All change...again!

The Solicitors Regulation Authority (SRA) has announced its intention to make wide ranging amendments to the rules on conflicts and confidentiality. The current process of consultation with the profession was launched several months ago, when the ink was barely dry on the last set of “wide ranging” changes (now in rrs 3 and 4 of the Solicitors Code of Conduct 2007). The 2007 amendments suffered a tortuous journey from the widespread calls for change in 2000, to government approval in 2006. Why then, so soon, are further amendments required?

Blame

Some practitioners may be asking whether the Law Society is to blame for the failure to get it right last time. Surely, it must be their fault that the 2007 changes have not proved sufficient? Others may be wondering whether after so much consultation and redrafting it is actually possible to produce a single set of rules applicable to the wide spectrum of law firms in this country.

So, what went wrong with rr 3 and 4, to have necessitated a further overhaul? The main criticism, led by the City law firms, is that they are too restrictive. In particular, r 4 on disclosure of confidential information imposes unnecessary burdens. Currently a firm cannot accept instructions from a new client even where there is no risk of leakage of the first client’s confidential information, unless both clients provide informed consent. This is out of step with the common law, which permits acceptance of instructions if the information barriers are sufficient. It also produces some oddities.

Rule 4 states that when consent is not available from the first client, but the firm has already accepted istructions from the new client, the fi rm is permitted to complete its instructions for the new client. This could encourage a client to instruct a firm in a limited way, so as to prevent that client’s adversaries instructing that firm in the future. It could also encourage firms not to undertake proper due diligence at the commencement of the retainer, so that the issue of disclosure of confidential information is only apparent further down the line, at which stage the firm would be permitted to complete the instructions.

As part of the consultation process, the SRA has proposed changes to r 4. These would remove the requirement for the first client to consent to the firm acting for the new client, meaning the firm could act if its information barriers complied with the common law. This is a sensible change, and would bring the provisions in line with the common law.

Restrictive

The second main criticism, again led by the City law firms, is that r 3 on conflicts is more restrictive than both the common law and other jurisdictions. To remain competitive and attract legal business from overseas, firms need more flexibility. Currently, two clients which usually retain the same law firm are not permitted to instruct that firm to act for both of them in a situation of potential conflict (save for in defined limited circumstances). This is stricter than the position at common law, and in the majority of US states and many European jurisdictions, where firms can act with informed consent.

The SRA’s proposals for amendment to r 3 involve a relaxation of the bar on firms acting for two or more clients in a position of potential conflict, to permit firms to act in all situations except litigation, where informed consent is provided. This would indeed be a substantial move forward, although the proposals indicate that there would be “tight controls”. The examples suggest that any clients taking advantage of the amendments must be sophisticated (for example, those with an in-house legal department). It will remain to be seen whether the proposals will satisfy City firms—it may be that the “tight controls” will in practice remove any real flexibility.

Much to gain?

The proposed changes are likely to be welcomed by solicitors particularly in the current economic climate where firms will wish to avoid turning away new clients. But, is the SRA to be applauded merely for bringing the regulation of solicitors back in line with the common law? Why was it felt appropriate to draft rr 3 and 4 in a way which placed a stricter regulatory regime on the profession than the restrictions considered appropriate by judges? Some may question whether there is much to be gained by having regulations on conflict and confidentiality at all, if their sole purpose is to mirror developments in the common law—solicitors might just as well look to case law alone when making decisions on these issues.

Most practitioners would agree that it is helpful to have a set of cogent regulations for guidance when faced with difficult questions on conflict and confientiality, but few would agree that those regulations should place more onerous restrictions on the profession than those imposed at common law. Presumably any corporate regulatory group which is set up as a consequence of the Smedley report (which investigated this market) would take on the regulation of the more sophisticated client arrangements within corporate City firms.

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