Unexpected conflicts of interest

P and S were two solicitor brothers who had purchased a hotel in a small market town, both as an investment and for their own personal enjoyment.

The bad news was that the hotel was not successful.

It had enjoyed better days, but an adjacent motorway had devastated passing trade, and changing social habits had removed much of its former attraction.

Bedroom sales were poor and income was derived largely from the bar.

Still, the solicitors spent significant sums on renovations to recover business.

The solicitors acted for a client anxious to acquire a public house in the area and who had set his heart on a property that was not destined to proceed.

The solicitors saw an opportunity, and suggested to the client that he may care to buy into their hotel business through a partnership arrangement.

Their client, who was not advised to seek independent advice, entered into an agreement to run the hotel in return for a fixed income, and paid into the business account almost all his savings which he had intended to use to buy his public house.

In accepting their new partner's input, the solicitor brothers did not disclose the true financial state of the business and withheld essential information.

Eventually reality dawned, and the 'new partner' left, losing most of his investment.

The solicitors claimed that at the point of their former client's acceptance of partnership terms, he had ceased to be 'a client' and became their 'partner', thus removing any obligation on their part to ensure that he sought independent legal advice.

The former client complained that the solicitors had acted In a conflict of interest situation and had failed to insist on independent advice, which, it was claimed, would have resulted in the client walking away from the offer.

The solicitors resisted the allegation, claiming that the relationship had changed when their former client had ceased to be a client and had become a partner.

The solicitors had overlooked principle 15.04 (1) of the 1999 edition of the Guide to the Professional Conduct of Solicitors.

A presumption of conflict arises where a solicitor, in his personal capacity, sells to or purchases from or lends to or borrows from his own client.

The adjudicator also found that the brothers had acted in breach of principle 17.01 of the guide.

Solicitors must not act, 'whether in their professional capacity or otherwise towards anyone in a way...

contrary to their position as solicitors.

Nor must solicitors use their position...

to take unfair advantage either for themselves or another person'.

Their former client pursued civil proceedings against the solicitor brothers.

It was decided that a client did not 'suddenly change status' as alleged.

The client knew the brothers 'as solicitors', which they continued to be, and both received a severe reprimand for acting in breach of two fundamentally important guidelines.

Every case before the adjudication panel is decided on its individual facts.

This case study is for illustration only and should not be treated as a precedent