Duty to Avoid Conflicts Between Successive Clients PDF

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Duty to avoi d confli cts between successi ve clientsA successi ve confli ct occurs between a former client and a new or prospect iveclient. Exampl e 1:o James is in a disput e with Bond.o A pract itioner in M Law Pract ice acting for James moves to Q Lawyersacting for Bond.o Even if the pract itio...

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L L W3 0 0 9La wy e r s ’ Et h i c s&Pr o f e s s i o n a l Re s p o n s i bi l i t y

Du t yt oa v o i dc onfl i c t sbe t we e ns uc c e s s i v ec l i e n t s As u c c e s s i v ec o n fl i c to c c u r sb e t we e naf o r me rc l i e n ta n dan e wo rp r o s p e c t i v e c l i e n t .  Ex a mp l e1 : o

J a me si si nad i s p u t ewi t hBo n d .

o

Ap r a c t i t i o n e ri nM L a wPr a c t i c ea c t i n gf o rJ a me smo v e st oQL a wy e r s a c t i n gf o rBo n d .

o

Ev e ni ft h ep r a c t i t i o n e rwa sn e v e ri n v o l v e di nt h ema t t e rb e t we e nJ a me s a n dBo n d ,t h e r ei sap o t e n t i a lc o n fl i c tb e c a u s et h ep r a c t i t i o n e rma yh a v e h a da c c e s st oJ a me s ’i n f o r ma t i o nwh i l et h ep r a c t i t i o n e rwa sa tM L a w Pr a c t i c ea n dt h a ti n f o r ma t i o nma yb eu s e df o rBo n d ’ sb e n e fi tn o wt h a tt h e p r a c t i t i o n e rh a sj o i n e dQL a wy e r st h a th a sa no b l i g a t i o nt oa c ti nBo n d ’ s b e s t i n t e r e s t s . Page 1 of 37

L L W3 0 0 9La wy e r s ’ Et h i c s&Pr o f e s s i o n a l Re s p o n s i b i l i t y

 Ex a mp l e2 : o Ru mp o l ea n dAt t i c u sa r ec o l l e a g u e si nal a wp r a c t i c e . o Ru mp o l ep r e v i o u s l ya c t e df o rGe o r g ei nac r i mi n a lma t t e rwh i c hh a ss i n c e b e e nc o mp l e t e d . o Ge o r g e ’ swi f eMi l d r e da p p r o a c h e sAt t i c u st oa c tf o rh e ri naf a mi l yma t t e r a g a i n s th i n( Ge o r g e )wh oi sRu mp o l e ’ so l dc l i e n t ,wh i c hi su n r e l a t e dt o Ge o r g e ’ sc r i mi n a l ma t t e r o T h e r ei sap o t e n t i a lc o n fl i c ta sRu mp o l ewo u l dh a v ea c q u i r e dc o n fi d e n t i a l i n f o r ma t i o nr e g a r d i n gGe o r g et h a tma yb e n e fi tMi l d r e da n dAt t i c u sma yb e a b l et oa c c e s st h a t i n f o r ma t i o nf o rMi l d r e d .

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L L W3 0 0 9La wy e r s ’ Et h i c s&Pr o f e s s i o n a l Re s p o n s i b i l i t y

 Ex a mp l e3 : o Sh y l o c ka n dPo r t i aa r ec o l l e a g u e si nt h es a mel a wp r a c t i c e . o Sh y l o c kp r e v i o u s l ya c t e df o r An t o n i oa n dt h ema t t e r h a sb e e nc o mp l e t e d . o L o r e n z on o wa p p r o a c h e sPo r t i at oa c t f o rh i mi nama t t e rt h a t i su n r e l a t e dt o An t o n i o ’ so l dma t t e r . o L o r e n z o ’ sma t t e ri sn o t a g a i n s t An t o n i od i r e c t l yb u t ma yb ea g a i n s t An t o n i o ’ s i n t e r e s t ,e . g .i tma ye x p o s eAn t o n i ot oc i v i l l i a b i l i t yo rac r i mi n a l s a n c t i o ni f c e r t a i ni n f o r ma t i o na b o u tAn t o n i owe r et ob ed i s c l o s e di nt h ec o u r s eo f r e p r e s e n t i n gL o r e n z o . o I fSh y l o c kh a da c q u i r e dc o n fi d e n t i a li n f o r ma t i o na b o u tAn t o n i oa n dt h a t i n f o r ma t i o ni sma t e r i a lt oL o r e n z o ’ sma t t e r ,a n dAn t o n i oma yr e a s o n a b l y c o n c l u d et h a tt h e r ei sar e a lp o s s i b i l i t yh i si n f o r ma t i o nma yb eu s e dt oh i s d e t r i me n t , Po r t i ac a n n o t a c c e p t L o r e n z oa sh e rc l i e n t . Page 3 of 37

L L W3 0 0 9La wy e r s ’ Et h i c s&Pr o f e s s i o n a l Re s p o n s i b i l i t y

F o rs o l i c i t o r s , t h er e l e v a n t r u l ei sRu l e1 0o f t h eSo l i c i t o r s ’ Ru l e s . 10. CONFLICTS CONCERNING FORMER CLIENTS 10.1 A solicitor and law practice must avoid conflicts between the duties owed to current and former clients, except as permitted by Rule 10.2. 10.2 A solicitor or law practice who or which is in possession of information which is confidential to a former client where that information might reasonably be concluded to be material to the matter of another client and detrimental to the interests of the former client if disclosed, must not act for the current client in that matter UNLESS: 10.2.1

the former client has given informed written consent to the solicitor or law practice so acting; or

10.2.2

an effective information barrier has been established.

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L L W3 0 0 9La wy e r s ’ Et h i c s&Pr o f e s s i o n a l Re s p o n s i b i l i t y

T h ek e ye l e me n t so f t h i sr u l ea r e :  As o l i c i t o rc a n n o t a c t f o rac u r r e n t c l i e n t i nama t t e r i f – ot h es o l i c i t o rh a sc o n fi d e n t i a l i n f o r ma t i o no f af o r me rc l i e n t ; ot h a t i n f o r ma t i o ni sma t e r i a l t ot h ec u r r e n t c l i e n t ’ sma t t e r ; a n d od i s c l o s u r eo f t h ei n f o r ma t i o nwo u l db ed e t r i me n t a l t ot h ef o r me rc l i e n t ’ s i n t e r e s t s .  T h e r ea r e2e x c e p t i o n s : oT h ef o r me rc l i e n t h a sg i v e ni n f o r me dc o n s e n t ; o r oT h e r ei sa ne ff e c t i v ei n f o r ma t i o nb a r r i e r .

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L L W3 0 0 9La wy e r s ’ Et h i c s&Pr o f e s s i o n a l Re s p o n s i b i l i t y

I n f or ma t i o nba r r i e r s I n f o r ma t i o nb a r r i e r sa r e– o

p e r ma n e n t me a s u r e sp u t i np l a c ei nal a wp r a c t i c e ;

o

t h a tp r e v e n tt h efl o wo fi n f o r ma t i o nf r o mo n es e c t i o no ft h ep r a c t i c et o a n o t h e r ;

wh i c ha s s u r eaf o r me rc l i e n t t h a t h i s / h e ri n f o r ma t i o na c q u i r e d / h e l db yo n es e c t i o n ma yn o t b eu s e db ya n o t h e r s e c t i o n  f o r t h eb e n e fi t o f an e wc l i e n t ;  t ot h ed e t r i me n t o f t h ef o r me rc l i e n t .

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L L W3 0 0 9La wy e r s ’ Et h i c s&Pr o f e s s i o n a l Re s p o n s i b i l i t y

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L L W3 0 0 9La wy e r s ’ Et h i c s&Pr o f e s s i o n a l Re s p o n s i b i l i t y

Ca s e s Ma l l e s onsSt e p he nJ a que svKPMGPe a tMa r wi c k&Ot he r s[ 1 9 9 0 ] WASC5 5 0 T h e r ewe r e3d e f e n d a n t s ,KPMG Pe a tMa r wi c k( KPMG) ,KMG Hu n g e r f o r d s ( Hu n g e r f o r d s )a n dLJCa r t e r( Ca r t e r ) .T h ed e f e n d a n t sp r o v i d e dc o n fi d e n t i a l i n f o r ma t i o nt ot h ep l a i n t i ff( Ma l l e s o n s )s ot h a tMa l l e s o n sc o u l da d v i s et h e mi n r e s p e c t o f v a r i o u st r a n s a c t i o n s . Af t e rt h e i rr e t a i n e rwa st e r mi n a t e d , Ma l l e s o n swa s r e t a i n e db yt h eCo mmi s s i o n e ro fCo r p o r a t eAff a i r s( t h eCo mmi s s i o n e r )t oa c ta s t h eCo mmi s s i o n e r ’ ss o l i c i t o r si nc o n n e c t i o nwi t ht h ep r o s e c u t i o no fc e r t a i n c r i mi n a lc h a r g e sa g a i n s t ,i n t e ra l i a ,Ca r t e r ,wh owa sap a r t n e ro fKPMG a n d Hu n g e r f o r d s .T h ed e f e n d a n t sc o n t e n d e dt h a tt h ei n f o r ma t i o nwa ss u b j e c tt ol e g a l p r o f e s s i o n a lp r i v i l e g e ,t h a tt h e r e wa sas e r i o u sr i s kt h a ti na c t i n gf o rt h e Co mmi s s i o n e rMa l l e s o n swo u l dd i s c l o s eo ru s et h ei n f o r ma t i o nt ot h e i rp r e j u d i c e a n dt h a tt h e r ewa sac o n fl i c tb e t we e nt h ed u t yo we db yMa l l e s o n st ot h e d e f e n d a n t sa n dt h ei n t e r e s twh i c hMa l l e s o n sh a di na d v a n c i n gt h ec a s eo ft h e Page 8 of 37

L L W3 0 0 9La wy e r s ’ Et h i c s&Pr o f e s s i o n a l Re s p o n s i b i l i t y

Co mmi s s i o n e ra g a i n s t Ca r t e r . He l d :  If, by a solicitor acting for a new client, there is a real and sensible possibility that his interest in advancing the case of the new client might conflict with his duty to keep information given to him by a former client confidential and to refrain from using that information to the detriment of the former client, then an injunction will lie to prevent the solicitor acting for the new client.  The knowledge of one partner of the plaintiff is to be imputed as the knowledge of the other partners of the plaintiff. Consequently, in determining whether a conflict of interest may exist, the knowledge and duties of certain partners in a firm of several partners cannot be divorced from the knowledge and interests of the other partners in the rest of the firm. It is against the public interest in the administration of justice to countenance a scheme whereby a group of partners within a firm of solicitors was able to represent a prosecutor in criminal proceedings in conflict with the duties owed by other partners to the accused person, to the mutual financial profit of all.

T h e r e f o r et h ek n o wl e d g eo fap r a c t i t i o n e ri nal a wp r a c t i c er e g a r d i n gt h e p r a c t i t i o n e r ’ sc l i e n t i si mp u t e dt ot h eo t h e rp r a c t i t i o n e r so f t h es a mel a wp r a c t i c e .

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L L W3 0 0 9La wy e r s ’ Et h i c s&Pr o f e s s i o n a l Re s p o n s i b i l i t y

T h i si sb yv i r t u eo ft h el a wo fp a r t n e r s h i pa n da g e n c y ,wh e r ee a c hp r a c t i t i o n e ri s t h ea g e n t f o r a l l t h eo t h e r p r a c t i t i o n e r so f t h es a mel a wp r a c t i c e . Ca r i nda l eCoun t r yCl ubEs t a t ePt yLt dvRo wa nAs t i l l &Or s[ 1 9 9 3 ] F CA2 1 8 T h er e s p o n d e n t swe r et h ep a r t n e r so f al a wp r a c t i c e , Me s s r sAs t i l l s .On ep a r t n e r , As t i l l , h a dp r e v i o u s l ya c t e df o rCa r i n d a l eCo u n t r yCl u bEs t a t e( Ca r i n d a l e )a n dwa s ad i r e c t o ro fCa r i n d a l e . Mra n dMr sSmi t hc o mme n c e dp r o c e e d i n g sa g a i n s t Ca r i n d a l ea n dr e t a i n e dAs t i l lt oa c tf o rt h e m.Ca r i n d a l es o u g h ta ni n j u n c t i o nt o r e s t r a i nt h el a wp r a c t i c ef r o ma c t i n gf o rt h eSmi t h so nt h eb a s i st h a tAs t i l l h a di n h i sp o s s e s s i o nCa r i n d a l e ’ sc o n fi d e n t i a l i n f o r ma t i o nwh i c ht o u c h e do nt h ei s s u e si n t h ep r o c e e d i n g s .He l d :  A solicitor was liable to be restrained from acting for a new client against a former client if a reasonable observer, aware of the relevant facts, would think that there was a real, as opposed to a theoretical, possibility that confidential information given to the solicitor by the former client might be used by the solicitor to advance the interests of a new client to the detriment of the former client.

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L L W3 0 0 9La wy e r s ’ Et h i c s&Pr o f e s s i o n a l Re s p o n s i b i l i t y

 It would have been inconsistent for the law to encourage the client to repose confidential information in a solicitor by making those confidences privileged from disclosure without the client's consent, if the law, on the other hand, were to readily allow the solicitor to act for a new client in a matter adverse to the interests of the old client.

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L L W3 0 0 9La wy e r s ’ Et h i c s&Pr o f e s s i o n a l Re s p o n s i b i l i t y

Bol k i a hvKPMG[ 1 9 9 9 ]2AC2 2 2( Hou s eof L or ds ) KPMGwe r ea u d i t o r sf o ra ni n v e s t me n t a g e n c yo f t h eBr u n e i Go v e r n me n t .Wh e n Bo l k i a hwa sc h a i ro f t h ea g e n c y , h er e t a i n e dKPMGt op r o v i d ef o r e n s i ca c c o u n t i n g s e r v i c e sa n dl i t i g a t i o ns u p p o r ti nl i t i g a t i o nc o n c e r n i n gh i sfi n a n c i a l a ff a i r s .KPMG p e r f o r me dma n ys e r v i c e su s u a l l yu n d e r t a k e nb ys o l i c i t o r sa n dg a i n e da c c e s st o h i g h l yc o n fi d e n t i a li n f o r ma t i o na b o u tBo l k i a h ,i n c l u d i n gh i sa s s e t s .L a t e rt h e Br u n e i g o v e r n me n tr e mo v e dBo l k i a hf r o mh i sp o s i t i o na sc h a i ro ft h ei n v e s t me n t a g e n c ya n da p p o i n t e dat a s kf o r c et oi n v e s t i g a t et h ea g e n c y ’ sa c t i v i t i e s .T h e a g e n c ya p p o i n t e dKPMGt oi n v e s t i g a t et h ewh e r e a b o u t so fc e r t a i no fi t sa s s e t s s u s p e c t e dt oh a v eb e e nu s e db yBo l k i a hf o r h i so wnb e n e fi t . KPMG t o o ks t e p st op r o t e c tBo l k i a h ’ sc o n fi d e n t i a li n f o r ma t i o nb ye n s u r i n gt h e t e a ma s s i s t i n gt h ea g e n c ywa sd i ff e r e n t f r o mt h eo n et h a t p r o v i d e dt h es e r v i c e si n Bo l k i a h ’ sl i t i g a t i o nma t t e re a r l i e r .I ta l s oc r e a t e da ni n f o r ma t i o nb a r r i e rwi t h i ni t s f o r e n s i ca c c o u n t i n gd e p a r t me n tt op r e v e n tt h efl o wo fi n f o r ma t i o nb e t we e nt h e2 Page 12 of 37

L L W3 0 0 9La wy e r s ’ Et h i c s&Pr o f e s s i o n a l Re s p o n s i b i l i t y

t e a ms .Bo l k i a hs o u g h t a ni n j u n c t i o nt or e s t r a i nKPMGf r o ma c t i n gf o rt h ea g e n c y . Pe rL o r dCr a i g h e a d … A solicitor is under a duty not to communicate to others any information in his possession which is confidential to the former client. But the duty extends well beyond that of refraining from deliberate disclosure. It is the solicitor's duty to ensure that the former client is not put at risk that confidential information which the solicitor has obtained from that relationship may be used against him in any circumstances. Particular care is needed if the solicitor agrees to act for a new client who has, or who may have, an interest which is in conflict with that of the former client. In that situation the former client is entitled to the protection of the court if he can show that his solicitor was in receipt of confidential information which is relevant to a matter for which the solicitor is acting, against the former client's interest, for a new client. He is entitled to insist that measures be taken by the solicitor which will ensure that he is not exposed to the risk of careless, inadvertent or negligent disclosure of the information to the new client by the solicitor, his partners in the firm, its employees or anyone else for whose acts the solicitor is responsible. As for the circumstances in which the court will intervene by granting an injunction, it will not intervene if it is satisfied that there is no risk of disclosure. But if it is not so satisfied, it should bear in mind that the choice as to whether to Page 13 of 37

L L W3 0 0 9La wy e r s ’ Et h i c s&Pr o f e s s i o n a l Re s p o n s i b i l i t y

accept instructions from the new client rests with the solicitor and that disclosure may result in substantial damage to the former client for which he may find it impossible to obtain adequate redress from the solicitor. It may be very difficult, after the event, to prove how and when the information got out, by whom and to whom it was communicated and with what consequences. In that situation everything is likely to depend on the measures which are in place to ensure that there is no risk that the information will be disclosed. If the court is not satisfied that the measures will protect the former client against the risk, the proper course will be for it to grant an injunction.

Pe rL o r dMi l l e t t … The issues raised in these proceedings have not previously been considered by your Lordships' House. The controlling authority in England hitherto has been the decision of the Court of Appeal in Rakusen v. Ellis, Munday and Clarke [1912] 1 Ch. 831. The facts of that case were unusual. It concerned a small firm of solicitors with only two partners who carried on what amounted to separate practices, each with his own clients, without any knowledge of the other's clients and with the exclusive services of some of the clerks. The plaintiff consulted one of the partners in relation to a contentious matter. After he had terminated his retainer, the other partner, who had never met the plaintiff and was not aware that he had consulted his partner, was retained by the party opposite in the same

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L L W3 0 0 9La wy e r s ’ Et h i c s&Pr o f e s s i o n a l Re s p o n s i b i l i t y

matter. The judge granted an injunction to restrain the solicitor from acting. The Court of Appeal found that there was no risk of disclosure of confidential information and discharged the injunction. The case is authority for two propositions: (i)

that there is no absolute rule of law in Engl and that a solicitor may not act in litigation against a former client; and

(ii)

that the solicitor may be restrained from acting if such a restriction is necessary to avoid a significant risk of the disclosure or misuse of confidential information belonging to the former client. Like most of the later authorities, the case was concerned with the duties of a solicitor. The duties of an accountant cannot be greater than those of a solicitor, and may be less, for information relating to his client's affairs which is in the possession of a solicitor is usually privileged as well as confidential. In the present case, however, some of the information obtained by KPMG is likely to have attracted litigation privilege, though not solicitor-client privilege, and it is conceded by KPMG that an accountant who provides litigation support services of the kind which they provided to Prince Jefri must be treated for present purposes in the same way as a solicitor.

… it is incumbent on a plaintiff who seeks to restrain his former solicitor from acting in a matter for another client to establish -

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L L W3 0 0 9La wy e r s ’ Et h i c s&Pr o f e s s i o n a l Re s p o n s i b i l i t y

(i)

that the solicitor is in possession of information which is confidential to him and to the disclosure of which he has not consented and

(ii)

that the information is or may be relevant to the new matter in which the interest of the other client is or may be adverse to his own. Although the burden of proof is on the plaintiff, it is not a heavy one. The former may readily be inferred; the latter will often be obvious.

… the duty to preserve confidentiality is unqualified. It is a duty to keep the information confidential, not merely to take all reasonable steps to do so. Moreover, it is not merely a duty not to communicate the information to a third party. It is a duty not to misuse it, that is to say, without the consent of the former client to make any use of it or to cause any use to be made of it by others otherwise than for his benefit. The former client cannot be protected completely from accidental or inadvertent disclosure. But he is entitled to prevent his former solicitor from exposing him to any avoidable risk; and this includes the increased risk of the use of the information to his prejudice arising from the acceptance of instructions to act for another client with an adverse interest in a matter to which the information is or may be relevant. … It follows that in the case of a former client there is no basis for granting relief if there is no risk of the disclosure or misuse of confidential information.

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… the court should intervene unless it is satisfied that there is no risk of disclosure. It goes without saying that the risk must be a real one, and not merely fanciful or theoretical. But it need not be substantial. … an effective Chinese Wall needs to be an established part of the organisational structure of the firm, not created ad hoc and dependent on the acceptance of evidence sworn for the purpose by members of staff engaged on the relevant work.

Ani n j u n c t i o nwa sg r a n t e dr e s t r a i n i n gKPMG f r o ma c t i n gf o rt h ei n v e s t me n t a g e n c y .

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