Joint instructions funded by a third party

There may be a situation when you are taking joint instructions but the matter is being funded by a third party, for example if you are asked by an employer (E) to act for a team it was poaching from a competitor and the competitor indicated it was going to take action against E and the moving team. The employer will usually end up paying for our instruction, with the team being our clients. There are some complex conflicts to address before being able to act in this situation.

Questions to consider:

Can we act for all members of the team?
How to deal with the fees that are to be paid by E and what warnings to give the clients as to how they might still be left with some liability.
What needs to be said to E being as they are not our client and where to some respect we need to work with them, but in others to protect the team negotiating their new contracts and what protection E will give them.

While the new employer had agreed to provide costs on account to cover the fees, it needs to be made clear in the Engagement Letter that the Clients are jointly responsible for our fees. If the Clients have misrepresented an important matter to the employer, they might be entitled to have those funds returned to them and the Clients would be jointly liable for our fees.

We decided we needed to write both to E and to the Clients as follows:

To E:

Thank you for the payment on account into our client account.

I would just like to take a moment to set out how this matter will proceed and thus ensure you have a good understanding of what I can and can't do.

I am grateful for this referral and for [COMPANY NAME] providing funding in relation to the matters relating to [INSERT] (Clients'). I must point out that [COMPANY NAME] is not our client and our duties of care and confidentiality lie solely and exclusively with the Clients. We are acting for them on a joint basis because we believe there is a substantial common interest between the Clients. We will pursue their best interests. You have your own advisers and you will need to satisfy yourself as to the impact, if any, on your business, as to what I advise the Clients to do. You will appreciate that they are excited to be joining your business, but also taking on some material risk and they want me to mitigate their risk, should matters not turn out as planned.

We are not allowed to divulge confidential information relating to the Clients to you or anyone else unless we have express consent from the Clients to do so. We also cannot disclose how and on what the fees are being spent on. We can provide a copy of our invoices to the Clients (ie not to you) on request, but it will show only very high-level details. If you require us to disclose such matters, then we will have to refuse. When funds are running low, we will revert to you and ask for more. If we can, we may be able to explain what such funds are for, but that might not be possible. You will understand I will need to represent my clients interests independently. You have kindly agreed to cover their fees. The Clients are appreciative of that, and I am letting you know that I expect I will be instructed to ensure that remains the case and that the sums you send and without restriction as to how what legal advice they cover and subject to the condition that funds that excess/unused funds you may send can only be returned to you with the written consent of all Clients, or once I am no longer instructed by the Clients and all fees (including anticipated fees) have been settled in full.

Last but not least, we must advise you that as the matter goes on if we require further funds on account then we will inform you so as to request further funds as may be necessary for the continuing representation of the Clients. The funds requested do not necessarily represent the total cost of representing the Clients.

To the Clients the following paragraphs were added to the Engagement Letter:

a)Scope and Nature of the retainer

We are acting for you as a single joint client. This means that you authorise us to share anything any one of you shares with us with the other two of you. While this is not an obligation on our part to share all information you may each give us, we will share such as we think is required for us to discharge our duties to you.

We are able to act for all of you so long as you have a common interest. Your common interest is in presenting a united front to your current employer and your new employer as to the terms of your departure and arrival (respectively). We will keep the position under review. Where we think there is a substantial risk that your respective individual interests are no longer aligned, we will let you know what we must do. This may include no longer acting for some or possibly all of you. This seems unlikely in our view at this time, and it seems more likely that you will be advantaged by being represented by the same lawyer who can speak for all of you and having one lawyer will be greatly more efficient compared to having two or three.

Towards the beginning of this instruction, we will meet with each of you separately to start with to clarify your instructions and to review the common interest position.

d) Cost and Duration

We need to make you expressly aware that you are each jointly and severally responsible for all our fees. However, we propose to ask your employer to place costs on account with us to cover all your exposure. However you should be aware that should for any reason your employer be entitled to have those funds returned to them (for example because they are able to show you have misrepresented an important matter to them) or where you elect to incur costs in excess of the sums held on account from time to time, then you will need to pay any outstanding fees.

We also need to make you expressly aware that we are assuming that at all times your employer will be supportive of you. If your employer wants you to behave in some way differently from what we advise you to do, then most likely the matter will cost more than we currently envisage and it might be your employer seeks to withdraw their funds from our client account and to dispute your right to the funds we hold. In such a case it is foreseeable that there will be costs which you will each have to meet. While you are each jointly and severally liable for our fees, we would ask that you each pay an equal share of the total fees from time to time.

It is paramount that the engagement letter is well drafted and makes it clear what we can and can't do when acting for Clients in this way. In this particular instance we acted for these Clients on a joint basis because there was a substantial common interest amongst them regarding the departure from their old firm and arrival at their new firm. If at any point during the course of acting for these clients there is a risk that the individual interests are no longer aligned then this position would need to be reviewed. It may be that you would no longer be able to act for one or all of the clients.

It is also important to outline clearly in a letter to the employer the following:

Despite providing costs on account for our fees, the employer is not our client. We have a duty of care and confidentiality to our clients and will represent our client interests independently.
The employer will need their own separate legal representation and will need to be satisfied as to the impact of the advice that is being given to our clients
It is our job to mitigate any risk for our clients should the move not go ahead
We cannot divulge information to the employer without the express consent of our clients.
We cannot disclose how and what the costs on account are being spent on and can only provide copies of our invoices (upon request) to our clients. If we request a top up of funds we cannot guarantee that we will be able to disclose what these funds will be used for and they will not necessarily be the final cost of representing the clients.
The employer will need to provide funds without restriction as to what legal advice it is paying for and should be provided subject to the condition that any excess or unused funds can only be returned with the written consent of all Clients or once we are no longer instructed and all fees and disbursements have been settled in full.

If you are acting on a matter such as this and need assistance with please feel free to reach out to the Compliance Team for support.