The SRA Handbook 2011, as Amended

A. Relevant Principles

None of the 10 principles preceding the current outcomes in the SRA Handbook mention conflicts of the interests as such. The first four principles, it could be argued, underpin conflicts rules.

Chapter 3 of the SRA Code of Conduct is devoted entirely to conflicts of interest. It contains seven outcomes and 14 indicative behaviours. It identifies conflicts of interest potentially arising between solicitors and their current clients (‘own interest conflict’) and between two or more current clients (‘client conflict’). Some outcomes apply to both types of situation, for example, the existence of effective systems and controls in place to enable identification and assessment of potential conflicts of interests.⁶³ Other outcomes apply to one or other of the situations.

B. Solicitor and Client Conflicts (‘Own Interest Conflicts’)

i. Definition

The SRA Handbook defines own interest conflicts of interest as

any situation where your duty to act in the best interests of any client in relation to a matter conflicts, or there is a significant risk that it may conflict, with your own interests in relation to that or a related matter.⁶⁴

In such cases the Handbook states that solicitors can never act where there is a con­flict, or a significant risk of such a conflict.⁶⁵

⁶² Chapter 10: ‘Confidences’.

⁶³ SRA, Handbook 2011, as amended, SRA Code of Conduct, ch 3, Outcome 3.1.

⁶⁴ SRA, Handbook 2011, Glossary.

⁶⁵ SRA, Code of Conduct, ch 3, Outcome 3.4.

ii. Examples

Obvious examples of a breach of the ban on solicitors acting in situations where their interests conflict with those of clients include selling to or buying from a client and lending to or borrowing from a client.

Indicative behaviours suggestive of conflicts of interest also appear in Chapter 1 of the SRA Handbook, on clients. These include ‘refusing to act where your client proposes to make a gift of significant value to you or a member of your family, or a member of your firm or their family, unless the client takes independent legal advice’.^[1743] Another is the obligation to consider

whether a conflict of interests has arisen or whether the client should be advised to obtain independent advice where the client notifies you of their intention to make a claim or if you discover an act or omission which might give rise to a claim.^[1744]

C. Client Conflicts

The Handbook defines a conflict of interest for the purposes of Chapter 3 of the SRA Code of Conduct as

any situation where you owe separate duties to act in the best interests of two or more clients in relation to the same or related matters, and those duties conflict, or there is a significant risk that those duties may conflict.^[1745]

i. Exceptions to the Ban on Acting in Client Conflict Situations

In the chapter on conflicts of interest, the SRA Handbook states that, in circum­stances where there is a significant risk of conflict between the interests of two or more clients, ‘you must not act for all or both of them unless the matter falls within the scope of the limited exceptions set out at Outcomes 3.6 or 3.7’.^[1746]

The situations where the rules on conflict may be abrogated are where clients have a substantial common interest in the outcome and where they are competing for the same objective.

a. Substantial Common Interest

Solicitors can potentially act in a situation of client conflict where the clients have a substantially common interest in relation to a matter or a particular aspect of it, provided they can comply with Outcome 3.6. They must have explained the relevant issues and risks to the clients and have a reasonable belief that the clients understand the issues and risks. All clients must give informed consent in writing to the solicitor acting. The solicitor must then be satisfied that it is reasonable for them to act for all the clients and that it is in their best interests. Finally, they must be satisfied that the benefits to the clients of acting outweigh the risks.^[1748]

There are some common situations of substantial common interest considered below, such as acting for mortgage lenders and borrowers in conveyancing transac­tions. A situation of substantially common interest does not exist where the clients’ interests in the end result are different. One example is where a partner is buying out the interest of another partner in their joint business or where a seller is transferring a property to a buyer.^[1749]

b. Competing for the Same Objective

The second exception allowing a solicitor to represent clients in a potential conflict situation arises under Outcome 3.7. This covers situations where clients are competing for the same objective. In such circumstances, solicitors can act if they have explained the relevant issues to the clients and where they have a reasonable belief that the clients understand those issues and risks. The clients must then confirm in writing that they want the solicitors to act, knowing that they are competing with other clients for the same objective.

Clients competing for the same objective are likely to be undertaking an activity such as bidding for a franchise. Indeed, an indicative behaviour indicates that the outcomes directed at avoiding conflicts of interest are more likely to be met where clients are sophisticated users of legal services.^[1750] They are not likely to be met where a solicitor is acting for two private purchasers, for example, two buyers competing to buy a residential property.^[1751]

Even where solicitors can act for clients competing for the same objective the firm may need to provide safeguards. Unless the clients specifically agree otherwise, no individual within the firm can act for more than one client in the matter. Nor can one person be responsible for supervising the work of different individuals in relation to different clients in that matter. Finally, the solicitor must be satisfied that it is reason­able to act for all the clients and that the benefits to them outweigh the risks.^[1752]

ii. Factors in Deciding whether the Client Conflict Exceptions Apply

Where one on the two exceptions might apply, solicitors must consider whether the circumstances will allow them to be even-handed in dealing with both parties’ inter­ests. For example, where there is unequal bargaining power between the clients it may be impossible not to favour one or other client, either by acting to redress the balance or by not acting. The example given in the Code is acting for a seller and buyer where a builder is selling to a non-commercial client.^[1753] Similarly, it would be impossible to be even-handed if the circumstances require the solicitor to help negotiate the price between a buyer and seller of a property.^[1754]

iii. Systems for Detection

a. Proportionality

A new development in the SRA Handbook is the introduction of outcomes requiring systems and controls for identifying different types of conflict of interest. The systems for detecting both own interest conflicts and potential client conflicts must be appro­priate to the size and complexity of the firm and the nature of the work undertaken.

b. Decision-making

When deciding whether to act in a situation of potential conflict with their own interests, solicitors must allow all relevant circumstances to be assessed. This includes consideration of whether the ability of the solicitor or anyone else in the firm is impaired by financial interests and personal relationships. It also requires examin­ing the appointment of anyone at the firm, or their family members, to public office, commercial relationships or employment.^[1755]

In identifying client conflicts, the solicitor must consider differences in client inter­ests and the solicitors’ ability to give independent advice to the client. Solicitors also need to consider, where there is a need to negotiate between clients, whether there is imbalance in bargaining power between clients or whether one of the clients is vulnerable.^[1756] These are factors that would indicate that separate representation is warranted.

IX.