Conflict of Interest and Lawyers' Ethics Richard H S Tur*
A recent Queensland case evokes fond memories of J. B. Morton - "Beachcomber" of the [English] Daily Express - at his whimsical best:-
Mr Justice Cocklecarrot began the hearing of a very curious case yesterday. A Mrs Tasker is accused of continually ringing the doorbell of a Mrs Renton, and then, when the door is opened, pushing a dozen red-bearded dwarfs into the hall and leaving them there.
For some weeks Mrs Renton had protested by letter and by telephone to Mrs Tasker, but one day she waited in the hall and caught Mrs Tasker in the act of pushing the dwarfs into the hall. Mrs Renton questioned them, and their leader said, "We know nothing about it. It's just that this Mrs Tasker pays us a shilling each every time she pushes us into your hall."
"But why does she do it ?" asked Mrs Renton
"That's what we don't know," said the spokesman of the little men1.
Australian Commercial Research and Development Ltd v Hampson2 is also a very curious case. The plaintiff had briefed fifteen Queen's Counsel to render an opinion on the same matter. In August, 1987 ACRD concluded a share placement agreement with the ANZ Banking Group and associates. ACRD was not satisfied with ANZ's performance and in July, 1988, its then solicitors (Cleary & Hoare) sought the opinion of Mr Hampson QC. The brief included some quite substantial documents and the question for counsel was whether there was sufficient evidence to warrant instituting proceedings against ANZ for breach. In August, 1988 Mr Hampson submitted a twelve-page opinion to the effect that on the material available to him there appeared to be the basis for a claim but, that material being based on an interpretation of events by ACRD's chairman, Mr Palmer, further detailed evidence was necessary to justify instituting proceedings.
Around that time Cleary & Hoare asked Mr Hampson if he would accept a brief to work full-time and every day on the case but this proposal apparently lapsed. Proceedings between ACRD and ANZ did come on as Action 924 of 1989 in the Brisbane Registry and Mr Hampson was offered a brief by Morris, Fletcher & Cross on behalf of the defendants in that action. At the time of this offer, Mr Hampson had only recently become aware that "the plaintiff had briefed more than ten Queen's Counsel to give an opinion on the same matter" and had only recently discovered from his records that he had given the plaintiff an opinion on the matter. Mr Hampson took the view that the plaintiff had sought multiple opinions with the intention of disqualifying those counsel from acting for the defendants in Action 924 by "cornering the market in Queen's Counsel".
Mr Hampson proposed to accept the brief offered by Morris, Fletcher & Cross subject to consultation with the President of the Bar Association, although he was sure that his "acceptance of the brief would not disadvantage the plaintiff". Having thus consulted, Mr Hampson wrote to Cleary & Hoare reminding them of his "preliminary opinion" and of the suggestion that he would be retained and briefed in any proceedings that might be instituted. He observed that proceedings had now been instituted and that the plaintiff had briefed other counsel. He advised that the defendants in Action 924 had now asked to retain him and he expressed his feeling that, since he had not actually obtained any confidential information which would disqualify him from acting, there could be no legitimate objection to his accepting the defendant's retainer. Accordingly, Mr Hampson sought confirmation that ACRD had no objection to his now acting for ANZ.
Perhaps unsurprisingly, this request was robustly knocked back by the new solicitors then acting for ACRD (Zaghini & Associates) who themselves objected "most strenuously" and advised that "our client is unable to agree to your acting in proceedings against it". Notwithstanding this rebuff, Mr Hampson responded to the effect that he proposed to accept the brief on offer from Morris, Fletcher & Cross and invited ACRD to take legal action to restrain him if it wished to prevent him acting. In light of the probable outcome of such action, it is difficult to see why the case proceeded at all, given the time, trouble and expense of hostile litigation and the risk of having to meet ACRD's costs. A fortiori, since it was sought to establish as a matter of law that Mr Hampsom be permitted to act contrary to normal and widely accepted ethical standards of the legal professions relating to confidentiality and conflict of interest.
A further significant aspect of the matter is a letter dated August 7, 1989 from the then President of the Bar Association to Zaghini & Associates. That letter duly reported Mr Hampson's request to the Bar Association that he be relieved of compliance with the ethical rule of the Bar Association which would in ordinary circumstances have obliged him not to act for another party in proceedings where he had already given advice. Further, the letter stated that the Bar Association Committee considered the briefing of fourteen other Queen's Counsel was an abuse of the retainer rules of the Association and that, accordingly, Mr Hampson would be relieved of compliance with the ethical rules of the Association in this case. This is a spectacular non sequitur: two wrongs do not make a right and the waiving of the normal ethical duties of Counsel is all the more questionable given that the Bar Association Committee had not even sought to determine whether there was any real risk that some subconscious or residual memory of the confidential material might trigger a line of thought detrimental to ACRD on the basis that "this was a legal matter for the court". Thus the Committee was willing to countenance and endorse a deliberate departure from a basic ethical requirement of practice even though this could well have turned out to be prejudicial to a fair trial of the issues between ACRD and ANZ.
It appears that in this instance the Bar Association favoured the interests of its own member over those associated with the administration of justice and it is self-serving conduct of this kind that excites legitimate criticism of self-regulation by the legal professions and fuels persistent demands for an independent and external system of ethics review and complaints handling such as is now under discussion in New South Wales3. The Law Reform Commission of New South Wales has proposed, among several options for consideration, a legal services commission independent of the legal professions in order that complaints be received and handled in a manner consistent with the public's perception of fairness, taking as its model the manner in which grievances concerning the conduct of health care professionals are now handled in that state.
In the event, Mackenzie J concluded that ACRD had made out a case (on the probability of real mischief test) for relief and expressed himself willing "if it be necessary" to make the appropriate orders. In reaching this conclusion, Mackenzie J. stated a number of propositions to be extracted from earlier cases which may be summarised as follows:-
1. That a legal practitioner has acted previously for a client does not, of itself, preclude that practioner from acting for another person in the same proceedings; BUT
2. A legal practitioner will be restrained from acting for the new client where confidential information has been obtained from the former client, AND
3. It is probable that real prejudice and real mischief will result; THEREFORE
4. Courts should take a cautious approach to allowing a lawyer to act against a former client where
(a) confidential information was communicated;
(b) that information is relevant to present litigation; and
(c) the information is still available to the lawyer, NOT LEAST BECAUSE
5. A lawyer changing sides during a case is very subversive of the appearance of justice being done.
Some comment on these principles is in order. First, they are concerned to state the applicable law and not the ethics of the situation. "Legalism" (in one sense of the word) is the belief that acting in accordance with the requirements of the law fully discharges all one's ethical obligations. Legalism is the minimalist position in lawyers' ethics. On such a view the "Good Lawyer" is one who acts in accordance with the law - no less but no more. Accordingly for the legalist, so long as it is legally permissible, it is ethically acceptable to act against a former client. As against which, law may be understood as establishing only minimum standards whereas professional ethics impose demands further and beyond the call of legal duty. On this view, that the law will not necessarily intervene in order to restrain a lawyer from acting against a former client does not mean that such acting is ethical. It means only that there is no overriding harm calling for the law's intervention. The morality of acting in such circumstances remains an open question, even where such acting is permitted by law. And on some strict interpretations of lawyers' ethics, acting in such circumstances may be considered unethical even where any prejudice to the original client is more of a theoretical possibility than a real probability4.
Secondly, the requirement of confidential information as a basis for judicial intervention is neutral as to questions of proof. In some instances the courts have been willing to presume from the existence of the lawyer-client relationship that confidential information has necessarily passed5. In other cases the courts have required that evidence be adduced in order to establish whether any confidential information was transmitted6. Certainly it was part of the argument put on behalf of Mr Hampson that as a matter of fact no confidential information had passed to him from the original client. On that basis there could be no legal objection to his later acting against the original client. In the event, Mackenzie J held that confidential information had passed to Mr Hampson in the course of his having acted for the original client.
Thirdly, as Mackenzie J properly noted although the "real prejudice" test is supported by the weight of historic case law, there is an alternative, more demanding criterion, founded upon the possibility of mischief rather than on the probability. This duality of criteria may be found even in the leading common law authority of Rakusen v Ellis Munday and Clarke7 by contrasting the opinion of Buckley LJ with that of the the other two judges, Cozens-Hardy MR and Fletcher Moulton LJ. The majority position in Rakusen has attracted criticism and there is now a clear judicial trend towards a more demanding standard.
That lawyers changing sides is subversive of the appearance that justice be done is well illustrated by another recent Australian case. In Mallesons Stephen Jacques v KPMG Peat Marwick and Others8 the central question was whether the plaintiff firm of solicitors should be prevented from acting for the Commissioner for Corporate Affairs in a pending prosecution against one Louis James Carter, among others. At all material times Carter was a partner in KPMG Peat Marwick and KMG Hungerfords. In September, 1988 Hungerfords sought and received the advice of Mallesons Stephen Jacques and various partners, including Carter, gave the solicitors confidential information. On September 19, 1989 Hungerfords terminated the retainer and paid the solicitors $6,800 for the work they had done.
On August 13, 1990 Mallesons Stephen Jaques were retained by the Commissioner to act as his solicitors in connection with the prosecution of certain criminal charges against Carter and three others (Messrs Connell, Lucas and Hugall). On September 25, 1990, Wallwork J granted Carter and Hungerfords an interlocutory injunction restraining Malleson Stephen Jacques from so acting for the Commissioner. The plaintiff solicitors then sought a declaration that it was entitled to act for the Commissioner and the defendants sought a permanent injunction. The Supreme Court of Western Australia (Ipp J) granted the permanent injunction sought by the defendants and held, inter alia, that it is against the public interest in the administration of justice to countenance a scheme whereby a group of partners within a firm of solicitors was able to represent a prosecutor in criminal proceedings in conflict with the duties owed by other partners to the accused person:-
The adversary system of criminal justice brings about an atmosphere of subtle tension in the court room which is an important part of the trial process. It is often the dynamics of that atmosphere that determines a jury's decision to believe or disbelieve a witness. In a trial involving serious charges, lasting many months, covering many complex issues, there could be an incalculable and prejudicial effect upon the state of mind, and therefore the demeanour, of a defendant who knows that prosecuting counsel has been briefed by the very firm of solicitors whom he previously consulted to advise him on several of the very issues which form the subject matter of the prosecution. Such prejudice would be intangible, but, nevertheless, very real9.
The case raises complex doctrinal and ethical issues about confidentiality, "chinese walls", and conflicts of interest and is worthy of careful study, but, pausing on the threshold, it is remarkable that this firm of solicitors ever contemplated acting in such circumstances and even applied to a court for a declaration that they were legally entitled so to act. On any view of this matter, the much-vaunted claim that the legal profession exhibits "high ethical standards" looks like so much rhetoric. Even if the court had ruled that acting was legally permissible, a serious ethical question would have remained. Subject to further explanation, it appears that in this instance, ethical imperatives were ignored or overridden by other considerations. Certainly Ipp J thought that it would "offend against established principle, and, indeed, the public interest in the proper administration of justice, if a scheme could be countenanced whereby a group of partners within a firm of solicitors was able to represent a prosecutor in criminal proceedings, in conflict with the duties owed by other of their partners to the accused person, to the mutual financial profit of all"10.
For nearly a century there has been some ambivalence in the case law about the appropriate test to be applied by a court of law in determining whether a lawyer will be legally restrained from acting against a former client. The concern is, of course, that what the lawyer learned in confidence in the earlier relationship may, wittingly or unwittingly, be used to the benefit of the new and the detriment of the former. As Mallesons Stephen Jacques illustrates, that concern must but intensify where an accused's right to a fair trial is compromised. On the one hand, dicta abound that the test requires the probability of mischief; on the other, there is considerable support for the view that any possibility of mischief suffices.
Since lawyers' ethical standards must at least equal the law, there can be no realm of lawyers' ethics independent of and different from the law unless lawyers' ethical standards exceed the law's requirements. One may regard the probability of mischief as the ground for legal intervention, restraining a lawyer from acting against a former client whilst regarding the possibility of mischief as the ethical basis for criticism and concern. On that view, the law will not intervene to prevent a lawyer from acting unethically unless there is a probability of harm11. Nonetheless lawyers remain open to criticism on ethical grounds where they act against a former client unless there is no possibility whatsoever of harm to the former client. The troublesome case of Rakusen may be explained on this basis and its ratio narrowly limited to its own extraordinary facts.
The case concerned a firm of solicitors in which there were only two partners, Munday and Clarke. Each was in the habit of doing business separately and without knowledge of each other's clients, i.e. they were in the habit of conducting business other than as a partnership. The plaintiff consulted Munday about litigation when Clarke was away and knew nothing of the consultations. The plaintiff changed solicitors and the other party to the litgation retained Clarke as his solicitor. The Court of Appeal refused to enjoin Clarke from acting for the other party but explicitly on the basis that Clarke did not act as a partner of the firm. Indeed, Mr Clarke's own name was at once substituted for that of the firm as solicitor for the plaintiff12. Furthermore, "The learned judge [Warrington J] was proceeding on this footing, and we [the Court of Appeal] are proceeding on this footing, that in this case danger of communication of secrets will not arise. Those are the learned judge's words. In that state of facts it appears to me that an injunction is impossible"13.
Another important consideration, flowing from the nature of a partnership, is that the knowledge of one partner is the (imputed) knowledge of all. It would avail nothing, in the light of this imputation, or fiction, that Mr Clarke was away and knew nothing of the consultations conducted by Mr Munday if the two solicitors actually conducted business as a partnership simply because each partner is an agent for the other. A very similar question came before Hodges J in Victoria almost exactly one year later in March, 1913 where he had to determine whether it was competent for one partner in a firm to enter an appearance to a writ issued by another partner. Commenting on a rule of court designed to prevent a solicitor acting for both parties in a contentious matter, Hodges J observed:-
What I have to decide is whether under that rule a solicitor may act for a plaintiff and his partner for a defenadant. I need not consider any peculiarities in the terms of the partnership or in the arrangments between members of the firm. The bald question is, whether, in spite of that rule, one member of a firm of solicitors can act for the plaintiff and another for the defendant. Now it is a matter of common knowledge that each partner is the agent of all 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. I do not think it is possible to get away from the outright, almost universal, character of the agency of partners, at any rate in the absence of some special provisions that do not trouble me here14.
This line of reasoning was explicitly applied by Frederico J in the Family Court of Australia in 1986. Here a solicitor, one Mr Dezarnaulds, had been a member of a firm (Marshall, Marks, Dezarnaulds and Jones) which had acted for Mr and Mrs Thevenaz jointly in respect of the sale and purchase of houses, including the matrimonial home. That firm was dissolved in March, 1986. Mr Dezarnaulds maintained, and the court accepted, that he had no independent knowledge of Mr Thevenaz's affairs; that a Mr Halliday had handled all the previous conveyancing transactions on behalf of the husband and wife; that Mr Dezarnaulds had no knowledge of these files; and that Mr Dezarnaulds had never met Mr Thevenaz. Notwithstanding the superficial similarilities with Mr Clarke's situation, Frederico J held that "on the basis of agency ... Mr Dezarnaulds is to be imputed as having all the knowledge of the parties and their transactions which may have been held by Mr Halliday"15. In these circumstances, Frederico J stated that he "would, if required, restrain Mr Dezarnaulds from acting on behalf of the wife and further restrain the wife from continuing to engage him as practitioner"16 even though the risk of prejudice to the husband was acknowledged to be "... more theoretical than practical"17 because "it is of the utmost importance that justice should not only be done but should appear to be done"18.
Ordinarily, therefore, where solicitors conduct business in partnership, the knowledge of one is the imputed knowledge of each or all. Rakusen does not throw doubt on that proposition because it is treated on its facts as a case where the solicitors were not actually conducting business as a partnership. There is a further important consideration put by Sir Robert Megarry in Spector v Ageda:-
A solicitor must put at his client's disposal not only his skill but also his knowledge so far as is relevant; and if he is unwilling to reveal his knowledge to his client, he should not act for him. What he cannot do is to act for his client and at the same time withhold from him any relevant knowledge that he has.19
These principles entail that a lawyer cannot readily act against a former client of the firm. Ordinarily all members of the firm have (imputed) knowledge of the affairs of the former client and all are subject to the ethical requirement of confidentiality in respect of that information. In taking on a new client with an interest opposed to that of the former client, the lawyer falls under a duty of loyalty to the new client which is sometimes put in terms of "zealous advocacy" but might be better put as a general duty faithfully to use best endeavours to further the client's interests. As Megarry observes, that involves putting one's knowledge as well as one's skill at the disposal of the client. And at that point a conflict of duties emerges in that the lawyer has a duty of secrecy in respect of information acquired from one client and a duty to use that knowledge to the advantage of the new client.
The problem of conflicts has been seen mostly as a matter of preserving confidentiality and information barriers such as "Chinese walls" and "cones of silence" have been developed in an attempt to preserve secrecy. However such devices cannot solve the conundrum of how anyone can discharge two conflicting duties: confidentiality to one, and loyalty to another. Despite the legal profession's proud claim to occupy the moral high ground, established ethical imperatives appear to be eroded especially by mega-firms anxious to retain clients despite the exponential tendency of conflicts as firms merge or expand by recruiting from other firms. The likelihood is that the legal standard (probability) will simply have to be raised to match the ethical (possibility) in order to avoid further erosion of public confidence in the administration of justice. In this respect, at least, self regulation does not appear to be working and ethical imperatives seem likely to be converted (by the courts) into legal standards.
This is well illustrated by a recent decision of the Canadian Supreme Court, Martin v MacDonald Estate (Gray)20. The Plaintiff brought an action for an accounting. The defendant's solicitor was assisted by a junior member of the firm who was actively engaged in the file and privy to many confidences disclosed by the defendant. Later this junior joined the firm representing the plaintiff. The plaintiff had been represented by that firm for years and was reluctant to change solicitors. Affidavits were sworn that the case had not been and would not be discussed with the new recruit. She also swore that she that she had not and would not betray confidences.
The sole issue was the appropriate standard to be applied in determining whether the plaintiff's firm was disqualified from continuing to act by reason of conflict of interest. A four judge majority held that the "probability of mischief" test is insufficiently high. The test adopted is that a reasonably informed person would be satisfied that no use of confidential information would occur. Such matters are not usually susceptible of proof and the majority adopted two presumptions. First, given a solicitor-client relationship the court should infer that confidential information had passed unless the solicitor could satisfy the court of the contrary but "This will be a difficult burden to discharge"21 Secondly, the court should assume that lawyers who work together share confidences, unless satisfied on the basis of clear and convincing evidence that all reasonable measures had been taken to prevent information seeping from the "tainted" lawyer to others. Mere undertakings and affidavits would never be enough and a court would be unlikely to accept "Chinese walls" or "cones of silence" as effective screening "except in exceptional circumstances"22.
Far reaching as this is, and sufficient though it was on the facts to disqualify the plaintiff's solicitors from acting, it did not go far enough for the concurring three judge minority. The majority had attempted to balance three competing values:-
(1) the maintenance of the high standards of the legal profession and the integrity of the judicial system; (2) the right of litigants not to be deprived of their counsel without good cause; and (3) reasonable mobility in the legal profession.
The three judge minority thought it less a balancing exercise and more a matter of priority: "Neither the merger of law firms nor the mobility of lawyers can be permitted to adversely affect the public's confidence in the judicial system ... it is fundamentally important that justice not only be done but appear to be done in the eyes of the public"23. Accordingly, this three judge group adopted irrebuttable presumptions, thereby imposing "a stricter duty upon lawyers".
In England, the Court of Appeal has recently addressed similar matters24 . Here, too, the court was divided, two judges favouring a test very similar to that adopted by the four judge majority in Martin:-
a firm of solicitors would not be permitted to act for an existing client against a former client if a reasonable man with knowledge of the facts would reasonably anticipate that the information gained while acting for the former client would be used against him.
The dissent, however, in this instance, adopted the more traditional approach of "some degree of likelihood of mischief", the test rejected by all seven judges of the Canadian Supreme court as too favourable. Indeed, of the ten judges who participated in the two cases discussed, nine thought it appropriate to go some way beyond the probability test, thereby imposing a stricter duty on lawyers and replacing internal ethical standards of the profession with external rules of law. Those who speak of the high ethical standards of the profession might reflect why it is that neither lawyers themselves nor their governing bodies have maintained such standards in the area of conflicts and why these questions are coming before the courts in common law jurisdictions with increasing frequency.
In both the cases just discussed so-called "Chinese walls" come in for judicial criticism and even those judges who would allow a solicitor to rebut the presumption of seepage of information take the view that Chinese walls would be effective only in the most exceptional circumstances. The judicial mood is well caught by Ipp J in Mallesons Stephen Jacques:
"... all the relevant partners and employees of Mallesons have undertaken to this Court that they will not disclose directly or indirectly to any person without the prior consent of Carter and Hungerfords any confidential information or knowledge acquired by each in the course of Mallesons acting for Hungerfords in September 1988. This is a practice that has become known as a "Chinese Wall".
The derivation of the nomenclature is obscure. It appears to be an attempt to clad with respectable antiquity and impenetrability something that is relatively novel and potentially porous. It is a practice that apparently emanated from the United States of America, having been devised by large firms of lawyers in an attempt to justify representation of conflicting interests at the same time...25
An interesting feature of both the Canadian and the English case, is the use that the courts make of the respective professional codes of conduct. The Canadian Bar Association Code of Professional Conduct, adopted in 1974 contains rules and commentaries thereon. A highly relevant passage is quoted in the report26:-
A lawyer who has acted for a client in a matter should not thereafter act against him ... in the same or any related matter, or place himself in a position where he might be tempted or appear to be tempted to breach the Rule relating to Confidential Information. It is not however, improper for the lawyer to act against a former client in a fresh and independent matter wholly unrelated to any work he has previously done for that person.
This commentary assists in reconciling an apparently divergent decision in Australia recently. So far as I understand Fruehauf Finance Corporation v Feez Ruthning27, I do not see it as any encouragement to those who are minded to attempt to set up Chinese walls to deal with conflicts. On its facts, this case appears to fall within the exception stated in the final sentence of the commentary cited above because the defendant was not seeking to change sides in the course of one proceeding but was acting in two distinct actions. The defendant, a firm of solicitors, was retained by the plaintiff to act on its behalf in the conduct of litigation. This retainer was carried out by the defendant entirely within one of a number of discrete "sections" into which its practice was organised, with any confidential information imparted by the plaintiff being communicated only within the bounds of the section. Some months later another section of the defendant firm, without any actual knowledge of the previous retainer, accepted instructions to act on behalf of another client in a second action, which was brought against the plaintiff. Confidential information which had previously been imparted by the plaintiff to the defendant firm appeared to be relevan to this second action. In these circumstances, the plaintiff sought injunctions restraining the defendant from acting in the second action, and from communicating the confidential information.
Lee J in the Queensland Supreme Court held that in order to determine whether a firm of solicitors should be restrained from acting in such cases there must be a balancing of various matters of public interest including: (1) the right of clients to seek and obtain legal advice without the apprehension of being thereby prejudiced; (2) the need for justice to be seen to be done which may be undermined if lawyers are seen readily to change sides; (3) and the right of clients not to have their choice of solicitor unduly restricted. Lee J held on the facts that there were discrete sections of a firm with no knowledge of each other's actions in effect acting as separate firms and that the defendant was not seeking to change sides in one proceeding but was acting, through separate sections, in two distinct actions. Accordingly, Lee J concluded that this was not an appropriate case to grant the injunction sought, though it was made a condition of the dismissal of the motion that the defe
ndant gave undertakings which would ensure that the plaintiff's position was adequately protected.
Although this reasoning was disapproved by Ipp J in Mallesons Stephen Jacques and although the grounds on which the case is assimilated to Rakusen and distinguished from Spector v Ageda
do not wholly convince, this decision has been taken by some reflective practitioners to legitimate "Chinese walls" and thereby to allow large firms to continue to service commercial clients with potentially conflicting interests. It may just be possible so to structure a large firm into several separate sections that each section is in effect a separate and independent firm. But such restructuring itself raises serious questions.
Genuine severance would actually reconstitute the large firm as several smaller firms. Anything short of that would still leave the large firm open to ethical criticism and legal action given, first, that the knowledge of any one partner is the imputed knowledge of all, and secondly, that a solicitor is duty bound faithfully to use best endeavours in the interest of the client. Furthermore, unless the discrete sections are not only separate but equal, the large firm of solicitors is choosing, through its managment partners, to allocate a poorer quality service to some clients. So it is far from clear just how far Freuhauf carries the argument in favout of Chinese walls, particularly in light of the cautionary note sounded by Lee J towards the end of his judgment:-
This decision does not mean that circumstances could not exist where it would be inappropriate for a firm of solicitors, including a large firm, to act for an interest against a former client. Such cases are usually clear. The good sense and integrity of those concerned generally resolve any such question without the need for litigation. Such a firm would simply decline to act28.
The observation that lawyers are honourable and will always act with good sense and integrity is an oft repeated refrain throughout the case reports in which Chinese walls, undertakings and assurances on quarantine are under consideration. No doubt lawyers are honourable and ordinarily to be trusted but the cumulative effect of reading again and again that they are calls to mind the ironies of Mark Anthony's speech in Julius Caesar29.
In the English case, reference is taken by Sir David Croom-Johnson to the Law Society's Guide to the Professional Conduct of Solicitors (1990) which deals very plainly with the matter:-
If a solicitor ... has acquired relevant knowledge concerning a former client during the course of acting for him, he ... must not accept instructions to act against him"30.
The [English] Law Society does not, however, regard its own rule
as absolute and, in further guidance, it allows that "in certain exceptional circumstances, however - and it is to be emphasised that the circumstances will indeed be rare - the best interests of the client(s) may permit the amalgamated firm to continue acting for one or, just possibly, both clients"31. The mechanism that might permit such acting is the Chinese wall but such information barriers are only appropriate where there is "an overriding and compelling need". The whole tenor of the judgments suggest that establishing such a need will be no easy matter. In D & J Construction v Head and Others (trading as Clayton Utz)32, Bryson J made the telling point, "Here in Sydney and now there is a thriving diverse and talented legal profession and the court need not fear that a litigant who is deprived of the services of one firm will not be able to retain adequate representation". Similarly Cory J, in the Canadian Supreme Court observed that "... the legal profession has many able counsel"33. The Websters, commenting on the position in Scotland, acknowledge that it can be argued that "in a city such as Edinburgh of Glasgow there is no reason why, if there is any question of conflict, a client should not be sent elsewhere"34
To the extent that this is not so for any particular jurisdiction the argument for erecting a Chinese wall within a partnership is the stronger and Chinese walls may be marginally more justifiable in, say, Singapore, where there may be only a small number of firms expert in the type of work in question than in, say, Sydney or Scotland. But in the majority of jurisdictions it is always going to be very difficult, perhaps impossibly difficult, to establish a compelling need to attempt to erect a Chinese wall rather than advise the client(s) to go elsewhere. But such ethically impeccable conduct has financial consequences and, at least sometimes, Chinese walls have been erected by and within large firms of solicitors as a means of retaining clients, perhaps because of long established loyalties or simply because no lawyer likes to lose a client, particularly one that generates substantial fee income. Economic imperatives therefore erode ethical standards and eventually law or some other external agency will step in to fill the gap if lawyers and their governing bodies do not act to stop ethical drift.
In dealing with the application to enjoin Mr Dezarnaulds from acting for Mrs Thevenaz, Frederico J cited a relevant passage from the New South Wales Solicitors Manual:-
The conflict of duty and interest often arises when a solicitor has to consider whether to act against a person when he has previously acted for that person as a client. The Law Society has always ruled in such matters that a solicitor should not act when it is possible that he may be regarded as having an obligation to respect privileged communications from his former client; and that he should always consider whether his duty to his former client will or may conflict with his interest. The principle that he should not act is not inflexible and where it is clear that there is no possibility of a former client's interests being affected, a solicitor may properly act against him. The question is one of fact and, in the final analysis, may be one for the solicitor himself to decide as a matter of conscience35.
As Frederico J observed, this does not provide an answer to the problem because Mr Dezarnaulds in good conscience had considered the matter and concluded that on balance he should act but Mr Thevenaz objected on the basis of a perception of prejudice. Frederico J then made another important point: "I must say that at first sight it appeared to me that in a case of this nature the matter should be resolved by the relevant Law Society"36. Ideally, questions about the ethics of acting should be determined by the governing bodies of the legal professions, after internal and external consultation where appropriate, without recourse to the courts. In meeting this demand, the governing bodies of the legal professions have no easy task to perform in providing ethical guidance, either by way of general rules and codes or by way of particular guidelines or examples. However, if the relevant governing bodies do not adequately discharge this function, it will inevitably pass to the courts and to the legislatures particularly in circumstances where legal practitioners lack public confidence.
In this context, the current Singaporean rules are instructive in that they leave something to be desired which cannot be any matter for surprise in that these rules were drafted more than half a century ago, long before the advent of the mega-firm. Mandatory Rule 54 states:-
An advocate and solicitor shall not represent conflicting interests, except by express consent of all concerned after full disclosure of the facts. A conflicting interest for the purposes of this rule arises when in behalf of one client it is his duty to contend for that which duty to another client requires him to oppose.
This is unsatisfactory in a number of ways. First, it is insufficently attentive to the possibility of conflict arising not as between two clients but as between lawyer and client as for example, in Doran v The Council of the Law Society of Scotland37 where a solicitor was censured, fined and named publicity was ordered because he had allowed his own interests to come into potential conflict with those of his clients. Suspension was not an option at the time of the disiplinary proceedings because the individual concerned no longer had a practising certificate and had given up lawyering for a career in politics. However, the Supreme Court of South Australia recently upheld a substantial period of suspension where a solicitor has acted in a situation where his own interests conflicted with those of his clients38.
Secondly, it does not adequately address the question whether any distinction falls to be taken as between representing clients in litigation and advising clients in commercial matters, a distinction which parallels that between contentious and non-contentious business. The modern mega-firm may have many corporate clients who turn to it for a wide range of advice but who may never become embroiled in litigation. Some reflective practitioners see no ethical problem in a firm representing such clients - a fortiori where all involved have consented - though, as a matter of commercial reality,there is at least a possibility that the interests of these clients might conflict. Clearly "Chinese walls" or discrete sections may provide information barriers sufficent to protect confidential information, sometimes of a highly sensitive nature and likely to be of use to commercial rivals. But such information barriers do nothing to ensure that the firm pursues the interest of all clients with the requisite degree of zeal. Choices must be made about the allocation of resources and talent to different clients and in the result one or other corporate client may be left with the distinct feeling that its interests are not being given the priority it rightly expects.
If a firm of solicitors represents both A and B as clients where both A and B are major players in the same sphere of economic activity there is a risk of conflict at some time in the future. If it is legitimate for a firm of solicitors to act only in the absence of conflict and if conflict is equated with litigation, actual or imminent, then it is in the firm's own best interests to avoid litigation ever ensuing between A and B. But that may be to put the firm's interest in retaining clients ahead of the interests of A or B or both in obtaining an early judicial determination of a dispute. Furthermore, agreement by A and by B that the firm can act for both cannot be taken to entail that the firm must be permitted to continue to act for both no matter what happens in the future. It is submitted that in light of the development of the mega-firm and the nature of its continuing relationship with its several corporate clients, the conflict rules require careful reconsideration.
It is further submitted that in this context the Scottish Code of 1989 puts the matter rather better:-
Solicitors (including firms of solicitors) shall not act for two or more clients in matters where there is a conflict of interest between the clients or for any client where there is a conflict between the interest of the client and that of the solicitor or the solicitor's firm.
In considering whether or not to accept instructions from more than one party and where there is potential for a conflict arising at a later date, solicitors must have regard to any possible risk of breaches of confidentiality and impairment of independence. If, having decided to proceed, a conflict should later arise solicitors must not continue to act for all the parties and in most cases they will require to withdraw from acting for all of the parties. There may, however, be certain circumstances which would result in a significant disadvantage to one party were the solicitor not to continue to act for that party and there is no danger of any breach of confidentiality in relation to the other party. In these very special cases, the solicitor may continue to act for one party.
The only reservation that one might have with this provision is that it does rather constitute an invitation to act for two clients with potentially conflicting interests in the hope that should an actual conflict ultimately emerge the significant disadvantage to one party would allow the lawyer to go on acting at least for one client. That might encourage some lawyers to take a rather benign view of the ethical requirements in the Code. However, on balance, this provision would permit and render ethical much of the commercial advice business offered
by some firms to their numerous corporate clients.
Ordinarily where a conflict arises the lawyer should cease to act for both clients39. That in itself should deter firms from acting too readily in a situation of potential conflict if only on the economic argument that it is better to secure one set of fees than to seek two and risk receiving none. Furthermore lawyers have a duty to avoid placing themselves in such a relation as might lead to there being even an unwitting breach of duty40 but without an adequate definition of conflict, particularly in respect of commercial advice, some lawyers can legitimately find themselves in difficulties and confused whilst others can exploit these uncertainties and erode the boundaries of acceptable conduct in the name of responding to the pressures of commercial reality.
Ethically, the lawyer should be very cautious about about ever acting against a former client but the ethically more difficult question is how far can a lawyer (or a firm) legitimately service two (or more) clients concurrently who may, but may not, have conflicting interests some time in the future. Here, the received wisdom, at least among practitioners servicing such clients is that the likelihood of conflict should be real and not fanciful and that to diapprove of acting in a situation of "potential" conflict is too extreme because the likelihood may be very remote. Guidance can now be reformulated in the light of the majority opinions in the Canadian and English cases already discussed in this essay and adapted to address the situation of concurrent as opposed to consecutive clients:-
A firm of solicitors is not permitted to act concurrently for two (or more) clients if a reasonable person with knowledge of the facts would reasonably anticipate that the information gained while acting for one would prejudice the other or if a reasonable person with knowledge of the facts would reasonably anticipate a real possibility of conflict.
It is for the reflective practitoner, the engaged academic, and the governing bodies of the legal professions to elaborate, develop and give detailed meaning to such a general principle. Lawyering inevitably involves judgment calls and reasonable people may reasonably differ at the margins as to what is ethically permissible. Nonethless, a lawyer should be extremely cautious about acting in circumstances where a well-informed reasonable person would reasonably anticipate prejudice to a client or conflict between clients.