In-house lawyers have been offered a final opportunity to respond to proposals to relax client conflict rules after the Law Society moved one step closer to incorporating them into its rules.
The proposals, which are based on a hard-hitting report compiled by a City of London Law Society (CLLS) working group two years ago, recommend a radical overhaul and relaxation of current conflict rules to bring them more into line with those in continental Europe.
Recommendations include proposals to allow law firms to act against existing clients in certain situations including litigation – without the need for client consent.
Last month the Law Society’s regulation review working party approved the proposals in principle and urged the Society’s ruling council to “agree to the approach” set out in the report.
The working party approval followed a wide-ranging consultation exercise, which saw the Law Society send the consultation document to 14,000 solicitors nationwide, including all heads of legal.
Bronwen Still, head of policy for the Law Society’s professional ethics division, said that the Law Society received 90 responses in total. Only two of these were from or on behalf of lawyers working in commerce and industry and none were from lawyers working in the big corporates.
“The results were disappointing,” said Still. “We would very much welcome feedback from more corporate clients.”
The changes centre on paragraph 15.01 of the Law Society guidance, which says that a solicitor or firm of solicitors should not accept instructions to act for two or more clients where there is a conflict of interest or significant conflict of interest.
The report argues that the interpretation of conflict of interest is unclear and while some law firms interpret this wording to mean that a firm cannot act against the interests of an existing client in any circumstances, City firms generally adopt a softer approach and take the view that a firm can act for a client “even in litigation”, as long as it is on an unrelated matter.
The report, which separates the issues of conflict and client confidentiality, also recommends that a law firm should be able to act where it is holding confidential information without the consent of the client if appropriate Chinese walls are put in place.
The problem for clients is that the rules would give the go-ahead to firms to unilaterally make a decision about whether they are able to act without the client necessarily knowing that the decision has been made.
Clifford Chance partner Chris Perrin, who chaired the CLLS working group, said that the proposed new rules simply reflect what is “already happening in City firms”.
Aside from the consultation exercise by the Law Society, Perrin said that the CLLS canvassed the views of clients of the firms who made up the working party. He says that there was “as expected, a mixed response”.
This confirms reports in Legal Director’s sister title Legal Week in July 2001 that when Allen & Overy, another firm represented on the CLLS working party, canvassed banking and private equity clients about a relaxation of the firm’s conflict rules, the majority had reacted negatively.
As law firms have moved onto the global stage, issues of client conflict have come to the fore.
The CLLS report claims that the current Law Society rules are unduly restrictive and make solicitors in the UK uncompetitive, compared to their European counterparts.
But if the Law Society incorporates the proposals it will place a greater gap between the UK and the US.
Client confidentiality and conflicts rules in the US are far more restrictive than the current rules and the CLLS report acknowledges that the effect of the recommendations will be to emphasise the differentiation.
The Law Society is currently taking steps to amend its rules and a spokesperson said that the final draft will be available in the next couple of months.
The proposed draft conflict rules
Proposed draft conflict rules comparing the current position and the general position in continental Europe
