In what situation does a conflict of interest between a lawyer and a third party exist?

A conflict of interest between a lawyer and a third party arises when the representation of a client is materially limited by the lawyer's obligations to that third party. This situation often occurs when a lawyer has commitments or responsibilities to another entity that could potentially hinder their ability to advocate fully for their client’s interests.

For example, if a lawyer represents a client while also having duties toward a third party—perhaps due to a prior agreement or ongoing relationship—these obligations could interfere with the lawyer's duty to act in the best interest of their client. Such limitations could lead to situations where the lawyer may have to navigate conflicting interests, affecting their judgment or ability to provide unbiased representation.

The other scenarios do not inherently indicate a conflict of interest. When a client pays the lawyer directly, it does not imply a conflict unless that payment creates an obligation to a third party that affects the representation. Similarly, clients being in competition is a separate issue that might not directly involve a lawyer’s conflict with a third party. A financial incentive from a third party alone does not establish a conflict unless it compromises the representation of the client, as it doesn't account for the lawyer's obligations that may limit their ability to act in their client's best interest.