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A question of conflicts of interest

by Simon Longstaff

The problem to be considered in this article relates to the vexed question of what is generally known as 'conflicts of interest'. Naturally enough, any treatment of this question will need to include an assessment of the standing of 'Chinese walls'. However, before proceeding it is necessary to clarify a matter of terminology. It may be that little actually hangs on this point, yet its merit lies in its effect as a means of focussing the ensuing discussion.

It is argued that the term 'conflicts of interest' is something of a misnomer. Rather, it is suggested, a more appropriate way of describing the matter under consideration is to speak of conflicts of duties. Whilst it is accepted that there are times when a lawyer will have a financial interest in maximising the number of clients (even if their interests conflict), there must be a presumption that the duty of the professional to the client will be at the forefront of his or her concerns. It is hoped that this is not too starry-eyed a view of the legal profession.

To abandon the assumption that the vast majority of lawyers look to the welfare of their clients before their own would be effectively to deny that there is a legal profession as such.

With this in mind, it is argued that the potential for conflict actually arises when the interests of two or more persons, other than the lawyer, conflict. And given that the lawyer's relationship is founded on a duty to his or her client, so it is that the issue is that of a conflict of duties. One of the purposes in the unfolding argument will be to demonstrate how it is that this change of focus impinges on the general debate about conflicts.

There is of course one simple and unambiguous response that might be made to the problem of real or potential conflicts of duty. That is to place an absolute prohibition preventing any lawyer, or firm of lawyers, from ever acting for more than one party in any transaction whatsoever. This approach would at least achieve the objectives of clarifying the situation and of relieving the pressure on those who are called to exercise their judgement in these matters. However, there seems to be something counter-intuitive about the idea of a total prohibition. Why should this be?

In beginning to answer this question it is important to note that a blanket prohibition seems to fail to take account of the views of clients. That is, in its effort to determine that which is fair and proper in the conduct of the legal profession someone (perhaps members of the self-regulating profession itself) would have acted as the arbiter of the ‘good’ of others. To be sure, there is a need for someone to consider these issues and ultimately, to decide. However, it is not self-evident that anyone other than the parties concerned ought to determine the extent to which prima facie duties of lawyers to clients ought to be discharged.

All of this is to suggest that any move towards prohibition ought to be tempered by acceptance that more than one party has the capacity, and perhaps the right, to instruct the same solicitor in the same matter.

This, of course assumes that the various parties have concluded that it is in their interests so to instruct.At a relatively uncontroversial level this makes allowance for the development of class-actions in which one lawyer acts for many persons. And using the same principle, it means that in matters which are not obviously contentious, such as with the sale or transfer of property, there is at least the theoretical possibility that one lawyer will act for different parties to the same matter.

The possibility of the development of a conflict between parties to an otherwise amiable transaction is, of course, there. Some might argue that the fact of this possibility is enough to suggest that lawyers not be able to act for more than one party to a transaction, even with informed consent.

However, it is important to see whether this principle can be applied consistently when considering the practice of lawyers. For example, if the possibility of a conflict is thought to disallow the practice of representing more than one party to a transaction, is this same possibility also to be considered as relevant when deciding whether or not to take instructions from competitors who operate within the same jurisdiction, industry and market?

There is always the possibility that existing or future clients will find themselves at odds with each other. The fact that they have previously sought advice from the same lawyer will have little bearing on the issue of whether or not they develop a conflict. Likewise, if a lawyer were to act in good faith for more than one party to a transaction, there is neither a greater nor a lesser likelihood of a subsequent conflict developing.

Thus, the issue would seem to return to that of whether or not it is consistent with the duty to the the client for a lawyer to act, with informed consent, for more than one party. It has been argued above that to do so is consistent with this duty. However, in allowing for this possibility, it is important to stress the need for the lawyer always to be conscientious in advising clients whenever there is a possibility of a conflict developing. The onus is on the lawyer at all times to make this information available to clients so that their choice of a representative is informed by up-to-date and relevant information.

This position, which some lawyers will find unsettling, arises because of the principle that lawyers are bound to follow their clients' instructions - providing only that to do so is within the law. There are a number of problems with a view which implies that lawyers ought to suspend their sense of judgement about right and wrong in support of their clients achieving their stated end.

Put at its most extreme, this is exactly what some do advocate (always remembering the limits set by the Law). This is not the place to address this issue. However, to hold to this position, in its weak or strong form, also commits one to the proposition that the client may instruct the lawyer to help achieve an end that, despite the lawyer's best advice, is contrary to the client's interests.

It is clearly the case that much of the concern about conflicts arises because of a fear that the lawyer will be unable to fulfil the fiduciary duty to the client. That is, in acting for more than one party in a matter, the lawyer's effort and skill will be diluted in a manner that leads to the disadvantage of all. In the most extreme of cases, where an adversarial situation exists, the absolute prohibition against one lawyer acting for both parties is based on what seems to be the well-founded assumption that it is not possible for the lawyer to honour the duty to both.

In this situation, it is argued, even the consent or instructions of the client are insufficient reason for acting for both sides. Apart from any concern for the interests of the client, the reason advanced in support of the prohibition is based on the prescription that "ought implies can". That is, one cannot be under a moral obligation to do the impossible (or to avoid the inevitable). It is not that it is impossible to act for more than one party when each of them is in open conflict with one or more of the others, rather the assertion is that it is impossible adequately to fulfil the duty to each. It is an impossibility of this kind which is thought to settle the matter.

Whether or not it really is impossible for one person to make all their skill available to mutually contending parties is an interesting question that, in another place, ought to be pursued. For the purpose of this article it would seem to be a defensible proposition - especially given legal doctrines such as the presumption that, as the principal, the client is in possession of the same knowledge as his lawyer.

Confidentiality and the client's right to know

However, whilst it is clear that there are considerable (even insurmountable) problems facing the sole practitioner who would represent contending parties, what is to be made of the situation in which these same parties develop a conflict whilst already peaceable neighbours retaining the services of the same law firm? Or, indeed, what should be the response if contending parties approach the offices of the same firm in the same city, or even different cities? Recent decisions by the courts indicate qualified support for a prohibition against a single law firm acting for more than one party engaged in a contest. Along with support for the prohibition has come an explicit rejection of the device used by firms to accommodate the different parties, the 'Chinese wall'. The only qualification to this position is that the way has been left open for the operation of 'Chinese walls' where all parties give their informed consent.

Then again, having read some of the judgements, one cannot help but form the opinion that even this qualification is made with some reluctance. The chief concern of those who oppose the use of 'Chinese walls' would seem to be that otherwise confidential information will leak through less than perfect seals.

This position is supported by reference to a combination of observation about human nature and the application of established legal doctrines. Of the doctrines, the most striking (for the non-lawyer) is that which maintains that a lawyer has a duty to make available to his client all of the lawyer's relevant knowledge. As one exponent of this position, Sir Robert Megarry, in Spector v Ageda (1973) Ch 30, said:

A solicitor must put at his client's disposal not only his skill but also his knowledge so far as is relevant, and if he is unwilling to reveal his knowledge to his client, he would not act for him. What he cannot do is act for the client and at the same time withhold from him any relevant knowledge that he has.

This is one of those examples of legal doctrine that must either be read with a fair degree of interpretative licence or be considered as clearly counter-intuitive. Admittedly, his Lordship has left plenty of room for flexibility by using the phrase "so far as is relevant". This could be interpreted as meaning 'pertaining to the case". Alternatively, it could be construed so as to also mean "appropriate that it should be known" (an admittedly unfortunate attempt to attain clarity).

Surely it is not being suggested that the client has the right to know anything that pertains to his case and that is also known by his lawyer. There must be some qualification other than relevance, so defined. In the rather different context of Mallesons Stephen Jaques v KPMG Peat Marwick, Ipp J makes the following observation while defining a conflict (1):

The conflict of interest is between the continuing duty of a solicitor, owed to his former client, not to disclose, or use to the latter's prejudice that which he learned confidentially, and the interest which he has in advancing the case of his new client.

It is suggested that there is certain information that the client is not entitled to know. For example, the lawyer may, through his contact with a client A, be in possession of relevant and useful information that would aid client B in his dispute with a non-client C. Rather than see a conflict of duty in this situation, it may be better to recognise that client B has no right to expect that the information will be given to her and as a result of this, the lawyer has no duty to provide it.

This, of course, is to take a different view from those who argue that the duty of the lawyer to disclose all relevant information remains in place and that the onus is on the lawyer to divulge the existence of a conflict so that a client may decide whether or not to consent to continued representation.

In respect of this general point, it is interesting to note the decision of the House of Lords in Home Office v Harman[1982] 1 All ER 532. Their Lordships ruled that a lawyer gives an implied undertaking to the court not to use information arising from discovery in one matter for the benefit of his or her self or any other person in any subsequent matter. That is, the Lawyer is required to set aside such information as though it had never been known. To use such information for the benefit of a client other than in the original matter, or anyone else, would to be in contempt of the court.

The proposition that a lawyer may be in possession of information which would be useful and relevant to a client and yet not have a duty to divulge this information if the client has no right to know of it or if another has a clear right to confidentiality, itself depends on a further assumption that is crucial to the operation of 'Chinese walls'. This is that it is possible to be in possession of confidential information without either using it to the advantage of the client or without communicating it to others (say, in the firm) who might use the information against the interests of the person to whom the knowledge rightly belongs.

This assumption has been challenged by those who, in particular, oppose written retainer agreements with new clients, preventing them from seeking certain information about former clients, and 'Chinese walls'.

Selective leakage through Chinese walls

One way in which to challenge the assumption outlined above is to argue that there is an inevitability about the fact that information gained in one context will colour the judgement of a lawyer acting in another context. For example, Tunstall (2) reports:

Mr Justice Ipp had difficulty in perceiving how a solicitor could divorce his or her mind from relevant confidential information when preparing a client's case.

His Honour's concern is that, "even with the best will in the world" (3) there will be a colouring of matters by the subconscious application of knowledge. One must agree with his Honour that there is a real and sensible possibility that this may occur in a vast number of cases where the 'common man' is involved.

However, one is also given the impression that the training and character of the lawyer are such that the possibility of subconscious 'leakage' is reduced by the very conscious processes engaged in with the practice of the Law. Indeed, this very assumption about the capacity of lawyers seems to be built into the way in which the courts operate the rules of evidence.

To the slightly informed observer it would seem that the courts are filled with barristers who know much that would be of use and relevance to their client's case but, being inadmissible, cannot be adduced.

Furthermore, when standing before a jury the barrister is required to forebear from introducing any evidence that is not admissible even, one suspects, to the extent of refraining from using innuendo or inference. What is more, should a jury inadvertently be presented with inadmissible evidence it will be instructed to ignore the fact and guard against a similar form of subconscious 'leakage'.

In reflecting on this problem it is interesting to note that the capacity to have knowledge yet not apply it in inappropriate circumstances or contexts has at least been recognised as belonging to one segment of the legal profession, namely the judiciary. For example, in a notice of motion Australian National Industries (ANI) sought that the matter of Spedley Securities Limited (in Liquidation) V Brian Richard Yuill & Ors (1991) (No.2) not be heard before Mr Justice Cole. In a closely argued decision in which his Honour declined to disqualify himself from hearing the proceedings, Cole J supported the contention that despite having already expressed views on questions of fact, and upon the credit of witnesses who would be material in the forthcoming proceedings, an even-handed bystander would come to the conclusion that his Honour would bring a fair and unprejudiced mind to the litigation. That is, his Honour would be capable of separating his knowledge by the use of some sort of conscious and internal 'Chinese wall".

In the face of this, it is a little difficult to see how the principle of the 'Chinese wall' can be criticised in a manner that allows for consistency of argument. Being vaguely aware of the practice of 'distinguishing' cases, one is cognizant of the possibility of distinguishing between the work of judges, barristers, juries and solicitors. It might be argued the role played by each is so different as to not warrant comparison. However, it stretches a point to suggest that 'Chinese walls' can never work.

There must be some circumstances where they are an appropriate response to the unforeseen difficulties that might arise when two existing clients suddenly find themselves in conflict. Surely it is better to allow for the construction of a non-porous wall, rather than telling either client to look elsewhere for legal representation. The cost and inconvenience to the clients alone must be borne in mind.

It is agreed that even the most sophisticated systems for erecting and maintaining 'Chinese walls' will come to nought if there is a deliberate attempt to breach them. However, as stated earlier, the observations in this article are based on the premise that there exists an honourable and properly regulated profession. To the extent that this premise is false the case for 'Chinese walls' is weakened.

A further stumbling block to be overcome by those seeking to defend the limited use of 'Chinese walls' is the legal doctrine that the knowledge of one partner is imputed to all. At a time when the so-called 'mega firms' are burgeoning with partners divided by a continent, this is another notion that seems counter-intuitive. It is understood that in some cases partners of the same firm in the same city have trouble recognising one another let alone those beyond their borders. In responding to this doctrine it may be enough to indicate support for moves to develop a rebuttable presumption that knowledge is imputed.

Duty and justice in the practice of the law

Before moving to a conclusion, it may be appropriate to take the discussion one step further. Somewhat paradoxically it is necessary to take a step back in order to reconsider some of the fundamental issues which arise when considering the nature of the lawyer's duty. The lawyer qua lawyer is recognised as having a range of duties that are not always mutually compatible. For example, it would be relatively uncontroversial to identify the lawyer's duties as being to:

• the client
• the court
• the community
• the profession

Perhaps more controversially, it can be argued that the lawyer (as with all others) also owes a duty to himself. One of the great difficulties with a list such as this is that it fails to make sufficiently clear the point that the lawyer's duty in each category is concurrent. Whilst many would recognise that there is a range of duties owed by a lawyer and that there are times when these duties can conflict, it is frequently argued that the duty to the client is (at the very least) that of primus inter pares.

Given the range of duties, how is it that the focus on the client is justified? Most lawyers may consider this to be a curious question to be asking. For them the answer would be all too obvious. However, the type of answer given to this question will have fairly profound effects on one's approach to the issues discussed above. And beyond this, the answer is by no means as obvious as some would think.

One way to account for the focus on the individual would be to suggest that it can be accounted for by the rise in influence of ideologies and political philosophies which support the idea of the liberal democratic state. There would be some validity in this approach. However, it would be radically incomplete unless it linked these intellectual traditions to the fact that they support an 'acceptable' solution to the vexed question of the lawyer's relationship to, and understanding of, the concept of justice.

For the most part, the current orientation of the system of justice leaves little room for lawyers to debate the notion of justice, let alone develop a substantive conception that could be applied. This, in part, comes about because Lawyers see their primary role as being to apply the Law, which is not necessarily the same thing as to advance the cause of Justice. Indeed, the courts have held, at least in principle, that their role excludes the general formulation and application of principles of justice.

Some would regard this as a welcome release from an onerous and ultimately frustrating task. Attention could be drawn to the fact that after thousands of years of concerted discussion and serious endeavour the matter still remains undecided. It is admitted that a definitive statement about the nature of justice is elusive. And it is admitted that the pursuit of an understanding of justice can be wearing.

However, this is not to say that the appropriate response is to abandon the search in favour of 'experts' such as judges, academic lawyers and philosophers. Nor is it to sanction the view that the question has received a sufficient answer by setting aside personal judgement in favour of the client's 'interests' (as expressed in the client's instructions) as long as this is within the Law.

This approach must fail for at least three reasons. Firstly, there is no assurance that the Law is just. Despite the historical standing of the declaratory theory and the popularity of a hybrid version of legal positivism and relativism, common sense will agree that some practices which are legal are clearly not fair.

It is realised that the notion of justice is not exhausted in that of fairness. However, it is suggested that nothing is just which is unfair. At present the Law allows a lawyer to receive instructions from a wealthy and powerful client to the effect that a matter should be dragged out until the costs of continuing overcome the weaker party. There is no way in which it can be argued that even a primitive sense of justice is being served in such circumstances. It is, therefore, reassuring to note developments in the application of the notion of 'unconscionability'.

Secondly, what can be called 'the suspension of judgement' requires the lawyer to abandon the one thing that helps to distinguish his or her profession from others. Plato used to draw attention to the fact that doctors were distinguished from others by their special knowledge and understanding of human health.

Although when it comes to an understanding of justice, Plato would want to cast his net wider, it is suggested that that which ought to distinguish a lawyer qua lawyer from others is a firm and active disposition to develop an understanding of justice. Failure to do so in favour of the client or a reliance on expert opinion, nullifies the practitioner's distinctive right to claim the title and attendant privileges of 'lawyer'.

Finally, to abdicate the decision about justice in favour of others is to run the risk of becoming confused about the difference between needs and wants. Clients are always the best judges of their wants. It is an open question as to whether they are the best judges of their needs.

This is not to suggest that Lawyers should remove the power of decision from their clients. Rather it is to suggest that lawyer's have a responsibility to advise their clients after having formed a view of the client's needs. The client will then be in a position to decide whether or not to follow that advice. And the lawyer, having recourse to a mature (if inexact) understanding of justice, will also be in a position to decide whether or not to continue to act.

Some argue that it is the duty of the lawyer to act so long as to do so is within the Law. Others go on to suggest that it is the duty of the lawyer to test the limits of the Law on behalf of the client. With one considerable qualification, having held that the Law is not always just, it must be conceded that there must be room for those who wish to challenge the Law. However, the critical qualification is that if the lawyer is to be true to his vocation then the testing of the Law must proceed from a conviction that to do so is in support of justice. Would anyone really wish to disagree with this proposition?

Perhaps not - at least not in too public a fashion. However, some will say that the interests of the client have been sacrificed in favour of an abstract principle. Others will be quick to point out that the definition of this abstract principle of justice has been left open. In answer to the first objection it is suggested that it must surely be in the interests of every individual, and of the community of each, that lawyers proceed in support of justice. This principle is obviously recognised by those who support the current system of justice in which private grievances are settled in a public process that claims to be informed by a commitment to the pursuit of an abstract principle, justice.

But this is still to beg the question as to what justice is. It would be wonderful to be able to provide the definitive answer in this paper. Alas, it will not be found here.

Yet this is not something to cause too much concern. It is not that lawyers (or philosophers) should have a final answer to the question of justice. Rather, it is that they should be seeking an answer. This need not be a solitary pursuit. Indeed there is much to be said for each firm or floor of lawyers to be working to develop their own answers. These in turn could be contributed to a wider debate within the profession.

Again, the provisional nature of any answers that might be found is not reason for a 'suspension of judgement'. Even the findings of science are ultimately provisional - yet they support an active life in the modern world. Instead of suspending judgement, the lawyer might offer for the benefit of the client the best insights that he or she has developed. It must be stressed that the client retains the right to reject these insights, just as the lawyer ultimately retains the right to reject the client. It should be confessed that linked to this position is a supposition that justice should be available to those who seek it.

Trying to understand justice requires honesty and commitment. Articulating even a provisional conception of justice requires courage. Applying justice requires a certain kind of benevolence. Honesty, commitment, courage and benevolence. Words such as these would be recognised by many as belonging to one of the possible lists of the virtues.

The implication of this is that if lawyers are serious about understanding and applying the concept of justice then they may also have to consider whether or not there is a set of dispositions that should be developed as part of taking on the mantle of the title 'lawyer'.

This is to hark back to a notion that seems somewhat quaint to the modern ear, the notion of a noble and learned profession. In turn, this suggests that there are important questions to be answered about the role of firms and floors in developing an appropriate ethos, of the role of senior practitioners in the induction of more junior members into the way of the lawyer (as exemplified by each distinctive milieu), of the role of legal educators in the preparation of lawyers and of the role of the professional societies in regulating admission to the profession as well as its practice.

It has been argued that the problem of conflicts cannot be solved by appealing to the primacy of a duty to the client. This appeal leaves open the possibility of a client instructing a solicitor to disregard the conflict or, even, to enter into a situation of conflict. In some cases this is to say nothing more than that there must be an allowance for informed consent by contending parties who wish to have a single firm act for both.

It has also been argued that there is no reason to believe that lawyers are incapable of effectively separating information in their mind so that clients only have access to that which they are entitled to know. Allied to this has been an argument that the imputation of the knowledge of one partner to all is, in the current circumstances of 'mega firms', something that is deserving of reconsideration in favour of a rebuttable presumption.

Conclusion

This line of argument would suggest the following conclusions:

1. That providing a lawyer judges him or her self able to separate knowledge into its appropriate sectors and providing that all parties agree, then there would not seem to be any reason for disallowing the lawyer to act for both parties in a non-contentious matter. As a matter of prudence, it may be that there are situations where the lawyer's decision in this matter should be subject to peer review. Where there is a dispute, it has been supposed that a single practitioner will be incapable of acting for more than one party. As "ought implies can", the sole practitioner should not so act.
2. That it be accepted that 'Chinese walls' could be effective. As such there is no prima facie reason why they should not be allowed. If there is reason to doubt that they will be respected (eg. evidence of past abuse) then, in that case, they should not be approved. The argument that there could be a subconscious 'leak' does not sit well in a system that often depends on the assumption that certain classes of lawyer are immune from this particular weakness. However, support for the principle of 'Chinese walls' depends on a presumption that those who operate within their environs have the disposition to respect their boundaries.
3. Having said all of this, this article is only to be read as indicating that such practices as 'Chinese walls', acting for more than one party (in some circumstances) etc., may be permitted. It is not arguing that such devices and conduct ought to be employed. The decision about such matters should be left to individual and groups of lawyers as they develop their own sense of what justice requires. One question that might be considered in this respect would be, "is this practice fair?". It is therefore conceivable that some will want to use devices such as 'Chinese walls' whilst others will shun the practice. There is nothing wrong with this state of affairs.
4. Naturally enough there will be commercial pressure on some to provide a service that, in other circumstances, they would be disinclined to provide. At such times there will be a test of moral courage. Some would suggest that there was a period when the canons of the profession were never breached - whatever the financial inducement. Are such times gone forever? Others will develop a conception of justice that avoids the adversary model. It may be that in their conception there will be a recognition that the just solution is that which is mediated and fair to all concerned. As is increasingly the case, room could be made for systems of alternative dispute resolution. A single lawyer, working with more than one client and remunerated by all, might seek to understand the needs of all parties, help them to define options and then find a solution acceptable to all.
5. Exploring these options in a relatively open-ended way is not just a matter of the philosopher going about the traditional business of leaving everybody more confused than they were before he or she entered the argument. That may be the effect. However, the intention has been to avoid suggesting a definitive answer to the questions because to do so would be to extend an invitation to those who would prefer to sit back and let an 'expert' provide the answers. This article is not the work of one who is in any sense an expert in the Law. However, if answers are not provided there is at least an indication of the direction in which they might be found. And having indicated a direction, the implication is that it will only be of use to those who are prepared to undertake at least a short journey to discover where it may lead. Travelled alone or in the company of others, it does not matter. Just so long as there are people on the road.

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