The Law Society's new rules on conflicts of interest and confidentiality came into force on 25 April, 2006. The rules, which are accompanied by detailed guidance, will be incorporated into the Solicitors' Practice Rules 1990 as Rules 16D and 16E. Separate rules continue to apply to conflicts in the field of conveyancing.

Helpfully, 'conflict of interests' has been defined for the first time. There is a conflict if:

. a solicitor owes separate duties to act in the best interests of two or more clients in relation to the same or related matters and those duties conflict or there is a significant risk of conflict; or

. a solicitor's duty to act in the best interests of the client conflicts (or there is a significant risk of conflict) with the solicitor's own interests.

Consideration must be given as to when matters are related. Firms should make a judgement on the facts of each case.

The general prohibition against acting if there is a conflict remains but the rules now allow a firm to act (subject to a reasonableness requirement) in a situation of actual or potential conflict with the informed consent of both parties in limited and exceptional circumstances, namely where:

. different clients have a common interest and all the clients have given written and informed consent to the firm acting; or

. a number of clients are competing for the same asset and there is no other conflict or risk of conflict.

The guidance makes it clear that while a conflict would prevent a solicitor from acting for another party on all aspects of a matter, it might be acceptable to take on a limited retainer for that party where a common interest exists.

The rules also provide that where a conflict arises between two or more clients in the course of a retainer, the firm may continue to act for one of the parties so long as the duty of confidentiality to the other party is not put at risk.

These provisions are subject to the overarching requirement to act in the best interests of both clients.

Solicitors must keep the affairs of clients or former clients confidential except where disclosure is required or permitted by law or by the client or former client. The duty to disclose to a client all information which is material to that client's matter, regardless of the source, can give rise to competing duties. The rules establish that where these duties conflict, the duty of confidentiality is paramount.

The rules stipulate that if a firm holds confidential information in relation to a client or former client, it must not risk breaching confidentiality by acting, or continuing to act, for another client on a matter where that information might reasonably be expected to be material and that client has an interest adverse to the first client or former client, except where proper arrangements can be made to protect that information.

Significantly, the rules now recognise,in line with the common law, the use of information barriers. The rules regard these as acceptable in principle in two circumstances:

. where informed consent of both clients can be obtained, the firm may act if: (i) the new or existing client B knows there might be information material to their matter belonging to client A which cannot be disclosed to them; (ii) the firm reasonably believes that both clients understand the relevant issues; and (iii) both clients agree to the conditions (usu-ally information barriers) under which the firm will act; and

. where client consent cannot be obtained, the firm may still act for client B on an existing matter, or on a matter related to an existing matter, if it is not possible to obtain informed consent from client A and client B has agreed to the solicitor acting (knowing the firm might hold material information which cannot be disclosed) and proper safeguards are put in place.

It must always be reasonable to act. In practice, solicitors are most likely to be faced with the second situation where a solicitor holding confidential information about a client moves to another firm which is acting against that client.

The guidance sets out a number of factors which would normally be appropriate to demonstrate the adequacy of an information barrier, including:

. the holders of confidential information (the restricted group) are identified and have no involvement with the other client;

. the restricted group confirms that it understands the information barrier and has not breached it;

. separate computer networks and/or password protection are maintained;

. physical separation of the restricted group; and

. a specific partner takes responsibility for the information barrier.

Information barriers may not always be appropriate and the case law (beginning with Bolkiah v KPMG [1999]) will continue to be a useful indicator.

The rules have achieved a greater degree of clarity and flexibility in a complex area while maintaining the necessary protections for clients. However, each situation must be analysed carefully on its facts and sometimes difficult judgements will continue to be called for.

Sarah Clover is head of, and Gaby Kaiser is a senior associate in, the solicitors' liability group at Barlow Lyde & Gilbert.