Some rules, although made to protect the integrity of an arbitration procedure, open up opportunities for bad faith actors to utilize “legislative” shortcomings. Too often these actors engage in guerilla tactics. Soft law has developed to remedy these grievances. For example, the IBA Guidelines on Conflicts of Interest in International Arbitration (IBA Guidelines) seek to remedy situations where a relationship potentially can lead to bad faith conduct in the course of the arbitration procedure, e.g. where a third-party funder has a pre-existing relationship with an arbitrator. This post will demonstrate how new, untested rules risk paving the way for another set of unethical behaviors. This post’s central thesis is that the IBA Guidelines have used analogies (or legal fictions) to rein in third-party funders in circumstances where an alleged bias and independence can occur in their relationship with an arbitrator. This is good, but can also have unintended consequences—I highlight only one. However, guerilla tacticians will stand ready to further exploit any regulatory opening.
Regulating conduct is hard and often invites unintended and unwelcome consequences. The world of modern international arbitration is relatively transparent, rules-based, and judicialized. With this move towards a judicialized arbitration system comes advocates for further ethical standards, including but not limited to, “disclosure requirements.” While building an institution that can sustain criticism and foster legitimacy, best practices must be drawn from other sectors. The contemporary uncertainty—and unfortunate craving for detailed rules—can leave the door half-open to a great regulatory fallacy—i.e. that reactive, detailed ethical rules solve issues. Without delving too far into speculations, I want to highlight the paradoxical nature of regulating ethics by rules, rather than custom, practice, and markets. Reactive regulation often solves backwards, but the unknown can never be anticipated in detail. 1) For a good discussion of “governance techniques” in the financial sector, see Julia Black, Paradoxes and Failures: New Governance Techniques and the Financial Crisis. We ought to operate with caution before developing too detailed soft laws or we might be caught unprepared when rogue actors prove very capable and creative in using detailed rules to their advantage.
The IBA Guidelines treat third-party funders as a party in order to decide whether a conflict of interest exists.2) IBA Guidelines on Conflicts of Interest General Standards 6(b). I will outline how this, albeit well-intended, legal fiction can create unfortunate opportunities for unethical parties to use the rules to disqualify an arbitrator. Arbitrators have a duty to be and remain unbiased throughout the proceeding. An arbitrator can be determined to be unbiased at any point.
Existing rules on independence often concern relations between arbitrators and parties to the underlying agreement, and these parties are known and can be identified when an agreement is entered into. Arbitrator bias that stems from these known relations is almost always existent since before the appointment of the arbitrator. The parties and the arbitrator can anticipate these and choose an arbitrator accordingly. Third-party funders, on the other hand, are not parties to the underlying agreement and therefore they cannot be identified when the agreement is entered into because they are not involved with the parties until after a dispute has occurred.
Having rules where a third-party funder bears the identity of a party creates a situation where a party could bring in a funder at any point to create an appearance of bias. This could be used as a guerilla tactic. With the freedom to bring in a third-party funder at any stage of an arbitration, a party has the power to create an appearance of bias at any time and potentially disqualify an arbitrator. Traditional parties cannot be brought in to create a conflict and even if they would, a tribunal can use its discretion to minimize their influence.
Creating a tool for removing arbitrators was not the desire of IBA. The immutability of an arbitral tribunal is essential to secure the integrity and efficiency of the procedure as well as to protect the independence of the tribunal. This principle could be undermined if a challenge to an arbitrator would successfully lead to a removal of him or her due to one party’s inclusion of a funder. Also, efficiency favors a non-disruption of the arbitration procedure. Furthermore, a challenge to one of the arbitrators in a functioning tribunal can cause delay and expenses.
How to solve the third-party funding problem?
Some argue that a third-party funder is no different from an equity funder, others that the funder is a counselor – a “super-counselor.” Because of differing opinions on this, discussions are held on whether and how it should be regulated. The IBA Guidelines have solved this by creating a legal fiction where a third-party funder “may be considered to bear the identity of [a] party” to decide on whether a conflict exists.
Treating a third-party funder as an equity funder or a counselor is not the solution for reasons discussed below.
The involvement of an equity funder only needs to be disclosed if the funder reaches a sufficient threshold of ownership in a party. Therefore, it is attractive to some third-party funders to identify as something analogous to an equity funder. 5)Id, pg 204. The proponents of this view argue that “private equity investors may (and sometimes do) control aspects of case management in ways that are similar to third-party funders.” As discussed on this blog previously, in some cases, equity funders even exercise more influence in the case than a third-party funder could or would.
In clear and convincing language, using “the concentration effect,” Rogers argues that a third-party funder, investing the same amount, will have a more significant interest in a case than an equity funder. Rogers illustrates this by a hypothetical scenario where a party with an overall value of 100 US dollars, 10 US dollars being the value of a claim owned by the party. In the hypothetical scenario, an equity funder investing 1 US dollar would have a 1% ownership of the company and therefore also a 1% interest in the claim. In this scenario, the 1% ownership need not be disclosed. If, on the other hand, a funder invests 1 US dollar directly in the claim, this funder would have a 10% interest in the claim. Two investments with the same dollar value will lead to two different situations with differing amounts of interest in the claim.
An arbitral tribunal has broad discretion over procedural matters.6) Redfern, Alan, and Martin Hunter, Law and practice of international commercial arbitration, Sweet & Maxwell, 2004, Page 309; This has been expressed in Art.44 ICSID Convention, Art.IV4(d) European Convention, §1, 34(1) English Arbitration Act, Art.1494 & 1460 French New Code of Civil Procedure, Art.15(a) Revised Uniform Arbitration Act, Art.15(1) UNCITRAL Arbitration Rules, Art.15(1) ICC Rules, and in Art.14(1) LCIA Rules. This discretion stems from the principle of party autonomy and the procedural autonomy of arbitrators. It provides for efficiency and flexibility and prevents parties from abusing the process in arbitration. A tribunal can, therefore, disqualify a counselor from participating in an arbitration. This was the case in Hrvatska Elektroprivreda v. Republic of Slovenia, where a conflict of interest based on a relationship between a counselor and an arbitrator led to the disqualification of the counselor. However, disqualifying a third-party funder is not as effective as disqualifying a counsel.
Creating a legal fiction where a third-party funder is identified as a counselor or as a part of the counsel’s team would not be adequate to solve a conflict of interest. A tribunal has discretionary powers to prevent a counselor from participating in hearings, receiving briefs/information and more. A counselor cannot function in a practical way when restricted by a tribunal. A funder can function effectively despite the above-mentioned restrictions.
The question that lingers here is the very one asked in the book “Guerrilla Tactics in International Arbitration”: How can a protective rule itself be protected from abusive employment as a guerilla tactic?
Treating a third-party funder as a party, as provided by the IBA Guidelines, creates opportunities for unethical behavior. Other legal fictions and their shortcomings have been discussed. Maybe we need a complementary rule to the one in the IBA Guidelines, and then a complementary rule to that rule.
1. ↑ For a good discussion of “governance techniques” in the financial sector, see Julia Black, Paradoxes and Failures: New Governance Techniques and the Financial Crisis.
2. ↑ IBA Guidelines on Conflicts of Interest General Standards 6(b).
3. ↑ Günther J., and Stephan Wilske. Guerrilla tactics in international arbitration. Kluwer Law International, 2013.
4. ↑ Rogers, Catherine A. Ethics in International Arbitration. Oxford University Press, 2014, pg 183.
5. ↑ Id, pg 204.
6. ↑ Redfern, Alan, and Martin Hunter, Law and practice of international commercial arbitration, Sweet & Maxwell, 2004, Page 309; This has been expressed in Art.44 ICSID Convention, Art.IV4(d) European Convention, §1, 34(1) English Arbitration Act, Art.1494 & 1460 French New Code of Civil Procedure, Art.15(a) Revised Uniform Arbitration Act, Art.15(1) UNCITRAL Arbitration Rules, Art.15(1) ICC Rules, and in Art.14(1) LCIA Rules.


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Cusick, Joyce Elizabeth. Crafting with Lace. More than 40 Enchanting Projects to Make. Photo available. New York. Sterling. 1993. 4to. Hard cover. First edition. Illustrated in black, white and color. Fine copy in fine dust jacket (in mylar).
Custer, Elizabeth B. Following the Guidon. Photo available. Harrisburg. National Historical Society. 1993. 341 pps. + ads. Octavo. Hardcover. Reprint. Illustrated. Important reference work. Fine copy.
Custer, Elizabeth Bacon. The Civil War Memories of Elizabeth Bacon Custer. Reconstructed from Her Diaries and Notes by Arlene Reynolds. Photo available. Austin. University of Texas Press. 1994. 181 pps. Octavo. Hardcover. Stated first edition. Illustrated. Important reference work. Fine copy in fine dust jacket (in mylar).
Custer, General George Armstrong & Milo Quaife (ed). My Life on the Plains. Photo available. Lincoln. University of Nebraska Press. 1971. 626 pps. Octavo. Soft cover. Reprint. Illustrated. Important reference work. Fine copy.
Custer, George and Elizabeth. The Custer Story. The Life and Intimate Letters of George A. Custer and His Wife Elizabeth. Photo available. Lincoln. University of Nebraska Press. 1986. 338 pps. Octavo. Soft cover. Reprint. Illustrated. Fine copy.
Cuthbert, David. The Pastel Painter's Solution Book. 59 Pastel Painting Problems and How to Solve Them. Photo available. Cincinnati. North Lights. 1996. 4to. Hard cover. First edition. Illustrated in black, white and color. Fine copy in fine dust jacket (in mylar).
Cutler John. Understanding Aircraft Structures. Photo available. Oxford. Blackwell. 1999. 212 pps. Octavo. Soft cover. Third edition. Illustrated. Important reference work. Fine copy.
Cutler, Laurence S. Maxfield Parrish. A Retrospective. Photo available. San Francisco. Pomegranate Artbooks. 1995. 164 pps. 4to. Hardcover. Stated first edition. Illustrated in black, white and color. Important reference work. Fine copy in fine (small, closed tear top edge) dust jacket (in mylar).
Cutler, R.B. Explo 007: Evidence of Conspiracy. Inscribed by the author. Photo available. Beverly Farms. Self published. 1986. Octavo. Hard cover. First edition. Illustrated. Inscribed by the author. Fine copy.
Cuyler, Margery. 100th Day Worries. Photo available. New York. Simon and Schuster. 2000. 4to. Hard cover. Reprint. Illustrated in black, white and color by Arthur Howard. Fine copy in fine dust jacket (in mylar).
Cuzin, Jean-Pierre. Raphael. His Life and Works. Photo available. Seacacus. Chartwell. 1985. 4to. Hard cover. Illustrated in black, white and color. Fine copy in fine dust jacket (in mylar).
D'Agostini, Daniel. Into the Earth. Inscribed twice by the author. A Wine Cave Renaissance. Photo available. Plano. Panache Partners. 2009. Folio. Hardcover. First edition. Illustrated in black, white and color. Inscribed by the author: "Pat So nice to gain your friendship. Thanks for helping at Abbondanza and I look forward to continued friendship and Help! Daniel" & "Enjoy! Daniel D'Agostini". Fine copy in fine dust jacket (in mylar).
D'Aleo, Angela. The Purpose of Painting. Thoughtful Approaches to Expressing Yourself with Watercolors. Photo available. New York. Watson-Guptill. 1989. 4to. Hard cover. First edition. Illustrated in black, white and color. Fine (book plate) copy in fine dust jacket (in mylar).
D'Allemagne, Henry Rene. Decorative Antique Ironwork. A Pictorial Treasury. Photo available. New York. Dover. 1968. 414 pps. 4to. Soft cover. First edition. Illustrated. Important reference work. Fine copy.
D'Aluisio, Faith. Women in the Material World. Photo available. San Francisco. Sierra Club Books. 1996. 4to. Hard cover. First edition. Illustrated in black, white and color. Fine copy in near fine (light shelf wear) dust jacket (in mylar).
D'Amelio, Joseph. Perspective Drawing Handbook. Photo available. New York. Tudor Pub. 1964. 4to. Soft cover. First edition. Illustrated. Fine copy.
D'Amico, F. & G. Valentini. Regia Aeronautica. Vol. 2. Inscribed by the author. Photo available. Carrollton. Squadron/Signal Pub. 1986. 63 pps. 4to. Soft cover. First edition. Illustrated. Important reference work. Inscribed by the author. Illustrated in black, white and color. Inscribed by the author to Charles "Clark" Eddy (World War II Ace who downed Viscounti) "To Charles C. Eddy, a pilot, a man, a friend with sympathy. Ferdinando D'Amico Firenze, 17/9/1988" and an unknown signature (Felice ?). Fine copy.
D'Amico, Ferdinando & Gabriele Valentine. The Messerschmitt 109 in Italian Service. 1943-1945. Photo available. Boylston. Monogram Aviation Publications. 1985. 128 pps. 4to. Hardcover. First edition. Illustrated in black, white and color. Important reference work. Fine copy in fine dust jacket (in mylar).
d'Argence, Rene-Yvon Lefebvre. Chinese Jades in the Avery Brundage Collection. A Selection of Religious Symbols, Insignia of Rank, Ceremonial Weapons, Pendants, Ornaments, Figurines, Miniature Mountains and Containers from the Neolithic Period to Modern Times. Photo available. San Francisco. De Young Museum. 1972. Octavo. Soft cover. First edition. Illustrated in black, white and color. Fine copy.
d'Argence, Rene-Yvon Lefebvre. Chinese Treasures from the Avery Brundage Collection. A Selection of Religious Symbols, Insignia of Rank, Ceremonial Weapons, Pendants, Ornaments, Figurines, Miniature Mountains and Containers from the Neolithic Period to Modern Times. Photo available. New York. The Asia Society. 1968. Octavo. Soft cover. First edition. Illustrated in black, white and color. Important reference work. Fine copy.
d'Argence, Rene-Yvon Lefebvre. Treasure from the Shanghai Museum. 6,000 Years of Chinese Art. Photo available. San Francisco. Asian Art Museum. 1983. 191 pps. 4to. Soft cover. First edition. Illustrated in black, white and color. Important reference work. Fine copy.
d'Argenille, Antoine-Joseph Dezallier. Shells, Muscheln, Coquillages. Conchology or the Natural History of Sea, Freshwater, Terrestriai. and Fossil Shells. 1780. Photo available. Koln. Taschen nd. 4to. Decorated hard cover. First edition. Illustrated in black, white and color. Important reference work. Fine copy.

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The rules do not always prohibit lawyers from representing clients with conflicting interests. The rules permit a lawyer to undertake or continue a representation under certain circumstances if the lawyer fully informs each affected client of the nature and risks of the conflict and each affected client consents to waive the conflict.
There are many reasons that clients may wish to consent to a conflict of interest. For example, the conflict of interest may concern an insignificant matter not central to the representation. A client may wish to procure the services of a particular lawyer, and may need to consent to secure the lawyer’s representation. Restatement § 122, cmt. [b]. In a lawsuit involving multiple plaintiffs or defendants, clients may wish to avoid the costs entailed in retaining separate lawyers for each of the aligned parties. Id.
The key in obtaining effective consent to a conflict of interest is that the lawyer must fully inform each affected client of the possible adverse consequences of the conflict, and each client must agree to waive the conflict. But, even if the lawyer fully informs each of the affected clients and each client agrees to waive the conflict, each client’s informed consent still may not be enough in certain circumstances.
Colo. RPC 1.7 prohibits a lawyer from representing clients with conflicting interests, except when certain criteria are fulfilled under Colo. RPC 1.7(b).
The former Colo. RPC 1.7(a) seemed to provide an exception for representing clients with directly conflicting interests if the lawyer reasonably believed the representation would not adversely affect the relationship with the other client and each client consented after consultation. Note that there were three elements to the exception: first, the lawyer must have “reasonably believed” that the representation would not “adversely affect” the relationship with the other client; second, each affected client must have been consulted about the conflict; and third, each affected client must have consented to the conflict.
Former Colo. RPC 1.7(b) (emphasis added). The former Colo. RPC 1.7(b)’s exception contains the same three elements as Colo. RPC 1.7(a)’s exception. However, Colo. RPC 1.7(b) elaborated on the lawyer’s obligation to consult with the affected clients when the lawyer contemplated common representation of multiple clients in a single matter, e.g., multiple defendants or plaintiffs in litigation or multiple parties to a business transaction.
The current Rule 1.7 clarifies, rather than substantively changes, the requirements for obtaining consent to a conflict of interest. Rule 1.7(b)’s requirement that a lawyer obtain in writing the client’s consent to the conflict of interest, while implied by former Rule 1.7 or suggested by good practice, is now made explicit.
While Colorado’s former Rule 1.7(a) appeared to permit a lawyer to represent clients who were directly adverse to each other if the criteria of Rule 1.7(a)(1) and (2) were met, as a practical matter it would be extremely rare that a lawyer could ever fulfill such requirements. Indeed, it would be almost impossible to properly represent directly adverse clients in either a business transaction or in litigation. See, e.g., People v. Chew, 830 P.2d 488 (Colo. 1992); People v. Koeberle, 810 P.2d 1072 (Colo. 1991). And, with the inclusion of former Rule 1.7(c) in the Colorado Rule, the Rules Committee of the Colorado Supreme Court emphasized that representation with direct adversity is almost never permitted. Rule 1.7(b) makes explicit what, as a practical matter, has long been the rule in Colorado: that a lawyer can never obtain an effective client consent to a conflict of interest where there is direct adversity, at least in the context of litigation. Colo. RPC 1.7(b)(3) and cmt. ; see also ABA Model Rule 1.7(b)(3).
(1) A lawyer may represent a client notwithstanding a conflict of interest prohibited by § 121 if each affected client or former client gives informed consent to the lawyer’s representation. Informed consent requires that the client or former client have reasonably adequate information about the material risks of such representation to that client or former client.
(c) in the circumstances, it is not reasonably likely that the lawyer will be able to provide adequate representation to one or more of the clients.
In effect, the consent requirement means that each affected client or former client has the power to preclude the representation by withholding consent.
Restatement § 122, cmt. b. Restatement § 122 closely tracks the concepts outlined in Colo. RPC 1.7(b).
Colo. RPC 1.8 (prohibited transactions between a lawyer and a client) allows a lawyer to enter into a transaction with a client under certain circumstances when (1) the client is fully informed about the nature of the conflicting interests, and (2) the terms are fair and reasonable to the client. Colo. RPC 1.8(a). Colo. RPC 1.8 also requires the client’s consent to the conflict of interest to be in writing. Colo. RPC 1.8(a)(3).
Colo. RPC 1.9 (conflicts of interests with former clients) permits a lawyer, under certain circumstances, to represent a new client with interests adverse to those of a former client provided, however, that the lawyer obtains the informed consent of both clients.
The Colorado and federal appellate decisions addressing client waivers of lawyers’ conflicts of interest most often arise in the context of criminal cases. The cases tend to have a similar fact pattern: a criminal defendant waives his or her lawyer’s conflict of interest, is convicted, and appeals the conviction arguing ineffective assistance of counsel arising from the conflict. On appeal, the appellate court focuses on whether the client was fully informed of the conflict and made an uncoerced decision. Most often, the convicted client loses the appeal.
For example, in a case in which a criminal defendant’s lawyer began dating the prosecutor after the client’s trial and conviction but before sentencing, the client appealed his conviction on the grounds of ineffective assistance of counsel arising from his lawyer’s conflict of interest. The lawyer had disclosed his new romance to both the client and the trial court. The trial court had held a hearing, and the client had waived the conflict despite being closely questioned by the court. People v. Preciado-Flores, 66 P.3d 155, 167-68 (Colo. App. 2002). The court of appeals affirmed the conviction. The court held that a defendant in a criminal case may waive a conflict of interest if the defendant is fully informed of the conflict and agrees to it. Id. at 167-68. The court found that a waiver is voluntary, knowing, and intelligent when the defendant is aware of and understands the various risks and pitfalls, has the rational capacity to make a decision on the basis of this information, and states clearly and unequivocally a desire to proceed regardless of those dangers. Id. The record must affirmatively show that the trial court fully explained the nature of the conflict and the difficulties defense counsel faced in effective advocacy for the defendant. Id. A waiver is not knowing and intelligent, however, when a defendant gives pro forma answers to the court’s pro forma questions. Id. The trial court is required to elicit the defendant’s narrative response on the record, stating his or her understanding of the right to conflict-free representation and a description of the conflict at issue. Id. A waiver is valid even though the defendant might receive representation less effective than that provided by conflict-free counsel. Absent an abuse of discretion, the trial court’s determination that a waiver is valid will not be disturbed on review. Id. at 167.
Of course, while the client’s waiver may withstand scrutiny for purposes of appealing a criminal conviction, it may not withstand scrutiny of the lawyer’s conduct in a disciplinary proceeding. There are some conflicts that simply cannot and should not be waived, as will be discussed in the next section.
As the ethics rules have evolved, it has become more and more clear that a client may not properly consent to a conflict of interest if the client’s interests might be materially injured by the consent, even if the client is fully informed of the consequences.
(c) For purposes of this Rule, a client’s consent cannot be validly obtained in those instances in which a disinterested lawyer would conclude that the client should not agree to the representation under the circumstances of the particular situation.
The Colorado Rules Committee noted that the reason for incorporating the Comment directly into the Colorado Rule was for added protection of the client. Former Colo. RPC 1.7, committee cmt. (“The rule adopted is identical to [former] Model Rule 1.7 except for section (c), which the Committee felt was necessary in order to provide more protection for a client whose consent is sought as a way of resolving a conflict of interest between the lawyer and client.”). The supreme court’s published decisions bear out that its prime concern, when considering client waivers of conflicts, is to protect the client.
The current ABA Model Rule 1.7 and the current Colo. RPC 1.7 make even more explicit that there are some circumstances under which a client may never properly consent to the conflict of interest. Specifically, the Rules allow lawyers to represent fully informed clients who have consented to conflicts only when (1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client; (2) the representation is not prohibited by law; and (3) the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal. Colo. RPC 1.7(b); see also ABA Model Rule 1.7(b).
The first limitation is the more difficult to analyze. This is the circumstance where the lawyer’s ability to provide effective representation to one client is somehow materially impaired because of responsibilities to another client. The Committee Comment to Colorado Rule 1.7(b)(1), citing Rule 1.1 (competence) and Rule 1.3 (diligence), states that the representation is prohibited if “in the circumstances the lawyer cannot reasonably conclude that the lawyer will be able to provide competent and diligent representation.” Colo. RPC 1.7, cmt. ; see also ABA Model Rule 1.7, cmt. . The emphasis, again, is on protecting the client.
The second limitation — that the consent to the conflict is ineffective if the representation is prohibited by law — seems self-evident. Examples of this type of conflict would be, in some states, a statute that prohibits a criminal defense lawyer from representing multiple clients in a capital case. Colo. RPC 1.7, cmt. ; see also ABA Model Rule 1.7, cmt. .
The third limitation also seems self-evident: lawyers should not represent clients who are asserting claims against each other in litigation. The Comment notes that these sorts of conflicts are “nonconsentable” because of “institutional interest in vigorous development of each client’s position when the clients are aligned directly against each other in the same litigation or other proceeding before a tribunal.” Colo. RPC 1.7, cmt. ; see also ABA Model Rule 1.7, cmt. .The Comment notes that whether the clients are directly adverse in litigation is not always obvious: “[w]hether clients are aligned directly against each other within the meaning of this paragraph requires examination of the context of the proceeding.” Id. Indeed, while this exception to the client’s ability to consent seems self-evident, in litigation it can be very tricky where a lawyer’s joint clients might have or should assert cross-claims against each other, or in circumstances where the jury may be required to apportion fault among a lawyer’s multiple clients, and it is in the interest of each client to minimize the apportionment of fault. C.R.S. § 13-21-111.5.
The Comment to § 122 of the Restatement also identifies circumstances under which a lawyer may not properly obtain the client’s consent. In addition to the circumstances identified in Rule 1.7, the Comment to § 122 notes that a consent to the conflict will not be effective if (1) the client inadequately understands the nature and severity of the conflict (Restatement § 122, cmt. g(i)); (2) the client lacks the capacity to consent for some reasons (Restatement § 122, cmt. c); or (3) the consent is in any way coerced (Restatement § 122, cmt. b).
In summary, a Colorado lawyer with a conflict of interest likely cannot represent a client, even after full disclosure, informed consent, and a written waiver, when the lawyer’s conflict might prove harmful to the client.
(e) “Informed consent” denotes the agreement by a person to a proposed course of conduct after the lawyer has communicated adequate information and explanation about the material risks and reasonably available alternatives to the proposed course of conduct.
Informed consent requires that each affected client be aware of the relevant circumstances and of the material and reasonably foreseeable ways that the conflict could have adverse effects on the interests of the client. See Rule 1.0(e) (informed consent). The information required depends on the nature of the conflict and the nature of the risks involved. When representation of multiple clients in a single matter is undertaken, the information must include the implications of the common representation, including possible effects on loyalty, confidentiality and the attorney-client privilege and the advantages and risks involved.
Colo. RPC 1.7, cmt. ; see also ABA Model Rule 1.7, cmt. .
• The consequences and effects of a future withdrawal of consent by any client, including, if relevant, the fact that the lawyer would withdraw from representing all clients.
Restatement § 122, cmt. c(i).
The lawyer is responsible for ensuring that each client has the necessary information to make a fully informed consent to a conflict of interest. Id. A lawyer who does not personally inform the client assumes the risk that the client is inadequately informed and that the consent is invalid. Id. A lawyer’s failure to inform the client might also bear on the motive and good faith of the lawyer. Id.
A purpose of the conflict-of-interest rules is to protect the confidences and secrets of clients. Thus, a lawyer’s obligation to maintain the secrets and confidences of a client may prevent the lawyer from making the disclosures necessary to obtain an informed consent from other clients.
A lawyer is prohibited from disclosing information about one client or prospective client to another if the necessary information is confidential. Former Colo. RPC 1.7, cmt. , “Consultation and Consent”; Restatement § 122, cmt. c(i). The affected clients may consent to the disclosure of confidential information, but a lawyer must also consider whether the client should, in fact, disclose such confidential information. It also might be possible for a lawyer to explain the nature of undisclosed information in a manner that provides a client with an adequate basis for informed consent, while still maintaining the confidences of the other client. Restatement § 122, cmt. c(i). However, if a lawyer cannot provide adequate disclosure to the client from whom he or she is requesting the consent without disclosing confidential information about another client, the lawyer may simply be unable to obtain a valid consent to the conflict and must decline the representation. Id.
Even if a lawyer obtains an adequate informed consent to a conflict of interest from all affected clients, the lawyer may still be precluded from undertaking the representation. The Colorado Supreme Court, applying DR1-102(A)(6) and DR6-101(A)(3) of the former Code of Professional Responsibility, suggested that when a lawyer purports to represent two or more clients in a matter, the lawyer must not favor the interest of one client over the other. See, e.g., People v. Bollinger, 681 P.2d 950 (Colo. 1984) (lawyer censured for assuring real estate buyers that he would represent their interests as well as those of his seller-client, but when problem later arose between seller and earlier lien holder that resulted in foreclosure, lawyer failed to inform the buyers or help them solve the problem).
When a lawyer represents multiple plaintiffs in litigation, a fee agreement that deprives each client of the right to individually determine whether to settle the client’s claim is unenforceable, and the lawyer may be disqualified because of a conflict of interest. Abbott v. Kidder Peabody & Co., 42 F. Supp. 2d 1046 (D. Colo. 1999).
In short, some conflicts simply may not be waived. See, e.g., Grogan v. Taylor, 877 P.2d 1374, 1383 (Colo. App. 1993) (“[W]e hold that, under Colorado Rules of Professional Conduct Rule 1.7, the conflict of interest between Grogan and his attorneys is not waivable and that Grogan’s consent to continued representation by these attorneys in this proceeding cannot be validly obtained.”).


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Cost sharing in the financial sector: dead end!
In September 2017, the Court of Justice of the European Union (CJEU) further specified the VAT exemption applicable on the services rendered by independent groups of persons (IGPs) to their members, by releasing its decisions in Aviva, DNB Banka and Commission against Germany.
If the earlier publication of the Commission against Luxembourg case already caused quite a stir on the financial place, these decisions seem to give no other choice than urging Member States using article 132, 1, f) of the VAT Directive to find a proper alternative to IGPs or to restrict drastically its scope of application.
But what did the Court exactly decide in these cases?
Before going into details on the last released decisions, it is worth reminding how the exemption provided under article 132, 1, f) usually operates.
What is the purpose of an IGP?
Let’s take the example of three undertakings (a ManCo, a HoldCo and a Bank) located in Luxembourg, each of them necessitating to be provided with various services (respectively accounting and HR services for the ManCo; HR and IT services for the Bank).
In case the companies would provide HR, IT, accounting services to each other, without creating an IGP, as in situation 1, they will have to invoice/pay VAT on them. Based on the type of company at stake, their input VAT recovery right could also be quite limited.
A contrario, in case they would put these functions in common, by forming a “cost-sharing” or “independent group of persons”, as in situation 2, article 132, 1, f) of the Directive 2006/112/EC (VAT Directive) foresees the application of an exemption when such services are rendered by the group to its members, provided the conditions are fulfilled.
A comparison between both situations illustrated below allows the reader to understand that, in case an IGP is created, the companies should in principle benefit from economies of scale thanks to their cooperation without incurring additional VAT burden.
Besides, in some cases, members of the IGP will be able to allocate resources (staff) to the IGP. Such an allocation was usually also not bearing any VAT.
It is also worth noting that IGPs can be cross border, i.e. in situation 2, some of the companies could be located outside Luxembourg.
The application of the exemption should not lead to a distortion of competition.
The implementation in national legislations of this article led to divergent interpretations among Member States and was – more than once – challenged by the European Commission, the starting point being when in 2012 the latter brought an action for failure of its obligations against Luxembourg.
What did the Court exactly rule in DNB Banka, Aviva and Commission against Germany?
Last September, further decisions brought more precisions on the scope of application of this exemption.
In DNB Banka, DNB Banka AS received services from other companies within the group (mother, sister and grand-parent companies) located in other EU countries, further to an agreement concluded between each other. Latvia asked whether article 132, 1, f) should apply in this case, insofar as it was not clear enough whether or not the companies providing such services were belonging to an IGP.
In the other case at stake, the Aviva company was providing insurance services in Europe by setting up a series of share-service centers (under the form of European economic interest groups) in several Member States of the EU, which would supply – among others – HR services, financial and accounting services. Poland questioned the correct application of a VAT exemption in such a case.
If DNB Banka specifically raised the question of the form and status of an IGP, both cases related to its cross-border character (the fact that the members could be located in different EU countries).
In parallel, the German Government made an interpretation of article 132, 1, f) which was considered to be too limitative. This is why Germany was (as Luxembourg had been before, albeit for different motives) referred to the CJEU by the European Commission.
The first two decisions allowed the CJEU to clearly state that the VAT exemption provided under article 132, 1, f) of the VAT Directive does not apply to companies active in the financial/insurance sector and shall only be used in the case of public interest activities.
Besides, it appears that the Member States wrongly interpreted the Taksatorringen judgment to justify the application of the IGP exemption to the insurance and financial sectors. As a reminder, this decision concerned an insurance association encompassing 35 small or medium-sized insurance companies. However, in the situation at stake, the CJEU did not answer the question of whether the VAT exemption entailed in article 132, 1, f) was exclusively applicable to activities in the public interest or whether it could also apply to services rendered by IGPs active in the insurance sector, leaving the door for interpretation open. This point made by the CJEU should only be used to support the fact that national authorities of a Member State do not have the right to reopen closed periods in order to use the given decisions against taxable persons.
However, in Commission against Germany, the CJEU supported the fact that the exemption should not be restricted to certain professions linked with the public interest, contrary to how the German Government made use of it (applicable only to some professions linked to the health sector).
The CJEU did not answer the other questions referred (cross border application and form), insofar as, resulting from this case-law, the exemption should not have applied at all in the first place.
These decisions will have far reaching consequences for companies active in the financial and insurance sectors which formed an IGP further to article 132, 1, f) of the VAT Directive. As the Member States have, from the date of these decisions, the obligation to apply the CJEU’s case-law, they will be required to take all the necessary measures to comply with them.
The exemption could be given an only residual content, insofar as the activities of the members will be restricted to the ones linked with the public interest in order to be able to form an IGP benefiting from the VAT exemption.
This case-law could also lead to an increased price of the intra-group supplies of services between companies belonging to the financial and insurance sectors, insofar as VAT will be applicable on such services.
The question of finding a “viable alternative to IGPs” is now left open and requires urgent attention. Member States making use of article 132, 1, f) for IGPs active in the financial sector will have to rethink the current existing structures.
In this respect, VAT grouping seems to be a first alternative to IGPs. Each taxpayer’s situation should however be carefully examined before taking any steps towards the implementation of any alternative. The provision under article 11 of the VAT Directive, if applied in national law, might constitute a solution for domestic entities so far, as only taxable persons established in the territory of one Member State shall constitute a VAT group. As regards cross-border formations, no proper solution emerges yet.
The second alternative would lie in a modification of the VAT Directive. This however requires to reach unanimity among the Member States, and in case of (unsure) success would take much longer to be applicable.
In Luxembourg, after the release of the CJEU’s decision in the Commission against Luxembourg case earlier this year, the Government proposed to cancel the Grand-Ducal decree implementing the VAT exemption on IGPs. The current status of the situation is therefore “being processed”.
By Laurence Lhôte, Head of the VAT Department – KPMG Luxembourg.
During her career, Laurence acquired (amongst others) a deepened experience of VAT in the banking and financial sector. Laurence is member of the VAT working group in ALFI (Association Luxembourgeoise des Fonds d’investissement) and she is Chairwoman of the VAT working group at the ABBL (Association des Banques et Banquiers, Luxembourg).

matches: CJEU CJEU CJEU CJEU CJEU CJEU


Use our attorney-drafted AZ Power of Attorney (POA) to designate another person as your agent to legally act on your behalf.
As it states in A.R.S. §14-5501(A), an Arizona power of attorney is a crucial document that is used to empower a person or persons, referred to as an agent(s), to act as a proxy for another person, who is referred to as the principal.
Arizona does not have an official power of attorney form. That said, the Superior Court of Maricopa County has its own official power of attorney forms, including samples of a general power of attorney, a special power of attorney, a parental power of attorney, and a sample revocation of power of attorney. You can also find many power of attorney templates online, or you may draft your own.
Contain language that indicates that he or she intends to create a power of attorney and it must clearly identify the agent.
Be signed and dated willingly by a principal that is at least 18 years of age and of sound mind (he or she must demonstrate complete mental competence and have full understanding of the nature and effect of signing the power of attorney).
Be initialed by the principal, when related to paragraphs that benefit the agent.
Be signed by the principal under no constraint or undue influence.
Be signed in the presence of a notary public and at least one witness. The witness cannot be the agent’s spouse or child, nor can it be the notary public.
Be recorded at the county recorder’s office for the public record, if the power of attorney involves a real estate transfer, in accordance with A.R.S. §33-411.01.
The power of attorney (POA) sample below gives “Agent” Rachelle R Forand the authority to make financial decisions in the event that “Principal” Merrill S Markham is incapacitated. Rachelle has the authority to handle issues dealing with Merrill’s property, stocks, insurance, and business.
Durable power of attorney – In accordance with A.R.S. §14-5501(B)(1) and A.R.S. §14-5501(B)(2), this document does not terminate when the principal becomes unable to make his or her own decisions due to incapacity or incompetence. Some durable powers of attorney actually go into effect when a principal becomes disabled. The document must specify one way or the other. Durable powers of attorney terminate upon the death of the principal. A durable power of attorney must have language expressing that it is such in order to be treated as durable. If it doesn’t, it will be treated as nondurable.
Nondurable power of attorney – This power of attorney immediately terminates when the principal loses the capacity to make his or her own decisions.
Special power of attorney – This power of attorney is only used for one business transaction, such as selling personal or real property, on the behalf of someone else who is not available to do it his or herself. For example, the principal may be out of town on a business trip while a closing is taking place on his house. He can nominate a friend to act on his behalf via a special power of attorney.
Parental power of attorney – Not to be confused with a paper giving custody or guardianship of a child from a parent to another adult, this power of attorney gives a non-parental adult authority over a child for a stated period of time in a given situation.
Please note that in Arizona, unlike other states, a general power of attorney simply refers to any power of attorney document that deals with finances and property, as opposed to health care and end-of-life wishes.
In Arizona, as long as the principal maintains his or her competence, a power of attorney may be revoked at any time. However, revocation involves several steps. First of all, the revocation must be in writing and it must be delivered to the agent. If a principal is unsure of how to draft his or her own revocation, the state provides a form that can be accessed on the Arizona official state website, or on the websites of any of Arizona’s 15 counties. There are also convenient samples found online. It is a good idea to provide a copy of the revocation to any bank or business that had a copy of the original power of attorney on file.
After revocation, the principal should retrieve the original power of attorney and destroy it and all copies, though this is not required by law. If a power of attorney was recorded with the county, as in the case of a real estate transaction, the revocation will need to be recorded as well.
Arizona has specific laws when it comes to health care powers of attorney that differ from most states.
First of all, in accordance with A.R.S. §36-3221, a health care power of attorney, or an advance directive, as it is called in Arizona, is a springing document that comes into effect after a principal is unable to further speak for his or herself to ensure that his or her wishes regarding health care decisions and funeral arrangements (including body disposition) are going to be honored.
A sample exists at A.R.S. §36-3224, though no official form is provided by the state. However, in Arizona, a principal’s advance directive can be registered and electronically stored with the Secretary of State so loved ones and medical providers will have easy access to his or her wishes in the event of incapacitation.
You can find examples of advance directives online, also, if that is your preference.
Arizona’s laws also differ in that a typical health care power of attorney document will not suffice if an agent needs to place the principal in an inpatient mental health care facility (but a regular power of attorney will suffice for outpatient mental health services).
In accordance with A.R.S. §36-3281, a mental health care power of attorney is necessary to allow such authority, and it must be drafted separately from the original health care document. It may appoint the same health care agent, or designate a different person or persons. It can be created in tandem with the regular health care power of attorney, or it may be drafted at an earlier or later date.
The witness or notary must affirm that the principal is free from fraud or undue influence.
The principal must initial the paragraph granting specific authority to the agent to admit him or her to a Level One Behavioral Health Facility.