The little guy in the centre is Lord Justice Mummery of the English Court of Appeal, an Oxford man shown here awarding some trophies at Oxford. He wrote the lead judgment in Gus Consulting GMBH v LeBoeuf Lamb Greeme & Macrae [2006] EWCA 683 handed down in late May. The American law firm against which the injunction was sought wheeled out Lord Neill of Blanden QC, a former judge, Vice-Chancellor of Oxford, Chairman of the Bar Council, Chairman of the Senate of the Inns of Court, Chairman of the Press Council, director of The Times, legal adviser to the Synod of the Church of England, and Chairman of the Committee of Enquiry into Regulatory Arrangements at Lloyds. About as English as a pork pie, and a one-time member of the Committee on Standards in Public Life to boot. He got a difficult argument across the line.
A law firm discovered that it was acting in a dispute “which involve[d] a consideration of work they themselves did for those clients [7 to 8 years previously] and an attack on the honesty and integrity of their former clients in those very transactions”. Worse, the conflict had been missed when the lawyers who were mounting the attack on the former client joined the firm, bringing the new client with them. But until the conflict was noticed, the month after the lawyers’ move, the new members of the firm had been oblivious to the work previously done by it for the people they were now attacking, and steps were quickly put in place to prevent any access to the former client’s files. The Court refused an injunction sought by the former client enjoining the firm from acting against it, finding the Chinese wall to be efficacious. This is a case which falls squarely within what is governed by the Victorian Court of Appeal’s duty of loyalty to former clients: the taking up of cudgels against a former client in relation to the same or a related matter.
Having read many conflict cases, I strongly suspect cases involving mergers result in injunctions much more rarely than others. Furthermore, the fact that the injunction would have resulted in the loss to the new client of a legal team which had obviously been engaged for 3 years in a complicated dispute must have been a matter of great influence, though it is an entirely hidden factor in the reasons.
So the former client cannot enjoin its former lawyers from taking up the cudgels against it in a related matter. But what is to stop the new client of the firm from suing it for breach of the duty of disclosure (which is the duty which conflicts with the duty to keep the former client’s information confidential in these kinds of cases) when it fails to disclose that which it has undertaken to the Court not to disclose though it is relevant and “goes to the heart of” a key issue in the arbitration?
The Court of Appeal approved of the reasons the judge at first instance gave for finding the firm had discharged the “heavy burden” of proving that there was “no real risk of of disclosure and misuse of confidential information”. They summarised those reasons as follows:
“12. First, measures had been taken by [the firm] to deal with the risk of disclosure and misuse of confidential information. On 5 August 2005 [it] had erected an “ethical wall” (Chinese wall) preventing [the merging lawyers] from having access to any relevant [files of the former client] in hard copy form or held electronically. In September 2005 the ethical wall was extended to preventing all employees from having access to the files. ([The firm] had had an ethical wall policy in place for many years, at least from 1987, and was familiar with the procedures to be followed when setting up ethical walls to deal with particular situations).
- Secondly, there was unchallenged evidence from [the merging lawyers] that they did not know that [the former client was a former client] of [the firm] until it was brought to their notice by [the former client’s] solicitors…; that none of them had any idea that there were any documents produced for [the former client] in [the firm’s] possession relating to the matter in issue in the arbitration; and that none of them had any reason to inquire after any documents, which they did not know existed.
- The judge said that he was satisfied by unchallenged evidence from … that the firm had
‘a conscientious and sophisticated ethical wall system, as one would expect from a firm of their standing. It is also clear that what I will call the Marriott team, all of whom have sworn witness statements, would not seek access to any of that material, but that, if they did, they would not get it.’ …
- Thirdly, there were witness statements from partners in [the firm] about the work done for [the former client and subsidiary] companies in relation to share transactions in the 1990s …. The judge noted [the firm’s] unchallenged evidence on the extent of the ethical wall and the unquestioned integrity both of those engaged on the arbitration and of those who had received potentially confidential information when acting for [the former client] about matters that had happened a long time ago.
- Fourthly, after the end of oral argument but before judgment, [the firm] offered undertakings to the court as follows …
” (1) [The firm] will issue an instruction to partners and staff formerly involved in [the former client’s] work that they will not discuss that work with any member of the arbitration team or amongst themselves. Evidence has already been given by the persons concerned that they have not and will not discuss the restricted matter with the arbitration team.
(2) Within seven days of today’s date, [the firm] will cause changes to be made to its working arrangements so that the arbitration team will not occupy office space on the same floor as those who had previously worked for [the former client] and are still with the firm … two of whom are already physically separate from the arbitration team.”
- The judge concluded … that, subject to formal undertakings in terms acceptable to the court, [the firm]
” …will just have succeeded in showing that the risk is on the theoretical side of the line. The obligation and the burden on [the firm] is of course a heavy one, but the ethical wall is as adequate as any. The absence of a wall at the outset, if one accepts, as everybody does, the truth of the witness statements, did not result in the arbitration team learning anything at all about [the former client]. There are three people working closely with [the arbitration team] who had information at some point from [the former client]. Memories can be revived, and I accept the force of what [the former client’s counsel] says in relation to careless talk based on the authorities to which he referred me. There are inevitably accidental disclosures occurring in unforeseeable ways in any law firm. But the work here was done some years ago. It is transactional work, not likely to rush to the front of the mind in the same way as what litigators would see as the rather more exciting matters with which they deal. The absence of physical separation is a concern, so far as inadvertent disclosure is concerned, which can be allayed by undertakings in appropriate terms. But, above all, where one has the testimony of these lawyers as to how they are going to conduct themselves and the ethical walls, and weighs that up against the risk of careless talk, it seems to me that the solicitors will, after giving undertakings to the court which they know to be enforceable by contempt proceedings, keep confidential whatever they can remember.”
- The judge said that two particular considerations had tipped the balance against the grant of an injunction. First, as he had noted earlier, the situation involved information relating largely to transactional matters conducted ‘some years ago.’ It was different from the risk of disclosure in a situation arising ‘when someone with current knowledge of a piece of litigation switches to the other side.’
- Secondly, a robust approach to drawing a sensible line on matters of client confidentiality was justified on the authorities (see paragraph 53 of [Koch v. Richards Butler [2002] EWCA Civ 1280; [2002] 2 All ER Comm 957]).
- The order made by the judge contained the following undertakings by [the firm] to the court:-
‘1) By 5pm on Friday 4 November 2005 the [firm] will cause changes to be made to its working arrangements at its London offices so that the Arbitration Team ([they are named]) will not occupy office space on the same floor as those who have previously carried out work for [the former client] and are still with the [firm] [they are named] (“the relevant partners and staff”);
2) The Defendant will, as soon as is reasonably practicable, issue an instruction in writing by e-mail to the relevant partners and staff that they are not to discuss that work with any member of the Arbitration Team or amongst themselves;
3) None of the Arbitration Team will seek any information about [the former client] from any of the relevant partners and staff, nor seek access to any paper or electronic files concerning [the former client];
4) None of the relevant partners and staff will discuss [former client] work amongst themselves or with any member of the Arbitration Team;
5) The Defendant will until otherwise agreed by the Claimant or approved by the Court;
(a) at all times maintain the ethical wall presently in place
(b) take reasonable steps to monitor the effectiveness of the ethical wall
(c) take reasonable steps to monitor compliance with undertakings (2)-(4) set out above.
6) The Defendant will, during the months of April and October of every year during the currency of [the arbitration]
(a) issue a fresh instruction repeating the instruction in paragraph (2) above,
(b) verify that there has been no breach of the ethical wall presently in place, and that the integrity of the ethical wall is maintained
(c) notify the Claimant in writing that it has taken the steps referred to in 6) (a) and (b) above.'”
