CHAPTER ONE – THE SRA’S TWO CONFLICTS THAT MATTER AND WHY LAWYERS STILL CONFUSE THEM
The SRA Code of Conduct (“Code”) does not treat all “conflicts” as equal. Nor does it prohibit solicitors from acting simply because a dispute may be contentious, or may involve overlapping relationships between directors, shareholders, and or companies. Instead, the Code identifies two distinct and legally different categories of conflict, each governed by different rules, consequences, and thresholds. Despite this, there is an ongoing confusion between these two categories, which often appear particularly in shareholder and director disputes, which frequently leads to misplaced allegations of impropriety and unnecessary escalation.
Those two categories are personal and client conflicts. The distinction is set out in stark terms in the Code itself. Paragraph 6.1 states:
“You do not act if there is an own interest conflict or a significant risk of such a conflict.” Paragraph 6.2 states “You do not act in relation to a matter or particular aspect of it if you have a conflict of interest or a significant risk of such a conflict in relation to that matter or aspect of it, unless:
- the clients have a substantially common interest in relation to the matter or the aspect of it, as appropriate; or
- the clients are competing for the same objective,
and the following conditions are met:
- all the clients have given informed consent, given or evidenced in writing, to you acting;
- where appropriate, you put in place effective safeguards to protect your clients’ confidential information; and
- you are satisfied it is reasonable for you to act for all the clients.”
It is important to understand the difference between them, because, surprisingly enough, only one of these categories carries an absolute prohibition on acting.
Personal conflicts
A personal conflict, is one that is referred to in the Code as an “own interest conflict”, arises where a solicitor’s duty to act in a client’s best interests conflicts, or carries a significant risk of conflicting, with the solicitor’s own personal interests. Paragraph 6.1 is uncompromising, this means that where such a conflict exists, the solicitor must not act and this prohibition is absolute. Client consent, or disclosure, or limited retainers cannot cure this problem.
The SRA guidance makes clear that own interest conflicts are concerned with situations such as a solicitor’s financial interest in the outcome, close personal or business relationships, employment relationships, or circumstances where the solicitor would be required to advise on or defend their own conduct. These are the types of situations where independent professional judgment is inherently compromised.
This category is important because it is frequently invoked incorrectly. Opposing solicitors frequently suggest that a firm may be “too close” to particular clients, or is under threat of regulatory reporting, or has invested substantial time and cost in a matter. Such circumstances may create commercial or reputational pressure, but they do not, without more (as in additional facts), amount to an own interest conflict within the meaning of paragraph 6.1. Nor does acting robustly for clients, or rejecting demands from an opposing firm. It is important to note that the Code is not concerned with reputational discomfort or tactical pressure. In practice, conflict allegations are sometimes raised as part of the wider tactics of a dispute. Letters threatening regulatory complaints or asserting a lack of independence can put real pressure on a firm, particularly in contentious matters. That pressure, however uncomfortable, does not in itself mean the Code has been breached. Solicitors should be careful not to equate the existence of criticism with the existence of a conflict. The correct approach is to analyse the position against the Code and the facts, rather than withdrawing simply because an opponent demands it. Many will recognise this dynamic from experience. The pressure can be real, and the instinct to withdraw in order to eliminate perceived risk is understandable. But professional judgment requires analysis, not reaction. In situations of genuine uncertainty, the best course is to involve the firm’s Compliance Officer for Legal Practice (“COLP”) at an early stage, document the assessment, and, where appropriate, seek external regulatory or ethics advice. Early escalation is not a sign of weakness and nor is it a blocker, it is simply – good governance. What matters is, that the decision to continue or to withdraw is reasoned, well recorded, and grounded in the Code, and one that is not driven by the tone of an opposing firms’ correspondence.
In circumstances of this kind, you must be sure that there is no indication of any personal financial interest beyond ordinary professional fees, no personal relationship capable of impairing independent judgment, and no requirement for the solicitor to advise on or defend their own conduct in a way that would prejudice a client. Where a firm has properly identified potential risks, undertaken internal analysis, and documented its assessment and ongoing monitoring, that is generally inconsistent with paragraph 6.1 being engaged. In such a situation, the absolute prohibition on acting does not arise.
By way of example, consider a situation in which a solicitor is asked to advise a corporate client in relation to a proposed investment transaction, while the solicitor personally holds shares in the opposing company whose valuation is directly affected by the outcome of that transaction. The solicitor’s financial interest in the opposing entity creates a clear risk that their professional judgment may be influenced consciously or unconsciously by their personal financial position. In such circumstances, there is a direct conflict between the solicitor’s duty under SRA Principle 7 to act in the best interests of each client and the solicitor’s own financial interests under Paragraph 6.1 of the Code. There is no exception permitting the solicitor to continue to act with informed consent. Nor would disclosure of the shareholding, putting in place information barriers, or limiting the scope of the retainer suffice. This prohibition is absolute. The appropriate course here would be to decline or cease to act. It is important to note, that is some circumstances, if the conflict is genuinely personal to an individual solicitor and can be entirely isolated from the firm’s wider interests, another fee earner reassignment may be considered. However, where the financial interest is held by a partner or is otherwise capable of influencing the firm’s independence, internal transfer may not cure the conflict.
It is clear that not every form of commercial pressure or reputational concern constitutes an own interest conflict. For instance, a firm’s desire to preserve an ongoing client relationship, to avoid adverse publicity, or to resist aggressive correspondence from an opposing firm does not, without more, amount to an own interest conflict. Such matters require careful professional judgment and robust risk management, but they do not inherently compromise independence in the sense contemplated by paragraph 6.1.
The question that needs to be asked is whether the solicitor’s personal interests create a real and significant risk of divergence from the client’s best interests. Where the only interest at stake is the ordinary recovery of professional fees for work properly done, the Code does not treat this as an own interest conflict. The regulatory focus is on the impairment of independence, not ordinary commercial reality.
Client conflicts
Paragraph 6.2 deals with conflicts between clients, often referred to as professional conflicts. This can arise where a solicitor owes duties to two or more clients in the same or a related matter, and those duties conflict, or there is a significant risk that they may conflict. Importantly, paragraph 6.2 does not impose an absolute ban. Instead, it establishes a default rule against acting, subject to defined exceptions and this is important to understand.
Many disputes particularly those involving companies, directors, and shareholders may naturally give rise to a risk of conflict. The SRA does not require firms to avoid all risk; it requires firms to identify, assess, manage, and continuously monitor and review that risk.
Consider a situation in which a firm acts for a company and also for certain shareholders and directors in their personal capacities, while an ongoing dispute involves another stakeholder who may not be a client of the firm. That structure plainly gives rise to at least a significant risk of conflict. The firm owes duties to the company as a separate legal entity, and to the individual shareholders or directors personally, and those duties – may not always align. The existence of that risk must be expressly identified and understood from the outset. So the critical question is, not whether a risk exists, clearly it does, but whether the firm can properly rely on one of the exceptions under paragraph 6.2.
The risk becomes more material where, for example, one of the shareholder/directors seeks to secure additional personal financial terms in the course of the dispute that would benefit them individually but would not align with the company’s best interests or the interests of the shareholders as a whole. At that stage, alignment can no longer be assumed. The firm must consider whether the substantial common interest continues to exist, or whether the situation has crystallised into an actual client conflict. In this scenario, the solicitor owes separate duties to the company and to the individual shareholder. If the shareholder’s personal objective conflicts with the company’s interests, those duties will naturally pull in different directions. The starting point under paragraph 6.2 is that the solicitor must not act where there is a conflict of interest or a significant risk of one. The firm may only continue to act if it can properly rely on one of the two limited exceptions, namely, that the clients have a substantially common interest, or that they are competing for the same objective. Even then, the firm would need to ensure; all affected clients give informed consent in writing; appropriate safeguards must be implemented where necessary to protect confidential information; and the firm must be satisfied that it is reasonable to act for all clients.
If the divergence of interests means that there is no longer a substantially common interest, and the matter does not fall within the “competing for the same objective” exception, the firm cannot continue to act merely because safeguards are in place. Where the exceptions under paragraph 6.2 no longer apply, the firm cannot continue to act for both clients. Whether it may continue to act for one depends on its ongoing duties of confidentiality and loyalty to the other. In some cases, withdrawal from all affected clients may be necessary; in others, it may be possible to continue for one client only, provided that doing so does not involve misuse of confidential information or create unfairness. Such an example illustrates the difference between a manageable risk and a disqualifying conflict. Paragraph 6.2 permits acting only within tightly defined boundaries. Once those boundaries are crossed, continued acting is no longer a matter of discretion.
What does substantial common interest mean?
The first and most relevant exception permits a firm to act where the clients have a substantially common interest in relation to the matter. The SRA guidance explains that this requires more than superficial alignment; there must be a clear shared purpose and a strong consensus on how that purpose is to be achieved.
So, considering our scenario in a different context; where the company and the shareholders/directors were to share such a common interest, and they are aligned, any advice given to the company would be grounded in directors’ statutory duties under sections 171 and 172 of the Companies Act 2006 and is consistent with the position advanced by the shareholders/directors in their personal capacities. Even then, this alignment cannot be assumed blindly. It would need to evidenced by board resolutions, correspondence, and consistent instructions. The firm has also taken steps to ensure that the company’s instructions are given through a properly constituted board, rather than informally through individuals acting in their own interests.
Under Paragraph 6.2 of the SRA Code of Conduct, solicitors are permitted to act for multiple clients with conflicting interests in specific situations if those clients share a substantially common interest in relation to the matter at hand.
Where careful consideration is required, is where a law firm representing both a company and its shareholders in a dispute involving the alleged misconduct of a former shareholder, this is where careful consideration is required and things can get messy. The company and the shareholders represented by the firm have a common interest, clear that both parties want to defend the company’s position in the dispute and preserve the company’s governance and operational stability. The dispute centres on allegations made against a former shareholder, but there is a shared understanding that the company’s reputation and future operations must be protected during the legal proceedings, whether they lead to court determination or settlement.
It would be clear that clients are aligned not only in their objectives but also in the way it approaches the matter. The board resolutions demonstrate that the company’s instructions are being provided through the appropriate corporate governance structures (the board of directors) and not by individual shareholders acting on their personal interests. This process ensures that the firm’s actions are consistent with the best interests of the company, rather than any personal agendas. If the interests of the company and the shareholders begin to diverge significantly, such as if one shareholder begins to act in a way that conflicts with the company’s best interests, the firm may need to reconsider its position under Paragraph 6.2 and take steps to manage the risk of conflict.
Consider another scenario where a law firm is representing two companies that are considering a joint venture. Both companies have common interests in ensuring the success of the venture, but there may be potential for internal disputes over the specifics of the terms or the governance of the new entity. However, at the strategic level, both companies are aligned on the end goal of creating a profitable partnership and expanding their market presence. For this common interest exception to apply, the companies would need to have a shared purpose, for instance, they may both aim to enter a new market or develop a new product or service. The law firm can act for both companies, provided that the companies are in agreement about the key terms of the joint venture and share a clear vision for achieving success. This alignment might be evidenced by board resolutions or formal letters of intent, which ensure that the companies are not acting on conflicting individual goals but are instead united by a common commercial objective.
It is important to note that the SRA guidance stresses that the common interest between the clients must go beyond a superficial alignment. There must be a clear shared purpose and a strong consensus about how to achieve that purpose. For example, in corporate disputes or mergers, while clients may share high level goals, such as defending the company’s interests, and or ensuring a successful merger, the method of achieving these goals must also be clearly aligned.
This exception allows firms to act for multiple clients even where there might otherwise be a risk of conflict. However, the burden is on the solicitor to ensure that the common interest is not only real but substantial. Mere convenience or formal alignment such as a shared objective without clear commitment to the same strategies will not suffice. Therefore, solicitors must be careful to document and continually monitor the level of common interest between clients and to ensure that both parties are not only aligned at the outset but continue to remain aligned, throughout the matter.
Consent and safeguards
Reliance on paragraph 6.2 also requires informed consent, evidenced in writing. Here, informed consent would be required from the shareholders, together with clear confirmation that advice given to the company is for the company’s benefit alone and not for them personally. This distinction is important and needs to be expressly documented.
The firm would consider confidentiality risks under Paragraphs 6.3[1], 6.4[2] or 6.5[3]. to ensure there is no adverse interest between the company and the shareholders in their personal capacities that engages paragraph 6.5. However, the firm would also need to recognise that if such adversity were to arise, it would need either to implement effective safeguards ensuring no real risk of disclosure of confidential information, or to obtain express informed consent from the affected client.
There are further safeguards that the firm could consider, such as instructing separate counsel for the company and the shareholders, maintaining separate files, and actively monitoring the position. Of course, these steps do not eliminate the risk, but they are relevant to the reasonableness assessment required by paragraph 6.2(b)(iii). In obtaining informed consent, it is essential that all parties understand the nature of the conflict and the scope of the firm’s role. Engagement letters should clearly set out the terms of representation, including the fact that the solicitor is acting for all parties involved and that the advice provided to the company is for its benefit and not for the personal benefit of the shareholders. The engagement letter should also outline the firm’s commitment to adhering to the SRA Code, ensuring that the solicitor will act independently and in compliance with all ethical and regulatory requirements, even in the face of potential conflicts. The firm should also ensure that clients are made aware of their right to seek independent legal advice, providing transparency about the potential risks and ensuring that their consent is truly voluntary and based on a clear understanding of the situation.
Where could the line be crossed?
The answer is not always as clear cut, as such circumstances require careful analysis and continuous monitoring. For example, if the company were required, under its articles of association or statute, to register a shareholder, but a shareholder personally wished to prevent this outcome, the firm could not advise both parties on directly conflicting positions. In such a situation, this would constitute a client conflict under paragraph 6.2. Similarly, if a suspended director were reinstated, such that the board would no longer have the lawful authority to instruct the firm, or if litigation progressed to a point where liability between directors became a live issue, the shared interest between the company and the individual directors would no longer hold. In such cases, continuing to act for both parties may not be permissible under paragraph 6.2. The question of whether it could continue to act for one, would depend on its duties of confidentiality and the reasonableness of doing so. In some circumstances, withdrawal from both may be required, again this would require careful analysis and an independent advisor may be sought for impartial advice.
The firm’s recognition of these potential limitations is not a flaw but rather a demonstration of proper compliance with the SRA Code. The Code does not require solicitors to predict the future and foresee every possible conflict in advance. Instead, it demands that solicitors exercise ongoing professional judgment, continuously assessing and managing conflicts of interest as circumstances of each scenario evolves.
Why we can get this wrong
Much of the criticism advanced by opposing firms conflates neutrality with independence, and independence with disengagement. The SRA Code does not require a solicitor acting for a company to act as a referee between shareholders, nor to treat non clients as clients. The solicitor’s duty is to act in the best interests of the client it represents, subject to managing conflicts as defined by the Code.
Allegations that a firm cannot act neutral simply because it also acts for aligned shareholders misunderstand both company law and the SRA framework. The relevant question is not whether someone else objects, but whether the solicitor’s duties to current clients are incompatible.
For example, in the scenario where a law firm is representing a company and multiple aligned shareholders in a corporate transaction, the firm’s duty is to act in the best interests of its clients, namely the company and the shareholders it represents. A shareholder may object to the firm’s advice or decisions regarding the transaction, but that objection does not, on its own, create a conflict of interest. The firm’s role is not to serve as a neutral party between the shareholders but to ensure that each client receives advice tailored to their specific interests within the framework of the matter at hand.
If, for example, one shareholder disagrees with the proposed sale price of shares, this may not in itself is an inherent conflict unless that shareholder’s interests diverge fundamentally from those of the other shareholders or the company, requiring a reassessment of the firm’s position under Paragraph 6.2 of the SRA Code. The firm is not required to mediate between shareholders, but rather to continue representing each client within the bounds of professional conduct and without compromising its duty to act in their best interests.
Conclusion
Properly understood, the SRA’s conflict rules are both stricter and narrower than is often suggested. Paragraph 6.1 imposes an absolute bar where a solicitor’s own interests are engaged. Paragraph 6.2 permits acting in situations of risk, provided the firm can demonstrate substantial common interest, informed consent, appropriate safeguards, and reasonableness.
The real ethical risk lies not in acting where the Code permits it, but in failing to recognise the moment when alignment ends. Where that moment has not yet arrived, it must remain under constant review as part of ongoing risk management. Some factors to consider include:
- Changes in the nature of the clients’ relationship, such as if a client begins to pursue interests that diverge from the original alignment, or if a client’s goals become incompatible with the overall shared purpose, this could signal that the alignment is ending;
- If, for instance, a legal or factual developments arise that put the clients’ positions at odds with one another, such as disputes over the interpretation of key contract terms or a new legal issue that could create an adversarial relationship and this might trigger the need to reassess the conflict;
- If the matter becomes more high-stakes, whether through financial implications, reputational concerns, or regulatory scrutiny, what may have been manageable as a conflict at one stage could become more pronounced, requiring the solicitor to reconsider their ability to continue acting;
- If a client’s behaviour changes, or they issue instructions that undermine the firm’s ability to act impartially, this should be flagged and considered carefully. This includes any attempt to exert undue influence on the firm’s legal advice or strategy.
Firms and solicitors should implement regular reviews with the COLP, and maintain open channels of communication with clients to ensure continued alignment. They should also stay vigilant to any developments that may affect the scope of their duty to each client. This ongoing assessment is critical in managing potential conflicts and ensuring compliance with the SRA Code.
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[1] 6.3 – You keep the affairs of current and former clients confidential unless disclosure is required or permitted by law or the client consents.
[2] 6.4 – Where you are acting for a client on a matter, you make the client aware of all information material to the matter of which you have knowledge, except when: (a) the disclosure of the information is prohibited by legal restrictions imposed in the interests of national security or the prevention of crime; (b) your client gives informed consent, given or evidenced in writing, to the information not being disclosed to them; (c) you have reason to believe that serious physical or mental injury will be caused to your client or another if the information is disclosed; or (d) the information is contained in a privileged document that you have knowledge of only because it has been mistakenly disclosed.
[3] 6.5 – You do not act for a client in a matter where that client has an interest adverse to the interest of another current or former client of you or your business or employer, for whom you or your business or employer holds confidential information which is material to that matter, unless: (a) effective measures have been taken which result in there being no real risk of disclosure of the confidential information; or (b) the current or former client whose information you or your business or employer holds has given informed consent, given or evidenced in writing, to you acting, including to any measures taken to protect their information.