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One question, two answers

Feature Articles

Cite as: April 2014 88 (04) LIJ, p.46

The question of whether a lawyer may act against a former client has resulted in markedly different approaches in Victoria and New South Wales.

By Richard Fleming

In March 2013 the Victoria Supreme Court made orders in Dale v Clayton Utz (No. 2)1 (Dale) preventing a barrister from acting in a proceeding where he had briefly advised the other party regarding the same matter. A month later the New South Wales Supreme Court in Shannon v Gadens Lawyers Sydney2 (Shannon) concluded (in an application for preliminary discovery) that there was no entitlement to prevent a barrister being retained by a bank against a party where the barrister had acted for that party against the bank. What are the principles that apply in Victoria, and why did these similar circumstances have such different outcomes? How should the different outcomes be resolved?

Dale – facts and decision

Christopher Dale was a litigation partner for many years at the law firm Clayton Utz, until the termination of his partnership in 2005. Litigation between Dale and Clayton Utz regarding the termination started in 2011. Clayton Utz retained Allan Myers QC to represent it in the litigation. Dale objected to Myers being retained, as Dale alleged that he met Myers (in 2004) before the termination, and had a phone call with Myers (in 2005) soon after the termination, in each case to obtain personal advice regarding the termination or the underlying dispute that led to the termination.

Whether the meeting and telephone call had in fact occurred was disputed, but ultimately the Court found (at [120]-[121]) that they had, although it appears that they were relatively informal, in that there was no written brief or backsheet in relation to them, nor was any fee charged.

The Court restrained Clayton Utz from engaging Myers on three bases – being the duty of loyalty, confidentiality and the proper administration of justice (at [176]).

Duty of loyalty

The Court did not restate the duty of loyalty and instead briefly noted what is now a well-established line of cases in Victoria (including the leading decision of Brooking J in Spincode Pty Ltd v Look Software Pty Ltd3 (Spincode) regarding the existence of the duty of loyalty. The Court also simply noted that “a contrary position has been taken in NSW”.

In short, however, the cases4 establish that in Victoria confidentiality is not the sole basis for a former client preventing a solicitor from acting against them, and that an independent obligation of loyalty forbids a solicitor acting against a former client in the same matter or in a closely related matter. Sent and Primelife Corporation Ltd v John Fairfax Publications Pty Ltd5 (Sent) confirmed that the duty of loyalty also applies to barristers.

In Dale the Court determined that a lawyer/client relationship existed between Myers and Dale in relation to the 2004 meeting, although not in relation to the 2005 phone call. The Court held that a lawyer/client relationship existed despite the absence of any formal engagement in this case. Having made those findings, in the facts of Dale it automatically followed that the duty of loyalty prevented Myers from representing Clayton Utz.

Confidentiality

The test for whether a duty of confidentiality gives rise to a conflict of interest has been stated to be that “a reasonable person informed of the facts might reasonably anticipate a danger of misuse of confidential information to the opponent’s detriment, and there is a real and sensible possibility that the interests of the practitioner in advancing the case in the litigation might conflict with the practitioner’s duty to keep the information confidential” (at[146]). It has also been observed by the courts that it is not necessary to say exactly how the misuse might occur, that the misuse might be subconscious and that the risk of misuse is enough (i.e. it need not be inevitable).6 The courts also note that the nature and attitudes of the client (referred to as “getting to know you factors”) are included within the scope of confidential information that is protected.7

Accordingly, in practice, this boils down to a simpler proposition that there be relevant confidential information and a “real and sensible possibility”8 of conflict (between the opposing obligations to the former and current clients regarding use of that information).

In Dale the Court determined that confidential information had been disclosed and that there was a real and sensible risk (at [156]), despite Myers having no recollection of the meeting (and despite it being for only one hour, and occurring six years earlier). The Court referred to Sent (which involved a barrister having no memory of a one to two-hour meeting 15 years earlier), and the potential for revival of recollections in the course of intense preparation for trial.

Proper administration of justice

The court also has inherent jurisdiction to restrain its officers from acting where appropriate. It is well established that the (somewhat amorphous) test to apply is whether “a fair-minded, reasonably informed member of the public would conclude that the proper administration of justice requires that a lawyer should be prevented from acting, in the interests of the protection of the integrity of the judicial process and the due administration of justice, including the appearance of justice”.9

As noted in Dale (at [163]), the court may do so even in the absence of a lawyer/client relationship (where the duty of loyalty would not apply) and in the absence of confidential information.

There are, however, additional conditions on the exercise of this inherent jurisdiction. It is to be exercised exceptionally, with due weight being given to a litigant being permitted their own choice of lawyer and the timing of, or delay in, the application for exercise of the jurisdiction (and any resulting cost or inconvenience).10

The Court was particularly concerned that Dale had spoken frankly and confidentially to Myers and that, even if Myers did not recall the conversations, it would put Dale in the invidious position of being cross-examined by a person from whom he had sought advice.

The NSW position – legal backdrop

The New South Wales courts accept that confidentiality, and the inherent jurisdiction of the court (i.e. proper administration of justice), are each valid bases for restraining a lawyer from acting against a former client.11

The duty of loyalty (and approach in Spincode), however, has been expressly rejected in New South Wales, most notably initially by Young CJ in Belan v Casey12 (applying the House of Lords decision in Prince Jefri Bolkiah13) and then further in Kallinicos v Hunt14 (after an exhaustive consideration (at[37]-[75]) of the authorities, considering over 25 cases). These two cases (and Prince Jefri Bolkiah) are the foundations of an ongoing rejection in New South Wales of any duty of loyalty to former clients.15

It is not disputed that a duty of undivided loyalty applies to lawyers for so long as the relevant retainer is on foot, at least in so far as obligations apply to lawyers during a retainer to avoid a conflict between a lawyer’s duty to act in a client’s best interests and the lawyer’s own interests, or a duty of the lawyer to another. What is contested is whether the duty of loyalty survives the termination of the relevant retainer.

Shannon – facts and decision

Shannon relates to multiple proceedings on foot between Commonwealth Bank of Australia (CBA) and the Shannons (Geoffrey and Linda Shannon and associated companies). Gadens Lawyers represented CBA in the litigation and instructed Peter Newton of counsel in relation to various proceedings.

However, in 2010 the Shannons (through the law firm Crisp Legal) engaged Newton to represent them in relation to part of one particular proceeding with CBA. Gadens represented CBA in that proceeding, but did not engage Newton. That proceeding had developed to the stage that it was listed for a two-week hearing.

The Shannons then brought proceedings to obtain preliminary discovery, to assess whether to seek an injunction to prevent Gadens and Newton acting against the Shannons. The Shannons claimed (at[5]-[7]) that an injunction could be based upon the duty of confidentiality, the duty of loyalty, and the proper administration of justice (i.e. the same three bases as upheld in Dale).

McDougall J found (at [51]) insufficient evidence of actual confidential information having been given to Newton. The Shannons faced difficulties in providing such evidence as they never met Newton, who was briefed only through Crisp Legal. In addition, the Shannons did not have a copy of their file from Crisp Legal due to a dispute over legal fees between the Shannons and the firm. As a condition of delivery of their file, Crisp Legal required payment of $30,000 by way of discounted settlement of outstanding fees, but the Shannons had not paid it. McDougall J viewed negatively the failure of the Shannons to pay that amount and the failure of Mr Shannon to “grace the witness box” (although, given the circumstances, it is hard to see what evidence he could usefully have provided regarding what confidential information had been provided to Newton).

Under the relevant court rule (at [9]), entitlement to preliminary discovery is conditional upon having made “reasonable inquiries”. McDougall J held that failure to pay the $30,000 amounted to failure to make reasonable inquiries (at [60]-[61]).

Having failed in relation to the duty of confidentiality being a possible basis for an injunction, the remaining potential bases were the duty of loyalty and the proper administration of justice. Although (as noted above) these bases were claimed by the Shannons, it appears from the judgment (at [23]-[24]) that McDougall J treated a submission by their counsel that those two bases might not be available (particularly regarding the duty of loyalty) as a concession that the case was to be determined on the basis that confidentiality was the sole basis of any future injunction. (Accordingly the Shannons’ application was rejected.)

That submission (or concession) by counsel would not have been made in a Victorian court. It does, however, reflect the general impression one obtains from case law that, at a practical level, obligations of confidentiality are the sole touchstone in determining whether a New South Wales lawyer can act against a former client (i.e. that clearly no duty of loyalty applies and the proper administration of justice basis is rarely available).16

Where to from here?

It is apparent that the difference in approach between the Victorian and New South Wales courts regarding the existence of a duty of loyalty to former clients is entrenched. That difference is unlikely to be resolved other than by an appropriate High Court appeal. As disputes about law firms (or counsel) acting against former clients are relatively common, ultimately such an appeal is inevitable.

To resolve the difference, it might appear attractive to argue that the duty of loyalty basis is merely an example of the proper administration of justice basis (particularly as in practice they often coincide), so that in fact there is no underlying doctrinal conflict. That, however, would be an overly simplistic approach, and would ignore the very different natures of the two bases – one is an equitable principle that confers a right of loyalty upon former clients, whereas the other is concerned with the public perception of the justice system and is effectively an exercise of regulatory power by the courts.17

Once that is appreciated, one might be tempted to argue instead against the duty of loyalty by characterising it as a confused hybrid of client rights and the court’s regulatory power. The policy argument to support this would be that if there is no confidential information that requires protection (including “getting to know you” factors), then no actual harm can be done to the interests of former clients merely because it is their former lawyer acting against them. It would follow that there is no need for a separate right of loyalty, and that the real underlying concern is protection of the public perception of the court system, which could be adequately protected on the administration of justice basis.

Similarly, loyalty is not something that deserves protection per se – an obligation of loyalty should only apply if it serves some other desirable purpose. In fact, a duty of loyalty involves at least some economic cost to society, by way of reducing the availability of firms or counsel to act in subsequent matters.

Good reason

There is, however, a good policy reason for retaining an obligation of loyalty after the cessation of a retainer. That reason is trust. Trust is a prerequisite for effective co-operation between individuals and, as a result, the trust of a client is often necessary for a lawyer to represent his or her client effectively. There is economic value in trust.18 Trust can be hard to build and, in practice, an assurance of loyalty is a necessary ingredient. Although in theory it should be enough to assure a client that nothing they say or disclose will be used against their interests, in practice people are not that clinically rational. In practice, clients reasonably expect a degree of loyalty and, to foster trust, it is in the interests of the court system that such an expectation be reflected in a client’s rights.

The duty of loyalty espoused in Spincode is, in effect, an automatically imposed broader assurance from lawyer to client that “I will not act against your interests in this or a related matter”, which provides significantly more comfort than the qualified assurance (based solely on the obligation of confidentiality) that “I am on your side, but might act against you, even in a related matter, if everything you tell me is publicly available, arguably irrelevant to the subsequent matter or you can’t prove that you told me”.

Turning back to doctrinal issues, theories abound regarding the source of fiduciary obligations (being the broader set of obligations of which the duty of loyalty is said to be part), and it has been observed by academics and courts that no one theory is a perfect fit.19 For example, a duty of loyalty that survives the end of a retainer is inconsistent with the theory that fiduciary obligations only exist as a “protective” measure to ensure proper performance of other (non-fiduciary) obligations, the corollary of that being that when those other obligations (i.e. in this case, acting for a client) come to an end, then there is no further role for fiduciary obligations to play.20 There are, however, other theories regarding when fiduciary obligations do, or do not, arise – including that they apply where there is a “reasonable expectation” regarding the fiduciary’s conduct.21 The above reasoning regarding client trust is more in that vein (and these circumstances may ultimately be characterised as a situation where the above two theories collide).

Given the conflicting theories regarding fiduciary obligations generally, it may be that the High Court limits any determination to the narrower question regarding the survival of a duty of loyalty of lawyers. In that case, the reasoning here regarding client trust, with the legal reasoning set out in the judgment of Brooking J in Spincode, is to be preferred. In addition, having participated in literally hundreds of rulings of the Ethics Committee of the LIV, the author can add that it is clear that a duty of loyalty that survives the end of a retainer is a useful element in defining the boundaries of appropriate lawyer behaviour.



RICHARD FLEMING is the Principal at Benelex where he practises commercial and technology law. He has been a member of the LIV’s Ethics Committee since 2002, and its chair since 2005. Richard is also a member of the Legal Services Board.

The numbers in square brackets in the text refer to the paragraph numbers in the judgments.

1. Dale v Clayton Utz (No 2) [2013] VSC 54 (26 March 2013).

2. Shannon v Gadens Lawyers Sydney [2013] NSWSC 417 (23 April 2013).

3. Spincode Pty Ltd v Look Software Pty Ltd [2001] VSCA 248 per Brooking JA (upholding the decision of Warren J (now Warren CJ)).

4. Spincode; subsequently cited with approval in Sent and Primelife Corporation Ltd v John Fairfax Publications Pty Ltd [2002] VSC 429 at [104]; Adam 12 Holdings Pty Ltd v Eat & Drink Holdings Pty Ltd [2006] VSC 152 in obiter at [40]; Pinnacle Living Pty Ltd v Elusive Image Pty Ltd [2006] VSC 202 at [13]; Commonwealth Bank v Kyriackou [2008] VSC 146 at [10], [28]–[29].

5. Sent and Primelife Corporation Ltd v John Fairfax Publications Pty Ltd [2002] VSC 429.

6. Adam 12 Holdings at [33].

7. Yunghanns v Elfic Pty Ltd Supreme Court of Victoria, Gillard J, 3 July 1998 (unreported) at 25; cited in TJ Board & Sons Pty Ltd v Castello & Ors [2008] VSC 91 at [58].

8. Note that a lower hurdle applies in family law matters – all that is required is a “theoretical risk”: see Thevanez 1986 FLC 91-748.

9. Kallinicos v Hunt (2005) 64 NSWLR 561 at [76]; see also Grimwade v Meagher [1995] 1 VR 446 at [452], which was cited in Spincode, Sent, Adam 12 Holdings and Kyriackou, and Dale itself at [160].

10. Dale at [162], citing Kallinicos.

11. Kallinicos at [76]; Asia Pacific Telecommunications Limited v Optus Networks Pty Limited [2005] NSWSC 550 at [54].

12. Belan v Casey [2002] NSWSC 58.

13. Prince Jefri Bolkiah v KPMG [1999] 2 AC 222.

14. Kallinicos v Hunt (2005) 64 NSWLR 561.

15. For example, Asia Pacific Telecommunications at [54]; British American Tobacco Australia Services Ltd v Blanch [2004] NSWSC 70 at [104].

16. Most of the NSW cases emphasise the point (note 10 above) that the exercise of the inherent jurisdiction of the Court should be exceptional.

17. Bergin J makes this point at Asia Pacific Telecommunications at [54].

18. “Trust: The Social Virtues and the Creation of Prosperity”, Francis Fukuyama, Penguin Books 1995.

19. See Commercial Equity – Fiduciary Relationships, John Glover, Butterworths 1995 at [2.9] and [3.1]; Conaglen (note 20 below) at 1.

20. Such an approach was effectively adopted in Prince Jefri Bolkiah. Regarding the theory generally, see “Fiduciary Loyalty”, Matthew Conaglen, Hart Publishing 2010 at 185 and 244.

21. Espoused by Paul Finn, including in Fiduciary Obligations, Paul Finn, Law Book Company, 1977; subsequently referred to in Conaglen (note 20 above) at 249 and 257 and in Glover (see note 19) at 25.

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