Conflicts for “sophisticated clients”

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When Clifford Chance General Counsel Chris Perrin talks about conflicts of interest, lawyers pay attention. The man whom the Financial Times calls the “czar” of conflicts has been working on the subject for nearly a decade, most recently as chair of the City of London Law Society’s Committee on Professional Rules and Regulation. It’s in that capacity that he has now called for a “significant widening of client conflict rules,” according to a story in today’s edition of The Lawyer:

Currently the rules permit law firms to act on conflicting instructions only where the clients share a common interest and consent or where two clients are competing for the same asset, such as in an auction sale. “In addition to these two exceptions,” proposed Perrin, “there should be a wider exception to be used by sophisticated clients, which would enable them to waive conflict in any circumstances.”

Perrin argued that if two sophisticated clients want to get a deal done and both have historically used the same firm, it is impeding their desire to get the transaction done to prevent them from using that firm. And if both parties are happy that a firm will look after both their interests, he said, there is no reason why it should not. The proposed definition of ‘sophisticated clients’ would include clients, which have received independent legal advice or which have in-house legal departments and the exception would not apply in litigation matters.

This rang a bell with me, and sent me off into National‘s archives to find an article published in the March/April 2004 issue (not online, unfortunately) about a proposed change to the Law Society of British Columbia’s professional conduct handbook. Proposed Rule 6.3.1 would have enabled lawyers to act against current “sophisticated” clients without their consent if (a) the matters are substantially unrelated and (b) the lawyer has no confidential information that might reasonably affect the other representation. (The law society’s contemporary bulletin on the subject provides more information.)

The effort to amend the B.C. ethics handbook was led by several large national firms, which complained that the rules were hamstringing their efforts to resolve conflicts and serve their clients. Opposition was spearheaded by corporate counsel, who countered that the change would erode the fundamental nature of the fiduciary relationship lawyers owe their clients and was primarily intended to support law firms’ financial objectives. Today, the professional conduct handbook shows no sign that Rule 6.3.1 was ever adopted.

I don’t want to venture too deeply into conflicts territory — I’m not an expert and I’d rather leave the field to those who are — but I’ve been thinking for a while that longstanding ethical rules on client conflicts of interest, and the relentless growth and evolution of national and global law firms, are not compatible. Large-firm managing partners are deeply concerned with conflicts and would love to have more room to manoeuvre than the rules currently supply, but there are a lot of interests — client and professional — pushing against them.

The current dilemma can’t last forever: something is going to have to happen to break the logjam and decide the course of conflicts rules in future. If efforts like Chris Perrin’s succeed — and I personally think that, sooner or later, they will — our profession is going to undergo some truly radical changes. Keep an eye on this.

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2 Responses to “Conflicts for “sophisticated clients””

  1. Carolyn Elefant

    Jordan,

    I blogged about this same issue as it relates to biglaw. Conflicts clients are currently my best source of business – and I predict that firms will advocate waiving conflicts rules
    to keep clients that they’d otherwise lose -

    http://tinyurl.com/2jh3lh

  2. Jordan Furlong

    Carolyn, that’s a very interesting thought — the impact of relaxed conflicts rules on solo and small-firm lawyers could be substantial and negative. There’ll be a lot riding on which way governing bodies (state bars, law societies) lean on this issue, and I’m guessing there’s a lot of lobbying going on behind the scenes on this exact subject right now. Yet another sea change to add to those already underway in this profession….

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