Will clients accept new conflicts rules?
Friday 22 January 2010 by Rachel Rothwell
The SRA’s latest, fast-tracked consultation on conflicts of interest is expected to receive a warm welcome in the City.
Indeed, it is the City of London Law Society that has been pressing for the reform, which will allow law firms to act for ‘sophisticated’ clients in any situation in which there is a conflict of interest, apart from litigation, as long as they consent.
The CLLS argued that the current rules were tying lawyers’ hands unnecessarily, being overly protective of clients who were sophisticated enough not to need that protection, and indeed who would rather not have to keep finding another adviser because their usual firm was conflicted out on a deal.
For some sectors that is undoubtedly true. When it came to the recent banking crisis, there were only just enough magic circle firms to go round, and banking is the type of sector that is likely to be fairly relaxed about the rule change.
But not all clients will welcome the move. General counsel in some corporates are adamant that they would not want a firm that acts for a major competitor – and especially not on the same deal.
Smaller corporate law firms will miss out on the rule change because they won’t be ‘properly resourced’ enough to have the capacity to provide separate teams to act for each client, plus another team or individual who can make ‘dispassionate and independent decisions’ about whether or not the firm can act.
But they may also miss out in another sense, because there may be less opportunity to pick up work from the big firms that were unable to act because of conflicts.
For the magic circle and other big players that do take full advantage of the rules, it may be a bit of a culture change. Will partners acting for different clients on a deal have to start avoiding each other in the lift?
But there is also a more serious concern that when it comes to tough negotiations, it will be far harder to do the best for your client in an uninhibited way when the person on the opposite side of the table is actually one of your own equity partners.
Whether clients will be happy with that remains to be seen.
Comments
SRA and Conflict
It appears commercial expediency will override ethical and professional duty provided clients (who must be sophisticated enough, whatever that means) consent and the firms involved are large and resourceful enough to "separate" matters in practice. This is nothing less than one law for the rich and another for the poor.
In future cases of actual conflict, who will decide which client's interests come first, and on what basis, and how can such a situation, no matter how sophisitcated the clients, ever be compatible with the core duty that distinguishes solicitors from other professions?
What will professional indemnity insurers' attitude be when they are told a firm decided to act in a potential conflict that became a reality?
Who will pay the increased premiums that will result?
Babies and bathwater come to mind.
Are we solicitors or are we not?
Or should "sophisticated" clients be able to pay less for the services of those businessmen with legal knowledge who do not wish to continue in practice as solicitors?
If that pressages a division of the profession, isn't that what will occur in any event if these new proposals become reality? In the circumstances, what lies behind the fore-shortened consultation period, and whose interests is the SRA serving by acting in such a manner?
conflict rule change
I hope that insurers will ask for all informed consent deals to be reported to them. I also hope that the firms who go down this route, and obviously persuade their clients to come with them, do not mind being regulated by the SRA and their insurers. Personally I object to this approach being available. It keeps the Magic Circle small, too small, and it risks damaging the reputation of the entire profession. Firms who want to run their businesses in this way are also undermining the collegiality that makes a firm a firm and not a loose association of colleagues. What will they make of fighting one another? I hope that those firms who do not propose to use this loop hole make much of that fact when beauty parading. The whole thing smacks of short sightedness and greed.
I have campaigned, spoken and written about this for best part of a decade so I am sorry that it has come to pass. I hope we aren't going to see yet more of this from the new SRA.
Will the clients be informed
Will the clients be informed that this is the case? And No I do not think any client would be happy with this situation unless there is something untoward in the case that they want covered up by having the one firm and a guarantee