CONFLICTS, CONFIDENTIALITY,AND DISCLOSURE

Question 1

Two Types of Conficts
There are two general types of conficts, discussed in more detail below:

Answer 1

*Conficts between the solicitor (or frm) and the client
(‘own interest confict’); and

*Conficts between two or more current clients (‘confict
of interest’). This type of confict of interest is also some-
times known as ‘client confict’ to diferentiate it from
‘own interest confict’.

Question 2

Same or Related Matter

Answer 2

A confict (or signifcant risk of confict) relates to the same
matter or a related matter.
EXAMPLE
If a frm is instructed by four clients who want to set up a partnership, and the four clients cannot agree on proft share, there is a confict between them in relation to the same matter.

A conflict can also arise about different but related matters. A matter is ‘related’ if it relates to the same asset or liability.

EXAMPLE
There is a conflict if a solicitor intends to act for two compa-nies who want to buy out the same, third company.

Question 3

general business interest

Answer 3

However, a general business interest is not sufficiently
‘related’ to create a conflict situation. A firm of solicitors could
therefore act for two companies whose main business was
the same, provided that it was on unrelated issues. So, the
firm could advise on employment contracts for one company
and on a litigation matter for the other company without a conflict arising.

Question 4

Can Other Solicitors in the Same Firm Act?

Answer 4

Generally, no. The confict provisions cover the firm, not just
individuals within it.

Question 5

When Should You Consider Conficts of Interest?

Answer 5

A solicitor should consider whether there is a confict or significant risk of a conflict at the beginning of the matter—before the retainer has been created. They should always
be considering whether a conflict of interest has arisen (or whether there is a significant risk of the same) throughout the retainer.

Question 6

What Should You Do If a Confict Arises?
uBefore Retainer

Answer 6

1. If a solicitor recognises a conflict or significant risk before the retainer has been created, they should decline to act at all.
2. Alternatively, they should** only act for the client (or clients) whose interests they can best represent** and should not also agree to act for the client (or clients) whose interests might conflict.

Question 7

What Should You Do If a Confict Arises?
After Retainer

Answer 7

1. If a confict arises during the retainer, the solicitor should inform all clients.
2. The solicitor may consider that it is
   appropriate to** decline to continue** to act for all clients.
3. However, the solicitor can continue to act for one of the parties but must be wary about whether their duty of
   confdentiality is at risk.

Question 8

Limited Retainer

Answer 8

1. If a frm identifes a confict between clients, it may decide that it can act for one of the clients on the basis** of a limited retainer**;
2. Limited Retainer means the firm only acts on the aspects where there is no confict and advises the client to take independent advice on the conficted area.
3. The extent of the work that the firm is going to do must be closely defined in** the client care letter**

Question 9

Professional Embarrassment

Answer 9

A solicitor may decide that they can act even if there is
no confict or signifcant risk but may decline to act in any event due to professional embarrassment. This means that the frm considers that it cannot act in the best inter-ests of the client possibly due to considerations that are
relevant to the frm.

EXAMPLE
A firm may do a lot of work for an organisation and a com-petitor organisation wants the firm to act for it. Even if this does not present a conflict of interest, the firm may decide not to act for the competitor to avoid the possibility of its existing, good client going elsewhere.

Question 10

‘Own Interest’ Conficts

Answer 10

1. an ‘own interest’ confict is between the solicitor and client.
2. An own interest confict situation exists when your duty to act in the best interests of any client in relation to a matter conficts, or there is a signifcant risk that it may confict, with your own interests in relation to **that matter or a related matter. **
3. If there is an own interest confict or a signifcant risk of an own interest confict, the solicitor must not act.

Exam Tip
Note that an own interest confict is an absolute bar to acting; there are no exceptions. If your personal interest conficts with that of your prospective client, you must not act. This is true even if you obtain the client’s consent to act, or the client obtains independent legal advice as whether to continue to allow you to act. Look out in the exam for any suggestion that the solicitor’s own
personal interest might confict with that of the client.

Question 11

Examples of
own interest conficts include the following:

Answer 11

a.Any Financial Interest

b.Solicitor a Benefciary in Client’s Will

c.Personal Relationship

e.Employment Claim of Former Employee

f.Solicitor’s Own Conduct in Question

Question 12

Any Financial Interest
own interest

Answer 12

If the solicitor acting for a client had a fnancial interest in
the client’s business, this might impair the solicitor’s ability to give independent advice.

Question 13

Solicitor a Benefciary in Client’s Will
own interest

Answer 13

Sometimes a client wants to leave a solicitor (or a member of the solicitor’s family or frm) a gift of signifcant value in a
will the solicitor is drafting for the client. This usually raises an own interest conflict (and the solicitor must refuse to act). However, the solicitor may act if the solicitor is satisfied that the client has taken independent legal advice with regard to making the gift. Large gifts are always signifcant, but a smaller gift might be considered signifcant if it is a signifcant part of the client’s overall estate.

Exception—Ability to Advise Not Undermined
If the solicitor’s ability to advise the client would not be undermined by the financial interest, an own interest confict would not exist.
EXAMPLE
A solicitor is drafting wills for their parents. Each parent wants to include a provision in their will that leaves their estate to the solicitor and the solicitor’s siblings in equal
shares if the other spouse has predeceased the testator.
Since the children are being treated equally, the solicitor can act even if the client has not taken independent advice.

Question 14

Personal Relationship
own interest

Answer 14

If a client wants the solicitor to advise them in a claim against the solicitor’s relative or some other person the solicitor has a relationship with, the solicitor should decline to act.

Question 15

Commercial Relationship
own interest

Answer 15

If a solicitor has a commercial interest in a business adverse
to the potential client’s business, the solicitor should decline
to act.

Question 16

Employment Claim of Former Employee
own interest

Answer 16

The solicitor should decline to act if a prospective client was a former employee of the solicitor’s frm and wants to bring an employment claim against the frm.

Question 17

Solicitor’s Own Conduct in Question
own interest

Answer 17

If a solicitor makes a mistake in a client’s matter, and the client asks the solicitor for advice on rectifying their losses, the solicitor should decline to act if one of the client’s options is to bring a claim against the solicitor for professional negligence.

Question 18

Conficts Between Clients

Answer 18

A confict of interest situation exists when 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 confict.

Question 19

COMMON CLIENT CONFLICT SITUATIONS

Answer 19

There would obviously be a confict if a solicitor acted on both sides of litigation or some other dispute between clients. Other scenarios where a conflict of interest could arise
include:
*Acting for both the seller and the buyer in a sale.
Acting for both an investor and the scheme in which they will be investing.
*Acting for two clients who are agreeing a commercial contract.
*Acting for clients who are seeking separately to purchase a particular asset or to be awarded a particular contract.

Exam Tip
If your advice to one client would be different to another client who is involved in the same matter/retainer, there is a conflict. A typical example might be where there are two people buying a house. One is contributing more money to the purchase price than the other. You would advise them to hold as tenants in common in unequal shares to refect the disparity of contribution. If the client putting in the lesser share wanted to hold equally, you should recognise the confict and cease to act.

Question 20

Must Not Act Unless Exception Applies

Answer 20

You must not act if there is a confict between clients, or a
signifcant risk of a confict between clients, unless one of
the two limited exceptions (discussed below) applies.

Exam Tip
Remember that you are prohibited from acting only if
there is a confict or a signifcant risk of a confict be-
tween clients. For example, if the clients have already
agreed to the relevant terms of a transaction and are
willing to share all relevant information with each other
during the matter, you are not prohibited from acting.

Question 21

‘Substantially Common Interest’ Exception

Answer 21

Clients have a** ‘substantially common interest’** where
there is a clear common purpose in relation to a matter
or particular aspect of it between the clients and a** strong consensus** on how it is to be achieved. **

Exam Tip
Look for clients with harmonious interests (for example, clients who want to take out a lease as joint tenants or set up a business together).

Question 22

‘Competing for the Same Objective’ Exception

Answer 22

1. This exception applies where two or more clients are competing for an objective which, if attained by one cli-
   ent, will make that objective unattainable to the other(s). An ‘objective’ means an asset, contract, or business opportunity which the clients are seeking to acquire or recover through a liquidation (or other form of insolvency process) or by means of** an auction or tender process** or through **a bid or offer which is not public. **

Exam Tip
A scenario in the exam might outline the situation where one firm wants to act for two companies that separately want to take over a third company. The obligation to each of the client companies would normally conflict, but this exception would allow the frm to act provided that the conditions below are met.

Question 23

Conditions for Exceptions
If one of the exceptions applies, you may act only if all of the following conditions are met:

Answer 23

(1) The clients have given informed consent, given or evidenced in writing, to you acting.
(2) Where appropriate, you put in place effective safeguards
to protect your clients’ confdential information.

Question 24

safeguards
to protect your clients’ confdential information.

Answer 24

1. A firm may be required to have separate fee earners acting **for the clients. In this situation the firm must put safeguards in place to ensure that confdential information cannot pass from one solicitor in the same firm to another solicitor and thus from one client to another client.
2. Such steps could involve ensuring that the solicitors acting for the clients are in separate buildings or on separate floors and the computer system must be set up to ensure that information about one client is not available to the solicitors acting for the other.
3. Safeguards will not be appropriate if the clients want the same solicitor to represent them. In this situation, the solicitor must ensure that the clients agree as to which information can be shared with the other, and must obtain informed consent from the clients that no safeguards are required.
4. You are satisfied that it is reasonable for you to act for all the clients.

Question 25

A solicitor should consider the following factors in determining whether acting for all the clients with conflict interests is reasonable:

Answer 25

*Whether the clients will beneft from the solicitor acting for both of them (for example, because it is less costly or more convenient).

*Whether there will be extensive negotiations between the clients.

Exam Tip
If the clients have serious unresolved issues, it is proba-bly not reasonable for you to act for both of them.

*Whether there is an imbalance in knowledge or bargaining power between the clients.

EXAMPLES
1) You might be acting for a bank and a borrower in relation to a commercial mortgage. If the bank is lending money on pre-agreed terms, there is unlikely to be a confict. However, if the bank tries to insist on more onerous payment terms which you do not think are favourable to the borrower, you
should decline to act due to the** inequality of bargaining power** between the parties.
2) If one client is much less sophisticated than the other (for example, where one client is an individual and the other client is a large company), it may not be reasonable for you to act for both of them.

Question 26

DUTY OF CONFIDENTIALITY

Answer 26

You must keep the afairs of clients confdential unless
(1) disclosure is required or permitted by law or
(2) the client consents.

Question 27

When Breach of the duty of confidentiality May Be Justifed

Answer 27

1. disclosure without the client’s con-sent is prohibited unless required or permitted by law.
2. However, in certain situations where the solicitor discloses information to prevent harm to someone, the solicitor’sbreach of the duty of confdentiality may be justifed (even though it is still technically a breach). The justifcation is likely to mitigate against regulatory action in the followingsituations:** (1) disclosure to prevent the commission of a
   criminal ofence that will result in serious bodily harm; (2)disclosure where the client has indicated that they intendto commit suicide or serious self-harm; or (3) disclosure to protect a child or vulnerable adult**.
3. Disclosure made after the event (for example, after the client has already injured someone) is not justifed in these situations.

Question 28

When Disclosure Is Appropriate
Disclosure is generally allowed in the following circumstances:

Answer 28

1. The client **consents **to the disclosure of information
2. The solicitor discloses **the client’s will to an attorney **appointed under a Lasting Power of Attorney (unless the Power expressly forbids this);
3. The solicitor is being** used by the client to perpetrate a crime or fraud;**
4. There is** a statutory requirement** to do so, for example, disclosure of tax afairs to HM Revenue and Customs;
5. There is **a statutory duty **to do so, for example, under the money laundering provisions; or
6. There is a court order or police warrant requiring disclosure.

Question 29

ByWhom Is the Duty of Confdentiality
Owed?

Answer 29

It is owed by everyone in the frm; not just the solicitor who
is instructed. Bear in mind that all members of the firm or in-house practice, including support staff, consultants, and locums, owe a duty of confidentiality to the firm’s clients.

Question 30

How Long Does the Duty of Confdentiality Last?

Answer 30

The duty of confdentiality continues despite **the end of the
retainer and even after the death of the client **(when the
right to enforce or waive the duty passes to the client’s per-
sonal representatives). Thus, in this context ‘client’ includes
former clients.
EXAMPLE
You should not disclose the contents of a will on the death
of a client unless consent has been provided by the person-al representatives for the content to be released.

Question 31

How Does Confdentiality Link to Legal
Professional Privilege?

Answer 31

1. It is important to distinguish the conduct duty of confidentiality from the concept of law known as legal **professional privilege (LPP).
2. LPP protects **confdential communications ** between solicitors/barristers and their clients for the purpose of obtaining and giving legal advice. Such communications must not be revealed or produced without the permission of the client, even in court proceedings.
3. The duty of confidentiality is broader in that it applies to **all confidential information **about a client’s affairs, not just confidential communications. However, while confidential information may be disclosed in certain circumstances, LPP is absolute. Therefore, if information is privileged, you cannot disclose it even if doing so would not violate the duty of confdentiality.

Question 32

Consequences of Breach of Duty of Confidentiality

Answer 32

Breach of the duty of confdentiality is a breach of profession-al conduct and the solicitor may be disciplined by the SRA
or the SDT. The client may sue the solicitor for breach of this duty.

Question 33

Professional Embarrassment
Confidentiality

Answer 33

As with conflicts, note that even if a solicitor concludes that
they can act in a situation where there might be confidentiality issues, they might decline to act due to professional embarrassment.

Question 34

DUTY OF DISCLOSURE

Answer 34

Any individual who is advising a client must make that client aware of all information material to that retainer of which the individual is aware.

Question 35

Exceptions to the Duty of Disclosure
You are not required to disclose information to the client in
any of the following circumstances:

Answer 35

1. The client gives informed consent, given or evidenced in writing, to nondisclosure;
2. You have reason to believe that disclosure would cause serious physical or mental injury to a person;**
3. ***Legal restrictions **imposed in the interests of national security of the prevention of a crime (for example, mon-ey laundering or anti-terrorism legislation) prohibit you from passing the information to the client; or
4. You only have knowledge of the information because it is contained in** privileged documents **which have been mistakenly disclosed to you.

Question 36

Confidentiality v. Disclosure
Conflict Situation

Answer 36

You mast not act for A in a matter where A has an interet adverse to B, and B is a current or former client for whom you (or your business or employer) hold confidential info which is material to A, unless:
1. Effective measures have been taken which result there being no risk (for example, the firm has put in place structural safeguards so that the team workin gon A’s maater will not have access to B’s file); Or
2. B gives informed consent, given or evidenced in writing, to your action.