Information barriers

Babcock & Brown DIF III Global v Babcock & Brown Int'l Pty Ltd [2015] VSC 453

Introduction

An Application (‘the Application’) was brought to restrain a practitioner and the practitioner's current employer from continuing to act for a plaintiff (P), on a matter (a claim for damages and compensation relating to an investment made by P - ’the Claim’) in which her former employer was acting for the defendant (D). The grounds argued were that the practitioner was in possession of confidential information about D, obtained when she was employed by her former employer, which was relevant to the matter and which could prejudice D's interests.

The Facts

The practitioner was employed by her former employer between 2010 and 2012, during which time she worked on several files relating to insurance matters, for which D was the client. She also allegedly reviewed and advised on material related to an earlier action, 'the NSW proceeding' (which was an action similar to the Claim, dismissed on jurisdictional grounds), and reviewed confidential material related to D's settlement and mediation strategy.

She ceased working for the former employer, and commenced working for the current employer, in mid-2012.

The Claim was lodged in November 2013. When the former employer realised, in December 2014, that there was a potential conflict of interest, the practitioner had already been working for the current employer on the matter for some time as a senior associate. The former employer wrote to the current employer setting out its concerns about disadvantage to its client D, but the current employer, after performing an internal investigation, advised that there was no conflict of interest in both the practitioner and the firm remaining on the case. Numerous letters passed between the two, but agreement was not reached, and on 1 April 2015, the Application to restrain the practitioner and current employer from acting was filed.

By 8 April, the practitioner had been taken off the file, and on 15 April she had signed an undertaking not to disclose or use any currently or newly recalled information relating to D. Her current employer also proposed that it would implement an information barrier. However, the former employer was not satisfied, and eventually insisted that the current employer withdraw from the matter completely. When the current employer refused, the application proceeded to a hearing.

Findings

The Court reviewed various tests for determining when a lawyer should be restrained from acting, including tests from:

• Re a Firm of Solicitors: Whether a reasonable man informed of the facts might reasonably anticipate a danger of breach of the duty of non-disclosure of confidential information;¹
• Mallesons Stephen Jacques v KPMG: Whether a ‘real and sensible possibility’ of a conflict existed;²
• Bolkiah Prince Jefri v KPMG: Confidential information must be in possession and must be relevant to a new matter, and adverse to the party owning the information. If established, the onus is on the party holding the information to demonstrate that there is no risk of disclosure of the information;³
• Sent v John Fairfax (‘Sent’): there must be a real and sensible possibility that the interest of a practitioner in advancing the case might conflict with that practitioner's duty to refrain from using the information to the detriment of a former client.⁴

The tests eventually used were a combination of those propounded in the latter two cases (at [70]).

On the facts, his Honour concluded that D had proven that any information retained by the practitioner was confidential, however the only information he accepted as being in her possession was related to insurance matters, which was held to be unlikely to be sufficiently relevant to justify disqualification.

On the question of risk of future disclosure of confidential information, it was noted that:

• when employed at the former employer, the practitioner was a very junior solicitor, she was given specific tasks as directed and had no involvement with decision making or strategy;
• the practitioner gave evidence that she had no recollection of the confidential information she allegedly possessed, and his Honour accepted her as a credible witness (cross-examination was strenuous);
• the concern that the practitioner might recall information when prompted by new relevant facts (determinative in Sent) was rejected, as she was already removed from the file and had made appropriate   undertakings;
• in any case, any recalled memory was likely to be fragmentary and of limited concern (at [80]).

On the question of confidential information potentially already disclosed, His Honour was satisfied that there was none, based on the practitioner's peripheral role in previous proceedings, combined with a lack of relevance of any known information, and backed by unchallenged evidence from the current employer that no confidential information had been communicated (at [82]).

Issues contradicting disqualification were considered by the Court, including:

• the public interest that a litigant not be deprived of his or her choice of lawyer without good cause;
• the modern trend of movement of lawyers between large firms meaning that many lawyers will inevitably have confidential information from their previous positions. A disqualification rule that is too strict could seriously curtail their careers;
• substantial costs would be incurred by clients in having to engage new lawyers, so there is a public interest in keeping disqualification to a minimum, especially if confidential information can be protected by other means (at [83]).

An 'administration of justice' argument was also raised by D, that if a fair-minded, reasonably informed member of the public would conclude that a solicitor be prevented from acting, then it should be done, on the basis of the Court's inherent jurisdiction.⁵ This submission was rejected, as it was held that such a member of the public would not so conclude on the facts (at [88]).

Subject to the implementation of appropriate information barriers (the Court approved of the Guidelines issued by the Law Society of NSW and the Law Institute of Victoria)⁶ and the receipt by the court of appropriate undertakings from the practitioner to ensure that any confidential information remained confidential, the application was dismissed. 

1 [1992] QB 959.