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The Jersey Law Review – October 2006

ASPECTS OF A LAWYER’S DUTY OF CONFIDENCE

Timothy Le Cocq and Edward Mackereth

Introduction

1       It is well known and understood that a lawyer owes his client a duty of confidence. What perhaps is not so clearly understood is the extent to which this duty survives the end of the lawyer-client relationship.  What are the consequences in a small jurisdiction when a lawyer is subsequently asked to act for a new client where the information acquired whilst acting for his former client might be relevant? In this brief article we explore aspects of a lawyer’s duty of confidence to a former client.

2       What duties, then, does a Jersey lawyer owe to his former clients, once his retainer by them is at an end?  The fiduciary duty that a lawyer owes to an existing client comes to an end with the retainer, but lawyers owe a continuing duty to former clients in respect of confidential information belonging to those former clients. In certain cases that duty will prevent lawyers from acting for other parties whose interests conflict with those of the former client.  What is the scope of this residual duty?

The principal case law

3       The principal Jersey authorities dealing with duties of confidence are Les Pas Holdings v Receiver General[1] and Hirschfield v Sinel & Co.[2] Interestingly, these two cases straddle the main English authority in this area, namely the leading judgment of the House of Lords in Prince Jefri Bolkiah v KPMG.[3] As a result Les Pas Holdings (which adopted the then current English authorities[4]) was approved and updated by Hirschfield, which cited and adopted their Lordships’ statements in Prince Jefri. These three cases provide the cornerstones of the guidance available to Jersey practitioners in respect of duties of confidence owed by lawyers to former clients (even though Prince Jefri was actually concerned with duties owed by accountants).  More recently, the English Court of Appeal in Marks and Spencer Group Plc v Freshfields Bruckhaus Deringer[5] has provided additional guidance on the application of the principles within a commercial context. 

4       Looking rather closer to home, the Guernsey Royal Court in Cockram v Moed[6] (considered in Le Pas Holdings) and Credit Suisse (Guernsey) Limited v Ozannes,[7] and the Guernsey Court of Appeal in Beetle Holdings Ltd v Ozannes[8] provide us with useful recent commentaries on the issues and an approach as to what (if any) consideration should be given to fact that the principles have to be applied to a relatively small bar.

5       Finally, the Guernsey case of Dinning v Ferbrache[9] provides food for thought as to what duties of confidence practitioners may owe to people who have never been clients, but whose confidential information the practitioners have come into possession of during the course of a retainer with a third party.

The duty of confidence

6       The duty of confidence which survives the end of a lawyer’s retainer is distinct from the fiduciary duty which a lawyer owes his client during the retainer. Once the retainer is at an end, the fiduciary duty to defend and advance the client’s interests falls away, but the duty of confidence remains. 

7       The importance of trust within the lawyer-client relationship and the imperative that the client can feel sure that whatever secrets he tells his lawyer will remain secret even after the retainer is at an end lies at the heart of this continuing duty of confidence.  This trust, and the importance of the lawyer being able to demonstrate that his actions will not violate that trust, was emphasised by Lord Millett in Prince Jefri -

“It is of overriding importance for the proper administration of justice that a client should be able to have complete confidence that what he tells his lawyer will remain secret.  This is a matter of perception as well as substance.  It is of the highest importance to the administration of justice that a solicitor or other person in possession of confidential and privileged information should not act in any way that might appear to put that information at risk of coming into the hands of someone with an adverse interest”.[10]

An unqualified duty

8       The extent of the lawyer’s duty to preserve confidentiality was held by Lord Millett in Prince Jefri to be “unqualified” and to be a duty “to keep the information confidential, not merely to take all reasonable steps to do so”.[11]  This extends beyond a duty not to reveal the information to others directly, and the former client is entitled to know that no advice given by the lawyer to a subsequent client “is influenced in any way by the knowledge [the lawyer] has of the [former client’s] affairs as a result of its relationship with the [former client] as its client, even if [the lawyer] does not directly reveal the information” (per Kay LJ in Marks and Spencer).[12]

9       Although Lord Millett accepts that there is no way to protect a former client from accidental or inadvertent disclosure, he held that the former client -

“is entitled to prevent his former solicitor from exposing him to any avoidable risk; and this includes the increased risk of the use of the information to his prejudice arising from the acceptance of instructions to act for another client with an adverse interest in a matter to which the information is or may be relevant”.[13]

10     Lord Millett sets a two stage test for the former client who seeks to restrain his former lawyer from acting in a matter for another client. The former client must establish -

“(i) that the solicitor is in possession of information which is confidential to him and to the disclosure of which he has not consented and

(ii) that the information is of may be relevant to the new matter in which the interest of the other client is or may be adverse to his own”.[14]

Lord Millett explained that the initial burden of proof, although “not a heavy one”, is on the plaintiff, and said that of the two stage test above, “the former may readily be inferred, the latter will often be obvious.”[15] 

The nature of the information held

11     It may, of course, be difficult for the former client to specify exactly what confidential information his former adviser has in his possession and exactly how that information might be used to that former client’s disadvantage.  The case law suggests, however, that even in circumstances where the former client does find it difficult to specify an exact document that would have a specific negative impact if used against him, the courts will be ready to infer the existence of such information where appropriate. 

12     In his judgment at first instance in Marks and Spencer,[16] Lawrence Collins J made reference to the sort of confidential information which lawyers, in this case the English firm of Freshfields, would have received. Significantly, this was not limited to obviously confidential information such as terms of supply contracts, dependency on suppliers and terms of senior management contracts, but also included Marks and Spencer’s attitude towards them and its resulting policies - i.e. information about how the management of the business thought, and how this was reflected in the way they ran the business. The court also made specific reference to the knowledge that Freshfields would have acquired as a result of acting for Marks and Spencer in litigation (unrelated to the matter in question) that involved a substantial disclosure exercise.

13     The English Court of Appeal approved the first instance decision of Lawrence Collins J and his comment that there was “obviously a huge amount of confidential information within Freshfields in relation to Marks and Spencer’s affairs through acting for it over the years…  There must be very many Freshfields people with knowledge of Marks and Spencer's confidential information.”[17]

14     Both the court at first instance and the Court of Appeal decisions in Marks and Spencer make express reference to the fact that in the preceding years, Freshfields had earned somewhere between £1 million and £1.5 million in fees from Marks and Spencer.  It appears that where a firm has charged a client significant sums a court will be more ready to infer that that firm will be in possession of confidential information belonging to that client.

15     In Les Pas Holdings the Royal Court held that information which related to “the general commercial and financial affairs of the plaintiff company”[18] could fall within the definition of confidential information and be sufficient to prevent a firm acting for the former client’s adversary.

16     The attitude of the Royal Court towards confidentiality in the context of information given to lawyers is set out in Re an advocate[19] which concerned a situation in which an advocate made use of papers in a client’s file for his own purpose.  The papers were already in the public domain and the advocate could have obtained them elsewhere (albeit not as quickly).  Notwithstanding that, the Royal Court suspended the advocate for two months on the basis, amongst others, of a breach of confidential information. The court emphasised that “Any client is entitled to feel sure that information about his private affairs that he gives to his lawyer in confidence will not be used for purposes other than his own interests”.[20]  The fact that the information was in the public domain, or could have been obtained on request from the Planning Department, was not considered by the court to be of major significance. Although it is submitted that the existence of information which is already in the public domain could not be used by the former client to restrain a lawyer from acting for another party, the case is instructive as to the degree to which the Royal Court will move to safeguard the expectation of clients that information that they have imparted to their lawyers in confidence will remain confidential.

The relevance of the information

17     In Prince Jefri the House of Lords stated that it is for the plaintiff to establish that the solicitor/advocate is in possession of confidential information which “is or may be may be relevant”[21] to the matter in which the new client’s interests are adverse to the plaintiff’s, but also indicated that the burden in doing so was not a heavy one.

18     Indeed, in Marks and Spencer, Lawrence Collins J appears to have accepted a very low threshold of relevance when he refers to information that “is plainly material… if only to be discarded as not being sufficiently important”[22] as being the kind of information which should be protected.  In conjunction with his reference to confidential information including, amongst other things, more intangible items such as the client’s policies and attitudes towards its contracts, it appears that lawyers attempting to convince a court on English principles that they do not have potentially damaging confidential information where they have acted extensively for a former client, will face an uphill struggle.

19     The approach of the English courts to confidential information, as shown in Marks and Spencer, is generally entirely consistent with that of the Royal Court in Les Pas Holdings; namely that such information does not need to consist of specific items of information which have direct relevance and impact on the other party.  It can consist of more general commercial information “linked to… the general commercial and financial business affairs of the plaintiff”[23]which could (perhaps unwittingly) affect the lawyer’s handling of the case, or assist the other party in the way it conducts the dispute in question. 

20     The one area of difference between the English and Jersey case law in this context is in respect of the knowledge attributed to individual partners within a firm. Lord Millett held that in considering whether confidential information was in the hands of a particular lawyer, “there is no cause to impute or attribute the knowledge of one partner to his fellow partners”,[24] so that whether or not a lawyer had possession of the confidential information was a matter of fact to be proved in each case. The Royal Court in Hirschfield (having before it the judgment in Prince Jefri) disagreed, preferring the approach taken in the English Partnership Act 1890 s16 by which “notice to one partner is notice to all”.[25] It might be thought that such a departure from their Lordships’ thinking, though rare, is justified here by the size of the jurisdiction and the relatively modest size of even the largest Jersey partnerships. In very large English firms it might be the case that some partners would never even meet certain of their fellow partners. That is not the case in Jersey and, it is submitted, the principled approach of the Royal Court is to be preferred.

21     The attitude of the Guernsey Royal Court also shows a consistent approach to the level of materiality.  In Credit Suisse[26] the applicant complained that the firm of advocates, through previous instructions on contentious or potentially contentious matters (including trust litigation, document production orders and Norwich Pharmacal orders), was privy to the approach and strategic thinking adopted by the applicant when dealing with contentious matters.  The Court held that “knowledge gained by [the firm]over many years of acting… must give rise to a reasonable apprehension in the mind of the applicant that if [the advocate in question] continues to act there is a real risk that confidential information and information indirectly obtained concerning the likely approach of the applicant to settling claims of ex-employees will be misused”. In that case, it appears that whilst the advocates had advised on two employment-related matters (albeit with factual matrices which may not have touched on the matter then in dispute), the Court’s decision was based on the entirety of the matters advised upon and, significantly, whether it would give rise to a “reasonable apprehension”[27] in the mind of the former client.  It is submitted that this approach is correct, as there would inevitably be a reasonable apprehension on the part of a former client that knowledge of its general approach to litigation could be useful to its opponent regardless of the precise ambit of the particular litigation.

The degree of risk of misuse of information

22     In Prince Jefri the House of Lords stated that once it is established that the lawyer is in possession of confidential information which may be relevant to the matter in which the new client’s interests are adverse to the plaintiff’s interests, the evidential burden shifts to the lawyer “to show that there is no risk that the information will come into the possession of those now acting for [the new client]” (per Lord Millett).[28]  

23     When considering the degree of risk of disclosure that must exist in order to trigger a former client’s right to protection, Commissioner Southwell in Hirschfield,[29] once again cited with approval the decision in Prince Jefri, which stated that -

“It is difficult to discern any justification in principle for a rule which exposes a former client without his consent to any avoidable risk, however slight … Many tests have been proposed in the authorities.  These include the avoidance of ‘an appreciable risk’ or ‘an acceptable risk’.  I regard such expressions as unhelpful; the former because it is ambiguous, the latter because it is uninformative.  I prefer simply to say that the court should intervene unless it is satisfied that there is no risk of disclosure.  It goes without saying that the risk must be a real one, and not merely fanciful or theoretical.  But it need not be substantial” (per Lord Millett, emphasis added).[30]

24     In Beetle, the Guernsey Court of Appeal considered that the Court should intervene “unless there is no real risk” (per Southwell JA).[31]

25     In the English case of In the Matter of a Firm of Solicitors,[32] it was stated that the burden on the lawyer of showing that the risk of inadvertent disclosure of relevant information is not real and is no more than theoretical is “a heavy burden”.[33] 

26     The Court of Appeal’s view in Marks and Spencer was that the former client “is entitled to know that any such advice cannot possibly be influenced in any way by the knowledge that the [other party] has of its affairs as a result of its relationship with the [solicitor] as its client, even if the [solicitor] does not directly reveal the information to the [other party]”.[34]

The test for risk of breach of confidence

27     In Les Pas Holdings, (cited with approval in Hirschfield), the Royal Court held that the test for deciding whether the duty owed by an advocate to a former client is at risk of being breached is whether such a breach can reasonably be anticipated. The test adopted in Les Pas Holdings for assessing whether this threshold has been reached was that set out by Parker LJ in Re a firm of solicitors -

“If a reasonable man with knowledge of the facts would say ‘If I were in the position of the objector I would be concerned that however unwittingly or innocently, information gained while the solicitor was acting for me, might be used against me’, the court in my judgment can and should intervene.  Were it not to do so the court would be permitting to exist a situation of apparent unfairness and injustice.  That this should be avoided is in my view every bit as much a matter of public interest as not unnecessarily restricting parties from retaining the solicitor of their choice.”[35]

Negating the risk

28     Assuming that the court is satisfied that the plaintiff has satisfied the two stage test referred to in paragraph 9 above, how can the defending lawyer satisfy the court that there is in fact no risk?

29     Law firms have traditionally sought to rely on “Chinese walls” to demonstrate that information is ring fenced within a particular area within the firm. A “Chinese wall” is a system designed to ring fence sensitive information within a specific section of an organisation (in this case a law firm).  It may, in basic cases, amount to little more than an internal policy that certain people within the organisation alone will have access to the information, and the information might be placed in separate files, and locked away in separate cabinets (although query whether such a basic system would ever satisfy a court looking to assess the effectiveness of a Chinese wall).  In more sophisticated examples one might relocate the holders of confidential information to a separate location with a separate computer server and administrative back up whilst the matter was current. In Prince Jefri, however, the House of Lords held that although there is no rule to the effect that Chinese walls are insufficient, the proper starting point is that “unless special measures are taken, information moves within a firm”, and that it is up to the firm to convince the court “on the basis of clear and convincing evidence that all effective measures have been taken to ensure that no disclosure will occur”.[36]  Lord Millett was not convinced that the steps taken by the defendant (engaging different people working from different servers within a secure office in a different building) were sufficiently robust, and suggested that Chinese walls could only ever be effective when they were “an established part of the organisational structure of the firm”.[37]  Lord Millett specifically doubted the plausibility of attempting to put in place a barrier between members of the same department who have been accustomed to working together. 

30     The Royal Court has also displayed its doubts as to the effectiveness of Chinese walls. In Les Pas Holdings, the Court declined to accept a Chinese wall as a means of negating a potential risk.  Tellingly, the Royal Court also stated that “Chinese walls may not remove the fear of some risk”[38] (emphasis added), suggesting that (in accordance with the reasonable man test described above) even if the Chinese wall were in fact totally effective, the reasonable apprehension that it might fail could undermine the firm’s attempts to convince the court that no real risk exists.

31     The perception that a Chinese wall may not be effective was also highlighted in Marks and Spencer, where Lawrence Collins J held that, where a large number of the law firm’s staff had had access to confidential information, “Chinese walls would not be perceived to be - perception here is very important - sufficient”.[39]  The Court of Appeal in that case also considered the issue of Chinese walls, with Kay LJ commenting that if safeguards are to stand any chance of being effective, they must be in place before the firm starts acting for the second client.[40]

32     Furthermore, it is not enough for the lawyers in question to demonstrate that they have no intention of passing any material information to their new client, or that they have systems in place that would prevent the passing of that information to the new client. The lawyers must be able to demonstrate that they themselves will not be influenced by the confidential information.

33     It is submitted that where a large percentage of a firm’s workforce has had access to a client’s confidential information, and in the absence of established Chinese walls of a scale which would be impractical for all but major international firms to employ, that firm will no longer be in a position to give adequate assurances that the information will not be used, whether intentionally or unintentionally.

34     The Guernsey Court of Appeal in Beetle has taken a rather different approach and, in a judgment delivered by Southwell JA, held that there was no risk of disclosure in circumstances where only one person had knowledge of the relevant information, where that person’s office and all his communication facilities and secretarial support were physically separated from any of the staff who had conduct of the matters in question and where, in the context of a small and close knit legal community, because he was the only possible source, had there been a disclosure that person’s good reputation in the Guernsey bar could have been destroyed.[41] Whether or not such an approach is principled or merely pragmatic such exceptional circumstances are unlikely to arise in Jersey.

35     Although the Beetle judgment was expressed in terms of the defendants having satisfied the burden of proving that no risk of disclosure existed, as opposed to the matter being in the court’s discretion, the judgment does perhaps owe something to the earlier Guernsey Royal Court judgment of  Loyalty Brokers v Cockram[42] which suggested that greater flexibility may be appropriate in a small jurisdiction such as Guernsey, where conflict issues arise more regularly than would be the case in a larger jurisdiction.

36     The Jersey courts have considered whether the size of the Jersey bar is good reason to adopt a more flexible approach, but in Les Pas Holdings declined to do so, reasoning that “the principle of justice being seen to be done outweighs the right of a litigant to choose his own advocate notwithstanding the relatively small size of the Jersey Bar”.[43]  This, it is submitted, is the correct approach in all but the most exceptional circumstances.

End note

37     From the above analysis it can be seen that the duty of confidence not only survives the end of the lawyer-client relationship but, save with the former client’s consent, makes the circumstances in which that lawyer can properly thereafter act in a matter where his former client’s interests are involved and he has relevant or potentially relevant confidential information, few indeed. This has a significant effect on a small jurisdiction where the choice of lawyer is not a wide one and where the choice of lawyer with relevant or proven expertise may be narrower yet.

38     There is a tension, particularly acute in a small jurisdiction, between the importance of permitting a client to get the lawyer of his choice and the importance of preserving the sanctity of confidential information even from “reasonable apprehension” of misuse. At the moment the Jersey courts have taken a strictly principled line in favour of the latter and it is difficult to see how they could have done otherwise. It will interesting to see, however, how the court might deal with a situation where it is confronted by a massive multi-party piece of litigation where a strict application of these principles may deny one or more party effective representation.

39     It is interesting also to note that the duty of confidence may not rest even there. In the Guernsey case of Dinning v Ferbrache[44] Day, Lieutenant Bailiff, considered a case in which an advocate had come into possession of sensitive financial information about the finances of a trust company whilst acting for one of the shareholders in his divorce. An application was made to exclude the advocate from acting in a matter where such knowledge was potentially detrimental to the party against whom he was acting.  It is significant to note that the application was made not by the shareholder for whom the advocate acted but rather by another shareholder who was not and who had never been the advocate’s client. The Guernsey Royal Court considered the application against the background of the law of protection of confidential information generally and concluded that -

“Whilst it has to be admitted that there is no immediately obvious way in which any private information Mr Ferbrache has with regard to the private information of the applicant can be relevant to the substantive litigation, I consider that its potential influence is more intangible and insidious. The fact that it may, at some time or times, during the course of this litigation impact to a greater or lesser extent on the position of the parties cannot be discounted. It seems to me that it is a wise policy to eliminate that possibility, which I certainly regard as more than fanciful…”[45]

40     The advocate was restrained from acting.

41     Although it is outside the scope of this short article to consider the ramifications of this Guernsey approach (and as the judgment makes clear, several arguments were not rehearsed before the court) such a view, whether or not correct, is likely in the future to form the basis of similar applications in Jersey as well.

Timothy Le Cocq is an advocate of the Royal Court of Jersey and a partner in Ogier. Edward Mackereth is an English solicitor with Ogier and formerly a partner in Nicholson Graham & Jones.

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