Spincode v Look Software
43 Brooking JA analysed the case law and literature on the subject of restraints on solicitors acting against former clients (see at [25]-[59]) before concluding that such a second basis for disqualification existed, which was freestanding from the first and third bases. In my view, support for this second basis prior to Spincode is less than compelling.
44 First, the English cases cited by Brooking JA at [26]-[32] that pre-dated Prince Bolkiah provided little support for this second basis for disqualification based upon a duty of loyalty surviving the termination of the solicitor's retainer, where the retainer had been terminated by the client or the retainer's subject matter had been completed.
45 There had been considerable debate as to the precise ambit of the ratio of Earl Cholmondeley v Lord Clinton (1815) 19 Ves Jun 261; 34 ER 515 at 520 (Cholmondeley). Later cases expressed or manifested a lack of clarity as to whether the ratio embraced or required an element of the first basis, viz, a risk of the misuse of confidential information (Beer v Ward (1821) Jac 77; 37 ER 779 at 781; Bricheno v Thorp (1821) Jac 300; 37 ER 864 at 865; Hutchins v Hutchins (1825) 1 Hog 315 at 317; Johnson v Marriott (1833) 2 C & M 183; 149 ER 725 at 727-8; Griffiths v Griffiths (1843) 2 Hare 587; 67 ER 242 at 243-4; Parratt v Parratt (1848) 2 De G & Sm 258; 64 ER 116 at 118; In re John Holmes (a Solicitor); In re The Electric Power Co Ltd (1877) XXV WR 603 at 603-4; Rakusen v Ellis, Munday and Clarke [1912] 1 Ch 831 (Rakusen) at 837 per Cozens-Hardy MR). But on any view of Cholmondeley's ratio, it did not embrace the notion of a duty of loyalty surviving termination of the retainer, where the termination was brought about otherwise than by the solicitor's own conduct of unilateral termination. The narrow view of the ratio is that a solicitor acting for Party A in a matter, who ceases to act for Party A and then acts for Party B in the same matter, where such a retainer has been terminated by the act of the solicitor, will be enjoined. But such a ratio does not support a duty of loyalty surviving the termination where the termination was not brought about by the solicitor's own act. Further, if the other and broader view of the ratio is correct, viz, that it includes an element of a risk of the misuse of confidential information, then one is dealing with the first basis of disqualification rather than the second basis.
46 There is another dimension to these pre-Prince Bolkiah English cases, putting to one side a lack of clarity of the ratio of Cholmondeley. None of them in any event support the view of a solicitor being enjoined on the basis of some duty of loyalty surviving termination of the retainer, where the retainer has been terminated by the client or lapses due to its subject matter being completed. In such a scenario, such cases required addressing the issue of substance in terms of the risk of misuse of information; what those cases really debated were questions of the magnitude of risk, proof of risk and who bore the onus, but all through the lens of analysing a risk of misuse of confidential information. What is apparent is that they all implicitly rejected the idea that some strict duty of loyalty disqualification rule should apply divorced from the risk of misuse of confidential information (see, for example, Rakusen at 843 per Buckley LJ).
47 Second, Brooking JA points out at [32] that some of the English cases make reference to a Court's supervisory jurisdiction over the conduct of its officers, viz, solicitors and also barristers (see also Davies v Clough (1837) 8 Sim 262; 59 ER 105 (Davies v Clough) at 106-7). But such references, including aspects of the appearance of propriety or impropriety, support the third basis of disqualification, rather than a freestanding second basis. Such observations say little as to this second basis of duty of loyalty. In any event, care needs to be applied in assessing these observations addressing the third basis. For example, Fletcher Moulton LJ in Rakusen at 840-841 suggested that the fundamental principle remained the same, whether a solicitor or not, in terms of being required to demonstrate the mischief or potential misuse of information, but that because of the higher standard of behaviour expected of officers of the Court, the Court might interfere more readily on less proof. So, on one view, this was a reinforcement of the first basis, rather than even recognising a freestanding third basis. But for my part, the preponderance of Australian authority rightly recognises such a third and broader basis of disqualification, which is freestanding from the context of any risk of misuse of confidential information.
48 Third, Brooking JA at [39]-[40] discussed at length some New Zealand and Canadian authorities. But the cases he cited referred to the third basis for disqualification, rather than reinforcing any duty of loyalty second basis. See, for example, Kooky Garments Ltd v Charlton [1994] 1 NZLR 587 at 590 per Thomas J and Black v Taylor [1993] 3 NZLR 403 (Black v Taylor) at 406 per Cooke P, at 408-412 per Richardson J and at 418-419 per McKay J; Farrington v Rowe McBride & Partners [1985] 1 NZLR 83 (Farrington) is a concurrent conflicts scenario analogous to a solicitor acting on both sides of a conveyancing transaction, not a solicitor/former client context (see Brooking JA's reference at footnote 36 of Spincode). The Canadian cases referred to by Richardson J in Black v Taylor also accepted this third basis (for example Everingham v Ontario (1992) 88 DLR (4th) 755 at 761). Brooking JA made reference at [39] to the fact that those cases were not discussed in Prince Bolkiah. Perhaps this is unsurprising when one considers that the court's inherent jurisdiction to supervise its own officers was not in play in Prince Bolkiah. The third basis for disqualification was not relevant to that context. Prince Bolkiah considered the basis for disqualification of KPMG, an accounting/audit firm. True it is that in assessing the services provided by KPMG, they were aligned with legal services and the position of solicitors was accordingly discussed. But, as KPMG were not officers of the Court, the third basis for disqualification may have been considered to be inapplicable; the reference by Lord Millett at 235 to "[t]he only duty to the former client which survives the termination…" indicates perhaps that he was not considering the third basis, which is not described as a "duty to the former client". Perhaps this is why the New Zealand and Canadian cases cited by Brooking JA were not referred to; the House of Lords did, however, discuss other New Zealand and Canadian authority relevant to the first basis for disqualification. But there is another explanation. It may be that, implicitly, the House of Lords took the view that even if the court's inherent jurisdiction to protect the administration of justice or to supervise its own officers had been invoked, that nevertheless if there was no risk of the misuse of confidential information, then there was nothing to enjoin under this third basis either; hence Lord Millett's statement at 234 that "the court's intervention is founded not on the avoidance of any perception of possible impropriety but on the protection of confidential information". At all events, whatever the explanation for why the New Zealand and Canadian cases cited by Brooking JA were not discussed in Prince Bolkiah, they did not reinforce any free-standing second basis for disqualification based upon a duty of loyalty in any event.
49 Fourth, reference was made by Brooking JA (at [48] and [49]) to two judgments of JD Phillips J in Macquarie Bank Ltd v Myer [1994] 1 VR 350 (Macquarie Bank) at 359 and Holdsworth v MR Anderson & Associates Pty Ltd (unreported, Supreme Court of Victoria, JD Phillips J, 26 August 1994) (Holdsworth). But as to Macquarie Bank, first, that was not a case of a solicitor acting against a former client and, second, JD Phillips J's observations were made more in the context of the third basis for disqualification in any event. Further, Marks J's observations are not consistent with the second basis for disqualification based upon any duty of loyalty (at 352). The third member of the Court, Eames J agreed with both. Moreover, the second basis was neither identified nor argued by counsel in the case. One can agree with Brooking JA at [48] when he says that Macquarie Bank supports the proposition that misuse of confidential information is not the only basis on which "successive adverse representation" will be checked. But accepting that to be so, the case at most supports the third but not the second basis for disqualification. As to Holdsworth, which was delivered ex tempore, it is accepted that several of JD Phillips J's observations do support this second basis for disqualification (see at 17-19). Given his Honour's pre-eminence in equity jurisprudence, his observations generally in this area carry great weight. His Honour supported a basis for disqualification where the retainer of the solicitor had been terminated, which disqualification did not invoke either the first or third bases for disqualification. His Honour did, however, acknowledge that "this case is made the more difficult for lack of any direct authority" (at 19). His Honour nevertheless referred to two authorities. The first authority was Davies v Clough. But Davies v Clough was expressed as a case invoking the third basis of disqualification. As the Vice-Chancellor made apparent at 106, and in the passage quoted in Holdsworth at 20-21 by JD Phillips J, the Court was considering "exercis[ing] an authority over [its] own officers as to the propriety of their behaviour". Moreover, it is not entirely clear that the Vice-Chancellor divorced from his consideration any question of the risk of misuse of confidential information. The second authority was Wan v McDonald (1991) 33 FCR 491 (Wan). Wan was not a case where an injunction was sought to restrain a solicitor from acting against a former client. Rather, the question was whether there was a cause of action for breach of fiduciary duty. But Burchett J did hold (at 516) that it was a breach of fiduciary duty "where the one solicitor, having acted for both parties, seeks to act against one of his former clients, and in the interest of a preferred client, in litigation arising out of the very matter in which he himself acted for both" (at 513). In that case, the "issues of loyalty and propriety" were said to loom large (at 515). Given that his Honour was not addressing the injunction context, it is understandable that there was little consideration given to the third basis for disqualification. Moreover, care must be exercised in using this case; part of the genesis of the dispute involved the solicitor acting on both sides of the relevant transaction at the same time and also where personal interest may have been involved (at 502). Nevertheless, in relation to the second basis for disqualification, it is some authority for the proposition that a duty of loyalty can survive the termination of a retainer where the client has terminated the retainer or its subject matter has concluded (cf Cholmondeley where the conduct of the solicitor had terminated the retainer).
50 Fifth, reference was made by Brooking JA (at [50]-[51]) to McVeigh v Linen House Pty Ltd [1999] 3 VR 394 (McVeigh). First, in McVeigh, the Court of Appeal were not referred to Prince Bolkiah and did not discuss it. Accordingly, it has diminished force. Second, the decision was delivered ex tempore, which partly explains the first point. Third, although the Court did state the existence of the second basis for disqualification, there seems to have been no debate or submissions on the contentious point now being discussed (see [29]). Fourth, the Court based its position on Holdsworth and Wan (at [23]-[26]). But both Holdsworth and Wan are only limited support for the second basis for disqualification. Fifth, the result in McVeigh could have been justified under the third basis for disqualification in any event (Batt JA at [30]). In the circumstances, in my view, McVeigh provides limited support for the second basis for disqualification.
51 In summary, the preponderance of the authorities relied upon by Brooking JA support the first and third bases for disqualification, but not the second basis. But it must be accepted that Wan, Holdsworth and McVeigh provide some support for the second basis, albeit that their force is diminished by their particular contexts and limitations; two of these decisions were ex tempore and, like Spincode, the point does not seem to have been fully argued; the third case, Wan was not a direct solicitor injunction restraint case and the genesis of the issue had certain peculiar features not relevant to the present context.
52 Brooking JA also drew on the writings of Professor Finn (as he then was). But Finn's writings did not support such a free-standing second basis.
53 First, there is nothing in Finn's Fiduciary Obligations (Law Book Co Ltd, 1977) referring to a duty of loyalty that is owed by a solicitor to a former client, which continues after the termination of the solicitor's retainer by the client or where the subject matter of the retainer has been completed. The general basis discussed by Finn in chapter 19 at [312] (at p 139) is rather that the duty to maintain confidentiality continues after the professional relationship has ceased. There is a reference, however, to Cholmondeley, which may be said to provide a basis for disqualification outside the risk of misuse of information context, and as so referred to by Finn (see Brooking JA at [34]). But as Finn explains, that was where a solicitor "discharges himself for the purpose of acting for the opponent". That was the only exception, as Finn makes clear. The usual basis is the duty to maintain confidence. The full text of [312] (incorporating the footnotes into the text) states:
312. It should further be emphasised that the duty [of confidence] continues after the professional relationship has ceased. The continuing nature of the duty has created problems particularly in solicitor-client cases. There is no rule of law, for example, that a solicitor who has acted in a particular matter for a client, cannot subsequently act in the same matter for his old client's opponent (Rakusen v. Ellis, Munday & Clarke supra; Johnson v. Marriott (1833) 2 CR. & M. 183). The courts will restrain a solicitor if he discharges himself for the purpose of acting for the opponent (Earl of Cholmondeley v Lord Clinton (1815) 19 Ves. 261 as explained in Bircheno v. Thorp (1821) Jac. 300; and cf In re Flint; Coppock v. Vaughan [1885] W.N. 163).
But otherwise the courts will only restrain a solicitor from acting for the opponent or against a former client if he actually discloses the secrets of his former client of if in the circumstances of a particular case that "mischief is rightly anticipated" (Rakusen v. Ellis, Munday & Clarke supra, at 841 per Fletcher Moulton L.J.; Parratt v. Parratt (1848) 2 De G. & S. 258; Hutchinson v. Newark (1850) 3 De G. & S. 727; In re John Holmes; In re The Electric Power Co. (1877) 25 W.R. 603; Davies v. Clough (1837) 8 Sim. 262; Lewis v. Smith (1849) 1 Mac & G. 417).
Paragraph [312] appears in a section beginning at [308] headed "The Duty of Confidence: The Nature of the Relationship". Finally, there is a single word reference to "loyalty" at the start of chapter 22 headed "Conflict of Duty and Duty", where the proposition is stated in generality at [580]:
580. To ensure a loyalty which is undivided the courts have prohibited a fiduciary from serving "two masters" at the same time in the same matter or transaction unless he has first obtained the informed consent of both "masters" to his so acting… [my emphasis]
But apart from that one reference, that chapter does not use the word "loyalty" and nor does it discuss the scenario where a fiduciary relationship/retainer has ceased; no other chapter discusses it either. There is nothing in Finn's 1977 work which refers to the second basis for disqualification in relation to a solicitor acting against a former client, where the client has terminated the retainer or the retainer's subject matter has been completed.
54 Second, there is nothing in Finn's 1987 paper "Conflicts of Interest and Professionals" Legal Research Foundation Inc Seminar on Professional Responsibility (Legal Research Foundation Inc, University of Auckland, 28-29 May 1987) which indicates any change of position by Finn on that aspect (see Brooking JA's discussion at [44]-[47]). If Finn held the view that the basis for disqualification of a solicitor acting against a former client was sourced to a fiduciary obligation or duty of loyalty, apart from any consideration of the risk of misuse of confidential information, one would have expected to see that in his discussion on the subject of solicitors acting against former clients, particularly at 16-20 where he discusses Rakusen and suggests alternative approaches to Rakusen (see his three possibilities at 20). His reference at 16 to "primarily" and the footnote reference to Cholmondeley is to be taken in the limited context discussed earlier. It cannot be extrapolated more broadly, otherwise it would be inconsistent with Finn's discussion at 19-20. If Finn had taken the approach advocated by Brooking JA, 19-20 would have been differently expressed. Finn does refer to duty of loyalty at 13, but this is not mentioned throughout 16-20. Such a duty is later expanded upon, but outside the context which is presently being addressed (see, for example, at 24, 32 and 36).
55 Third, there is nothing in Finn's 1988 chapter "The Fiduciary Principle" in Youdan TG (ed), Equity, Fiduciaries and Trusts (Carswell, 1989) at 4 and 27, that expresses any different view (see Brooking JA's reference at [42]). I discuss this chapter later (at [76]).
56 Finally, reference was made to Finn's chapter "Fiduciary Law and the Modern Commercial World" in McKendrick E (ed), Commercial Aspects of Trusts and Fiduciary Obligations (Oxford University Press, 1992) at 7. But this does not support this second basis. At 22-23, Finn stated:
2. Former-client conflict, i.e. where a firm or company, having acted for a client in a particular matter, subsequently acts against that client in the same or in a related matter. Much the most commonly litigated instance of this relates to law firms - bodies not of immediate concern to the purposes of this volume. The critical issue in this type of conflict is the protection of the former client from the possibility of information abuse." [my emphasis]
His discussion separates out this heading 2 from heading 1 ("Same-matter conflicts"), heading 3 ("Separate-matter conflicts") and heading 4 ("Fair-dealing conflicts"). Finn elaborates on each of these headings. Heading 2 "Former-client conflicts" is then discussed in detail in section 3.2 at 27-30. At 28, he discusses three issues of legal principle which attend this type of conflict. None relate to any freestanding surviving duty of loyalty. They all relate to the confidential information context.
57 In summary, a review of Finn's work that was referred to by Brooking JA does not indicate express support for this second basis for disqualification where the retainer has been terminated by the client or the subject matter of the retainer has concluded; in some of his works there is a footnoted reference to Cholmondeley to indicate that in the situation covered by its ratio there may be an independent ground, but that is a situation not relevant to the present context. The other English and Australian texts referred to by Brooking JA in footnotes 36, 38 and 39 are not inconsistent with Finn's position.
58 Now Brooking JA recognised but sought to cover off the limitation in Cholmondeley by saying that "… I should be sorry to think, and reluctant to hold, that whether a solicitor's fiduciary duty of loyalty stood in the way of acting against a former client in the same matter depended on whether the solicitor had, in Lord Eldon's words, 'discharged himself'" (at [59]). But a number of points. First, that was the ratio of Cholmondeley. Second, no English case extrapolated further, unless it was into the confidential information territory and the first basis for disqualification. Third, Finn did not extrapolate further. Fourth, it is difficult to see why one would be concerned with such a limitation. The first and third bases for disqualification more than adequately cover the field anyway, as I will discuss shortly. Fifth, and relatedly, if such a concern is intended to reflect judicial opprobrium in the context of the administration of justice and the Court's inherent jurisdiction over the behaviour of its own officers, because perceived egregious conduct might escape the net with such a perceived limitation, it would be caught within the third basis. In any event, as a matter of substance, Cholmondeley's limitation is apposite.
59 There is a difference between a solicitor who has been retained in a matter for Client A saying half way through that he wants to terminate the retainer and to then go and act for Client B in the same matter. The act of termination is an act of disloyalty. The act of preferring Client B to Client A, who still desires to retain him, is an act of disloyalty. The state of mind of that solicitor is one of a disloyal fiduciary. There may also be other cases where a fiduciary obligation survives termination, particularly in "instances in which a fiduciary has sought to circumvent fiduciary doctrine's protection" (Conaglen M, Fiduciary Loyalty (Hart Publishing, 2010) (Conaglen) at 188) including where the termination is motivated by the desire to obtain or retain a benefit in breach of fiduciary duty (see Edmonds v Donovan (2005) 12 VR 513 at [56]-[61] per JD Phillips JA; Leeming M, "The Scope of Fiduciary Obligations: How contract informs, but does not determine, the scope of fiduciary obligations" (2009) 3 Journal of Equity 1 (Leeming) at 10). Now contrast such cases with the situation where the solicitor has been retained for Client A in a matter. Client A pays the solicitor for his present services but does not pay for any option or first right of refusal for his future services. Say the matter is concluded. Five years later, Client B comes along and retains the solicitor in that or a related matter. Assume also that Client A independently has chosen to engage a different solicitor in any event. Is it suggested that these two situations should be treated in the same terms of this duty of loyalty? In my view, they should not be. Moreover, if there was an issue arising in that latter scenario, that would be adequately addressed by the first and third bases for disqualification in any event. And if it was not covered by those bases, what substance would there be in seeking to justify nevertheless the solicitor's disqualification? It would be a restraint in the absence of a vice (the hypothesis is that the first basis for disqualification does not apply). It would be a restraint in the absence of the client paying for the privilege of some indefinite restraint when it first engaged the solicitor; any well informed client would know that they had not paid for that privilege. It would be a restraint that had little to do with the administration of justice (the hypothesis is that the third basis for disqualification does not apply). There is little to support such a free-standing second basis for disqualification.
60 More generally, in terms of analysing the extent to which a fiduciary obligation terminates with the retainer or survives such termination, the context and the nature of the fiduciary obligation are all important. No doubt equity considers the actual conduct of the parties rather than follows the rules of contractual formation and termination (Leeming (supra) at 10); termination of the retainer may provide evidence of the conclusion of the fiduciary relationship, but it is not conclusive (see Goubran S, "Conflicts of Duty: The Perennial Lawyers' Tale" (2006) 30(1) MULR 88 at 129-130). No doubt where the termination is motivated by the fiduciary's desire to obtain or retain a benefit in breach of the fiduciary obligation, then the obligation may survive the termination. For example, where the termination is motivated by the desire of the fiduciary to self deal, then the relevant obligation would survive termination, although in such a case one may also be in the territory of the first basis where there has been a misuse of confidential information. No doubt a fiduciary obligation can survive termination in the scenario dealt with in Cholmondeley. Perhaps indeed the fiduciary relationship as distinct from the obligation can survive the contractual termination if the relevant relationship of trust and confidence continues (Goubran at 130). But to agree to all such propositions does not carry with it acceptance of the second basis. Finn has recently discussed this question of the survival of fiduciary obligations and liabilities in his article "Fiduciary Reflections" (2014) 88 ALJ 127 at 134. He distinguished between "misuse liability" on the one hand and "conflict of duty liability" on the other hand (although his discussion principally concerned conflict of duty and interest rather than conflict of duty and duty); the "misuse liability" includes the misuse of confidential information. He said:
To put the matter shortly, the duration of the conflict of duty and interest liability is that of the relationship which enlivens it. The misuse liability, in contrast, endures for as long as the circumstances are such that the potential for misuse of fiduciary position or knowledge or opportunity resulting from it subsists.
Interestingly, in footnote 66 he was careful to separate out solicitors in relation to one of his observations, but the scenario he referred to does not appear to have relevance to the second basis; it seems more to be saying that a solicitor can be in a fiduciary relationship with an existing client where there is no formal retainer, but where there has been "a continuing relationship of trust and confidence as a result of a prior retainer or retainers" (see McMaster v Byrne [1952] 1 All ER 1362 at 1367-8 per Lord Cohen).
61 Generally, to accept that a fiduciary obligation, indeed a fiduciary relationship itself, may survive termination of a contractual retainer in some contexts does not support survival of a duty of loyalty in the present context; see also Dal Pont GE, "Conflicts of Interest: The Interplay between Fiduciary and Confidentiality Law" (2002) Australian Mining and Petroleum Law Association Yearbook 583 at 598. I agree with the view expressed by Conaglen (supra) at 194-195 that the second basis arguably distorts fiduciary principles and that apart from the first basis for disqualification, the third basis is a better approach "ensuring that fiduciary doctrine is not stretched too far out of shape in the pursuit of an objective that is not one of its core purposes".