Tricky situations can arise when a solicitor is asked to act for more than one party to a transaction. It is a breach of a solicitor’s fiduciary duty to act where the solicitor is in a position of conflict between the duty owed to one client and the duty owed to another.
Even though the clients may appear to have common interests, on closer examination it may be that they have, at least some competing interests. Typically, two clients may approach a solicitor and say they just want their transaction to be documented properly but this can lead to problems.
For instance, if one party wants to sell a property to another party, a conflict of interest can arise if the solicitor acts for both. How can the solicitor give full and proper advice to the seller on the terms of the contract and at the same time act for the purchaser and advise him on whether such terms are fair and in the best interests of the purchaser? Clearly, one of the parties should be separately represented.
Similarly, if a number of parties wish to enter into a partnership agreement, if the solicitor acts for all the partners, how can he properly advise each one whether the proposed terms of the agreement are in the best interests of each partner taking into account their particular circumstances? Any advice given may be contrary to the interests of one or more of the partners. In such a case, it would be better for the solicitor to act for only one partner in preparing the partnership agreement and the others can decide whether to act for themselves or obtain independent legal advice.
Even in the case of a de facto couple purchasing a property together, it is advisable for one of them, at the very least, to get independent legal advice before entering into the transaction to ascertain what their rights are and whether it is in their best interests to proceed.
Of course, a solicitor can act for more than one party even if there is a conflict of interest provided the solicitor has given full disclosure of all material facts and circumstances concerning the conflict and the client has given their fully informed consent. However, many solicitors may not want to take the risk that they have given such full disclosure in case they leave themselves open to a legal claim for losses incurred by the client as a result of an inadequate disclosure.
June 2022