Asia Pacific Telecommunications Limited v Optus Networks Pty Limited

Supreme Court of NSW|2007-04-02|Before: Bergin J

CITATION : Asia Pacific Telecommunications Limited v Optus Networks Pty Limited [2007] NSWSC 350

DECISION : Orders to be made restraining the solicitors from acting further for the defendant in these proceedings.

CATCHWORDS : [LAWYERS] - Application in 2005 to restrain defendant's solicitors from acting for the defendant dismissed on basis of 'Chinese Wall'/'information barrier' put in place to prevent the disclosure of confidential information - confidentiality undertaking given by solicitors and sworn evidence that there would not be "any involvement" in the present proceedings - solicitor the subject of the affidavit and confidentiality undertaking signs consent short minutes of order - new application to restrain the solicitors from further acting for the defendant

LEGISLATION CITED : Civil Procedure Act 2005 Uniform Civil Procedure Rules 2005

Asia Pacific Telecommunications Limited v Optus Networks Pty Limited [2005] NSWSC 550 Prince Jefri Bolkiah v KPMG [1999] 2 AC 222 Belan v Casey [2002] NSWSC 58 CASES CITED : D & J Constructions Pty Ltd v Head & Ors trading as Clayton Utz (1987) 9 NSWLR 118 Grimwade v Meagher [1995] 1 VR 446 Hooker Corporation Ltd v Darling Harbour Authority (1987) 9 NSWLR 538 Kallinicos v Hunt (2005) 64 NSWLR 561

PARTIES : Asia Pacific Telecommunications Limited (plaintiff) Optus Networks Pty Limited (defendant)

COUNSEL : Mr F Kunc, Ms V McWilliam (plaintiff) Mr Martin Einfeld QC, Mr S Habib (defendant)

25 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST

50044/05 ASIA PACIFIC TELECOMMUNICAITONS LIMITED v OPTUS NETWORKS PTY LIMITED JUDGMENT 1 The plaintiff, Asia Pacific Telecommunications Limited, by Notice of Motion filed on 8 March 2007, seeks an order that the solicitors for the defendant, Clayton Utz, be restrained from acting for the defendant, Optus Networks Pty Limited, in these proceedings. This is the second such application made by the plaintiff, the first application having been dismissed on 20 June 2005: Asia Pacific Telecommunications Limited v Optus Networks Pty Limited [2005] NSWSC 550 (the first judgment). The nature of the first application is of relevance to this application and the first judgment should be read with this judgment. 2 The first judgment included relevantly: 3 These proceedings were commenced on 31 March 2005. The plaintiff sues the defendant for damages arising out of dealings between it and the defendant in and after 1996 with respect to the provision of transit telecommunications services. The alleged services are audiotext services that utilise telephone numbers controlled by the telecommunication authorities in Vanuatu, Niue, the Solomon Islands and Tuvalu (the Pacific countries). The plaintiff facilitated telecommunications traffic permitting callers in countries such as the United States of America and Europe, to dial a telephone number that would connect to a voice recording in one of the Pacific countries. The defendant provided the transit carrier services between the calling and destination countries and was required to pay the plaintiff a nominated share of the revenue collected by it, relevantly calculated by reference to the number of minutes transmitted to the destination telephone numbers. 4 The plaintiff claims that the defendant failed to make payments to it at the correct rate and for the required minutes of traffic, and that the defendant caused or permitted "rogue" operators to utilise destination numbers to which the plaintiff was exclusively entitled. 5 In earlier proceedings commenced in this Court, 50056 of 2002, Gilsan International Limited (Gilsan) sued the defendant in respect of alleged breaches by it of similar arrangements by which Gilsan facilitated dial up telephone services also using destination numbers in the Pacific countries (the Gilsan proceedings). To assist it in its preparation for hearing Gilsan requested the plaintiff in these proceedings to provide to it answers to a set of questions (the Gilsan questions). In early 2004 Clayton Utz was retained by e-New Media Company Limited (e-New Media), a company related to the plaintiff, to assist it in respect of providing answers to the Gilsan questions (the Retainer). …

9 On 10 December 2003 Mr Yip [General Counsel for e-New Media] received a copy of the Gilsan questions and provided them to Dr Keith White Hunt, a consultant with the plaintiff, to obtain his views on the efficiency of the plaintiff and to answer the questions. There were eight questions and it is not in issue that the defendant would have known of the material and detail of the content of the proposed answers to four of those questions. The other four questions related to whether the plaintiff had authorised the rogue operators. The answers to those questions would not have been known to the defendant. However, the claim against the defendant in these proceedings is that the defendant had effectively permitted the activities of the rogue operators inconsistently with its obligations to the plaintiff. A necessary element of the plaintiff's claim is that it did not authorise the rogue operators. 10 Dr White Hunt wrote to Mr Yip by e-mail dated 11 December 2003. I will not set out the terms of the e-mail except to say that it contains some background to the relationship between Gilsan and the defendant and the plaintiff and the defendant. Dr White Hunt expresses a view [edited] (the View). … 13 Mr Yip gave evidence that on 26 March 2004 he retained Clayton Utz to advise the plaintiff in relation to the Gilsan questions and the proposed answers. [edited]

3 Gadens Lawyers, the solicitors for the plaintiff in these proceedings, acted for the plaintiff Gilsan International Limited, in the Gilsan proceedings. In the first application, the plaintiff alleged that Clayton Utz received confidential information from the plaintiff and that they should be restrained from acting for the defendant in these proceedings. The period during which Clayton Utz was retained to provide advice in respect of the Gilsan proceedings was referred to in the first judgment as "the Retainer" and I will utilise that description in this judgment. 4 In the first judgment I assumed that the information was confidential and reviewed the structure and system that Clayton Utz had put in place to prevent the disclosure of the information. These structures have in the past been referred to as 'Chinese Walls' however, as Mr Kunc submitted, the more anodyne description 'information barrier' is now utilised. The file containing the confidential information was placed in a locked cupboard at the offices of Clayton Utz and at the time of the first judgment Mary Still, a partner of the firm, held the only key to the cupboard. The solicitors who were working on the matter during the Retainer provided confidentiality undertakings for the benefit of the plaintiff which included an undertaking that each would "not undertake in any capacity any work or other activity relating to" the present proceedings (par [24] of the first judgment). Those solicitors also filed affidavits in the first application giving evidence, inter alia, that they would not have any involvement in the present proceedings (par [25] of the first judgment). 5 The conclusions expressed in the first judgment included the following: 36. The evidence of the Probity Partner, the partners, solicitors and staff of Clayton Utz satisfies me that there is no real risk of the information being disclosed to the new team. I am satisfied that a sensible and safe system is in place to ensure that will not happen. There are also confidentiality undertakings in place and a willingness to give undertakings to the Court. Undertakings to the Court will be expected to heighten the consciousness for sensitivity and diligence in ensuring that the information remains confidential. The Court will assess the need for undertakings on the particular circumstances of the case. I am not satisfied that this case calls for such undertakings. Nor am I satisfied that Clayton Utz should be restrained from acting for the defendant in these proceedings. 6 One of the solicitors who provided legal services during the Retainer and who provided a confidentiality undertaking and swore an affidavit in the first application is John Ian Fairbairn, a partner of Clayton Utz since January this year. It is Mr Fairbairn's conduct upon which the plaintiff relies to bring this application to restrain Clayton Utz from acting further for the defendant in these proceedings. The events of 15 and 16 February 2007 7 Elizabeth Petrie is a solicitor with Gadens and is acting for the plaintiff in these proceedings under the supervision of a partner at Gadens. On 15 February 2007 Ms Petrie wrote to Clayton Utz with reference to the defendant's "proposal" and a discussion between Ms Petrie and Mr Tim Webb of Clayton Utz that afternoon. That letter referred to various aspects of "traffic" and suggested that the defendant include in its "amended proposal for discovery" documents relating to the dates on which the defendant received "inpayments" from originating carriers. The letter included the following: Your proposal suggests that the parties rely on the agreed facts in the Gilsan proceedings in relation to AT&T traffic. The Gilsan agreed facts only relate to traffic between 1999 and 2001. Our client's claim relates to traffic generated between January 1997 and December 2004. We are seeking our client's instructions in relation to the portion of the traffic addressed in the Gilsan agreed facts. 8 After referring to other features of the defendant's proposal, the letter concluded: Directions hearing tomorrow

Given that there are some additional matters for your client to address in its proposal, and that our client requires time to properly consider the proposal and respond to it, we propose that the directions hearing tomorrow be stood over.

We attach short minutes of order in relation to tomorrow's directions hearing. If your client consents to them, please sign and return them. If we can reach agreement as to the orders, we are happy to mention your appearance at the directions hearing. 9 The short minutes of order that were ultimately the subject of agreement were in the following terms: BY CONSENT, THE COURT ORDERS THAT:

The defendant provide to the plaintiff by 4.00pm on 20 February 2007 an updated proposal regarding the discovery of documents evidencing inpayments from originating carriers, addressing the matters referred to in the letter from Gadens Lawyers to Clayton Utz dated 15 February 2007.

The plaintiff respond to the defendant's updated proposal referred to in order 1 by 4.00pm on 22 February 2007.

The proceedings be listed for a further directions hearing on 23 February 2007. 10 Gadens did not receive a response from Clayton Utz on 15 February 2007. When Ms Petrie arrived at work on Friday, 16 February 2007 at 8.30am she attempted to telephone Mr Webb but his line was engaged. Soon after that attempt was made Nathan Mattock, a senior associate with Gadens, advised Ms Petrie that he had spoken to Mr Webb and that "subject to a minor amendment" it looked as though the short minutes would be agreed. Mr Mattock advised Ms Petrie that Mr Webb would phone her shortly to confirm the defendant's consent to the short minutes. At 9am Mr Webb phoned Ms Petrie and confirmed the defendant's consent to the orders, subject to the changes that he had discussed with Mr Mattock. Ms Petrie informed Mr Webb that she would go up to Court that morning if the orders were agreed and mention his appearance. Ms Petrie suggested that she could email the final version of the orders to Mr Webb and asked if he could please sign and return them. 11 Mr Webb advised Ms Petrie that he was about to leave the office for a court commitment and asked Ms Petrie to provide the Court with unsigned short minutes. Ms Petrie advised Mr Webb that she would prefer not to do that and asked if there was someone else at Clayton Utz who could sign the short minutes for him. Ms Petrie also advised that she had the email up on her screen and if Mr Webb could tell her to whom to send the email she could send it immediately. Mr Webb then asked Ms Petrie to wait whilst he found out to whom the email could be sent.

12 Mr Webb's evidence was that his supervising partner, Mr Collins, was not in the office at that time and that the first solicitor he located was Mr Fairbairn. He asked Mr Fairbairn if he could sign and return the short minutes of order that were to be sent by email by Ms Petrie. Mr Webb informed Mr Fairbairn that the short minutes had been agreed by the parties and Mr Fairbairn agreed to sign and return the short minutes of order to Ms Petrie. Mr Webb then returned to the phone and advised Ms Petrie to send the email to Mr Fairbairn and provided his email address. 13 Ms Petrie sent that email at approximately 9.01am and copied it to Mr Mattock and Mr Webb. Ms Petrie's evidence was that at the time she sent the email to Mr Fairbairn his name rang "vaguely familiar" to her but that she did not realise at the time he was one of the solicitors bound by undertakings not to have involvement in these proceedings. Ms Petrie then spoke to Mr Mattock to inform him that the orders had been agreed. During this conversation Mr Mattock informed Ms Petrie that he recognised Mr Fairbairn's name and understood that Mr Fairbairn was "someone who should not be involved in the proceedings". Ms Petrie then went back to her office to check the files to confirm whether Mr Mattock was correct. At about 9.09am Ms Petrie received an email from Mr Fairbairn attaching the short minutes of order signed by him above the words "John Collins by his partner John Fairbairn". 14 Mr Fairbairn's evidence was that when Mr Webb approached him he did not tell him the name of the matter and only referred to the fact that the orders had been agreed and that there was a request that they be signed. His unchallenged evidence was that he did not pass on to any person any confidential information he had received during the Retainer nor did he receive any confidential information about the present proceedings. 15 The email that was sent by Ms Petrie was headed in the subject section "APT v Optus: short minutes of order". The short minutes of order clearly identified the parties to these proceedings. Ms Petrie attended the directions hearing that morning and handed up the short minutes of order. The only signature on those short minutes was that of Mr Fairbairn. I made the following orders: "1. By consent I make the orders in the short minutes of order initialled by me and dated today. 2. This matter is listed for directions on 23 February 2007. " The events after 16 February 2007 16 On 21 February 2007 Gadens wrote to Clayton Utz referring to the first application and the contents of paragraph 36 of the first judgment. That letter also referred to Mr Fairbairn's affidavit in the first application in which he stated that he would not have "any involvement" in the present proceedings. The letter then recounted the events of 16 February 2007 in relation to the signing of the short minutes of order and concluded in the following way: Breach of undertaking and failure of information barrier

Our client is greatly concerned by the fact that the information barrier between the Old Team and the New Team was so readily breached. It is a clear vindication of the concern expressed on behalf of our client during the hearing of the conflict motion that with the passage of time the consciousness of those involved of the undertakings that were so readily proffered would likely diminish and the prospects of breach increase accordingly.

Our client's confidence in Clayton Utz' arrangements for preventing interaction between the Old Team and the New Team in relation to these proceedings is seriously compromised. Our client's principal concerns are as follows:

Mr Fairbairn said on oath that he would not have any involvement in these proceedings and signed an undertaking to that effect. The breach of that undertaking is a serious matter. Given that the subject line of the email to Mr Fairbairn stated the title of the proceedings and the names of the parties were clear on the face of the orders, there is no basis for Mr Fairbairn to have misunderstood what he was doing.

Our client is concerned that Mr Webb, a member of the New Team, has also not adhered to the purported information barrier and sought assistance of a member of the Old Team in these proceedings.

Our client is greatly concerned that the information barrier is not being, or has not been, observed. It therefore has no confidence in the protection of its confidential information.

The Court allowed Clayton Utz to act in these proceedings on the basis of the undertakings and the information barrier which it says was in place. It now appears that neither the information barrier nor the undertakings are being observed by Clayton Utz.

Please explain by 5.00pm on Friday 23 February 2007 why our client should not seek to re-agitate its Conflict Motion and to take other action as it may be advised, including to refer the matter to the Legal Services Commissioner. 17 Clayton Utz responded by letter of 23 February 2007 in which the partner responsible for the conduct of the present proceedings on behalf of the defendant, John Collins, and the probity partner, Ron Schaffer, advised that they had independently and separately discussed with Mr Fairbairn and Mr Webb the circumstances giving rise to the matters raised in Gadens' letter. That letter agreed with the majority of what had been said in Gadens' letter but took issue with some of the matters raised under the heading relating to the breach of undertaking and/or the information barrier. Clayton Utz' letter included the following: 10. When the email from Ms Petrie arrived to Mr Fairbairn, he did in fact see the title of the proceedings, but did not at the time connect it with the undertaking that he had given in the proceedings. It should be noted that this firm acts for Optus Networks Pty Limited in a number of matters unrelated to these proceedings and Mr Fairbairn's failure to connect Ms Petrie's email with these proceedings, while unfortunate, should be considered in this context.

He then did no more than print off the consent orders, sign them, scan them and email them back to your firm. That was the sum total of his "involvement".

While it might be the case that the printing, signing, scanning and emailing back of signed consent orders is an "activity relating to the Other Matter", it must surely be of the most minor and insignificant nature in the scheme of things. Indeed, Mr Fairbairn's actions were merely facilitative and in truth of no substance whatsoever in these proceedings. The information disclosed in the Short Minutes of Order was not confidential and was information that he would have gleaned in any event had he been in Court, when, in public, the consent orders were made later that day.

It must be said that in any event that Ms Petrie of your firm was equally as aware of the Conflict Motion, the information barrier that is in place and Mr Fairbairn's undertaking to Clayton Utz, and equally ought not, in spite of Mr Webb's communication to her, have emailed the material in the first instance to Mr Fairbairn. The fact that the email was sent to him directly by Ms Petrie, not unreasonably, generated a belief in Mr Fairbairn that Gadens had absolutely no objection to him acting as he did.

To describe Mr Fairbairn's activities as "assistance" from a member of the Old Team is, with respect, to greatly overstate what actually transpired. The reality of the situation is that Mr Fairbairn signed consent orders that had already been agreed and which were sent to him directly by your firm, such signing only being necessary due to the insistence of Ms Petrie. While we accept that this conduct should not have taken place, we do not think that in the circumstances which occurred and as detailed by us above, your client should in fact have the concerns, as it claims.

We have satisfied ourselves that throughout the conduct of the present proceedings, other than the circumstances above described, there has been no possible breach of the information barrier or undertakings given to Clayton Utz nor, is there likely to be one. The firm continues to be vigilant in this regard.

In light of all of the above circumstances, we submit that what occurred was, while unfortunate and conduct for which we apologise, of no substance and it therefore does not warrant any re-agitation of your motion or any other action on your client's part. 18 On 27 February 2007 Gadens responded to Clayton Utz' letter of 23 February 2007 advising that the plaintiff remained unsatisfied as to Clayton Utz' observation of the information barrier that it undertook to erect. On this occasion Gadens referred to the following passage from the first judgment: 58. In my view a fair minded reasonably informed member of the public would conclude that the administration of justice is not adversely affected by the processes that have been put in place to protect the confidential information given to Clayton Utz during the Retainer. By reason of the proof that there is no real risk that the information, said to be confidential, will be available to the solicitors for the defendant, I do not accept that the perception that justice must be done and appear to be done is at risk. 19 In this letter Gadens claimed that not only was there a 'real risk' that the information barrier might fail but that it actually failed. Gadens claimed that the perception that justice must appear to be done, as well as be done, had been "irreparably compromised". The letter referred to Clayton Utz' claim that it acted for Optus Networks in a number of matters and that Mr Fairbairn's failure to connect Ms Petrie's email with the present proceedings should be considered in that context. In response to that suggestion the Gadens' letter included the following: This may well provide an understandable explanation for Mr Fairbairn's breach of his undertaking, but only serves to underline the fragility of the system put in place by Clayton Utz and how easily it could fail. The fact that Clayton Utz acts for Optus in many different matters makes it all the more important that Mr Fairbairn and the other relevant operatives remain acutely cognisant of their undertakings and consciously ensure they are not, even inadvertently, breached. 20 Gadens rejected any suggestion of Clayton Utz' implication of culpability by Ms Petrie noting that it was not "incumbent" upon Gadens to uphold Clayton Utz' information barrier. The letter invited Clayton Utz to cease to act for the defendant in the proceedings. 21 On 2 March 2007 Clayton Utz wrote to Gadens and declined the invitation to cease to act for the defendant. That letter included the following: The preservation of confidentiality is the essence of confidentiality undertakings and is the basis for the establishment for information barriers … we reject your submission that there has been any breach of any confidentiality undertaking or any breach of the information barriers that the firm has in place to prevent the disclosure of any confidential information. The Motion 22 The plaintiff filed its Notice of Motion on 8 March 2007 and it was heard on 2 April 2007 when Mr F Kunc appeared for the plaintiff and Mr Martin Einfeld QC and Mr S Habib appeared for Clayton Utz. Mr Fairbairn's "involvement" 23 The steps taken on 16 February 2007 of firstly agreeing to short minutes of order and secondly having Ms Petrie mention the matter for the defendant was consistent with the overriding aim of the Civil Procedure Act 2005 and the Uniform Civil Procedure Rules 2005 for the just, quick and cheap resolution of the disputes between the parties. There was a costs savings to the defendant in not having to be represented at the directions hearing. The process of allowing an opponent to mention a matter on behalf of a client is part of the regular practice in the Commercial List. The Court accepts unreservedly a practitioner's statement from the Bar Table that orders have been agreed even when the opponent for whom the matter is being mentioned has not signed the proposed short minutes of order. In this way the Court depends upon the practitioners to represent the position accurately and there is no need for the Court to enquire further. 24 It is probable that the fact that the parties had already agreed to the orders within the short minutes contributed to Mr Fairbairn's lack of recognition or consciousness of his obligations not to have anything to do with the present proceedings. It is also probable that the speed with which things were happening that Friday morning in preparation for the attendance at Court contributed further to Mr Fairbairn's lack of consciousness of his obligations. There is no doubt that the breach of the undertaking by Mr Fairbairn was inadvertent and there is no punitive element in the consideration of Mr Fairbairn's most unfortunate conduct. 25 It was not suggested, nor could it be, that Mr Fairbairn's conduct did not amount to "involvement" in the present proceedings. Clayton Utz' claims in the letter of 23 February 2007 that Mr Fairbairn's conduct was "surely of the most minor and insignificant nature in the scheme of things" and that what occurred was of "no substance", focuses on the relativity of the "involvement" compared to the provision of other more substantive professional legal services such as meetings with clients, the taking of instructions, reviewing documents, the provision of advice and the like. It will depend on the content of the short minutes of order as to whether the solicitor's conduct in signing them is at the lower end of the spectrum of "involvement" in the proceedings. There will be some short minutes of order that are intended to settle the whole of the proceedings and it will be necessary to take detailed instructions prior to the solicitor being in a position to sign them. Other short minutes of order are of a procedural nature to facilitate the case management of the matter in preparing the matter for trial and may involve the taking of less detailed instructions. The level of the solicitor's "involvement" in signing such short minutes will once again depend on the complexity or otherwise of the case and the matters addressed within those short minutes. 26 One aspect of case management that is at times complex is discovery. The subject short minutes of order dealt with discovery and the letter from Gadens enclosing the proposed short minutes specifically referred to the Gilsan proceedings that were, of course, the proceedings in relation to which Clayton Utz received the confidential information. A solicitor's signature on short minutes of order indicates to the Court, inter alia, that the client has given instructions to agree to the making of those orders by the Court and to be bound by those orders. Although the involvement in the preparatory stages of a matter during case management may be relatively less important than involvement during a substantive hearing of the matter, there are statutory obligations imposed on both the client and the solicitor that require them to work closely together during the case management phase of the case. Section 56 of the Civil Procedure Act 2005 provides relevantly: 56 Overriding purpose (1) The overriding purpose of this Act and of rules of court, in their application to civil proceedings, is to facilitate the just, quick and cheap resolution of the real issues in the proceedings. (2) The court must seek to give effect to the overriding purpose when it exercises any power given to it by this Act or by rules of court and when it interprets any provision of this Act or of any such rule. (3) A party to civil proceedings is under a duty to assist the court to further the overriding purpose and, to that effect, to participate in the processes of the court and to comply with directions and orders of the court. (4) A solicitor or barrister must not, by his or her conduct, cause his or her client to be put in breach of the duty identified in subsection (3). (5) The court may take into account any failure to comply with subsection (3) or (4) in exercising a discretion with respect to costs. 27 Where, as here, a partner signs short minutes of order in the name of another partner and adds the words "by his partner", there is an indication to the Court that the partner who has signed them knows that the client has given instructions to his partner to agree to and be bound by the orders in those short minutes. Whilst recognising the importance of the statutory obligations imposed on solicitors in the case management phase of proceedings I accept that Mr Fairbairn's conduct in signing the short minutes of order in this case was at the lower end of the spectrum of "involvement" in the proceedings. 28 Notwithstanding that Gadens' letter had reminded Clayton Utz of the fact that in the first application Mr Fairbairn had given sworn evidence to the Court that he would not have "any involvement" in the present proceedings, Clayton Utz' letter in response made no mention of it. It must have been (or should have been) obvious to Clayton Utz that the their continued involvement in these proceedings resulted in part from the affidavit evidence given by the solicitors who acted in the Retainer, including Mr Fairbairn, that they would not have "any involvement" in these proceedings. At the very least, it is professionally unedifying for the same practitioners to claim in the face of that sworn evidence that they should be permitted to continue to act for the defendant against the plaintiff because there was only a little bit of an involvement in the present proceedings.

Ms Petrie's conduct 29 Ms Petrie was cross-examined by Mr Einfeld in relation to her lack of notification or reminder to Mr Fairbairn that he was the subject of an undertaking and should not be involved in these proceedings. That cross-examination was for the limited purpose of suggesting that Gadens did not regard the breach of the undertaking as anything other than de minimus, otherwise they would have reminded Mr Fairbairn of the undertaking that he had given in 2005. Mr Kunc submitted that it was not for Gadens to advise Mr Fairbairn that he should not sign the short minutes of order, nor should there be any criticism of Ms Petrie for handing the short minutes to the Court at a time when she was aware that the signature of Mr Fairbairn on the document constituted a breach of the undertaking. The plaintiff had the evidence it needed to mount its application at the time Mr Fairbairn signed the short minutes on the understanding that they would be handed to the Court. There was no real need to hand those particular short minutes to the Court. I think the better course would have been to refrain from asking the Court to endorse such short minutes when the practitioner proffering them for endorsement knew that the only signature on them constituted a breach of an undertaking and the firm knew that Mr Fairbairn's "involvement" was inconsistent with his affidavit in the first application. The preferable course would have been to inform the Court of the situation. Consent orders could have been made and the subject short minutes could have been marked for identification. These observations should not be understood to mean that Gadens had an obligation to police Clayton Utz' undertaking, but rather that Gadens was in a position to alert the Court to the problem and in my view it would have been better to do so rather than involve the Court in the endorsement of the short minutes ignorant of the problem within them. Bases of the application 30 The plaintiff claims that relief should be granted because: (i) there is a danger that confidential information obtained by Clayton Utz during the Retainer will be disclosed to the solicitors at Clayton Utz presently acting for the defendant in these proceedings; and (ii) the interests of justice require the Court to invoke its inherent power to restrain Clayton Utz, in order that justice be seen to be done.

Risk of disclosure 31 Clayton Utz did not challenge the premise upon which I proceeded in the first judgment that the information is confidential. The plaintiff accepts that in order to succeed in relation to a risk of disclosure it must prove that there is a real and not fanciful risk of disclosure or misuse of the confidential information, although it is not necessary to show that the risk is substantial: Prince Jefri Bolkiah v KPMG [1999] 2 AC 222; Belan v Casey [2002] NSWSC 58 at [17-18]. 32 The plaintiff accepts that Mr Fairbairn's involvement in signing the short minutes of order in the present proceedings was inadvertent and that no confidential information was in fact disclosed by such involvement. However, the plaintiff submitted that the system in place has proved to be inadequate because it failed to preclude a solicitor who was involved in the Retainer having involvement in the present proceedings. It was submitted that it is clear that despite the system being in place, there was a lack of consciousness of the sensitivity of this matter that was largely created by the close proximity of the working arrangements of the solicitors who were involved in the Retainer and the solicitors instructed in the present proceedings. 33 Richard Thomas Gaven, a solicitor employed at Clayton Utz took over the role of General Counsel from Mr Meggitt from 24 July 2006. He gave evidence in this application that the file remains in the locked cupboard on a different floor to the solicitors who acted in the Retainer and the solicitors acting for the defendant in the present proceedings. Mr Gaven's unchallenged evidence was that there is no access by either team of solicitors to the electronic information in respect of the Retainer kept by the firm and no one can alter the restricted access to the file and/or the electronic information without approval from him or the Chief Executive Partner. The fact that the file is locked away in a cabinet and access to the electronic information is restricted is only one aspect of the consideration of whether there is a real risk of disclosure or misuse of the confidential information. However it is an important aspect of such consideration.

34 There is also the knowledge in each of the solicitors who acted in the Retainer that needs to remain quarantined from the solicitors acting for the defendant in the present proceedings. The success of that quarantine depends upon the vigilance of not only the solicitors who acted in the Retainer, but also the solicitors who act for the defendant in the present proceedings adhering to the system and structure that is designed to prevent the inadvertent disclosure of confidential information. There will always be an element of some risk of disclosure where its prevention depends upon human conduct because people make mistakes. The lack of a real risk of disclosure or misuse will depend upon the design of the information barrier. In this instance it included the confidentiality undertakings and the affidavit evidence in the first application. In some instances undertakings are given to the Court. However in the first judgment I concluded that such an undertaking was not necessary in this instance (paragraph 36). I was satisfied on the evidence of the Probity Partner, the partners, solicitors and staff of Clayton Utz that there was "no real risk" of the information being disclosed to the solicitors acting for the defendant in these proceedings (paragraph 36). The plaintiff suggests that the level of satisfaction should be diminished by reason of these recent events. 35 The exposure of a breach of a confidentiality undertaking in relation to an information barrier is rare. Counsel advised that they could find no case in which such an occurrence had been exposed. There have been instances where legal practitioners have inadvertently breached their obligations to their clients: for instance by the production of privileged documents to an opposing party: Hooker Corporation Ltd v Darling Harbour Authority (1987) 9 NSWLR 538, but this is a different situation. The structure of the practising profession is that the more senior solicitors supervise the more junior solicitors. The consequence of this regime is that the experience and judgment of the more senior lawyer is observed by and communicated to the junior lawyer as that lawyer develops in the practice of the profession. One aim of such a structure is that the important aspects of daily legal practice, including protecting the client's privileged information, will become second nature to the developing lawyer. It is not part of every day legal practice for a lawyer to have his or her knowledge from a case quarantined from another lawyer within the same section of the firm. The system of justice permits this unusual process in instances where the client's right to have the lawyer of choice is not outweighed by a real risk of disclosure of confidential information of a former client to the present client. The quarantining of such knowledge is a somewhat ethereal concept that is not second nature to a lawyer and when it is permitted it needs very special care. 36 The plaintiff's submission really amounts to a claim that by reason of the breach by Mr Fairbairn the nature of the risk of disclosure or misuse of the confidential information has been converted from one that was not real to one that is real. Mr Webb also gave evidence in the first application that he had not had any access to the confidential information and that he would not seek any such access. His evidence in the present application was: "it simply did not occur to me that, by asking Mr Fairbairn to sign short minutes of consent orders for a matter in which he had no involvement, any problem would thereby be created". That evidence is also of concern because Mr Webb should have recognised that Mr Fairbairn was a solicitor who was not permitted to have "any involvement" in the present proceedings. 37 The fact that two solicitors who were involved in the first application failed to recognise the problem of Mr Fairbairn's involvement has certainly diminished the satisfaction that I had in 2005 that there was an appropriate system in place to prevent any real risk of disclosure or misuse of the confidential information. In this regard I am not referring to the information in the cupboard or on the computer system. I am referring to the knowledge of the solicitors who acted in the Retainer. Much more should have been done to keep the level of consciousness as high as it was at the time of the swearing of the affidavits in the first application and the giving of the confidentiality undertakings. Whether that was by way of signage on doors or something more sophisticated does not matter, so long as the solicitors were assisted in their vigilance in honouring their undertakings and being true to their sworn evidence. 38 In this application Clayton Utz did not call any evidence of any steps the firm intended to take to ensure the heightened consciousness of the solicitors to their confidentiality undertakings and adherence to their sworn evidence. Neither Mr Fairbairn nor Mr Webb gave any evidence of how they intended to avoid a repetition of this conduct in the future. Rather it seemed to be suggested in submissions that the experience of this application in itself would heighten that awareness so that there should be no concern that a further breach would occur. Theoretically that might be correct but unfortunately even the sworn evidence given in the first application did not keep the awareness at the required level. The rawness of the present experience will probably heighten the awareness of the need for vigilance but how long that might last is another matter. 39 The reality is that the solicitors were all working very hard with deadlines to meet and time constraints. Such is the life of a busy and successful lawyer. That will not change. I agree with Mr Kunc's submission that compliance with undertakings relies upon those who are bound by them maintaining a consciousness of their requirements. In this case even the name of the case did not alert Mr Fairbairn to the prospect that he was about to breach his undertaking and act inconsistently with what he had stated in his affidavit. I agree that with time and with the intrusion of other pressing matters awareness will lessen. In the absence of any evidence of any new regime to keep the level of consciousness up I do have real concerns about the risk of disclosure in the sense identified by Bryson J, as his Honour then was, in D & J Constructions Pty Ltd v Head & Ors trading as Clayton Utz (1987) 9 NSWLR 118 at 123: … it is not realistic to place reliance on such arrangements in relation to people with opportunities for daily contact over long periods, as wordless communication can take place inadvertently and without explicit expression, by attitudes facial expression or even avoiding people one is accustomed to see, even by people who sincerely intend to conform to control. 40 There is obviously daily contact or at least the opportunity for daily contact between the solicitors who acted on the Retainer and the solicitors acting for the defendant in these proceedings because they work in close proximity to each other. It is extremely difficult to compartmentalise knowledge that has been gleaned from confidential information and even more difficult to know whether such knowledge may trigger an inadvertent affirmative or negative response to a question posed by a colleague in general discussion about a case. The unfortunate inadvertent conduct of both Mr Fairbairn and Mr Webb is a salutary lesson to the proponents of the advantages of information barriers as a mechanism for law firms seeking to retain 'business' in this very competitive environment. It must be remembered that although there are 'business' pressures on the operations of a law firm the duties of the lawyers are professional duties both to the Court and to the client. If the Court endorses the creation of an information barrier the professional obligations of the lawyers are onerous to ensure that it is maintained and that it is perceived to be able to be maintained. Such a barrier must be robust to justify such perception. In this case it has proved to be paper-thin at least in respect of one of its essential elements, the quarantining of the lawyers who acted on the Retainer from having any involvement in the present proceedings. 41 I am satisfied that the risk of disclosure or misuse is probably real and not fanciful. Even if that view were not to prevail I am satisfied for the reasons stated below that Clayton Utz should be restrained from acting further for the defendant in the present proceedings. Inherent power 42 The plaintiff submitted that the Court should intervene in this case on the basis that the proper administration of justice requires Clayton Utz to be restrained. It was submitted that the principle that justice should not only be done but manifestly and undoubtedly be seen to be done is the relevant test to be applied: Grimwade v Meagher [1995] 1 VR 446; Kallinicos v Hunt (2005) 64 NSWLR 561 at 582, [76]; see also the Honourable JJ Spigelman, Seen to be Done: The Principle of Open Justice, Keynote Address 31st Australian Legal Convention 9 October 1999. The test to be applied is whether a fair-minded reasonably informed member of the public would conclude that the proper administration of justice requires that the relief should be granted in the interests of the protection of the integrity of the judicial process and the due administration of justice, including the appearance of justice. The parties accept that such jurisdiction is to be regarded as exceptional and exercised with caution and that due weight should be given to the public interest in a litigant not being deprived of the lawyer of his or her choice without due cause: Kallinicos v Hunt at [76]. In some cases the cost, inconvenience or impracticality of requiring lawyers to cease to act may provide a basis for refusing relief: Kallinicos v Hunt at [92]. However in my view if the court is otherwise of the view that the protection of the integrity of the judicial process and the due administration of justice, including the appearance of justice, requires the lawyers to cease to act there would have to be evidence of a most compelling nature as to the cost, inconvenience and impracticality to avoid an order restraining the lawyers from acting further. There is no evidence in this case of such cost, inconvenience or impracticality. 43 As Bryson J said in D & J Constructions Pty Ltd v Head & Ors trading as Clayton Utz at 123: Cautious conduct by the court is appropriate because the spectacle or the appearance that a lawyer can readily change sides is very subversive of the appearance that justice is being done. The appearance which matters is the appearance presented to a reasonable observer who knows and is prepared to understand the facts. 44 The system of justice is complex. Justice is delivered, or administered, in this State in courts constituted by independent judges who are reliant in part upon the integrity, competence and candour of the legal practitioners in their pivotal role as officers of the Court. Parties who seek justice before the courts are entitled to have the lawyer of their choice and are also entitled to the privileges that flow from the relationship between client and lawyer. One of those privileges is the security of knowing that the confidential information provided to a lawyer will not be given to an opposing party unless the law requires its production. The Courts depend upon lawyers honouring their obligations to their clients in this regard to maintain the integrity of the system. If those obligations were not to be honoured the integrity of the system would be compromised. These considerations were the implicit underpinnings for the structure that was put in place by Clayton Utz to protect the confidential information that included the provision of confidentiality undertakings and affidavits to persuade the Court in the first application that there was no need to restrain the firm from continuing to act for the defendant in these proceedings. 45 The reasonable fair-minded observer in this case would know the facts including the following: (1) Clayton Utz obtained confidential information from the plaintiff during the Retainer; (2) Clayton Utz retains that confidential information both in hard copy and electronic form with restricted access; (3) that the members of the team of solicitors who acted during the Retainer have knowledge of the confidential information; (4) that the solicitors who acted during the Retainer provided confidentiality undertakings that they would not "undertake in any capacity any work or other activity relating to" these proceedings; (5) that the solicitors who acted during the Retainer and the solicitors acting for the defendant in these proceedings swore affidavits in the first application for the purpose of persuading the Court that an effective information barrier was in place to prevent any real risk of disclosure of the confidential information; (6) that a solicitor from the team who acted on the Retainer and a solicitor acting for the defendants in these proceedings combined to act for the defendant in these proceedings to effect the making of consent orders by the Court in relation to the "proposal" without recognising that such conduct was in breach of an undertaking given by one of the solicitors and inconsistent with the sworn evidence given by one of those solicitors in the first application ; and (7) Clayton Utz claimed that such conduct was of a "most minor and insignificant nature in the scheme of things". 46 A fair-minded and reasonable observer would be willing to understand that the actual "involvement" of Mr Fairbairn in acting for the defendant in these proceedings for the purposes of causing the consent orders to be made was an involvement that was of lesser significance than the provision of legal services of more substance. Such an observer would also understand that this conduct was inadvertent. That observer would know from the first judgment that the Court had placed reliance upon the confidentiality undertakings and the affidavits to take what might be seen as the somewhat unusual step of allowing the solicitors who had received confidential information from the plaintiff to act against the plaintiff in these proceedings on the basis that an effective information barrier had been constructed. That observer would know that a pivotal part of the effectiveness of the information barrier and the perception of its effectiveness was the preclusion of the team who acted on the Retainer from having "any involvement" in the present proceedings. There would also be the knowledge in that observer that a client is entitled to the lawyer of choice. 47 I am satisfied that the fair-minded observer acting reasonably would have most serious concerns that such inadvertent conduct could occur in the face of both undertakings and sworn evidence and would not have any confidence that any rebuilding of the information barrier would render it effective. I am satisfied that that the effectiveness of the information barrier and the perception of its effectiveness which justified Clayton Utz acting against the plaintiff has been so compromised that Clayton Utz should be restrained from acting further in these proceedings for the defendant. Conclusion 48 I intend to make the order in paragraph 1 of the Notice of Motion subject to a sensible time frame and regime for the handing over of the file to the defendant's new lawyers. The parties are to bring in Short Minutes of Order reflecting that order and an agreed costs order. If the parties are unable to agree on a costs order I will hear argument when the matter is listed for the filing of the Short Minutes of Order on 27 April 2007.

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At a glance

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Judgment (34 paragraphs)

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Cases Cited (5)