MANAGING CLIENTS’ EXPECTATIONS CONFLICTS OF INTEREST
C. DENNIS MORRISON
1
MANAGING CLIENTS’ EXPECTATIONS: CONFLICTS OF INTEREST
Introduction 1. Codes of Ethics in all Commonwealth Caribbean jurisdictions caution attorneys-atlaw (‘attorneys’) against conflicts of interest. In Jamaica, Canon IV (k) of the Legal Profession (Canons of Professional Ethics) Rules, 1978, (‘the Canons’) provides that: “Subject to the provisions of Canon IV (l), an Attorney shall not accept or continue his retainer or employment on behalf of two or more clients if their interests are likely to conflict or if the independent professional judgment of the Attorney is likely to be impaired.”
2. Canon IV (l) provides that: “An Attorney may represent multiple clients if he can adequately represent the interest of each and if each consents to such representation after full disclosure of the possible effects of such multiple representation.”
3. However, Canon IV (m) effectively raises a presumption against multiple representation by providing that, in the event that the Attorney entertains a doubt about the propriety of such representation, he should resolve all such doubts against it.
4. The phrase ‘conflict of interest’ is not defined in the Canons and it is from time to time used to connote somewhat different things.1 But, as a general proposition, the notion of a conflict of interest describes a situation in which a person subject to a duty takes a position which is inconsistent with that duty.2
1 2
See generally Charles Hollander QC and Simon Salzedo QC, Conflicts of Interest, 5th edn, chapter 1 See Bryan Garner – A Dictionary of Modern Legal Usage, 2nd edn, p 201
2
5. Conflicts of interest may be sub-divided into four main categories: (i) existing client conflicts; (ii) former client conflicts; (iii) personal conflicts; and (iv) commercial conflicts. Yet a fifth category relates to judicial conflicts, such as that which arose in R v Bow Street Metropolitan Stipendiary Magistrate Ex p. Pinochet Ugarte (No 2)3. However, as the steady stream of authority which has followed that decision demonstrates, the principles applicable to cases in this category really turn, on close analysis, on the doctrine of apparent bias, as explained by the landmark decision of Porter v Magill4 and later cases. In any event, the true scope and effect of such conflicts are beyond the scope of this brief presentation and nothing more needs be said about them here.
Existing client conflicts 6. An attorney stands in a fiduciary relationship to his client. In Bristol and West Building Society v Mothew (t/a Stapley & Co)5, Millet LJ (as he then was) defined a fiduciary as – “… someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary. This core liability has several facets. A fiduciary must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal.”
7. Accordingly, the attorney who acts for two clients with potentially conflicting interests, without the informed consent of both, to whom he owes equal fiduciary
3
[1999] 1 All ER 577 [2002] 2 AC 357 5 [1998] Ch 1 at p 18 4
3
obligations, is in breach of the obligation of undivided loyalty to each of them.6 Accordingly, the attorney may well find him or herself in a position where he or she is unable to fulfil obligations owed to both.
8. Where a firm of attorneys is involved, it does not solve the problem to have a different attorney within the firm represent each client. The conflict is a conflict of the firm as a whole, as Lord Millett explained in his justly celebrated judgment in Prince Jefri Bolkiah v State of Brunei7 (‘Bolkiah’):
“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 client while his partner is acting for another in the opposite interest. His disqualification has nothing to do with the confidentiality of client information. It is based on the inescapable conflict of interest which is inherent in the situation.”
9. Although there is no rule in the Canons specifically prohibiting a single attorney or firm of attorneys from acting for both parties in a conveyancing transaction, the dangers are obvious, as is illustrated by the following dictum of Scrutton LJ in Moody v Cox & Hatt8: “It may be that a solicitor who tries to act for both parties puts himself in such a position that he must be liable to one or the other, whatever he does. The case has been put of a solicitor acting for vendor and purchaser who knows of a flaw in the title by reason of his acting for the vendor, and who, if he discloses that flaw in the title which he knows as acting for the vendor, may be liable to an action by his vendor, and who, if he does not disclose the flaw in the title, may be liable to an action by the purchaser for not doing his duty as solicitor for him. It will be his fault for mixing himself up with a transaction in which he has two entirely inconsistent interests, and solicitors who try to act for both vendors and purchasers must 6
Per Millett LJ in Bristol and West Building Society v Mothew (t/a Stapley & Co), at page 18 [1999] 1 All ER 517 at 526 8 [1917] 2 Ch 7 at 91; see also Spector v Ageda [1973] Ch 30 at p 47 7
4
appreciate that they run a very serious risk of liability to one or the other owning to the duties and obligations which such curious relation puts upon them.”
10. Particular danger arises in practice in conveyancing transactions, when both vendor and purchaser, no doubt motivated by the expectation of reduced legal fees, approach an attorney with a united front in support of him or her acting for both. While the Canons permit the attorney, upon providing the client with full disclosure of the potential pitfalls, to act in these circumstances, the attorney must keep the situation continuously under review in order to determine whether there is a risk of a conflict developing. As it has been well put recently by one learned commentator9, “[t]he attorney may find that similar interests eventually become disparate … [and what] may have begun as a honeymoon period of commonality … may quickly dissolve in the wake of even personality differences”.
Former client conflicts 11. Where an attorney wishes to act for a client against a former client, somewhat different considerations arise. Because the attorney’s retainer by the former client will usually have come to an end, the question of a fiduciary obligation to the former client will no longer be relevant. However, the attorney remains bound by a duty of confidentiality to the former client in relation to matters discovered by the attorney during the period of the retainer. The obligation of confidentiality is enshrined in Canon 4 (t) of the Canons as follows: “An Attorney shall not knowingly – (i) reveal a confidence or secret of his client, or (ii) use a confidence or secret of his client (1) to the client’s disadvantage; or
9
Tonya Bastian Galanis, A Balancing Act: Fiduciary Obligations and Conflicts of Interest, para 4 007, published in Shazeeda Ali, The Ethical Lawyer: A Caribbean Perspective, 2015, chapter 4
5
(2) to his own advantage; or (3) to the advantage of any other person unless in any case it is done with the consent of the client after full disclosure. Provided however, that an attorney may reveal confidences or secrets necessary to establish or collect his fee or to defend himself or his employees or associates against an accusation of wrongful conduct.”
12. So, in the case of a former client, the obligation of confidentiality, which, as Bolkiah confirms, survives and outlasts the actual contract of retainer, “may conflict with the duty of loyalty to the new client if the former client’s confidential information is relevant to the new retainer”10.
13. The problem is neatly illustrated by the facts of Bolkiah. The defendant was KPMG, the well-known international firm of accountants, but the relevant principles were treated as the same as would apply to lawyers. Prince Jefri, a brother of the Sultan of Brunei, had retained KPMG to provide forensic accountancy services in litigation relating to his personal financial affairs. Sometime after that retainer had ended, the government of Brunei retained KPMG to act in connection with an investigation which it had set up into aspects of Prince Jefri’s former chairmanship of the Brunei Investment Agency. The interlocutory injunction obtained at first instance by the prince, restraining KPMG from acting for the agency, was discharged by the Court of Appeal, but reinstated by the House of Lords.
14. Delivering the principal judgment in the House of Lords, Lord Millett concluded that there is no general principle which prevents a solicitor from acting against a former client after the relationship between them has terminated. However, the
10
Hollander & Salzedo, op cit, para 1-003
6
duty to preserve the confidentiality of information imparted by the former client to the solicitor during the period of retainer is a continuing, unqualified duty: “It is a duty to keep the information confidential, not merely to take all reasonable steps to do so. Moreover, it is not merely a duty not to communicate the information to a third party. It is a duty not to misuse it, that is to say, without the consent of the former client to make any use of it or to cause any use to be made of it by others otherwise than for his benefit. The former client cannot be protected completely from accidental or inadvertent disclosure. But he is entitled to prevent his former solicitor from exposing him to any avoidable risk; and this includes the increased risk of the use of the information to his prejudice arising from the acceptance of instructions to act for another client with an adverse interest in a matter to which the information is or may be relevant.”11
15. As for the extent of the risk required to attract the court’s intervention, Lord Millett considered that the court “should intervene unless satisfied that there is no risk of disclosure”12. Further, while the risk must be a real, and not a merely fanciful or theoretical one, “it need not be substantial”.
16. I have elsewhere summarised the principles which emerge from Bolkiah as follows13: “(1) The court's jurisdiction to intervene is founded on the right of the former client to the protection of his confidential information. (2) The attorney’s only duty to the former client which survives the termination of the client relationship is a continuing duty to preserve the confidentiality of information imparted during its subsistence. (3) The attorney’s duty to preserve confidentiality is unqualified. It is a duty to keep the information confidential, not merely to take all reasonable steps to do so. 11
[1999] 1 All ER 517 at 527 At page 528 13 See Quiet Please! Confidentiality and Legal Professional Privilege, published in Ali, op cit, chap 5, para 5-004 12
7
(4) The former client cannot be protected completely from accidental or inadvertent disclosure, but he is entitled to prevent his former attorney from exposing him to any avoidable risk. This includes the increased risk of the use of the information to his prejudice arising from the acceptance of instructions to act for another client with an adverse interest in a matter to which the information may be relevant. (5) The former client must establish that her former attorneys possess confidential information which is or might be relevant to the matter and to the disclosure of which she has not consented. (6) The burden then passes to the attorneys to show that there is no risk of disclosure. The court should intervene unless it is satisfied that there is no risk of disclosure. The risk must be a real one, and not merely fanciful or theoretical, but it need not be substantial. (7) It is wrong in principle to conduct a balancing exercise. If the former client establishes the facts in (5) above, the former client is entitled to an injunction unless the attorneys show that there is no risk of disclosure. (8) In considering whether the attorneys have shown that there is no risk of disclosure, the starting point must be that, unless special measures are taken, information moves within a firm. However, that is only the starting point. While there is no rule of law that special measures have to be taken to prevent the information passing within a firm, the courts should restrain the attorneys from acting unless satisfied on the basis of clear and convincing evidence that all effective measures have been taken to ensure that no disclosure will occur. This is a heavy burden.” Personal conflicts 17. Canon IV (j) provides that – “Except with the specific approval of his client given after full disclosure, an Attorney shall not act in any manner14 in which his professional duties and his personal interests conflict or are likely to conflict.”
14
Quare whether this was not a misprint for “manner”
8
18. A personal conflict therefore arises where there is a conflict between the attorney’s own personal interests and those of his client. As a fiduciary, the attorney must not allow his or her personal interests to conflict with those of his or her client and, if they do, the client’s interests must be preferred over the attorney’s. Of course, some conflicts of this sort are impossible to avoid: for instance, an attorney acting for a claimant in a matter with the prospect of substantial fees must inevitably face a personal conflict of some kind when he or she is approached by the defendant’s attorney with an offer for settlement at an early stage of the litigation. But, as Hollander and Salzedo indicate, “there is no sensible means of eradicating these conflicts”15.
19. But a more substantial personal conflict will arise when the attorney seeks to purchase property from his or her client. In such cases, equity has always enforced rigorous rules akin to those applicable to trustees. The courts have also set aside transactions between lawyers and their former clients in circumstances where the professional relationship gave rise to a presumption of undue influence. Thus, in Demerara Bauxite Co. Ltd v Hubbard16 where the formal relationship of solicitor and client had terminated prior to the transaction in which the client granted an option to purchase land belonging to him to the solicitor, the client had received no independent advice in respect of this transaction. The Privy Council set aside the transaction applying the same rules applicable to fiduciary relationships and Lord Parmoor explained the principle applicable in these circumstances in this way:17 “The principle has long been established that, in the absence of competent independent advice, a transaction of the character involved in this appeal, between persons in the relationship of solicitor and client, or in a confidential relationship of a similar character, cannot be upheld, unless the person claiming to enforce the contract can prove, affirmatively, that the person standing in such a confidential position has disclosed, without reservation all the information 15
Hollander & Salzedo, op cit, at para 1- 004 [1923] AC 673 17 At pages 681-682 16
9
in his possession, and can further show that the transaction was, in itself, a fair one, having regard to all the circumstances. In order that these conditions may be fulfilled it is incumbent to prove that the person who holds the confidential relationship advised his client as diligently as he should have done had the transaction been one between his client and the stranger, and that the transaction was as advantageous to the client, as it would have, if he had been endeavouring to sell the property to a stranger.”
20. Demerara Bauxite Co. Ltd v Hubbard was applied by the Court of Appeal in Lalor v Campbell18. That was a case in which, in order to pay his attorney’s fees for representing him on a charge of murder, the client arranged to sell to the attorney his only asset, a quarter acre of land. Subsequently, the client having been convicted of manslaughter in lieu of murder and sentenced to 15 years’ imprisonment, this transaction was successfully impugned by him and set aside by the court on the ground of undue influence. Carberry JA said this:19 “In the view of all of us these circumstances imposed on the [attorney] the duty of satisfying this Court that he had given the client that reasonable advice against himself that he would or should have given if the sale had been to a stranger, and that he has affirmatively established the fairness of the transaction. Regrettably, the [attorney] has not so succeeded. It appears from his own evidence that he was completely unaware of the duties lying on an attorney dealing with his client’s property at the time of the transaction, or even later at the trial. No evidence has been forthcoming to establish the true value of the land in question at the material time, nor has it been established that the client had any competent independent advice with regard to this transaction.” 21. After a characteristically careful review of a number of authorities going all the way back to the 18th century, Carey JA concluded20 that the basis of the court’s jurisdiction to intervene in these circumstances is “the prevention of gain as a result of inequality in bargaining power or the prevention of undue advantage being taken by a person in whom confidence is reposed”; further, that the onus 18
(1987) 24 JLR 67 At pages 70-71 20 At page 78 19
10
was on the attorney to show that, having regard to all the circumstances, the transaction was in point of fact, fair, just and reasonable; and the satisfaction of this onus “involves a demonstration that the attorney has used the same diligence which he would have used, on behalf of the client, in relation to a stranger�21.
22. Transactions between attorney and client will therefore attract anxious scrutiny from the courts, particularly where they have been entered into without the client having had the benefit of independent legal advice. The presumption of undue influence which arises from the very nature of the relationship of attorney and client falls to be rebutted by the attorney. In order to do so successfully, it must be shown that the attorney made full disclosure of all relevant facts and circumstances to the client; that the transaction in question was fair and reasonable in all the circumstances; and that it was as advantageous to the client as it would have been had it been a transaction between the client and a stranger.
Commercial conflicts22 23. Consider this situation. The firm of attorneys who represent Texaco’s interests in Jamaica has been responsible for drafting all of its commercial leases with gas station operators throughout the island. This is a relationship which has existed for many years. An attorney in the firm, after a social encounter with the country manager for Rubis, a relative newcomer to the local petroleum retail market, receives instructions from Rubis to bring an action for recovery of possession against one of it operators. When Texaco learns of this development, it calls the senior partner in the firm to express surprise that any member of the firm would consider acting for one of its competitors in any matter, even where there is no real possibility of conflict of duty or interest arising from the particular representation.
21 22
Page 80 See generally Hollander & Salzedo, op cit, at para 1-005
11
24. Quite apart from any question of conflict, this situation may, of course, give rise to a very real commercial issue for the firm, given that it could find itself in danger of losing the very lucrative Texaco retainer if it persists in its representation of Rubis, in what could well turn out to be a one-off assignment. But the problem also closely resembles an existing client conflict, in the sense that it may be difficult for the firm to persuade Texaco that it will still be able to give its undivided loyalty to the company, even after it has entered into another fiduciary relationship, albeit for a limited purpose, with its competitor. There is really no ready legal answer to this particular conundrum and, in practice, it is most likely to be resolved by the leadership of the firm on a pure policy basis.
Mitigating conflicts Chinese Walls/information barriers 25. In a firm of lawyers, a ‘Chinese wall’ is “a screening mechanism that protects client confidences by preventing one or more lawyers within an organization from participating in any matter involving that client”23.
As Hollander and Salzedo
indicate24, the term has fallen from favour and it is now more usual to describe it as an ‘information barrier’. Information barriers have from time to time been deployed in firms as a means of avoiding former client conflicts, the objective being to insulate those persons working on the existing client’s business from exposure to any confidential information belonging to the former client. 26. In Bolkiah, the court was asked to consider the efficacy of the Chinese wall, as the device was still being called at that time, which KPMG set up to protect the confidentiality of information in its possession relating to Prince Jefri. By these arrangements, the firm sought to ensure that nobody who had any of this information worked on the new project. Most of the work on the project was carried out in Brunei; and such work as was required to be done in London was
23 24
Garner, op cit, page 152 At para 7-001
12
done in a separate project room with restricted access, and in a separate building from that which housed the forensic accounting department. Separate computer file servers were used for the new project and all electronic information relating to the work previously done for Prince Jefri was deleted from the firm’s servers.
27. Lord Millett held that, once it was shown that the defendant firm was in possession of the former client’s confidential information and that the firm was proposing to act for another party with an interest adverse to that of the former client in a matter to which the information is or may be relevant, there was an evidential burden cast on the firm to show that there was no risk that the information would come into the possession of those now acting for the other party. While accepting that there is no rule of law that Chinese walls or other such arrangements would necessarily be insufficient to eliminate the risk, “the starting point must be that, unless special measures are taken, information moves within a firm”.25 In the result, the measures undertaken by KPMG to protect Prince Jefri’s confidential information were held to be inadequate, in large part because of the ad hoc nature of the arrangements: “an effective Chinese wall needs to be an established part of the organisational structure of the firm, not created ad hoc ...”26 28. Case law in England and other jurisdictions has suggested a reluctance to accept that information barriers can be effective to prevent conflicts. However, pointing out that there has been very little authority in recent years, Hollander and Salzedo argue for a relaxation of the rules27: “The increasing sophistication of legal services over the last generation has meant that law firms and other professionals are increasingly accustomed to using information barriers as a matter of everyday practice, and that clients are equally increasingly accustomed to seeing them. There is, it is suggested, a real difference from the position ten years ago. Ten more years of information barriers have led to a greater acknowledgment in business of their necessity. There seems more of an emphasis on the importance of a client being 25
[1999] 1 All ER 517 at page 529 Ibid, at page 530 27 Op cit, para 7-019 26
13
entitled to have the services of his lawyer of choice unless there is good reason to the contrary. It is suggested that the English courts may now take a more relaxed view of information barriers than they did in the few years after Bolkiah. They certainly should do so.”
Informed Consent 29. In Clark Boyce v Mouat28, Lord Jauncey defined informed consent as – “... consent 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 he possesses as to the transaction or may be disabled from giving advice to one party which conflicts with the interests of the other.”
30. In that case, Mrs Mouat agreed to mortgage her home as security for a loan being made to her son. The son’s usual solicitors declined to act in the conveyancing transaction and Clark Boyce were asked to act for Mrs Mouat and son. The solicitors explained the transaction to Mrs Mouat and advised her to obtain independent advice (on three occasions), which she declined to do, and on that basis they acted for both her and the son.
The son subsequently became
bankrupt, and Mrs Mouat sued the solicitors, contending that they were in breach of fiduciary duty in not refusing to act for her, failing to disclose to her that the son’s usual solicitors had refused to act, and failing to advise her not to sign the mortgage. The Privy Council, allowing the appeal from the New Zealand Court of Appeal, said that there was no general rule of law to the effect that a solicitor should never act for both parties in a transaction where their interests might conflict; on the contrary, he may act, provided he has the informed consent of both to his acting. Lord Jauncey set out the general principle in these terms: “There is no general rule of law to the effect that a solicitor should never act for both parties in a transaction where their interests may conflict. Rather is the position that he may act 28
[1993] 4 All ER 268 at 273
14
provided that he has obtained the informed consent of both to his acting.”
31. However, it should be noted that as Richardson J pointed out in the New Zealand case of Farrington v Row McBride & Partners29, “... there will be some circumstances in which it is impossible, notwithstanding such disclosure, for any solicitor to act fairly and adequately or both”. This statement was referred to with approval by Lord Jauncey in Clark Boyce v Mouat30, with the observation that “Richardson J no doubt had in mind a situation where one client sought advice on a matter which would involve disclosure of facts detrimental to the interests of the other”. In such a case, the attorney will be inhibited, either by the obligation of confidentiality or professional embarrassment from acting effectively in the matter.
Conclusion 32. This has been a necessarily selective survey of some of the established principles in a complex, sensitive and still evolving aspect of the law governing the relationship between attorney and client. As the various references to the Canons indicate, several of the dilemmas which the principles seek to address are essentially ethical in nature. They therefore require from the attorney a constant focus on what is the right, just or proper solution whenever a question of conflict of interest arises; and, as has been seen, all doubts in this regard must be resolved in favour of the client.
C. Dennis Morrison 24 October 2016
29 30
[1985] 1 NZLR 83 at 90 At page 274