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Home > Legal policy > Advisory bodies > The Legal Services Consultative Panel > Advice 4/2005

The Legal Services Consultative Panel Advice to the Secretary Of State on

An application by the law society to amend the conflict of interest and confidentiality & disclosure rules

This advice was given to the Lord Chancellor in June 2005.


Background

Advice

Background

The legal services consultative panel and publication of advice


  1. The Legal Services Consultative Panel (the Panel) was established by the Access to Justice Act 1999 in January 2000.
  2. The Panel has considered a reference made by the Secretary of State concerning an application from Law Society seeking to amend its Conflict of Interest and Confidentiality & Disclosure Rules. The Panel's advice was given in June 2005.
  3. The advice is published on behalf of the Panel by the Department for Constitutional Affairs. The complete document is also available in hard copy.
  4. Further copies of the Panel's advice are available from the Panel Secretariat (telephone: Dawn Sanderson on 020 7210 8816).
  5. The Panel comprises:

    Mr Alan Street (Acting Chair) Mr John Hannam Mr Simon Sapper
    Mr Jonathan Acton Davis QC Ms Karen Mackay Ms Peta Sweet
    Professor John Bell QC (Hon) Professor Richard Moorhead Mr John Young CBE
    Professor Hugh Brayne Mr John Randall QC  
    Mr Jonathan Goldsmith Mr John P Randall
    		 

Summary

Principles

  1. In considering and putting forward its advice on the application, the Panel has had regard to the principle central to the policy of the Courts and Legal Services Act 1990 and the Access to Justice Act 1999, namely the development of legal services in England and Wales (and in particular the development of advocacy, litigation, conveyancing and probate services) by making provision for new or better ways of providing such services and a wider choice of persons providing them, while maintaining the proper and efficient administration of justice.
  2. The Panel has also taken account of the five principles of good regulation identified by the Better Regulation Task Force (an independent group established in 1997 to advise the government) against which the appropriateness and effectiveness of any type of regulation should be tested, namely transparency, accountability, targeting, consistency and proportionality.

The Law society's application


  1. The Law Society's application is made to the Secretary of State under the provisions of Section 29 of, and Schedule 4 to the Courts and Legal Services Act 1990 (CLSA 1990) (as amended). By its application the Law Society is seeking to amend rule 16 of the Solicitors Practice Rules 1990, by making new rules 16D and 16E, which relate to Conflicts of Interest and Confidentiality and Disclosure. The provisions of these rules are identical to draft rules 3 and 4 in the Law Society's revised Code of Conduct.

The panel's observations and recommendations


  1. The panel makes the following observations and recommendations:

    • Rule 16d - Conflicts of interest: The Panel is concerned about the breadth of the proposed change to this rule and recommends the inclusion of a number of safeguards. These include: a more general definition of Conflicts of Interest; more clarity in the rules regarding a solicitor's duty not to act and exceptions to the duty not to act with regard to clients' interests being served and when it is appropriate to act in conflict situations; the need for careful consideration and definition of the particular client giving informed consent, and the need to show that proper informed consent has been given; and a proactive approach by the Law Society to ensure that the new rules are understood and complied with, including advice that details of the education and compliance and monitoring schemes be approved by the Secretary of State.
    • Rule 16e - Confidentiality and disclosure: The Panel expresses concern over the duty of confidentiality and the potential watering down of the duty by use of the word "permitted" in the rule, and recommends that there should be a clear reference made to the ability of solicitors to breach confidentiality in exceptional circumstances. The Panel questions the need for the existence of an adverse interest, and recommends that rule 16E(4)(ii) be deleted and the inclusion of additional safeguards to the concept of "Informed Consent" similar to those recommended in relation to rule 16D.

Conclusion


  1. The Panel advises the Secretary of State to approve the application, subject to the limitations set out in paragraphs 15.11 to 15.20 and 16.3 to 16.5 of its advice.

Advice

Introduction


  1. This Advice relates to an application by the Law Society to the Secretary of State dated January 2005 to amend its rules in relation to Conflict of Interest and Confidentiality & Disclosure. The basis of referral to this Panel refers at paragraph 1 to an amendment to the provisions of Chapters 15 and 16 of the Guide to the Professional Conduct of Solicitors (1999), a repeal of those Chapters and their replacement with rules 3 and 4 of the draft Code of Conduct. The Rules provided to the Panel for consideration are headed [Draft] Solicitors' Practice (Conflict) Amendment Rule [2004] and [Draft] Solicitors' Practice (Confidentiality and Disclosure) Amendment Rule [2004]. Both refer to an intention to amend rule 16 of the Solicitors' Practice Rules 1990 by making new rules 16D (in relation to conflict) and 16E (in relation to confidentiality and disclosure).
  2. The Panel infers from the analysis attached to the referral that rule 16D is the proposed rule 3 of the Law Society's draft Code of Conduct and rule 16E is the proposed rule 4. In this Advice, the Panel refers to rule 16D and rule 16E.
  3. The Law Society's application is made under Section 29 of the Courts and Legal Services Act 1990 ("CLSA"). In January 2005 the Secretary of State referred the proposal of the Law Society to the Legal Services Consultative Panel ("the Panel") for advice in accordance with the provisions of paragraph 11(1) of Schedule 4 to the CLSA 1990 as amended. The Panel understands that a similar referral has also been sent to the Office of Fair Trading.
  4. In considering and advising on the application, the Panel has had regard to the principle central to the policy of CLSA and the Access to Justice Act 1999, namely the development of legal services in England and Wales (in particular the development of advocacy, litigation, conveyancing and probate services) by making provision for new or better ways of providing such services and a wider choice of persons providing them, whilst maintaining the proper and efficient administration of justice.
  5. The Panel has also taken account of the five principles of good regulation identified by the Better Regulation Task Force (an independent group established in 1997 to advise the Government) against which the appropriateness and effectiveness of any type of regulation should be tested, namely, transparency, accountability, targeting, consistency and proportionality.

Background to the Application

  1. The Panel understands that the Law Society's proposals are a response to calls for change from commercial law practices and their clients who have found the current Law Society's rules and guidance on Conflict of Interest and Confidentiality & Disclosure to be lacking in clarity and therefore unworkable in today's legal market. They prevent solicitors from acting where the duty of confidentiality to one client conflicts with the duty of disclosure of all relevant information to another client, without including the possibility that a client can consent to waive either of these duties and may wish to do so. Information barriers are not permitted except in the limited circumstances where firms amalgamate.
  2. The Law Society has therefore made an application to the Secretary of State for approval of rules 3 and 4 of the draft Code of Conduct with the exception of Rules 3.07 to 3.23, which deals with conflict of interest in conveyancing matters. This exception is based on the premise that conflicts of interest in conveyancing matters do not impact on rights of audience and rights to conduct litigation, and are therefore not subject to the approval of the Secretary of State under Schedule 4.
  3. Rules 16D and 16E make a clear distinction between Conflict of Interest and Confidentiality and Disclosure. Rule 16D defines conflict of interest as a situation where a solicitor or a firm of solicitors owes separate duties to act in the best interests of multiple clients in relation to the same or related matters and those duties conflict, or there is a significant risk that they may conflict. The definition also covers the situation in which a solicitor's duty to act in the best interest of any client in relation to a matter conflicts, or there is a significant risk that it may conflict, with the solicitor's own interests in relation to that or a related matter. In such circumstances, the rule provides for a bar on acting but sets out exceptions to that bar, as is discussed below. It is made clear by sub-rule 16D(7) that the Council of the Law Society has no power to waive the provisions of the rule.
  4. Rule 16E provides that a solicitor's firm is required to keep the affairs of clients and former clients confidential except where disclosure is required or permitted by law or by the client/former client. The rule further provides that a solicitor is under an obligation to disclose to the client all relevant information of which the solicitor is aware which is material to the client's case regardless of the source of the information. That obligation is expressly subject to (i) the duty of confidentiality which always overrides the duty to disclose, (ii) where disclosure is prohibited by law, (iii) where there is an express agreement that there is no duty to disclose or a different standard of disclosure arises or (iv) where a solicitor has reason to believe that serious physical or mental injury will be caused to anyone if the information is disclosed. Sub-rule (4) amounts to a prohibition on putting confidentiality at risk by acting. Sub-rule (5) provides for an exception to that rule where there has been disclosure and information barriers are in place to which both clients consent. Sub-rule (6) provides for a further exception where it is impossible to obtain consent. Sub-rule (7) excludes any power to waive.

The Panel's considerations

  1. The Panel established a working group to consider the Law Society's application. Members of the working group met Law Society officials on 14 March 2005 in order to discuss the background to the application and highlight some concerns. The Law Society agreed to make some typographical changes to the original application.
  2. The Panel wishes to make plain that it does not see its role as one of checking that the proposed changes comply with the law and that this responsibility must sit with the Law Society.

Scope of the application

  1. The rule changes, the subject of the referral, do not extend to a conflict of interest in conveyancing matters. Those conflicts of interest are subject to a different rule and are not the subject of a referral on the premise that such conflicts do not impact on rights of audience and rights to conduct litigation and are, therefore, not subject to the approval of the Secretary of State under Schedule 4.
  2. The Panel was provided with some background material by the Law Society and from that and what was said at the meeting on 14 March 2005, the Panel understands that there are perceived to be four fundamental problems with the rules as currently drafted. These are:

    1. lack of clarity; in particular, there is no definition of a conflict of interest;
    2. the failure to take account of changes in recent years. In particular, the relaxation of rules to permit large numbers of partners and fee-earners in a firm, the increasingly specialised nature of practice, the large numbers of firms with regional offices in England, Wales and overseas and the changes of structure of firms require a different approach to the problems thrown up by confidentiality and disclosure;
    3. the clients' approach has changed in that they typically no longer instruct one firm for all problems but tend to spread their instructions amongst several firms. They instruct firms according to expertise so that one large firm may act for several clients that are in competition one with the other;
    4. a failure to reflect changes in the common law which now recognises that solicitors' duties can be waived by clients with informed consent so as to permit information barriers. Further, in limited circumstances, information barriers without consent are possible and the knowledge of one partner within a firm cannot be treated as the knowledge of all partners, albeit that there is a strong rebuttable presumption that knowledge moves within a firm. There is no principle of law that a solicitor cannot act for a client on one matter and against that client on another.
  3. The Panel was told that the pressure for reform comes not only from the members of the Law Society (in particular solicitors in the larger firms) but also their clients. The Panel records that the Law Society was not able to provide empirical evidence of client driven pressure.

Rule 16D Conflicts of Interest

  1. 15.1. Whilst recognising the pressures for reform, including what the Panel was told by the Law Society as to the current state of the common law, the Panel had anxiety about the breadth of the proposed changes.

    15.2. Rule 16D(2)(b) defines conflict of interest. On balance, the Panel is against conflict of interest being defined so specifically as it is in rule 16D(2)(b). The principal reason for this is that, after Enron and similar scandals, the Panel is not satisfied that the public interest is best served by a detailed definition, since the more detail that is given, the less responsibility for making a full and rounded decision on all the facts is put on the solicitor. The Panel considered what would be lost by deleting the given definition of conflict of interest, and what would be gained. It seems to the Panel that the certainty of having a definition, which would be an advantage, would be outweighed by the restriction on the solicitor's professional responsibility to think and take ethical responsibility for the whole of his/her own acts, regardless of whether they could be technically brought within a particular definition. It is also apparent from the guidance that the Law Society regards the solicitor as being in a conflict of interest situation even where there are no conflicting duties between a client and an existing/former client. One such scenario is dealt with in the rules (public office) and another in the guidance (professional embarrassment). It seems to the Panel, therefore, that there is merit in substituting the present conflict definition in rule 16D(2)(b) with something more general. This indicates an amendment to 16D(2) (at rule 16D(2)(b)) to substitute for the present wording of (2)(b) other words (and to delete 16D(2)(c) consequentially), such as (the following words are taken largely from 16D(6)):

    15.2.1. "There is a conflict of interests if for any reason your ability to advise and/or act for the client properly and impartially is inhibited, or if a fair-minded and informed observer would conclude that there is a real possibility that that were so."



    15.3. Another principle given some prominence in the guidance but which is absent from the rules is that the purpose of the exceptions to conflict rules is to permit lawyers to act for a client where the client's best interests are served by so acting. This is an important principle because it reminds solicitors that to take advantage of a permitted exception to acting where a conflict exists is an action that must be taken for the benefit of the client, not for the advantage of the solicitor. The Panel advises that 16D(3) is amended to include a provision to the following effect (at 16D(3)(b)(i), with consequential renumbering)

    15.3.1. "(i) all clients' best interests are served by you and/or your practice acting for them all; and,"



    15.4. The guidance gives some prominence to the idea that it is only appropriate to act in conflict situations where the solicitor/firm could act with even-handedness as regards all clients, giving each client's instructions equal weight. The Panel considers that such principle is sufficiently helpful and important for it to be expressly set out in either rule 16D(2) or (3).

    15.5. Rule 16D(3)(a)(ii) speaks of clients giving their "informed consent" to a solicitor/firm acting in a conflict situation. The Panel considers that a pre-requisite to such consent being given should be that the client has first received a written advice which informs that consent. The Panel therefore advises that the draft rule be amended by the addition of wording at the conclusion of 16D(3)(a)(ii) to that effect. In addition to specifying the potential conflict and confidentiality issues addressed, such written advice should clearly specify the protective steps to be taken to protect confidential information. The Panel agrees with the provision in 16D(3)(a)(ii) that all clients' consent should be recorded in writing. A particular concern arose in discussion within the Panel in relation to the concept of the "client". For example, in the case of a large PLC, the solicitor is probably dealing with an in-house lawyer who reports directly or indirectly to the Board. However, any advice given by a solicitor is likely to impact on customers and shareholders of the PLC. After discussion, the Panel recognises that responsibility to a PLC's shareholders is not something that an individual solicitor can usually accept, but is properly a matter of internal governance within the PLC. Similarly, experience has shown that a Board of Directors can be overly influenced by a Chief Executive. Accordingly, there is need for careful consideration and definition of the particular client who is giving its informed consent. The proposed rule change requires that the consent be in writing but the Panel does not consider that that gives adequate protection. As well as problems of defining who, within the client, should be giving consent, there may be a temptation for some firms to be less assiduous than others in seeking that consent (perhaps particularly where the consent relates to confidentiality, as to which see at 16.5 below). The Panel's advice is at paragraph 15.14 (and 16.5-16.6) below.

    15.6. The Panel feels strong concern about rule 16(D)(4). Neither the rule nor the guidance gives any indication to the solicitor as to which client should be left to find another solicitor. In reality there will be a strong temptation for the solicitor to be guided by commercial pressures in deciding which client to abandon. The Panel finds that to be unsatisfactory. The Council of the Bars and Law Societies of Europe include in their Code, which is binding on solicitors in cross-border cases within the European Union, at paragraph 3.2 a complete prohibition on acting for either client if a conflict arises when already acting. The Panel's advice is at paragraph 15.15 below.

    15.7. There are exceptions in the draft rule to the duty not to act in situations of conflict of interest which rely, amongst other things, on the clients' informed consent. Whether there is to be any exception as regards a conflict of interest between the solicitor him/herself and one or more clients is not made clear in the draft rule or the draft guidance, but the Panel reads the intention of the rules as being an absolute bar on acting in such circumstances. The Panel supports such a bar, and is of the view that this ought to be spelt out explicitly in the rules for clarity, hence the advice at paragraph 15.16 below.

    15.8. The Panel is also concerned by the need to educate the profession as to the proper interpretation of the new rules. The Panel was told that the Professional Standards Unit of the Law Society would mount a proactive campaign to ensure that any change is understood. The Panel also believes that there is an important requirement for compliance with the new rules and adequate systems of monitoring and enforcing the new rules approved by the Secretary of State hence, the advice at paragraphs 15.17-15.19 below.

    15.9. The Panel also considered whether it would be helpful to consider the approach in other jurisdictions. However, the Panel concludes that rules of conduct applicable in England and Wales should reflect the common law applicable in that jurisdiction and not in others.

    15.10. As is apparent from the above, the Panel does not regard the referral in relation to new rule 16D as straightforward. It advises the Secretary of State to give approval to the Law Society to amend rule 16D subject to the safeguards in 15.11-15.20 below.

    15.11. Rule 16D(2)(b) and (c) be deleted and other wording be substituted for 16D(2)(b) such as:

    15.11.1. "There is a conflict of interests if for any reason your ability to advise and/or act for the client properly and impartially is inhibited or if a fair-minded and informed observer would conclude that there is a real possibility that that were so".



    15.12. Rule 16D(3) be amended to include a provision to the following effect (at 16D(3)(b)(i), with consequential renumbering):

    15.12.1. "(i) all clients' best interests are served by you and/or your practice acting for them all; and,"



    15.13. Either rule 16D(2) or (3) be amended so as expressly to set out that it is only appropriate for a solicitor/firm to act in conflict situations where the solicitor/firm could act with even-handedness as regards all clients, giving each client's instructions equal weight.

    15.14. Rule 16D(3) be amended by the addition of wording at the conclusion of 16D(3)(a)(ii) to the effect that the client has received a written advice which informs its consent prior to such consent being given. In addition to specifying the potential conflict and confidentiality issues addressed, such advice should clearly specify the protective steps to be taken to protect confidential information. All clients' consent should be recorded in writing (as draft rule 16D(3)(a)(ii) provides) and, in the case of a corporate client, such informed consent should be given by a duly authorised officer or body who/which has him/her/itself received the written advice which informs the consent prior to it being given.

    15.15. The deletion of 16(D)(4) and the insertion of a clause to the effect that a solicitor must cease to act for both clients when a conflict of interest arises between those clients which precludes the solicitor from continuing to act for both.

    15.16. Either rule 16D(2) or (3) be amended so as expressly to set out that there is an absolute bar (i.e. without exception) on a solicitor acting in a conflict situation where the conflict of interest is between the solicitor him/herself and one or more clients.

    15.17. The Conflict Guidance Explanatory Notes shown to the Panel be circulated to all practising solicitors.

    15.18. The Law Society provide to the Secretary of State details of an education scheme for all practising solicitors which is satisfactory to the Secretary of State on the meaning and effect of rules 16D and 16E.

    15.19. The Law Society provide to the Secretary of State details of a compliance and monitoring scheme which is satisfactory to the Secretary of State, demonstrating an adequate system of monitoring and reporting riskbased compliance with rules 16D and 16E.

    15.20. The Law Society amend draft rule 16D to reflect the advice in paragraphs 15.11 to 15.19 above.

Rule 16E Confidentiality and Disclosure

  1. 16.1. In principle, the Panel is sympathetic to the amendment contained in rule 16E. The Panel has some concern over the use of the word "permitted" in rule 16E(2) because it appears to the Panel to amount to a significant watering down of the duty of confidentiality. Subsequent to the meeting on 14th March 2005, the Law Society has explained that the permissive element is regarded as necessary to cover exceptional situations where solicitors can reveal confidential information where the public interest in information being disclosed outweighs the right of the individual to rely on the duty of confidentiality. A number of examples appear in "The Guide to the Professional Conduct of Solicitors" on pages 325-7 under 16.02. For example, paragraph 3 says:

    16.1.1. "A solicitor may reveal confidential information to the extent that he or she believes necessary to prevent the client or a third party committing a criminal act that the solicitor believes on reasonable grounds is likely to result in serious bodily harm."



    16.2. Paragraphs 4 and 5 are also relevant as they deal with specific situations where children could be at risk of serious harm if information is not passed on to appropriate authorities. These paragraphs read as follows:

    16.2.1. "There may be exceptional circumstances involving children where a solicitor should consider revealing confidential information to an appropriate authority. This may be where the child is the client and the child reveals information which indicates continuing sexual or other physical abuse but refuses to allow disclosure of such information. Similarly, there may be situations where an adult discloses abuse either by himself or herself or by another adult against a child but refuses to allow any disclosure. The solicitor must consider whether the threat to the child's life or health, both mental and physical, is sufficiently serious to justify a breach of the duty of confidentiality";



    16.2.2. "In proceedings under the Children Act 1989 solicitors are under a duty to reveal experts' reports commissioned for the purposes of proceedings, as these reports are not privileged. The position in relation to voluntary disclosure of other documents or solicitor/client communications is uncertain. Clearly advocates are under a duty not to mislead the court (see 21.01, p.374). Therefore, if an advocate has certain knowledge which he or she realises is adverse to the client's case, the solicitor may be extremely limited in what can be stated in the client's favour. In this situation, the solicitor should seek the client's agreement for full voluntary disclosure for three reasons:


    1. the matters the client wants to hide will probably emerge anyway;
    2. the solicitor will be able to do a better job for the client if all the relevant information is presented to the court;
    3. if the information is not voluntarily disclosed, the solicitor may be severely criticised by the court.

      If the client refuses to give the solicitor authority to disclose the relevant information, the solicitor is entitled to refuse to continue to act for the client if to do so will place the solicitor in breach of his or her obligations to the court."

    16.3. The Panel accepts that explanation. However the need for the explanation to the Panel reinforces the concern over that provision. The rules currently only refer to these situations through the somewhat opaque reference to 'or permitted'. The currently proposed guidance also fails to clarify the examples set out above as regards serious physical harm and child abuse, although the Law Society have indicated to the Panel that the draft guidance will be amended. The Panel's view is that the rules should refer clearly to the ability of solicitors in exceptional circumstances to breach confidentiality. The Panel advises the Secretary of State to require the Law Society to expressly define within rule 16(E) the actual test(s) laid down in law to which implied reference is made by the current wording ("or permitted by law").



    16.4. Further, the Panel's reading of (4) and (5) is that the consent provisions under 16E(5) are only called into play by 16E(4) where there is confidential information held which (a) might reasonably be expected to be material and where (b) the client has an adverse interest to the client about whom the confidential information is held. The Panel was unable to understand why there is any need for the existence of an adverse interest. A client about whom confidential information is held which is relevant to another matter should be protected by information barriers and consent regardless of the existence or otherwise of an adverse interest. The Panel advises the Secretary of State to require the Law Society to delete 16E(4)(ii) before approval is given.



    16.5. The concept of "Informed Consent" arises in rule 16E(5). The Panel refers to paragraphs 15.5 and 15.14 above. The Panel advises the Secretary of State to require that similar safeguards are inserted in Rule 16(E)(5).



    16.6. The Panel, therefore, advises the Secretary of State to approve the proposal to amend rule 16 of the Solicitors' Practice Rules 1990 by making the new rule 16E only after compliance by the Law Society with the advice in paragraphs 16.3-16.5 above.



Conclusions

  1. 17.1. The Panel advises the Secretary of State that the Law Society be given approval to amend Rule 16 of the Solicitors' Practice Rules 1990 by making a new Rule 16D, subject to the recommendations in paragraphs 15.11 to 15.20 above.



    17.2 The Panel advises the Secretary of State that the Law Society be given approval to amend Rule 16 of the Solicitors' Practice Rules 1990 by making a new Rule 16E, subject to the recommendations in paragraphs 16.3 to 16.5 above.



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