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Melbourne University Law Review |
SANDRO GOUBRAN[∗]
[This article compares the approaches taken by English and Australian courts to lawyers’ conflicts of duty. In particular, it examines the principles of law which govern an application seeking to restrain a lawyer from acting on behalf of client ‘B’ on the basis that the lawyer’s duty to ‘A’ (a present or former client) will be breached. The article will also examine preliminary and related matters, including: standing requirements, information barriers (such as Chinese walls) and the potential consequences of delay. There are three bases on which a court may restrain a lawyer from acting: misuse of a client’s confidential information; breach of a lawyer’s duty of loyalty; and the inherent jurisdiction of the court over its officers. This article discusses the divergence between English and Australian law regarding the availability of these grounds.]
It is of extreme public interest that no conduct should be permitted which is likely to prevent a litigant in a Court of justice from having his case tried free from all matter of prejudice.[1]
Imagine you are a client of a lawyer and that you have been so, intermittently, for the last 20 years. The lawyer has prepared your conveyancing deeds and your will. Your certificates of title may be stored in the lawyer’s office. The lawyer may have a power of attorney in relation to your personal affairs. You may have instructed the lawyer to serve letters of demand on recalcitrant business partners. You may have been a party to litigation and the lawyer counselled you, dealt with your opponent and appeared on your behalf. The lawyer has and continues to serve your interests faithfully. Now imagine that same lawyer serves a letter of demand on you in relation to a matter in which he or she had formerly acted on your behalf.
Such conduct is generally seen as inappropriate and unethical. Why? The answer resides in the nature of the relationship between lawyer and client. It is intimate — the client reposes trust and confidence in the lawyer. Indeed, the lawyer is in a fiduciary relationship with the client. More than that, of all the fiduciary relationships known to the law, the lawyer–client relationship is one of the most recognisable. The common law system of justice would not function without it. The public derives, in part, its confidence in the administration of justice from the fidelity of a lawyer to his or her client. It is for this reason that courts have required high standards of propriety from a lawyer.[2] Conflicts of duty threaten these standards. In Alexander v Perpetual Trustees WA Ltd, Davies AJA described conflicts of duty as ‘insidious thing[s]’.[3] They cloud the mind. Aspects of the lawyer’s duty of care, which ought to be seen clearly and distinctly, are seen in a ‘hazy light’.[4]
Lawyers have a fiduciary obligation to avoid ‘conflicts of duty’.[5] Conflicts arise when a lawyer who owes a duty to one client undertakes a similar duty towards another client[6] either simultaneously (‘present client conflict’)[7] or successively (‘former client conflict’).[8] This article will examine the grounds upon which courts in England and Australia will restrain a lawyer from acting where either conflict of duty is alleged.
When an injunction is sought to restrain a lawyer from acting for a party, the principles governing the situation vary depending upon whether the applicant is a present or former client.[9] There are three bases on which a court may grant an injunction: misuse of a client’s confidential information; breach of a lawyer’s fiduciary duty of loyalty; and the inherent jurisdiction of the court over its officers. In England, the jurisdiction of the court in present client conflicts is confined to upholding the lawyer’s duty of loyalty, while in former client conflicts it is confined to preventing the misuse of confidential client information. In Victoria, and some other parts of Australia, the jurisdiction of the court is not so confined[10] and all three jurisdictional bases are available in both present and former client conflicts. The speech of Lord Millett in the English case Prince Jefri Bolkiah v KPMG (a firm)[11] and the judgment of Brooking JA in the Victorian case Spincode[12] reflect the emerging divergence of the law in England and Australia. That divergence will be described and critically assessed in this article.
Part II discusses a number of preliminary matters, including whether barristers and solicitors can be treated similarly in conflict of duty cases, the attribution of knowledge to law firms and the standing of clients to bring an application seeking to restrain a lawyer. Part III sets out the legal and theoretical foundations of a lawyer’s duty to avoid conflict. Part IV identifies the conditions precedent to the existence of both kinds of conflict. Parts V and VI describe, compare and critically assess the laws in Australia and England in relation to each kind of conflict. Finally, Part VII discusses a number of related matters, including client consent to conflict, information barriers and whether delay is capable of disentitling an applicant to restrain a lawyer from acting.
For the purposes of this article, no distinction is drawn between a solicitor and a barrister — they are collectively referred to as ‘lawyers’. This is because an application for an injunction against either a solicitor or a barrister is governed by the same principles of law.[13] Barristers and solicitors owe similar fiduciary duties of confidentiality and loyalty to their clients.[14] Courts often apply the same authority when considering applications to restrain either barrister or solicitor.[15] In Australian Commercial Research & Development Ltd v Hampson, Mackenzie J observed that there was ‘nothing in any of the authorities … to suggest that any difference exists.’[16]
Similarly, in Re a Firm of Solicitors, Lightman J observed that ‘[t]he same principles plainly should and do apply in both cases’.[17] Indeed, the law may be stricter in relation to barristers.[18]
It should be noted that barristers, unlike solicitors, may not form partnerships and are effectively sole practitioners.[19]
This means that when an application is made seeking to restrain a barrister, no secondary issue arises as to whether a law firm should also be restrained.[20]
Both an individual lawyer and a law firm are capable of acting on behalf of a client. Thus, each is capable of being restrained for having a conflict of duty.[21]
The primary issue for a court will be whether an individual lawyer should be restrained.[22]
The secondary issue will be whether an individual lawyer restrained by a court is capable of ‘infecting’ his or her law firm. The extent of the infection has traditionally been determined by the application of the doctrine of imputed knowledge, which provides that the knowledge of one partner, including possession of a client’s confidential information, is imputed to the other partners within the firm.
The application of the doctrine to law firms can be traced back to Davies v Clough, where it was held that ‘if two solicitors are in partnership, and are carrying on a suit as partners, if it is right to restrain one of them, the other, of necessity, cannot carry it on; because the act of one partner is in law the act of both.’[23] Similarly, in R v O’Halloran; Ex parte Hamer, Hodges J observed that ‘each partner is the agent of all the other partners to do any act in the course of the partnership business and within its scope; an act so done by one member is the act of the other members.’[24] The imputation of knowledge is said to be justified by the ‘danger of inadvertent disclosure of confidences inherent in the everyday interchange of ideas and discussion of problems amongst law partners’ and the concern to avoid ‘even the appearance of impropriety’.[25]
Partners in a law firm are thought to be so intimately acquainted that they can be expected to share confidences and secrets with each other in the ordinary course of legal business.[26] Further, economic interdependence may be expected to result in the disclosure of confidences which could assist the firm’s clients.[27]
There is, however, a lingering issue of whether the application of the doctrinal presumption is rebuttable as a matter of law. Traditionally, United States courts have adopted a strict approach and held the presumption to be irrebuttable.[28] English and Australian courts have, at times, adopted a similarly strict approach.[29] However, in Unioil International Pty Ltd v Deloitte Touche Tohmatsu [No 2],[30] Ipp J noted that an irrebuttable presumption had been specifically rejected by the majority of the Supreme Court of Canada in MacDonald Estate v Martin[31] and that, to the contrary, a rebuttable presumption arose in Australian law.[32] Further, certain commentators have suggested that the application of the doctrine is increasingly unnecessary.[33] These views are given expression by the dissent of Staughton LJ in Re a Firm of Solicitors.[34] His Lordship stated:
I cannot detect … any authority for the proposition that a large firm of many partners is obliged to disclose to each client any knowledge relevant to his affairs that may be possessed by any of its partners or staff. Nor do I think it right to enlarge the law to that extent … The [lawyers] in the present case comprised 107 partners at the last count. It seems to me impracticable and even absurd to say that they are under a duty to reveal to each client, and use for his benefit, any knowledge possessed by any one of their partners or staff. I would not hold that to be the law.[35]
The above criticism has particular force in relation to large firms and the movement of partners amongst them.[36]
There is little doubt that if the presumption were irrebuttable, the movement of a small number of partners amongst large firms would quickly result in all being disqualified. However, the countervailing view is that the presumption is longstanding in partnership law.[37] Its rationale is derived from the traditionally close association amongst partners and, importantly, their joint and several liability. As noted by Professor Paul Finn,
[t]he orthodoxy is that, special agreement apart, a person who engages the services of a partner engages the services of the partnership and not merely of the person who actually renders the service. The client’s disclosure is to the partnership and the consequential duty of secrecy is owed by the partnership.[38]
Furthermore, in David Lee & Co (Lincoln) Ltd v Coward Chance (a firm), Browne-Wilkinson V-C observed that ‘prima facie in a firm information does move’.[39] The balance of authority in Australia,[40] although perhaps not in England,[41]
is that the presumption is rebuttable by the lawyer. However, the presumption does not apply where new partners join a firm.[42] This exception in relation to migratory partners has been justified on the basis that it is ‘easier to screen a single lawyer not previously associated with the firm than a number of lawyers who represented a former client’ and that a presumption, without exception, would lead to inappropriate restrictions ‘on the mobility of [lawyers] between law firms.’[43]
While the law in England does not appear to have embraced the notion of a rebuttable presumption, it has adopted a shift in the evidential burden of proof.[44] In any event, both approaches achieve the same result. Once the client has established that confidential information has been imparted to his or her lawyer, by reason of the presumption that information moves within a firm, the burden then falls on the lawyer to prove that effective measures would prevent disclosure of confidential client information within and outside the firm.
Separately, it is not clear whether the doctrine extends beyond partners of law firms. Although this will not be discussed further in this article, it does raise the following issues. Should knowledge of employee lawyers or nonlegal staff[45]
be attributed to the firm? Should knowledge be imputed where there is an association of otherwise independent law firms[46]
or association of legal and accounting practices?[47] Further, should knowledge be attributed amongst barristers within the same set of chambers?[48]
The basic starting proposition is that only clients have standing to bring an application seeking to restrain a lawyer from acting. A client will usually have a retainer, which is an agreement with the lawyer for the provision of legal services.[49] In Gordon v Minter Ellison Morris Fletcher, Hedigan J held that the law firm in that case had not acted for the party seeking the injunction, despite certain letters from the law firm to a third party indicating that it was so acting.[50] Although this would usually be sufficient evidence establishing the
lawyer–client relationship, the Court observed that all the parties knew the law firm was not ‘truly representing and advancing the arguments’ of the applicant. This case demonstrates that courts will look to the substance of the relationship in order to determine whether the requisite features of a lawyer–client relationship are established.
Where a lawyer is retained by an entity, the duties are owed to that entity as it is the client.[51] The duties are not owed to any individual officer of the entity, if it is a company.[52]
This does not mean, however, that the lawyer can act free of any duty when dealing with an officer of an entity. The lawyer’s duty of loyalty to the entity will require the lawyer to maintain the trust and confidence of the entity’s officers in order to facilitate open and effective channels of communication.[53] Indeed, the lawyer generally acts pursuant to the direction of the managing agents of the entity. Also, duties owed to the entity, as a general rule, entail protection of the interests of individuals within the entity. Nevertheless, for the purposes of an application for an injunction on the grounds of conflict of duty, typically only a client, namely the entity, will have standing to restrain a lawyer. In rare instances, however, the client’s officers will be considered as the client.[54]
Furthermore, it was observed in Mytton’s Ltd v Phillips Fox (a firm) that authority in England and Australia suggested that the principle of avoiding a conflict of duty may be broader than the lawyer–client relationship, so as to protect ‘quasi-clients’ or indeed any person who gave information to a lawyer which was capable of being used to the giver’s detriment.[55] Perhaps the clearest illustration of this point is found in Village Roadshow Ltd v Blake Dawson Waldron.[56] In that case, the law firm was acting for Permanent Trustee Co Ltd (a trustee company) in relation to a scheme of company arrangement. By that arrangement, Village Roadshow Ltd was proposing to buy back a certain class of its shares. The law firm, which had acted and continued to act for Permanent Trustee Co Ltd, began to act for certain shareholders of Village Roadshow Ltd who sought to challenge the scheme of company arrangement. Although Village Roadshow Ltd was not a client of the law firm, the court allowed it to bring an application seeking to restrain the law firm from acting on behalf of the shareholders. It appears that the basis for this finding was that the two companies, Permanent Trustee Co Ltd and Village Roadshow Ltd, had similar interests in upholding the scheme of company arrangement and, on that basis, one or the other was entitled to apply to the court seeking to restrain the law firm from acting.
Applications made by parties with adverse interests to the ‘true’ client are, however, viewed with some scepticism by courts. In Tricontinental Corporation Ltd v Holding Redlich, Mandie J observed that ‘[i]t is a serious matter to prevent a party from retaining the legal representative of its choice, particularly upon the application not of a former client but of an adverse party.’[57] There is some scope, however, for non-clients with adverse interests to bring an application seeking to restrain a lawyer from acting. In Bowen v Stott, a non-client sought to restrain a lawyer from acting because the lawyer was seeking to plead that the non-client’s claim had been settled.[58] The lawyer had apparently been involved in drafting and negotiating the terms of settlement. Hasluck J held that it was undesirable that the lawyer continue to act as he was likely to be called to give evidence.[59] It was irrelevant that the party bringing the application was a non-client with an adverse interest. Separately, there is a suggestion in D & J Constructions Pty Ltd v Head, that an application made by a client as opposed to a non-client may be afforded wider protection by the law.[60] However, this aspect of the judgment does not accord with established authority. Any application seeking to restrain a lawyer will invariably raise the preliminary issue of whether the party bringing the application has standing, but once that issue is resolved it is clear that the principles of law which go to the jurisdiction and discharge of the power by the court are in no way affected by the status of the party bringing the application.[61]
An extreme example of a non-client having standing is found in Grimwade v Meagher.[62] In that case, the non-client, Mr Grimwade, sought to restrain counsel, Mr Meagher, from acting against him in relation to a civil claim. Mr Meagher had previously acted against Mr Grimwade as the prosecutor in a related criminal case. That case had been acrimonious and the Court of Appeal had overturned Mr Grimwade’s earlier conviction, criticising the conduct of the prosecution. Mr Grimwade was concerned that Mr Meagher would seek to justify his conduct of the prosecution in the civil proceedings. Despite the fact that Mr Grimwade was a non-client with an interest adverse to that of the real client, the court was nevertheless persuaded to exercise its inherent jurisdiction over its officers because of the apprehension that Mr Meagher would lack objectivity due to his prior involvement in the prosecution of Mr Grimwade. This case should, however, be approached with some caution. Mandie J described the facts of the case as ‘unique, extraordinary and highly exceptional’.[63] It would appear that the usual standing requirements, set out above, are more flexibly applied when the court’s inherent jurisdiction over its officers is invoked.[64]
In Macquarie Bank v Myer, Marks J observed that the principal task of the court in conflicts of duty cases is ‘to ensure that information given on trust … is not used in breach of that trust.’[65] His Honour observed that, ‘[a]s a general rule, it might be expected that this kind of communication will occur where there exists a relationship of [lawyer] and client.’[66] His Honour did not decide that question finally, but rather indicated that it was necessary ‘that there be something in the relationship or nature of the communication … which attracts that element of trust which requires protection.’[67]
In Australia and England, the duties of a lawyer to their client arise both in equity and at common law. At common law, a lawyer’s retainer[68] imposes an obligation to be skilful and careful.[69] Failure to fulfil this obligation may lead to liability in contract,[70] or in tort for negligence.[71] In addition, the client must be informed of everything which the lawyer knows will be of assistance to the client in relation to matters within the lawyer’s retainer.[72] In Spector v Ageda, Megarry J observed:
[a lawyer] must put at his client’s disposal not only his skill but also his knowledge, so far as is relevant, and if he is unwilling to reveal his knowledge to his client, he should not act for him. What he cannot do is to act for the client and at the same time withhold from him any relevant knowledge that he has …[73]
It is rare, however, for the retainer to deal directly with a lawyer’s conflict of duty.[74] Nevertheless, the retainer may contain a limitation on the lawyer’s duty to disclose confidential information obtained from previous clients. While such limitations may be accepted by courts as valid contractual clauses,[75] the possibility of disclosure, regardless of contractual compulsion, has meant that courts have placed little weight on contractual limitations on disclosure in the context of disqualification applications.[76]
In equity, the relationship of lawyer and client is recognised as a fiduciary relationship and carries with it obligations to act with absolute fairness and openness towards the client.[77] Gillard J observed that:
As a general proposition the minimum duties which are owed are first, that a fiduciary must not make a personal profit from his position [apart from the fees for his services] and secondly, he must not allow personal interest and duty to conflict.[78]
A lawyer’s fiduciary obligation is determined by a court of equity and not by the standards of the professional body,[79] although the same conduct may amount to both a breach of fiduciary obligation and professional misconduct.[80] The fiduciary duty of a lawyer to a client can come into existence despite the absence of an express or formal retainer where there is the requisite degree of trust and confidence[81]
and may continue after the retainer has been terminated.[82]
The remainder of this Part sets out the three grounds on which courts in England and Australia have restrained lawyers from acting in conflict of duty situations.
The Oxford Dictionary of English defines the word ‘confidential’ as ‘intended to be kept secret’ and ‘entrusted with private or restricted information.’[83] The obligation of confidentiality has long been recognised as a critical feature of the lawyer–client relationship.[84] Indeed, when the lawyer’s advice is sought, communications between lawyer and client are often presumed to be confidential.[85] In Rakusen v Ellis, Munday & Clarke, Fletcher Moulton LJ observed that the duty of confidentiality is particularly onerous in relation to lawyers.[86] That is because the confidential character of the lawyer–client relationship is ‘in the eyes of the law the very highest.’[87] Further, the court ‘can fix a standard of behaviour of its officers which is higher than it would be practicable to exact from persons in other types of confidential relations.’[88]
Whether founded in contract[89] or equity,[90] the duty to preserve confidentiality is unqualified. It is a duty to keep the information confidential,[91] not merely to take all reasonable steps to do so. Moreover, it is not only a prohibition against communication to third parties; it is a duty not to misuse confidential information without the consent of the client.[92] The client cannot be protected completely from accidental or inadvertent disclosure. However, they are entitled to protection from avoidable risk, which includes protection from the increased risk of the information being used to their 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.’[93]
Before the information will be recognised as confidential, it ‘must be identified with precision and not merely in global terms.’[94] This is because a court must be able to frame a clear injunction if relief against misuse of confidential information is to be granted.[95] Perhaps of equal significance is the observation of Marks J in Independent Management Resources Pty Ltd v Brown, where his Honour said that:
the more general the description of the information which a plaintiff seeks to protect, the more difficult it is for the court to satisfy itself that information so described was imparted or received by a defendant in circumstances which give rise to an obligation of confidence.[96]
It is, however, important to bear in mind that the need for precision is a principle of law that should be applied flexibly.[97] In Village v BDW, Byrne J observed that ‘given the relationship of lawyer and client and the ambit of professional confidence of which professional privilege is a manifestation, the Court should … not be slow to accept the existence of confidential information.’[98] The degree of particularity of the confidential information must depend on all of the circumstances of the case.[99] Often it cannot be described for fear of disclosure.[100] Indeed, lawyers take notes, form views and opinions of clients and observe things that the client may have forgotten or overlooked. In a number of Australian cases, certain factors have been held to be sufficient to establish the confidential nature of the information, including the circumstances of the retainer, the nature of the legal work and the lawyer’s knowledge of the client’s approach to dispute resolution or commercial negotiation.[101] In Yunghanns v Elfic Ltd, Gillard J said:
In this regard, the relationship between [lawyer] and client may be such that the [lawyer] learns a great deal about his client, his strengths, his weaknesses, his honesty or lack thereof, his reaction to crisis, pressure or tension, his attitude to litigation and settling cases and his tactics. These are factors which I would call the ‘getting to know you’ factors. The overall opinion formed by a [lawyer] of his client as a result of his contact may in the circumstances amount to confidential information that should not be disclosed or used against the client.[102]
Although this aspect of the law appears settled in Australia, it is unclear whether English courts will adopt this line of authority and characterise the ‘getting to know you’ factors as confidential information capable of restraining a lawyer from acting. English commentators have expressed some reservation and there appears to be a dearth of authority[103]
on this particular point in English law. In any event, some caution should be applied in relation to this line of jurisprudence.[104] The description of the ‘getting to know you’ factors is, at this stage, relatively imprecise and susceptible to differing views. It is suggested that the factors should be confined to ‘impressions’ obtained by a lawyer of the client’s approach to litigation or, in the case of non-contentious matters, commercial negotiation. Such impressions will only meet the necessary level of particularity of confidential information if it can be established that the lawyer and the client have had a long course of dealing which has enabled the lawyer to form lasting, accurate and useful impressions.[105] An illustration of this point is found in Bureau Interprofessionel, where Ryan J observed that any impressions which the lawyer had formed of his former client had become less useful because of a significant lapse of time from when the lawyer had previously acted for the former client.[106]
Equity imposes upon fiduciaries duties of the utmost good faith and the highest standards, emphasising undivided loyalty and the avoidance of conflicts of interest and/or duty.[107]
Lawyers, as a recognised professional class, are in a fiduciary relationship with their clients.[108]
Moreover, ‘the relationship between client and [lawyer] is one of the most important fiduciary relationships known to the law’.[109] ‘The distinguishing obligation of a fiduciary is the duty of loyalty.’[110]
The principal is entitled to the single-minded loyalty of his or her fiduciary.[111] A lawyer’s duty to his or her client is absolute and must be undivided. The principle has been described as ‘inflexible’[112] and ‘fundamental’.[113]
In Spincode,[114] Brooking JA traced the phrase back to 1928 when Cardozo CJ in Meinhard v Salmon spoke of the rule of undivided loyalty affecting those bound by fiduciary ties.[115] Professor Finn said the following in relation to the effect of the duty:
Loyalty’s effect is two fold. First, if the fiduciary is being remunerated by either or both of the parties, the ‘conflict of duty interest’ theme in the fiduciary’s obligation requires him to disclose to each client that he is being remunerated by the other. Secondly, much more importantly, until each client agrees to the contrary, or unless there is a legally acknowledged custom to the contrary, each client is entitled to, and is entitled to assume that he has, the undivided loyalty of the fiduciary he has engaged. The rule is simple and inexorable: ‘Fully informed consent apart, an agent cannot lawfully place himself in a position in which he owes a duty to another which is inconsistent with his duty to his principal.’[116]
In other words, a lawyer should not erect a legal edifice on behalf of one client and then seek to dismantle it by acting for another client.[117] To do so is to subvert the lawyer’s duty of loyalty to the earlier client.
In Davies v Clough, Shadwell V-C said:
all Courts may exercise an authority over their own officers as to the propriety of their behaviour; for applications have been repeatedly made to restrain [lawyers] who had acted on one side from acting on the other, and those applications have failed or succeeded upon their own particular grounds, but never because the Court had no jurisdiction.[119]
A lawyer’s status as an officer of the court[120]
serves to distinguish a lawyer from the ordinary fiduciary.[121] This distinction is reflected in the importance courts attach to the legal profession’s propriety. High standards of propriety enhance public confidence in the administration of justice. The appearance that a lawyer can readily change sides is ‘subversive to the appearance that justice is being done’.[122] In Commissioner for Corporate Affairs v Harvey, Marks J observed that:
the Court sets its face against giving audience to legal representatives who are unable to assure the Court of a singular interest. It is the purity of interest in the adversaries before the Court that gives the fundamental utility and credence there is in the system.[123]
Hence, in determining whether to disqualify a lawyer, the court may consider whether the continued representation would be subversive to the appearance of loyalty and therefore detrimental to public confidence in the legal system. The concern is that ‘justice [should] not only be done but [should] appear to be done’.[124]
In Murray v Macquarie Bank, Spender J observed that the integrity of the legal profession and the perception of that integrity by the public is in large measure a consequence of the fidelity which lawyers show to their client.[125] Conduct which has a tendency to jeopardise that perception should therefore be prevented.
The underlying principle is that the Court has a right and duty to supervise the conduct of [lawyers], and visit with penalties any conduct of a [lawyer] which is of such a nature as to tend to defeat justice in the very cause in which he is engaged professionally …[126]
Justice Ipp, writing extra-curially, has observed that the ‘circumstances which may give rise to breaches of duties to the Court are infinite’[127]
but, in the context of conflicts of duty, are likely to arise where a lawyer attempts to act for clients whose financial or personal interests are in opposition to those of the lawyer. The enquiry will principally focus on whether the lawyer is able to act with the necessary level of objectivity and independence required by the court of its officers.
An application seeking to restrain a lawyer invariably has two elements. The first will set out the jurisdictional bases available to the court and the second, the principles of law which condition the discharge of the court’s power. Both elements are resolved by reference to the nature of the conflict. In other words, where present client conflict is asserted the court will generally have the widest possible jurisdiction and the strictest approach to the discharge of its power. Both of these elements are discussed in detail in below Parts V and VI. The following addresses the second element — the principles of law which condition the discharge of the court’s power. Although issues of jurisdiction and proper discharge of power are often determined by the nature of the conflict and, importantly, are different for each kind of conflict, it is possible to discern common principles of law that govern the discharge of power regardless of whether the conflict of duty involves a present or former client conflict. For convenience, they are described here as ‘conditions precedent’ although strictly speaking, they relate to the second element.
Common to each kind of conflict, whether present or former client conflict, is that the matters which underlie an injunction application must be the same or closely related and that the clients must have adverse interests. These requirements, described in this article as ‘connecting factors’, are often overlooked in commentaries on this subject. This may be because courts in England and Australia have described the connecting factors in different ways. It appears the language describing the connection is not settled in either England or Australia. In Spincode, Brooking JA described the connecting factors in the following terms: ‘By “inconsistent” I mean only that the [lawyer] who formerly acted for one client in the same [or closely related] matter now acts in that matter for a client with an interest adverse to that of the former client.’[128] In Re a Firm of Solicitors, Lightman J referred to the connecting factors as ‘acting against the interests’ of the other client and that the subject matter of each retainer must have ‘relevan[ce]’ to the other.[129]
The following passage from Prince Jefri Bolkiah suggests that, in English law, the connecting factors may be unnecessary in present client conflicts: ‘a fiduciary cannot act at the same time both for and against the same client … A [lawyer] cannot without the consent of both clients act for one client while his partner is acting for another in the opposite interest.’[130] The first sentence, if taken literally, would preclude a lawyer from ever accepting instructions for and against the same client at the same time, notwithstanding that the two instructions might be wholly unrelated — one might be an employment dispute and the other might be in respect of a landlord and tenant matter. Alternatively, it would preclude a lawyer from prosecuting and defending criminal cases at the same time.[131]
The City of London Law Society took the view that Lord Millett did not intend for the above passage to be taken literally and should be understood as ‘referring to opposing interests in the same matter’.[132] However, in Marks & Spencer plc v Freshfields Bruckhaus Deringer, an argument that Lord Millett’s comments should be read as limited to where the conflict related to the ‘same matter’ was rejected.[133] The Court’s rejection of the connecting factor was not based on the view that a connection between the two matters should not exist but rather that the formulation of the City of London Law Society was too narrow. The Court accepted that there had to be ‘some degree of relationship’ between the matters.[134]
Thus, the weight of authority in both England and Australia supports the view that a connection is necessary, although the language is not settled.
Separately, certain commentators have suggested that the ‘getting to know you’ factors in Yunghanns v Elfic Ltd[135] may have enlarged the notion of confidential information to such a degree that it may be unnecessary that the matters be related.[136]
This view is mistaken. In Yunghanns v Elfic Ltd, Gillard J observed that the earlier matters were ‘relevant to and essential background to’ the matter in which the firm was now seeking to act.[137] His Honour also held that there was a real and sensible risk that the confidential information would be used ‘contrary to the interests’ of the former client.[138] This case reinforces, rather than diminishes, the requirements that: there must be a connection between the two underlying matters (they must be the same or closely related); and that the parties’ interests must be adverse to each other, before a court should exercise its jurisdiction to restrain a lawyer from acting. This point is further reinforced by the judgment of Mandie J in Tricontinental Corporation Ltd v Holding Redlich.[139] In that case, his Honour was troubled by the lawyer’s ‘knowledge of the negotiating moves’ of the party bringing the application but refused the application on the basis that the matters had ‘negligible relevance’ to each other.[140] Similarly, in Mintel, Heerey J applied the ‘getting to know you’ factors set out in Yunghanns v Elfic Ltd but held that ‘I am quite satisfied that … there was no confidential information disclosed … which had any relevance or potential relevance to the present proceeding.’[141]
It has been observed that, regardless of the nature of conflict, the matters which subsist in the alleged conflict must be the ‘same or closely related’.[142] Courts have used different language to describe this connecting factor and it is far from clear whether the formulation of this requirement is settled. If there were a spectrum, on one end would be the requirement that the matters must be the ‘same’ (absent a requirement that they be ‘related’) and on the other end, the requirement that the matters must merely have ‘relevance’ to one another. The former would constrict the supervision of the law in conflict situations while the latter would broaden it. The words ‘same or closely related’ would perhaps fall in the middle of the spectrum. It is important to note, however, that ‘[q]uestions of “the same matter” and “closely related matter” may sometimes be problematic. But in the end they are questions of fact and degree.’[143] In Village v BDW, Byrne J observed that the ‘question[s] should not be determined by the taking of fine distinctions. The principle which underlies [them] requires an examination of the substance of the relationship.’[144]
Examples of the judicial insistence that there must be some form of connection between the underlying matters abound in the law.[145] In Australian Liquor Marketers Pty Ltd v Tasman Liquor Traders Pty Ltd,[146] a firm acting in a preference action in Queensland for recovery of a small debt on behalf of a client was also instructed in proceedings in Victoria against the same client where it was alleged that the client had repudiated a business sale agreement. Habersberger J held that the two cases were ‘truly unrelated’ and consequently refused to restrain the firm from acting in the Victorian proceedings.[147] Similarly, in Waiviata Pty Ltd v New Millennium Publications Pty Ltd, Sundberg J observed that ‘[t]here [was] no satisfactory basis on which it could be said that the present proceeding is the same or closely related to matters in [the earlier proceeding]’.[148] In Uncle Toby’s Co Pty Ltd v Trevor Jones Steel Fabrications Pty Ltd (in liq), Batt J held that the original matter must ‘relate’ to the new matter before a court would issue a restraining order.[149] In Corporate Systems Publishing Pty Ltd v Lingard, Jenkins J observed that the matters must be the same or related.[150] His Honour did not, however, qualify the second element to ‘closely’ related matters. In Boyce t/as Hunt & Hunt Lawyers v Goodyear Australia Ltd, Priestley AP described the connection in the following way: ‘In general where a [lawyer] has acted for a client in a matter, the [lawyer] should not act against that client in a later matter involving a factual substratum having any significant overlap with the factual substratum in the earlier matter.’[151] In Fordham v Legal Practitioners’ Complaints Committee, Malcolm CJ observed that:
the rule not only prevents the use of knowledge or information gained from the client during the course of a retainer, but also prevents the assumption of a position hostile to the client concerning the same matter. … [T]he extension to any related matter is both logical and consistent with the public policy which gives rise to the duty of professional loyalty. In the context of loyalty it is the establishment of the hostile relationship against the … client in relation to the same or a related matter which is the breach of professional duty.[152]
The judgments referred to above show that this connecting factor is not limited to either of the two kinds of conflict or any one of the three jurisdictional bases. The requirement is one of general application. Although it appears that the form of the connection has not been settled, the words used in Spincode[153] seem to strike an appropriate balance.
In addition to the above requirement, the parties must also have ‘adverse’ or ‘opposing’ interests. This aspect of the law in England and Australia is fairly clear. Both the House of Lords in Prince Jefri Bolkiah[154] and the Court of Appeal in Spincode[155] observed that the parties’ interests must be adverse. In identifying adverse or opposing interests, analogy may be drawn with the self-interested conduct of contracting parties.[156]
Satisfaction of the requirement that the parties’ interests must be adverse or opposing does not appear to be particularly onerous. It may even be more appropriate to cast the requirement in negative terms. For instance, does the relationship between the parties represent an ‘identity of interest[s]’[157]
sufficient to negate a claim that they are opposite or adverse? An example of an identity of interests may be joint-venture partners, assuming that the relationship has not broken down.
In Re Baron Investments (Holdings) Ltd (in liq); Halstuk v Venvil,[158] Pumfrey J refused to disqualify a firm of lawyers acting for a liquidator of an insolvent company despite the fact that they were also acting for two of the principal creditors. Although this was, prima facie, an instance of present client conflict, his Honour held that there was no conflict between the interests of the company and the creditors.[159] In other words, their interests were not adverse or opposite.[160] Similarly, in Australian Liquor Marketers Pty Ltd v Tasman Liquor Traders Pty Ltd, Habersberger J said ‘one cannot conclude that there has been a breach of the duty of loyalty by a [lawyer] acting for two clients without examining the extent to which, if at all, the interests of the two clients are adverse to each other.’[161] Although his Honour was speaking specifically of the duty of loyalty, this observation is equally applicable to the other jurisdictional limbs.
Perhaps the clearest illustration of the requirement that the parties’ interests must be adverse to each other is found in Murray v Macquarie Bank Ltd.[162] In that case, a lawyer had been acting for an employer and employee in an action brought by a third party. The employee, unhappy with the lawyer’s representation, terminated his retainer with the lawyer and retained separate lawyers. The employee then sought to restrain his former lawyer from continuing to act on behalf of his employer on the basis that there was a risk his confidential information may be misused. Spender J observed that there was no conflict of duty because the employer’s and employee’s interests were not ‘adverse’ to each other.[163]
At the outset, it should be noted that a decision by a court to restrain a lawyer from acting is not premised upon any finding of culpable conduct on the lawyer’s part.[164] The general and strict rule, in the context of present client conflict, is that a lawyer must not act for clients simultaneously because of the ‘inescapable conflict of interest’ inherent in the situation.[165]
All of the jurisdictional bases referred to in Part III, which include the risk of misuse of confidential information, duty of loyalty and the administration of justice, are available in present client conflicts. Any one or combination of the above can form the basis of an application seeking to restrain a lawyer from acting. It appears, however, that the jurisdictional limb most often invoked is the lawyer’s duty of loyalty. This may be because a claim based on the breach of the lawyer’s duty of loyalty is relatively easy to sustain in present client conflicts. Once it is established that the lawyer is presently acting for two or more clients in matters which are the same or closely related, and that their interests are adverse, then a court will readily issue an injunction because of the unavoidable prospect of the lawyer breaching their duty of loyalty to one or more of the clients. Moreover, the jurisdiction of the court in England may be confined to this basis.[166] In Prince Jefri Bolkiah, Lord Millett said:
It is otherwise when the court’s intervention is sought by an existing client, for a fiduciary cannot act at the same time both for and against the same client, and his firm is in no better position. A man cannot without the consent of both clients act for one client while his partner is acting for another in the opposite interest. His disqualification has nothing to do with the confidentiality of client information. It is based on the inescapable conflict of interest which is inherent in the situation.[167]
What then did Lord Millett mean by the phrase, ‘inescapable conflict of interest’? We get a clue by the reference to ‘fiduciary’ in the preceding text. The reference suggests that the jurisdiction of the court is based in equity with the full panoply of fiduciary obligations owing, including the duty of loyalty. What is not clear, however, is why the duty of confidentiality which is also capable of being an equitable obligation did not also apply. There can be no doubt that lawyers owe a duty of confidentiality during the term of their retainer. The existence of the contractual term and/or equitable obligation gives rise to a cause of action for which the court has power to issue an injunction.[168]
It is, therefore, unclear on what basis the possible misuse of confidential information could be denied as a jurisdictional basis. Although the House of Lords expressly disavowed confidentiality as a jurisdictional base for restraining a lawyer from acting in present client conflicts,[169] it appears this aspect of the reasoning has been honoured, at least in Australia, more in its breach than its observance.[170] The better view is that the jurisdiction of the court to restrain a lawyer (at least where present client conflict is alleged) is not limited in the manner suggested in Prince Jefri Bolkiah but rather a number of jurisdictional bases are available upon which a lawyer may be restrained.
Turning now to the principles of law which condition the discharge of the court’s power, it has already been mentioned above that the court’s equitable jurisdiction (the duty of loyalty) is most frequently invoked in relation to this kind of conflict.[171] The court will discharge its power if it is satisfied that the lawyer’s duty of loyalty to one client is unavoidably jeopardised by the lawyer’s duty to another client. The ‘inescapable nature of the conflict’ is invariably emphasised. The court will readily issue an injunction in these circumstances and the applicant or plaintiff need do no more than set out the fact that the lawyer is presently acting for two or more clients in relation to matters which are the same or closely related and that the clients’ interests are adverse.[172] In other words, a lawyer having erected a legal edifice on behalf of a client will be restrained from acting for another client who seeks to dismantle it.[173]
A lawyer may, however, seek to terminate their retainer to avoid the onerous rules that apply in relation to present client conflict. As will be seen below, lawyers resisting an attempt to restrain them from acting on behalf of a client may seek to draw a strategic advantage from a termination of their retainer. Different and arguably more favourable principles of law apply in former client conflict situations (particularly under the English approach).
The ability of a court to restrain lawyers from acting against former clients is well-established and can be traced back to 1815 in the English case of Earl Cholmondeley v Lord Clinton.[174]
In that case, Earl Cholmondeley brought a suit against Lord Clinton to recover certain estates in Devon and Cornwall. Seymour & Montriou, a law firm, acted for Lord Clinton in the action. After the matter had been on foot for some time the lawyers dissolved their partnership, and one of them commenced acting for Earl Cholmondeley. The court held that a lawyer not having been discharged by the party for whom he was acting, but having discharged himself, was not at liberty to become a lawyer for the opposite party in the same cause. In 1821, Lord Eldon LC (who delivered the judgment in Earl Cholmondeley v Lord Clinton) said of the case:
There the gentleman who had been concerned for Lord Clinton discharged himself and went over to the other side. It appeared to me, and to all the Judges, that nothing could be more dangerous than to permit a [lawyer] employed by A in a cause between him and B, to leave A while still willing to retain him, and enter into the service of B.[175]
The range of bases which may comprise an exercise of the jurisdiction of the court were succinctly set out by Austin J in Oceanic Life Ltd v HIH Casualty & General Insurance Ltd.[176] His Honour noted:
a surprisingly large number of principles may be brought into play. The relevant principles may include the law of contract, the law of fiduciary duty, the law which protects confidential information, the law with respect to legal professional privilege, the law with respect to the [lawyer’s] duty to the Court and the court’s discretion to supervise the conduct of its officers, and ethical principles developed and applied by a professional disciplinary body.[177]
Despite the range of jurisdictional bases which might have been available, Lord Millett observed in Prince Jefri Bolkiah that the jurisdiction of the court was confined to the protection of a client’s confidential information. In Spincode, Brooking JA disagreed with this view. The following two sections of this Part set out, in detail, the speech of Lord Millett and the conflicting judgment of Brooking JA. The remainder of this Part will then thread together the fractured jurisprudence, particularly in Australia, and set out two main approaches which, for convenience, have been described as the ‘English’ and ‘Victorian’ approaches. In a nutshell, the English approach, unlike the Victorian one, does not recognise the availability of fiduciary law (reflected by the duty of loyalty) and the court’s supervisory jurisdiction (reflected by the administration of justice) as a basis for intervening in former client conflicts.
The defendant firm, KPMG, was employed as the auditor of the core assets of the Brunei Investment Agency (‘BIA’)[178] and to provide the Brunei Government with money management services.[179] The plaintiff, Prince Jefri Bolkiah, had been the chairperson of the BIA until his removal in 1998. For a period of 18 months Prince Jefri, acting in his personal capacity, retained KPMG to act for him and one of his companies in private litigation.[180] KPMG provided Prince Jefri with extensive litigation support services of the sort usually provided by lawyers. In so doing, KPMG was entrusted with or acquired extensive confidential information about Prince Jefri’s financial affairs.[181]
Subsequent to Prince Jefri’s dismissal as chairperson of the BIA, the Brunei Government commenced an investigation into the conduct of the affairs of the BIA, including the destination and present location of money which had been transferred from the BIA’s funds while Prince Jefri was the chairperson.[182] The Brunei Government sought to retain KPMG to assist in the investigation. KPMG took the view that it could accept the instructions because it had ceased to act for Prince Jefri more than two months previously; hence he was no longer a client. However, aware of the possibility of a conflict of interest because the investigation was likely to be adverse to Prince Jefri’s interests and the firm possessed confidential information relating to his financial affairs, the firm erected an information barrier.[183]
Prince Jefri, who had not been informed by KPMG of its instructions and whose consent had not been sought,[184] was granted an injunction by Pumfrey J restraining KPMG from continuing to work on the investigation.[185] KPMG successfully appealed to the Court of Appeal, which discharged the injunction on the grounds that KPMG was only obliged to make reasonable efforts to protect Prince Jefri’s confidential information and that, balancing the competing interests, the precautions taken by the firm meant that there was no real or appreciable risk that the confidential information would be disclosed.[186] Prince Jefri appealed to the House of Lords.
The House of Lords allowed the appeal, the leading judgment being given by Lord Millett (with whom the remainder of the House concurred). Lord Millett began his speech by observing that the House of Lords had not previously dealt with this issue. The leading authority in England had been the judgment of the Court of Appeal in Rakusen.[187]
In that case, the Court held that there was no ‘absolute’ impediment to one partner in a two-person firm taking instructions against a client who had, unbeknownst to him, previously consulted the other partner about the same litigation. His Lordship observed that the case was authority for two propositions:
(i) that there is no absolute rule of law in England that a [lawyer] may not act in litigation against a former client; and (ii) that the [lawyer] 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.[188]
Lord Millett observed that, like a lawyer, an accountant providing litigation support services owed a continuing professional duty to his or her former clients following the termination of the lawyer–client relationship. The content of this duty is to preserve the confidentiality of information imparted during the relationship. The duty was unqualified and required the accountant to keep the information confidential, not merely to take all reasonable steps to do so.[189] In this regard, Rakusen was overruled.[190]
His Lordship then observed that the former client bore the onus of proving that the lawyer possessed and continues to possess his or her confidential information and that the lawyer is proposing to act for another client with an adverse interest in a matter to which the information might be relevant. If this was proven, the onus then shifted to the lawyer to prove that effective measures had been taken to ensure that there was no risk of disclosure of the client’s confidential information.[191] His Lordship held that KPMG had failed to discharge the heavy burden of establishing that there was no risk of disclosure of Prince Jefri’s confidential information.
In Spincode,[192] a firm of lawyers had been acting on behalf of the plaintiff company, Spincode Pty Ltd, since its incorporation when a dispute arose amongst its shareholders. Despite an initial denial, the firm accepted that while it had continued to act on behalf of the company, it was also providing advice to two of the shareholders in relation to their dispute with other shareholders.[193] The firm then acted on behalf of one of the shareholders in an application seeking to wind up the company.
The trial judge, Warren J, granted an injunction restraining the firm from acting or continuing to act in the matter. Her Honour found that confidential information had been obtained by the firm and that information was relevant to the subsequent action against the company. Her Honour concluded that not only had the firm failed to show that there was no real risk of misuse of confidential information, but that the company had shown a ‘real and sensible possibility’ of that misuse.[194] The firm appealed to the Victorian Court of Appeal.
In the leading judgment, Brooking JA agreed with Warren J regarding the misuse of confidential information. The appeal could have been dismissed on this basis alone.[195] However, his Honour then considered the ‘wider question’ of whether the danger that confidential information would be misused was the only basis upon which the court could restrain a lawyer from acting.[196] His Honour held that it was not, and that there were two other jurisdictional bases, which included the fiduciary duty of loyalty and the proper administration of justice. Brooking JA was critical of the position taken by the House of Lords in Prince Jefri Bolkiah. His Honour said:
In their Lordships’ view, the duty of loyalty perishes along with the retainer from which it sprang, the only survivor being that aspect of the duty which protects confidential information. Once the retainer has gone the ‘[lawyer] has no obligation to defend and advance the interests of his former client.’ … But why should we not say that ‘loyalty’ imposes an abiding negative obligation not to act against the former client in the same matter? The wider view, and the one which commends itself to me as fair and just, is that the equitable obligation of ‘loyalty’ is not observed by a [lawyer] who acts against a former client in the same matter.[197]
His Honour went on to say:
But if this result cannot be achieved as a matter of equitable obligation why should not the law impose, and the court enforce, an obligation arising otherwise than in equity? … A possible approach would be to say that it was an implied term of the contract of retainer between the [lawyer] and the company in the present case that the [lawyer] would not act against the company in the dispute in relation to which they had been retained by it. But I need not pursue this, since in my view a negative equitable obligation arose …[198]
The other members of the Court also dismissed the appeal, though they appeared to do so on the narrower basis involving confidential information. Chernov JA did not consider it necessary to decide but observed that Brooking JA had made a ‘compelling case’[199] and Ormiston JA did not express an opinion.[200]
Furthermore, Nettle J observed in Sent v Fairfax[201] that Brooking JA made a ‘compelling case’. His Honour noted that it accorded with the weight of authority in Canada and New Zealand, and also with equitable principle.[202] Tellingly, his Honour observed that
none of the judges that have refused to follow Brooking JA’s observations have directed themselves to an analysis of the principle of the kind his Honour undertook.
If it was necessary to make a choice about the matter, I would respectfully choose to follow Brooking JA’s analysis in Spincode.[203]
However, as noted by Nettle J, ‘[i]t must be accepted that Brooking JA’s observations appear to take the law further than it has thus far been held to go in England or New South Wales.’[204] The following Part of this article considers the current divergence between the laws in Australia and England.
Certain incidents of the lawyer–client relationship survive the formal termination of the retainer. The issue to be considered here is what precisely survives the termination and what other jurisdictional bases might exist to give courts the power to restrain a lawyer from acting in the context of former client conflict. The various bases, whatever they may be, are certainly narrower than those that are available in cases of present client conflict. The reasons for this are obvious. A lawyer presently retained by a client will owe obligations to that client which do not continue after the termination of the retainer. The first and most obvious class of duties will be those duties contained in the retainer itself. The jurisdictional bases available in the context of former client conflict are discussed below.
Dealing first with the uncontroversial, it is widely accepted that the duty of confidentiality survives the termination of the retainer.[205] The persistence of the duty of confidentiality is a well-established rule in England and Australia.
In Victoria and certain other Australian jurisdictions, a court will restrain a lawyer from continuing to act for a party to litigation or a transaction if:[206]
1 a ‘reasonable observer’,[207] informed of the facts, might reasonably anticipate a danger of misuse of confidential information of a client; and
2 there is a ‘real and sensible possibility’[208] that the interest of the lawyer in advancing the case in the litigation or transaction might conflict with the lawyer’s duty to keep that information confidential and to refrain from using it to the detriment of the client.[209]
In England and certain Australian jurisdictions,[210] a similar order will be made unless the court is satisfied that there is ‘no risk of disclosure’.[211] ‘[T]he risk must be a real one, and not merely fanciful or theoretical. But it need not be substantial.’[212]
Although the English and Victorian formulations operate similarly,[213] there are subtle differences that have profound implications for the onus of proof. The Victorian approach appears to follow the traditional method that the party bringing the claim bears the onus of proving the claim on the balance of probabilities. However, the English approach introduces a reversal of the onus of proof at the third stage of its formulation.[214] The applicant bears the onus of proving the first two stages, which are:
1 that the lawyer is in possession of information which is confidential to the client and to the disclosure of which the client has not consented; and
2 that the information is, or may be, relevant to another matter in which the lawyer has been retained and that the other matter is adverse to the interests of the client.
Although the burden of proof is on the applicant, the burden is not a heavy one. Stage 1 may readily be inferred and stage 2 will often be obvious.[215] Once the client has established the first two stages, the evidential burden shifts to the lawyer, who must show that there is no risk that the confidential information will come into the possession of those acting for the other party.[216] In Colonial Portfolio Services Ltd v Nissen, Rolfe J observed that ‘[t]he weight of authorities since Prince Jefri Bolkiah supports the test therein stated, the onus being on the recipient to prove the absence of the defined risk.’[217] Indeed, the reversal of the onus of proof appears to have been widely adopted in New South Wales,[218] South Australia,[219] Western Australia[220] and the Federal Court.[221]
It is also possible that the reversal of the onus of proof has now been adopted in Victoria. In Village v BDW, Byrne J observed that the Court of Appeal in Spincode appeared to adopt that part of the judgment in Prince Jefri Bolkiah which reversed the onus of proof.[222] However, this is far from certain. Although Brooking JA referred to the failure of the ‘[lawyer] to show [at trial] that there was no real risk of misuse of confidential information’,[223] nowhere in the judgment did his Honour expressly adopt the shift in the onus of proof or disprove prior authority holding otherwise. As a result, this aspect of the judgment in Spincode leaves open the question and, absent contrary authority, the judgment of Hayne J in Farrow Mortgage Services Pty Ltd (in liq) v Mendall Properties Pty Ltd applying the traditional onus of proof,[224] represents the current state of the law in Victoria. Nevertheless, it is suggested later in this article that a shift in the evidential burden of proof may be appropriate, particularly when a lawyer seeks to rely on an information barrier to demonstrate that there is no risk of misusing confidential information.[225]
There are two other bases, although not uniformly accepted in Australia (and certainly not in England), that confer jurisdiction on a court to deal with an application seeking to restrain a lawyer from acting. They are the duty of loyalty and the court’s inherent power over its officers. The availability of these jurisdictional bases in former client conflicts is controversial, though they are widely accepted in present client conflicts. There appear to be two separate and distinct lines of authority which have found favour in Australia and England.
In England, the courts have held that breach of the lawyer’s duty of confidentiality is the sole basis for disqualification. In Rakusen, Buckley LJ said ‘[t]he whole basis of the jurisdiction to grant [an] injunction is that there exists … may exist, or may be reasonably anticipated to exist, a danger of a breach of that which is a duty … not to communicate confidential information’.[226] Although the House of Lords in Prince Jefri Bolkiah disapproved of the stringency of the test in Rakusen, the Court of Appeal’s reasoning in relation to jurisdiction was not overruled.
Indeed, the House of Lords in Prince Jefri Bolkiah stated in unambiguous terms that it considered the risk of misuse of confidential information as the ‘sole’ basis upon which a lawyer could be restrained from acting in former client conflicts. The following was said:
The court’s jurisdiction cannot be based on any conflict of interest, real or perceived, for there is none. The fiduciary relationship which subsists between [lawyer] and client comes to an end with the termination of the retainer. Thereafter the [lawyer] has no obligation to defend and advance the interests of his former client. The only duty to the former client which survives the termination of the client relationship is a continuing duty to preserve the confidentiality of information imparted during its subsistence.[227]
The above formulation has since been followed in Attorney-General (UK) v Blake.[228] Lord Woolf MR, giving the judgment of the Court of Appeal, observed that ‘[English courts] do not recognise the concept of a fiduciary obligation which continues notwithstanding the determination of the particular relationship which gives rise to it.’[229] His Lordship went on to observe that ‘[e]quity does not demand a duty of undivided loyalty from a former employee to his former employer’.[230] Although this case concerned the fiduciary duties owed by an employee as opposed to a lawyer, it is clear that the judgment has wider reach. It is authority for the proposition that, under English law, there is little or no scope for the continuation of the duty of loyalty beyond the conclusion of the lawyer–client relationship. That is because the duty of loyalty is derived from that relationship. Lord Woolf MR observed that the equitable duty of confidentiality, on the other hand, would survive the termination of the fiduciary relationship because it was not derived from that relationship.[231]
It appears the English approach has also been applied, at least in part, in some Australian cases.[232] In Belan v Casey, Young CJ in Eq observed that ‘Prince Jefri Bolkiah has been followed on almost every occasion … except in Victoria.’[233] However, his Honour went on to observe that some authorities ‘pay lip service to Prince Jefri Bolkiah yet continue to flirt with the ideas of conflict mentioned in some of the pre [Prince Jefri Bolkiah] authorities.’[234] Indeed, the adoption of Prince Jefri Bolkiah in Australian jurisprudence is often confined to Lord Millett’s observations in relation to confidential information. While some Australian courts have also adopted Lord Millett’s observations that purport to limit the availability of the duty of loyalty in former client conflicts, it is clear many continue to recognise the court’s inherent jurisdiction over its officers.[235]
An illustration of the ‘flirting’ mentioned by Young CJ in Eq is found in the judgment of Bergin J in Asia Pacific Telecommunications Ltd v Optus Networks Pty Ltd,[236] a case which was ironically decided after the above comments were made by Young CJ in Eq. In that case, Bergin J carefully considered Prince Jefri Bolkiah and Spincode and ultimately followed the former in relation to the duty of loyalty, but considered and applied Victorian jurisprudence in relation to the court’s inherent jurisdiction over its officers (a finding which is incompatible with the narrow jurisdictional base set out in Prince Jefri Bolkiah).[237]
Some commentators have observed that the English approach has now been applied in most Australian courts.[238]
Arguably, one cannot be so certain of this when one considers the nature of the application and the jurisprudence in support of the Victorian approach.
In Spincode, Brooking JA made the following observation in relation to the law in Australia and England:
How, then, do matters stand? I think it must be accepted that Australian law has diverged from that of England and that the danger of misuse of confidential information is not the sole touchstone for intervention where a [lawyer] acts against a former client. That danger can and usually will warrant intervention, but it is not the only ground. There are two other possible bases for an interdict.[239]
Under the Victorian approach, in addition to the protection of confidential information, a court may restrain a lawyer from acting against a former client on the basis of a lawyer’s fiduciary duty of loyalty (although more narrowly framed than that available in cases of present client conflict) and their status as officers of the court. In Spincode, Brooking JA observed that Earl Cholmondeley v Lord Clinton[240] and the other old English cases said ‘nothing’ about the preservation of confidential information being the only basis for the jurisdiction of the court to restrain a lawyer from acting.[241] His Honour observed that the cases turned on whether a lawyer terminated the retainer and then proceeded to act for another party with an adverse interest.[242] After reviewing Rakusen,[243] his Honour said:
One cannot say with confidence what Lord Eldon [was] intending to lay down in Cholmondeley v Clinton. In particular, it is not possible to say with confidence what the significance was thought to be of the [lawyers’] having discharged themselves or whether Cholmondeley v Clinton, at all events as subsequently explained by Lord Eldon, is to be regarded as based on the danger of the misuse of confidential information.[244]
The following two sub-sections of this article discuss the jurisdictional bases recognised under the Victorian (but not the English) approach. It will be observed that Australian law on the subject is unsettled. Some Australian courts have preferred the English approach[245] (as noted above) while others have preferred all, or parts of, the Victorian approach (discussed below).[246]
The duty of loyalty is a recognised jurisdictional basis for the grant of an injunction under the Victorian formulation. The thrust of the Victorian approach is that the fiduciary duty of loyalty does not come to an end upon the termination of the lawyer’s retainer. In Spincode, Brooking JA observed that there were a number of examples of fiduciary obligations having an ‘effect enduring beyond’ the termination of the retainer.[247] The cases tended to restrain fiduciaries from competing with clients after their resignation. An analogy was drawn with the position of trustees, another class of fiduciary, and the continuation of their fiduciary duties post-termination. Brooking JA held, by analogy, that the duty of loyalty operates to prevent lawyers from resigning their fiduciary position to avoid a conflict of duty.[248] Therefore, the duty of loyalty applicable in present client conflicts may be limited, though Brooking JA did not prefer this limitation.[249]
In Victoria, a number of judgments have followed Spincode. In McVeigh v Linen House Pty Ltd, Batt JA observed:
The authorities establish that a court will restrain a [lawyer] from acting for a litigant not only in order to prevent disclosure of confidences of a client or former client, but also to ensure that the [lawyer’s] duty of loyalty to the former client is respected, notwithstanding termination of the retainer, and to uphold as a matter of public policy the special relationship of [lawyer] and client.[250]
In Australian Liquor Marketers Pty Ltd v Tasman Liquor Traders Pty Ltd, Habersberger J observed that the principle of law that ‘a [lawyer] owes a duty of loyalty to his or her client is now well established.’[251]
A number of other Australian jurisdictions have also recognised the availability of this basis.[252] In the Federal Court, it has been held that the lawyer’s duty of loyalty ‘cannot be treated as extinguished by the mere termination of the … retainer’,[253] particularly when the lawyer seeks to act against a former client in the same matter in which he or she had previously acted.[254] In Waiviata Pty Ltd v New Millennium Publications Pty Ltd,[255] Sundberg J set out extracts from both Spincode and Prince Jefri Bolkiah and noted that the Victorian approach advocated ‘[a] more expansive view of … the Court’s jurisdiction’.[256] Although his Honour did not appear to express a final view, his Honour did observe that ‘[i]t may be that an unusual case could arise when there is no threatened misuse of confidential information and no breach of the [lawyer’s] duty of loyalty, yet it is appropriate to grant relief’.[257] This observation seems to suggest that his Honour recognises, at least, the persistence of the duty of loyalty in former client conflicts.
Even in New South Wales (perhaps the state most willing to adopt the English approach), Young CJ in Eq observed in BATAS v Blanch, that ‘[i]t may be that there are some exceptional cases where equity will give relief in favour of a former client where there is no confidential information present.’[258] However, his Honour did not explore this point any further.
In addition, it appears that the Victorian approach is consistent with Canadian law. In R v Speid,[259] for example, a partner of the law firm acted for a person, Ms Nugent, who had been charged with murder. Ms Nugent later pleaded guilty to manslaughter. She assisted the police and consequently another person was charged with the murder. A different partner of the law firm, who had assisted in relation to Ms Nugent’s matter, commenced acting for the other person charged with the murder. Ms Nugent objected to the law firm so acting because she was likely to be the principal witness for the prosecution and her testimony was likely to be tested by defence counsel. Dubin JA, with whom Martin and Robins JJA agreed, observed that a lawyer’s duty of loyalty did not ‘cease when the [lawyer’s] services had been terminated.’[260] On this basis, the law firm was restrained from acting for the other person accused of murder.
Further, an analogy may be drawn with the law in Australia and England which holds that a director will owe certain fiduciary duties despite the conclusion of the relationship which brought the fiduciary duties into being.[261] Although ‘it is not wise to generalise at all in this area for, as is often pointed out, the existence and scope of fiduciary obligations must always be assessed in the particular context in which they are claimed to arise’,[262] the most frequent situation giving rise to the continuation of fiduciary duties, in the context of directorships, appears to be corporate opportunities which a director seeks to exploit after resignation from the company.
Some commentators have been critical of the Victorian approach.[263]
Implicit in these criticisms is the view that the termination of the retainer is synonymous with the conclusion of the fiduciary relationship. This view is incorrect. Whilst the termination of the retainer may be evidence of the conclusion of the fiduciary relationship, it will not be conclusive evidence thereof.[264] There will be circumstances where the fiduciary relationship, including the duty of loyalty, will persist regardless of the termination of the retainer.[265] The critical indicia will be whether the relationship of trust and confidence continues. On occasion, the fiduciary relationship may continue post-termination of the retainer.[266]
Some commentators have expressed qualified support for this view.[267]
Even if it is conceded that termination of the retainer brings to an end the relationship which first brought the fiduciary duties into being,[268] a person under a fiduciary obligation cannot avoid the requirement to account to the person to whom the fiduciary duties are owed by resigning their position.[269] The prospect of mischief would otherwise be intolerable.[270] If it were permitted with no consequence, it is not inconceivable that lawyers would terminate their retainer[271] upon any allegation of conflict of duty, in the knowledge that this would severely restrict the jurisdictional bases upon which an injunction may be granted against them.[272]
Fiduciary obligations owed by a lawyer may endure beyond the formal conclusion of the relationship which first brought those duties into being,[273] though the circumstances of each case need to be considered to determine whether the duties are still owed.[274]
The preferable approach is that postulated in Spincode.[275] If a lawyer terminates the retainer for the purpose of acting for the opponent, or seeks to act against a former client in the same or a closely related matter, the duty of loyalty should persist beyond termination of the retainer.[276]
The jurisdiction of the court should not be confined, in these circumstances, to the protection of confidential client information. There will be instances where the court is not satisfied that confidential information has been imparted or that there is a risk of its disclosure, and yet the circumstances of the case may still warrant judicial intervention.[277]
For instance, in Holdsworth v M R Anderson & Associates Pty Ltd,[278] the lawyer had acted for joint-venture parties in relation to a financing arrangement. The lawyer then proceeded to act for one of the parties in a dispute over the terms of the joint venture which it was contended had been altered by the financing arrangement. The court was not satisfied that any confidential information had been imparted in relation to the financing arrangement as the information which had been provided was publicly available, but nevertheless restrained the law firm from acting.[279] Particularly repugnant to the court was the fact that the lawyer had previously acted for the client in the same matter against which he was now acting.[280] In other words, the lawyer had constructed a legal edifice for both clients which he was now dismantling for one of them without the informed consent of the other.[281]
The judgment of Brooking JA in Spincode strikes an appropriate balance between the competing policy tensions. It is also important to note that the continuation of the duty of loyalty in former client conflict situations is strictly confined to circumstances in which the lawyer terminates the retainer for the purpose of acting against the former client or where the lawyer acts against a former client in the same or a closely related matter in which he or she had previously acted. Ultimately, it must be remembered that whether the duty of loyalty persists is an issue of jurisdiction. Whether or not a court decides to grant an injunction will, of course, depend on the facts of each case.
It is clear from a survey of the law in both Australia and England that most cases involving former client conflict are decided on the basis of apprehended disclosure of confidential information. The inherent jurisdiction of the court over its officers is rarely invoked. The rarity of its invocation should not, however, mask its existence and importance. One can imagine circumstances where a client will fail to sustain a claim in relation to the apprehended disclosure of their confidential information but in which it is nevertheless desirable that a lawyer should be restrained from continuing to act. For instance, a lawyer might have a personal interest in the outcome of the proceedings, or might be likely to be called as a witness, and is consequently unable to give the court the independent and uninvolved assistance expected from officers of the court.[282]
The duty to the court arises from the court’s concern that it should have the assistance of independent legal representation.[283] The integrity of the adversarial system in England and Australia ‘is dependent on lawyers acting with perfect good faith, untainted by divided loyalties of any kind.’[284]
This is central to the preservation of public confidence in the administration of justice. In Spincode, Brooking JA said that there was a ‘good deal of authority for the view that a [lawyer], as an officer of the court, may be prevented from acting against a former client even though a likelihood of danger of misuse of confidential information is not shown.’[285] In Woolf v Snipe, Dixon J observed in a different context that the jurisdiction of courts over lawyers has ‘never [been] doubted’.[286] Further, several Australian judges, writing extra-curially, have observed that this jurisdiction is ‘long standing’.[287]
The Victorian authority is fairly clear. In Grimwade v Meagher,[288] Mandie J adopted a number of statements of principle made in New Zealand and Canadian judgments and restrained a lawyer from acting ‘to ensure the due administration of justice and to protect the integrity of the judicial process and in order not only that justice be done but be manifestly and undoubtedly seen to be done.’[289] His Honour considered that a fair-minded, reasonably informed member of the public would conclude that the proper administration of justice required that the lawyer be restrained from acting because of a real risk of ‘lack of objectivity’.[290]
This jurisdictional base is also widely accepted in other Australian jurisdictions.[291] In Western Australia v Ward, Hill and Sundberg JJ observed:
The present case is only another example of situations in which the ‘integrity of the judicial process’, the ‘interests of justice’, and the ‘need to preserve confidence in the judicial system’, to use some of the notions that lie behind the inherent jurisdiction to exclude [lawyers], may override the public interest that a litigant be able to be represented by the lawyer of its choice.[292]
In D & J Constructions Pty Ltd v Head, Bryson J said that the ‘spectacle or the appearance that a lawyer can readily change sides is very subversive of the appearance that justice is being done.’[293] Similarly, in Potts v Jones Mitchell, McMurdo J observed that:
Clearly the court has power to control its own officers, and to that end to restrain a [lawyer] from acting in a way which unduly interfered with the administration of justice by undermining the confidence of reasonable persons in the judicial system.[294]
In Mitchell v Pattern Holdings Pty Ltd, Bergin J said: ‘I am of the view that as an incident of its inherent jurisdiction, this Court may decide upon the propriety of a legal practitioner representing a party in a particular case to ensure justice and the appearance of justice.’[295] Her Honour noted, however, that ‘[i]t has been said that such jurisdiction should be exercised with circumspection’.[296] In Asia Pacific Telecommunications Ltd v Optus Networks Pty Ltd, Bergin J again recognised the jurisdiction of the court over its officers, despite following the decision in Prince Jefri Bolkiah in relation to the duty of loyalty.[297] Her Honour applied Grimwade v Meagher[298] and observed that ‘[t]he court’s jurisdiction over its officers is of course accepted both as to its existence and its breadth.’[299] Similarly, in Oceanic Life Ltd v HIH Casualty & General Insurance Ltd, Austin J said the following:
In the realm of conflicts of interest and conflicts of duty, the [lawyer’s] duty to the court may not be much different from his or her fiduciary duties to former and present clients. However, the duty to the court tends to be expressed in such a way as to emphasise the public interest in preserving confidence in the administration of justice and therefore in the appearance as well as the reality of independence, and the court’s practical approach to its supervisory discretions …[300]
The Victorian approach set out above is preferable. It is consistent with Canadian,[301] New Zealand[302] and some English[303] authority. Further, certain English commentators have observed that the decision in Prince Jefri Bolkiah may not represent an absolute impediment to the availability of this jurisdictional basis in England.[304]
However, despite a number of English judgments recognising the court’s inherent jurisdiction over lawyers,[305]
this jurisdictional basis does not appear to carry much weight in English disqualification cases.[306]
In Re a Firm of Solicitors, Lightman J went as far as to say that ‘[t]he basis of the courts’ intervention is not a possible perception of impropriety: it is the protection of confidential information’.[307] Further, in Re a Firm of Solicitors, Staughton LJ said that the maxim ‘is a sound general principle in cases of … conflicts of interests … although I suspect that it may on occasion result in timid reluctance to risk some imaginary appearance of conflict which has no substance.’[308]
In any event, it should be noted that the circumstances in which this jurisdictional limb will be invoked are likely to be limited. In Holborow v Macdonald Rudder,[309] Heenan J helpfully discussed the circumstances in which the jurisdiction of the court should be invoked. His Honour observed:
If there are circumstances which are likely to imperil the discharge of [the] duties to a court by a [lawyer] acting in a cause, whether because of some prior association with one or more of the parties against whom the [lawyer] is then to act, or because of some conduct by the [lawyer], whether arising from associations with the client or a close interest which gives rise to the fair and reasonable perception that the [lawyer] may not exercise the necessary independent judgment, a court may conclude that the lawyer should be restrained from acting …[310]
Similarly, in Kallinicos v Hunt, Brereton J observed:
The test to be applied in this inherent jurisdiction is whether a fair-minded, reasonably informed member of the public would conclude that the proper administration of justice requires that a legal practitioner should be prevented from acting, in the interests of the protection of the integrity of the judicial process and the due administration of justice, including the appearance of justice …[311]
The court’s enquiry will likely be focused on whether the lawyer is able (or would be perceived to be able) to act with objectivity and independence. As Thomas J said in Kooky Garments Ltd v Charlton:
As part of their professional responsibility … [lawyers] must ensure that they do not appear in a matter in which they have an actual or potential conflict of [duty] or where, by reason of their relationship with their client, their professional independence could be called in question.[312]
It is the latter part of the preceding sentence which serves to distinguish this jurisdictional base from the others.
Parts V and VI considered the jurisdiction of the court and the principles of law that condition the exercise of the power of the court in conflicts of duty cases. This Part of the article will consider the ability of a lawyer to avoid a potential conflict of duty. It will be observed that there are primarily two ways of avoiding conflicts of duty: obtaining the client’s fully informed consent; and/or establishing an effective information barrier within the firm. It will be observed that the usefulness of these measures will depend, in part, on the particular jurisdictional base invoked in the case. For instance, an information barrier is designed to reduce the risk of disclosure of confidential information but serves no function in relation to the court’s inherent jurisdiction over its officers. This is discussed further below.[313] The remainder of this Part will consider whether delay in making an application is capable of disentitling a person from seeking to restrain a lawyer from acting.[314]
A lawyer may act for different parties notwithstanding that a conflict of duty may arise, provided the lawyer has the informed consent of each of the parties.[316] In Clark Boyce v Mouat, the Privy Council defined ‘informed consent’ as:
consent given in the knowledge that there is a conflict between the parties and that as a result the [lawyer] may be disabled from disclosing to each party the full knowledge which he possesses as to the transaction or may be disabled from giving advice to one party which conflicts with the interests of the other.[317]
The disclosure which must precede fully informed consent must be full and frank and relate to all the material facts.[318]
The lawyer bears the onus of proving informed consent.[319] There may be situations in which it is impossible, notwithstanding full disclosure, for a lawyer to act fairly and adequately for different parties.[320]
Even if permitted, a number of difficulties arise.[321]
First, to disclose the nature of the conflict may, in some circumstances, be a breach of confidentiality owed to a client.[322] Second, in seeking consent, the lawyer is effectively asking to be relieved of their duty of loyalty to one or more clients.[323] Clearly, consent of this kind is unlikely to be forthcoming except where the continuing client is not at arm’s length to the other client(s). In any event, deprived of the entitlement to complete loyalty, the purpose that the continued representation serves must be queried. In the event of such consent apparently being given, the lawyer should ‘scrutinise it lest it ha[s] been made by the clients … without a proper appreciation of the facts.’[324]
Further, the usefulness of fully informed consent as a means of avoiding conflict is limited in circumstances where the court’s inherent jurisdiction over its officers is invoked. In Holborow v Macdonald Rudder, Heenan J observed that
while a properly informed and advised client, not under any disability, may waive or ratify any breach of duty due to it by the [lawyer], the [lawyer’s] duty to the court cannot be waived, so that if the particular disqualifying feature involves a conflict between the interests of the [lawyer] and his duty to the court which could give rise to a situation where the independent administration of justice may be put in jeopardy, the court will restrain the [lawyer] notwithstanding the wishes and interests of the client.[325]
It should also be noted that professional conduct rules sometimes prohibit a lawyer from acting even if informed consent has been obtained. These include certain conveyancing and financial transactions, such as the sale of land and guarantees.[326] The rules operate to bind the conduct of members of the professional organisation. A breach of the rules may result in a finding of professional misconduct and termination of the lawyer’s membership of the organisation. Indeed, the lawyer’s practising certificate may be cancelled. An application seeking to restrain a lawyer from acting will usually refer to these rules but, of course, the court is not bound to apply or even refer to the rules when considering its own jurisdiction.[327]
Additionally, a lawyer facing conflicting client duties may seek, with the consent of the client, to restrict the scope of the retainer in such a way as to remove the conflict.[328]
In Fruehauf Finance Corporation Pty Ltd v Feez Ruthning (a firm),[329] the court was prepared to accept undertakings that the retainer be limited in this way. However, in most cases the subject matter of the conflict is likely to be a material aspect of the transaction or litigation. Therefore, this approach will ultimately result in the client having to retain another lawyer to the extent of the conflict. Nonetheless, ‘it may attract advantages in cost, speed and convenience which would be lost in the event of total withdrawal.’[330]
The establishment of internal rules and procedures designed to prevent the passage of confidential information from one part of a firm of lawyers to another is often referred to as the erection of a ‘Chinese wall’. Generally, this involves the giving of undertakings,[332] the imposition of restraints upon persons and/or limitations upon communications between various persons within a firm.[333]
Professor Finn has defined Chinese walls in the following terms:
a Wall is an organizational contrivance within an enterprise designed to prevent the flow of confidential information to or from a part or parts of that enterprise. Its alleged purpose is to prevent it being able to be said that an ‘insulated’ area of a firm or company has in fact used or will be in a position to use confidential information possessed by another part of the same firm or company.[334]
The term ‘Chinese wall’, although routinely used in legal vernacular, is an ‘imprecise metaphor’.[335]
For this reason Straughton LJ in Re a Firm of Solicitors preferred to call it an ‘information barrier’.[336] In Mallesons v KPMG, Ipp J observed that ‘[t]he derivation of the nomenclature [was] obscure. It appears to be an attempt to clad with respectable antiquity and impenetrability something that is relatively novel and potentially porous.’[337]
There is no rule of law that Chinese walls, or other arrangements of a similar kind, are insufficient to eliminate the risk of disclosure of client confidential information. The starting point, however, is that ‘unless special measures are taken, information moves within a firm.’[338] Mere physical segregation, especially within one department, will not suffice.[339]
The orthodox view is that established institutional arrangements, as opposed to ad hoc arrangements, designed to prevent the flow of confidential information between separate departments, are more likely to be accepted by a court.[340]
An illustration of an acceptable institutional barrier is found in Re a Firm of Solicitors.[341] In that case, the matters were handled by different departments of the firm, which were located in two different buildings. Walker J observed that ‘[t]he two individuals in charge of the two respective cases have never been into each others’ offices. Indeed, before the current matter arose, they had never met.’[342] However, ad hoc arrangements have been held in a number of recent Australian and English cases to be sufficient to ensure the protection of confidential information.[343] In Young v Robson Rhodes (a firm), Laddie J observed that
[t]he crucial question is ‘will the barriers work?’ If they do, it does not matter whether they were created before the problem arose or are erected afterwards. It seems to me that all Lord Millett was saying was that Chinese walls which have become part of the fabric of the institution are more likely to work than those artificially put in place to meet a one-off problem.[344]
In any event, the critical issue will be whether the barriers are effective.
In practice, courts in both England and Australia have been reluctant to accept the effectiveness of Chinese walls.[345]
In David Lee & Co (Lincoln) Ltd v Coward Chance (a firm), Browne-Wilkinson V-C observed ‘experience in [the Court of Chancery] demonstrates that the maintenance of security on either side of Chinese walls in the context of the city does not always prove to be very easy.’[346] In Re a Firm of Solicitors, Parker LJ observed that ‘only in very special cases that any attempt should be made’ to rely on an information barrier.[347] Similarly, in Pradhan v Eastside Day Surgery Pty Ltd, Bleby J observed that ‘[i]t will only be in very rare cases, if at all, that a “Chinese wall” … will be sufficient protection. There will always be a risk that some confidential information will be inadvertently revealed across the wall.’[348] Further, Sir Anthony Mason pointedly observed that ‘[a]s the expression “cones of silence” had its origin in high farce, I can scarcely credit that it now gives rise to a serious legal question.’[349] It is interesting to note that judicial intolerance of Chinese walls in the context of lawyers does not correlate with the prevailing acceptance of them in the financial services industry.[350] The elevated importance of the lawyer–client relationship in the administration of justice might explain the different treatment.
In England, a court will restrain a lawyer from acting ‘unless satisfied on the basis of clear and convincing evidence, that [all reasonable] measures have been taken to ensure that no disclosure will occur’.[351] Of course, this is quite different to the Victorian formulation which does not provide for a reversal of the onus of proof in this way. Under the Victorian formulation, a court would ordinarily consider the effectiveness of a Chinese wall as part of its overall assessment of whether a ‘real and sensible possibility’ of misuse of confidential information exists. The shift in the evidentiary burden under the English formulation places greater importance on the measures taken by the lawyer in protecting confidential information. To this extent, the English formulation is to be preferred. The lawyer should bear the evidential onus if he or she seeks to obtain the benefit of what is, after all, an artificial construct of his or her own making. This is also consistent with the view expressed earlier in this article that it is a rebuttable presumption that confidential information moves within a firm.[352] In these circumstances, the evidential onus should rest on the law firm to demonstrate that it has put in place information barriers sufficient to rebut the presumption.
The prospect of delay disentitling a present or former client from making an application to restrain a lawyer is an issue which has been considered in a number of cases. In Vakauta v Kelly, Dawson J observed that
where a party in civil litigation, being aware of the circumstances giving rise to a right to object, allows the case to continue for a sufficient time to show that he does not presently intend to exercise that right, he may be held to have waived it.[353]
In Orr v Ford, Deane J observed that ‘[s]trictly used, acquiescence, indicates the contemporaneous and informed (“knowing”) acceptance or standing by which is treated by equity as “assent” (ie consent) to what would otherwise be an infringement of rights’.[354]
In South Black Water Coal Ltd v McCullough Robertson (a firm),[355]
the former client did not dispute, for a period of 14 months, the lawyer acting for another party with an adverse interest. Muir J held that the former client’s acquiescence had, as a matter of equity, caused the client to lose their entitlement to complain. Similarly, in Colonial Portfolio Services Ltd v Nissen, Rolfe J indicated that he would have refused the application on the grounds of delay had he not decided that there was no real risk of misuse of confidential information.[356] In that case, there was a delay of some eight months. However, in Sogelease Australia Ltd v MacDougall, Wood J warned that a court should be slow to invoke the doctrines of laches or delay as a discretionary bar to proceedings involving a breach of fiduciary duty.[357] In Mytton’s Ltd v Phillips Fox (a firm), a five-month delay was held not to constitute a disqualifying period.[358]
Similarly, in Durban Roodepoort Deep Limited v Reilly and Featherby (as administrators), an eight-month delay was held not to be sufficient to disentitle the applicant, although the application seeking to restrain the lawyer failed for other reasons.[359]
The competing policy issues inherent in this field of law are tolerably clear. On the one hand, there is a general concern to maintain the high standards of the legal profession and the overall integrity of the justice system. On the other hand, a client should not be deprived of their choice of lawyer without good cause. The proverbial bar is set high for the former and low for the latter. A test that is too easy to satisfy, however, may diminish the confidence of the public in the administration of justice. That is because a lawyer’s conflict of duty is subversive of the appearance of justice being done. Equally, a test that is too high may undermine our system of justice by limiting a client’s choice of lawyer. It may also unduly restrict the mobility of individual lawyers within the legal profession and threaten the economic viability of legal practice by causing large firms to refuse matters. The critical issue is where the line should be drawn in relation to these competing policy tensions. Resolution of this issue can only occur if we consider the principles of law which ought to condition the exercise of judicial power to restrain a lawyer from acting.
Ironically, the present divergence of the law in England and Australia has less to do with the principles of law which ought to condition the exercise of power and more to do with the preliminary issue of whether the court has jurisdiction. In England, a court does not have jurisdiction to restrain a lawyer from acting against a former client unless there is a risk of misuse of confidential information. A lawyer’s duty of loyalty is not available in this kind of conflict. Similarly, a court does not have jurisdiction to restrain a l