Session 9 Conflicts of interest

1 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

2 Introduction Part 1

3 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

4 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

5 Conflicts of interest Part 2

6 Conflicts of interest Main categories of conflicts of interest: own interest conflicts client conflicts

7 Own interest conflicts What? Where personal/commercial interests of our firm conflict with our duty to act in the best interests of a client, or there 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

8 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

9 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

10 Register of interests Any interest must be notified Register maintained by COLP

11 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

12 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

13 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 risks o 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

14 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

15 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 clients o benefit outweighs the risks o 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

16 Safeguarding confidentiality Part 3

17 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

18 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

19 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

20 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

21 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

22 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

23 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

24 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

25 Standard conflict check procedure Part 4

26 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 to all legal staff 3. No conflict : we can accept instructions. If there are any changes: conduct a further search.

27 Standard conflict check procedure (cont) Potential reason for conflict Type of conflict this could raise Financial interests of the firm or a member of staffOwn interest conflict Personal relationships of the firm or a member of staffOwn interest conflict Public office held by a member of staffOwn interest conflict Commercial relationship of the firm or a member of staffOwn interest conflict The clients have different interestsClient 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 clientsClient conflict There may be an imbalance in bargaining power between the clients Client conflict One of more of the clients is vulnerableClient conflict

28 How to deal with conflicts Part 5

29 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

30 How to deal with conflicts (cont) All other situations Use Compliance Manager (and an ) to notify the COLP if uncertain as to whether: o an own interest conflict exists o a client conflict exists and/or an exception applies o we hold material confidential The COLP will review the matter with you to decide if we can act.

31 How to deal with conflicts (cont) Decision categoryOutcome No conflict and suggestion that we hold material confidential information about another client We can act Own interest conflict A client conflict and no exception AND/OR We cannot safeguard material confidential information We cannot act A client conflict but exception applies AND/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

32 Obtaining client consent Part 6

33 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.

34 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

35 Keeping records Part 7

36 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 act o retain a copy of the conflict check on file o 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

37 Instructions after conflict arises Part 8

38 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

39 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

40 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

41 Summary Part 9

42 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 conflict o 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

43 Final comments Any questions? to Update your training records in Compliance Manager