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Allegations of "conflict of interest" are fashionable in politics these days, but the concept is not new to lawyers. In broad terms, a conflict of interest can arise in legal practice in two ways:
where the solicitor is acting for more than one party in a transaction and the duty which he owes to one of his clients is inconsistent with the duty which he owes to another of his clients, i.e., he cannot fulfil his professional duties to all his clients; andwhere the solicitor's personal interests are inconsistent with the interests of his client.
Where there is a conflict of interest, or where there is the potential for a conflict to arise, the solicitor must cease acting for the client or clients as soon as he becomes aware of the conflict or potential conflict. Where the solicitor has been acting for more than one client in a matter in which a conflict or potential conflict has arisen, the solicitor must cease to act for all those clients.
It is for this reason that solicitors will generally insist that separate parties to transactions are separately represented. A stark example of this is the recent controversy surrounding the provision of solicitor's certificates in respect of guarantees. Spouses were often asked to give personal guarantees to secure a loan taken out by a company of which they were directors and shareholders. Solicitors were routinely asked to advise the spouses together, for the purpose of providing the certificate. However, one spouse often was not actively involved in the management of the company and therefore knew little about the company's ability to repay the loan. Often, the "inactive spouse" was content to comply with the wishes of the other. But the interest of the "inactive spouse" (to safeguard his or her assets) often conflicted with the interests of the "active spouse" (to get hold of more cash for the company). It was therefore crucial that the "inactive spouse" received separate and independent advice about the risks of giving a guarantee. It was ethically impossible for one solicitor to advise both.
Conflicts of interest can arise in many other situations outside legal practice. A director of a company, or a committee member of an association, may encounter the problem if he has, or has an interest in, commercial dealings with the company or association. Not long ago, we heard about a director of a large retailing company also being a director of another company which was a supplier of goods to the retailer. His interest as director of the retailer was to be supplied goods at the lowest possible price. His interest as director of the supplier was to sell goods to the retailer at the highest possible price. It was therefore impossible for him to fulfil his duties to the shareholders of both companies. At the very least, the director should have made full and accurate disclosure to the shareholders of both companies and obtained their informed consent to the contracts concerned.
There have been instances of ministers of the Crown having financial interests in companies which stood to gain from decisions made by those ministers in their portfolios. There was clear potential for conflict of interest - that the ministers might be swayed by their personal interests, to the detriment of the national interest which the ministers are sworn to uphold.
The law recognises certain categories of "fiduciary relationships" in which conflict of interest will not be tolerated: trustee/beneficiary; director/company; partners; joint venturers; solicitor/client; agent/principal; broker/client; and employee/employer. However, other relationships may be held to be fiduciary, depending on the circumstances. The law will not permit a person who occupies a fiduciary position, e.g., a solicitor, or a company director, to gain a profit or advantage for himself without the informed consent of the person to whom he owes the fiduciary duty.