Lawyer Client Conflict PDF

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LAWYER-CLIENT CONFLICTDal Pont Ch 6A. Basis of ProscriptionThe proscription against lawyer-client conflict comes from the basic fiduciary principle that lawyers must give their clients undivided loyalty, without being distracted by other interests such as personal interests. In essence, the lawyer’...

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LAWYER-CLIENT CONFLICT Dal Pont Ch 6 A. Basis of Proscription The proscription against lawyer-client conflict comes from the basic fiduciary principle that lawyers must give their clients undivided loyalty, without being distracted by other interests such as personal interests. 

In essence, the lawyer’s own interests must be coincident with those of the client. Avoid conflict of interests situations.

Scope of the proscription Proscription extends to avoiding the appearance of conflict Proscription extends beyond the individual lawyer 

Where an individual lawyer cannot act because of a conflict between interest and duty, that conflict is not avoided by another person in the lawyer’s firm or a person not entirely independent of the lawyer, taking on the matter.

ASCR: extends proscription to associates of the conflicted lawyer. Associate is defined as:     

A partner, employee or agent of the lawyer or of the lawyer’s firm A corporation or partnership in which the lawyer has a material beneficial interest In the case of an incorporated legal practice, a director of the practice or of a subsidiary of that practice A member of the lawyer’s immediate family A member of the immediate family of a partner of the lawyer’s law practice or of the immediate family of a director of the incorporated legal practice or a subsidiary.

B. Disclosure of Conflict and the Issue of Informed Consent Clients may relax conflict of interest rules; but this can only be effected through the client giving informed consent or authority to the lawyer acting in a matter involving a duty-interest conflict. Rules of Practice 1994 (Tas) r 11(2), 11(3): informed client consent requires full candour and appropriately complete disclosure to the client by the lawyer. 

Disclosure is directed at placing the client in a position to determine whether or not to retain the lawyer in the matter.

Law Society of NSW v Harvey: the disclosure must be a conscientious disclosure of all material circumstances, and everything known to him relating to the proposed transaction which might influence the conduct of the client or anybody from whom he might seek advice. Dealings with clients: Especial care should be taken where a lawyer proposes to act in a transaction for herself or himself and a family member or associate. Woolley v Ritchie

A solicitor acted on his behalf and for his de facto spouse in real transactions. Upon inquiring, the de facto spouse was told by the solicitor that it was unnecessary for her to seek independent legal advice. Held: she was not fully informed as to the implications of the transactions, which included the transfer of property and a mortgage in her name to a trust. The solicitor was under a duty to ensure that his de facto spouse was fully informed and freely consented, and the solicitor’s conflict stemming from his interest in the transactions required securing independent legal advice for the spouse. C. Proscription Against Secret Profits A fiduciary must not profit from the fiduciary position without the informed consent of the person to whom the fiduciary duties are owed. 

a lawyer must not profit from the position and role as a lawyer without the client’s informed client.

Fiduciary law: if by acting for a client in a matter, the lawyer stands to gain a benefit directly or indirectly additional to reasonable professional fees, this benefit must be disclosed or the lawyer must cease representing the client due to conflicting interests. Law Society of the ACT v Lardner Solicitors referred clients to a company controlled by their associate for the preparation of reports that were charged to the clients as disbursements, without disclosing that association. This was found to constitute a fiduciary breach, as well as misconduct, the court adding that the solicitors should have, in addition, given clients an indication of the likely costs the company would charge and an explanation of the comparative costs of engaging the company as opposed to doing the work within the firm or engaging an unrelated consultant. Specific application to undisclosed referral fees and commissions A conflict of interest is created where a lawyer accepts an undisclosed benefit for referring a client to a third party. 

This is because the lawyer has loyalties to both the client and the third party; and due to the referral fee, may be tempted to use the services of a person or business of a lower standard or of a greater cost than that ordinarily used.

ASCR r 12.4.3: a solicitor may receive a financial benefit from a third party in relation to representing a client or from another service provider to whom the solicitor has referred a client only if:   1.

The solicitor advises the client that a commission or benefit is or may be so payable and the nature of that commission or benefit and that the client may refuse any referral and The client has given informed consent to the commission or benefit in question Secret commissions

Re Two Solicitors (1911) 7 Tas LR 78: court held that solicitors who, as a result of introducing business to an auctioneer, received part of the auctioneer’s commission on the sale of a property they had been retained to place on the market, had failed to perform the obvious and necessary

duty of an attorney towards his client of fully informing him or his position before they sought approval of the sharing of the commission. Maher v Millennium Markets Pty Ltd A solicitor received a fee from a third party to arrange the sale of his client’s properties. Held: the solicitor’s interest in the transaction meant that he had not accurately explained or addressed in any substance the potential disadvantages to the clients from the arrangement. The solicitor should have ensured that the clients were independently advised as to the potential for conflict of interest in the fee agreement or, at the very least, personally advised them explicitly on the issue. Mere advise regarding the opportunity to seek independent advice did not protect the lawyer from fiduciary breach. 2.

Referral fees

O’Reilly v Law Society of NSW A solicitor who referred clients to a financing intermediary, which generated a premium to the intermediary, and a guarantee fee to the solicitor, should have advised his clients that: 

Going through the intermediary would involve economic costs of payable premiums to the intermediary and a guarantee fee.

ASCR r 12.4.3, 12.4.4 D. Dealings With Clients 1.

The proscription and its exceptions  



2.

A lawyer should take all reasonable steps positively to avoid dealing directly or indirectly, with his client. Lawyers must avoid transactions that will result in the intermingling of her or his personal affairs with client affairs. o This especially includes transactions that involve their spouses, family members or business partners. Exception: a lawyer may deal with a client provided that she or he has, with full candour and disclosure to the client, taken steps to ensure that the client has given a fully informed consent to the transaction. Borrowing from clients

A lawyer who wishes to borrow from a client is in a prima facie conflict of interest: 

The lenders’ interest is to secure the greatest return on the most favourable terms while the borrower’s interest is to pay the least interest on the most favourable terms.

This conflict is only resolved by the client;s free and informed decision about the proposed transaction. The client needs to know both the risk attached to the loan and the advantages that may flow to the lawyer from the use of the money.



The client should be fully informed regarding the lawyer’s interest in the borrowing enterprise, the lawyer’s own financial position (and his or her associates in the enterprise, the security for the loan, and its proper value, coupled with an explanation of the drawbacks, consequences and incidents of the transaction.

* Law Society of New South Wales v Harvey [1976] 2 NSWLR 154 The respondent solicitor’s clients lent money to three companies of which the solicitor was a director and shareholder. It was found that:   

the respondent had used his position as solicitor to channel clients’ money for use as the risk money in his own ventures involving substantial speculation in land. He recklessly disregarded the need to protect his clients’ property in failing to provide adequate securities And kept the details of these speculations from his clients, who were inexperienced in matters of investment and business and trusted the respondent to make investments on their behalf.

Held: a solicitor who acts as a loanbroker should be precluded from commending to his client a loan to a company or for a venture in which the solicitor has an interest. ASCR r 12.3: a solicitor is prohibited from borrowing any money or assisting an associate to borrow money from a client of the solicitor, or a former client of the solicitor who has indicated a continuing reliance upon the solicitor’s advice in relation to the investment of money. Exceptions: where the client is    

 3.

An Authorised Deposit-taking Institution A trustee company The responsible entity of a registered managed investment scheme or a custodian for that scheme An associate of the solicitor if the solicitor is able to discharge the onus of proving that a full written disclosure was made to the client and that the client’s interests are protected in the circumstances or The employee of the solicitor. Lending to clients

In lending to clients, a lawyer must:   

Disclose the interest fully and candidly to the client, preferably in writing Advise and facilitate the provision of independent advice in more than a perfunctory way Advise on, and facilitate access to, alternative sources of funds, particularly where these may be to the client’s advantage.

Maguire v Makaronis (1997) 188 CLR 449 The appellant lawyers lent money secured by way of a mortgage to the respondent clients for the purchase of the freehold overt a poultry farm. They did so without disclosing the firm’s interest as a mortgagee and were also retained to act on the purchase of the farm.

The clients defaulted after only one payment. The court found that the lawyers had breached their fiduciary duty because of the conflict between their duty to the clients and their own personal interest in the transaction, in particular as mortgagees under the mortgage, in circumstances where there was no informed consent due to the lack of independent legal advice for the clients. Therefore, the mortgage was set aside on the condition that the clients repaid the money borrowed. 4.

Equity investment in client

If lawyers are to invest their own money in a client’s business by way of debt, the same principles apply as if the lawyers are lending to clients. Issues: 

  5.

Lawyer’s interest in the client’s business may increase their financial dependence upon the success of the client’s business, which may prompt lawyers to sacrifice their professional independence in giving legal advice. There may be undue influence where lawyers, in striking a deal favourable to themselves, take advantage of the clients. Where the equity interest causes a client-client conflict. Lawyer purchasing client’s property

A solicitor proposing to either buy or sell property to a client is under a duty to cause the client to obtain independent advice. This is because:  

the lawyer will be unable to benefit/profit from information or opportunity derived by reason of the fiduciary position. The lawyer’s position of influence may lead the client to accept the terms and conditions of the transaction as suggested by the lawyer.

A failure to make full disclosure and to counsel the client to seek independent advice may open the lawyer to a claim for fiduciary breach or undue influence; this is even if the lawyer’s interest is developed after contract and before completion. Re a Barrister and Solicitor (1979) 40 FLR 26 A lawyer acted for the vendor of land and was invited by the purchaser, subsequent to exchange of contracts but prior to completion, to acquire a half-share in the property. The lawyer’s acceptance of the invitation without advising the client vendor of this interest or counselling the client to seek independent advice amounted to a breach of fiduciary duty. 6.

Transactions with former clients

There is no general fiduciary prohibition on lawyers dealing with former clients as fiduciary duties end with the termination of the relationship giving rise to the duties. However, the formal termination of the lawyer-client relationship, although a highly relevant consideration, does not always conclude fiduciary duties.

In assessing the scope of fiduciary duties, the court is influenced by the client’s reasonable expectations: if the expectation is that the lawyer-client relationship exists, then scope for attendant fiduciary duties arises. Longstaff v Birtles The claimants, who were intending purchasers, had instructed solicitors to negotiate with the vendors of a public house. The negotiations proved unfruitful, and so the retainer was terminated. The solicitors, who were partners in a hotel business venture, later invited the claimants to buy into the partnership, referring them to a local valuer, but not advising them to seek independent legal advice. The claimants’ entry into the partnership proved financially disastrous. The court upheld their claim for breach of fiduciary duty, even though the retainer had ended. Held: the source of the duty is not the retainer but all the circumstances that created the relationship of trust and confidence, from which flow obligations of loyalty and transparency. As long as the confidential relationship exists, the solicitor must not place himself in a situation where his duty to act in the interests of the confiding party and his personal interest in acting for his own benefit may conflict. 7.

Lawyer-client sexual relations

Generally, there is no proscription against lawyer-client sexual relations. However, it is undesirable for lawyers to engage in sexual relations with their clients as it may involve the abuse of the lawyer’s dominant position over the client. Issues:   

A client’s need for advice and protection may raise the risk of emotional involvement with or dependence on, her or his lawyer. The client might fear that were he or she to decline giving sexual favours, the lawyer may cease to represent him or her. Intimate relations between lawyer and client may interfere with the lawyer’s objectivity and independence in the conduct of the case.

Legal Practitioners Conduct Board v Morel A lawyer in her criminal law practice formed personal relationships with imprisoned clients on three separate occasions. These were found to have adversely affected her representation of at least one of those client: 

 

Her conduct allowed her client to make recorded admissions of serious criminal conduct during a telephone conversation. The client was unaware that the conversation was monitored, though the lawyer was aware of the monitoring. This led to an inappropriate disclosure and the loss of professional privilege. This meant that the client did not have independent legal advice about important matters concerning his liberty.

Additionally, the lawyer lied to the Department for Correctional Services with a view to obtaining legal visiting rights for the ulterior purpose of furthering a personal relationship. Consequently, the court found the lawyer to be presently unfit to practise law and removed her name from the roll.

However, if the intimate relationship has not impacted upon the quality of the representation or generated improper conduct, it is most likely to generate striking off or suspension. E. Lawyer as Witness ASCR r 27 Solicitor as material witness in client’s case (27.1) In a case in which it is known, or becomes apparent, that a solicitor will be required to give evidence material to the determination of contested issues before the court, the solicitor may not appear as advocate for the client in the hearing. (27.2) In a case in which it is known, or becomes apparent, that a solicitor will be required to give evidence material to the determination of contested issues before the court the solicitor, an associate of the solicitor or a law practice of which the solicitor is a member may act or continue to act for the client unless doing so would prejudice the administration of justice. 5. CONCURRENT CONFLICTS Dal Pont Ch 7 A. The Proscription  

The basic fiduciary proscriptions are directed at promoting undivided loyalty by lawyer to his or her client. This extends to a lawyer representing several clients with conflicting interests.

“a lawyer cannot give his exclusive, undivided attention to the interests of his client if he is torn between his client’s interests and those of another client to whom he owes the selfsame duty of loyalty.” The cause of action is grounded in fiduciary law. Thus a breach can be remedied by an order for equitable compensation which is not subject to the constraints of foreseeability or remoteness. ASCR r 11: 



Solicitors are prohibited from acting for two or more clients in the same or related matters whose interests are adverse and there is a conflict or a potential conflict of the duties to act in the best interests of each client Unless, each client is aware that the solicitor is also acting for another client, and has given informed consent to the solicitor so acting.

ASCR r 11.4: 

If there is an actual conflict that arises between the duties owed to two or more of the clients, the solicitor is allowed to continue to act for one of the clients (or a group of clients if there is no conflict between them) only if the duty of confidentiality to other client(s) is not put at risk and the parties have given informed consent.

Application beyond the individual lawyer to the firm  

The fiduciary proscriptions regarding concurrent conflict extend to the firm in which the lawyer is a partner, associate or employee. This is because where a law firm is concerned, clients retain the firm and not an individual lawyer

The larger the firm, the greater the possibility that concurrent conflict rules will operate harshly. Related v Unrelated Matters It is most likely that firms can act for and against clients in unrelated proceedings. Australian Liquor Marketers Pty Ltd v Tasman Liquor Traders Pty Ltd A law firm acted for a client in one proceeding in Queensland and against that client in unrelated proceedings in Victoria. The court rejected an application to restrain the firm from continuing to act for the plaintiff because:  

The proceedings were truly unrelated and handled by different offices of the firm The firm gave assurances that appropriate safeguards against concurrent conflict would be implemented.

Note: there must not be a “reasonable relationship” between the matters. Chinese Wall ASCR r 11.4.2: a law practice and its solicitors may act where there is a conflict of duties arising from the possession of confidential information where an “effective information barrier has been established, and this is independent of client consent. B. Contentious Work   

representation of multiple criminal defendants representation in family law proceedings the problem of the entity client

General Principle: A lawyer cannot represent parties in litigation that do not share the same interests in the process and outcome of the litigation; one or more of the clients will be denied the loyalty demanded by fiduciary law. Multip...