Plaintiffs v Defendants

Supreme Court of Victoria|2015-08-28|Before: RIORDAN J

Legal practitioners - Solicitors - Application to restrain solicitor from acting against former client - Application to restrain firm from continuing to act for plaintiffs - Solicitor previously performed work in aspects of a related proceeding and generally for the former client - Relevance of confidential information to issues in the proceeding - Appropriate test to be applied - Evidential burden of proof - Real and sensible possibility of misuse - Adequacy of undertakings and information barriers

1 On 13 November 2013, the plaintiffs, by their solicitors Piper Alderman, filed the writ in this proceeding claiming principally damages and compensation arising out of investments made by the plaintiffs in 2007.

3 Apart from the parties, the following Babcock & Brown related entities are referred to in these reasons ('the Reasons'):

(a) Babcock & Brown Ltd, which is the parent company of the Babcock & Brown group of companies. It is now in liquidation.

(b) BBGP Managing General Partner Limited, which was the former managing partner of Babcock & Brown Global Partners, another fund that invested in the acquisition of a company called Coinmach referred to in paragraph 5 below. BBGP Managing General Partner Limited was a defendant in the NSW proceeding and a plaintiff in the UK proceeding, as defined in paragraphs 13 and 14 respectively.

(c) Global Partners Fund Limited is the current managing partner of Babcock & Brown Global Partners. Global Partners Fund Limited was the plaintiff in the NSW proceeding and a defendant in the UK proceeding.

4 Subject to Ms Moore and Piper Alderman giving certain undertakings to the Court, I have decided that this application should be dismissed on the basis that there is no real and sensible risk of misuse of the confidential information as described in these Reasons and Confidential Schedules. In summary, the reasons for this conclusion are as follows:

(a) The confidential information is not relevant to any issue of fact or law pleaded in the current proceeding.[1]

(b) The confidential information would not currently be of any real utility to the plaintiffs for broader purposes, which I have referred to as tactical purposes.[2]

(c) Even if the confidential information was to be recalled in detail, it is not apparent how it could be used for strategic purposes in advancing the plaintiffs' case adversely to the interests of the defendants.[3]

(d) I have found that no confidential information has been used or communicated by Ms Moore to other persons in Piper Alderman.[4]

(e) If any aspect of the confidential information was to become of significance for any purpose:

(i) the prospects of the confidential information being recalled by Ms Moore in any form which would be of utility to the plaintiffs are remote because Ms Moore's involvement was over four years ago[5] as a junior lawyer, who had no overall responsibility for the conduct of matters for the former client;[6] and she will have no further involvement in the conduct of the matter;[7] and

(ii) the undertakings and information barriers should be sufficient to preserve the confidentiality of the information.[8]

5 In summary, the plaintiffs' allegations in the current proceeding are as follows.

(a) Coinmach Service Corporation ('Coinmach') was a company providing laundry equipment and services to multi-family housing properties in the United States of America, which, in 2007, solicited bids for the acquisition of Coinmach, its associates and its affiliates.

(b) On 10 May 2007, BBLP and/or BBIPL was selected as the preferred bidder for Coinmach and they negotiated an equity commitment agreement with Coinmach, the Royal Bank of Scotland ('RBS') and others.

(c) The terms of the equity commitment agreement included the following:

(i) On completion, BBLP would be entitled to an origination fee of approximately US$21.6 million.

(ii) If the agreement was cancelled, the BBLP and/or BBIPL would be required to pay a cancellation fee of US$17 million.

(d) Prior to November 2007, the B&B defendants introduced the plaintiffs to an investment in the entity which was to acquire Coinmach.

(e) By November 2007, RBS had assessed that the deteriorating financial condition of Coinmach meant that its value was below the purchase price; and offered to the B&B defendants to pay the whole of the cancellation fee if the Coinmach transaction was cancelled ('the RBS proposal').

(f) The B&B defendants rejected the RBS proposal and counter-offered that it would withdraw from the Coinmach transaction if RBS paid both the cancellation fee and the origination fee payable to BBLP ('the counter-offer'). RBS rejected the counter-offer.

(g) RBS, the B&B defendants and the majority vendor Coinmach shareholder entered into an agreement apparently to give RBS some comfort on the completion of the Coinmach transaction ('the RBS preference agreement').

(h) On 14 November 2007, the first plaintiff entered into a letter of commitment to invest US$25 million in the Coinmach transaction to acquire an indirect equity interest in Coinmach and paid the US$25 million on 15 November 2007.

(i) On 20 November 2007, the Coinmach acquisition was completed.

(j) By 2009, the value of the plaintiffs' investment in Coinmach was effectively destroyed and, as a result, the loss on the investment was in excess of US$23 million.

6 The plaintiffs claim that the B&B defendants are liable for these losses because of their breaches of fiduciary duty, their participation in breaches of fiduciary duties by others; and their misleading and deceptive conduct constituted by non-disclosure of the RBS proposal, the counter-offer and the RBS preference agreement.

7 By letter dated 9 February 2009 to BBLP (copied to its parent company Babcock & Brown Ltd in Sydney), Global Partners Fund Limited foreshadowed a claim arising out of the investment by Babcock & Brown Global Partners in Coinmach. Global Partners Fund Limited was the new managing partner of the Babcock & Brown Global Partners, which was another investor that had invested approximately US$70 million in Coinmach. The letter stated that it had recently been informed of the RBS proposal and alleged that the failure to disclose the RBS proposal was a breach of fiduciary duty. It claimed that, as a result, certain funds held in escrow, as part of the Coinmach acquisition, were held on constructive trust. The letter was sent as an attachment to an email dated 12 February 2009 from Mr Edward Hanson of Global Partners Fund Limited to Mr Michael Brandt, the regional head and Chief Operating Officer of BBLP in North America.

8 On 13 March 2009, Babcock & Brown Ltd was placed in voluntary administration.

9 By email dated 26 April 2009 to Mr Brandt, Mr Hanson referred to his letter dated 9 February 2009 requesting information about the status of the funds in escrow and sought an assurance from BBLP that it was taking all steps to protect Babcock & Brown Global Partners' interests.

10 By a report to creditors dated 12 August 2009, the administrators of Babcock & Brown Ltd reported to the creditors about the company's business, property, affairs and financial circumstances pursuant to s 439A(4) of the Corporations Act 2001 (Cth). Relevantly, an 'Impairment Review' on page 44 included a table titled 'FY 2008 Balance Sheet Movement' that listed 10 key segment asset impairment charges including 'Coinmach-Equity (US entity)'. Pursuant to s 439A of the Corporations Act 2001 (Cth), the administrator was required to give the report, together with the written notice of the meeting, to the company's creditors.

11 On 24 August 2009, the creditors of Babcock & Brown Ltd voted to place the company in liquidation.

12 By letter dated 29 January 2010 to Freshfields Bruckhaus Deringer (the solicitors for BBGP Management General Partner Limited), Slaughter & May (the solicitors for Global Partners Fund Limited) responded to a letter dated 23 December 2009, in which a demand on behalf of BBGP Managing General Partner Limited for accrued management fees and compensation for its removal of the managing general partner of Babcock & Brown Global Partners. Essentially, the issues in the correspondence were as follows:

(a) Babcock & Brown Global Partners was another member of the investing consortium and invested approximately US$70 million in the Coinmach acquisition.

(b) BBGP Managing General Partner Limited had been the managing general partner of Babcock & Brown Global Partners and had subsequently been replaced as the managing general partner by Global Partners Fund Limited.

(i) a demand by BBGP Managing General Partner Limited for its outstanding fees and compensation for its removal as general manager; and

(ii) a counterclaim by Global Partners Fund Limited, on behalf of Babcock & Brown Global Partners, for damages suffered by reason of its investment of US$70 million in the Coinmach acquisition.

13 On 29 January 2010, Global Partners Fund Limited filed a Commercial List Statement in the Supreme Court of New South Wales against Babcock & Brown Ltd, BBIPL, BBLP and BBGP Managing General Partner Limited claiming damages arising from the investment of about US$70 million in the Coinmach transaction. The claim alleged a breach of fiduciary duty against BBGP Managing General Partner Limited and accessorial liability against the other defendants essentially based on non-disclosure of the RBS proposal ('the NSW proceeding').

14 On or about 1 February 2010, BBIPL, BBLP and BBGP Managing General Partner Limited filed proceedings against Global Partners Fund Limited and Babcock & Brown Global Partners in the Commercial Court of the Queen's Bench Division of the High Court of Justice in England ('the UK proceeding') claiming about

€6 million in outstanding fees and €10 million compensation for its removal as managing general partner.

15 On or about 4 February 2010, the plaintiffs in the UK proceeding applied to the Commercial Court of the Queen's Bench Division of the High Court of Justice in England for an anti-suit injunction in relation to the NSW proceeding. The parties subsequently agreed that the hearing on the anti-suit injunction ought to be deferred until after judgment was delivered in the NSW proceeding on a range of jurisdictional challenges being brought by the defendants in that proceeding.

16 On 11 February 2010, the defendants in the NSW proceeding filed notices of motion seeking orders that the action should not continue in Australia for jurisdictional and other reasons.

17 On 12 April 2010, the New South Wales Supreme Court dismissed the NSW proceeding on jurisdictional grounds;[9] and the dismissal was upheld on appeal on 12 August 2010.[10]

18 Between 10 July 2009 and 4 April 2011, there were communications with respect to insurance matters, in respect of which the B&B defendants claim confidentiality. A summary of these communications is set out in Confidential Schedule A.

19 On 9 August 2010, Ms Moore was employed as a solicitor in the Sydney office of Freehills (which in the Reasons I will refer to as Freehills despite the fact that its name was changed to Herbert Smith Freehills in 2012). She had been admitted to practise as a solicitor on 17 December 2009 and had been employed by Clayton Utz in Melbourne prior to commencing at Freehills in Sydney.

20 Between 13 August 2010 and 7 September 2010, Ms Moore undertook certain work with respect to insurance matters, in respect of which the B&B defendants claim confidentiality. A summary of this work is set out in Confidential Schedule B.

21 Between 13 August 2010 and 1 November 2010, the B&B defendants allege that 'Ms Moore reviewed, and advised on, confidential material relating to the disposition of the [NSW proceeding]'. A summary of this work is set out in Confidential Schedule C.

22 Between 3 September 2010 and 28 June 2011, the B&B defendants allege that 'Ms Moore reviewed and analysed confidential and confidential and privileged insurance material'. A summary of this work is set out in Confidential Schedule D.

23 Between 8 October 2010 and 5 November 2010, the B&B defendants allege that 'Ms Moore reviewed and advised on certain deeds of indemnity between BBIPL and some of its directors and officers'. A summary of this work is set out in Confidential Schedule E.

24 Between 16 December 2010 and 10 August 2011, the B&B defendants allege that 'Ms Moore reviewed confidential material in relation to settlement and mediation strategy and other matters'. A summary of this work is set out in Confidential Schedule F.

25 On 22 August 2012, Ms Moore resigned from Freehills and commenced employment at Piper Alderman on 17 September 2012. Since that time, Ms Moore has worked in the Dispute Resolution practice group in the Sydney office under the supervision of Mr Gordon Grieve. Mr Grieve has been the partner responsible for the conduct of this proceeding.

26 On 13 November 2013, this proceeding was commenced by the filing of a generally indorsed writ. Prior to the filing of the writ, Ms Moore deposes that the work undertaken by her with respect to this claim was that, on 29 April 2013, she was instructed by Ms Simone Selkirk, at the time a senior associate at Piper Alderman, to attend the Supreme Court of New South Wales to inspect the public file of the NSW proceeding. Later that day, Ms Moore attended the registry and took copies of the following documents:

(d) Affidavit of Jonathan Philip Brook (which included an overview of the UK proceeding and the background of the Coinmach transaction).

(e) Affidavit of Peter Keel (which included a Babcock & Brown private placement memo, an internal Babcock & Brown letter regarding RBS, and the witness statement of Mr Hanson).

To the best of her recollection, the inspection of the file was the first time that she had seen the Commercial List Statement in the NSW proceeding. In cross-examination, it was put to her that the Commercial List Statement was on her Babcock & Brown working file from her time at Freehills ('B&B working file') and she gave evidence that she had no recollection of it and was therefore unable to say whether she had read it or not.

27 Prior to the filing of the writ on 13 November 2013, Ms Moore deposed that her role 'was limited to draft wording and incorporating suggestions by the partner and senior associate' including 'reviewing the writ for referencing and grammatical errors.' She maintains that she 'had no input into the strategy of the Writ claims or the basis for the Writ claims being made.'

28 From 31 July 2014, Ms Moore assumed the day-to-day handling of the current proceeding as a senior associate at Piper Alderman. From this date, she deposed that her role consisted of the following:

23.1 Arranging for the service of the Writ on the Defendants in November 2014;

23.2 Preparing the brief to junior counsel for the hearing of the ex parte application for the extension for the service of the Writ, heard before the Associate Justice Lansdowne on 3 December 2014;

23.3 Preparing a brief to counsel to settle the Statement of Claim;

23.4 Correspondence between the solicitors for each of the parties to the Proceedings and the Court in relation to a timetable for the filing of pleadings and applications pursuant to rule 8.08 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic);

23.5 Providing copies of documents referred to in the Writ and the Statement of Claim to the parties; and

23.6 Preparing the brief to junior and senior counsel in relation to the Defendants' Summonses returnable on 14 April 2015 before Associate Justice Lansdowne.

29 The writ was served on the B&B defendants in October 2014 and Ms Moore has deposed to the fact that she was involved in discussions at meetings between Piper Alderman partners Mr Greg Whyte and Mr Gordon Grieve in relation to the preparation of the statement of claim. Her role at these meetings was to record the details of the discussions and, where instructed, draft amendments to the wording of the draft statement of claim in accordance with the partners' specific instructions. This evidence was corroborated by Piper Alderman partners, Mr Grieve and Mr Whyte, who also gave evidence that Ms Moore prepared the graphs that were incorporated in the statement of claim.

30 On 3 December 2014, she attended on a teleconference call with Mr Whyte and a representative of the plaintiffs. She took notes of the discussion.

31 For the period 18 December 2014 to 23 January 2015, Ms Moore has deposed that she did not undertake any work on this proceeding whilst an investigation was made by Dr Malcolm Quirey, Special Counsel at Piper Alderman, as to whether a conflict arose with her working on the matter.

32 On 23 January 2015, Ms Moore was told by Dr Quirey of Piper Alderman that he would be writing to Freehills that no conflict existed in her maintaining day-to-day management of the proceedings.

33 On 10 February 2015, Ms Moore attended the Brisbane office of Piper Alderman to meet with Mr Whyte for the purpose of preparing an annotated statement of claim, which would identify the location of documents in the plaintiffs' possession, for the purpose of preparing a hyperlinked electronic version. Ms Moore has deposed that she and Mr Whyte used the documents produced to Piper Alderman and publicly available documents for this purpose. She has further deposed that subsequent to the meeting of 10 February 2015, Mr Whyte drafted changes to the statement of claim and that he did not consult or ask her to do any work on the drafting of the statement of claim. She stated 'By the end of 2014, and over the period until the statement of claim was filed and served, Mr Whyte completely redrafted the statement of claim.'

34 On 23 February 2015, Ms Moore reviewed the statement of claim for typographical errors prior to it being filed and served on that day.

35 On 27 March 2015, Piper Alderman provided a disc containing copies of the hyperlinked statement of claim, and documents referred to therein, to Freehills.

Correspondence from Freehills regarding 'apparent conflict of interest'

36 By letter dated 18 December 2014 to Piper Alderman (re 'Apparent conflict of interest'), Freehills set out its concerns about Ms Moore's involvement in acting for the plaintiffs. The letter set out the concerns as follows:

We write on behalf of Babcock & Brown International Pty Limited (BBIPL), for whom we act in the above proceedings.

It has recently come to our attention that McKenzie Moore, a solicitor formerly employed by Herbert Smith Freehills (HSF), is acting for the plaintiffs in the Coinmach proceedings as a Senior Associate under your supervision. Ms Moore is listed as Piper Alderman's 'contact' on your

8 December 2014 letter to us.

During her time at HSF, Ms Moore acted for BBIPL and its wholly-owned subsidiary, Babcock & Brown Australia Pty Limited (BBA), billing almost 500 hours across eight separate matters. Of this total, Ms Moore spent approximately:

260 hours working on insurance and employee indemnity related issues relevant to the conduct of the Coinmach proceedings; and
10 hours working on issues directly related to the Coinmach transaction.

Ms Moore's previous work for BBIPL and BBA placed her in possession of confidential and privileged information belonging to BBIPL and BBA that is relevant to the conduct of the Coinmach proceedings.

Our client is accordingly concerned that:

Ms Moore is in a position of conflict in acting for the plaintiffs in the Coinmach proceedings; and
Piper Alderman itself may be in a position of conflict in acting for the plaintiffs in the Coinmach proceedings.

Please provide us with the following information and respond to the following queries by 4.00pm on Tuesday, 23 December 2014 so that our client can appropriately consider its position prior to determining what steps may be required to protect its confidential and privileged information:

A description of the nature and extent of Ms Moore's work for Piper Alderman on this matter (to the extent possible without disclosing any confidential or privileged information belonging to your clients). For example, whether Ms Moore was involved in the preparation of the plaintiffs' writ, general indorsement of claim or pending statement of claim;
Was Piper Alderman previously aware of the apparent conflict of interest between Ms Moore's previous work for BBIPL and BBA and her work at Piper Alderman for the plaintiffs in the Coinmach proceedings;
If so, what steps, if any, have been taken by Piper Alderman to date to address the apparent conflict of interest between Ms Moore's previous work for BBIPL and BBA and her work at Piper Alderman for the plaintiffs in the Coinmach proceedings; and

4 In either event:

(a) Does Piper Alderman intend to continue acting for the plaintiff (sic) in the Coinmach proceedings;

(b) If yes, what further steps does Piper Alderman propose to take to address the apparent conflict of interest between Ms Moore's previous work for BBIPL and BBA and her work at Piper Alderman for the plaintiffs in the Coinmach proceedings, including whether Piper Alderman intends to continue to deploy Ms Moore to act for the plaintiffs in the Coinmach proceedings.

We also note that your partner, Mr Greg Whyte, is currently acting in separate proceedings against our client in the Supreme Court of Victoria (proceedings 6563 of 2013). Given the potential for Ms Moore's previous work for BBIPL and BBA to conflict with Piper Alderman's role in SC I 6563 of 2013, we have written to Mr Whyte separately to raise this issue (copy attached) and have copied him on this letter.

We look forward to hearing from you.

37 By letter dated 23 December 2014 to Freehills, Piper Alderman stated:

We refer to your letter of 18 December 2014.

Based on matters of which we are presently aware there does not appear to be any conflict of interest.

However, we are hesitant to respond in detail without carefully investigating the matters you have raised. Unfortunately, Ms Moore is absent on leave. She returns to the office on 12 January 2015. Ms Moore will not have any involvement in the matter pending the issues you have raised being investigated and further addressed.

38 By letters dated 13 January 2015 and 21 January 2015 to Piper Alderman, Freehills noted that Ms Moore had returned to work on 12 January and set response deadlines of 16 January and 23 January respectively. The letter of 21 January 2015 foreshadowed that if a substantive response was not received by 23 January, the B&B defendants would take further steps to protect their confidential and privileged information.

39 By letter dated 23 January 2015 to Freehills, Piper Alderman responded in substance denying that there was any basis for alleging a conflict of interest when questioning particulars of information acquired by Ms Moore.

40 After her return from annual leave on 24 January 2015, Ms Moore resumed work on the file.

41 By letter dated 19 February 2015 to Piper Alderman, Freehills responded in detail identifying the basis in law and fact for their contention that Ms Moore had a conflict of interest. At the end of the letter, Freehills requested answers to the following questions by 4:00 pm on 26 February 2015:

1. Does Piper Alderman intend to continue to deploy Ms Moore to act for the plaintiffs in the Coinmach proceedings?

2. Does Piper Alderman intend to continue acting for the plaintiffs in the Coinmach proceedings?

3. If yes, on what basis does Piper Alderman consider itself able to continue acting for the plaintiffs in the Coinmach proceedings given a key member of its legal team has been in a position of conflict since she was first tasked by Piper Alderman to work for the plaintiffs on this matter?

42 By email dated 24 February 2015 to Freehills, Piper Alderman acknowledged the letter and said that they would respond after further investigations and assessments were completed.

43 By email dated 25 February 2015 to Piper Alderman, Freehills expressed their client's 'extreme concern' and requested the matter be investigated as a matter of urgency and a response be provided by the deadline of 26 February 2015 as set out in their letter of 19 February 2015.

44 By letter dated 23 March 2015 to Piper Alderman, Freehills noted that they had not received a substantive response to their letter of 19 February 2015 by the requested deadline of 26 February 2015. The letter went on to put Piper Alderman on notice that Freehills was instructed to bring an application restraining Ms Moore and Piper Alderman from acting for the plaintiffs in this proceeding. Freehills suggested that, as a result of the need to maintain confidentiality, Piper Alderman may need to engage independent solicitors and counsel.

45 On 1 April 2015, the B&B defendants filed the summons under consideration.

46 On 8 April 2015, Ms Moore was taken off the file and, from that date, the electronic documents relating to the file were kept in a secure workspace, which is inaccessible to Ms Moore.[11]

47 By letter dated 10 April 2015 to Freehills, Piper Alderman advised that Ms Moore would not continue to be involved in the proceeding and put a proposal for resolution, which included establishing an information barrier.

48 On 15 April 2015, Ms Moore signed an undertaking in the following terms:

That I have not and will not discuss, use or otherwise disclose to any person any confidential information that I obtained relating to Babcock & Brown International Pty Ltd and other Babcock & Brown entities, or the directors or officers of those entities (the confidential information) whilst in the employ of Herbert Smith Freehills.
That in the event I recall aspects of the confidential information in connection with any work done by me at Herbert Smith Freehills for Babcock & Brown International Pty Ltd and any other members of the Babcock & Brown group or its directors, I will not disclose that information to any person, including any person at Piper Alderman working on the current Coinmach proceedings.

49 By letter dated 20 April 2015 to Piper Alderman, Freehills noted that Piper Alderman 'now belatedly accepts that Ms Moore cannot be involved in this proceeding'. Freehills outlined its clients' subsisting concerns and requested further information and documents.

50 By letter dated 22 April 2015 to Freehills, Piper Alderman responded to the letter of 20 April 2015 and refused its request for information and documents and stated that Piper Alderman would oppose Freehills' application for such documents.

51 By letter dated 26 May 2015 to Piper Alderman, Freehills made an open offer to resolve the matter on the basis of certain undertakings to be given by Ms Moore and Piper Alderman.

52 By letter dated 4 June 2015 to Freehills, DLA Piper responded to Freehills' open letter of 26 May 2015 but rejected the offer and made a counter-offer.

B&B defendants' claims of confidential information

53 As a result of Ms Moore's involvement in the insurance work referred to in Confidential Schedule B, Ms Moore had access to each of the documents referred to in Confidential Schedule A. The B&B defendants allege that, as a consequence, she became aware of the confidential information relating to the D&O policy, referred to in Confidential Schedule G. It should be noted that it was conceded that the fact that there was a D&O policy in respect of which the B&B defendants were insured was not confidential.

54 As a result of her involvement in the work relating to the disposition of the NSW proceeding, referred to in Confidential Schedule C; and the confidential and confidential and privileged insurance material referred to in Confidential Schedule D, the B&B defendants allege that Ms Moore had access to the confidential matters referred to in Confidential Schedule H.

55 As a result of her involvement in reviewing and advising on certain deeds of indemnity entitlements between BBIPL and some of its directors and officers, referred to in Confidential Schedule E, the B&B defendants allege that she was aware of the confidential information referred to in Confidential Schedule I.

56 As a result of her involvement in reviewing confidential material in relation to settlement and mediation strategy and other matters, referred to in Confidential Schedule F, the B&B defendants allege that she was aware of the confidential information referred to in Confidential Schedule J.

57 The court will intervene to restrain a lawyer from continuing to act against a former client in the following three circumstances:

(a) to ensure the protection of confidential information;

(b) to ensure the proper administration of justice;

58 The duty of loyalty is based on the judgment of Brooking JA in Spincode Pty Ltd v Look Software Pty Ltd.[12] Whether there is an independent duty of loyalty is the subject of considerable debate, much of which was canvassed by Beach J (in the Federal Court) in Dealer Support Services Pty Ltd v Motor Trades Association of Australia Ltd.[13] Beach J argued persuasively that the concept of a residual duty of loyalty, after the termination of a retainer, should be rejected. It is not necessary for me to consider this question because the B&B defendants do not rely upon the duty in support of their application for an injunction against Piper Alderman; and Ms Moore is prepared to give an undertaking to the Court that she will not be further involved in the conduct of this proceeding on behalf of the plaintiffs.

59 Accordingly, there is no issue that Ms Moore will be restrained (by her own undertaking) from being further involved in the conduct of this proceeding on behalf of the plaintiffs.

60 At law, Ms Moore's knowledge cannot be imputed to Piper Alderman;[14] but the B&B defendants do press for an injunction against Piper Alderman to prevent them from retaining carriage of the matter on the grounds that it is necessary to ensure the protection of confidential information and the proper administration of justice.

The appropriate test on an injunction to restrain a lawyer from acting

61 The precise test to be applied in determining an application to restrain a lawyer from acting against a former client to protect confidential information has been the subject of considerable debate. However, it is now clear that the test propounded by Cozens-Hardy MR in Rakusen v Ellis, Munday and Clarke, being that the court 'must be satisfied that real mischief and real prejudice will in all human probability result if the solicitor is allowed to act', is not the law.[15]

62 In Re a Firm of Solicitors, Parker LJ, rejected the test propounded by Cozens-Hardy MR in Rakusen; and said that the proper approach 'is to consider whether a reasonable man informed of the facts might reasonably anticipate such a danger' of breach of the duty not to communicate confidential information.[16]

63 In Mallesons Stephen & Jaques v KPMG Peat Marwick, Ipp J described the appropriate test in the following terms:

[I]f, by a solicitor acting for a new client, there is a real and sensible possibility that his [the solicitor's] interest in advancing the case of the new client might conflict with his duty to keep information given to him by the former client confidential, or to refrain from using that information to the detriment of the former client, then an injunction will lie.[17]

64 In Farrow Mortgage Services Pty Ltd (in liq) v Mendall Properties Pty Ltd, Hayne J also rejected the test in Rakusen; and said that he saw no difference in the tests applied by Parker LJ and Ipp J.[18] His Honour considered that an injunction should be granted 'if there is a real and sensible possibility of misuse of confidential information'.[19]

65 In Bolkiah Prince Jeffri v KPMG,[20] Lord Millett said that where the court's intervention is sought by a former client, the following approach should be adopted:

It is incumbent on a plaintiff who seeks to restrain his former solicitor from acting in a matter for another client to establish (i) that the solicitor is in possession of information which is confidential to him and to the disclosure of which he has not consented and (ii) that the information is or may be relevant to the new matter in which the interest of the other client is or may be adverse to his own. Although the burden of proof is on the plaintiff, it is not a heavy one. The former may readily be inferred; the latter will often be obvious. I do not think that it is necessary to introduce any presumptions, rebuttable or otherwise, in relation to these two matters. But given the basis on which the jurisdiction is exercised, there is no cause to impute or attribute the knowledge of one partner to his fellow partners. Whether a particular individual is in possession of confidential information is a question of fact which must be proved or inferred from the circumstances of the case.[21]

66 However, Lord Millett stated that, after the former client has established that:

(a) the firm is in possession of information which was imparted in confidence; and

(b) the firm is proposing to act for another party with an interest adverse to the former client in a matter to which the information is or may be relevant;

'the evidential burden shifts to the defendant firm to show that even so there is no risk that the information will come into the possession of those now acting for the other party'.[22] If the court was satisfied that 'there is no risk of the disclosure or misuse of confidential information',[23] there would be no basis for relief. As to the degree of risk, he said that a risk 'must be a real one, and not merely fanciful or theoretical. But it need not be substantial.'[24]

67 In Newman v Phillips Fox,[25] Steytler J considered that there was little practical difference between the tests adopted in Mallesons, Farrow or Bolkiah.[26]

68 In World Medical Manufacturing Corporation v Phillips Ormonde & Fitzpatrick Lawyers, Gillard J held that the principles laid down in Bolkiah, including the reversal of the burden of proof about risk, should be followed in Victoria.[27]

69 In Sent v John Fairfax Publication Pty Ltd, Nettle J said that an injunction would be granted if:

a reasonable person informed of the facts might reasonably anticipate a danger of misuse of confidential information of a former client and that there is a real and sensible possibility that the interest of the practitioner in advancing the case in the litigation might conflict with practitioner's duty to keep the information confidential, and to refrain from using that information to the detriment of the former client.[28]

70 Applying this approach to the present application, I am required to be satisfied of the following:[29]

(i) the alleged information was imparted to Freehills (and thereby Ms Moore) in confidence;

(ii) Ms Moore is in possession of confidential information;

(iii) the information is or may be relevant to the new matter in which the interest of the new client is or may be adverse to the former client.

(b) If 'Yes' to all of the above, has Piper Alderman established that there is no real and sensible risk of the misuse of the confidential information in the sense that the interest of 'the practitioner in advancing the case in the litigation might conflict with [the] practitioner's duty to keep the information confidential, and to refrain from using that information to the detriment of the former client.'[30]

71 Both parties accepted that the test of confidentiality was analogous to the equitable obligation of confidence which was explained by Gummow J in Smith Kline & French Laboratories (Aust) Ltd v Secretary, Department of Community Services and Health as follows:

A general formulation apt for the present case of an equitable obligation of confidence has four elements: (i) the plaintiff must be able to identify with specificity, and not merely in global terms, that which is said to be the information in question, and must be able to show that; (ii) the information has the necessary quality of confidentiality (and is not, for example, common or public knowledge); (iii) the information was received by the defendant in such circumstances as to import an obligation of confidence, and (iv) there is actual or threatened misuse of that information, without the consent of the plaintiff.[31]

72 There is no issue that the B&B defendants have identified the confidential information with sufficient specificity as outlined in the Confidential Schedules. Further, it has been established that in each case this information was part of a communication with Freehills for the purpose of obtaining or giving legal advice; and therefore has the necessary quality of confidentiality and privilege.

73 The plaintiffs argued that certain documents were not 'confidential against the plaintiffs'. In my opinion, communications (other than those about matters of common or public knowledge) between a client and a solicitor for the purposes of obtaining or giving legal advice would have the necessary ingredient of confidentiality against all persons unless, by reason of implied direction or otherwise, the solicitor was authorised to provide the confidential communication to the third party. The plaintiffs did not contend that, in this case, Freehills would have been so authorised.

Is Ms Moore in possession of confidential information?

74 The B&B defendants have established that confidential and privileged communications were communicated between the B&B defendants and Freehills; and that Ms Moore had access to the confidential information, as alleged.

Ms Moore's knowledge of the confidential information falls into three categories:

(a) Ms Moore drafted or read the information and it can be inferred that she was aware of it at least at the time she carried out the work.

(b) Ms Moore had access to the information in the sense that it was on her B&B working file or was emailed to her; but the records do not show whether she read it.

(c) Ms Moore could be aware of the information, if she was able to combine parts of the information, referred to in sub-paragraphs (a) & (b) to which she had access at different times, and drew together the strands of information to form a conclusion.

Is the information relevant to the new matter in which the interests of the new client is or may be adverse to the former client?

75 While it may be accepted that there were confidential and privileged communications between the B&B defendants and Freehills; and that Ms Moore had access to the confidential information, this case raises issues quite distinct from the usual issues on similar applications being as follows:

(a) Ms Moore was never engaged on the other side in this proceeding and the confidential information to which she was exposed is irrelevant to all factual and legal issues in this proceeding. Nothing in the confidential information could impact on any of the defendants' prospects of defending the issues pleaded in this proceeding.

(b) With one exception,[32] the confidential information could only be relevant to whether or not the defendants to this proceeding may be entitled to indemnity under a policy of insurance.[33] This would only be an issue for the plaintiffs if it were perceived that the defendants had insufficient funds to meet any judgment. Otherwise, the plaintiffs would be entirely unconcerned about the defendants' insurance arrangements.

(c) There is no evidence indicating that there is any real issue about the capacity of the defendants to pay, either in the minds of the plaintiffs or in reality. Apart from the fact that the parent company, Babcock & Brown Ltd, was placed in liquidation in 2009, the only evidence as to the financial position of the first defendant came from Mr Marjoribanks who deposed:

I am also informed by Mr Michael Larkin, CEO of BBIPL, and believe, that BBIPL continues to trade with an agreed "pay as you can" arrangement with its banking syndicate, to whom it presently owes over AUD$4 billion.

(d) There is no evidence as to the capacity of the second defendant or any other defendant to meet any future judgment.

(e) There is no evidence that the B&B defendants or any other defendants proposed to make capacity to pay a strategic issue in this proceeding and, on the basis of the evidence, I would not be prepared to draw such an inference. Nor was it explained that the B&B defendants might wish to raise capacity to pay as an issue; but they are somehow prejudiced by reason of the confidential information in possession of Ms Moore.

76 I acknowledge that both the B&B defendants and its insurers wish to maintain confidentiality about their private arrangements, as they are entitled. However, before this Court will require a firm to cease to act for a party, it must be satisfied that the confidential information is relevant. I was not taken to any authority where a practitioner was restrained, on the misuse of confidential information ground,[34] on the basis of information that was not relevant to any factual or legal issue in the proceeding before the court.

77 Insurance information could become, in a strategic sense, relevant in some situations:

(a) If the plaintiffs were considering filing a claim but were concerned about whether ultimate success would result in a recovery. That is not this case. The plaintiffs' decision to bring this claim was made prior to Ms Moore joining Piper Alderman and it was not put to any witness or in submissions, how, if the plaintiffs became aware of the confidential information, it would impact on the manner in which the claim would proceed, which was adverse to the defendants' interests.

(b) If the defendants proposed to disclose their financial position for the purpose of inducing the plaintiffs to take a lesser sum on the basis of an enforcement risk. There was no evidence of this intention or, as noted above, of the fact that the defendants could establish such a risk.

(c) If the plaintiffs succeeded in their claim, the availability of insurance could become relevant to recovery. However, at that point, by the appointment of a receiver or liquidator or otherwise, the plaintiffs may be able to access insurance information in any event.

78 Even if I should infer, in the absence of evidence, that information about the defendants' insurance position may become relevant in the proceeding, it is not apparent how the confidential information could be used in advancing the plaintiffs' case adversely to the interests of the defendants; or at all. With respect to each specified category of the confidential information, I make the comments referred to in Confidential Schedule K.

79 Nothing I have said in Confidential Schedule K should be interpreted as suggesting that Ms Moore is not obliged to maintain confidentiality with respect to all confidential information, which she acquired during her employment at Freehills. It is integral to our system of justice that clients can communicate confidentially with their lawyers secure in the knowledge that the communication of such information will be kept confidential and will not be used against them. The public's confidence in this protection is essential to allow full and frank disclosure between client and lawyer.[35]

80 With respect to the risk of disclosure, in my opinion, the salient features of this case are as follows:

(a) Ms Moore, during her employment at Freehills, was a very junior solicitor who was given specific tasks to undertake as directed by more senior lawyers. There is no suggestion that she consulted with any of the defendants or was involved in any strategic planning or decision-making. She at no time acted for the B&B defendants with respect to the claims in the current proceeding, which was not, at that time, on foot. This is in stark contrast to a case where lawyers with the conduct of the proceedings seek to change sides;[36] or a firm with substantial confidential information seeks to act against a former client by establishing Chinese walls.[37]

(b) Ms Moore has given evidence that she has no recollection of the confidential information.

(c) The B&B defendants submitted that I should reject Ms Moore's evidence, in summary, on the basis that it was implausible that she would not remember the tasks she undertook while working at Freehills; and her recollection of aspects of her time working at Freehills were shown to be inaccurate. I consider the fact that she could not recall all the details of designated tasks undertaken 4 or 5 years ago to be unremarkable; and the fact that she was inaccurate about aspects of her work at that time to be consistent with the fading of memory over time. Ms Moore was subjected to strenuous cross-examination and, having observed her in the witness box, I accept her as a credible witness.

81 Further, it was submitted on behalf of the B&B defendants that Ms Moore's lack of a present recollection of the confidential information was irrelevant because of the possibility that it was liable to be recalled or the information used subconsciously. I accept that, despite her current lack of recollection, there is a prospect that she may recall aspects of the confidential information, particularly if she were to continue to work on the file and the confidential information was to become somehow relevant to this proceeding. However, I reject the proposition that this means that there is a real and sensible risk that the interest of 'the practitioner in advancing the case in the litigation might conflict with practitioner's duty to keep the information confidential, and to refrain from using that information to the detriment of the former client' for the following reasons:

(a) In Sent v John Fairfax Publication Pty Ltd,[38] Queen's Counsel was restrained from acting against a party with whom he had had a conference 14 years earlier about an issue relevant to the action. Nettle J considered that his recollection was liable to be revived, particularly 'by what is said and done in the preparation which will be undertaken in the lead-up to trial and during the trial itself'.[39]

(b) As I have said above, I consider that there is a prospect of Ms Moore's memory being revived in some respect, particularly if she were to continue to work on the file and an issue, to which the confidential information could be relevant, arose. The example given by the B&B defendants was that

Ms Moore's memory may be refreshed 'during any future settlement discussions'. However, to avoid any risk that the confidential information, if recalled, could be used to the detriment of the defendants, Ms Moore has already been removed from working on the file and will continue to have nothing further to do with the conduct of the proceeding. It is for this reason that it is, in my opinion, necessary that Ms Moore give appropriate undertakings about not participating in the matter and non-disclosure to ensure that if:

(i) a relevant issue does arise in respect of which the confidential information which could be used to the detriment of the defendants; and

(ii) Ms Moore does recall that confidential information;

there is no real and sensible risk of the misuse of the confidential information.

(c) Even if Ms Moore was to recollect some aspect of the work she performed for the B&B defendants, I consider that the fragmented nature of the manner in which she was exposed to the confidential information renders the possibility of the recollection amounting to any more than fragments, which would cause no detriment to the B&B defendants, is negligible.

82 Of course, her exclusion from the matter also avoids the risk of subconscious use. I should say that I am satisfied that there has been no subconscious use of any confidential information by Ms Moore to date for the following reasons:

(a) There is no legal or factual issue in this proceeding to which the confidential information is relevant. Accordingly, there is no issue that either would have prompted Ms Moore to recall or use any such information.

(b) Ms Moore's role has not included strategic decision-making or any other aspect of the conduct of the plaintiffs in this proceeding to which the confidential information could possibly relate.

(c) I accept the unchallenged evidence of Mr Whyte and Mr Grieve that no confidential information has been communicated to them by Ms Moore.

(d) I accept the evidence of Ms Moore on this point for the reasons previously expressed.

83 Accordingly, while recognising that the confidentiality of information must be protected, I do not consider that there is currently any issue in this proceeding to which the confidential information could be applied to the detriment of the defendants. Further, I consider that the prospect of any such issue arising is, for the reasons I have given, theoretical rather than real. In these circumstances, I must have regard to the following considerations contraindicating disqualification:

(a) It is recognised that it is in the public interest that a litigant should not be deprived of his or her choice of lawyer without good cause;[40] and the jurisdiction to restrain a lawyer from acting in a particular case is exceptional and must be exercised with caution.[41]

(b) In modern times, the flow of lawyers between large firms, as has occurred in this case, is extremely common. Lawyers taking up positions with new firms will invariably possess information, acquired from their previous position, which they are required to keep confidential. It is not in the public interest for the courts to disqualify the new firm from acting in a matter unless there is a real risk of disclosure of the confidential information that will be relevant to the action. Although I refer to the trend as being modern, as early as 1998 in his article 'Typhoid Marys: The Ethical Dilemma of Lawyers Who Switch Firms' David Coull observed:

Lawyers transferring between firms have become a significant feature of modern legal practice. Many courts have shown awareness of this change in the legal profession by considering the impact that vicarious disqualification has on the mobility of lawyers. Adopting a disqualification rule that is too strict has the potential to seriously curtail the careers of lawyers simply because of a temporary association with a large firm.[42]

(c) The costs that would be incurred by the plaintiffs in having to engage new lawyers would be very substantial and the obligation of this Court, under s 8 of the Civil Procedure Act 2010 (Vic) to seek to give effect to the overarching purpose of that Act requires the Court to give consideration to a solution that will avoid such wasted costs if the confidential information can be protected by other means.

84 It was submitted on behalf of the B&B defendants that the establishment of Chinese walls has frequently been considered to be inadequate for the purposes of protecting confidential information being used to the detriment of former clients.[43] Further, it was submitted that the fact that Ms Moore has already performed work for the plaintiffs, and accordingly there has been a delay in any implementation of an information barrier, militates against the adequacy of an information barrier in this case.[44]

85 For the reasons I have already expressed, and particularly the fact that confidential information will never be relevant to the legal and factual issues in this case and there only remains a theoretical possibility that at some point confidential information could have relevance to an issue related to enforcement, I consider that justice is best served in this case by the establishment of appropriate information barriers.

86 In my opinion, any real and sensible risk of the disclosure of confidential information relevant to this proceeding can be avoided by:

(a) Ms Moore giving an appropriate undertaking to this Court that she will not disclose any confidential information acquired during her employment at Freehills; and will not be in any way involved in the conduct of this proceeding; and

(b) Piper Alderman undertaking that it will establish information barriers in accordance with the Information Barrier Guidelines adopted by the Law Society of New South Wales on 20 April 2006 for the purpose of protecting the confidential information.

87 I consider that any proposed information barrier include the following significant features:

(a) Appropriate undertakings from personnel involved in the current proceeding.

(b) The obtaining of the clients' consent to any such confidential information not being disclosed.

88 The B&B defendants also sought the injunction on the basis of the Court's power to prevent solicitors from acting for litigants in circumstances where a fair minded, reasonably informed member of the public would conclude that the proper administration of justice required that the solicitors be prevented from acting. Intervention on this basis is an incident of the Court's inherent jurisdiction to ensure the due administration of justice to protect the integrity of the judicial process.[45] While it can be accepted that for this ground it is not necessary to establish a risk of misuse of confidential information, for the reasons that I have given in deciding that issue, I do not consider that a fair minded, reasonably informed member of the public would conclude that the proper administration of justice required such an outcome.

(b) Piper Alderman undertaking that it maintain information barriers in accordance with the Information Barrier Guidelines adopted by the Law Society of New South Wales on 20 April 2006 for the purpose of protecting the Confidential Information;

[1] See [75(a)] Reasons & Confidential Schedule K.

[3] See [77]-[78] Reasons & Confidential Schedule K.

[4] See [80(b)&(c)], [82], [83] Reasons.

[9] See Global Partners Fund v Babcock & Brown Limited (in liq) [2010] NSWC 270.

[10] See Global Partners Fund Limited v Babcock & Brown Limited (in liq) [2010] NSWCA 196.

[11] Affidavit of Mr Gordon Grieve sworn 14 April 2015, [21] cf letter of 10 April 2015 from Piper Alderman which states she was taken off the file on 2 April 2015.

[14] Newman v Phillips Fox (1999) 21 WAR 309 [32]-[36].

[15] [1912] 1 Ch 831, 835 ('Rakusen'). See also 841 (Fletcher Moulton LJ) and 843 (Buckley LJ).

[17] (1990) 4 WAR 357, 362-3 ('Mallesons').

At a glance

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Judgment (223 paragraphs)

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Legislation Cited (2)

Cases Cited (8)