyer and the seller if one of three prelimi­nary conditions were met. The preliminary condition was either that both parties were established clients, or that the consideration was less than £10,000, or that the parties were represented by different individuals at separate offices or practices.^[1770]

If one of the three preliminary conditions for acting for buyer and seller were met, additional requirements applied. The parties had to consent, in writing, to the joint representation and the solicitor could not be involved in negotiating the sale of the property, nor in representing the developer of the property.^[1771] Where the grounds for acting were that the solicitor had separate offices in different localities, different individuals, qualified to do conveyancing and normally working at each office, had to conduct or supervise the transaction.

The chapter of the SRA Handbook concerned with conflicts of interest contains several indicative behaviours relating to conveyancing. Two indicative behaviours ‘may tend to show that you have not achieved [the] outcomes.’ The first is ‘acting for a buyer (including a lessee) and seller (including a lessor) in a transaction relating to the transfer of land for value, the grant or assignment of a lease or some other interest in land for value’.^{[1772] [1773] The second is acting for two buyers where there is a conflict of interests under Outcome 3.7 (competing for the same objective), for example where two buyers are competing for a residential property.[1774]}

The chapter on Conflicts of Interest also contains two relevant indicative behaviours suggesting that a firm is meeting the outcomes. The first of these is ‘declining to act for clients where you may need to negotiate on matters of substance on their behalf, for example negotiating on price between a buyer and seller of a property’.^[1775] The second is ‘declining to act where there is unequal bargaining power between the clients, for exam­ple acting for a seller and buyer where a builder is selling to a non-commercial client.^[1776]

The SRA enforcement strategy set out some risk situations where further work was promised. These were:

---- acting for a buyer and seller where there is a conflict or a significant risk of a conflict of interests. For example, acting for an elderly, vulnerable client selling their property to their child for whom you also act;

---- acting for a borrower and lender where the borrower client has provided inaccurate information to the lender to obtain a mortgage and the firm are aware of this; and

---- acting for a buyer and lender if the lender has a significant interest in the ABS conveyancing practice.

The SRA outcomes indicate problematic areas without stating how the problems can be met; it is for the solicitor to decide how to meet the outcomes. Since the outcomes for conflicts of interest are consistent with the old rules on conveyancing buyer and lender conflicts, it is very likely that solicitors will follow existing practice. It is not clear whether they can do so with confidence.

ii. Acting for Lender and Borrower

The property buyer, usually also a mortgagee, has a strong interest in minimising costs and progressing the transaction efficiently. It therefore makes sense that, in most situations, one solicitor can protect the buyer’s interests in taking out the mortgage and the mortgagor’s interests in securing the loan. There have, however, been histori­cally high levels of default and mortgage fraud in cases where the solicitor acted for both lender and borrower.^[1777] This was remedied by the Law Society by permitting standard terms of instructions from lenders which restricted the work solicitors were supposed to do.

a. SRA Code of Conduct 2007

Under the Solicitors’ Code of Conduct 2007, solicitors could only act for both a pur­chaser and a ‘standard’ mortgage lender.^[1778] A standard mortgage was one provided in the normal course of the lender’s activities, where a significant part of the lender’s activities consists of lending and where the mortgage was on standard terms.^[1779] All other mortgages were individual mortgages and each party had to have their own solicitor. This effectively restricted the possibility of solicitors acting for lender and borrower to situations where the lender was a building society or bank offering a mortgage on its standard terms. Solicitors were only allowed to accept instructions to act for a lender and borrower where no conflict of interest was involved.^[1780]

Rule 3.19 contained an extensive list of matters on which solicitors could accept instructions from the lender. The list of standard instructions contained in Rule 3.19 did not include the buyer’s creditworthiness, thus clarifying expectations created by National Home Loans Corporation v Giffen Couch & Archer. They did not cover notify­ing the lender of the true value of the property. These were the matters which caused so many problems before the Rules were changed. They could, however, include a bankruptcy search.

The solicitor is, however, bound by confidentiality and so the information can be given to the lender only if the borrower consents. Legal professional privilege does not protect purchasers where their solicitors’ advice was used to ‘further iniquity’ by procuring a loan by deception.^[1781] If the buyer-client refuses to allow the solicitor to reveal confidential information, which the lender has a right to receive, then the solicitor must presumably decline to act for either on grounds of professional embar­rassment. This is not a very satisfactory situation for either client.

b. SRA Handbook 2011

Under the SRA Handbook, an indicative behaviour that shows a solicitor has complied with the outcomes reflects the position, reached by the previous rules, on acting for purchasers, as borrowers, and for mortgage lenders.^[1782] The instructions must relate to a mortgage of land where the mortgage is a standard mortgage of property to be used as the borrower’s private residence. The mortgage must be one provided in the normal course of the lender’s activities, where a significant part of the lender’s activities consists of lending and the mortgage is on standard terms. The cer­tificate of title required by the lender must be in the form approved by the Law Society and the Council of Mortgage Lenders. Finally, the solicitors must be satisfied that it is reasonable and in the clients’ best interests for them to act. Seven other indicative behaviours relate to acting for more than one party in conveyancing transactions.

iii. Linked Businesses

Conveyancing is an area of legal work where there is plenty of scope for linked busi­nesses and introduction mechanisms, all of which create potential conflicts of interest. There is no blanket ban on such activities, but clients do need to give informed con­sent to potential conflicts of interest. Under general principles, for example, solicitors must be transparent about any payments made for referrals of conveyancing business from estate agents.

Solicitors are able to hold an interest in an estate agency and conduct business as estate agents subject to SRA rules.^[1783] Clients must be informed of any interests held when matters are transferred between parts of the business. In these circumstances, clients may not see anything unusual in the situation and may not pay much attention to the terms they are agreeing to. It is therefore incumbent on solicitors to recognise, and guard against, the inherent conflict of interest.

D. Family Situations

i. Acting for Spouses

It was not always considered obvious, where both spouses have been clients, that a solicitor should not normally agree to act for one spouse against the other in matri­monial proceedings. This situation is quite likely to arise. Solicitors are may have acted for both spouses in the context of house purchase or making a will. The 1999 Guide advised that it would be ‘prudent’ to check, if it was proposed to continue acting for one party, whether the other party objected. As this would usually mean that the other party would have to find another solicitor, it is likely that they would. If the solicitor held confidential information, unknown to the spouse he was to represent, objection was a certainty. In such circumstances, it might be thought obvious that the solicitor should not act for either spouse.

It is not always the case that spouses want separate representation. Even in con­tested matrimonial matters the parties may sometimes seek a non-contentious divorce settlement. Under the Solicitors’ Code of Conduct 2007 this was allowed if certain conditions were complied with.^[1784] There had to be a substantial common interest and fully informed written consent. Nevertheless, it is difficult to continue to act if, once the work is begun, conflicts do arise between the parties. Additionally, settlements may be vulnerable to allegations of bias or of undue influence.

Solicitors attempting to represent both parties in matrimonial proceedings may have to prove a lack of significant conflict, leading to considerable difficulties. The savings in costs arising from such joint representation could prove illusory.

ii. Acting for Children

a. Civil Proceedings

In representing children in civil proceedings, the solicitor must be clear who gives instructions. In ordinary civil litigation, such as personal injuries, a minor cannot initiate litigation except by a litigation friend.^[1785] A parent has the right to act as such a friend. It is for the litigation friend to instruct the solicitor in the best interests of the child and he or she must not have any interest adverse to that of the child.

Any settlement or compromise of a case involving a child requires the consent of the court. The solicitor acts for the litigation friend, but must be conscious of any conflict of interest between the child and the friend. The solution, if such a conflict does arise, is for the litigation friend to be removed by the court on the application of the solicitor or other interested person.^[1786]

b. Criminal Proceedings

In criminal proceedings, which can only involve children over 10 years old, it has never been suggested that the child client needs a litigation friend. It is up to the solicitor to ensure that the child understands the legal advice and then to take instructions. When a child is interviewed at a police station an ‘appropriate adult’ (AA) should be present to ensure that the child understands the process and generally to protect the child’s interests. The AA can be a relative or, often, a member of the local Youth Offending team or a social worker.

The AA does not represent the child and does not have the right to give instruc­tions or override the advice of the solicitor. If any conflict of interest arises, or there are differences of view as to what should be done in the case between the AA and the child, the solicitor must follow the instructions of the child. It may also be necessary to have the AA replaced. It is important that the AA should not be present at the child client’s interviews with the solicitor. The AA has no duty of confidentiality and does not have the protection of professional privilege.

A solicitor representing a child who cannot give proper instructions, and who cannot get instructions from another source, must act in the best interests of the child. A solicitor in this position should avoid presenting the court with his or her own personal views on the best way to bring up children. In the absence of instructions from a litigation friend or a competent child, it is probably best that the solicitor relies on the court rather than his own opinions. Solicitors are not expert in the field of family welfare and their opinions may even be inappropriate or potentially harmful to the particular child or family.

c. Family Proceedings

In family proceedings there is provision for a child to initiate or defend litigation without a litigation friend.^[1787] The solicitor must ascertain if the child has both a suf­ficient understanding of the issues, so that they can give true consent, and the ability to give instructions.^[1788] If this is the case, the solicitor can act directly for the child. If expert evidence of what is in the best interests of the child is required, a social worker from the Children and Family Court Advisory and Support Service (CAFCASS), a government agency charged with improving the welfare of children involved in family proceedings, can be instructed.

In Re T, it was held that a solicitor forming the view that the child is capable of instructing him, must accept those instructions.^[1789] The court stressed that while it is basically for the solicitor to determine whether a child is capable of giving instruc­tions, nevertheless the court has the ultimate right to decide the issue, either on its own motion or on the application of another, because ‘there are bound to be some cases... where a maverick assessment might be made by a solicitor’.^[1790]

The court can also appoint a CAFCASS officer as guardian ad litem of the child. Where it appears that it is in the interests of any child to be made a party to the pro­ceedings, such an appointee will have authority to take part in the proceedings on the child’s behalf.^{[1791] [1792]A guardian ad litem or next friend can be removed by the court if it considers that the minor concerned has sufficient understanding to participate as a party in the proceedings. Children can also seek separate legal representation.}

In Mabon r Mabon,¹¹¹ parents of six children separated, the three youngest leaving with the mother and the three elder, teenage boys staying with the father. A CAFCAS officer was appointed guardian ad litem and representative of all six children in the proceedings. The three eldest children consulted a solicitor and sought to be repre­sented separately. At first instance the request was refused by the judge on multiple grounds, but mainly because he thought the older children were influenced by the father. He unfortunately summed up his position with the observation that separate representation would only provide ‘perhaps the more articulate and elegant expres­sion of what I already know’.^[1793]

The Court of Appeal noted that the European Convention on Human Rights, Article 8 provided that the child’s right to private life demanded a respect for his personal autonomy. The child’s right to family life included a procedural right of participation in the court’s decision-making process. Lord Justice Wall stressed

the need for the boys on the facts of this particular case to emerge from the proceedings (whatever the result) with the knowledge that their position had been independently repre­sented and their perspective fully advanced to the judge.^[1794]

These cases reflect the difficulty of managing family cases sensibly, respecting the rights of children to their own voice and deciding whether it really is their own voice. The recognition that children have a right to have their views separately heard, what­ever the source of those views, reflects a wider, but incomplete, shift within the legal system towards respecting the individual autonomy of children.^[1795]

E. Class Actions

Class actions are often characterised by a ‘relative absence of client control’,^[1796] which can leave the lawyers free to follow their own inclinations rather than the instructions of the client. This could lead to conflicts of interest between clients that are uniden­tified or concealed. This situation might be mitigated, if not totally avoided, by the involvement of professional bodies in proceedings. The Law Society co-ordination of multi-party action in the Opren case is a good example.

Solicitors involved in multi-party actions are asked to consult the Law Society’s Multi-Party Information Scheme and a lead solicitor is appointed. Any judgments or orders are binding in relation to all the claims on the register at the time, unless the court orders otherwise. Lord Woolf thought that an application should be made to the court at the outset. This would allow a multi-party action to be certificated and for a managing judge to be appointed to control the proceedings. In multi-party actions the role of the informed client can be taken by an action group or, where there is no such group, by the appointment of a trustee to undertake this role. All settlements have to be approved by the court so as to ensure, in Lord Woolf’s words, that ‘the lawyers do not benefit themselves while obtaining minimal benefits for their clients’.

Lord Woolf recommended that the Bar and the Law Society ‘give special attention to the ethical problems involved in multi-party litigation’^[1797] but, so far, this has not happened. Ethical guidance on the issue would meet a number of requirements. First, all parties would need to be fully informed, in writing, of the nature of the group action and the operating constraints. Secondly, because the relationship between lawyer and client in multi-party actions is unusual, the client would need to be fully apprised, from the outset, regarding what could be expected from the lawyer. Thirdly, ethical guidance would provide for regular progress reports, either in person or in writing, containing, when appropriate, information about the terms of proposed settlements and how individuals in the class would be affected.

F. Past and Present Clients

The previous chapter, on Confidentiality, dealt with situations in which solicitors act for clients when they hold confidential information for a past client that is relevant to the present matter. This situation is now treated as an issue of confidentiality whereas, previously, it was treated as a conflict of interest issue. Acting against a former client on behalf of a new client is arguably a conflict of interest because it is a betrayal of the loyalty promised by the lawyer and client relationship.

Such situations are allowable under the current rules, where there is no conflict of interest going beyond a manageable issue of confidentiality. One of the difficulties for solicitors involves assessing whether there is any prejudice to the past client if they act. A number of different variables affect any decision about the ethicality of acting. These include the length of time between the matters, the degree of relation between them, the amount of information held on the previous client, the nature of that infor­mation, whether it widely known in the firm and so on.

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