A law firm that put itself in a conflict of interest situation had to take the consequences of breaching its duty to one client through not breaching its duty to the other, the House of Lords ruled last week.


In Hilton v Barker Booth & Eastwood (BBE), the Lords overturned a Court of Appeal decision that implied in the claimant's retainer with the Blackpool-based law firm an exclusion from any general duty of disclosure of that which it was legally obliged to treat as confidential.



BBE acted for both property developer Ian Hilton and the development's purchaser in breach of the Solicitors Practice Rules. It also had a 'direct and personal conflict' as it advanced the deposit to the purchaser, whom it knew to be a convicted fraudster, 'so as to clothe him with the appearance of being a man of substance', Lord Walker said.


Lords: overtuned decision

However, the firm did not disclose the purchaser's background to Mr Hilton. The purchaser subsequently defaulted on the deal and it eventually led to Mr Hilton's financial ruin.

At first instance, the judge found that even if BBE had told Mr Hilton to seek independent advice, that solicitor would not have become aware of the conviction and so the transaction would have gone ahead, resulting in a ruling that the breach of duty had caused no loss.


While accepting that BBE was under a duty to the purchaser not to disclose the conviction, Lord Walker said: 'The notion that one breach of duty by BBE (failure to tell Mr Hilton that they could not act for him and that he should seek independent advice) should exonerate BBE in respect of a subsequent and more serious breach of duty (failure to disclose to Mr Hilton facts which would have saved him from ruin) seems contrary to common sense and justice.'


Neil Jones, partner at Blackpool firm John Budd & Co, acted for the claimant on a conditional fee agreement in the Lords phase after legal aid funding was withdrawn. He said the ruling corrected an anomaly created by the appeal court that it was better for a solicitor to act for two clients in such circumstances because the duty to one restricted the duty to the other.


Iain Fraser, a partner at Manchester firm James Chapman & Co, acted for BBE. He said: 'We believe the judgment may have potentially serious implications for any firm that acts for two clients, even inadvertently, before discovering a conflict of interest between them. For the period of the joint retainer, the solicitor will have been under a duty to disclose relevant information about each client to the other, and even if he refers one client elsewhere upon discovery of the conflict, may still be liable to an action for breach of that duty unless the new solicitor succeeds in discovering that information (or should have done so).'