In June, the Law Society Regulations Review Working Party (RRWP) issued a consultation document on the reform of the rules on conflicts of interest. This document is of vital importance to all major national and international law firms and their clients.
The RRWP draws heavily on a report by the City of London Law Society (CLLS) published last year. It sought to achieve a balance between the objectives to: ensure that clients receive impartial advice untainted by conflicting interests and duties; provide clients with access to the legal adviser of their choice; avoid preventing different clients from sharing the services of one firm in the interests of convenience and economy; ensure that conflict rules are relevant to lawyers and clients while giving flexibility to reflect current sensible business practices; and to ensure that the rules are consistent with international codes.
The CLLS report defines 'conflict' and prohibits acting in such situations, with two key exceptions. The first is, where clients have a common interest in relation to a matter, the point of potential conflict is substantially less important than the common interest, and so dispute is unlikely.
The RRWP broadly supports this. The CLLS proposals achieve a good practical balance between protecting clients and allowing them access to firms of their choice. They allow sophisticated commercial clients to decide for themselves which firm to instruct without overly bureaucratic regulations, while at the same time protecting the vulnerable.
The second exception is where there is no contractual or other cause of action between clients with conflicting interests and it is unlikely that one will arise. This is designed to allow one firm to represent – normally through different teams – several bidders for the same project or private equity transaction, provided that each has given its consent. This is consistent with widespread current practice and enables clients to appoint lawyers of their choice in circumstances where the independence and availability of advice is not compromised.
The RRWP, however, is more equivocal about this exception and has requested comments concerning it, particularly from banks and major corporates. Clearly, it would not be appropriate in circumstances where clients are unfamiliar with the law and cannot take an informed view, but there are no apparent grounds for denying freedom of choice to institutions that are able to give informed consent – the principle is already applied in well-developed systems of financial and securities regulation.
The CLLS also deals with the issues of confidence and disclosure. The report recommends that there should be an overriding duty of confidence that must not be put at risk by a duty of disclosure to another. The exception would be if there were adequate safeguards in place (as established by the courts in the Prince Jefri case and other similar cases) or clients with the capacity and experience to exercise judgement have given their informed and written consent. It is entirely appropriate to give sophisticated commercial clients the freedom to make up their own minds as to which firm to instruct and on what conditions.
This is a golden opportunity to establish a pragmatic and flexible regime that enables the expectations of clients to be met while ensuring all have access to independent and unbiased legal advice from the lawyer of their choice.
The proposed regime would not discriminate against unsophisticated clients. It would, however, provide up-to-date rules reflecting a world where industry consolidation has produced sophisticated institutions that want to use a range of legal advisers and have the capacity to provide informed consent. This is an opportunity for the London market to set an international standard in an area where consistency and certainty would be a welcome development.