Conflicts, Confidentiality and Disclosure — SQE1 FLK1 Legal Services

Your client is buying a small industrial unit. You own a 40% shareholding in the company selling it, and you stand to receive a share of the proceeds. You have told her, in a careful letter. She has written back saying she is content for you to carry on and does not want the expense of instructing anyone else. She is a sophisticated commercial buyer who has done this several times. May you act? No.

Not with her consent, not with a colleague supervising, not with an information barrier. This is Conflicts, Confidentiality and Disclosure: four duties that decide whether you may act at all, and one that decides what happens when two of them pull against each other. Keep your buyer in mind. We are coming back for her.

Here is the route. Where the rules live. Then own interest conflicts, the rule with no way round it. Then gifts and referrals. Then conflicts between clients, with two exceptions and three conditions. Then confidentiality, then the duty to disclose, then what happens when those two collide. And finally what you do when you have to walk away.

Start with where the rules live, because here the paragraph numbers are the content. Section 6 of the SRA Code of Conduct for Solicitors, supported by paragraphs 1.2 and 5.1. Section 6 holds four duties. 6.1 prohibits acting on an own interest conflict. 6.2 prohibits acting on a conflict between clients. 6.3 is confidentiality. 6.4 is the duty to disclose material information to your client.

Notice that the last two point opposite ways. One says keep a client's affairs to yourself. The other says pass on everything material you know. Paragraph 6.5 exists to stop that collision arising, and we come to it at the end.

Paragraph 6.1 first. You do not act if there is an own interest conflict, or a significant risk of one. The Glossary defines that as any situation where your duty to a client conflicts with your own interests. Or where there is a significant risk it may. Which is your buyer, and your shareholding in the seller.

Now the single most important sentence in this topic. Paragraph 6.2 has two exceptions. Paragraph 6.1 has none. You cannot cure an own interest conflict by explaining it, by taking written consent, by putting up a barrier, or by charging less. Moving the file to another department does not help either.

So any answer offering informed consent as the solution to an own interest conflict is wrong. Eliminate it before you read the others.

And a significant risk is enough. You do not wait for the conflict to crystallise; the test looks forward. Take a solicitor asked to negotiate a £900,000 supply agreement with a business owned by his brother. Significant risk, whether or not he takes a penny from it.

Learn the recurring shapes. A financial interest of yours or a relative's in the deal or the other party. Advising on a claim against your own firm. The client buying from you or selling to you. A commission that turns on the advice you give. Being a beneficiary under the will you are drafting.

That last kind is worth a beat. A firm that missed a deadline and lost the client's claim cannot then advise him on whether he has a claim for the lost opportunity. It cannot advise frankly on a claim against itself. Using a different department does not help. The conflict belongs to the firm.

Gifts sit alongside, under paragraph 1.2: you do not abuse your position by taking unfair advantage of clients or others. A client of full capacity asks you to draft a will leaving you £120,000 out of an estate of about £700,000. An attendance note recording his reasons does nothing. Insist he takes independent legal advice, and decline to act if he will not.

Referrals are paragraph 5.1. It does not forbid sending a client to a business you have a stake in, but it demands transparency. Tell the client of any financial or other interest you have in referring them on. Tell them of an introducer's interest in referring them to you. And put any fee sharing agreement in writing.

Two more points. You neither receive payments for a referral nor pay an introducer for clients who are the subject of criminal proceedings. And paragraph 5.2 reverses the burden. Where it appears to the SRA that a payment was a referral fee, it is treated as one unless you show it was not. Disclosing your stake satisfies 5.1. It does not authorise you to act.

Paragraph 6.2, conflicts between clients. You do not act on a matter, or a particular aspect of it, where you have a conflict of interest or a significant risk of one. A conflict is where your separate duties to two or more clients on the same or a related matter conflict. Note those words, or a particular aspect of it.

Unlike 6.1, this one has two exceptions. The first is a substantially common interest. SRA guidance describes it as a clear common purpose between the clients, and a strong consensus on how it is to be achieved. Co-purchasers buying a house. Family members setting up a company on agreed terms. A shared wish for the deal to complete is not enough.

The second exception is competing for the same objective, and it is far narrower than it sounds. Objective is itself defined. An asset, contract or business opportunity the clients seek to acquire or recover through a liquidation or other insolvency process. Or by an auction, tender process, bid or offer. And it expressly excludes public takeovers.

So try one. Two of your clients have each offered on the same house, sold privately through an agent by a seller who will pick whichever offer he prefers. Only one can have it. Does the exception apply? No. There is no auction and no tender. Mutual exclusivity is necessary. It is not sufficient.

If an exception does apply, three conditions must be met. All the clients give informed consent, given or evidenced in writing. Where appropriate, you put effective safeguards in place to protect their confidential information. And you are satisfied that it is reasonable for you to act for all of them.

Three, not two. And here is a drafting trap. The conditions sit immediately after the second exception in the text, which has led readers to think they attach only to it. They do not. Both exceptions require all three.

Informed consent has to be genuinely informed. The client must understand the nature of the conflict and what it means for the advice they will get. Also the risk that you may later have to stop acting for both. A signed form the client did not understand is not informed consent.

The third condition is the one candidates forget, and it is a judgement you must justify. Acting can be unreasonable even where the clients have a common interest and have consented. Say one is markedly more vulnerable, or the risk of abandoning both retainers midway is high.

And none of this is a one-off exercise at the start. A substantially common interest disappears the moment the clients fall out over how to proceed. If the basis on which you were entitled to act has gone, you reassess, and you may have to stop.

Confidentiality is paragraph 6.3. You keep the affairs of current and former clients confidential, unless disclosure is required or permitted by law, or the client consents. It covers everything you learn while acting, whatever its source. It is not limited to what the client marked as sensitive.

Current and former does a great deal of work. Ending a retainer does not release you, and the duty continues after the client dies. The ability to consent then passes to their personal representatives. So a firm can be conflicted out by a matter it finished years ago.

It binds the whole firm, too. Information held by one person is treated as held by the firm. So you cannot fix a problem by handing the new matter to a fee earner who has not seen the file. And a solicitor who moves firms may carry a disqualifying knowledge with them.

Do not confuse confidentiality with privilege. Confidentiality is a professional duty under the Code, covering everything you learn while acting. Legal professional privilege is a rule of evidence, much narrower, and only the client can waive it. Everything privileged is confidential. A great deal that is confidential is not privileged.

One more, because the SRA has a warning notice on it. A confidentiality clause is lawful and often proper. It is improperly used if it seeks to prevent, impede or deter someone from reporting misconduct to a regulator. Or from reporting an offence to the police, or cooperating with a criminal investigation. And warning notices are examinable.

Paragraph 6.4 is the duty to disclose. Where you act for a client on a matter, you make the client aware of all information material to that matter of which you have knowledge. Look at the shape. Owed to your own client. Biting on what you actually know. It does not oblige you to go looking.

Four exceptions. Disclosure is prohibited by legal restrictions imposed in the interests of national security or the prevention of crime. The client gives informed consent, in writing, to not being told. You have reason to believe serious physical or mental injury would follow. Or the information sits in a privileged document you know of only because it was mistakenly disclosed.

The first is the practical one. Where you have made a report under the money laundering regime, telling your client may be tipping off. You withhold it, and if the position becomes impossible you may have to cease acting, without explaining why.

The fourth is the document sent by mistake. If the other side sends you something privileged by accident, you need not tell your client what it says, and you should not exploit it. Stop reading once you realise, notify the other side, and return or destroy it as they require.

And the duty runs to your own client only. There is no obligation to volunteer material information to the other side, and doing so would breach your own client's confidentiality. Do not confuse it with the separate duty not to mislead the court.

Which brings us to the collision. You act for a second client. You also hold confidential information about a first client, material to the second client's matter, which they would badly want to know. 6.4 seems to require you to tell them. 6.3 seems to forbid it. Both duties cannot be performed.

Paragraph 6.5 resolves it by stopping the problem arising. You do not act for a client whose interest is adverse to a current or former client for whom you hold material confidential information. Unless one of two things is true. Effective measures result in there being no real risk of disclosure. Or the client whose information you hold gives informed consent, in writing.

Take that standard seriously. Not a reduced risk. No real risk. In practice it means an information barrier: separate teams, access restrictions that are logged and monitored, written undertakings, training and review. The firm has to show it genuinely works, not that it exists on paper.

Now the second route, and a question worth getting right. Your firm holds a former client's information and cannot build a workable barrier. The new client is relaxed, knows you acted for his opponent, and will sign anything. Whose consent do you need? Not his. The former client's, because it is his information at risk.

And if neither route is open, you do not act. That is the answer to the collision: confidentiality wins by default. It is never that you reveal the first client's information to the second. If you are already acting when the problem emerges, you cease to act on that matter.

Which leaves the practical end. Where a conflict emerges mid-retainer, the default is that you cease acting for both clients, not that you choose one. Continuing for the client you prefer, or the more valuable one, is very hard to justify.

And here is the cruel part. The reason you must stop is very often itself confidential information belonging to the other client. So you cannot tell the client you are leaving why you are leaving. You say a professional conflict has arisen which prevents you from continuing, and you say no more.

All of which depends on systems rather than memory. Run a conflict search against a central database before accepting instructions, capture related parties and not just clients, and repeat the check whenever a new party joins.

A word on how SQE1 tests this. There is not a single case name in this topic, so nothing to memorise there. What you carry instead is a short list of paragraph numbers. Ethics is assessed pervasively, so a conflicts point is as likely to arrive inside a conveyancing or litigation scenario as in a question that announces itself as being about conduct.

If you keep only three. Paragraph 6.1, because it has no exceptions and consent cures nothing. Paragraph 6.2, because both exceptions need all three conditions, including the one about it being reasonable to act. And paragraph 6.5, because when confidentiality and disclosure collide, confidentiality wins.

Four traps, and the first two are the ones the examiners catch people with most often. One: informed consent does not cure an own interest conflict. Two: the answer is never that the solicitor tells the second client what they learned from the first. If either appears among your options, eliminate it before you do anything else.

Three: competing for the same objective is a defined term, not a description. It needs an insolvency process, an auction, a tender, a bid or an offer, and it excludes public takeovers. Two buyers wanting the same house in an ordinary private sale are not within it, however neatly only one of them can win.

Four: under paragraph 6.5, the consent that matters belongs to the client whose information you hold, not to the client who wants you to act. Then a habit for the exam. Name the paragraph before you pick the answer, and ask whether the client at risk is a current client or a former one. The rules treat them the same, and candidates do not.

Quick check. A firm proposes to act for two clients on a matter where their interests conflict but a recognised exception applies. It has informed consent from both, in writing, and effective safeguards protecting their confidential information. The partner has real doubts. One client is far less experienced and heavily dependent, and she thinks the retainer will collapse midway. Has the firm done enough?

Three candidate answers. One: yes, because informed written consent and effective safeguards are the two conditions the Code requires. Two: yes, because the partner's doubts are commercial judgement rather than professional conduct. Three: no, because the firm must also be satisfied that it is reasonable for it to act for both. Pause here if you want a moment.

The answer is three. There are three conditions, not two. Alongside informed consent in writing, and effective safeguards where appropriate, the solicitor must be satisfied that acting for all the clients is reasonable. The partner's doubts about the imbalance and the likely collapse of the retainer go directly to that condition, and it has not been satisfied.

Option one fails because it omits the third condition, which is the one candidates most often overlook. Option two fails because the reasonableness of acting is a requirement of the Code, not merely a commercial matter. And note what would not have saved the firm: recording the doubts on the file. Writing a doubt down does not resolve it.

Five things to take away. One: paragraph 6.1 has no exceptions, which is why your buyer's written consent was worth nothing and you could not act on that industrial unit. Two: both exceptions to 6.2 need all three conditions, and the third is that acting must be reasonable.

Three: competing for the same objective is narrowly defined, confined to an insolvency process, auction, tender, bid or offer, and it excludes public takeovers. Four: confidentiality is owed to former clients as well as current ones, it survives the client's death, and it binds the whole firm.

Five: when the duty to keep quiet meets the duty to tell your client, paragraph 6.5 decides it, and confidentiality wins. And that is the end of Legal Services. Next time, a new subject: Criminal Liability.

Practise this topic with exam-style questions at sqe1prep.co.uk. This episode is for education and exam revision only, not legal advice, and we are not affiliated with or endorsed by the SRA or Kaplan.