A question of ethics

With a decreasing number of rules within our Codes of Conduct, the focus when deciding whether something can or cannot be done or what to do in a particular scenario shifts from ‘can I?’ to ‘should I?’. The ethical scenarios here are designed to tackle these knotty issues, as well as highlight what kind of thinking cap you need to be wearing when situations like these arise. Where possible, these scenarios are real and have happened in firms with actual practitioners and real clients. Of course for confidentiality purposes, names have been changed to protect the innocent.

Scenario 1

The firm acts for ABC undertaking property work which is ongoing. ABC is a long-standing client of the firm. XYZ Inc is a relatively new and lucrative client for the firm and is in a contractual dispute with ABC Ltd and asks us to write a letter to ABC setting out their dispute. Can the firm take on the instruction from XYZ?

This might seem like a straightforward conduct scenario and some people will have a strong feeling one way or the other as to whether the firm can or cannot take on the instruction from XYZ. However, taking each segment apart and analysing it may result in a different outcome to the one you were thinking.

The first issue to grapple with here is whether the firm has any confidential information about ABC which is relevant and material to XYZ in relation to the matter at hand. The firm in this scenario is acting for ABC in relation to property matters. The firm will undoubtedly hold confidential information about ABC but the question is whether it is relevant and material to XYZ and that would depend on the nature of the dispute XYZ want to instruct the firm about.

The second limb to consider is whether the firm is being asked to act for two clients in the same or related matter. It isn’t the same matter, as the firm acts for ABC in relation to a property dispute and XYZ want to instruct the firm in relation to a contractual dispute. So it cannot be the same matter i.e. buying and selling a property or acting for claimant and defendant. However, it might be a related matter. Say the firm was acting for ABC in relation to a lease at a property and XYZ has a contractual dispute about that property. This might make the matters related.

The third thing to consider is the SRA Principles:

• Is the firm acting in the best interests of their client ABC by advising a party against it?
• Does it matter if ABC is a current client or a client for whom the firm is not acting at the moment?
• Does it matter if the firm has not acted for ABC for some time?

If there is no confidential information about ABC that is relevant and material to XYZ and the matters are not the same or related then it comes down to whether the firm wants to take on the work for XYZ and potentially upset ABC, losing them as a client, face a service complaint and possibly a conduct complaint to the SRA.

Furthermore the firm will need to think about the possible conflict that could arise in the future (i.e. if the firm acts for XYZ whether it will then gain confidential information about XYZ that is relevant and material to ABC causing a further conflict of interests).

In this scenario then, the code might stop the new instruction short but if it doesn’t then there is an ethical dilemma of not ‘can I?’ but ‘should I?’ Most clients would be upset to receive a letter from the firm they instruct now acting for their adversaries. Whether the firm wants to take the risk of upsetting a client and losing them is a judgment call for the firm to make and whilst some firms will be clear which is the correct path, some may waver.

Scenario 2

The firm has long acted for a director called Bob and many of his companies including Pink Ltd. Director Billy at Pink Ltd instructs the firm in relation to the surrender of a lease which will net a £1m refund to Pink Ltd. When questioning Billy about Bob’s ongoing involvement, he informs the firm that Bob has relinquished his directorship and beneficial ownership in Pink Ltd. Later, Bob emails the firm to that effect but does not mention the £1m refund. The firm is concerned that Bob does not know about the surrender and has been duped into relinquishing his interest. What should the firm do?

The first consideration is to establish who the firm’s client is—in this case it’s Pink Ltd. It follows then that the duty of confidentiality is owed to Pink Ltd.

In asking whether the firm can speak to Bob about the concerns they have, the firm would only be able to do this if Bob was a director of the company and the firm are informed that he is not. There is no way therefore for the firm to raise their concerns with Bob directly.

The firm could speak to the other director of Pink Ltd – Billy–explain their concerns and ask if they would be able to speak to Bob, though this would need to be delicately put to Pink Ltd.

The assessment therefore comes down to whether the firm felt they could continue to act having the concerns that they have. The firm could decline to act but they may need to explain why.