|Citation||Non-Binding Ethics Ruling (2020) 5|
|Non-Binding Ethics Ruling of:||Ethics Committee, Queensland Law Society|
NON-BINDING RULING - QUEENSLAND LAW SOCIETY - ETHICS COMMISSION - CONFLICT - CONFIDENTIAL INFORMATION - INFORMED CONSENT - INFORMATION BARRIER - whether a conflict of interest has been created by Firm A acting for a husband in family law proceedings, while at the same time acting for the same husband and his then wife in relation to a sale of a property.
|Published date:||30 September 2020|
Australian Solicitors Conduct Rules 2012
- This is a non-binding ethics ruling by the Ethics Committee of the Queensland Law Society.
- The ruling relates to a dispute between Firm A and Firm B. A husband and wife engaged Firm A to act on their behalf in the sale of a property (Property). A family law dispute arose between the husband and wife. The wife engaged Firm B to represent her. The husband engaged Firm A. The issue for consideration is whether Firm A is conflicted from acting for the husband in the family law dispute while it is acting for the husband and wife in relation to the sale of the Property.
- The Committee has received the following materials:
- Letter: Firm to QLS dated 17 August 2020, attaching:
- Correspondence between the parties
- A copy of the 2017 Conveyance File
- Written Submissions of Firm A dated 9 September 2020; and
- Written Submissions of Firm B dated 10 September 2020.
- Letter: Firm to QLS dated 17 August 2020, attaching:
- In 2017, a husband and wife engaged Firm A to act on their behalf in the purchase of a property (2017 Conveyance).
- In July 2020, the husband and wife again engaged Firm A to act on their behalf in the sale of another property (2020 Conveyance).
- Firm A advises that 'shortly signing (sic) the contract of sale in July 2020, the parties became intwined (sic) in a property settlement dispute' 1
- On 22 July 2020, Firm B was retained to act on behalf of the wife in the family law dispute. 2
- On 24 July 2020, Firm B wrote to Firm A and advised that it acted on behalf of the wife in relation to the family law dispute. In that letter Firm B requested:
(a) information regarding the sale of the Property;
(b) a copy of the contract of sale; and
(c) confirmation from Firm A it would hold any proceeds from the sale of the Property in its Trust Account until a property settlement between the husband and wife had been finalised.
- On 29 July 2020, the Conveyance Manager of Firm A emailed Firm B. Firm A:
(a) enclosed a copy of the contract of sale;
(b) advised that the settlement date for the sale of the Property was scheduled for 17 August 2020;
(c) agreed to hold the net settlement proceeds in trust until there is a written agreement regarding the disbursement of funds; and
(d) advised that the husband had contacted a solicitor at Firm A to act on his behalf in relation to the family law matters.
- On 3 August 2020, Firm B wrote to Firm A and advised that 'a serious conflict of interest' had been created and that it required Firm A to immediately withdraw as the husband's solicitor in the family law proceeding and that it cease providing any advice to the husband regarding the family law dispute.
- On 4 August 2020, Firm A wrote to Firm B and advised that it did 'not see how there is any conflict that arises from us having acted for your client in the … 2 conveyancing matters'.
Firm A provided Firm B with a copy of the conveyancing file from 2017 and requested that Firm B review the file and advise of the basis of the claim that a conflict exists.
Firm A referred to the decision of Osferatu v Osferatu  FamCAFC 177 and argued that the wife had to demonstrate a real, as opposed to a theoretical, possibility that confidential information is at risk.
- On 10 August 2020, Firm B wrote to Firm A and again reiterated that its client objected to Firm A acting for the husband in the family law proceedings in circumstances where a current retainer existed between Firm A and the wife in relation to the sale of the Property. Firm B stated that it was instructed that:
(a) Firm A is in possession of information that is confidential to the wife;
(b) that information is, or may be, relevant to the family law proceedings in which Firm A is proposing to act for the husband, who has an interest adverse to the wife; and
(c) there is a real risk, as opposed to a theoretical risk, that information previously provided to Firm A by the wife would be used against her.
- On 17 August 2020, Firm A referred the dispute to the QLS Ethics and Practice Centre for a non-binding ethics ruling (NBER).
THE PARTIES' POSITIONS
Firm B’s Position
- Firm B delivered submissions to the Committee on 10 September 2020. Firm B contends that a conflict of interest has been created by Firm A acting for the husband in the family law proceedings, while at the same time acting for the husband and wife in relation to the sale of the Property. Firm B submits that the wife was 'never given any warning, [Firm A] never discussed their family law retainer with her, and she was never given the opportunity to voice her objection, prior to [Firm A] being retained in the Family Law Matter’.3 Firm B has formed the view that Firm A should immediately withdraw from acting for the husband in relation to the family law proceedings and refrain from providing the husband with any advice in relation to the family law dispute.
Firm A's Position
- Firm A contends that upon review of the Australian Solicitors Conduct Rules 2012 (ASCR), the only duty in dispute is the duty of confidentiality and therefore, it only addressed the duty of confidentiality in its submission 4 and that Rule 11 must be read holistically with the duty regarding confidentiality.5 ASCR has not been breached. Firm A does not believe that it holds, or has been provided with any confidential information which causes a conflict of interest. Firm A considers that it has 'acted in accordance to (sic) QLS Ethics Centre guidelines and invited the Wife's lawyer to specify the information that is in our possession and risk that could be detrimental to the Wife'.6 Firm A is of the view that a blanket claim of an alleged conflict is unsatisfactory and it is incumbent upon the wife to provide details of the specific information that is in Firm A's possession which would amount to a conflict of interest.
THE AUSTRALIAN SOLICITORS CONDUCT RULES 2012 AND THE LEGAL PRINCIPLES
- The central issue in this NBER differs from the previous conflicts rulings delivered by the Committee. To date, the Committee has been asked to consider conflicts concerning former clients.7 This matter, however, involves a conflict concerning current clients.
- The overarching principle for any practitioner faced with the prospect of acting for current clients in different matters is that the practitioner should avoid conflicts between the practitioner's duties owed to two or more current clients.
- The court has an inherent supervisory jurisdiction over solicitors to ensure the administration of justice, and may restrain a solicitor from acting even where there is no risk of the misuse of confidential information or a breach of a fiduciary duty of loyalty.8 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, including the appearance of justice’.9 Even so, this jurisdiction is regarded as 'exceptional' and should be 'exercised with caution'.10
- The starting point for a consideration of the present issues is Rule 11 ASCR which provides:
11. Conflicts of duties concerning current clients
11.1 A solicitor and a law practice must avoid conflicts between the duties owed to two or more current clients, except where permitted by this rule.
11.2 If a solicitor or a law practice seeks to act for two or more clients in the same or related matters where the clients' interests are adverse and there is a conflict or a potential conflict of the duties to act in the best interests of each client, the solicitor or law practice must not act, except where permitted by Rule 11.3.
11.3 Where a solicitor or law practice seeks to act in the circumstances specified in Rule 11.2, the solicitor may, subject always to each solicitor discharging their duty to act in the best interest of their client, only act if each client:
11.3.1 is aware that the solicitor or law practice is also acting for another client; and
11.3.2 has given informed consent to the solicitor or law practice so acting.
11.4 In addition to the requirements of Rule 11.3, where a solicitor or law practice is in possession of confidential information of a client (the first client) which might reasonably be concluded to be material to another client's current matter and detrimental to the interests of the first client if disclosed, there is a conflict of duties and the solicitor and the solicitor's law practice must not act for the other client, except as follows:
11.4.1 a solicitor may act where there is a conflict of duties arising from the possession of confidential information, where each client has given informed consent to the solicitor acting for another client;
11.4.2 a law practice (and the solicitors concerned) may act where there is a conflict of duties arising from the possession of confidential information where an effective information barrier has been established.
11.5 If a solicitor or law practice acts for more than one client in a matter and during the course of the conduct of that matter, an actual conflict arises between the duties owed to two or more of those clients, the solicitor or law practice may only continue to act for one of the clients (or a group of clients between whom there is no conflict) provided that the duty of confidentiality to other client(s) is not put at risk and the parties have given informed consent. (emphasis added)
- The effect of Rule 11 is that:
(a) a solicitor may only act for two clients in the same or related matters if they have the fully informed consent of all clients;11 and
(b) in circumstances where a solicitor or law practice is in possession of confidential information, the solicitor or law practice may only continue to act for two or more current clients where:
(i) they have the informed consent of all clients; and
(ii) an effective information barrier has been established.12
- A 'client' is defined in the ASCR to include 'a person (not an instructing solicitor) for whom the solicitor is engaged to provide legal services in a matter'.13
- Integral to a solicitor or law practice being able to act for two clients in the same or related matters is the informed consent of the clients. What constitutes informed consent is a question of fact and depends on the circumstances of each case.14 However, it requires transparency, full disclosure of all material issues and frankness to all the parties in any proposed multiple representations.
- Although Rule 11.3 does not stipulate that the informed consent be obtained in writing, it is recommended that the consent of the parties is obtained in writing.15
- According to Professor Dal Pont:
'Ideally [consent] should be in writing, signed by the clients, although it cannot be assumed that a client who reads and signs a document will understand its implications. A prudent lawyer will take care to explain to the client the above implications, and will assure himself or herself of the client's understanding of them'.16
- 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'.17
- The leading reference for what constitutes an effective information barrier is the Information Barrier Guidelines, prepared by the Law Society of New South Wales in consultation with the Law Institute of Victoria, and adopted by the Council of the Queensland Law Society
- In deciding whether a solicitor or law firm can continue to practice for multiple clients, a court may consider commercial factors such as the inconvenience to a client forced to change solicitors mid-case and the ability to instruct a solicitor of choice. However, those factors cannot alter the fact that a proposed information barrier is ineffective or there is no information barrier at all.18
- The Committee's attention has been drawn to the decision of Osferatu v Osferatu  FamCAFC 177. Firm A submits that the case is authority for the proposition that before determining that a law practice or solicitor cannot act for multiple clients, it must be demonstrated there is a real (as opposed to a theoretical) possibility that confidential information is at risk. It is appropriate to outline the facts and outcome.
Osferatu v Osferatu  FamCAFC 177
- In 2011, the applicant wife instructed a mid-size firm with multiple offices (Watts McCray) in her property and children's matters. Both disputes were resolved by consent orders, in November 2013 and November 2014 respectively.
- Mr F, a partner at Watts McCray, left that firm in 2012 and joined Barkus Doolan, a smaller specialist family practice with one office.
- Mr F had not been directly involved in the wife's matter, but had supervised the solicitors with carriage of the matter from time to time and had been exposed to the wife's confidential information during management meetings. The extent of his knowledge was not apparent from the judgment, but it can be regarded as tangible but not extensive. He offered detailed undertakings not to discuss the matter with his new firm and to be quarantined from the file. Watts McCray indicated that, as the matters were substantially resolved, it had no objection to Barkus Doolan continuing to act. Watts McCray reserved its client's rights if further proceedings ensued.
- Within a year a contravention claim ensued. Initially the husband and wife were selfrepresented. On 19 February, the wife consented to her former husband returning to Barkus Doolan for assistance with the matter.
- By 9 March, the wife reversed her position. She was again represented by Watts McCray and objected to Barkus Doolan acting against her due to Mr F's presence in the firm. Barkus Doolan declined to withdraw, offering again that Mr F would give an undertaking to have no involvement in the matter and not to discuss any aspect of it with the team acting for the husband.
- The wife's application for restraint was successful in the first instance, but overturned on appeal by the Full Court of the Family Court.
The Full Court's Decision
- The Court outlined there are three established categories based on which solicitors may be restrained from acting against their client or former client:
(a) a breach of confidence;
(b) a breach of fiduciary duty; and
(c) the inherent jurisdiction of a court over its officers to control its process.19
- However, in Osferatu the Court was only concerned with the risk of misuse of confidential information.20
- The Court was of the view that a party seeking to restrain a solicitor from acting must discharge his or her burden of proof by adducing cogent and persuasive evidence and outlining the classes of information he or she feels to be at risk, including why it relates to the current matter and how misuse would be detrimental to them.21
- Once a client has discharged the onus of proving that the solicitor is in possession of confidential information, the next step involves a consideration of the risk that the relevant confidential information will be disclosed. The Court concluded that:
'The consideration should be whether there is a real risk of misuse as opposed to one which is merely fanciful'.22
- The risk of disclosure is to be determined by considering the risk and of any protective measures taken or proposed by the solicitor or his or her new firm. The evidentiary burden regarding those protective measures falls squarely on the firm responsible for implementing them.23
- Before any determination can be made as to whether a lawyer should be restrained from acting, a court must balance, the nature of the information against a consideration of the person to whom the information was given; when the information was given; the relevance of that information to the current proceedings; the risk of disclosure; and any proposed protective measures.24
- Turning back to the facts in Osferatu, the Full Court came to the conclusion that the wife's application to restrain the husband's solicitors should be dismissed. In reaching this conclusion, the Court found the following persuasive:
- the failure of the wife to point to any particular type of information disclosed to Watts McCray (while Mr F was in its employment) that would lead to a not unreasonable belief that information may be used against her or to her disadvantage in the current proceedings before the court; and
- the strong and appropriate measures (specifically an information barrier to prevent access to the electronic or physical files) undertaken at Bakus Doolan to quarantine Mr F from having any advertent or inadvertent contact with the proceedings, including undertakings from the partners of that firm to maintain those measures.25
ISSUES FOR THE COMMITTEE
- Whilst the parties requested a NBER, neither party articulated a specific question for the Committee to consider.
- However, after reviewing the limited information initially provided to the Committee, the Committee determined that the key questions for consideration were:
1. Has Firm A complied with Rule 11 ASCR?
2. Does the decision of Osferatu v Osferatu  FamCAFC 177 affect or change the Committee's position with respect to question 1?
- The Committee invited the parties to provide submissions on these two questions.
- Submissions were received from Firm A on 9 September 2020 and Firm B on 10 September 2020.
- For the reasons set out below, the Committee has genuine concerns as to whether Firm A has complied with Rule 11 and whether it should continue to act for the husband in the family law proceedings. However, it must be noted that the Committee has only been provided with very limited information by the parties. This limits the Committee's ability to express concluded opinions on all matters relevant to this NBER.
Question 1: Has Firm A complied with Rule 11 ASCR?
- Rule 11 emphasises that a solicitor or law practice should not accept instructions to act for more than one party, where there is a potential conflict of the duties to act in each client's best interest, except in the circumstances permitted by Rule 11.
- The exceptions are outlined in Rule 11.3 which provides that in order to act for multiple clients, the solicitor or law practice must:
(a) obtain the informed consent from all parties; and
(b) establish an effective information barrier to ensure that confidentiality is maintained.
- As discussed above at  and , it is highly recommended that the informed consent be in writing.
- In the present case, it appears that Firm A accepted instructions to act on behalf of the husband in the family law proceeding, while it had a current retainer to act on behalf of the husband and wife in the 2020 Conveyance.
- No evidence has been put before the Committee which demonstrates that Firm A:
(a) obtained the informed consent of either the husband or the wife; or
(b) established an information barrier between the team acting in the 2020 Conveyance and the team advising the husband in relation to the family law proceeding.
- It appears the first time the wife or her solicitors were informed that Firm A was acting on behalf of the husband in relation to the family law proceedings was in the email from Firm A to Firm B on 29 July 2020 which stated:
'Our [solicitor] has now been contacted by [the husband] to look after his family law matters. Our client would like to resolve this matter most amicably in line with section 75 of the Family Law Act. Please send your client's proposal for property and child contact matters for our client's consideration'.
- Firm B submits that the wife was 'never given any warning, [Firm A] never discussed their family law retainer with her, and she was never given the opportunity to voice her objection, prior to [Firm A] being retained in the Family Law Matter'.26
- Notably, the email of 29 July 2020 was sent by the firm's Conveyance Manager. This does not support a conclusion (at least when this email was sent) that an information barrier between the two matters had been established.
- The Committee acknowledges that Firm A did provide an undertaking to hold the settlement proceeds in trust until a written agreement regarding the disbursement of funds was provided. However, no evidence has been provided to the Committee as to any other undertakings Firm A might have provided in relation to an information barrier or how any potential or future conflicts might be dealt with.
- Firm A has instead put the onus on the wife and her solicitors to provide particulars of the confidential information Firm A has in its possession which could be used to the wife's detriment. Certainly, this is an important consideration when considering matters of this nature. However, as discussed further below, the identification of confidential information does not displace or serve as a defence to a solicitor's or law practice's primary obligations under Rule 11 ASCR.
- It should also be noted, that although at the end of the 2020 Conveyance, the wife becomes a former client of Firm A, Firm A continues to hold the funds from the 2020 Conveyance as trustee / stakeholder for the husband and wife as beneficiaries on a specific purpose trust that the funds will not be distributed unless the husband and wife agree to such distribution or alternatively are ordered by the court.
Question 2: Does the decision of Osferatu v Osferatu  FamCAFC 177 affect or change the Committee's position with respect to question 1?
- The decision of Osferatu can be distinguished from the present factual situation on a number of grounds, as follows:
- in Osferatu a solicitor previously employed at the firm retained by the wife moved to the firm engaged by the husband in the family law proceedings; in this matter, the wife is an existing client of Firm A with a current retainer;
- in Osferatu the husband's solicitors sought and obtained the wife's consent to act on his behalf (such consent being later revoked); in this matter, there is no evidence that Firm A sought the wife's informed consent to act on the husband's behalf in the family law proceedings; and
- in Osferatu the husband's solicitors took steps to put in place and maintain an information barrier to manage the risk to confidentiality; in this matter, there is no evidence that Firm A has put an information barrier in place.
- The Full Court in Osferatu, made it clear that the existence of confidential information and the nature of that information is only one of the factors that must be taken into consideration. A court must balance the relevance of that information to the current proceedings, the risk of disclosure and any proposed protective measures.
- As discussed, no evidence has been put before the Committee of any protective measures having been put in place by Firm A. As outlined in Osferatu, the evidentiary burden regarding those protective measures falls squarely on the firm responsible for implementing them.27
- The Property that was the subject of the 2017 Conveyance and now the 2020 Conveyance forms part of the matrimonial assets and from the correspondence exchanged between the parties appears to be part of the family law dispute that now exists between the husband and wife.
- The 2020 Conveyance is relevant to the family law dispute between the husband and wife.
- Firm A may argue that an actual conflict does not currently exist. However, as Professor Dal Pont argues:
'In any situation involving the representation of multiple persons in a contentious matter, a prudent lawyer will carefully analyse whether in fact the interests of those persons coincide. If there is a possibility of those interests conflicting, he or she should decline to represent one (or more) of those persons; lawyers should not give legal advice to a person whose interests are, or are likely to be, in conflict with those of an existing client, other than advice to secure the services of another lawyer. Even if the lawyer does not foresee a possibility of conflict, he or she should keep in mind that:
• an unexpected course of events, which is more likely in contentious than noncontentious matters, may lead to a conflict arising during the proceedings;
• the lawyer must usually withdraw from representing each client if such a conflict does arise or otherwise potentially misuse confidential information communicated by a former client to benefit a current client in the same or related matter;
• any such withdrawal will cause cost, inconvenience and delay to both the clients and the curial process'.28
- Indeed Rule 11.5 provides that when an actual conflict arises between the duties owed to two or more of those clients, the solicitor or law practice may only continue to act for one of the clients provided that the duty of confidentiality to the other client is not put at risk and the parties have given informed consent.
- Rule 11.5 again emphasises that the duty of confidentiality is not to be put at risk and that the parties have given informed consent. No evidence of either of those requirements has been put before the Committee.
- In this matter, the requirement of the wife to identify the confidential information she is concerned about does not displace or serve as a defence to a solicitor's or law practice's primary obligations under Rule 11 ASCR.
- There are other discretionary matters which Firm A should take into account. First, the family law dispute appears to be at a relatively early stage, such that costs thrown away as a result of a change in representation would presumably be relatively modest. Second, while it is the prerogative of a party to have the representation of its choosing, Firm A does not appear to claim any particular knowledge or expertise which would require its retention by the husband. Finally, from a purely commercial and pragmatic perspective, it is desirable that disputes over representation, such as the present, be resolved as expeditiously and cheaply as possible so that attention can be directed towards the substantive matters in dispute between the respective clients. In short, solicitors should, as far as possible, attempt to avoid themselves becoming the issue, which otherwise distracts and diverts attention from the substantive issues, and delays their resolution.
- The Committee considers that it would be prudent and appropriate for Firm A to cease acting for the husband in the family law proceedings.
- To summarise the Committee's position:
- There is no evidence before the Committee that Firm A has complied with Rule 11 ASCR, specifically that it has:
- obtained the informed consent (in writing) from all parties; and
- established an effective information barrier to ensure that confidentiality is maintained.
- The Committee is presently unable to express a concluded opinion on the nature of the confidential information held by Firm A in relation to the 2020 Conveyance and the extent to which it may be used against the wife. However, it appears that the outcome of the 2020 Conveyance is relevant to the family law dispute between the husband and wife.
- The requirement of the wife to identify the confidential information that she is concerned about does not displace or serve as a defence to a solicitor's or law practice's primary obligations under Rule 11 ASCR.
- Having regard to these reservations and the discretionary factors outlined in paragraph , the Committee considers that it would be prudent and appropriate for Firm A to cease acting for the husband in the family law proceedings.
- In addition to the issues identified above, the Committee considers that a fair minded, reasonably informed member of the public could conclude that the proper administration of justice requires Firm A 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. The Committee notes that this is an exceptional ground but there are facts that could raise the application of this ground.
- There is no evidence before the Committee that Firm A has complied with Rule 11 ASCR, specifically that it has:
1 Letter: Firm A to Queensland Law Society dated 17 August 2020. It is not clear from this statement whether the family law dispute arose before or after the husband and wife signed the contract of sale.
2 Firm B, 'Submissions to QLS' (10 September 2020)  ('Firm B Submissions').
3 Firm B Submissions, .
4 Submissions to QLS' (9 September 2020)  ('Firm A Submissions').
5 Firm A Submissions, .
6 Letter: Firm A to QLS dated 17 August 2020.
7 Rule 10 ASCR is the relevant rule when considering conflicts concerning former clients.
8 UTi (Australia) Pty Ltd v Partners of Piper Alderman  NSWSC 219, -.
9 Kallinicos v Hunt (2005) 64 NSWLR 561, 582 .
11 Queensland Law Society, The Australian Solicitors Conduct Rules 2012 in Practice: A Commentary for Australian Legal Practitioners (2014) 41.
12 Ibid 45.
13 Australian Solicitors Conduct Rules 2012, Glossary of terms (definition of 'client').
14 Maguire v Makaronis (1997) 188 CLR 449, 467.
15 Queensland Law Society, The Australian Solicitors Conduct Rules 2012 in Practice: A Commentary for Australian Legal Practitioners (2014) 44; Legal Services Commissioner v Taylor  LPC 003.
16 LexisNexis Australia, Solicitors Manual (online at 24 September 2020) [7025.10].
17 Re a Firm of Solicitors (No 2)  Ch 1, 9-0.
18 Law Society of New South Wales and Law Institute of Victoria, Information Barriers, Common Questions, Guidelines, Commentary & Examples (2006) Guideline 2.8.
19 Osferatu v Osferatu  FamCAFC 177, .
20 Ibid .
21 Ibid -.
22 Ibid .
23 Ibid .
24 Ibid .
25 Ibid .
26 Firm B Submissions, .
27 Osferatu v Osferatu  FamCAFC 177, .
28 LexisNexis Australia, Solicitors Manual (online at 24 September 2020) [7055.5].