Fine for law firm that acted on both sides of development agreement

Development: Firm said it gave verbal but not written warning to Company W

A law firm that at different times acted for either side of a development agreement it drafted, including on a dispute between the two parties, has been fined by the Solicitors Regulation Authority (SRA).

The SRA said Bolton firm AFG Law had taken unfair advantage of one of the companies and did not ensure that its confidential information was secure from the other.

Under a regulatory settlement agreement that means no further action will be taken, AFG wil pay a fine of £2,000 and costs of £1,350.

In early 2018, AFG was instructed by Company M, a property developer, to act in negotiating a development agreement with Company W, a land owner.

This was the first time AFG had acted for Company M, but it had acted for Company W in 2017 on an unrelated matter.

The SRA said the nature of the venture was such that Company M and Company W “were likely to have opposing interests and competing priorities”.

An attendance note of a meeting between the firm and the two companies said: “It was acknowledged and agreed that either party could seek independent legal advice as [the firm] have acted and do act for both parties. However reference was made to clause 29 of the agreement – ‘the good faith clause’.

“All matters between the parties are amicable – both parties want the same thing – to develop out the site – and as such both parties are happy to enter into the DA [development agreement] without seeking [independent legal advice].”

The attendance note also recorded: “It was acknowledged that [the firm] could potentially have a conflict of interest.”

At the same time, AFW said it verbally confirmed to Company W that it was not acting for it in connection with the development agreement and that it could seek independent legal advice. But the firm did not follow this up in writing.

“The firm also did not make clear to Company W that, because it was instructed by Company M in the matter, its responsibility was solely to represent and to protect Company M’s interests, not those of Company W.”

As a result, the SRA said that AFW took “unfair advantage” of Company W because it was not “sufficiently clear” that Company W was not its client and the firm was not representing its interests, and that Company W should obtain independent legal advice.

The development agreement prepared by the firm completed in May 2018 and six months later AFW was instructed by Company W to help secure a loan facility relating to the development. In July 2019, the firm acted for Company W on refinancing the project.

On both occasions, AFW was not acting for Company M in relation to the development.

Between around January 2019 and mid-2020, the firm acted for Company W on the plot sales but, in early 2020, a dispute relating to the development arose between the two companies. AFW acted for Company M on it.

The SRA said: “Despite having previously acted for Company W in relation to matters material to and connected with the subject matter of the dispute, the firm did not ensure that there was no real risk of disclosure of Company W’s confidential information or obtain its informed consent to act for Company M.

“The firm states that, although confidential information relating to Company W was held by it, the relevant fee-earner with conduct of the dispute did not have sight of it, could not have used any such information in any way, and did not do so.”

The SRA said AFW failed to take “effective measures to ensure there was no real risk of disclosure of the confidential information provided to the firm by Company W”.

The regulator said a fine was appropriate outcome because its conduct had “the potential to cause significant harm” to Company W and AFW had disregarded the risk of this.

In deciding the level of the firm, the SRA took into account that AFW had co-operated with the investigation, while its actions were “not intentional and… did not form part of a pattern of misconduct”.

It also said there was “limited actual impact of the misconduct”, and AFW “does not appear to have made any financial gain or received any other benefit”.

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