SIMULTANEOUS REPRESENTATION
There are two types of conflicts which fall under this heading:
a) Same matters conflicts, where a solicitor or firm represents separate clients who have adverse interests in the same matter.
b) Separate matter conflicts, where a solicitor or firm acts for separate clients in different matters but information gained from one client may be relevant to the other, or the matter in which they are assisting client A could impact adversely on client B.
The Law Society does not make such a clear distinction in chapter 15 of the Guide. Simultaneous representation is covered by principles 15.01 and 15.03. These state:
A solicitor or firm of solicitors should not accept instructions to act for two or more clients where there is a conflict or a significant risk of conflict between the interests of those clients.[173]
A solicitor or firm of solicitors must not continue to act for two or more clients where a conflict of interest arises between those clients.[174]
It is perhaps surprising that there is no definition of what amounts to a conflict, or a significant risk of conflict, in such cases. The introductory note at the beginning of chapter 15 does give some guidance:
The number of enquiries to Professional Ethics suggests that many solicitors have difficulty in identifying when a conflict of interest between clients has arisen or may arise. Two important points to bear in mind are:
—Where a solicitor is acting for two or more clients, whether they be husband and wife, partners or a corporation embarking on a joint venture, the solicitor always owes a duty to each individual body or person and he or she must advise each individual what is in that individual’s interests.
—A possible initial test to apply to the above circumstances to assist in identifying if a conflict exists, is: what would occur if the solicitor were acting for only one of the parties?
• Would the advice be different?
• Do the parties have different interests?
• Has one of the parties given the solicitor a piece of information on a ‘confidential’ basis that would affect the advice given to other clients, if the solicitor could disclose it?
If these factors apply, a conflict of interests has arisen.[175]
Despite this attempt at clarification, the City of London Law Society has concluded that the lack of a clear definition of ‘conflict of interest’ has the potential to leave the meaning of 15.01 unclear and open to ‘starkly differing interpretations’ by solicitors.[176] It found that some practitioners interpreted the wording to mean that a firm cannot act against the interests of an existing client even in a matter which is unrelated to the pre-existing instructions.
This view was referred to as the ‘wide interpretation’.[177] The City Society found that others, favouring the so-called ‘narrow interpretation’, believed that under 15.01 a conflict only arises where the firm is acting for two parties on the same or related matters and that the sub-paragraph permits a firm to act on unrelated matters for one client against the interests of another client.[178]The commentary accompanying the Law Society’s statement of principles does not resolve the difficulty. It is stated that even if both clients consent to the solicitor or firm acting in a conflict situation, the solicitor must not accept the instructions.[179] Thus, returning to our example of Prompt Prints and Super Snaps: if PP decided to go into business with SS, and the two firms wanted to instruct XYZ to handle the matter, even were they both to consent, XYZ would have to refuse to act.[180] The only exception permitted by the Law Society is one which was noted above, namely use of a Chinese wall upon amalgamation of two or more firms.[181]
How far do the Law Society’s rules reflect the common law? In fact the common law draws a distinction between same matter conflicts and separate matter conflicts.
1. Same Matter Conflicts[182]
This type of conflict has been described as being ‘in the very heartland of fiduciary law.’[183] The principle behind the rule reflects a client’s right to his solicitor’s undivided loyalty. Although the protection of confidentiality may form part of the need to ensure that there is no conflict of interest, it is a subordinate to the prohibition upon serving two masters.[184] Glover describes it as a ‘self-evident wrong-doing’ and quotes St. Matthew, chapter 6, verse 24:
No man can serve two masters: for either he will hate the one, and love the other; or else he will hold to the one, and despise the other.[185]
Fiduciary law upholds this principle, stating that ‘an agent cannot lawfully place himself in a position in which he owes a duty to another which is inconsistent with his duty to his principal’.[186]
The Law Society rules, therefore, reflect these equitable principles.
Where they differ, however, is with regard to the issue of consent. The Guide is quite clear that disclosing the conflict to the respective clients, and obtaining their consent, does not permit a solicitor or firm to act. However, as was noted above, Lord Millett specifically makes reference to the fact that a solicitor can, with the consent of both clients, act for the one while his partner is acting for the other.[187] Indeed, this has been recognised in a case involving a solicitor. In Clarke Boyce v Mouat[188] a mother lent money to her son, a businessman, using her house as security. The defendant solicitors acted for both the mother and the son in the mortgage transaction. Before starting work on the case, the solicitors repeatedly advised the mother to seek independent legal advice and advised her of the consequences should her son not keep up the payments on the loan. The son subsequently went bankrupt and the mother became liable to repay the loan and arrears of interest. She sued the solicitors, alleging that they had breached their fiduciary obligations because they had not:i) refused to act for her;
ii) advised her that it was not in her interests to enter the transaction;
iii) advised her adequately of the need for independent legal advice.
The Privy Council, in finding against the mother, said that there was no general rule of law that a solicitor should never act for both parties in a transaction where their interests might conflict. A solicitor could act provided he obtained the ‘informed consent’ of both parties.
The difficulty with this decision lies in determining what amounts to informed consent. The Privy Council thought that
consent should be given in the knowledge that there is a conflict between the parties and that as a result the solicitor may be disabled from disclosing to each party the full knowledge which he possesses as to the transaction, or he may be disabled from giving advice to one party which conflicts with the interests of the other.
It went on to emphasise the importance of establishing, in the instructions given to the solicitor, the scope of the solicitor’s duties towards the client. Fiduciary duties ‘cannot be prayed in aid to enlarge the scope of the contractual duties.’[189]
In some cases it may not be easy to establish informed consent. There is a considerable difference between the consent of a large corporate client with its own legal department and that of a lay person wishing to set up in business for the first time. In addition, how much information must be disclosed to the client to allow an ‘informed’ decision to be made? This may in part be why the Law Society has adopted stricter rules than the common law. It is responsible for regulating the whole profession. So it must try to protect those clients who may be incapable of giving informed consent.
Having said this, the Law Society does permit one exception to its blanket prohibition on acting for two clients in the same matter. This is contained in note 4 of principle 15.01. Where a solicitor is invited to act for seller and buyer, he may in exceptional circumstances act for both parties.[190] In this respect the Guide reflects the decision in Clarke. But as the exception relates only to conveyancing transactions, it is narrower than the Clarke decision and thus it may be said, once again, that with same-matter conflicts the Law Society, in its formal rules, adopts a stricter approach than that which is reflected in the common law.
2. Separate Matter Conflicts
It has been said that, ‘of all types of conflict these are potentially the most problematic.’131 Take the following example. Firm XYZ is advising Prompt Prints and acquires confidential information about its business. The firm is also advising Super Snaps in a matter quite distinct from their dealing with Prompt Prints. The information acquired from Prompt Prints is relevant to Super Snaps. The difficulty arises because XYZ is under a duty to maintain client confidentiality and, at the same time, is required to inform its clients of all relevant information regardless of its source.
As the Law Society states:Any information acquired by a solicitor whilst acting for a client is confidential and cannot be disclosed without that client’s consent. However, a solicitor is under a duty to inform the client of all matters which are material to the retainer. Consequently, a solicitor in possession of confidential information concerning a client which is or might be relevant to another client is put in an impossible position and cannot act against that client.132
This principle reflects the legal proposition that in the absence of the consent of the first client, any unauthorised use or disclosure of the information by the solicitor will be actionable.
Problems occur when different solicitors are acting for different clients within one firm and may be unaware of the relevance of certain information. To what extent can the second client demand that the whole firm support his case, on the basis that all members of the firm are under an obligation to provide any information which could be to his benefit? Lord Justice Staughton in Re a Firm of Solicitors (1992)133 stated that he knew of no proposition that a large firm of many partners is obliged to disclose any relevant knowledge to all partners. Mitchell,134 on the other hand, has suggested that the presumption of imputed knowledge can be traced to the case of Davies v Clough,135 in which it was held that the knowledge of one partner is to be imputed to all other partners. He also notes that this presumption has been justified by the ‘danger of inadvertent disclosures of confidences inherent in everyday interchange of ideas and discussion of problems amongst law partners’, and secondly, by a concern to avoid ‘even the appearance of impropriety.’136
131 E McKendrick (ed), n 4 above at 30.
132 Above at n 24.
133 Above at n 65.
134 A Mitchell, ‘Whose Side Are You On Anyway? Former Client Conflict of Interest’, (1998) 26 American Business Law Review 418 at 429.
135 (1837) 8 Sim 262.
136 A Mitchell, n 134 above at 429 quoting P Finn, ‘Professionals and Confidentiality’, 1(1992) 4 Sydney Law Review 317 at 338.
The leading case in this area is that of Kelly v Cooper.[191] The plaintiff was selling a property through the defendants, a firm of estate agents. The defendants also acted as agents for the vendor of the adjoining property. A prospective purchaser was shown around both properties and made offers for both. The defendants did not inform the plaintiff that the purchaser had agreed to buy the adjoining property. He maintained that had he known the purchaser was interested in both properties, he would have sought a higher price. He brought an action for damages, alleging that the defendants had failed to disclose the material fact that the purchaser was also negotiating to buy the other property and that the agents had put themselves in a position where their duty to the plaintiff to disclose all relevant information conflicted with their own interest in gaining the commission on both sales.
The Privy Council held that the rights and duties of a principal and agent are dependent upon the express and implied terms of the contract between them.[192] The contract did not limit the scope of the fiduciary duties owed. However, Lord Browne-Wilkinson said that the business of estate agents inevitably gives rise to conflicts of interest, but that estate agents must nonetheless be free to perform their function. A customer would know that the agent would be acting for other people with comparable properties. The Privy Council was of the opinion that the two transactions were separate matter transactions, but that certain terms may be implied into contracts which limit the scope of fiduciary duties. When considering this point, Lord Browne-Wilkinson emphasised that the plaintiff would be ‘well aware’ that the defendants would be acting for the sellers of competing properties, and that the exclusion of relevant fiduciary duties was necessary in order to enable estate agents to perform their function.
There is a suggestion, therefore, that the nature of the business with which the fiduciary is involved will play a part in determining whether terms may be implied in a contract. Lord Millett adopted this interpretation of Kelly in Bolkiah. He stated:
... a fiduciary cannot act at the same time both for and against the same client, and his firm is in no better position. A man cannot without the consent of both clients act for one while his partner is acting for another in the opposite interest.
This is not to say that such consent is not sometimes forthcoming, or that in some situations it may not be inferred. There is a clear distinction between the position of a solicitor and an auditor. The large accountancy firms commonly carry out the audit of clients who are in competition with one another. The identity of their audit clients is publicly acknowledged. Their clients are taken to consent to their auditors acting for competing clients, though they must of course keep confidential the information obtained from their respective clients. This was the basis on which the Privy Council decided Kelly v Cooper in relation to estate agents.[193]
The type of service provided by the agent will thus be crucial in determining whether there is implied consent. In Kelly, the agent offered a single service, and as the Law Commission has pointed out:
While it will be clear to any customer of a broker that the broker acts for other customers, and that the broker would not be able to operate without doing so, the large range of different functions which the different departments of a financial conglomerate carries out for customers may be less obvious to any one customer of a particular department, especially if the customer is an inexperienced private customer.[194]
It may therefore be that the wide-range of services offered by solicitors would prevent any implied terms being incorporated into their contracts with clients. This is not to say, however, that express terms specifically drafted in the contract would not have that effect.
3. Conclusion
The common law allows fiduciary duties to be modified for same matter conflicts and for separate matter conflicts. It appears that implied terms may be inferred only for separate matter conflicts, and then only where the agent is providing certain types of services. There is nothing, however, to prevent solicitors from drafting contracts expressly limiting the scope of their fiduciary duties, except of course the prohibitions contained within the Law Society’s rules.
SUMMARY
Identifying the principles governing conflicts of interest which are applied within the common law on the one hand and by the Law Society on the other is not clear-cut. Both contain elements of ambiguity, or apparent self-contradiction. What can be said is that, in general, the common law allows a solicitor or firm of solicitors to act in a considerably greater range of conflict situations than is permitted under current Law Society rules.
Given the confusion surrounding many aspects of the common law, it is not unreasonable that the Law Society should take a stricter approach. At the same time it could be argued that clearer guidance is needed from the Law Society. In the next chapter I shall review the way other regulatory bodies have approached the regulation of conflicts of interest in relation to their members.