Debate over conflicts rule changes heats up in the City

SRA to outline moves allowing firms to act for conflicting clients

City lawyers are gearing up for a protracted debate over contentious proposals to relax conflicts rules and allow law firms to act for two or more clients on the same transaction.

The proposed reforms will be outlined in detail by the Solicitors Regulation Authority (SRA), with the body set to issue draft guidance on amendments to its rules that are expected to make it easier for law firms to take on multiple roles in related transactions.

The SRA was due to publish guidelines relaxing rules three and four of the Solicitors' Code of Conduct this autumn but this has been delayed for reasons including the arrival of its new, more City-focused board in January.

The rules, which cover conflicts of interest and duties of confidentiality and disclosure, are contentious, with the proposed change to the conflicts rule allowing "firms to act for sophisticated clients in any situation, excluding litigation, where there is conflict between them," provided clients consent.

This would be a substantial liberalisation of the current position, potentially allowing a firm to act for both parties on a corporate transaction with client permission. Proponents, however, argue the rules are unlikely to be used often in that context, in practice being more likely to manage conflicts in areas like capital markets, structured finance, restructuring and corporate auctions.

Chris Perrin (pictured), Clifford Chance's executive partner and chairman of the professional rules and regulation committee at the City of London Law Society (CLLS), told Legal Week: "This is an issue which seeks to give clients greater freedom over their choice of lawyer; sophisticated clients are often irritated if they have to introduce a new firm on a deal because of a technical conflict issue which they would be happy to waive."

The CLLS put forward proposals last year with the SRA's initial consultation concluding that the risks could be managed, despite receiving only 38 responses. Network Rail was the only in-house legal team to respond to the process.

In-house views on the subject are likely to differ markedly along industry lines, with some industries like banking generally taking a liberal view while corporates in some sectors are often wary of moves to liberalise conflicts.

Opinion on the proposals is also divided among law firms, though large City practices are generally in favour of liberalisation.

Linklaters corporate head David Barnes commented: "We support the changes to the conflicts rules on which the SRA have been consulting. I'm not sure in practice that the changes are likely to result in many matters where we would take on an additional role. But they would make it clearer, in appropriate cases, when our clients ask us to take on another role that the rules expressly cover it."

However, one leading M&A partner said: "I am not convinced it is the clients' best interests for the same firm to act on both sides. It is a fragmented profession that we work in so there is enough choice."

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