An existing client comes to you to discuss a new start-up they are 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 their own lawyer to seek
advice about the shareholders’ agreement and should be aware of your prior
relationship with your 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 they bring
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 and it may
become the primary focus of the matrimonial property dispute. As counsel
to the corporation, your law firm should not act for either 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.
You must be particularly 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 for you 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 you, made the appointment, brought the parent to the office and paid
the bill. Family members must not be allowed to influence your client’s instructions
and they 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 they are not
being influenced and that their instructions are genuine and truly represent their
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.