11.19 Practical Examples

An existing client comes to you to discuss a new start-up she is planning to undertake with a friend. The friend may think you represent them both.  You need to be clear about who you are representing – is it the new corporate entity they are establishing? Or are you advising your existing client on a shareholders’ agreement?  The friend should get her own lawyer to seek advice about the shareholders’ agreement, and should be aware of your prior relationship with the existing client.  If you are to represent the new corporate entity also, be clear about who has authority to instruct you.

As another example, you might be acting for a company and find yourself receiving instructions and information from a shareholder and director. You need to establish who has capacity to instruct you on behalf of the company.  In the event of a shareholders’ dispute, recognize that you are the corporation’s counsel and cannot take the side of a particular shareholder, for example. 

Also, be aware of potential conflicts that can result when you receive instructions on behalf of the corporation from a party who may later come into conflict with the corporation. This might happen in the case of a CEO whose employment is later terminated – in such a case the CEO might allege that you have a conflict and cannot defend the wrongful dismissal action he brings against the company. Generally speaking, you might not have received confidential information that prevents you from acting against the CEO, as the role of the CEO is to instruct counsel on behalf of the company. Each case must, however, be determined on its facts.

Smaller closely held companies may present different challenges than larger corporate entities. For example, you may act for a small family business operated by a husband and wife. If their marriage breaks down, the corporation and that business may be the most significant matrimonial asset they own and it may become the primary focus of the matrimonial property dispute.  As counsel to the corporation, your law firm should not act for one of the spouses in their divorce action. 

Conflicts arise in other practice areas as well. For example, your long-standing client, Mary, brings her elderly father, Harry, to see you so that he can sign an Enduring Power of Attorney naming Mary as attorney. You meet privately with Harry to ascertain instructions and satisfy yourself that he has capacity. Mary pays your bill. Harry calls you and schedules a subsequent appointment to execute a new Enduring Power of Attorney naming his son, Barry, as attorney. He explains to you privately why he is making the change. When the EPOA is triggered, Mary finds out that she is no longer the attorney and she alleges that you breached a duty to her and that she was your client. She files a complaint with the Law Society and files a claim with ALIA alleging that you were negligent and did not properly assess Harry’s capacity when he executed the second Enduring Power of Attorney. You know why Harry chose to replace Mary with Harry, but you cannot tell Mary because what Harry told you is confidential.

The loss of time and money spent in defending yourself could have been avoided. It would have been easier to assess the situation at the outset and identify potential conflicts before the matter became contentious.  In this situation, you should have told Mary that she was not your client when Harry did his first EPOA. To be on the safe side, you may even have considered sending Harry to another lawyer, depending on the nature of your relationship with Mary. 

Lawyers must be vigilant when doing any estate planning for elderly clients, at the request of family members who may be trying to influence them.  It is very important to clearly identify that the client is the person who is signing the will or the power of attorney, and clearly state that to family members. The client is not the son or daughter who has found the lawyer, made the appointment, brought the parent to the office and paid the bill.  Family members must not be allowed to influence the instructions the lawyer receives and are not entitled to be provided with any confidential information received from the testator or donor client. In scenarios like this, you should also meet with the testator or donor independently, to ensure he or she is not being influenced and that the instructions you are receiving are genuine and truly represent the client’s wishes. Do not allow your ethical obligations to be compromised. It is not your role to balance the interests of the testator or donor against those of potential beneficiaries and family members who may have a mistaken belief that they are also your clients.

  

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11.20 Conflicts and the Courts>


Last modified: Friday, 1 September 2017, 4:26 PM