New Zealand Law Society - Don't act if there is even a risk of conflict

Don't act if there is even a risk of conflict

This article is over 3 years old. More recent information on this subject may exist.

Rule 6.1 certainly is an onerous rule. Probably the touch-stone for lawyers is that they can never act in a way which might harm the interests of one of their clients. The rule is often stated to be “prophylactic” in nature. It prevents lawyers acting even when there is only a risk of conflicting duties – to prevent against the risk of myopia. Clearly such a conflict will not occur in all cases where there is more than one client.

Further, just because their interests differ does not mean that the duties that the lawyer owes to the respective clients cannot be met. Clark Boyce v Mouat [1993] 3 NZLR 641 (PC) is the archetype of that kind of case. There Clark Boyce acted for the mother and son where the mother provided a mortgage and guarantee in respect of her son’s debts. The interests clearly diverged – but the lawyer’s duty was only “ministerial”. That is to say that the role was simply to explain the documents and ensure they were properly executed. In such a case the duty owed to each client by the lawyer was similar and did not conflict.

However matters can take an unexpected turn and even where it appears that the lawyer can act for all clients there will be cases where a conflict emerges and makes that impossible. That is why even if the risk of a conflict is less than “negligible” the Rules still require the lawyer to explain this and obtain the clients’ informed consent. Unfortunately that consent is often seen as a formality and is too little and too late. In Taylor v Schofield Peterson [1999] 3 NZLR 434 consent was embedded within the terms of a settlement agreement. Not only was this a real rather than potential conflict, but the consent was not timely and informed.

One of the biggest dangers for a lawyer acting for multiple clients is that conflicts often emerge incrementally. What may at first present as a simple transaction matter may slowly evolve into an outright conflict.

Lawyers assisting with such transactions are often focussed on getting “the deal” done and assisting the parties in their commercial endeavours. The emphasis on pragmatic commercial solutions can mean that they fail to see the conflict until it is too late.

In Sandy v Khan LCRO 181/09, a lawyer was acting for the vendor and (through a junior lawyer in the same firm) purchaser of a travel agency. While that was almost certainly an actual conflict of interest at the outset, the transaction progressively unravelled. Bizarrely the matter proceeded to the point where letters of demand were being exchanged between the lawyers in the same firm.

One lesson from that case is that where there is a lack of sensitivity to conflict of interest issues, it does not take much for things to slide towards catastrophe.

Finally it should be noted that rule 6 does not track the fiduciary obligation exactly. In fact the law is far more accepting of clients waiving their fiduciary rights than the professional rules are of lawyers obtaining waivers of their professional duties.

The cases, therefore, must be read with some circumspection and the precise relationship between the Rules of Client and Conduct Care and the fiduciary obligation in equity will have to await elucidation by the Court.

Duncan Webb is internationally recognised as New Zealand’s leading expert in professional responsibility. In fact, he wrote the book that is the key text in this area: Ethics, Professional Responsibility and the Lawyer. A former law professor at Canterbury University and Legal Complaints Review Officer, Mr Webb is now a partner of Lane Neave in Christchurch.

Lawyer Listing for Bots