Chinese wall crumbles in big litigation and Optus loses its lawyers 2 years in

Asia Pacific Telecommunications Ltd v Optus Networks Pty Ltd [2007] NSWSC 350 is a decision with wonderfully appalling facts. In the rush to agree consent orders before a directions hearing one morning, a megafirm sent a document to the other side which handed proof on a platter of a flagrant breach of a Chinese wall put in place less than 2 years earlier which had been unsuccessfully attacked by the other side at the time. Partners signing letters and court documents in large firms to the exclusion of all others is generally said to be a risk management exercise. In truth, a partner with no idea about a file will often be a worse choice of responsibility taker than a more junior lawyer who does know a lot about the file, as this sorry tale well illustrates. This was one of those moments when the file’s supervising partner was unavailable, and a solicitor cast around for another partner, any partner, to sign a document. One feels for the firm in this situation, between a rock and a hard place: it either says “Yes, the partner signed it but he didn’t really look at the document,” or “He gave it all appropriate attention despite the hurry, and inexplicably failed to notice the obvious fact that it was a document in the case he went to court about and promised to have nothing to do with.” The firm plumped, more or less, for the second alternative. Here, the Chinese wall had supposedly been operational for nearly 2 years between people in one location used to working with each other.

I hazard to guess that this particular megafirm would be keen to avoid further publicity for ethics violations after an unlucky run recently. So the announcement “I inadvertently signed orders on behalf of the new client in the matter which I swore the year before last in that conflict of interest hearing I would and could ensure I would have nothing to do with” would have been met at that week’s partners’ lunch with foul temper if not foul language. In the decision after the first application to enjoin the firm from acting for Optus for fear of the communication to Optus of confidences received in an earlier retainer, the court bought the prospective efficacy of the Chinese wall, in a liberal decision at odds with the strict guidelines proposed by the House of Lords in Bolkiah v KPMG. Though there was no suggestion that the formal act engaged in by the partner in the matter he swore he would have had nothing to do with involved any spillage of confidential information, the Court enjoined the firm from continuing to act on 2 bases, giving little regard to the substantial financial inconvenience of forcing Optus to get new lawyers 2 years into substantial commercial proceedings:

  • First, it found that there was now a real and not fanciful risk of misuse of the confidential information. That is, the infraction had diminished the court’s confidence since the first hearing sufficiently to tip the scales in favour of an injunction.
  • Secondly, it found that even if that had not been so, what had happened was so evocative of the appearance of a system of justice in which lawyers switching sides is tolerated as to invoke the inherent jurisdiction to restrain lawyers from acting in order not to bring the administration of justice into disrepute.

The firm had acted for a client in a claim against Optus, and had obtained information in the course of doing so which was confidential to the plaintiff in the present case. When Optus sought to retain the firm in the present matter, the firm’s file was locked in a cupboard to which there was only one key held by a person other than those working for Optus, and all those employees and partners who had had anything to do with the first retainer solemnly undertook not to have anything to do Optus’s defence, swearing affidavits left right and centre.

But when a solicitor needed a partner to sign minutes of consent order in a hurry on the morning of a directions hearing, he cast around the office and found a partner who signed them in the absence of the solicitor’s own supervising partner. Problem was, the partner was on the other side of the Chinese wall and had undertaken not to have anything to do with Optus’s defence, and the solicitor had been involved in the first conflict of duties injunction application, and should have known about the wall between him and the partner just as much as the partner should have. The partner did not notice from the subject of the email from the other side, or from the minutes of consent order themselves, which naturally made very clear who the parties to the proceedings were, that he was signing a document in the case in which the Chinese wall was operative. The firm later wrote to the plaintiff’s lawyer saying, in effect ‘Hey, Give us a break. We act for Optus in a lot of different matters, we just didn’t pick up that this formal bit of partner authorisation related to the particular Optus matter in which the Chinese wall was operating’, to which the other side not surprisingly said, in effect ‘Our point exactly: it’s just too confusing for you, and you must stop acting.’ Her Honour Justice Bergin does not seem to have warmed to the claim in the firm’s letter which characterised the infraction of the Chinese wall arrangements as of a ‘most minor and insignificant nature in the scheme of things’.

Justice Bergin observed that:

’35 The structure of the practising profession is that the more senior solicitors supervise the more junior solicitors. The consequence of this regime is that the experience and judgment of the more senior lawyer is observed by and communicated to the junior lawyer as that lawyer develops in the practice of the profession. One aim of such a structure is that the important aspects of daily legal practice, including protecting the client’s privileged information, will become second nature to the developing lawyer. It is not part of every day legal practice for a lawyer to have his or her knowledge from a case quarantined from another lawyer within the same section of the firm. The system of justice permits this unusual process in instances where the client’s right to have the lawyer of choice is not outweighed by a real risk of disclosure of confidential information of a former client to the present client. The quarantining of such knowledge is a somewhat ethereal concept that is not second nature to a lawyer and when it is permitted it needs very special care.

37 Much more should have been done to keep the level of consciousness as high as it was at the time of the swearing of the affidavits in the first application and the giving of the confidentiality undertakings. Whether that was by way of signage on doors or something more sophisticated does not matter, so long as the solicitors were assisted in their vigilance in honouring their undertakings and being true to their sworn evidence.

38 In this application [the firm] did not call any evidence of any steps the firm intended to take to ensure the heightened consciousness of the solicitors to their confidentiality undertakings and adherence to their sworn evidence. Neither [the partner] nor [the solicitor] gave any evidence of how they intended to avoid a repetition of this conduct in the future. Rather it seemed to be suggested in submissions that the experience of this application in itself would heighten that awareness so that there should be no concern that a further breach would occur. Theoretically that might be correct but unfortunately even the sworn evidence given in the first application did not keep the awareness at the required level. The rawness of the present experience will probably heighten the awareness of the need for vigilance but how long that might last is another matter.

39 The reality is that the solicitors were all working very hard with deadlines to meet and time constraints. Such is the life of a busy and successful lawyer. That will not change. I agree with [the plaintiff’s counsel’s] submission that compliance with undertakings relies upon those who are bound by them maintaining a consciousness of their requirements. In this case even the name of the case did not alert [the partner] to the prospect that he was about to breach his undertaking and act inconsistently with what he had stated in his affidavit. I agree that with time and with the intrusion of other pressing matters awareness will lessen. In the absence of any evidence of any new regime to keep the level of consciousness up I do have real concerns about the risk of disclosure in the sense identified by Bryson J, as his Honour then was, in D & J Constructions Pty Ltd v Head … (1987) 9 NSWLR 118 at 123:

… it is not realistic to place reliance on such arrangements in relation to people with opportunities for daily contact over long periods, as wordless communication can take place inadvertently and without explicit expression, by attitudes facial expression or even avoiding people one is accustomed to see, even by people who sincerely intend to conform to control.

40 There is obviously daily contact or at least the opportunity for daily contact between the solicitors who acted [in the earlier matter] and the solicitors acting for the defendant in these proceedings because they work in close proximity to each other. It is extremely difficult to compartmentalise knowledge that has been gleaned from confidential information and even more difficult to know whether such knowledge may trigger an inadvertent affirmative or negative response to a question posed by a colleague in general discussion about a case. The unfortunate inadvertent conduct of both [the partner] and [the solicitor] is a salutary lesson to the proponents of the advantages of information barriers as a mechanism for law firms seeking to retain “business” in this very competitive environment. It must be remembered that although there are “business” pressures on the operations of a law firm the duties of the lawyers are professional duties both to the Court and to the client. If the Court endorses the creation of an information barrier the professional obligations of the lawyers are onerous to ensure that it is maintained and that it is perceived to be able to be maintained. Such a barrier must be robust to justify such perception. In this case it has proved to be paper-thin at least in respect of one of its essential elements, the quarantining of the lawyers who acted [in the earlier retainer] from having any involvement in the present proceedings.’

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2 Replies to “Chinese wall crumbles in big litigation and Optus loses its lawyers 2 years in”

  1. I think Bergin’s judgment overstated the risk of confidential information being passed on and she was just getting on her high horse because she felt Clayton Utz didn’t take her previous orders seriously enough. It is really a bit much since the real effect was to punish the client for a slip which was, if anything, encouraged by the other side, as I read the case.

    Sam’s comment is a different point. Maybe the original judgment was off, though that is not so much a question of Bergin’s judgment as the state of the law in Australia. And of course the use of chinese walls will be over the objection of the original client, if the matter goes to litigation. What original client wouldn’t object if they could?

  2. Agreed, Bergin’s judgment the first time was off. Few Australian lawyers know – or care to know – that in most US jurisdictions the use of Chinese walls are generally prohibited without the consent of the former client. The common use of Chinese walls by Australia law firms, often over the objection of their former client, is earning the Australian market a reputation as a cowboy economy where basic tenets of professional responsibility are either relaxed or ignored. At least Bergin got it right this time.

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