10. Conflicts concerning former clients

1. A solicitor and law practice must avoid conflicts between the duties owed to current and former clients.
2. A solicitor or law practice who or which is in possession of confidential information of a former client where that information might reasonably be concluded to be material to the matter of another client and detrimental to the interests of the former client if disclosed, must not act for the current client in that matter UNLESS:
   1. the former client has given informed consent to the disclosure and use of that information; or
   2. an effective information barrier has been established.

Commentary

Rule 10 deals with a conflict between a duty owed to a former client and a duty that is actually or potentially owed to a current or prospective client ('successive representation'). See Rule 11 for where a solicitor is simultaneously representing two clients. For the purposes of Rule 10, a "former client" extends well beyond someone who has previously retained the solicitor. It may include:

• a person or entity that has previously instructed the solicitor, their current or former law practice, or the former practice of a partner, co-director or employee of the solicitor,(ASCR Glossary) and
• any person who has provided confidential information to a solicitor, notwithstanding that the solicitor was not formally retained and did not render an account: ACSR Glossary.

10.1 Ongoing duty of confidentiality

A solicitor who has ceased to act for a client no longer has a fiduciary duty to that client, and may act against the interests of that client, including by acting as a solicitor for others. However, the solicitor cannot disclose any confidential information of the former client; the duty of confidentiality continues after the termination of the retainer and indeed beyond the death of the former client: see Rule 9. Rule 10 concerns the conflict between that duty of confidentiality, and a solicitor's duty to use all of their knowledge and skill for the benefit of a second client (the conflict recognised in Spector v Ageda [1973] Ch 30). 

The source of the court's jurisdiction to grant an injunction is 'not based on any conflict of interest, real or perceived, for there is none': Prince Jefri Bolkiah v KPMG [1999] 2 AC 222, 235 ('Prince Jefri'). In Prince Jefri, Lord Millett held that a court may intervene if the solicitor possessed information confidential to the former client; and the information was or might be relevant to the matter on which he was instructed by the second client. The court may grant an injunction preventing the solicitor acting for the second client. The decision in Prince Jefri has been widely followed in Australia: Flanagan v Pioneer Permanent Building Society Ltd [2002] QSC 346; Pott v Jones Mitchell [2004] 2 Qd R 298; Belan v Casey (2002) NSWSC 58; Nasr v Vihervaara (2005) 91 SASR 222; British American Tobacco Australia Services Ltd v Blanch (2004) NSWSC 70; Asia Pacific Telecommunications Ltd v Optus Networks Pty Ltd (2005) NSWSC 550.

In Victoria, however, the alternative reasoning of Spincode Pty Ltd v Look Software Pty Ltd (2001) 4 VR 501 ('Spincode') has been followed. In Spincode, Brooking JA found that the court could intervene to protect a solicitor's ongoing duty of loyalty to their former clients. If accepted, information barriers or 'Chinese walls' may protect against breaches of confidentiality, but may not protect an ongoing duty of loyalty. Spincode has been followed in Victoria, but not elsewhere: see the cases reviewed in Dale v Clayton Utz [2013] VSC 54.³⁸ 

Confidential information. The discussion of what constitutes confidential information under Rule 9 applies equally to Rule 10. Confidential information is information "which a) was originally communicated in confidence b) at the date of the later proposed retainer is still confidential and may reasonably be considered remembered or capable, on memory being triggered, of being recalled and c) relevant to the subject matter of the subsequent proposed retainer": In Re A Firm of Solicitors [1997] Ch 1, 9-10. Solicitors should note that their opinions of former clients may also be confidential. Relevant examples of former client information being held confidential include:

• Magro v Magro (1989) FLC 92-005, in which a solicitor previously retained by the wife was prevented from representing the husband in contested property proceedings. The wife could not identify particular information that could be prejudicial; however the court accepted that "impressions of the wife's personality gained after many hours of confidence could be exploited by a skilful advocate".
• 'getting to know you' factors, from which a solicitor might know of a former client's strengths, weaknesses, honesty or lack thereof, reaction to crisis, pressure or tension, and attitude to litigation and settling cases: see D & J Constructions Pty Ltd v Head (1987) 9 NSWLR 118, 123 and Yunghams v Elfic Pty Ltd (Unreported Supreme Court of Victoria, Gillard J, 13 July 1998) BC 9803031. Even information that is not sourced from a client may be classified as confidential information.
• Where there is a possibility of the action triggering memory of confidential information, that 'unconscious memory' is protected: Sent v John Fairfax Publications Pty Ltd [2002] VSC 429.³⁹

The testimony of the solicitor and the former client as to what confidential information was shared is subject to the normal rules of evidence. An old Queensland case (Mills v Day Dawn Block Gold Mining Co Ltd (1882) 1 QLJ 62 (‘Mills’)) suggested that a solicitor may be disqualified from acting where there is unsettled conflicting testimony, so long as the former client swears to imparting confidential information. However, this decision was not followed in D & J Constructions Pty Ltd v Head (1987) 9 NSWLR 118. Mills is authority for the proposition that the duty to avoid conflict is a reflection of the paramount duty (Rule 3).

10.2 Material and detrimental to the interests of the former client if disclosed

In Fordham v Legal Practitioners Complaints Committee (1997) 18 WAR 467, a case on cross-examining a former client, Malcolm CJ asked 'whether a reasonable observer, aware of the relevant facts, would consider that the confidential information given to the solicitor by the former client was being used by the solicitor to advance the interests of the new client to the detriment of the former client': at 488.

The former client must have an interest in the current matter if they are to prevent the solicitor acting on it. The former client must prove that the solicitor has confidential information, and that the information may be relevant to the new matter in which the interests of the new client may be adverse to those of the former client: Prince Jefri. Rule 10 however prevents the solicitor acting if the information, if disclosed, might be detrimental to the interests of the former client. It contemplates a situation where (i) information that is confidential to a former client is relevant to a current matter, and (ii) the disclosure of that information may be detrimental to the former client. The later matter need not be one in which the interests of the new client are adverse to those of the old one. The incidental disclosure of the confidential information may be detrimental enough. 

The possible detriment to the former client arises from the possession of information in relation to which the solicitor owes the former client a duty of confidentiality. In Nasr v Viheryaara (2005) 91 SASR 222, the solicitor obtained no relevant confidential information in the course of acting for the former client in earlier matters which were factually unrelated to the later proceedings in which the solicitor acted for the former client's de facto partner.

10.2.1 Informed consent

Rule 10 recognises two alternative circumstances where the potential conflict arising from successive representation may be overcome: informed consent; or the use of an effective information barrier.

A former client must give informed consent for a solicitor to act where subsequent representation is adverse to a former client. By obtaining informed consent, a solicitor may rebut a potential breach of fiduciary obligation. The question of informed consent is a question of fact having regard to the circumstances of each case. Advising of the importance of obtaining independent and skilled advice from a third party may be one circumstance which negates a breach of fiduciary obligation: Maguire v Makaronis (1997) 188 CLR 449, 466, 496.

Consent in writing. Although Rule 10.2 does not stipulate that the informed consent be obtained in writing, solicitors are strongly urged as a matter of prudence to obtain the consent in writing.

10.2.2 Information barriers

Some practices may attempt to quarantine some sections of the practice from others. The measures taken to do this are called information barriers or 'Chinese walls'. If a successful information barrier is established, then confidential information about a former client is effectively quarantined, and other sections of the law practice may be able to act in circumstances where the disclosure of confidential information may be adverse to a former client. However, the tests for a successful information barrier are rigorous. A barrier must prevent both deliberate and inadvertent disclosure of confidential information: Asia Pacific Telecommunications Limited v Optus Networks Pty Ltd [2007] NSWSC 350.

Required strength of information barriers. The principles by which an effective information barrier can be raised in a law practice were set by Lord Millett in the House of Lords’ decision in Prince Jefri. Given that the risk of disclosing or using confidential information is an avoidable one (i.e. the law practice need not take on the later client) Lord Millett found it difficult to justify exposing the former client to any risk of disclosure or use of the information. He noted that there is an unqualified duty to preserve confidentiality, not merely to take reasonable steps to preserve it. 'No solicitor should, without the consent of his former client, accept instructions unless, viewed objectively, his doing so will not increase the risk that information which is confidential to the former client may come into the possession of a party with an adverse interest': at 227. Accordingly, an information barrier was not legally effective unless the different sections were, almost permanently, physically and operationally segregated.⁴⁰ Relevant undertakings by people who possess the information are essential, but insufficient by themselves: see below and the Queensland Law Society Guidelines for the practical measures required.

Civil matters. For the solicitor to rely on an information barrier and act for the later client in civil matters, there must be no real or sensible possibility of the practice misusing the confidential information: Mallesons Stephen Jaques v KPMG Peat Marwick (1990) 4 WAR 357. In Prince Jefri, Lord Millett concluded that although 'the risk must be a real one, and not merely fanciful or theoretical', it need not be substantial: at 236 – 237.

Family law matters. In family law matters, a risk 'more theoretical than practical' was enough to restrain a solicitor from acting for a subsequent client in In the Marriage of Thevenaz (1986) 84 FLR 10. In such matters, it is 'of the utmost importance that justice should not only be done but should appear to be done': Frederico J, 13, [34].⁴¹

Criminal matters. The similar higher standard, protecting against even theoretical risks, is expected in criminal proceedings, with Ipp J emphasising the importance 'not only that justice is done, but also that it is apparent that it is done': Mallesons Stephen Jaques v KPMG Peat Marwick (1990) 4 WAR 357, 374.

Guidelines for information barriers. The Guidelines for Information Barriers (see Appendix B) specify a number of measures that should be put in place if a law practice is to act against a former client without being in breach of Rule 10. The Guidelines have been adopted in Queensland, the Australian Capital Territory, New South Wales and Victoria, and should be followed in the strictest terms. In summary, they include:

• The appointment of a compliance officer;
• Obtaining the consent of the current client that confidential information held for the former client not be disclosed;
• Identifying any people in the practice who possess information about which a duty of confidentiality is owed to the former client;
• Undertakings by those people not to disclose information to others in the practice;
• the physical segregation of people who acted for the former client and documents held in relation to that client;
• a continuing education program in the practice in relation to these duties; and
• careful segregation of IT resources available to the ‘screened’ team is also required. Precedent and knowledge management systems often promote efficient sharing of data ‘in house’. Screened material should be excluded from that process.

Undertakings. One of the measures that the Guidelines require for an effective information barrier is the giving of undertakings by anyone in the practice who has acted for the former client. The undertakings confirm that:

1. they understand they may possess (or come to possess) confidential information; and
2. they understand they must not discuss that information or the matter generally with any other person within the law practice; and
3. they have not previously had such discussions or done anything which would amount to a breach of the information barrier; and
4. they will inform the designated compliance officer immediately upon becoming aware of any possible breach of the information barrier; and
5. if they are required to produce documents for example in order to comply with a subpoena or a notice to produce they will forward the relevant material (including the former client's physical or electronic files) to the compliance officer.'

These undertakings are a necessary, but not sufficient, element of an acceptable information barrier: see Prince Jefri [1999] 2 AC 222, 530. They are not sufficient, because no matter how strong the integrity and standing of those making the undertakings are, inadvertent disclosures may still occur. In Mallesons Stephen Jacques v KPMG Peat Marwick (1990) 4 WAR 357, the court accepted that the solicitors giving the undertakings were of the highest integrity and standing. However, Ipp J held that the duty of a fiduciary to avoid a conflict of duties to different clients was absolute and inflexible and could not be cured by an undertaking. In Fruehauf Finance Corp Pty Ltd v Feez Ruthning (a firm) [1991] Qd R 558, Lee J accepted that an information barrier allowed a law practice to act against a former client because, amongst other things, the solicitors in the practice who had acted for that client had given undertakings not to disclose information about that client to others in the practice, and they had not actually communicated confidential information to others.

A breach of an undertaking may, however, show that the risk to the former client has become greater, and be grounds for an order that the solicitor not represent the second client. In Asia Pacific Telecommunications Limited v Optus Networks Pty Ltd [2007] NSWSC 350, former Client A was involved in litigation that a legal practice was conducting for client B. The practice had an information barrier that included sworn undertakings from any solicitors who had acted for client A that they would ‘not undertake in any capacity any work or other activity’ concerning A’s litigation with B. However, a partner who had given the undertaking signed short minutes of a consent order in the course of the A–B litigation, because there was a shortage of people in the office who had signing authority. This was regarded as a breach of his undertaking, although it was at 'the lower end of the spectrum of involvement' in the proceedings and inadvertent, and there was no disclosure of confidential information. However, the breach led Bergin J to conclude that the information barrier was not as strong as had been thought and that the risk of disclosure was now real and not fanciful, and as a consequence to restrain the practice from acting for B.

For Queensland practitioners, refer to Guidance Statement No. 1 – Undertakings.

The inherent jurisdiction to restrain a solicitor from acting for a client

The court has an inherent jurisdiction to supervise the conduct of solicitors, as officers of the court, and may in the interests of justice restrain a solicitor from acting for a particular client. The circumstances in which a court should exercise this jurisdiction were well described by Brereton J in Kallinicos v Hunt (2005) 64 NSWLR 561:⁴²

• the test is whether a fair-minded, reasonably informed member of the public would conclude that the proper administration of justice requires that a solicitor should be prevented from acting, in the interests of the protection of the integrity of the judicial process and the due administration of justice;
• the jurisdiction is to be regarded as exceptional and to be exercised with caution, with weight given to the public interest in a litigant not being deprived of the solicitor of choice without due cause;
• the timing of the application is relevant in that the cost, inconvenience or impracticality of requiring solicitors to cease to act may provide a reason to refusing to grant relief.

Examples of where the court has exercised the inherent jurisdiction are:

• where a solicitor has a personal (whether financial, personal or reputational) stake in the outcome of the proceedings or in their conduct, beyond the recovery of proper fees: Mitchell v Burrell [2008] NSWSC 772;⁴³
• a perception that the solicitor is changing sides: Cleveland Investments Global Ltd v Evans [201] NSWSC 567;
• where a solicitor’s professional conduct comes under scrutiny: Bahonko v Nurses Board of Victoria (No 3) [2007] FCA 491.

38 See also: Sent v John Fairfax Publications Pty Ltd [2002] VSC 429, [98]-[104] (Nettle J); Disctronics Ltd v Edmonds [2002] VSC 454;
Village Roadshow Ltd v Blake Dawson Waldron [2003] VSC 505; McCann v McCann [2006] VSC 142; Pinnacle Living Pty Ltd v Elusive Image Pty Ltd [2006] VSC 202 (Whelan J); GT Corporation Pty Ltd v Amare Safety Pty Ltd [2007] VSC 123; Dennis Hangar Pty Ltd v Brown [2007] VSC 495; Kyriackou v Commonwealth Bank of Australia [2009] VSCA 241, [22]-[23].

39 See also: Carindale Country Club Estate Pty Ltd v Astill (1993) 42 FCR 307, 313 (Drummond J).

40 It should be noted, though, that the essence of the problem with an information barrier is conflicting duties. Therefore, even if the issue is not one purely of a confidence owed to a former client, but a position of conflict arises, a firm might be able to be enjoined from acting for a new client with incompatible interests. It is certainly not necessary that the conflict arise in the one transaction. It could spring from different transactions: Marks and Spencer Group Plc v Freshfields Bruckhaus Deringer [2004] EWCA Civ 741.

41 See also: In the Marriage of Magro (1993) 93 FLR 365 and McGillivray v Mitchell (1998) 23 FamLR 238.

42 See also: Potts v Jones Mitchell & Anor [2004] 2 Qd R 298.

43 See also: R & P Gangemi Pty Ltd v D & G Luppino Pty Ltd & Anor [2012] VSC 168.