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Conflict of interest, C3S13 CPRA

Section 13, Canon III

SECTION 13. Conflict of interest. – A lawyer shall not represent conflicting interests except by written informed consent of all concerned given after a full disclosure of the facts.
There is conflict of interest when a lawyer represents inconsistent or opposing interests of two or more persons. The test is whether in behalf of one client it is the lawyer’s duty to fight for an issue or claim, but which is his or her duty to oppose for the other client. (2023 Code of Professional Responsibility and Accountability or CPRA)

1. Conflict of interest

Conflict of interest – occurs “when a lawyer represents inconsistent or opposing interests of two or more persons. The test is whether in behalf of one client it is the lawyer’s duty to fight for an issue or claim, but which is his or her duty to oppose for the other client.” (CPRA, Section 13, Canon III)

In broad terms, lawyers are deemed to represent conflicting interests when, in behalf of one client, it is their duty to contend for that which duty to another client requires them to oppose. Developments in jurisprudence have particularized various tests to determine whether a lawyer’s conduct lies within this proscription. One test is whether a lawyer is duty-bound to fight for an issue or claim in behalf of one client and, at the same time, to oppose that claim for the other client. Thus, if a lawyer’s argument for one client has to be opposed by that same lawyer in arguing for the other client, there is a violation of the rule. (Parungao v. Lacuanan, A.C. No. 12071, March 11, 2020, Per Hernando, J.)

a. No conflict of interest

Under this section, lawyers are prohibited from representing conflicting interests.

1) 5 Rationales

The prohibition against conflict of interest rests on the following five (5) rationales:

1) The law seeks to assure clients that their lawyers will represent them with undivided loyalty. A client is entitled to be represented by a lawyer whom the client can trust. Instilling such confidence is an objective important in itself.

2) The prohibition against conflicts of interest seeks to enhance the effectiveness of legal representation. To the extent that a conflict of interest undermines the independence of the lawyer’s professional judgment or inhibits a lawyer from working with appropriate vigor in the client’s behalf, the client’s expectation of effective representation could be compromised.

3) A client has a legal right to have the lawyer safeguard confidential information pertaining to it. Preventing the use of confidential information against the interests of the client to benefit the lawyer’s personal interest, in aid of some other client, or to foster an assumed public purpose, is facilitated through conflicts rules that reduce the opportunity for such abuse.

4) Conflicts rules help ensure that lawyers will not exploit clients, such as by inducing a client to make a gift or grant in the lawyer’s favor.

5) Some conflict-of-interest rules protect interests of the legal system in obtaining adequate presentations to tribunals. In the absence of such rules, for example, a lawyer might appear on both sides of the litigation, complicating the process of taking proof and compromise adversary argumentation. (Palalan Carp Farmers Multi-Purpose Coop v. Dela Rosa, En Banc, A.C. No. 12008, August 14, 2019, Per Curiam, citing Paces Industrial Corp. v. Salandanan, A.C. No. 1346, July 25, 2017)

a) Undivided loyalty

An attorney owes his client undivided allegiance. Because of the highly fiduciary nature of the attorney-client relationship, sound public policy dictates that a lawyer be prohibited from representing conflicting interests or discharging inconsistent duties. He may not, without being guilty of professional misconduct, act as counsel for a person whose interest conflicts with that of his present or former client. Indeed, good faith and honest intention on the part of the erring lawyer does not make this rule inoperative. The lawyer is an officer of the court and his actions are governed by the uncompromising rules of professional ethics. (Artezuela v. Maderazo, A.C. No. 4354, April 22, 2002, Per Puno, J.)

2) Fiduciary relationship

The rule against conflict of interest is founded on the bedrock of lawyer-client – relationship it is a fiduciary relationship. The lawyer, therefore, has a duty of loyalty to the client. The duty of confidentiality, the duty of candor, and the duty of commitment to the client’s cause are all derivatives of the ultimate duty of loyalty. (Palalan Carp Farmers Multi-Purpose Coop v. Dela Rosa [2019], supra.)

3) Public policy and good taste

This prohibition is founded on principles of public policy and good taste. ln the course of a lawyer-client relationship, the lawyer learns all the facts connected with the client’s case, including the weak and strong points of the case. The nature of that relationship is, therefore, one of trust and confidence of the highest degree. It behooves lawyers not only to keep in violate the client’s confidence, but also to avoid the appearance of treachery and double­-dealing for only then can litigants be encouraged to entrust their secrets to their lawyers, which is of paramount importance in the administration of justice. (Parungao v. Lacuanan [2020], supra.)

4) Substantial risk

[Conflict of interest] means the existence of a substantial risk that a lawyer’s loyalty to or representation of a client would be materially and adversely affected by the lawyer’s own interest or the lawyer’s duties to another client, a former client, or a third person, during the various stages of the professional relationship. (Palalan Carp Farmers Multi-Purpose Coop v. Dela Rosa [2019], supra.)

Conflicts may also arise because of the lawyer’s own financial interests, which could impair client representation and loyalty. This is reasonably obvious where a lawyer is asked to advise the client in respect of a matter in which the lawyer or a family member has a material direct or indirect financial interest. The conflict of interest is exacerbated when the lawyer, without full and honest disclosure to the client of the consequences of appointing him or her as an agent with the power to sell a piece of property, willfully and knowingly accepts such an appointment. When the lawyer engages in conduct consistent with his or her appointment as an agent, this new relationship may obscure the line on whether certain information was acquired in the course of the lawyer-client relationship or by reason of agency, and may jeopardize the client’s right to have all information concerning the client’s affairs held in strict confidence. (Palalan Carp Farmers Multi-Purpose Coop v. Dela Rosa [2019], supra.)

5) Client protection is perpetual

The protection given to the client is perpetual and does not cease with the termination of the litigation, nor is it affected by the party’s ceasing to employ the attorney and retaining another, or by any other change of relation between them. It even survives the death of the client. (Falame v. Baguio, A.C. No. 6876, March 7, 2008, Per Tinga, J.)

a) Extends beyond or after engagement

A lawyer’s duty to protect the interest and confidence of his client, together with the corollary obligation not to represent interest in conflict or inconsistent with the same, extends even beyond the end of his professional engagement with said client. (Parungao v. Lacuanan [2020], supra.)

b) Termination is not a justification

The termination of attorney-client relation provides no justification for a lawyer to represent an interest adverse to or in conflict with that of the former client. The client’s confidence once reposed should not be divested by mere expiration of professional employment. Even after the severance of the relation, a lawyer should not do anything which will injuriously affect his former client in any matter in which he previously represented him nor should he disclose or use any of the client’s confidences acquired in the previous relation. (Parungao v. Lacuanan [2020], supra.)

6) Need not be counsel-of-record

To be guilty of representing conflicting interests, a counsel-of-record of one party need not also be counsel-of-record of the adverse party. He does not have to publicly hold himself as the counsel of the adverse party, nor make his efforts to advance the adverse party’s conflicting interests of record— although these circumstances are the most obvious and satisfactory proof of the charge. It is enough that the counsel of one party had a hand in the preparation of the pleading of the other party, claiming adverse and conflicting interests with that of his original client. To require that he also be counsel-of-record of the adverse party would punish only the most obvious form of deceit and reward, with impunity, the highest form of disloyalty. (Artezuela v. Maderazo [2002], supra.)

b. Exception: Written informed consent

The prohibition against representing conflict of interests is subject to the exception: “except by written informed consent of all concerned given after a full disclosure of the facts.”

[A] lawyer’s failure to acquire a written consent from both clients after a full disclosure of the facts would subject him to disciplinary action. (Palacios v. Amora, Jr., En Banc, A.C. No. 11504, August 1, 2017, Per Curiam)

Palacios v. Amora, Jr., En Banc, A.C. No. 11504, August 1, 2017, Per Curiam:

• Complainant is the owner[-]developer of more or less 312 hectares of land estate property located at Barangays San Vicente, San Miguel, Biluso and Lucsuhin, Municipality of Silang, Province of Cavite (“property”). Said property was being developed into a residential subdivision, community club house and two (2) eighteen[-]hole, worldclass championship golf courses (the “Riviera project”). In 1996, complainant entered into purchase agreements with several investors in order to finance its Riviera project. One of these investors was Philippine Golf Development and Equipment, Inc. (“Phil Golf’). On 07 March 1996, Phil Golf paid the amount of Php54 Million for the purchase of 2% interest on the Riviera project consisting of developed residential lots, Class “A” Common Shares, Class “B” Common Shares, and Class “C” Common Shares of the Riviera Golf Club and Common Shares of the Riviera Golf Sports and Country Club.

• On 02 June 1997, complainant retained the services of respondent of the Amora and Associates Law Offices to represent and act as its legal counsel in connection with the Riviera project … Respondent’s legal services under the said agreement include the following: issuance of consolidated title(s) over the project, issuance of individual titles for the resultant individual lots, issuance of license to sell by the Housing and Land Use Regulatory Board, representation before the SEC, and services concerning the untitled lots included in the project. For the said legal services, respondent charged complainant the amount of Php 6,500,000.00 for which he was paid in three different checks…

• On 10 May 1999, complainant entered into another engagement agreement with respondent and the Amora Del Valle & Associates Law Offices for the registration of the Riviera trademark with the Intellectual Property Office… where respondent was paid in check in the amount of Php158,344.20…

• On 14 March 2000, another contract for services was executed by complainant and respondent for the latter to act as its counsel in the reclassification by the Sangguniang Bayan of Silang, Cavite of complainant’s agricultural lot to “residential commercial and/or recreational use” in connection with its Riviera project… Under this contract, respondent was hired to “act as counsel and representative of AFP-RSBS before the Sangguniang Bayan of Silang, Cavite in all matters relative to the reclassification of the subject properties from agricultural to non-agricultural uses.” On 21 March 2000, respondent furnished complainant a copy of Resolution No. MI-007, S of 2000 of the Sangguniang Bayan of Silang dated 21 February 2000 (“resolution”) approving the conversion and was paid the amount of Phpl.8M… Notably, the resolution was passed on 21 February 2000 or a month before the signing of the said 14 March 2000 contract. Clearly, when [the] 14 March 2000 contract was V signed by complainant and respondent, there was already a resolution of the Sangguniang Bayan of Silang approving the conversion of complainant’s properties to residential/commercial. Clearly, the Php 1.8M demanded and received by respondent is not justifiable for the sole and simple reason that respondent could not have performed any service under the 14 March 2000 contract considering that the result sought by the complainant (reclassification) has been fulfilled and completed as early as 21 February 2000. Respondent, must therefore, be ordered to return this amount to complainant.

• On 06 November 2000, complainant entered into another contract for legal services with respondent for which the latter was paid the amount of Php 14,000,000.00 to secure Certificate of Registration and License to Sell from the SEC… In addition, complainant further paid respondent the following checks as professional fees in obtaining the Certificate of Registration and Permit to Offer Securities for shares and other expenses: EPCIB Check No. 443124 dated 13 February 2003 in the amount of Phpl,500,000.00, CENB Check No. 74001 dated 29 February 2000 in the amount of Php6, 754.00, CENB Check No. 70291 dated 15 September 1999 in the amount Php261,305.00, and LBP Check No. 48691 dated 26 January 2001 in the amount of Php221,970.00.

• As complainant’s legal counsel, respondent was privy to highly confidential information regarding the Riviera project which included but was not limited to the corporate set-up, actual breakdown of the shares of stock, financial records, purchase agreements and swapping agreements with its investors. Respondent was also very familiar with the Riviera project[,] having been hired to secure Certificate of Registration and License to Sell with the BLURB and the registration of the shares of stock and license to sell of the Riviera Golf Club, Inc. and Riviera Sports and Country Club, Inc. Respondent further knew that complainant had valid titles to the properties of the Riviera project and was also knowledgeable about complainant’s transactions with Phil Golf.

• After complainant terminated respondent’s services as its legal counsel, respondent became Phil Golf’s representative and assignee. Respondent began pushing for the swapping of Phil Golf’s properties with that of complainant. Respondent sent swapping proposals to his former client, herein complainant, this time in his capacity as Phil Golf’s representative and assignee. These proposals were rejected by complainant for being grossly disadvantageous to the latter. After complainant’s rejection of the said proposals, respondent filed a case against its former client, herein complainant on behalf of a subsequent client (Phil Golf) before the BLURB for alleged breach of contract… In this HLURB case, respondent misrepresented that Phil Golf is a duly organized and existing corporation under and by virtue of the laws of the Philippines because it appears that Phil Golf’s registration had been revoked as early as 03 November 2003. Despite Phil Golf’s revoked Certificate of Registration, respondent further certified under oath that he is the duly authorized representative and assignee of Phil Golf. Respondent, however, was not authorized to act for and on behalf of said corporation because Phil Golf’s corporate personality has ceased.

• The Director’s Certificate signed by Mr. Benito Santiago of Phil Golf dated 10 May 2007 allegedly authorizing respondent as Phil Golf’s representative and assignee was null and void since the board had no authority to transact business with the public because of the SEC’s revocation of Phil Golf’s Certificate of Registration.

• A lawyer must secure the written consent of all concerned parties after a full disclosure of the facts. Respondent, however, failed to present any such document. He points to the fact that complainant approved several transactions between him and the complainant. In his Position Paper dated October 2, 2008, respondent argues that AFP-RSBS gave its formal and written consent to his status as an investor and allowed him to be subrogated to all the rights, privileges and causes of action of an investor.

• This purported approval, however, is not the consent that the CPR demands.

• Absent such written consent, respondent is guilty of representing conflicting interests.

• Moreover, as correctly pointed out by complainant, respondent did not merely act as its invest or at his own behest. In a letter dated April 26, 2007,11 the respondent wrote AFP RSBS stating: “Further to our letter dated 24 April 2007 and on behalf of my principal, Philippine Golf Development and Equipment, Inc., xxx” Plainly, respondent was acting for and in behalf of Phil Golf.

• Worse, at Phil Golf’s instance, he caused the filing of a Complaint dated October 10, 200712 against complainant with the BLURB, stating that he is the duly authorized representative and assignee of Phil Golf and that he caused the preparation of the complaint.

• Without cavil, or further need of elucidation, respondent’s representation of Phil Golf violated the rules on conflict of interest as he under took to take up the causes of his new client against the interest of his former client.

c. CPRA’s 10 sections on conflict of interest

While only one rule under the CPR deals with the prohibition against conflict of interest, the CPRA devotes 10 sections to the subject, covering the various scenarios where the prohibition may apply. In connection with the status of the relationship between the lawyer and the client, the prohibition against conflict of interest representation is presented under three scenarios involving: (a) prospective clients (Section 17); (b) current clients (Section 14); and former clients (Section 18). The other provisions on conflict of interest pertain to lawyers employed by specific organizations: lawyers joining law firms (Section 15), corporate lawyers (Section 19), lawyers in legal services organizations (Section 20), and government lawyers (Section 21), including the PAO (Section 22). (Request of the PAO to Delete Section 22, Canon III of the Proposed CPRA, En Banc, A.M. No. 23-05-05-SC, July 11, 2023, Per Singh, J.)

References

Canon III, 2023 Code of Professional Responsibility

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