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Snapshot

  • There are dangers in acting for both parties to a transaction, even where the parties appear to be aligned.
  • Although consent may be provided, ‘fully informed’ consent may be difficult to obtain.
  • Don’t be distracted by what the parties have in common, ask what is in the deal for each client individually before agreeing to act.

Helping people is fundamental to our work as solicitors. The desire to be helpful is often a reason that solicitors agree to act for more than one party. The parties may seem aligned; the work may be straightforward; and separate representation may add cost and delay. But what dangers arise if a solicitor decides to help by acting for multiple parties? Should you do it?

The rules

Acting for more than one party is regulated both by professional conduct rules and by solicitors’ fiduciary obligations.

It is a breach of a solicitor’s fiduciary duty to act whilst in a position of conflict between duties owed to one client and duties owed to another. That equitable principle is repeated in rule 11 of the Australian Solicitors’ Conduct Rules 2015.

Both general equitable principles and the Conduct Rules allow an exception where the clients to whom the conflicting duties are owed give informed consent. The authorities make it clear that, to negate what would otherwise be a breach of fiduciary duty, the clients’ consent must be ‘fully informed’, which is a ‘question of fact in all the circumstances of each case’ (Maguire v Makaronis [1997] HCA 23; (1997) 188 CLR 449 at 466).

However, what is needed for fully informed consent depends on the circumstances – and what is important in the circumstances may not always be apparent at the start of the matter.

Recent decisions in the NSW Court of Appeal highlight how difficult it can be for a solicitor to demonstrate that a client has given fully informed consent.

Consent – informed but not informed enough

In Atanaskovic Hartnell v Birketu Pty Ltd [2021] NSWCA 201; (2021) 105 NSWLR 542 an employee of the solicitors’ firm fraudulently deceived the client and Deutsche Bank into transferring millions of dollars to his personal bank account without the firm’s knowledge. The client, Birketu Pty Ltd, retained the solicitors to act in Birketu’s dispute with the bank notwithstanding the fact that investigating the fraudulent actions of the firm’s former employee and addressing the legal consequences of those actions were central to that dispute.

The Court of Appeal held the client had given its consent without being fully informed. The letter from the solicitor to the client described the conflict of interest as potential – ‘[t]hat was not a correct statement of the legal position given that [the solicitor] was in a position of actual conflict’ (at [56]). ‘The erroneous description… of the conflict as a “potential” one obscured the reality of the opposition of interests between [the parties]… Nor was there full disclosure of all material facts and circumstances’ (at [57]-[59]).

In Rahme v Benjamin & Khoury [2019] NSWCA 211; (2019) 100 NSWLR 550, the solicitor acted in litigation for a plaintiff company. During the litigation, the company fell into liquidation owing the firm considerable fees. The liquidator wished to assign the causes of action to the spouse of the principal of the company for a nominal sum, but on the basis that the spouse would become liable for the solicitor’s unpaid fees when she acquired the causes of action. The solicitor had a conflict because of its interest in the payment of the past fees and its obligations to the company. It took care to ensure that the client obtained independent advice about the assignment and the associated costs agreement.

The Court of Appeal held that although the client had been separately advised, she had not obtained advice on one issue critical to her decision whether to consent. The critical issue concerned the prospects of success in the litigation which was the subject of the assignment. Her consent to the conflict was therefore not fully informed (at [107]).

Both cases involved a conflict of interest between solicitor and client, rather than a conflict between the duties owed to one client and the duties owed to another. However they illustrate the importance of fully informed consent and how difficult it is in a practical sense to succeed in obtaining it – which applies to all forms of conflict (whether of interest or duty).

Some practical considerations

When being asked to act for more than one client, typically the clients’ interests align for the most part, and they ‘just want their agreement documented properly’, so it can be hard to identify and manage conflicts.

These recent cases highlight the difficulties in obtaining fully informed consent. There are some practical guidelines which may help practitioners decide whether to act for both sides:

  1. Don’t be distracted by what the clients have in common.
  2. Think critically about how the clients’ interests may conflict. Challenge their analysis.
  3. Ask ‘what is in this deal for each client?’ If there is no good answer, don’t act for both sides.
  4. What advice would you be giving each client if acting only for that client? How much of that are you prevented from giving if acting for both?
  5. Would it be better for the client to have someone act for them without any constraints?
  6. Send the client to obtain independent advice if there is an issue which warrants it.
  7. But if you are doing that, refer to (5)
  8. Use your judgment.

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Gina Tasoulis is Claims Solicitor at Lawcover.