Plaintiffs v Defendants

1 On 28 August 2015, I handed down reasons for my decision ('Reasons') with respect to the first and second defendant's ('the B&B defendants') application to restrain Piper Alderman and one of its employee solicitors, Ms McKenzie Moore, from further acting for the plaintiffs in this proceeding.[1] I proposed that subject to:

(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 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;

2 The matter was stood down to allow the parties the opportunity to finalise the terms of undertakings; and make submissions on the question of costs.

3 The parties have been unable to resolve an issue with respect to the undertakings to be given by Piper Alderman and have made further submissions on that question and on the question of costs.

4 By letter dated 4 September 2015 to Herbert Smith Freehills ('Freehills', the solicitors for the B&B defendants), DLA Piper (the independent representation engaged by Piper Alderman and Ms Moore, the solicitors for the plaintiffs) enclosed a draft order annexing the documents, which they submitted met the requirements proposed in the judgment. The terms of the proposed orders were as follows:

1. The undertaking by McKenzie Dove Moore in accordance with the document annexed and marked "A";
2. Piper Alderman undertaking that it will maintain the information barrier protocol as annexed and marked "B"; and
3. The court noting the Consent provided by the First and Second Plaintiffs to Piper Alderman, a copy of which is annexed and marked "C".

THE COURT ORDERS THAT

1. The Summons dated 1 April 2015 be dismissed.

2. (Costs to be determined).

5 As indicated, the order annexed three documents being the undertaking of Ms Moore, the Piper Alderman undertaking and the consent of the plaintiffs to non-disclosure by Ms Moore. No issue is taken with the form of undertaking to be given by Ms Moore or the document confirming the consent of the plaintiffs to non-disclosure by Ms Moore.

6 The Piper Alderman undertaking ('the Information Barrier Protocol') purported to establish information barriers in accordance with the Information Barrier Guidelines adopted by the Law Society of New South Wales on 20 April 2006 ('the Guidelines'), and paragraph [2] with respect to 'Information Barriers' provided as follows:

2. Information Barriers

(i) Only those Lawyers and admins approved by the Firm (those approved persons jointly and severally, the 'Personnel') will work on the Matter and each will sign an Acknowledgement to abide this Protocol with all such signed Acknowledgements to be kept together in the custody of the Compliance Officer;

(ii) Specifically, McKenzie Dove Moore, ('MM') Senior Associate with the firm, is not approved to work on the Matter;

(iii) Personnel will not initiate or engage in any discussion with MM (or with others where MM is present or in hearing proximity) concerning the Matter;

(iv) Personnel are only to use the Firm's secured intranet/internet systems for communications and Matter access and filing;

(v) Personnel will have accredited electronic access to the Matter communications and filing and to Expert for time recording;

(vi) Other lawyers and admins in the firm (unless subsequently approved) will not work on the Matter and, accordingly, Personnel will not discuss the Matter with those persons (including MM) and nor will those persons (or MM) have access to Matter communications, filing or Expert;

(vii) Personnel will be given a list (prepared by the Compliance Officer) naming all Personnel identified as approved to work on the Matter.

7 By letter dated 8 September 2015 to DLA Piper, Freehills responded to the proposals and said that the Information Barrier Protocol did not comply with the Guidelines. Relevant to that issue, the letter stated as follows:[2]

1 The IB Protocol does not comply with the Guidelines

Article 7 of the Guidelines states:

(a) Contact between personnel involved in the current matter and screened persons should be appropriately limited to ensure that the passage of information or documents between those involved in the current matter and screened persons does not take place.

(b) The law practice should consider whether it is appropriate for such personnel to have contact with the client in other matters during the current matter.

1.1 Article 7(a) of the Guidelines

The IB Protocol does not comply with article 7(a) of the Guidelines because it does not establish an appropriate regime to ensure that future contact between Ms Moore and personnel working on the Coinmach matter will be "appropriately limited".

To date, contact between Ms Moore and other personnel working on the Coinmach matter has not been appropriately limited. To the contrary, Ms Moore and Mr Grieve continue to sit next to each other in Piper Alderman's Sydney office, and on the same floor as other personnel working on the matter, approximately 20-25 metres away.

Nothing in the proposed IB Protocol prevents Ms Moore from continuing to work in close proximity to personnel working on the Coinmach matter. Instead, article 2(iii) of the IB Protocol simply requires that personnel working on the matter must not talk about the matter with Ms Moore, or to others while Ms Moore is present "or in hearing proximity".

These measures do not constitute "appropriate limits" on contact between Ms Moore and other personnel working on the Coinmach matter. This is because they cannot prevent inadvertent communications between colleagues working on the same floor of the same office over the lifespan of a matter that is likely to take at least 1-2 years to resolve.

....

Please send us a revised version of the proposed IB Protocol and an outline of the measures Piper Alderman intends to implement to ensure that contact between persons involved in the Coinmach matter and Ms Moore is appropriately limited.

If Piper Alderman cannot or does not intend to comply with article 7(a) aspect of the Guidelines, it will be unable to satisfy paragraphs 86(b) and 89(b) of the Judgment.

Our clients reserve all of their rights in this respect.

8 By letter dated 10 September 2015 to Freehills, DLA Piper responded with respect to the Information Barrier Protocol as follows:[3]

With regard to the information barrier protocol implemented by our client, we disagree with your view that it does not comply with the Guidelines. As you have rightly observed, Article 7 requires that contact between personnel involved be appropriately limited. Significantly, that relates to contact between personnel involved in the current matter and "screened persons". You will note that the definition of "screened person" in the Guidelines means a person who possesses confidential information from one retainer which is relevant to another, current retainer.

As you know, in his judgment, His Honour concluded at [85] that the allegedly confidential information will never be relevant to legal and factual issues in this case and that "... there only remains a theoretical possibility that at some point confidential information could have relevance to an issue related to enforcement ...".

The application of Guideline 7 must be considered in light of the judgment. Given the theoretical risk which might only possibly arise in the future, what has been proposed by our client is more than adequate. There could only be a breach if Ms Moore deliberately or inadvertently disclosed something relevant to the facts and issues in the current proceeding. It goes without saying that Ms Moore would not deliberately breach an undertaking to the court. It is inconceivable that she would inadvertently do so, in circumstances where she has been subjected to a very personal attack on her credibility regarding confidential information to which she may have possibly been exposed. Further the court has found that none of the information in relation to which confidentiality is claimed is relevant to the facts and issues in the case.

It follows that any risk of breach is adequately protected and has been for a long time. Notwithstanding that, again with a view to avoiding unnecessary costs, Mr Gordon Grieve is prepared to move offices, so that he will be positioned six offices away from Ms Moore. Mr Grieve already uses separate administrative support to that used by Ms Moore.

Piper Alderman will be moving to new offices in two months or so and physical separation of the kind proposed above will be maintained in the new offices premises.

9 By letter dated 11 September 2015 to DLA Piper, Freehills responded to the proposal of moving Mr Grieve six offices away from Ms Moore as follows:[4]

However, Piper Alderman's information barrier protocol remains non-compliant with article 7(a) of the Guidelines and paragraphs [86(b)] and [89(b)] of the Judgment.

Your clients' suggestion that article 7(a) can be satisfied simply by moving Mr Grieve six offices away is unsatisfactory. It does not sufficiently alter Ms Moore's close proximity to Mr Grieve. Furthermore, your letter does not detail what measures, if any, will be implemented to ensure physical separation between Ms Moore and other personnel in Piper Alderman's Sydney office who work on the Coinmach matter.

Your suggestion that Ms Moore is not strictly a "screened person" for the purposes of article 7(a) is also not correct. Plainly, his Honour considered Ms Moore to be a "screened person" for the purpose of implementing the Guidelines and the orders at paragraphs 86(b) and 89(b) of the Judgment.

Furthermore, his Honour has already had regard to the matters raised in your letter when he ordered that Piper Alderman's information barriers must comply with the Guidelines if Piper Alderman was to stay on the matter. Revisiting and reinterpreting these matters in determining how to apply article 7(a) is not appropriate. This is particularly the case when that reinterpretation departs from his Honour's findings. For example:

• You state that Ms Moore "may have possibly been exposed to" confidential information. This disregards his Honour's finding that Ms Moore was, in fact, exposed to a range of confidential information: Judgment at [74].
• You state that it is "inconceivable" that Ms Moore would inadvertently breach her undertaking. His Honour already had regard to the risks of recollection and disclosure in his Judgment (at [81 (b)] and [81 (c)]. In any event, the very nature of inadvertence means that such an occurrence is conceivable.
• You rely on his Honour's finding that the confidential information to which Ms Moore was privy is not relevant to facts or issues in the Coinmach proceeding.

That was not the B&B Defendants' case. Rather, as his Honour rightly observed, the B&B Defendants' primary case was that insurance information could become strategically relevant to the matter (Judgment at [77]). His Honour noted that "currently" there were no strategic issues in the proceedings to which this information could be used to the detriment of our clients (Judgment at [83]). This takes account of the fact that no settlement or enforcement issues have yet arisen in the case. Clearly that may change in the future.

Our clients maintain that for Piper Alderman to comply with article 7(a) of the Guidelines, it must implement meaningful physical separation between Ms Moore and others working on the Coinmach matter, on separate floors, separate buildings or separate States.

Until that occurs, paragraphs 86(b) and 89(b) of the Judgment have not been satisfied.

10 By letter dated 14 September 2015 to Freehills, DLA Piper stated that its client stood by the Information Barrier Protocol as put in its letter of 10 September 2015.

11 The B&B defendants submitted that the defect in the Information Barrier Protocol was that contact between Ms Moore and other persons working on the Coinmach matter, was not 'appropriately limited'. The B&B defendants rely upon guideline 7(a) which provides as follows:

Contact between personnel involved in the current matter and screened persons should be appropriately limited to ensure that the passage of information or documents between those involved in the current matter and screened persons does not take place.

12 The B&B defendants submitted that the proposed Information Barrier Protocol did not comply with guideline 7(a) because the contact between Ms Moore and the personnel, who continue to work on this matter, was not 'appropriately limited to ensure that the passage of information or documents between those still involved and Ms Moore did not take place'. They submitted that the separation of Ms Moore from Mr Grieve by a number of offices was inadequate, particularly when she remained on the same floor as the persons who were working on the Coinmach file, for the following reasons:

(a) The commentary to guideline 7(a) contemplates separate floors, separate buildings or even different States. It provides:

The simplest way of complying with this guideline is by physical separation of offices and staff, whether on separate floors, separate buildings, or even different States. It must always be combined with appropriate separation or restriction of access to electronic information. [...]

Where geographic separation is not possible, offices containing relevant files should be locked and/or signs should be placed on doors limiting access. In any event, all files should be clearly labelled indicating restricted access.

The authorities emphasise the risk of inadvertent disclosure where there is insufficient physical separation. In particular, reference was made to D&J Constructions Pty Ltd v Head[5] where Bryson J said, as to the adequacy of undertakings and injunctions as to who should be concerned in the conduct of litigation:

... it is not realistic to place reliance on such arrangements in relation to people with opportunities for daily contact over long periods, as wordless communications 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.[6]

(b) Ms Moore was continuing to work in close proximity to other people working on the Coinmach matter because she sits in a row of offices on the same side of the same floor as Mr Grieve, Ms Anne Freeman, Mr Mitchell Coidan and Dr Malcolm Quirey.

(c) Piper Alderman put forward no material about whether the Coinmach files which are stored in Mr Grieve's and Ms Freeman's offices, are locked when vacant, or whether signs have been placed on the doors of those offices limiting access. Further, there is no material about whether Ms Moore has contact with the persons who do work on the Coinmach file when she is working on other files.

13 It was submitted on behalf of Piper Alderman that the appropriate information barrier needs to be considered in the circumstances of the following findings made in the Reasons:

(a) "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" [83]; and

(b) "I consider that the prospect of any such issue arising is, for the reasons I have given, theoretical rather than real" [83].

14 The current and prospective circumstances with respect to Ms Moore's geographic position in the office and electronic access to file materials are as follows:

(i) Ms Moore is now four offices away from Mr Grieve's office;[7]

(ii) the files relating to this proceeding are kept in Mr Grieve's office and Ms Freeman's office;

(iii) Mr Grieve's assistant and Ms Moore's assistant are not adjacent to each other;

(iv) Ms Moore does not have access to the electronic files relating to this proceeding;

(v) if Ms Moore were to be moved to level 22, she would no longer be located with her practice group or, indeed, with the other litigation solicitors in the firm;

(vi) it is anticipated that, by the end of this year, Piper Alderman's Sydney office will be relocated to a new building where all lawyers will be accommodated on one floor.

15 I acknowledge the authorities referred to by the B&B defendants about the real risks of inadvertent disclosure of confidential information where there is continued interaction with persons who are continuing to conduct the litigation. This, of course, is pronounced where the holder of the information:

(a) has a memory of the confidential information or by reason of exposure to the issues is likely to recall information;[8] and/or

(b) the information is directly relevant to the proceeding or the holder of the confidential information has direct contact with the client.

(a) there is currently no issue in the proceeding to which the confidential information could be applied to the detriment of the B&B defendants;[9]

(b) Ms Moore has no actual recollection of the confidential information; and

(c) the prospect of Ms Moore recalling anything more than fragments of the confidential information is negligible. This was particularly so in circumstances where she is not continuing to work on the file.

17 Accordingly, when I proposed in the Reasons[10] that the 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.

(c) The nomination of a compliance officer.

I was not contemplating that Ms Moore would require physical separation to another floor. In this case, I do not consider it necessary and I consider the arrangements proposed by Piper Alderman to be adequate. I am reinforced in my view, as to it being inappropriate to require Ms Moore to move to another floor, by the evidence that moving to another floor would geographically separate her from the firm's litigation group and, after December 2015, it would not be practicable to be on another floor in the firm's new Sydney office.

18 Accordingly, I propose to dismiss the summons dated 1 April 2015 on:

(a) Ms Moore giving the undertaking to this Court in the agreed form; and

(b) Piper Alderman undertaking that it will maintain information barriers as proposed in its Information Barrier Protocol.

19 At the hearing of this matter it was accepted that Ms Moore should be subject to an undertaking not to be further involved in the conduct of this proceeding. Accordingly, the principal issue at the hearing of this matter was whether Piper Alderman should be restrained from continuing to act for the plaintiffs, which was resolved in favour of Piper Alderman. Accordingly in ordinary circumstances, Piper Alderman would be entitled to their costs of this application. However, before determining the question of costs it is necessary to examine the conduct of the parties in the period prior to the filing of the summons.

20 With respect to this period, the evidence reveals the following.

21 By letter dated 18 December 2014 to Piper Alderman under the subject heading 'Apparent conflict of interest', Freehills set out its concern about Ms Moore's involvement in acting for the plaintiffs 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:

1. 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;
2. 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;
3. 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.

22 By letter dated 23 December 2014 to Freehills, Piper Alderman responded:

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.

23 On 12 January 2015, Ms Moore returned from leave and on 24 January 2015 she recommenced working on the file with respect to the subject litigation; and Dr Quirey had been asked by Mr Grieve to 'deal with the matter' on Ms Moore's return from leave.

24 By letter dated 13 January 2015 to Piper Alderman, Freehills stated that 'We understand that McKenzie Moore returned from leave on 12 January 2015' and requested a substantive response to the 18 December 2014 letter by 4.00pm on Friday 16 January 2015 'so that our client can appropriately consider its position prior to determining what steps may be required to protect its confidential and privileged information'.

25 By letter dated 21 January 2015 to Piper Alderman, Freehills expressed surprise and disappointment with the failure to respond 'particularly given the serious nature of the apparent breach of professional obligations we raised with you'. A substantive response was required by 4.00pm on Friday, 23 January 2015.

26 By letter dated 23 January 2015 to Freehills, Piper Alderman responded to the three Freehills' letters as follows:

We refer to your firm's letters of 18 December 2014, 13 January 2015 and 21 January 2015.

At the outset we note that your most substantive letter dated 18 December 2014 arrived on the eve of what is well known for many as an extended Christmas/New Year leave period. We also note that we indicated to your firm in our reply letter of 23 December 2014 that Ms McKenzie Moore was absent until 12 January 2015 and that, in any event, she would "not have any involvement in the matter pending the issues you have raised being investigated and further addressed".

Unfortunately, your letters provide scant details either to support of (sic) what is the alleged "apparent conflict of interest" or to ground any attendant exigency to fully respond to your letter. All of the circumstances do not warrant a communication such as that contained in your letter of 21 January 2015. For the record, the inference that we have been anything other than dutiful about our professional obligations is firmly rejected.

Turning now to your 18 December 2014 letter, Mr Grieve and Mr Whyte have referred this correspondence to me in my capacity as this Firm's General Counsel.

Over recent days I have reviewed your communications and also met with Ms Moore and Mr Grieve to discuss the issues raised so that, independently, I can form a view on them and reply to you.

In essence you have raised a concern which is expressed in the letter of 18 December:

"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."

The basis of that concern seems to trace to some work that Ms Moore previously did at Herbert Smith Freehills in connection with "BBIPL and its wholly-owned subsidiary, Babcock & Brown Australia Pty Limited". As I understand it, this somehow esoterically founds an acquisition of alleged "confidential and privileged information", although no particulars of that confidential and privileged information has been provided. Nor have you identified how that alleged confidential and privileged information relates to or gives rise to a position of conflict (actual or potential) specifically pertinent to the current Coinmach proceedings. Your own file records would disclose that the nature of work Ms Moore performed at Herbert Smith Freehills in connection with the identified clients hardly gives rise to possession of sensitive confidential information which - even if still retained and recalled - could have any tangible impact on the Coinmach proceedings.

Bearing in mind the nature of work which this Firm is undertaking in the Coinmach proceedings and the involvement of Ms Moore in same and also having regard to what Ms Moore has informed me was the nature and content of the work that she previously did during her former employment with Herbert Smith Freehills, I have considered the issues you have raised.

We reply (adopting numbering used across pages 1 and 2 of your letter of 18 December 2014) as follows.

1. The work undertaken by Ms Moore at Piper Alderman has been that of an assisting solicitor. Having regard to the sporadic work on BBIPL and/or BBA matters which Ms Moore previously rotated on whilst employed at Herbert Smith Freehills as a junior solicitor of one (1) to two (2) years standing, this has not to date given rise to (and we believe this is unlikely in the future to give rise to) a basis for conflicts (actual or potential).
2. As there is no basis for what you allege is "the apparent conflict of interest", this Firm's knowledge that Ms Moore previously worked in a junior role at Herbert Smith Freehills over four (4) years ago - indeed whilst sporadically working on rotation on a range of matters - gives rise to no present concern.
3. Given the answers to (1) and (2) above, aside from the writer investigating the matters raised in your letters, holding discussions with relevant persons at Piper Alderman, assessing those issues and those discussions, and formulating and articulating a position concerning same we consider there is currently no need further to address what you allege, rather loosely, is "the apparent conflict of interest".

4. (a) Yes.

(b) In the absence of further substantive evidence to be provided by Herbert Smith Freehills to support the allegation of "the apparent conflict of interest" we consider there is no need to take further steps.

Please note we rely on the case authorities concerning allegations of conflict of interest to propose and press for the alienation or containment of a particular lawyer (or, indeed, a Firm) from acting for a particular client. We remind you that there must be established a real and sensible possibility of conflict and that the onus of establishing this is to be borne by the person asserting the alleged conflict.

In closing, we say we will further consider this matter in appropriate circumstances. To this end we enquire if you can provide particulars explaining what exactly is the alleged "confidential and privileged information" that can be proven to have been acquired by Ms Moore? Can you also substantiate that Ms Moore some four to four and a half (4 to 4.5) years later has retained a detailed recall of this information? In addition to these things can you explain persuasively how those things - even if able to be established - today are able to support the allegation of "the apparent conflict of interest" in connection with the Coinmach proceedings? In the absence of such information your concerns and their articulation are devoid of specifics and are, on balance, abstruse.

27 By letter dated 19 February 2015 to Piper Alderman, Freehills responded to the letter of 23 January 2015 as follows:[11]

We refer to our letters of 18 December 2014, 13 January 2015 and 21 January 2015, and your letters of 23 December 2014 and 23 January 2015, regarding the apparent conflict of interest between McKenzie Moore's present work for Piper Alderman on the Coinmach proceedings, and her previous work for our client Babcock & Brown International Pty Limited (BBIPL) on matters associated with the Coinmach transaction and bearing upon the conduct of the Coinmach proceedings.

We are concerned about the position you adopt in your 23 January 2015 letter, for two reasons:

1. You do not appear to appreciate the nature, extent or direct relevance to the Coinmach proceedings of the confidential and privileged information to which Ms Moore is privy and to which your clients are not entitled; and
2. You appear to misapply the relevant legal standard.

Below, we set out further details of the confidential and privileged information to which Ms Moore was and is privy, and to which your clients are not entitled. In referring to this confidential and privileged material, we do not intend, and are not instructed or authorised, to waive any privilege.

Further, we identify and apply the correct legal standard.

This additional information, and a correct application of the law, establishes that Ms Moore, and potentially Piper Alderman, are in a position of conflict and should have no further involvement in the matter.

If you do not take steps to remedy this conflict of interest as a matter of urgency, our client will have no option but to seek the removal of Ms Moore, and your firm, from this matter in order to protect its confidential and privileged information.

1 Relevant work undertaken by Ms Moore at HSF

Your 23 January 2015 letter requests further particulars of the relevant confidential and privileged information acquired by Ms Moore during her work at Herbert Smith Freehills.

We have reviewed the relevant matter files, Ms Moore's timesheets and her email inbox for this purpose. Our review identified a significant volume of confidential and privileged information associated with the Coinmach transaction and bearing upon the conduct of the Coinmach proceedings, to which Ms Moore was privy.

As an example, we have attached a screenshot of Ms Moore's personal email inbox, redacted for confidentiality. The screenshot shows that Ms Moore's "Past Matters" folder included a subfolder entitled "Coinmach BBL". This subfolder contains communications relevant to the work Ms Moore undertook for BBIPL and its subsidiary, Babcock & Brown Australia Pty Limited (BBA), on issues associated with the Coinmach transaction. The screenshot also shows that Ms Moore's "Current Matters" folder included a subfolder entitled "BBIPL".

As stated in our 18 December 2014 letter, Ms Moore billed almost 500 hours in respect of eight separate BBIPL and BBA matters during her employment with HSF.

Some 260 hours of this work was spent working on employee indemnity and related matters that bear upon the conduct of the Coinmach proceedings. Some of this work is recorded in correspondence filed in Ms Moore's subfolder entitled "BBIPL". Other work was saved to the relevant matter workspaces.

In addition to the extensive email correspondence that evidences Ms Moore's significant knowledge of BBIPL's confidential and privileged information, our review revealed that Ms Moore authored numerous drafts of substantive correspondence and legal advice on issues associated with the Coinmach transaction and bearing upon the conduct of the Coinmach proceedings.

You will appreciate the inherent difficulties in describing these confidential and privileged matters in detail. In fact, our client is subject to confidentiality restrictions that preclude it from disclosing to your firm even the general nature of some of the matters associated with the Coinmach proceedings on which Ms Moore worked.

Nevertheless, we set out below some further details of Ms Moore's work that illustrate the relevance and significance of the confidential and privileged information to which Ms Moore is privy. Your clients are not entitled to any of this information.

We reiterate that nothing in this letter should be taken to be a waiver of confidentiality or legal professional privilege over any of the information described herein.

Our client also reserves the right to bring to the Court's attention, on a confidential and ex parte basis if necessary, the details of all of Ms Moore's work at HSF that was associated with the Coinmach transaction and bears upon the conduct of the Coinmach proceedings, and to which your clients are not entitled.

1.1 Work associated with the Coinmach transaction

Our review revealed that Ms Moore performed work for BBIPL and BBA that was associated with the Coinmach transaction and related legal proceedings, including:

• Drafting confidential and privileged correspondence associated with the Coinmach transaction. As part of this work, Ms Moore appears to have attended internal briefings with an HSF partner on the matter, and reviewed and considered confidential client information related to the Coinmach transaction.
• Ms Moore was provided with, and reviewed the terms of, a confidential Settlement Agreement reached in 2010 proceedings arising out of the same Coinmach transaction that is the subject of the present proceedings brought by Piper Alderman. BBIPL and Babcock & Brown LP (BBLP), both of whom are defendants to the present proceedings, were parties to that confidential Settlement Agreement.

Ms Moore's knowledge of confidential client information and privileged correspondence associated with the Coinmach transaction, as well as the terms on which BBIPL and BBLP agreed to resolve earlier proceedings arising out of the exact same transaction, would be detrimental to the interests of BBIPL if disclosed.

1.2 Work bearing upon the conduct of the Coinmach proceedings

Our review revealed that Ms Moore also performed work for BBIPL and BBA that bears upon the conduct of the present Coinmach proceedings, including:

• Ms Moore reviewed and analysed confidential client documents related to the conduct of the Coinmach proceedings. The very existence of some of these documents, let alone their contents, is confidential.
• Ms Moore has reviewed and given advice on the terms of the deeds of indemnity between BBIPL and some of its key directors and officers.
• Ms Moore was included in internal correspondence that attached, amongst other things, notes containing summaries of opinions obtained from Senior Counsel in relation to indemnities and related issues.
• Ms Moore participated in a forensic review of BBIPL's directors' and officers' emails in connection with the BBL liquidators' examinations in 2012, including the emails of Phil Green and Rob Topfer, both defendants in the Coinmach proceedings.
• Ms Moore assisted in the preparation of the BBIPL mediation, which included reviewing various mediation position papers and the mediation agreement. Ms Moore was aware of a number of key factors relevant to the outcome of the BBIPL mediation, including the financial position of BBIPL and the various factors relevant to BBIPL's consideration of whether, and on what terms, it may be willing to resolve a matter.

Ms Moore's knowledge of these various confidential and privileged matters would be detrimental to the interests of BBIPL if disclosed.

2. The applicable legal test

2.1 Ms Moore is prohibited from acting against BBIPL

Rule 10 of the New South Wales Professional Conduct and Practice Rules (Solicitors' Rules) 2013 outlines the position with respect to conflicts concerning former clients.

Rule 10.2 provides that:

A solicitor or law practice who or which is in possession of confidential information of a former client where that information might reasonably be concluded to be material to the matter of another client and detrimental to the interests of the former client if disclosed, must not act for the current client in that matter UNLESS:

10.2.1 the former client has given informed written consent to the solicitor or law practice so acting; or

10.2.2 an effective information barrier has been established.

As outlined at section 1, Ms Moore possesses confidential information of a former client, BBIPL, which might reasonably be concluded to be material to the matter of the plaintiffs in the Coinmach proceedings, and detrimental to the interests of BBIPL if disclosed.

In these circumstances, Ms Moore must not act against BBIPL unless:

• BBIPL has given informed written consent to Ms Moore; or
• an effective information barrier has been established.

Neither of these has occurred.

2.2 Ms Moore's duty of loyalty to BBIPL also precludes her from acting

Ms Moore is prohibited from acting against BBIPL in the Coinmach proceedings by virtue of her solicitor's duty of loyalty, which survives her departure from HSF and extends beyond the need to safeguard confidential information.

The authorities support the proposition that a court will restrain Ms Moore from acting on behalf of your clients to prevent disclosure of confidences owed to BBIPL, to ensure her duty of loyalty to BBIPL is respected, and to uphold as a matter of public policy the special relationship of solicitor and client, which the law will not generally permit to be "s_tained by the appearance of disloyalty."_

2.3 Ms Moore's present lack of detailed recollection is irrelevant

In your 23 January 2015 letter, you asked that we demonstrate that Ms Moore has retained a "detailed recall" of the information she obtained whilst employed at HSF.

That is not the applicable test. There is no such onus on our client.

In any event, Ms Moore's asserted lack of any present recollection of BBIPL's confidential and privileged information will not be determinative. There remains the very real possibility that her recollection might be refreshed during the course of her work in the Coinmach proceedings. For example, during any future settlement discussions, it is reasonable to assume that Ms Moore's memory will be refreshed as to the conduct of previous negotiations by BBIPL and the terms on which it may be willing to settle.

Further, Ms Moore's assertion that she cannot recall any relevant confidential information is no guard against a subconscious drawing on that information to BBIPL's detriment.

Instead, the correct test is that Ms Moore will be restrained from acting against BBIPL unless there is no real risk of disclosure of the confidential information. The risk does not need to be substantial, simply more than merely fanciful or theoretical.

In the present case, the risk is substantial. There is a real possibility that during the course of these proceedings, Ms Moore will recall relevant confidential and privileged material that is detrimental to BBIPL, or subconsciously draw on that information to BBIPL's detriment, or both.

1. Ms Moore, and potentially Piper Alderman, are in a position of conflict

For the reasons set out above and summarised below, it is our view that Ms Moore is in breach of Rule 10 of the NSW Solicitors' Rules and her enduring duty of loyalty to BBIPL by continuing to act for the plaintiffs in the Coinmach proceedings:

• her previous work at HSF placed her in possession of confidential and privileged information that is associated with the Coinmach transaction and bears upon the conduct of the Coinmach proceedings;
• that information, on any reasonable view, is material to the matter of the plaintiffs in the Coinmach proceedings and detrimental to the interests of BBIPL if disclosed;
• it is irrelevant whether Ms Moore presently recalls the details of BBIPL's confidential and privileged information; and
• BBIPL has not consented to Ms Moore acting on the matter, and your firm has not established any no (sic) effective information barrier.

Our client is particularly concerned that Ms Moore may recall specific details of its confidential and privileged information during the course of this matter, or that her work may be - and may already have been - subconsciously informed by that information.

4 Next steps

In light of the above information, please let us know the following information by 4pm on Thursday, 26 February 2015 so that our client can consider what further steps may be necessary to protect its confidential and privileged information:

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 that 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?

28 By email dated 24 February 2015 to Freehills, Piper Alderman responded as follows:

I acknowledge receipt of your letter emailed last Thursday afternoon .

I will further consider the matters raised therein. I also will meet with Ms Moore to discuss the issues you have flagged having regard to the additional information you have provided.

I will write you further once my further investigations and assessments are completed.

29 By email dated 25 February 2015 to Piper Alderman, Freehills replied as follows:

Our client is greatly concerned that Ms Moore continues to act for the plaintiffs on the Coinmach matter, despite the further information we provided to you last week establishing that she is in a position of conflict. On Monday, for example, we received a copy of the plaintiffs' statement of claim under cover of email from Ms Moore.

Ms Moore's involvement in this matter is a matter of extreme concern to our clients. Piper Alderman's position is further exacerbated by its failure to remove Ms Moore from the Coinmach matter immediately upon receipt of our letter of 19 February 2015.

We again request that you investigate the matter as a matter of urgency and respond in accordance with the deadline set out in our letter of 19 February 2015.

30 No response having been received by 3 March 2015, Freehills commenced preparation of the application.

31 Not having received any reply by 23 March 2015, Freehills sent a further letter to Piper Alderman on that day stating as follows:

• our letters of 18 December 2014, 13 January 2015, 21 January 2015 and 19 February 2015;
• your letters of 23 December 2014 and 23 January 2015; and
• the emails between Ms Warner of our office and Dr Quirey of 24 and 25 February 2015,

regarding the apparent conflict of interest between McKenzie Moore's present work for Piper Alderman on the Coinmach proceedings, and her previous work for our client Babcock & Brown International Pty Ltd (BBIPL) and other members of the Babcock & Brown group of companies on matters associated with the Coinmach transaction and bearing upon the conduct of the Coinmach proceedings.

We note that we requested a response to our letter dated 19 February 2015 by 26 February 2015. We have not received a substantive response to that letter.

As a courtesy, we put you on notice that in light, inter alia, of the fact that:

• Ms Moore is in possession of confidential and privileged information of BBIPL, which she obtained whilst employed by Freehills (as Herbert Smith Freehills was then known); and
• this includes information that bears upon the conduct of the Coinmach proceedings, and is on any reasonable view detrimental to the interests of BBIPL in the Coinmach proceedings,

we are instructed to bring an application seeking (amongst other things) orders that:

be restrained from acting for the plaintiffs in the Coinmach proceedings (the Conflict Application). We intend to file the Conflict Application within the week.

Given the nature of the Conflict Application, you may wish to take this opportunity to arrange for separate solicitor and counsel representation for your firm, and for Ms Moore. Please provide an address for service for your firm and for Ms Moore.

We anticipate seeking orders that certain confidential material which will be relied upon by our clients in support of the Conflict Application, including various advices, be provided only to independent solicitors and counsel engaged by your firm and/or Ms Moore who have:

(a) not previously undertaken any work in respect of the Coinmach proceedings; and

(b) signed appropriate confidentiality undertakings (which will include restrictions on being able to act in matters connected to the confidential material).

For the avoidance of doubt, the orders sought will preclude Ms Moore and your firm from obtaining access to this information.

32 No response having been received to the letter dated 24 March 2015, on 1 April 2015 Freehills filed and served the summons.

33 On 8 April 2015, Ms Moore was instructed by Mr Grieve to hand over the file to Ms Freeman, a partner, and Mr Coidan, a senior associate, both in the Dispute Resolution Practice Group. On the same day, Mr Grieve instructed that all electronic documents be kept in a secure workplace for this proceeding and that access be limited to those working on the matter, which excluded Ms Moore.

34 By letter dated 10 April 2015 to Freehills, Piper Alderman responded stating:

(a) In his email of 7 April 2015, Dr Quirey said the delay in responding to the letter of 19 February 2015 was occasioned by his 'flu affliction across the period 9 March 2015 to 25 March 2015 and his office absence across that period due to illness and interstate commitments'.

(b) On discussing the further details provided in the letter of 19 February 2015 as to the basis and explanation for Freehills concerns with Ms Moore, 'at that time she explained her involvement on the Coinmach BBL transaction whilst at HSF in a way which, to the writer's assessment, still left doubts, as to this letter being sufficient to persuade us she ought to be removed from working in connection with the current Coinmach matter.'

(c) Piper Alderman had previously reported that Ms Moore 'has scant recollection of details of alleged confidential information'. Despite this they noted that Freehills does press its concerns on an alternative basis, namely the risk that continuing involvement might trigger memory.

(d) Ms Moore said that she had no recollection of the details of the confidential information as identified; and then stated:

Ms Moore has further confirmed to us that as regards many of the matters you have raised in some respects to which she presently has limited recall, she does not have (and nor to this day has she had) recall of any detail which would give rise to her being in a position to share (and accordingly nor has she shared) any confidential information of your clients.

(e) Ms Moore would not continue to be involved in the conduct of the proceeding and put a proposal for resolution including the establishment of an information barrier.

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

1. 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.
2. 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.

36 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.

37 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. On or about this date, Ms Kramer, a senior litigation partner of Piper Alderman arranged with the firm's IT department for Ms Moore to be excluded from accessing the firm's electronic secure workspace for communications in the proceedings and for only approved team members to have access to the workspace and filing.

38 By letter dated 26 May 2015 to Piper Alderman, Freehills made an open offer to resolve the matter as follows:

1. Structure of the offer

The offer set out at section 2 below seeks to protect our clients' rights without causing prejudice to the plaintiffs.

1.1 Protecting our clients' rights

First and foremost, the offer seeks to mitigate the prejudice caused to our clients by the conduct of Ms Moore and Piper Alderman, and the risk of disclosure of confidential information going forward, insofar as this can be done without removing Piper Alderman from the matter completely.

This can be achieved, in our view, by ensuring that:

• further conduct of the matter takes place behind an appropriate and effective information barrier, involving the geographic separation of Ms Moore and Mr Grieve from the Piper Alderman team handling the matter. In this regard, Mr Greg Whyte in Piper Alderman's Brisbane office has been intimately involved in the Coinmach proceeding to date and he has sworn in his affidavit that no confidential information has been disclosed to him. Thus, to eliminate risk of inappropriate disclosure going forward, Mr Whyte should assume complete carriage of the matter and staff it out of the Brisbane office;
• no person who has worked with Ms Moore on the Coinmach proceeding in Sydney continues to work on the matter; and
• any person from Piper Alderman who works on the Coinmach proceeding in the future can only do so if based in a different office from Ms Moore, and subject to appropriate information barriers and undertakings being in place.

1.2 No prejudice to the plaintiffs

The offer also seeks to ensure that the plaintiffs are not prejudiced by the conduct the subject of the Conflict Application.

As you know, representatives of Piper Alderman have filed evidence alleging that the plaintiffs will suffer the following prejudice if Piper Alderman ceases acting in the Coinmach proceeding:

• the plaintiffs would incur additional costs by briefing new lawyers (Duncan Affidavit [9]);
• the proceedings will take longer to conclude (Duncan Affidavit [9]; Fourth Grieve Affidavit [15]);
• it would be inefficient and costly for the plaintiffs to instruct a new firm of solicitors in the Coinmach proceedings, while continuing to instruct Piper Alderman in separate proceedings involving some of the same defendants (the Railcar proceedings, which we note are being conducted by Mr Whyte) (Fourth Grieve Affidavit [17] and [18]; and
• Piper Alderman has acquired "specific subjective knowledge" that another firm would not have (Fourth Grieve Affidavit [15]) and which would be difficult to pass on to another firm (Duncan Affidavit [9]).

Our clients have not caused or contributed to any such prejudice. Accordingly, in our view, our clients' rights ought not be limited in any way because of it.

Further, none of the alleged prejudice is such that it cannot be cured by orders as to costs (against Piper Alderman or Ms Moore) and extensions of time. In particular, our clients do not accept that Piper Alderman's "specific subjective knowledge", in so far as that information is legitimately held, cannot be acquired by another firm.

Nevertheless, the compromise proposed by our clients would prevent the alleged prejudice from accruing to the plaintiffs in the first place, by:

1. allowing Piper Alderman, through Mr Whyte, to continue working on the Coinmach proceeding, with appropriate and effective undertakings and information barriers in place; and
2. allowing Mr Grieve to provide Mr Whyte with a handover briefing as to his observations on witness demeanour in the other matter conducted by Mr Grieve and Ms Moore (Supreme Court of NSW proceedings 2012/108544).

1.3 Costs

As you know, we first raised Ms Moore's position of conflict with Piper Alderman on 18 December 2014. From that date until the Conflict Application was filed on 1 April 2015, Ms Moore billed over 140 hours to this file. The only reasonable inference is that Piper Alderman did not intend to remove Ms Moore until the Conflict Application was filed.

Ms Moore continued to record time on the Coinmach file until 10 April 2015.

On 10 April 2015, Piper Alderman proposed removing Ms Moore from the Coinmach proceeding and implementing various measures to address the conflict of interest. The final piece of evidence supporting this proposal (Ms Moore's affidavit dated 15 April 2015) was provided to us on 15 April 2015. For the reasons set out in our letter of 20 April 2015, this proposal was inadequate.

In the circumstances, our clients consider that they are entitled to recover all of their costs incurred in connection with the Conflict Application on an indemnity basis.

Nevertheless, in order to resolve this matter, our clients are prepared to make the following offer to Piper Alderman and Ms Moore in respect of costs:

1. Piper Alderman or the plaintiffs will pay our clients' costs up to 15 April 2015 (the date when the final piece of evidence supporting Piper Alderman's proposal was provided to us), being $358,000 (ex GST), on an indemnity basis; and
2. costs incurred by our clients since 15 April 2015 will be in the cause.

The precise terms of our clients' offer are set out below.

2 Terms of the offer

Our clients propose that the matter be resolved on the following terms.

2.1 Ms Moore undertaking

1. Ms Moore undertakes not to take any further part in the proceeding or any other proceeding against BBIPL, BBLP, any other entities that have at any time been part of the Babcock & Brown group, or any person who at any time has been a director, officer, employee or agent of any such entity (together, B&B Entities), for five years from the date of the undertaking.

1. No person who has to date worked on the Coinmach proceeding in Sydney, or discussed any aspect of the Coinmach proceeding with Ms Moore, may continue to work on the Coinmach proceeding, except for Mr Whyte and such of his Brisbane staff who also provide an affidavit stating that they have not received confidential information from Ms Moore.
2. No person (including Mr Whyte) shall do any work on the Coinmach, Railcar or Other proceeding (as defined in Mr Whyte's second affidavit) if he or she is based in the same Piper Alderman office as Ms Moore.
3. Any person who, in the future, works on the Coinmach, Railcar or Other proceeding, including Mr Whyte, must be subject to an information barrier, which includes giving an undertaking, preventing him or her from discussing or otherwise communicating with people not subject to the information barrier, regarding:

- the Coinmach, Railcar or Other proceeding;

- the issue of whether any B&B Entity is the beneficiary of insurance;

- the nature, terms and potential coverage of any such insurance; and

- the disposition of the 2010 Coinmach Proceedings or the UK Coinmach Proceedings (as defined in the Confidential Affidavit)

- (the Confidential Topics).

1. Ms Moore, and any other person who has either worked on the Coinmach proceeding in Sydney or discussed the Coinmach proceeding with Ms Moore, other than Mr Whyte, shall be subject to an information barrier, which includes giving an undertaking, preventing them from discussing the Confidential Topics with any other person.
2. Mr Grieve may provide Mr Whyte with an oral or written briefing on his observations of the demeanour of the 4th-8th defendants during their oral testimony in Supreme Court of New South Wales proceedings 2012/108544.
3. Piper Alderman or the plaintiffs will pay our clients' costs up to 15 April 2015, being $358,000 (ex GST), on an indemnity basis.
4. Costs incurred by our clients since 15 April 2015 will be in the cause.

1. Our clients will agree to consent orders dismissing the Conflict Application on the terms set out at sections 2.1 and 2.2 above.

3. Acceptance of the offer

This offer is to be treated as an offer on the same terms and conditions made pursuant to the principles articulated in Calderbank v Calderbank [1975] 3 All ER 333.

The offer contained in this letter is open for acceptance for three days. It expires at 12pm on Friday, 29 May 2015.

39 By letter dated 4 June 2015 to Freehills, DLA Piper responded to the open letter of 26 May 2015 and offered to compromise the conflict application on the basis that it was discontinued with no orders as to costs. In particular, in respect of the claim for costs of $358,000 excluding GST up to 15 April 2015, it stated:[12]

How costs of that magnitude could possibly be justified in relation to an interlocutory application in the circumstances ... or could possibly meet the purpose of the Civil Procedure Act 2010 to ensure that civil proceedings are conducted "... to facilitate a just, efficient, timely and cost effective resolution of the real issues in dispute;" is beyond comprehension.

40 By letter dated 5 June 2015 to DLA Piper, Freehills rejected the offer in the letter of 4 June 2015 and reasserted its claim for the recovery of its costs on an indemnity basis.

41 The first oral communication occurred on 17 April 2015 between Ms Juliana Warner, the managing partner of Freehills, Sydney office, and Ms Michele Kramer, a senior litigation partner of Piper Alderman who initiated the call.[13] They had a second telephone conversation about the possibility of settlement of the application on 20 April 2015, also initiated by Ms Kramer. After DLA Piper was engaged for the respondents on 27 April 2015, Ms Warner had approximately six telephone conversations with Mr Peter Rashleigh, a consultant at DLA Piper, about the prospects of settlement between 29 April and 10 June 2015.

42 The essence of the letter from Freehills dated 18 December 2014 was an allegation that Ms Moore had the conduct of the Coinmach proceedings against the B&B defendants as senior associate in circumstances where, while working for Freehills:

(a) she had billed almost 500 hours working for the B&B defendants;

(b) for 260 of those hours she had worked on insurance and employee indemnity related issues relevant to the conduct of the Coinmach proceedings; and

(c) for 10 of those hours she had worked on issues directly related to the Coinmach transaction.

43 Piper Alderman replied on 23 December 2014 stating 'based on matters of which we are presently aware there does not appear to be any conflict of interest'. However, the letter does not indicate the matters of which they were 'presently aware' and there has been no attempt to lead evidence of matters that could justify such a sanguine response.

44 If there could have been any doubt about the gravity of the B&B defendants' concern about protecting confidential information by their letter of 18 December 2014, it should have been apparent, from the follow up letters from Freehills on 13 January 2015 and 21 January 2015, that the B&B defendants were expecting their concerns to be dealt with as a matter of priority.

45 By letter dated 23 January 2015, Piper Alderman replied, stating in summary as follows:

(a) No particulars of the confidential information have been provided.

(b) Having regard to what Ms Moore has said, she was previously rotated on the B&B defendants' matters while employed by Freehills as a junior solicitor and 'this has not to date given rise to (and we believe this is unlikely in the future to give rise to) a basis for conflicts (actual or potential)'.

(c) In the absence of 'further substantive evidence' there is no need to take further steps; and it was apparent that Ms Moore would continue to work for the plaintiffs in their action against her former clients.

46 With respect to this response, I say as follows:

(i) a solicitor has been engaged for 500 hours for a client against whom she now acts;

(ii) more than half of those hours were with respect to issues relevant to the conduct of the subject proceedings; and

(iii) 10 hours were on issues directly related to the same transaction, which was the subject of proceeding,

is a substantial reason for Piper Alderman to be concerned that their senior associate may be in a position of, at least, apparent conflict of interest.

(b) Piper Alderman must be taken to have been aware of the fundamental obligation on Ms Moore to ensure that information she obtained in carrying out work for the B&B defendants was not to be used against their interests.

(c) The letter contained no information as to what Ms Moore could recall from the work that she had performed and, contrary to what was later said by Piper Alderman in their letter of 10 April 2015, it did not state that she had 'scant recollection of details of alleged confidential information'.

(d) The letter stated that the writer had been 'informed [by Ms Moore] of the nature and content of the work' that she had previously done whilst at Freehills, and concluded that such work had 'not to date given rise to (and we believe this is unlikely in the future to give rise to) a basis for conflicts (actual or potential)'; but it did not describe her work or descend to say that the basis of this conclusion was for example:

(i) she had not been exposed to confidential information relevant to the Coinmach transaction and/or the proceeding;

(ii) she was unable to recall the confidential information of the B&B defendants to which she had been exposed; or

(iii) she had identified the confidential information to which she had been exposed and such confidential information was not relevant to the Coinmach transaction and/or the proceeding.

47 Piper Alderman submits that its response of 23 January 2015 was appropriate given 'that Freehills' description of the confidential information was expressed too widely and lacked detail'. Simply complaining about the failure of the B&B defendants to provide detailed particulars of the confidential information, fails to take into account the fact that Piper Alderman, or preferably an independent solicitor, had the capacity to make detailed inquiries of Ms Moore as to the information to which she had been exposed and the extent to which she had recollection of that information. Piper Alderman could have then formed a view about the relevance of such information and made an informed decision about what was to be communicated to Freehills and what further steps were ethically required.

48 In my opinion, the response of Piper Alderman was completely inadequate and likely to provoke further action on behalf of the B&B defendants.

Delay in responding to Freehills' letter of 19 February 2015

49 On 19 February 2015, Freehills responded to Piper Alderman's request, in their letter of 23 January 2015, for further details of Ms Moore's work for the B&B defendants, which gave rise to the apparent conflict of interest.

50 On 24 and 25 February 2015, there was an email exchange in which Piper Alderman said that they would further consider the matters raised and Freehills stated that their client was 'greatly concerned that Ms Moore continues to act for the plaintiffs on the Coinmach matter'.

51 On 23 March 2015, Freehills sent a further letter to Piper Alderman noting that there had still not been a substantive response to the letter of 19 February and stating that they were instructed to bring an application.

52 With still no response on 1 April 2015, one day less than six weeks from the letter of 19 February 2015, Freehills filed and served the summons.

53 After the interruption of Easter, on 10 April 2015, Piper Alderman made a substantive response to the letter of 19 February 2015 and, critically, proposed action to resolve Freehills' concerns about the potential conflict of interest of Ms Moore including removing Ms Moore from the conduct of the proceeding and the establishment of information barriers.

54 Piper Alderman submitted that the time that Piper Alderman took to respond to the letter of 19 February 2015 was not unreasonable or dilatory because of:

(c) Freehills not describing the conflict clearly and with adequate particularity.

55 I reject this submission for the following reasons:

(a) Dr Quirey's flu affliction was subject to a hearsay reference in his letter of 10 April 2015 as being first communicated to Freehills in an email of 7 April 2015 and that it had affected him 'across the period 9 March 2015 to 25 March 2015'. No evidence was led as to this matter and I am unaware of what, if any, days Dr Quirey was absent as a result of his illness during this period. I note that the letter went on to say that his 'office absence across that period was due to illness and interstate commitments'.[14] Further, the assertion does not explain:

(i) the more than two weeks between the receipt of the letter and the commencement of the 'flu affliction' which in my opinion should have been more than adequate time for Piper Alderman to respond to the serious concerns communicated by Freehills on behalf of the B&B defendants; and

(ii) the inability of Dr Quirey to delegate preparation of an appropriate response to Mr Grieve or some other person within Piper Alderman.

(b) The Easter break occurred after the six week delay and the filing of proceedings. Accordingly, the Easter break only explains a delay between the filing of the proceedings and the letter of 10 April 2015.

(d) I do not consider that the lack of particulars of the conflict in Freehills' letters of 18 December 2014 and 19 February 2015 could possibly explain the delay by Piper Alderman in responding in the manner in which they did on 10 April 2015.

Duties under the Civil Procedure Act

56 The Civil Procedure Act 2010 ('the Act') provides for a number of overarching obligations in respect of the conduct of civil proceedings. Of particular relevance to the current proceeding are ss 20 and 22.

57 Section 20 of the Act provides:

Overarching obligation to cooperate in the conduct of civil proceeding

A person to whom the overarching obligations apply must cooperate with the parties to a civil proceeding and the court in connection with the conduct of that proceeding.

58 Section 22 of the Act provides:

Overarching obligation to use reasonable endeavours to resolve dispute

A person to whom the overarching obligations apply must use reasonable endeavours to resolve a dispute by agreement between the persons in dispute, including, if appropriate, by appropriate dispute resolution, unless -

(a) it is not in the interests of justice to do so; or

(b) the dispute is of such a nature that only judicial determination is appropriate.

Example

A proceeding where a civil penalty is sought may be of such a nature that only judicial determination is appropriate.

59 These obligations and the Act generally are directed towards creating a cultural shift within the legal profession as explained in the Explanatory Memorandum as follows:

The Bill provides the foundation for a comprehensive overhaul of the civil justice system in Victoria. It aims to redress an imbalance in the civil justice system to achieve essential goals of accessibility, affordability, proportionality, timeliness, and getting to the truth quickly and easily. It does this in 2 main ways.

First, it seeks to build a culture in which litigants are encouraged to resolve their cases without going to court. The pre-litigation processes in the Bill provide a general framework for parties and their lawyers to achieve resolution of the dispute without the intervention of the court, or if that is not possible, to narrow the issues in dispute to the real issues in dispute. Litigation should be regarded as a measure of last resort, where the interests of justice require access to a judicial officer, or the dispute is of such a nature that only judicial determination is appropriate.

Secondly it seeks to build a culture within the court system that supports and encourages litigants and their lawyers to use reasonable endeavours to achieve early resolution of cases by agreement, using appropriate dispute resolution processes where appropriate or to narrow the issues in dispute, except where the interests of justice require access to the court, or where the dispute is of such a nature that only judicial determination is appropriate.[15]

60 The overarching obligations were introduced in response to concerns regarding the efficiency, cost, and proportionality of civil litigation, which culminated in a formal review of the Victorian civil justice system by the Victorian Law Reform Commission ('the Commission').

61 In 2008, the Commission published the Civil Justice Review report, in which a number of recommendations were proposed to further the following objectives:[16]

• the modernisation, simplification and harmonisation of the rules of civil procedure within and across jurisdictions;
• the reduction of the cost of litigation;
• the promotion of the principles of fairness, timeliness, proportionality, choice, transparency, quality, efficiency and accountability.

62 In particular, the Commission recommended introducing a 'duty to cooperate with the parties and the court in connection with the conduct of the proceeding'.[17] The rationale for the introduction of this duty was, amongst other things, to:

• address the Commission's belief that 'there is a need for greater disclosure of information and cooperation before legal proceedings are commenced', including the acceleration of disclosure of relevant information;[18]
• provide timeframes for communication and 'standards of sensible conduct before proceedings are commenced, to avoid the necessity for litigation in many cases';[19]
• encourage greater control over interlocutory disputes by restricting interlocutory steps and reducing unnecessary interlocutory applications;[20] and
• address 'excessive combative behaviour of litigation lawyers'[21] which can lead to unnecessary expense and delay.[22]

63 The Commission emphasised that the proposed duty was to be more onerous than the obligations regarding interactions with other practitioners currently imposed by professional conduct rules:[23]

At present, a number of professional conduct rules governing the legal profession fall short of imposing an affirmative obligation to cooperate with other practitioners or parties. Duties are often limited to a requirement to be courteous and to refrain from offensive or provocative language or conduct. However, civility is a less demanding requirement than cooperation.

64 Of particular concern to the Commission was the conduct of parties in interlocutory disputes:

Our recommended overriding obligations seek to ensure that parties cooperate and endeavour to reach agreement during the course of the proceedings. However, we believe there should be a specific requirement that the parties confer prior to the issuing of any interlocutory application - including in respect of discovery - to determine whether the dispute can be resolved or whether the issues in dispute can be narrowed.[24]

65 Although the specific requirement that parties confer was not ultimately incorporated into the Act, it is indicative of the Commission's focus on the areas in which a duty to cooperate may be most effective and needed - the interlocutory stage. In particular, that interlocutory applications are conducted in a cooperative manner which promotes the objects of the Act.

66 This rationale was reiterated in the Explanatory Memorandum to the Civil Procedure Bill 2010 (Vic) in which section 20 was described as 'aimed at preventing obstructive conduct in the course of proceedings'.[25]

Judicial consideration of the duty to cooperate

67 In Matthews v SPI Electricity Pty Ltd (No 2),[26] SPI sought an order that the plaintiff or her lawyers pay SPI's costs thrown away by reason of the plaintiff's lawyers withdrawing an alleged basis for contending that SPI had lost client legal privilege over certain discovered documents. The plaintiff alleged that there was no privilege because the information had been obtained from tests carried out by SPI while trespassing on land. The plaintiff's solicitors had requested evidence of the consent of the relevant landowners; and Derham AsJ identified the outcome of the application for indemnity costs as turning on whether it was reasonable for the plaintiff's solicitors to request evidence of such consent.[27] Derham AsJ determined that it was not unreasonable to request such evidence and, in doing so, took into account 'that the overarching obligation in s 20 of the Act requires the parties and their solicitors to cooperate in connection with the conduct of the proceeding'.[28]

68 In Naumovski v Ugrinovski,[29] Zammit J considered an application by a non-party and the first defendant, which was the subject of subpoenas served by the plaintiffs. Zammit J found that the plaintiffs had failed to respond to seven letters between 5 December 2014 and 2 February 2015 and thereafter had not engaged on the question of costs. Her Honour found that the plaintiffs' conduct amounted to a breach of the duty to cooperate under s 20 of the Act in relation to both the non-party and the first defendant;[30] and made an order for costs on an indemnity basis.

69 In Liesfield v SPI Electricity Pty Ltd (Ruling No 1),[31] J Forrest J considered the conduct of the parties to an interlocutory discovery dispute where the plaintiffs' discovery proposal was 'immense' and the defendant 'was only prepared to give scraps'.[32] Although the dispute related to discovery, his Honour made comments about the adequacy of the parties doing little but exchanging salvos of emails noting:

On the question of discovery, this application is a prime example of solicitors (for both Mr Liesfield and SPI) failing to comply with their obligations under the Act to cooperate and narrow the issues. Rather than sitting down and trying to resolve the fight over discovery, the parties exchanged salvos of emails with little, if any, apparent regard to conciliation or resolution of the issue - until the hearing was in progress. It is imperative, as the Act mandates, that in any form of litigation (and particularly highly complex and expansive cases) that the requirement to cooperate be adhered to in a meaningful way - on this application it was not.[33]

70 The High Court in Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd[34] considered the approach of the courts in the speedy resolution of interlocutory proceedings. The Court said:

In Aon Risk Services Australia Ltd v Australian National University, it was pointed out that case management is an accepted aspect of the system of civil justice administered by the courts in Australia. It had been recognised some time ago by courts in the common law world that a different approach was required to tackle the problems of delay and cost in the litigation process. Speed and efficiency, in the sense of minimum delay and expense, are essential to a just resolution of proceedings. The achievement of a just but timely and cost-effective resolution of a dispute has effects not only upon the parties to the dispute but upon the court and other litigants. The decision in Aon Risk Services Australia Ltd v Australian National University was concerned with the Court Procedures Rules 2006 (ACT) as they applied to amendment to pleadings. However, the decision confirmed as correct an approach to interlocutory proceedings which has regard to the wider objects of the administration of justice.[35]

71 The Court went on to comment on the duty of the parties to cooperate in furthering the overarching purpose stating as follows:

It is the duty of the parties and their lawyers to assist the court in furthering the overriding purpose. ... Unduly technical and costly disputes about non-essential issues are clearly to be avoided.[36]

...

It could hardly be suggested that the pursuit of satellite interlocutory proceedings of the kind here in question in any way fulfils the overriding purpose of the CPA. To the contrary, it is the very kind of conduct which should be avoided if those purposes are to be achieved. It involved a relatively minor issue relating to discovery, the resolution of which appears to have offered little advantage to the Armstrong parties. Its determination went no way towards the resolution of the real issues in dispute between the parties. Instead, it has distracted them from taking steps to a final hearing, encouraged the outlay of considerable expense and squandered the resources of the Court.[37]

Did the parties comply with their duties under the Civil Procedure Act?

72 The costs incurred by the B&B defendants with respect to this interlocutory proceeding by the time of the filing of the summons exceeded $350,000. I would expect that the costs incurred by the parties now well and truly exceed $500,000.

73 Both parties responded to the following invitation to make submissions with respect to compliance with their respective obligations under the Civil Procedure Act:

Although there has been a reference to the Civil Procedure Act 2010 (Vic), his Honour has noted that, in the submissions, the parties rely only on formal written correspondence. There is no reference to a lawyer from either firm attempting to discuss the issues with an opposite number from the other firm.

Given the expenditure of costs and the Court time involved in this application, the Judge would like to give you the opportunity to submit whether the obligations under the Civil Procedure Act 2010 (Vic), in particular the obligation to co-operate (s 20) and the obligation to use reasonable endeavours to resolve disputes (s 22), in the circumstances of this case, require at least one or both of:

A. The managing partner or other appropriate senior person of the defendant's firm to contact his/her opposite number in the plaintiff's firm to discuss resolution of the defendant's concerns.

B. The managing partner or other appropriate senior person of the plaintiff's firm to contact his/her opposite number in the defendant's firm to discuss ways in which the plaintiff's confidentiality concerns might be met.

In particular any submissions about whether firms, in this case large corporate firms, should be reasonably expected to take greater steps to resolve interlocutory applications such as this before such expenditure of the costs and Court time have been incurred.

74 From the responses it appears that, prior to the issuing of the summons, no responsible member of either firm had made an oral communication with a responsible person in the other firm to confer or otherwise attempt to resolve this interlocutory dispute.

75 Piper Alderman submitted that settlement discussions were hampered by the fact that Freehills had failed to provide proper details of the facts upon which a conflict of interest was alleged. It was also submitted that later attempts to settle were impeded by the B&B defendants' claim for payment of indemnity costs of at least $358,000.

76 In my opinion, for the reasons outlined above, Piper Alderman in the period from 18 December 2014 to 1 April 2015 failed to comply with its duty to cooperate. In particular, I refer to the following:

(a) The refusal of Piper Alderman, during this period, to withdraw Ms Moore from personally maintaining day-to-day conduct of the proceeding even temporarily while the conflict question was under discussion.

(b) The failure to respond to the B&B defendants' allegations, during this period, by setting out particulars of Ms Moore's recollection of the relevant events and why her knowledge of the previous Coinmach litigation and the Coinmach transaction did not give rise to a conflict of interest.

(c) The undue delay in providing a substantive response prior to 10 April 2015.

(d) In the face of the serious allegations made by Freehills, the failure to make direct communication with an appropriate person at Freehills for the purpose of attempting to resolve the B&B defendants' concerns about Ms Moore without unduly affecting the progression of the plaintiffs' claims.

77 The B&B defendants, not surprisingly, submit that they complied with their obligations under ss 20 and 22 of the Act by their extensive correspondence during the period from 18 December 2014. However, despite the adequate written communications, I consider that their compliance with the duties was deficient for the following reasons:

(a) Faced with the inadequate responses of Piper Alderman (referred to above), in less than two weeks after its letter of 19 February, it commenced preparation of the B&B defendants' application. I presume that in accordance with its obligations it had made an assessment, and advised its clients, of the fact that commencing such an application would cost many hundreds of thousands of dollars. Further, Freehills should have anticipated that incurring such an amount of costs was likely to be a substantial impediment to the prospect of resolution of the dispute. A prospect which, despite the inadequacy of its response, Piper Alderman had not foreclosed. Accordingly, I consider that before incurring such costs, it was incumbent on the B&B defendants through their lawyers to attempt communication with the managing partner of Piper Alderman or other senior person for the purpose of suggesting a conference to resolve the matter. As was inevitable, it was Freehills' claim for payment of its costs of in excess of $350,000 which was the major impediment to settlement.

(b) The B&B defendants contended that the inadequacy of Piper Alderman's responses indicated that such an approach would be fruitless. However, in my opinion and experience, it is notorious that personal oral communication, particularly with senior persons not involved in the dispute, will frequently succeed where the 'salvo of [confrontational] emails'[38] will fail.

(c) Freehills' analysis of the background should have been sufficient to determine that Ms Moore had not had access to confidential information relevant to the pleaded issues in the litigation. Accordingly, urgency was not an overriding consideration.

78 In my opinion, the duties, particularly under ss 20 and 22 of the Act, require parties to make real attempts to resolve disputes of this type before the costs incurred make resolution difficult if not impossible. By a dispute of this type I refer to the fact that it is:

(b) a dispute in which costs incurred are in excess of $500,000; and

(c) a dispute in which five days of court time have been required.

Before the intervention of the costs impediment, it may well have been settled by an arrangement somewhere between the terms proposed by the Piper Alderman letter of 10 April 2015 and the Freehills letter of 26 May 2015.

79 In my opinion, the circumstances of this case underline the importance of taking proper attempts to avoid distracting and expensive interlocutory disputes; and highlight the need for parties to consider direct personal contact between legal firms when confrontational correspondence has failed to effect a resolution. In this case, if a telephone communication to the managing partner of Piper Alderman prior to the preparation of the summons and affidavits advising of the estimate of costs to be incurred and offering an opportunity to meet to resolve the issue had been rebuffed, it is likely that the costs outcome would have been entirely different.

80 In summary, the relevant considerations on this application with respect to costs are:

(a) on one hand, Piper Alderman was substantially successful on the matters in dispute on the hearing; and the B&B defendants incurred very substantial costs without making adequate direct contact to attempt to resolve their clients' concerns; and

(b) on the other hand, Piper Alderman delayed responding to fairly described concerns of the B&B defendants and also failed to make any direct communication for the purpose of attempting to resolve the legitimate concerns of the B&B defendants (even failing to offer that Ms Moore would be withdrawn temporarily from the conduct of the proceeding during the negotiations).

81 Accordingly, I consider that, in the circumstances, it is appropriate to order that each party bears its own costs.

[1] See Babcock & Brown DIF III Global v Babcock & Brown International Pty Ltd [2015] VSC 453.

[2] Emphasis in original. Footnotes omitted.

[5] (1987) 9 NSWLR 118, 123.

1. [6] See also PhotoCure ASA v Queen's University at Kingston [2002] FCA 905 (Goldberg J); Prince Jefri Bolkiah v KPMG [1998] UKHL 52; [1999] 2 AC 222 (Millet LJ); Zalfen v Gates [2006] WASC 296 [101] (Master Newnes); Asia Pacific Telecommunications Ltd v Optus Networks Pty Ltd [2007] NSWSC 350 [32], [40] (Bergin J); World Medical Manufacturing Corporation v Phillips Ormonde & Fitzpatrick Lawyers (a firm) [2000] VSC 196 [122] (Gillard J); Newman v Phillips Fox (a firm) (1999) 21 WAR 309, 323-4 [67]-[73] (Steytler J).

[7] Not six offices as foreshadowed in previous correspondence between DLA Piper and Freehills.

1. [8] See, eg, Sent v John Fairfax Publication Pty Ltd [2002] VSC 429 [88] (Nettle J); Dale v Clayton Utz (a firm) (No 2) [2013] VSC 54 [156] (Hollingworth J).

[13] Ms Kramer had previously left a message for Ms Warner on 16 April 2015. She phoned again on 17 April 2015 at which time the first conversation regarding possible settlement took place. There had also been an earlier call made by Mr Grant Marjoribanks, a senior litigation partner at Freehills to Mr Grieve on 18 December 2014, the same day Freehills first wrote to Piper Alderman regarding Ms Moore's apparent conflict of interest. Mr Grieve did not return Mr Marjoribanks' call.

[15] Explanatory Memorandum, Civil Procedure Bill 2010 (Vic) 1.

[16] Victorian Law Reform Commission, Civil Justice Review, Report No 14 (2008) 8.

1. [17] Ibid 183. The Commission originally proposed that rather than a duty to cooperate, the duty be an obligation to act in good faith. See p 183 as follows:

In its earlier draft proposal in respect of overriding obligations the commission proposed that there should be an obligation to act 'in good faith'. At the time, the commission conceded that it had a concern about the vagueness of such an obligation. ...

Following further consultations, particularly with the Supreme Court, the commission resolved to replace the obligation to act in good faith with an obligation to 'cooperate'. Under the present proposal, relevant participants in civil litigation would have a duty to cooperate with the parties and the court in connection with the conduct of the proceeding.

[25] Explanatory Memorandum, Civil Procedure Bill 2010 (Vic) 10.

[26] [2013] VSC 86.

[29] [2015] VSC 49.

[31] [2013] VSC 634.

[34] [2013] HCA 46; (2013) 250 CLR 303.

[35] Ibid 321 [51] (citations omitted).

[38] Liesfield v SPI Electricity Pty Ltd (Ruling No 1) [2013] VSC 634 [57] (J Forrest J).