A messy scenario…
Three siblings were shareholders in a company. Two were statutory directors, the third was not, but was engaged in a complex and messy divorce. The company had been exposed to significant alleged acts of fraud and stripping/ misappropriation of its assets whilst managed by the two directors and one of the two directors operated a directly competing business…
The complication arose because the same firm of solicitors acted for:
(1) the sibling getting divorced;
(2) the company;
(3) the individual directors; and
(4) the competing company
When the siblings found themselves in dispute with each other, it left them asking the question as to whom the solicitors could act for?
What are the rules?
The SRA Code of Conduct can be a boring read, but the facts boil down to two crucial points:
• A solicitor cannot act for a client where there is a conflict or significant risk of a conflict between the solicitor and that client;
• Where there is a conflict or significant risk of conflict between two or more clients, the solicitor cannot act for all or both unless it falls within very narrow exceptions.
When deciding which clients, the solicitor can act for, serious consideration should be given, by the solicitor, to issues regarding confidentiality and disclosure. Protection of confidential information is a fundamental feature of a solicitor’s relationship with their clients, as is the duty of disclosure. A solicitor cannot continue to act for a client for whom they cannot disclose material information.
Can you see the problem between the siblings here? – What happened?
When the issue of conflict was first raised, the solicitor’s firm in question ceased to act for the sibling getting divorced. This was done at short notice before the final divorce hearing and left the individual unrepresented and ending up with a less beneficial settlement than they may have done.
That alone, is a cause for a potential professional negligence claim!
Was the firm entitled to act the way it did and why did it act that way?
The cynical view is that it was following the money. The potential for earning fees in respect of the company and directors was significant, unlike the fees that were to be generated from the sibling getting divorced.
What should have been the outcome?
In simple terms, the firm of solicitors should have ultimately ceased acting for all three siblings and the two companies. In the short term, the solicitors could have continued to act in respect of the divorce, as it was close to completion and in so doing, there was no conflict of interest or breach of duty that regards the other siblings or the company.
The solicitors chose to do the very thing they could not do.
They acted for the directors who were in dispute with the sibling and shareholder getting divorced. They also continued to act for the company which was in direct conflict with the directors, one of whom also had a company in direct competition (which they allegedly acted for as well!) both of whom had presided over alleged acts of fraud and asset stripping of the company. There was serious conflict of interest.
To avoid working with a conflicted solicitor, a good starting point is to ask yourself;
Can my solicitor disclose material information to me without breaching their duty of confidentiality to their other client? If the answer is no, your solicitor probably shouldn’t be acting for you.
Rico Dexiades is a Solicitor at Commercial Litigation specialists Griffin Law.