11. Conflict of duties concerning current clients

11.1 A solicitor and a law practice must avoid conflicts between the duties owed to two or more current clients.

Duty of loyalty

11.2. If a solicitor or a law practice seeks to act for two or more clients in the same or related matters where the clients’ interests are adverse and there is a conflict or potential conflict of the duties to act in the best interests of each client, the solicitor or law practice must not act, except where permitted by Rules 11.3, and 11.4.

11.3. Where a solicitor or law practice seeks to act in the circumstances specified in Rule 11.2, the solicitor may, subject always to each solicitor discharging their duty to act in the best interests of their client, only act if each client:

11.3.1. is aware that the solicitor or law practice is also acting for another client; and

11.3.2. has given informed consent to the solicitor or law practice so acting.

Duty of confidentiality

11.4. In addition to Rule 11.3, where a solicitor or a law practice acts for two or more clients in the same or related matters and the solicitor or law practice is in, or comes into, possession of information which is confidential to one client (the first client) which might reasonably be concluded to be material to the other client’s or clients’ matter and detrimental to the interests of the first client if disclosed, the solicitor and the solicitor's law practice may not act or continue to act for the other client or clients unless each client’s informed consent:

11.4.1 permits the disclosure and use of that information for the benefit of the other client or clients; or

11.4.2. requires the establishment and maintenance at all times of an effective information barrier to protect the confidential information of each client.

Actual conflict arising between current clients in the course of a matter

11.5. If a solicitor or a law practice acts for more than one client in a matter and, during the course of the conduct of that matter, an actual conflict arises between the duties owed to two or more of those clients, the solicitor or law practice may only continue to act for one of those clients (or for two or more of those clients between whom there is no conflict) in the following exceptional circumstances:

11.5.1. any client for whom the solicitor or law practice ceases to act has given informed consent to the solicitor or law practice continuing to act for the remaining clients; and

11.5.2. the duty of confidentiality owed to all of the clients, both those for whom the solicitor or law practice ceases to act and those for whom the solicitor or law practice continues to act, is not put at risk.

Commentary

In summary, solicitors may only act for two clients in the same or related matters if they have the fully informed consent of all clients. If a conflict arises in the course of those matters, then the consent from all clients is required before continuing to act for any client (though even with consent the conflict may be too clear-cut to continue). Similarly, if a solicitor is acting for two clients in unrelated matters, and confidential information arises in one matter relevant to another client’s matter, then the consent from all clients is needed.

11.1 Avoid conflicts between current clients

Rule 11.1 envisages that conflicts may occur but should be prevented. Solicitors should employ practice management skills to manage actual or perceived conflicts of interest before they arise – for example, identifying areas of risk, educating staff about conflicts, and developing policies to avoid and respond to conflict situations. 

In most cases, the conflicting duties will be the duty to maintain the confidences held for one client against the duty to use all of the solicitor's knowledge and skill for the benefit of a second client (the conflict recognised in Spector v Ageda [1973] Ch 30). The risk of conflict is heightened where the solicitor acts for separate clients in the one matter, the 'same matter conflicts' that are 'the very heartland of fiduciary law': Beach Petroleum NL v Kennedy (1999) 48 NSWLR 1, 47-8. Allowing the mere possibility of a conflict is itself a breach of the common law duty: Hilton v Barker Booth and Eastwood (a firm) [2005] 1 WLR 567 ('Hilton'). In that case, the solicitors did more than allow the possibility of conflict in acting for both vendor and purchaser in a conveyance. They knew that the purchaser had been a bankrupt and a convicted fraudster, and took active steps to hide that financial risk from the vendor. After the transaction collapsed, the vendor successfully sued for breach of the solicitor's duty. 

As with Rule 10, Rule 11 parallels the common law obligation to avoid conflicts that may be more subtle than that in Hilton. A breach of the obligation to avoid conflicting duties between two existing clients can result in a claim for civil compensation or an injunction. They may also be subject to disciplinary proceedings: see e.g. Re X, SC/388, 3 June 1997, Queensland Statutory Committee. In some circumstances acting for two or more parties in a transaction will result in a deterrent excess being applied by the professional indemnity insurer should a claim arise from that transaction.

The court also has an inherent supervisory jurisdiction over solicitors to ensure the due administration of justice, and may restrain a solicitor from acting even where there is no risk of the misuse of confidential information or a breach of a fiduciary duty of loyalty: UTi (Australia) Pty Ltd v Partners of Piper Alderman [2008] NSWSC 219, [46]-[52]. The test is whether a 'fair-minded, reasonably informed member of the public would conclude that the proper administration of justice requires that a solicitor should be prevented from acting, in the interests of the protection of the integrity of the judicial process and the due administration of justice, including the appearance of justice'. Even so, this jurisdiction is regarded as 'exceptional' and should be 'exercised with caution': Kallinicos v Hunt (2005) 64 NSWLR 561, [76]. 

11.2 Withdraw from one or both clients

Rule 11.2 states that the solicitor 'must not act' (except where permitted by Rule 11.3). This means that the solicitor should not act for either client, except as permitted by the rules. At common law, where a significant possibility of a conflict between the duties owed to both clients arises, the proper course for the solicitor to take is to withdraw from acting for both. It is not acceptable to withdraw from acting for only one of the clients, as in doing so the solicitor is likely to be acting in breach of duties that were owed to the other: Maguire v Makaronis (1997) 188 CLR 449, 465.

11.3A Informed consent

Rule 11.3 acknowledges that solicitors may act for two or more existing clients so long as both of the clients, being aware of the situation, have given informed consent. The rule mirrors the common law, as expressed in Farrington v Rowe McBride & Partners [1985] 1 NZLR 83:

"A solicitor’s loyalty to his client must be undivided. He cannot properly discharge his duties to one whose interests are in opposition to those of another client. If there is a conflict in his responsibilities to one or both he must ensure that he fully discloses the material facts to both clients and obtains their informed consent to his so acting … And there will be some circumstances in which it is impossible, notwithstanding such disclosure for any solicitor to act fairly and adequately for both": Richardson J at 90.

Accordingly, there will be cases in which acting for more than one client in the same or related transactions will create irreconcilable duties and it will be improper to act, regardless of the consent obtained. Though the clients may be willing to permit multiple representation, it is the profession’s "integrity and common sense" that will answer whether or not to proceed: Lie Hendri Rusli v Wong Tan and Molly Lim (a firm) [2004] 4 SLR (R) 594, [47].

The existence of an informed consent negates what would otherwise be a breach of fiduciary obligations: Maguire v Makaronis (1997) 188 CLR 449, 467 ('Maguire').

11.3A.1 Informed consent

Informed consent requires transparency, full disclosure of all material issues and frankness to all the parties in any proposed multiple representations. What is fully informed consent is a question of fact in all the circumstances of each case; there is no precise formula to determine if fully informed consent has been given: Maguire at 466. 

In ‘same matter conflicts’, the following test was set by Clark Boyce v Mouat [1994] 1 AC 428: 

"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 which he possesses as to the transaction or may be disabled from giving advice to one party which conflicts with the interests of the other. If the parties are content to proceed upon this basis the solicitor may properly act": Lord Jauncey at 435.

Solicitors should do the following when obtaining informed consent:

• explain (in writing) in language the clients will understand, and with consideration of their experience of legal matters:
• the actual or potential conflict in the duties owed;
• the risks and consequences of the multiple representation;
• the advantages and disadvantages of the multiple representation;
• how issues of confidentiality will be dealt with;
• available alternatives to the multiple representation; and
• where the circumstances of the case require it, recommend that the clients obtain independent and skilled advice from a third party: Maguire, 466-7; Commonwealth Bank of Australia v Smith (1991) 42 FLR 390.

Preliminary consent to disclosing information that is confidential may be needed. There is no implied right to disclose information because it is required to secure consent. Neither would it be an answer to failing to make full disclosure that you were unable to obtain the necessary consent to do so. If there is information that should be disclosed that cannot be, informed consent will be impossible to achieve.

11.3A.2 Consent in writing

Although Rule 11.3 does not stipulate that the informed consent be obtained in writing, solicitors are strongly urged as a matter of prudence to obtain the consent of both parties in writing. The consent should also be documented with the explanations, information and disclosures made. 

In Legal Services Commissioner v Taylor [2011] LPC 003, the solicitor acted for both vendor and purchaser in a conveyance. In disciplinary proceedings, the solicitor admitted that it ought to have been apparent to himself and his conveyancing clerks that the clients' interests were in conflict, and that he failed to properly supervise his clerks to ensure that he ceased to act for both parties immediately upon the conflict arising. Although he had later told his clients of the conflict, he failed to provide them with information in writing and failed to obtain written acknowledgement from the parties that he was acting on behalf of both. The solicitor was found guilty of unsatisfactory professional conduct for the breach of duties to his clients.

11.3B Multiple representations by type of matter

Cases and other guidelines assist in removing the risk of conflict in conveyancing, contentious and criminal matters.

11.3B.1 Conveyancing cases

Solicitors should avoid acting for both parties in conveyancing transactions unless the informed consent of each party to the transaction is obtained before retainers are accepted.

• In Clark Boyce v Mouat [1994] 1 AC 428, a solicitor acted for both a mother as mortgagor and a son as guarantor. He advised the mother to obtain independent legal advice; as if her son failed to meet the mortgage payments she would lose her own property. The solicitor was held to have made adequate disclosure and have secured fully informed consent to the transaction.
• In Re Yarwood, SCT/91, 6 May 2003, and in Re Evans, SCT/93, 6 May 2003, the Queensland Solicitors Complaints Tribunal dismissed disciplinary charges against two solicitors, but observed that it is undesirable for solicitors to act on behalf of both the vendor and the purchaser in the one transaction. Although technically permissible to act for both, informed written consent should be obtained from both parties.

The Queensland Law Society, in the guideline on the predecessor of Rule 11.3, suggests that a solicitor should not act where the real estate agent had paid or intended to pay the solicitor's fees, unless the solicitor obtained the fully informed consent of their client.

The deterrent excess in the Lexon Master Policy applies in circumstances where a claim arises from a transaction in which a practitioner acted for:

• both vendor and purchaser;
• both lender and borrower; or
• both lessor and lessee

In Yarwood and in Evans above, the tribunal recommended that 'under no circumstances should real estate agents directly or indirectly act as a source of referrals to legal practitioners. We are not saying that real estate firms should not be allowed to advise of the practitioners who are in the general locality, but it should be confined to that information and no other information.' It also recommended that the Queensland Law Society give a clear direction that 'no practitioner is to knowingly allow any of his firm's advertising material, retainers, business cards or letterheads or other relevant material be sourced and located at the real estate agent's office.'

11.3B.2 Contentious litigation

In litigation, the duty to avoid conflicting duties to two or more clients is more onerous. Parties to litigation who have potentially adverse interests must be separately represented. A solicitor may act for two or more parties in litigation only if the parties are on the same side in the proceedings, and their interests otherwise coincide. If either of these conditions are not met, the leave of the court must be obtained to represent more than one of the parties. Rule 8.03 of the Family Law Rules 2004 (Cth) explicitly demands this. 

11.3B.3 Criminal matters

The representation of multiple criminal defendants produces an inherent conflict of duties, as each co-accused may attempt to incriminate another. Moreover a solicitor may be obliged to inform a client of the benefits of informing on a co-defendant and the benefits of entering an early plea of guilty. When an actual or foreseeable conflict of interest arises, it cannot be cured by information barriers or by briefing of separate counsel to represent each co-accused client. The Law Institute of Victoria’s Guidelines in the Representation of the Co-Accused recommends that the solicitor should:

• advise the clients as soon as is reasonably practicable in relation to the risks and consequences that may flow if a conflict subsequently arises in the course of the proceedings;
• record the fact of such advice in writing; and
• provide the co-accused clients with a copy of the notice 'Information for persons jointly charged', which states:

… You may all be represented in court by the one solicitor or firm of solicitors only if there is no current or likely future conflict of interest between you and any other person who has been charged with you.

… If there is likely to be an argument between you and any other person charged with you about your role in the crime, then you should be represented in court from the start of your case by a different solicitor or firm of solicitors to any other person charged with you.

11.4 Confidentiality to be protected by information barriers

Rule 11.4 allows a legal practice to represent clients in conditions that would otherwise amount to a conflict where both the informed consent of both clients is obtained, and an effective information barrier is in place. Although paragraphs 11.4.1 and 11.4.2 are not explicitly connected by the conjunction 'and', the Law Council of Australia and the Queensland Law Society believe that that both must be met for a law practice to represent multiple clients. This is also the only position that appears to be compatible with the common law, although it is stricter than the common law by requiring both informed consent and an Information Barrier. The Information Barrier Guidelines (see commentary on Rule 10.2) only apply to conditions of successive representation, as do the permissible information barriers as set out in Prince Jefri. In equity, information barriers alone do not allow a practice to represent multiple clients with adverse interests simultaneously. The barriers are only a factor in securing what the firm must have: the fully informed consent of the clients concerned. As a result, reading Rule 11.4.1 and Rule 11.4.2 as cumulative requirements is the only position that allows Rule 11.4 to be read consistently with the common law.

11.5 Conflict arising during course of matter

In summary, Rule 11.5 provides that if a legal practice is representing two or more clients in a matter and a new conflict arises between duties owed to them, then the practice may only continue to act (at all) if no duty of confidentiality is put at risk. As always, all parties must give their informed consent, but even with that consent the legal practice must be satisfied that confidential information will not be disclosed. The rule should only be relied on in the rarest circumstances. Mostly, solicitors finding themselves in positions of actual conflict should withdraw from acting for both clients: see commentary under Rule 11.2 above.