Legal Village

Time for firms to stand up to conflicts challenges

Posted 20/06/2007 by Charles Hollander QC

A review of recent Australian case law on conflicts of interest reveals a vibrant and active jurisprudence. In short, there are lots of new cases, some fought at the injunction level and some fought by way of full trial, while the quality of the judgments is generally high. In Canada, which now has to cope with a Supreme Court of Canada decision that a lawyer cannot act for and against the same client at the same time, even on unrelated matters, there are plenty of new cases too.

By contrast, there is currently precious little conflicts litigation in this jurisdiction. Why? I can vouch from personal experience that there are as many conflicts issues and problems as ever. Notwithstanding the introduction of the new Law Society rules last year, there are plenty of conflicts disputes capable of generating litigation.

The real problem here is that there is a perception that a law firm losing a conflicts case in court may find its name all over the papers and suffer reputational damage. A few years ago, professional firms were concerned that one of their number might be bankrupted by a huge negligence claim. But the large firms of accountants have proved resilient in the face of some massive claims and have found in cases such as Equitable Life that the best way of discouraging the bringing of such claims is often to stand up to them. Once you let it be known that you are worried about the number of noughts on the end of the claim, you leave yourself open to economic blackmail. The one firm of accountants that went down in recent years did so not as a result of a huge negligence claim but because of the reputational damage that arose from a connection with the Enron financial scandal.

It seems this may be the problem in conflicts cases. It may depend on the sort of case. Some conflicts cases will always be of limited interest to the legal or other press. No one thought the worse of Richards Butler after the somewhat surprising injunction granted at first instance to prevent it acting in a shipping arbitration against Koch Shipping.

But takeovers have a potential appeal to the national press as well as the legal press. The combination of an injunction against the firm picked up by the national press followed by a debilitating Law Society investigation – which grinds on for years and leads to inevitable disciplinary charges because the society feels it can neither ignore the court judgment picked up in the press nor be seen to be going easy on the big firms – may prove a real disincentive to going to court.

This is not right. It is often not in the client’s interest for the law firm to terminate the retainer because someone has opportunistically threatened proceedings against the law firm. A surprisingly large number of the conflict complaints from the adverse party I see are indeed opportunistic.

They can often be described in the way Lightman J once described a conflicts challenge, as “merely a sporting exercise designed to rule out of play the [other side’s] first choice of advisers in the hostilities to come”. Conflict decisions are often difficult and a wrong decision may on occasion be taken. But we all have a right of access to the courts. The law firm – and the client – should not be forced into the position where it cannot risk going to court for reasons extraneous to whether it is likely to win or lose. Otherwise, the opportunistic challenges will proliferate and economic blackmail will take over.

Perhaps now is the time for law firms to start standing up to conflict challenges in the way that the accountants have so successfully stood up to huge litigation claims.