Regulation of Legal Negotiation and Settlement

A. Education and Training

The course requirements for the Bar Professional Training Course provide some indi­cation of preferred models of negotiation. Barristers must be able to select strategies and methods for conducting a negotiation that will further the client’s best interests.

B. Negotiation in Codes of Ethics

Negotiation is rarely mentioned in lawyers’ ethical codes or other guidance. Growing awareness of the gap between theory and practice has led to periodic calls for more effective regulation of negotiation in the US.⁹² The gap may exist, however, because the architects of codes assume that negotiation, with its implications of bluff and deception, is an area that it is best left unregulated, opaque and ambiguous.

The absence of specific duties in relation to negotiation means that it falls to the general provisions of codes to provide the ethical framework of bargaining. This provides plenty of scope for speculation. The duty to pursue the client’s best interests vies with other responsibilities. These include duties to others with whom lawyers negotiate, lawyers and non-lawyers, and protecting the reputation of the profession.

⁹⁰ R Bryan and L Waine, ‘A Rough Guide to Avoiding an Attorney-General’s Reference’ News@One 2011 (www.onepaper.co.uk/attorney_general_references_5.pdf).

⁹¹ BSB, Bar Professional Training Course: Course Specification Requirements and Guidance (2012) at para 2.2.1(c).

⁹² RR Perschbacher, ‘Regulating Lawyers’ Negotiations’ (1985) 27 Arizona Law Review 75-138; AR Rubin, ‘A Causerie of Lawyer’s Ethics in Negotiation’ (1975) 35 Louisiana Law Review 577; WW Steele Jr, ‘Deceptive Negotiating and High-Toned Morality’ (1986) 39 Vanderbilt Law Review 1387.

Professional codes tend not to address the issue of whether lawyers should lie for their clients in negotiations.^[2984]

C. The Duty to Clients

The duty a lawyer owes to client in negotiation is unclear. It is arguable that solicitors have a duty to understand the potential of principled negotiation and to advise clients accordingly. Unless they do so, and used a principled approach as required, they may be failing to promote their client’s best interests by ignoring and failing to exploit the potential of the situation. If, however, the client is not interested in this potential, but wants the lawyer to engage in hard bargaining, how far must the clients’ wishes be respected?

If, despite a lengthy discussion of the benefits of co-operation and the advan­tages of harmonious family relationships, a client demands the most money achievable, must the ethical family lawyer comply? The codes are ambiguous on this issue. The formula used, acting in the client’s best interests, is not the same as respecting client preferences. It could be read so as to allow lawyers to impose their own perceptions of what is in the client’s interests. It could also be read as an obligation to discover clients’ underlying interests before deciding how best they can be served.

The US literature on the ethics of bargaining tends to view bargaining as a parti­san activity which must be carried out under the umbrella of ‘zealous advocacy’.^[2985] Interpretation of the obligation of zeal has provoked a spectrum of positions. At one end of the spectrum, there are those who justify lying in negotiation.

Lawyers in England and Wales are not subject to an obligation of zeal. The first edition of this book argued that the English profession’s emphasis on best interests suggests a less stringent duty than ‘zealous advocacy’. If this is correct, much of the US discussion becomes irrelevant. Whether or not lawyers have an obligation to pur­sue their clients’ lawful preferences, or their best interests, their latitude as to methods is constrained by whatever duty is owed to the other side.

D. Treating the other Side Fairly

An obligation to treat the other side fairly may limit what can be achieved for clients in negotiation. Such an obligation may mean, for example, that underhand tactics cannot be used. One feature that is common in competitive positional bargaining is misleading the other side as to the ‘bottom line’, the maximum or minimum that will be paid or accepted in settlement. This could be regarded as deception and an underhand tactic.

More realistically, some authors justify misleading on the bottom line as ‘stylistic competitiveness’, ethically dubious but consistent with treating the other side fairly. This is because they are not actually misled; participants in competitive bargaining expect bluffing behaviour.^[2989] This still leaves the issue of whether such behaviour is consistent with lawyers’ conduct rules and, particularly, the virtuous aspirations they often express.

E. Solicitors’ Obligations to Third Parties in Negotiations

i. The Position in Later Editions of the Guide

a. Duties to the World at Large

Later editions of the Guide contained two rules directly relevant to the issue of bluff­ing in negotiation. The first, a duty to the world at large, was expressed as follows:

Solicitors must not act, whether in their professional capacity or otherwise, towards anyone in a way which is fraudulent, deceitful or otherwise contrary to their position as solicitors. Nor must solicitors use their positions as solicitors to take unfair advantage for themselves or another person.^[2990]

The caution against fraud or deceit should not have been troubling since, as the Guide observed, any such conduct would ‘render the offending solicitor liable to disciplinary action in addition to the possibility of civil or criminal proceedings’.^[2991]

It could be argued that the duty not to be fraudulent and deceitful could cover positional bargaining where a lawyer positively misled an opponent about their bottom line. It might also be thought that a duty not to take unfair advantage of others might apply if an opponent in negotiation, particularly a lay person, did not understand the ‘rules of the game’ of concession trading. Rude and bully­ing behaviour, a tactic used by some negotiators, would appear to taking unfair advantage. The other principle concerning obligations to third parties only applied to other solicitors. This was apparently much more likely to apply to deception in negotiation.

b. Duties to other Solicitors

Rule 19.01 of the Guide obliged solicitors to ‘act towards other solicitors with frank­ness and good faith consistent with the overriding duty to the client’.^[2992] Frankness’ is an interesting choice of word, because it means something more than honesty. To be frank implies openness, straightforwardness and sincerity, sometimes to the point of bluntness. Therefore, while someone can be honest by being truthful in response to questions, frankness, suggests a more positive transparency.

It was unclear whether Rule 19.01 was drafted with negotiation in mind. The fact that it related to dealing with other solicitors, and negotiation is one of the most com­mon activities that solicitors share, suggests it must have been. While an unqualified obligation of frankness and good faith imposed a potentially onerous burden for a lawyer to carry in positional negotiations, it could be consistent with a principled approach. The fact that the duty was subject to the duty to the client’s ‘overriding inter­est’ also suggested that an adversarial context was considered relevant. This could be read as abrogating the need for frankness or good faith where client interests required it. Rule 19.01 was therefore contradictory and problematic in the negotiation context.

Judicial consideration of the duties of frankness and good faith in negotiation occurred in Thames Trains Ltd v Adams.^[2994] Mr Adams, a US citizen, suffered serious injuries in a train crash for which Thames Trains was liable. Its solicitors paid US $9.3 million into court. Adams’ solicitor, C, then rang Thames Trains’ solicitors to explore the possibility that their client would pay US $10 million, including the sum in court, to settle the case. C was told that no further monies were available. She then instructed another solicitor in her firm to send a fax to Thames Trains’ solicitors accepting the US $9.3 million in court.

Thames Trains’ solicitors did not see the fax from Adams’ solicitors because of an internal computer problem. In the meantime, they had contacted Thames Trains, and had received instructions to offer a further US $500,000. This was communicated to C by telephone, who accepted. On discovering the earlier fax, Thames Trains sought to set aside a consent order recording the terms of settlement.

From the evidence presented it appeared that neither side had been frank or acted in good faith. C may have had instructions to accept the sum in court were the attempt to obtain an increase to fail, or at least knew she could get authority to accept. When it was put to her in cross-examination that her client had no plans to travel to England for a trial she answered ‘I remain silent’.^[2995] Similarly, on the agreed facts, her opponent had sought instructions for an increased payment having stated that no more was available. Did a duty of frankness and good faith require C to declare the true position? Counsel for C conceded that she would have been under a duty to answer a direct question accepting the payment in. It was also argued that, even had she not been frank, the issue was one of professional misconduct rather than a reason to overturn the consent order.

Counsel for Thames Trains argued that the duty to act in the best interests of the client was counterbalanced by the solicitor’s independence and integrity, his good repute and the profession’s good repute and the solicitor’s duty to the Court. He declared that Rule 10.01 was a solicitors’ practice rule, which the judge accepted, although it appears not to have been the case. He noted that the guidance notes to Chapter 1 of the Guide stated that, where principles came into conflict, the public interest in the administration of justice must take precedence.^[2996]

Counsel continued by arguing that any opportunistic conduct amounting to sharp practice is not in the interests of the administration of justice and that the law should support commercial and professional probity. He proposed that solicitors should be able to rely upon their fellow members to act fairly and in a frank and straightforward manner, and that the best interests of litigants are best promoted by a transparent and fair negotiation process. Thus, he concluded, the statutory duty of a solicitor to his lay client is not absolute, but qualified by considerations of public policy.^[2997]

Nelson J held that, in contract law, the fax was an offer to settle that could be with­drawn at any time. C had implicitly withdrawn the earlier acceptance when accepting the higher sum. The agreement to pay the higher sum was therefore enforceable unless C’s conduct was unconscionable and sufficient to upset the agreement. Therefore, it fell to consider the issue of estoppel against Adams as a result of C’s conduct. An estoppel by silence or acquiescence arises where ‘a reasonable man would expect’ the person against whom the estoppel is raised, ‘acting honestly and responsibly’, to bring the true facts to the attention of the other party known by him to be under a mistake as to their respective rights and obligations.

The judge thought that C was bound by her duty to her client. It was significant that it was only after agreeing to accept the additional sum that she checked and discovered that the fax had been sent. He thought that, at that point, she would have breached her duty of confidentiality to her client had she revealed, during the conver­sation about an increased offer, her willingness to accept the sum in court. Nelson J therefore concluded that C’s conduct

was not deceitful nor sharp practice, nor did she take advantage of R’s ignorance of the earlier offer, given that it had only been made as a result of him giving the inaccurate information that no further money was available, and that he had failed to receive the fax due to system failures within his own office.^[2998]

The judge felt that his decision to uphold the settlement at the higher figure was ‘counter-intuitive’. He recognised that the courts should promote the duty of frank­ness between solicitors and litigants. In all the circumstances, however, he concluded that C’s duty to the administration of justice, or as an officer of the court, did not require her to correct her opponent’s misapprehension. He did say, however, that, had he found that there was a duty on C to disclose the fact that the sum in court had been accepted, she would have been estopped from asserting the higher settlement.

While C’s conduct did not invalidate the settlement, Nelson J suggested what a solicitor should do in the circumstances of the case. As soon as she realised that she was to be offered more money, C should have said that she had sent a fax accepting the sum in court, but that now, having realised that more money was available, that offer was withdrawn. Of course, there may then have been an argument about whether the increased offer remained on the table and capable of acceptance. This approach would, the judge argued, have been more consistent with the duty of frankness and good faith.

Thames Trains Ltd v Adams, which was subsequently followed,^[2999] showed the limits of frankness and good faith in negotiation. The judge concluded that there was no unconscionable conduct. It appears that, on this view, disciplinary proceedings could not have been brought on these facts. It is interesting to speculate whether, had C accepted Thames Trains’ higher offer in the certain knowledge that the acceptance fax had been sent, the outcome would have been different. The judge attached importance to the fact that she did not know for sure that it had been sent. If she had known, and the same decision was reached, it is difficult to see how the third party duties in Rule 10.01 could ever supersede the duty to negotiate the best deal for the client.

c. Summary

Solicitors’ duties to the other side in negotiation were, in later editions of the Guide, confused. Positive duties of frankness and good faith were owed to other solicitors whereas negative duties, not to be fraudulent or deceitful, were owed to anyone. The duty of frankness and good faith is arguably a more exacting standard. The lesser standard, not to be deceitful or take unfair advantage, apparently covered solicitors dealing with lawyers who were not solicitors or non-lawyers.

In any kind of positional bargaining, solicitors were disadvantaged. Strictly, the obligations to be frank and to act in good faith severely constrained, or even ruled out, effective positional bargaining against other solicitors. The obligations not to be deceitful or take unfair advantage arguably ruled it out against ‘anyone’, certainly if they did not understand the process. This appeared to be an incoherent position to adopt in relation to negotiation.^[3000]

ii. The Solicitors’ Code of Conduct 2007

The Solicitors’ Code of Conduct 2007 made a step forward in recognising an obligation to support client autonomy. It provided that solicitors must:

(a) identify clearly the client’s objectives in relation to the work to be done for the client;

(b) give the client a clear explanation of the issues involved and the options available to them;

(c) agree with the client the next steps to be taken; and

(d) keep the client informed of progress, unless otherwise agreed.^[3001]

This would certainly seem to envisage a relationship that could support meaningful principled negotiation.

The Code contained only one explicit reference to negotiation. This was a rule requiring that the other side have sufficient time and information to agree costs.^[3002] The new Code did not incorporate the troublesome principles from the Guide into the new rules, at least not in the previous form. The duty of frankness and good faith to solicitors disappeared. The replacement, Rule 10.01, made no distinction between deal­ings with solicitors or others. It stated ‘you must not use your position to take unfair advantage of anyone either for your own benefit or for another person’s benefit’.^[3003]

The formula adopted by Rule 10.01 of the new Code abandoned the different stan­dards for dealing with solicitors and with anyone else. It also abandoned the ‘overrid­ing interest of clients’ qualification when solicitors dealt with other solicitors. There was now a common standard for dealing with third parties. This does not mean, how­ever, that none of the behaviour previously identified in the rules was relevant. It was presumably covered by the notion of not taking unfair advantage. The core duty not to damage the reputation and integrity of the profession was also still relevant. Therefore, it was at least arguable that lawyers who are not frank, do not act in good faith, or who are fraudulent and deceitful, bring the profession into disrepute.^[3004]

Guidance to Rule 10 suggested that ‘it would be unfair to demand anything that is not recoverable through the proper legal process’.^[3005] It is doubtful that this applies to extra-legal solutions, a key element of integrative bargaining. First, the guidance is prob­ably limited to letters before action. Secondly, it is doubtful that proposing an extra-legal solution would constitute a ‘demand’.

iii. The SRA Code of Conduct

The current Code of Conduct, which reformulates many of the rules from the earlier publications as outcomes and behaviours, does not advance understanding of, or clarity regarding, solicitors’ obligations in negotiation. The key outcome in Chapter 11, that ‘you do not take unfair advantage of third parties in either your profes­sional or personal capacity’^[3006] is even more opaque than previous guidance. This is balanced by the duty to promote each client’s best interests. As Thames Trains Ltd V Adams demonstrates, conflict between these outcomes would not necessarily be resolved in favour of third parties, even bearing in mind the duty to the administra­tion of justice.

The other Code outcome arguably relevant to negotiation is in Chapter 1, ‘Client Care’. This provides that ‘the service you provide to clients is competent, delivered in a timely manner and takes account of your client’s needs and circumstances’.¹¹⁶ The last part of this outcome appears to support the idea that solicitors need to have a good idea of client interests. This, of course, is a prerequisite of principled negotiation.

F. Barristers’ Obligations to Third Parties in Negotiations

The new Bar Code of Conduct does not specifically consider negotiation. Therefore, the position of barristers is determined by the interpretation of two conflicting core duties. The first is the duty to act in the best interests of each client¹¹⁷ and the second is the duty to act with honesty and integrity.¹¹⁸ The rules clarify the former by provid­ing that barristers must ‘promote fearlessly and by all proper and lawful means the client’s best interests’.¹¹⁹ The addition of ‘proper and lawful means’ is not a particularly helpful guide to whether bluffing tactics are permitted. Competitive bargaining is not unlawful and ‘proper’ is often interpreted as meaning ‘permitted by the rules’.

The duties owed to third parties are perhaps a little more revealing. In Chapter 2: ‘Behaving Ethically’, the rules provide that barristers must not do anything which could reasonably be seen by the public to undermine their honesty, integrity and independence.¹²⁰ The rule is said to cover ‘not knowingly or recklessly mislead[ing] or attempt[ing] to mislead anyone’.¹²¹ This would appear to apply to bluffing in negotia­tion, although it is not clear that this is intended. A barrister accused of breaking the rule by misleading an opponent might argue that an experienced negotiator would not be misled by such behaviour.

VI.