Session 9Conflicts of interest

2

Contents

Part 1: Introduction

Part 2: Conflicts of interest

Part 3: Safeguarding confidentiality

Part 4: Standard conflict check procedure

Part 5: How to deal with conflicts

Part 6: Obtaining consent

Part 7: Keeping records

Part 8: Instructions after conflict arises

Part 9: Summary

3

Introduction

Part 1

4

Purpose of our policy

The purpose of our Conflicts of interest policy is to:

• set out responsibilities

• observe and uphold our positions on conflicts of interests

• provide information and guidance on recognising and dealing with conflicts of interest

5

Application of the policy

Who is covered?

All staff

Who is responsible for our policy?

Compliance officer for legal practice (COLP)

Urgent matters when COLP is not available—refer to their deputy

6

Conflicts of interest

Part 2

7

Conflicts of interest

Main categories of conflicts of interest:

•own interest conflicts

•client conflicts

8

Own interest conflicts

What?

Where personal/commercial interests of our firm conflict with our duty to act in the best interests of a client, orthere is a significant risk that personal/commercial interests of our firm will conflict with our duty to act in the best interests of a client

How?Case-by-case basis depending on the circumstances

Who? Fee earners expected to exercise judgment

9

Own interest conflicts (cont)

We can NEVER act when there is an own interest conflict with a new or existing client.

Own interest conflict is assumed where the firm is asked to act:

•against a major client even if there is no direct client conflict

•against a supplier/connected party/named contact

•in any matter where a member of staff is an opposing party, whether contentious or non-contentious

In each of these cases, approval is needed before accepting instructions

10

Own interest conflicts (cont)

We CANNOT accept instructions to act against an entity in which our firm or a member of staff has an interest.

Exception:

Member of staff unconnected with the conduct of the matter has a minor holding in a publicly listed company

In such a case, approval is needed before accepting instructions

11

Register of interests

• Any interest must be notified

• Register maintained by COLP

12

Client conflicts

What?

Owe separate duties to two or more clients in relation to the same/related matters and:

•duties actually conflict, or•significant risk those duties may conflict

How?Refer to our Conflicts of Interest Policy and the firm’s manuals

Who? All staff

13

Client conflicts (cont)

We CANNOT accept instructions where there is a conflict between two or more new or existing clients.

Unless:

•clients have a substantially common interest in relation to a matter or a particular aspect of it, or

•the clients are competing for the same objective

14

Substantially-common-interest exception

When does it apply?

• common purpose is established between clients• strong consensus on achieving common purpose • client conflict is peripheral to common purpose

What else must you do?

• explain to clients the issues/risks and have a reasonable belief that they understand

• be satisfied:o it is reasonable and in best interests to act o benefit outweighs the riskso clients consent in writing

Do not act where:

• clients cannot be represented even-handedly • clients are prejudiced if not separately represented• the clients' interests are not the same• there is unequal bargaining power between clients

15

Competing-for-the-same-objective exception

When does it apply?

• where two or more clients compete to obtain the same objective

Objective?

• asset, contract or business opportunity • which one or more client is seeking to

acquire/recover • through a form of insolvency process

or by means of an auction or tender process or a bid or offer that is not public

16

Competing-for-the-same-objective exception (cont)

What else must you do?

• explain to clients issues/risks—reasonable belief they understand

• ensure there is no other client conflict • no individual acts for more than one of the clients• be satisfied that:

o it is reasonable to act for all clientso benefit outweighs the riskso clients consent in writing

Do not act where:

• clients cannot be represented even-handedly • clients are prejudiced if not separately represented• clients compete for a residential property• unless clients are common users of legal services

17

Safeguarding confidentiality

Part 3

18

The usual confidentiality problem

We act in client conflict situation for Client 1 and Client 2:

• receive confidential information about C1

• confidential information about C1 is relevant to C2

Our duty of confidentiality to C1 takes priority

19

Safeguarding confidentiality

Can only act if:

confidential information about C1 can be protected

reasonably believe C2 is aware of and understands the issues and gives consent

C1 consents and we agree safeguards to protect C1's confidential information or, we implement safeguards (information barriers) to common law level

20

Safeguarding confidentiality (cont)

How do we implement safeguards?

Ring-fencing—ensure fee earners/teams are not involved with other clients

No overlap of management of the fee earners/teams that deal with each client

Access restrictions to confidential information imposed on relevant fee earners/teams

Physical separation of fee earners/teams dealing with each client

21

Safeguarding confidentiality (cont)

How do we implement safeguards?

Password protect information on management system

Appoint supervisor for confidentiality of each client

System for incoming correspondence to prevent inadvertent sharing of confidential information

Signed statements from each fee earner/team member confirming understanding of duty and compliance

22

Safeguarding confidentiality (cont)

What do we do if we cannot implement adequate confidentiality safeguards?

Refuse instructions to act in a client conflict situation, even if an exception applies

23

Confidentiality or conflict?

Hold material confidential information for:

1.existing client with adverse interest to our client on an unrelated matter

2.former client with adverse interest to our client

3.former or existing client with no adverse interest

24

Confidentiality or conflict (cont)

Scenarios 1 and 2

Confidential information combined with an adverse interest

•Not a strict client conflict scenario but confidentiality requirements apply

•Consider safeguarding confidentiality when we act

25

Confidentiality or conflict (cont)

Scenario 3

Confidential information without adverse interest

•For example, we hold confidential information for existing client (C1) that matters to the other client (C2) but there is no adverse interest between C1 and C2

•Act for C2 if we safeguard C1’s confidential information. No requirement for C1’s consent

26

Standard conflict check procedure

Part 4

27

Standard conflict check procedure

1. Carry out conflicts search

2. How?

•checking the names of the prospect/ client and any opposing or interested parties using Compliance Manager

•checking the report produced by CM carefully

•CM will send out a standard email to all legal staff

3. No conflict : we can accept instructions.

If there are any changes: conduct a further search.

28

Standard conflict check procedure (cont)

Potential reason for conflictType of conflict this could raise

Financial interests of the firm or a member of staff Own interest conflict

Personal relationships of the firm or a member of staff Own interest conflict

Public office held by a member of staff Own interest conflict

Commercial relationship of the firm or a member of staff Own interest conflict

The clients have different interests Client conflict

The firm's ability to give independent advice to the clients is or may be fettered

Client conflict

It may be necessary to negotiate between the clients Client conflict

There may be an imbalance in bargaining power between the clients

Client conflict

One of more of the clients is vulnerable Client conflict

29

How to deal with conflicts

Part 5

30

How to deal with conflicts

Obvious conflicts

•Instructions can be rejected immediately

•Exercise caution when explaining reasons:

• just say ‘due to a conflict of interest’

• refer to the COLP if detailed information is requested

31

How to deal with conflicts (cont)

All other situations

Use Compliance Manager (and an email) to notify the COLP if uncertain as to whether:

oan own interest conflict exists

oa client conflict exists and/or an exception applies

owe hold material confidential

The COLP will review the matter with you to decide if we can act.

32

How to deal with conflicts (cont)

Decision category Outcome

No conflict and suggestion that we hold material confidential information about another client

We can act

• Own interest conflict• A client conflict and no exceptionAND/OR• We cannot safeguard material

confidential information

We cannot act

• A client conflict but exception appliesAND/OR• We hold material confidential about

another client with adverse interest

We can act if client consent obtained. We can safeguard material confidential information

We hold material confidential information but no adverse interest

We can act if material confidential information safeguarded

33

Obtaining client consent

Part 6

34

Obtaining client consent

Process for obtaining client consent:

1.obtain preliminary permission from all affected clients to disclose sufficient information

2.when permission is granted, prepare a summary for each client setting out how the conflict affects that client

3.obtain each client's signature to the summary confirming that we can act, despite the conflict

The COLP will advise and supervise the fee earner on the process to be used in each case of obtaining informed consent.

35

Obtaining client consent (cont)

If the consent is refused

The firms MUST refuse to act

If all clients consent

protect the clients’ confidential information

fee earner notify the COLP that the clients have all consented

fee earner and COLP create an action plan, including monitoring at fixed intervals

36

Keeping records

Part 7

37

Keeping records

No conflict

• keep a copy of the conflict check on every client file, but

• not necessary for fee earner to report the result of the conflict check

Clear-cut conflict

• neither of the client conflict exceptions apply• fee earners should:o advise the client/s that we cannot acto retain a copy of the conflict check on fileo notify the COLP using CM

Conflict/ confidentiality issues

Compliance Manager will record the details and decision regardless of whether the decision is positive or negative

38

Instructions after conflict arises

Part 8

39

Instructions after conflict arises

Examples:

•joint clients disagree about the conduct of the matter

•investigations reveal the involvement of a third party which gives rise to a conflict

•potential complaint or negligence claim against the firm

•companies merge or be taken over

•individuals become incapacitated, die or assign interests

40

Instructions after conflict arises (cont)

When there is a material change:

•further conflict check

•acceptance of instructions will apply with necessary modifications

•report to the COLP immediately

41

Instructions after conflict arises (cont)

When we cease to act:

•ensure the issue is handled sensitively

•update clients with decisions or deadlines promptly

•possibly suggest a third party to take on client’s matter

•ensure our policy is not infringed when referring client’s matter to third parties

•comply with policy for introductions to third parties

42

Summary

Part 9

43

Summary

• Conflicts of interest policy preserves and upholds responsibilities of all staff on conflicts of interests

• Two categories of conflict of interest: o own interest conflicto client conflict

• Issues related to confidentiality governed by SRA Code of Conduct 2011

• Generally duty of confidentiality takes priority over disclosure

• Conflicts situations determined on a case-by-case basis

• Apparent conflicts must be rejected and reported immediately

• Important to report an interest for record keeping

• You may be liable to disciplinary action if you fail to comply with our policy

44

Final comments

• Any questions?

• Email to nigel.harper@parfittcresswell.com

• Update your training records in Compliance Manager