Conflicts of duty: the perennial lawyers' tale - a comparative study of the law in England and Australia.

Author:Goubran, Sandro
 
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[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.]

CONTENTS I Introduction II Preliminary Matters A Barrister v Solicitor B Law Firm v Individual Lawyer--What Are the Rules of Attribution? C Standing--Is It Confined to Clients? III The Legal and Theoretical Foundations of a Lawyer's Duty to Avoid Conflict A Duty of Confidentiality B Fiduciary Duty of Loyalty C Administration of Justice IV Conditions Precedent A Same or Closely Related Matters B Adverse Interests V Present Client Conflict VI Former Client Conflict A Prince Jefri Bolkiah v KPMG (a firm) B Spincode Pty Ltd v Look Software Pty Ltd C The Jurisprudence--Drawing the Common Threads Together 1 Confidential Information 2 The English Approach 3 The Victorian Approach VII Related Matters A Avoidance of Conflict of Duty 1 Fully Informed Consent 2 Chinese Walls B Laches--Delay in Bringing an Application to Restrain a Lawyer from Acting VIII Conclusion 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)

1 INTRODUCTION

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.

II PRELIMINARY MATTERS

A Barrister v Solicitor

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)

B Law Firm v Individual Lawyer--What Are the Rules of Attribution?

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...

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