Two Clients, One Transaction
A five-lawyer firm is instructed by a property developer, Meridian Holdings, to sell a six-unit commercial block for KES 240 million. Two weeks into the matter, a long-standing client - a pension fund - asks the firm to act for it in buying the same block. The pension fund is the firm's largest client by annual billings (about KES 9 million) and has been with the firm for eleven years. Meridian is a newer client worth about KES 2.5 million a year. The partner who took the Meridian instruction is the same partner the pension fund wants. Both clients are commercially sophisticated and both have in-house counsel. The firm has no written conflicts policy and no information barriers. The pension fund's in-house counsel says she is 'perfectly happy' for the firm to act for both sides.
1. Can the firm act for both parties? Work through the conflict analysis and the effect of the pension fund's consent.
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This is a direct conflict: the firm would be acting for both buyer and seller in the same transaction. On the sale of a single asset, the parties' interests are inherently opposed on price, warranties, completion mechanics and risk allocation. The firm cannot give undivided loyalty to both.
The pension fund's consent does not cure it. Consent from one client is not consent from both, and even dual informed consent does not automatically make a directly adverse matter acceptable - the firm must still be satisfied it can act in each client's best interests and that no confidential information will be used or leaked. Where the same partner would act on both sides, there is no realistic barrier; the partner personally holds Meridian's price expectations, bottom line and negotiating strategy. That information cannot be un-known.
The firm's own interests sharpen the problem: the pension fund is the bigger, older client, which creates exactly the pressure that leads firms to favour one side quietly. Acting for both would also be hard to defend if either party later complained. The answer is to decline one instruction. The firm should decline the pension fund's purchase or, if Meridian agrees to release it, decline Meridian - but not run both.
2. If the firm declines the pension fund, what must it do to protect the relationship and manage the risk?
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Declining is the right call but must be handled deliberately.
Tell the pension fund promptly and in writing, explain that the firm is already instructed on the sale and cannot act on the purchase, and - without disclosing Meridian's confidential information - say enough that the client understands the reason. Offer a practical alternative: a referral to a firm the pension fund can trust, and an undertaking that the firm will not share any of the pension fund's information with the Meridian team.
Internally, record the decision and the reasoning. The absence of a written conflicts policy is the underlying exposure; this incident should trigger one. A workable policy would require a conflict check at intake against all existing matters, a defined test for direct adversity, a rule that consent must be obtained from every affected client in writing and reviewed by a partner unconnected to the matter, and information barriers where the firm genuinely believes it can act.
The commercial reality should also be named: the firm is choosing the smaller client over the larger one. That is the correct ethical answer, but it is a business decision too, and the firm should be ready for the pension fund to move its work. Losing a KES 9 million client is painful; being sued or disciplined for a conflicted transaction is worse, and the reputational damage in a small legal market outlasts any single client.