City lawyers expressed hope this week that a new practice rule has finally delivered clarity over conflicts of interest.

The rule, which came into force last week following government approval, officially gives solicitors freedom to act in certain circumstances where there is a conflict of interest between clients.


The new conflicts and confidentiality rule was agreed by the Law Society Council in September 2004, but was delayed after objections were raised by the Legal Services Consultative Panel, which advises the Lord Chancellor and wanted to widen the definition of conflicts. The Law Society eventually overcame the panel's main objections.


Under the rule, solicitors may continue to act where there is a conflict if the clients have a 'common interest' that makes it more practical and cost effective for them to share the same solicitor, for example, where they are members of the same family, are setting up a company together, or are different tiers of lender in a financing transaction. The solicitor must obtain written informed consent from the clients before acting.


In another exemption aimed at City firms with sophisticated clients, solicitors may act for clients competing for the same asset - for example, creditors in an insolvency, or competing bidders in a tender or auction. Law firms must set up information barriers and obtain written, informed client consent from clients to take advantage of this exception. Only sophisticated City firms are likely to be able to satisfy the requirements relating to information barriers.


Peter Williamson, chairman of the Law Society's Regulation Board, said: 'The new rules are much clearer and more suitable for modern business practice than the old ones. They allow far greater flexibility for firms, while continuing to protect the interests of clients.'


Raymond Cohen, director of compliance and conflicts at Linklaters, said: 'The new rules reflect what the firms regard as current best practice, although the requirement for written client consent is an additional formality that goes beyond what many [firms] may have introduced.'


Former Clifford Chance managing partner Tony Williams said: 'It is good to have a grown-up position which enables an informed arrangement and does not harm the client's interests... But [the delay] has been worrisome.'


A second new practice rule has introduced a requirement not to put a client's confidentiality at risk by acting for a new client. It establishes that confidentiality must take precedence over the duty of disclosure, except where disclosure is required by statute.


Link: www.lawsociety.org.uk.