A Supreme Court reminder about the importance of information barrier protocols

information barrier

In Zani v Lawfirst Pty Ltd trading as Bennett & Co [2014] WASC 75 the Supreme Court of Western Australia examined the effectiveness of an information barrier protocol, in circumstances where the plaintiff’s (Mr Zani’s) former solicitor joined Bennett & Co, which was acting for the other party in current litigation.  Mr Zani sought an injunction to restrain Bennett & Co from acting for the other party.

Background

Both actions concerned alleged breaches by Mr Zani of a contract of employment, and the involvement of related corporate entities in those breaches.

Mr Zani’s former solicitor was Mr Mark MacLennan, a partner of Lavan Legal.  On 6 January 2014 Mr MacLennan joined Bennett & Co as a “principal” employed solicitor.  At Lavan Legal Mr MacLennan was closely involved in the conduct of Mr Zani’s defence of one of the actions.  Mr MacLennan had left Lavan Legal by the time a second action was commenced against Mr Zani.  The second action arose out of the same agreements as the first action.

The partner of Bennett & Co responsible for the conduct of the first and second actions against Mr Zani occupied an office in the southwest corner of Level 10 of a city building in Perth. Mr MacLennan’s office at Bennett & Co was located in the northeast corner of Level 10 of the same building.

In 2012 Bennett & Co implemented an information barrier policy based on applicable Law Society of New South Wales and the Law Society of Victoria guidelines.  The policy was explained in detail to all of Bennett & Co’s solicitors, research clerks, secretaries and support staff at compulsory seminars during 2012.  Ongoing education seminars about the information barrier policy were also conducted for various members of staff during 2013 and most recently on 29 January 2014 (which was attended by Mr MacLennan).  All members of staff were required to read the policy and sign a form acknowledging the same.  That requirement was part of the induction process for new staff members of the firm.  A register was kept of staff acknowledgments of the policy.

The information barrier policy contained a number of additional elements including (at [11]-[26]):

  • a written acknowledgment from the client that Bennett & Co’s duty of disclosure did not extend to any confidential information which may be held within the firm as a result of a screened person’s employment or an earlier matter, and their consent to Bennett & Co acting on that basis;
  • nomination of a particular printer to be used for the screened matters;
  • an electronic data file for the matters that could not be accessed by screened persons;
  • physical storage for the matters that could not be accessed by screened persons;
  • an undertaking by the compliance officer to do all things required by the policy;
  • ongoing education of all principals, employees and consultants about the firm’s procedures for protecting confidential information.

Legal principles

Ordinarily litigants are entitled to the solicitors of their choice, and the Court will interfere with that right only where it is clearly necessary to do so (fn 1).

However a Court will restrain a firm which is in possession of confidential information about the former client of another firm, from acting for another party to litigation unless satisfied on the basis of clear and convincing evidence that effective measures have been taken to ensure that no disclosure of that confidential information will occur (fn 2).

The question of whether a solicitor is in possession of confidential information is a question of fact which must be proved or inferred from the circumstances of the case (fn 3).

In some circumstances the overall opinion formed by a solicitor of his client as a result of contact may amount to confidential information that should not be disclosed or used against the client. These “getting to know you” factors include the client’s strengths, weaknesses, honesty or lack thereof, reaction to crisis, pressure or tension, attitude to litigation and settling cases and tactics (fn 4).

The outcome

Bennett & Co accepted that Mr MacLennan was in possession of confidential information concerning the first action, because he was closely involved in the conduct of Mr Zani’s defence whilst at Lavan Legal (at [7]).

The Court held that Mr MacLennan was also in possession of confidential information concerning the second action, notwithstanding that that action was commenced against Mr Zani after Mr MacLennan left Lavan Legal, because:

  • the second action arose out of the same agreements as the first action;
  • both actions arose from a breakdown of the relationship between the parties;
  • it was reasonable to infer that, through his privileged and confidential communications with Mr Zani, Mr MacLennan would have learned much about Mr Zani’s attitude to litigation with his former employer, and his personal attitudes and attributes, which Mr MacLennan is not at liberty to disclose” (at [37]).

However the Court held that there was no risk of disclosure of confidential information.

In coming to this conclusion the Court observed:

  • the only relevant risk was one of inadvertent disclosure (at [38]).  This was because Mr Zani accepted that Mr MacLennan had not disclosed any confidential information pertaining to Mr Zani since his resignation as a partner of Lavan Legal, and had not taken or retained any documents containing confidential information.  Mr Zani also accepted the integrity of Mr MacLennan and Bennett & Co (at [38]);
  • notwithstanding the inevitability of regular contact between Mr MacLennan and other lawyers or staff working on the relevant matters, the implementation of Bennett & Co’s information barrier policy was adequate to ensure that no disclosure of confidential information would occur (at [44]):
    • this was not a case where Bennett & Co had previously acted for Mr Zani and thus possessed files, documents or records containing confidential information;
    • the information requiring protection was information possessed only by Mr MacLennan who possessed no documents or records containing confidential information;
    • thus disclosure could only occur if Mr MacLennan intentionally or inadvertently revealed what was in his mind;
    • it was not contended by Mr Zani that Mr MacLennan was likely to intentionally disclose confidential information;
    • the existence of the information barrier of which all staff were aware, and in respect of which they had received continuing education, greatly lessened the risk of inadvertent disclosure by Mr MacLennan, because those arrangements to isolate the matter from Mr MacLennan would serve as a constant reminder to avoid any involvement with Mr MacLennan, or even a casual conversation with him, about confidential matters.
    • this was not a case where information barriers were erected after an objection was made to Bennett & Co acting; indeed the additional steps taken by Bennett & Co demonstrated the firm’s consciousness of the need for extreme care to avoid any possibility of disclosure;
    • Bennett & Co had satisfied the burden of establishing that it had taken effective steps to avoid any real or sensible possibility that any confidential information possessed by Mr MacLennan would come into possession of those within the firm acting for the other party (at [46]).

The application for injunctive relief against Bennett & Co was dismissed.

Comment

At a time when the legal industry is undergoing significant consolidation, with increasing movement of partners and other lawyers between firms, it is necessary to be mindful of the need to maintain watertight information barrier protocols.  The Court will closely scrutinise such protocols and their implementation.  Ongoing education of all principals, employees and consultants about information barrier protocols will assist in defending allegations of a breach or potential breach of the duty of confidentiality.  The duty to protect confidential information is a serious obligation for lawyers and firms that carries potential sanctions and reputational risks for the unwary.

Footnotes

  1. At [27]; referring to Tottle Christensen v Westgold Resources NL [2003] WASCA 224 [4].
  2. At [28]-[29]; referring to Newman v Phillips Fox (a firm) [1999] WASC 171; (1999) 21 WAR 309, per Steytler J and Bolkiah (Prince Jefri) v KPMG (a firm) [1999] 2 AC 222, 236 – 237, per Lord Millet.
  3. At [30]), ibid.
  4. At [35]; referring to Yunghanns v Elfic Ltd (Unreported, VSC, 3 July 1998) per Gillard J.