The Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008, or “Red Book”1 as it is affectionately known, is not an exhaustive statement of the conduct expected of lawyers. Instead, it sets the minimum standards that lawyers must observe and is a reference point for discipline.
The news media and our own professional publications are unfortunately full of examples of lawyers who have fallen foul of the Red Book. The cases which attract the highest publicity usually involve dishonesty. As a practitioner and member of a standards committee, I’m pleased that these people are the small minority.
But have we ever paused to consider whether we, ourselves, are unwittingly serial offenders against the Red Book?
Acting for multiple clients
A good illustration of this point is the rules relating to acting for more than one client on a matter, one of the minimum standards in the Red Book. Ask yourself these two questions:
- Can I honestly recite what the Red Book says about my professional obligations in this situation?
- Can I think of a time when I or someone I know has contravened this rule?
If you answer “yes” to question one, congratulations on belonging to a club that is smaller than we may like to believe. If you answer “yes” to question two, then at the risk of being cynical, you belong to a club that is larger than we may choose to accept.
In my experience, the most commonly misunderstood (and also contravened) obligation in the Red Book relates to lawyers acting for more than one client on the same matter. These lawyers generally fall into two categories:
- lawyers who are completely oblivious to any constraint on acting for more than one client on a matter; and
- lawyers who are generally aware of an ethical obligation but who apply their own interpretation or understanding of such obligation.
If you are in the first category it may be time to take a refresher course in ethics. If you think you are not in category 2 read on. Many practitioners who believe they understand the rules are mistaken.
Let’s turn to rule 6.1 of the Red Book and revisit what it actually says.
Rule 6.1 applies where lawyers act for more than one client on the same matter. For litigators, an additional obligation is found in rule 13.6, which further circumscribes a lawyers’ ability to act for two or more parties to a dispute. While this article focuses on rule 6.1, the underlying principles inform any consideration of rule 13.6.
Looking at the structure of Rule 6.1, it is divided into three parts:
Part one – negligible risk
Rule 6.1.1 forbids a lawyer from acting for more than one client on a matter in any circumstances where there is more than a negligible risk that the lawyer may be unable to discharge the obligations owed to all clients.
When considering whether to act for more than one client on a matter, a lawyer must ensure that this first hurdle can be cleared. If you cannot clear this hurdle then no amount of informed consent or provision of information will cure those conflicting duties and the lawyer must only act for one party.
Part two – informed consent
Rule 6.1.2 imposes obligations on lawyers who act for more than one party in circumstances where there is no conflict. Principally it requires the lawyer to obtain the prior informed consent of all parties concerned. This is the second hurdle that must be surmounted in order to continue.
“Informed consent” is defined (in rule 1.2) in the Red Book as meaning consent given by the client(s) after the matter in respect of which consent is sought and the material risks of and alternatives to the proposed course of action have been explained to the client(s) and the lawyer believes, on reasonable grounds, that the client(s) understand the issues involved.
At this point, if nothing happens throughout the retainer to affect a lawyer’s ability to discharge its obligations to all clients, then the lawyer has a clear run to the finish line.
However, as all we all know, work for clients is not always a straight and easy path and can involve unexpected twists and turns, many of which are not anticipated at the start of a retainer.
Part three – when a conflict emerges
If, having commenced acting for more than one client, it becomes apparent that the lawyer will no longer be able to discharge their obligations to all clients rule 6.1.3 comes into play.
The lawyer must immediately inform each client of this fact and terminate the retainer with all clients. In other words, the race is over.
However the lawyer may subsequently resume acting for one client provided the other client(s), after receiving independent advice, give informed consent. Even then however, the lawyer must not continue acting for one client if duties to the consenting client(s) have or will be breached (the most obvious duty being that provided in rule 8.7.1).
The interplay between parts one to three is just as important as the rules themselves: in other words, a lawyer may only act for more than one party where there is not more than a negligible risk of a conflict. Even then however, the prior informed consent of all parties is required.
In the writer’s view, rule 6.1 is intentionally onerous.
At the conceptual level, rule 6.1 gives practical effect to a lawyers’ fiduciary obligations and to the four fundamental obligations enshrined in s 4 of the Lawyers and Conveyancers Act 2006 (which every lawyer should be required to recite before admission to the Bar!).
At the practical level, rule 6.1 effectively presumes that a lawyer or firm will not act for more than one client in a matter, save in very exceptional circumstances. When rule 6.1 is read as a whole, it is really more like navigating through a minefield than running a race.
Despite the fundamental importance of rule 6.1, it is often neglected and contravened. The following examples are the writer’s eye-witness accounts:
- a lawyer acting for a company and an employee purchasing shares in the company;
- a lawyer acting for multiple purchasers of a property and continuing to act for two of the parties after a dispute arises;
- a lawyer acting for a vendor and purchaser of a farm and continuing to act for both parties when a dispute arises; and
- a lawyer acting for two parties to a commercial contract.
The last example is common. The writer has seen at least two examples where a dispute has arisen as to the meaning and performance of the contract. On both occasions the firm responded to the perceived conflict by sending the clients to different partners who then exchanged internal correspondence outlining their clients’ positions on the dispute!
It is inconceivable that members of the same firm would act for competing parties to a dispute. This is a blatant breach of rules 6.1 and 6.2. However two equally important questions are whether the firm should have acted for both parties in preparing the commercial contract and whether prior informed consent was obtained.
In the writer’s opinion, lawyers are prone to labouring under two fundamental misconceptions:
1. First that informed consent cures a conflict. Lawyers often use the phrase “informed consent” as a magic wand to justify acting for more than one client whose interests are not the same. The Red Book is clear on this matter.
2. Secondly, that Chinese Walls are a solution. Some lawyers think that having different members of the same practice acting for different clients overcomes any conflicting duties. Such lawyers confuse their obligations in respect of confidential information with their obligations in respect of conflicting duties. In doing so, they supplant the plain wording of rules 6.2 and 6.3 with the permissible use of information barriers, as found in rule 8.7.2.
Rule 6.1 marks a significant departure from the previous regime. Rule 1.04 of the Rules of Professional Conduct for Barristers & Solicitors might, at first glance, seem less onerous:
“A practitioner shall not act for more than one party in the same transaction or matter without the prior informed consent of both or all parties.”
Despite the fact that Rule 6.1 has been around since 2008, many lawyers appear to still be operating as if Rule 1.04 applied. Rule 1.04 placed primacy on prior informed consent. Rule 6.1 replaces this with a threshold question of whether there is more than a negligible risk that the lawyer may be unable to discharge the obligations owed to all clients.
This fundamental conceptual error often leads to shock and horror when such lawyers find themselves on the wrong end of a determination by a standards committee.
In Bristol and West Building Society v Mothew  Ch 1 Lord Justice Millet described a fiduciary obligation as follows:
“A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary.”
Lawyers who act for more than one client on a matter place themselves in a position where they may be unable to provide single-minded loyalty to each client. No lawyer can serve two masters.
The moment a lawyer’s single-minded loyalty to one client is compromised by concern for another client, the fiduciary relationship has been broken, the lawyer has lost independence and the rule of law has been undermined.
This leads to a loss of public confidence in the provision of legal services and ultimately a threat to the prosperity, continuation and survival of the legal profession.
Lawyers can and must do better in learning and observing their professional obligations. Rule 6.1 is a great place to start. Strict compliance with Rule 6.1 may lead to a short-term loss in work, but if everyone complies then there will be a marked increase in referrals between lawyers and everyone will benefit, including and especially clients, who are entitled to single-minded loyalty from their lawyer.
Samuel Hood is a partner in and team leader of Norris Ward McKinnon’s Court & Disputes/Employment Team. He is also a member of the Waikato Bay of Plenty Standards Committee. This article was peer reviewed by Mr Hood’s colleague Jesse Savage.
1. The Red Book is not currently in print. The Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 are available at www.legislation.govt.nz/regulation/public/2008/0214/latest/DLM1437806.html.