[1992]1 All ER 353, [1992] 2 QB 959, [1992] 2 WLR 809

Re a firm of solicitors

PROFESSIONS; Lawyers

COURT OF APPEAL, CIVIL DIVISION
PARKER, STAUGHTON LJJ AND SIR DAVID CROOM-JOHNSON

15, 18, 24 MAY 1991

Solicitor – Duty – Conflict of interest – Duty of confidentiality to client – Former client – Solicitor acting for client against former client – Large City firm instructed to act for client against former client – Firm previously receiving confidential information from former client relevant to subsequent litigation – Firm proposing to erect ‘Chinese wall’ to prevent leakage of confidential information received from former client – Former client seeking to restrain firm from acting for other client – Whether reasonable man informed of facts including proposed Chinese wall would anticipate danger of firm breaching duty of confidence to former client – Whether firm should be restrained from acting against former client.

Between 1982 and 1985 the appellants, a large City of London firm of solicitors with over 100 partners (the firm), acted for a company, ASM, which had taken over the management of two Lloyd’s underwriting syndicates, in an investigation into the former management of the two syndicates. The investigation attracted wide public interest and was much discussed in the legal profession and in the insurance world. While acting for ASM in the investigation the firm received confidential information from companies (the A & A companies) which were wholly independent of but closely associated with ASM. It was arranged between the two that A & A and its former managing agents would co-operate closely with ASM and the firm and would provide them with full information even if such information could be used against them and, although the A & A companies were not themselves strictly clients of the firm, their relationship with ASM and the firm in the course of the investigation was such that it was proper for the firm to regard the A & A companies as if they were also clients of the firm. 

Accordingly, the firm owed the A & A companies a duty not to communicate confidential information which they had supplied to the firm. As a result of the investigation claims were in due course brought against the former managing agents and an A & A broking subsidiary. All claims were settled in late 1985 or early 1986. Thereafter the firm ceased to act for ASM. In November 1984 one of the A & A companies, SD, commenced an action against the defendant representing himself and the other members of a third Lloyd’s syndicate, claiming sums due under quota share reinsurances and for breach of contract. The issues raised in the action were losely bound up with the firm’s investigation for ASM into the management of the other two syndicates. In November 1990 the defendant, instructed the firm to act for him in the action in place of his existing solicitors. The A & A companies, including SD, sought an injunction to restrain the firm from acting for the defendant on the ground that the firm had acquired confidential information and knowledge from the A & A companies when acting for ASM in the investigation of the other two syndicates which was relevant to the litigation between SD and the defendant and that therefore there was a conflict of interest. The judge granted the injunction. The firm appealed, contending that they should be prevented from acting for the defendant only if it was probable that SD would be prejudiced thereby and that measures which it proposed to take by erecting a so-called ‘Chinese wall’ would prevent any leakage of the confidential information it had acquired from the A & A companies in the ASM investigation. The proposed measures consisted of putting all the documents relating to the {*354} ASM investigation into special storage, providing a different team to act for the defendant from the team which had acted in the ASM investigation, locating the defendant’s team in a different department and a different building from the ASM team, and taking steps to ensure that the two teams did not discuss or communicate with each other about either case.

Held –(1) There was no general rule that a firm of solicitors who had acted for a former client could never thereafter act for another client against the former client, but a firm of solicitors would not be permitted to act for an existing client against a former client if (per Parker LJ and Sir David Croom-Johnson) a reasonable man with knowledge of the facts would reasonably anticipate that there was a danger that information gained while acting for the former client would be used against him or (per Staughton LJ) there was some degree of likelihood of mischief, i e of the confidential information imparted by the former client being used for the benefit of the new client. If (Staughton LJ dissenting) there was such a conflict of interest it was only in very special cases that the court would consider that a Chinese wall would provide an impregnable barrier against the leakage of confidential information (see p 358 f, p 364 e f, p 362 a to d, p 368 c and p 369 b d e, post); dictum of Buckley LJ in Rakusen v Ellis Munday & Clarke [1911–13] All ER Rep 813 at 820 applied; Supasave Retail Ltd v Coward Chance (a firm)[1991] 1 All ER 668 considered.

(2) (Staughton LJ dissenting) On the facts, a reasonable man with knowledge of all the facts including the measures for a Chinese wall proposed to be taken by the firm would, notwithstanding those measures, still consider that if the firm was allowed to continue to act for the defendant there would be a risk that some of the confidential information provided by the A & A companies to the firm when it was acting for ASM might inadvertently be revealed to the firm’s team who were to act for the defendant. Accordingly, the appeal would be dismissed and the injunction restraining the firm from acting for the defendant would be continued (see p 363 b to d f h, p 369 f g and p 370 a b, post).

Notes

For the obligation of a solicitor towards his client, see 44 Halsbury’s Laws (4th edn) paras 131–135, and for cases on the subject, see 44 Digest (Reissue) 125–133, 1213–1334. 

Cases referred to in judgments

Moody v Cox and Hatt [1917] 2 Ch 71,[1916–17] All ER Rep 548, CA.
Rakusen v Ellis Munday & Clarke [1912] 1 Ch 831,[1911–13] All ER Rep 813, CA.
Solicitor, Re a (1987) 131 SJ 1063.
Supasave Retail Ltd v Coward Chance (a firm), David Lee & Co (Lincoln) Ltd v Coward Chance (a firm)[1991] 1 All ER 668,[1991] Ch 259,[1990] 3 WLR 1278.

Cases also cited Bricheno v Thorp (1821) Jac 300, 37 ER 864.

Davies v Clough (1837) 8 Sim 262, 59 ER 105.
Johnson v Marriott (1833) 2 C & M 183, 149 ER 725.

Appeal

By an originating summons dated 5 April 1991 the respondents, Alexander & Alexander Services Inc (A & A), Alexander Howden Holdings plc (formerly Alexander Howden Group plc), Alexander Howden Underwriting Ltd, Alexander {*355} Howden Insurance Brokers Ltd and Sphere Drake Insurance plc (Sphere Drake), applied for an injunction restraining a firm of solicitors (the firm) from acting as solicitors for Mark Edmund Denby, the defendant sued as representing all the members of Lloyd’s Syndicate 701 including himself in an action brought by Sphere Drake against him. 

The grounds on which the injunction was sought were (a) that A & A by itself or its servants or agents had provided the firm or its servants or agents with confidential information and/or confidential documents belonging to the respondents during the course of and in connection with the firm acting as solicitors on behalf of Alexander Syndicate Management Ltd (ASM) between 1982 and 1985,(b) that the circumstances in which the confidential information and documents were provided were such that the firm knew or ought to have known that the information and documents were given in strict confidence to the firm,(c) that on 26 November 1990 the firm commenced acting for the defendant in the action brought against him by Sphere Drake,(d) that by reason of those facts and the relationship between A & A and the other respondents on the one hand and ASM and the firm on the other hand the firm threatened and/or intended to use the information and documents provided by the respondents to the firm in breach of confidence and/or in conflict with their obligations to the defendant on the one hand and the respondents on the other hand, and (e) that pursuant to the court’s inherent jurisdiction to supervise the conduct of solicitors the firm should be restrained from acting for the defendant in the action. On 28 February 1991 Evans J ordered that the firm should be so restrained. The firm appealed. The grounds of appeal were (1) that the judge wrongly concluded that undertakings offered by the firm could not adequately protect the information and documents supplied to the firm by the respondents from use in the action against the defendant, (2) that the judge erred in law in laying down the requirement that there had to be exceptional circumstances for a firm of solicitors to act in the situation arising in the present proceedings whereas the only question the judge should have asked himself was whether real mischief and real prejudice would in all probability result if the firm was allowed to continue to act for the defendant,(3) that the judge wrongly took into account and gave undue weight to the factors that to allow the firm to continue acting for the defendant would offend against a principle that partners in a firm of solicitors should be encouraged to share information, and to the consideration that there was an obligation on the firm to disclose information to the defendant, without giving any or sufficient weight to the fact that the defendant Denby had consented to the firm acting for ASM,(4) that the judge wrongly held that there was a mischief rightly anticipated in the firm continuing to act for the defendant and (5) that the judge failed to take sufficiently into account the prejudice to the defendant if he was forced to find new solicitors. By a respondent’s notice the respondents contended that the judge’s order should be affirmed on the grounds relied on by the judge and on the additional ground that the information supplied by A & A to the firm in the course of the firm acting for ASM warranted protection by the law. The facts are set out in the judgment of Parker LJ.

Anthony Boswood QC and Bankim Thanki (instructed by Simmons & Simmons) for the firm.Peter Goldsmith QC and Philip Brook Smith (instructed by Denton Hall Burgin & Warrens) for the respondents.

At the conclusion of the argument the court announced that the appeal would be dismissed for reasons to be given later. {*356}

24 May 1991. The following judgments were delivered.

PARKER LJ. In this judgment I shall refer to the appellants as ‘the firm’. They are a well-known and well-respected firm of solicitors in London. By an originating summons dated 5 February 1991 Alexander & Alexander Services Inc (A & A), Alexander Howden Holdings plc (formerly Alexander Howden Group plc), Alexander Howden Underwriting Ltd, Alexander Howden Insurance Brokers Ltd and Sphere Drake Insurance plc (Sphere Drake) applied for an injunction to restrain the firm from acting as solicitors for the defendant, Mark Edmund Denby, in an action (the main action) commenced against him by Sphere Drake by writ dated 30 November 1984. 

On 28 February 1991 Evans J ordered that the firm be so restrained. The firm appealed. We heard the appeal on 15 and 18 March 1991. After full argument we dismissed the appeal for reasons to be given later. I now set out my reasons.

The facts

The basic facts are undisputed and simple. In 1982 A & A took over the Howden group of companies, which included an underwriting company now known as the respondent, Alexander Howden Underwriting Ltd. This company then managed the affairs of Syndicates 126 and 127 at Lloyd’s. The leading underwriter for those syndicates and others was a Mr Posgate. Soon after the take-over A & A discovered irregularities and caused them to be investigated in great detail through their solicitors who now act for Sphere Drake in the main action. Such investigations led ultimately to criminal proceedings in which serious allegations were made against Mr Posgate and four other individuals who became known publicly as ‘the gang of four’. From an early stage A & A were concerned both that Syndicates 126 and 127 should continue underwriting and that their members should not suffer loss from the irregularities. Accordingly they set up a new company originally known as Newco, but now as Alexander Syndicate Management Ltd (ASM), which took over the management of those syndicates and which carried out a full investigation on their behalf. In that they were advised by the firm. ASM were wholly independent of A & A but were closely associated with them and it was arranged between the two that A & A and the former managing agents should co-operate closely with ASM and that the firm would provide them with full information even if such information could be used against them. They, that is A & A and the former managing agents, did so co-operate and did provide full information. As a result claims were in due course brought against the former managing agents and the Howden broking company. All claims were settled in late 1985 or early 1986. Thereafter the firm no longer acted for ASM. The respondents contend that during the three years for which the firm acted for ASM, they and the firm received much confidential information from A & A and its subsidiaries which would be of value to Mr Denby in the main action and that they should not therefore be permitted to act for Mr Denby in that action. At this point it is necessary to refer briefly to that action. In it Sphere Drake claims against Mr Denby as representing himself and all other members of Syndicate 701 at Lloyd’s, sums allegedly due pursuant to quota share reinsurances issued to Syndicates 126 and 129 and for breach of an agreement to issue an excess of loss reinsurance on its quota share reinsurance. The amended defence of Mr Denby makes it, in my view, abundantly clear that the issues raised in the main action are very closely bound up with the matters being investigated by ASM and the firm between 1982 and 1985. 

Serious {*357} allegations are being made involving the conduct of Mr Posgate and the gang of four which were then under investigation. Furthermore there is specifically pleaded amongst other things a meeting on 14 August 1982 between Mr Posgate and, amongst others, Mr J A Bogardus the chairman and chief executive of A & A and Mr Bercardi the treasurer of A & A, both of whom were closely concerned in the supply of information to and co-operation with ASM and the firm in the three-year period when the firm was acting for ASM.

With this diversion I return to the history of events leading up to the respondents’ application for an injunction. The main action proceeded in the normal course until 26 November 1990 when for reasons which do not matter but which have no reflection whatever on the validity of Mr Denby’s defence or on the conduct of their then solicitors, such solicitors were replaced by the firm. Four days later on 30 November, Sphere Drake’s solicitors wrote to the firm objecting to them continuing to act for Mr Denby. I quote that letter in extenso because, although it repeats some of what I have already stated, it fills in certain details. It reads:

‘… it has become clear to us that your firm finds itself in a position of conflict. As was mentioned to your Mr.[B] there are a number of reasons why this is the case including, but not necessarilylimited to the following:

1. In early 1982 Alexander and Alexander Services Inc.("A & A") acquired Alexander Howden Holdings plc ("Alexander Howden") and its various subsidiaries including our clients, now known as Sphere Drake Insurance plc. As a result of an investigation commenced during 1982 of certain transactions and business practices involving Alexander Howden, a number of matters arose which caused senior management of A & A concern and which ultimately resulted in a number of legal proceedings. At the time, an Alexander Howden subsidiary, Alexander Howden Underwriting Ltd ("AHUL") was responsible for the management of Lloyds Syndicates 126 and 127. Due to concerns regarding transactions involving those Syndicates and to avoid a possible conflict, A & A arranged for the setting up of an independent company to be responsible for the management of them. That company was originally known as Newco but changed its name to Alexander Syndicate Management Ltd.("ASM"). The company was originally a wholly owned subsidiary of AHUL but at A & A’s instigation became an independent company. You will recall that your firm acted on behalf of ASM at the instigation of A & A and was responsible for the preparation of two Heads of Agreement signed on 1st and 10th November 1982 respectively, between various A & A and Alexander Howden companies and the newly appointed independent directors of ASM. These agreements established the company’s responsibility for management of the syndicates concerned.

2. ASM was set up by A & A to ensure that the Syndicate names suffered from no possible conflict in their representation. However A & A and its subsidiaries made provision for all relevant information to be provided to ASM and we would draw your attention in particular to clauses 6(A) and (B) of the Heads of Agreement dated 1st November 1982. You will note in particular at Clause 6(B) the provision that A & A and all its subsidiaries would keep ASM fully informed of all actions and legal proceedings taken by them which may affect any interests of ASM or the names, nor would they settle or compromise any claims without first informing ASM and providing it with the opportunity to intervene. {*358} 

3. ASM itself commenced proceedings in the Chancery Division against AHUL and Alexander Howden Insurance Brokers Limited (Action 1983 A No. 4878). Claims made by ASM included damages in respect of certain quota share reinsurances of Syndicate 126/129 rewritten into our client and also an "equitable claim" in respect of the premiums that had been paid out originally by those Syndicates to Southern International Reinsurances S.A.("SIR"). Those transactions form an integral part of the basis of the present claim against Syndicate 701.

4. You will be aware that A & A continued to meet the costs of ASM and the ASM litigation which was eventually settled following an offer to the names of the relevant Syndicates.

5. You will be aware, from correspondence between our firms during 1983 and 1984, in particular with your Mr. Knight, that certain of our clients’ expert witness reports (prepared by Deloitte Haskins & Sells) were disclosed to you in circumstances of the utmost confidentiality. Your firm has received confidential information and acquired relevant knowledge in acting on behalf of ASM which is relevant to the present litigation. We understand from our client that you have in any event acted on behalf of A & A companies in relation to various matters concerning the period in question and which would have involved divulging of certain confidential information. You will be aware of the Law Society rules concerning conflict and it is clear on the basis of any one of the matters set out above that your firm is in conflict in continuing to act on behalf of Syndicate 701 and must cease immediately. We must therefore ask for your confirmation by return that a notice of discontinuance will be filed immediately.’

On the totality of the evidence there can in my judgment be no doubt whatever that A & A and their subsidiaries did supply detailed information to the firm and to ASM concerning the very matters which will be explored in the main action and that although none were at any time clients of the firm the relationship between them was such that they can properly be described as informal clients. In my judgment also the firm owed to them very similar duties to those which they would have owed had they been clients in the strict sense.

I therefore consider that the first question for determination is whether, had they been clients, it would be right for the court to intervene and prevent the firm from acting for Mr Denby.

The law

The principal case on this subject is Rakusen v Ellis Munday & Clarke [1912] 1 Ch 831,[1911–13] All ER Rep 813, a decision of this court. The facts of that case were unusual. The defendant firm consisted in two partners only, Munday and Clarke. Their custom was to do business entirely separately, neither having any knowledge of each other’s clients and each of them having the exclusive services of different clerks. In June 1911 the plaintiff, Mr Samuel Rakusen, consulted Mr Munday with regard to a possible claim against S & H Rakusen Ltd for wrongful dismissal. He had several interviews with Mr Munday and gave him much confidential information in regard to the matters in dispute between himself and the company. At that time Mr Clarke was away on holiday and knew nothing of the consultations. He had not seen any of the papers. In October 1911 the plaintiff changed his solicitors and issued a writ against the company claiming damages for wrongful dismissal. 

The matter was referred to arbitration. In the course of {*359} the arbitration the firm were appointed solicitors to the company. It dealt wholly with Mr Clarke.

Not surprisingly Mr Rakusen objected. He applied for an injunction to restrain the firm from acting for the company. The application was heard by Warrington J, who granted the injunction despite undertakings offered by Munday not to act in any way in the arbitration proceedings or say anything about his consultations with Mr Rakusen and a further undertaking that Clarke’s name alone should appear on the papers as solicitor to the company.

The firm appealed to this court offering a further undertaking by the company not to consult Munday in any way. The appeal succeeded. In his judgment Cozens-Hardy MR said ([1912] 1 Ch 831 at 834–835,[1911–13] All ER Rep 813 at 814–815):

‘We expect and indeed we exact from solicitors, who are our officers, a higher standard of conduct than we can enforce against those who are not our officers. A solicitor can be restrained as a matter of absolute obligation and as a general principle from disclosing any secrets which are confidentially reposed in him. In that respect it does not very much differ from the position of any confidential agent who is employed by a principal. But in the present case we have to consider something further. It is said that in addition to the absolute obligation not to disclose secrets there is a general principle that a solicitor who has acted in a particular matter, whether before or after litigation has commenced, cannot act for the opposite party under any circumstances; and it is said that that is so much a general rule and the danger is such that the Court ought not to have regard to the special circumstances of the case. I do not doubt for a moment that the circumstances may be such that a solicitor ought not to be allowed to put himself in such a position that, human nature being what it is, he cannot clear his mind from the information which he has confidentially obtained from his former client; but in my view we must treat each of these cases, not as a matter of form, not as a matter to be decided on the mere proof of a former acting for a client, but as a matter of substance, before we allow the special jurisdiction over solicitors to be invoked, we must be satisfied that real mischief and real prejudice will in all human probability result if the solicitor is allowed to act.’

Cozens-Hardy MR then examined the particular facts of the case and concluded ([1912] 1 Ch 831 at 836,[1911–13] All ER Rep 813 at 815):

‘… is there any reason why Mr. Clarke, who was allowed to watch and attend proceedings in the arbitration (for I ought to say the action was referred to arbitration) and was allowed to attend on behalf of a shareholder before the arbitrator for some days—is there any reason why he should not be allowed to act as and to appear as solicitor for the company? In my opinion there is no substance whatever in the objection. There is no prejudice, there is no mischief, and having regard to the undertaking which was offered that although the solicitors on the record for the company are now Ellis, Munday & Clarke that should be changed and Mr. Clarke should alone be the solicitor on the record, I can see no ground for granting the injunction.’

Finally, having considered earlier authorities, he said ([1912] 1 Ch 831 at 838–839,[1911–13] All ER Rep 813 at 816–817):

‘Warrington J. has said, and it has been admitted on both sides here, that we are dealing with solicitors of the highest position and whose honour and integrity are beyond any imputation. No possibility of the disclosure of {*360} secrets has ever been suggested, but Warrington J. merely bases his judgment on this, that it has been frequently said in this Court that a solicitor is an officer of the Court and cannot be allowed to put himself into a position in which his duty to his present client may conflict with his duty to his past client. With great respect to Warrington J. I think that goes a great deal too far. Many busy solicitors in this country would find it impossible to carry on their business at all if that was the true rule. I think solicitors of the highest honour and integrity may frequently be perfectly able to act in the same matter for a new client, and at the same time may be perfectly able to avoid disclosing secrets without putting any strain upon their memory, conscience, or integrity.’

Fletcher Moulton LJ, whilst agreeing that each case must depend on its own circumstances, put the test somewhat differently. He said ([1912] 1 Ch 831 at 841,[1911–13] All ER Rep 813 at 818):

‘As a general rule the Court will not interfere unless there be a case where mischief is rightly anticipated. I do not say that it is necessary to prove that there will be mischief, because that is a thing which you cannot prove, but where there is such a probability of mischief that the Court feels that, in its duty as holding the balance between the high standard of behaviour which it requires of its officers and the practical necessities of life, it ought to interfere and say that a solicitor shall not act …[Mr Clarke] is willing to undertake not to make any inquiries or obtain any information from his partner with regard to the matter. Nobody pretends that this gentleman will not act up to that undertaking, and if we were to say that he—not his firm, but that he—was not to act, in my opinion we should be abusing the power that we certainly possess of directing what the officers of the Court should and should not do. For these reasons, though I think that it was a mistake to suggest that the name of the firm should formally appear on the proceedings as the solicitors of the company, I see no reason whatever why Mr. Clarke should not act for them, and I am satisfied that no mischief whatever will come from it.’

Buckley LJ put the test differently again. He said ([1912] 1 Ch 831 at 845,[1911–13] All ER Rep 813 at 820):

‘The whole basis of the jurisdiction to grant the injunction is that there exists, or, I will add, may exist, or may be reasonably anticipated to exist, a danger of a breach of that which is a duty, an enforceable duty, namely, the duty not to communicate confidential information; but directly the existence or possible existence of any such danger is negatived, the whole basis and substructure of the possibility of injunction is gone. I think that the order ought to be discharged.’

A note to the report states:

‘No undertaking was in fact directed either by Warrington J. or by the Court of Appeal, but Mr. Clarke’s name was at once substituted for that of the firm as solicitor for the company.’ 

(See [1912] 1 Ch 831 at 845.)

It appears to me however to be clear from the judgments that the court reached its decision on the basis of the undertakings and that but for the undertakings it would have reached a different conclusion.

It is also in my view clear from the judgments that the court would not have allowed Mr Clarke to act but for undertakings by both Munday and Clarke. It {*361} was thus in my view proceeding on the basis that such undertakings provided what is now referred to as a ‘Chinese wall’, a concept to which I will return hereafter.

Rakusen’s case was considered by Hoffmann J in March 1987 in Re a solicitor (1987) 131 SJ 1063, of which we were supplied with the Lexis printout. From that printout it appears that Hoffmann J did not specifically consider which of the three approaches in Rakusen’s case was to be preferred. He cited, however, the passage from the judgment of Cozens-Hardy MR which I have quoted above and then said:

‘That approach, as Mr. Griffiths pointed out, is based upon important considerations of public policy. It is not desirable that the right of a client to have the services of the solicitor of his choice should be unnecessarily restricted. It is not desirable that litigation, or as in this case the proceedings before the Inspectors, should be delayed because of a compulsory change of solicitors on grounds which do not involve any real possibility of injustice. It is not desirable that additional costs should be incurred by fresh solicitors having to be instructed when it is not really necessary to do so.’

The short report in the Solicitors Journal however does not reveal that Hoffmann J had relied on the test propounded in Rakusen’s case by Cozens-Hardy MR. In so far as it goes, it suggests that he considered whether there was a real risk of prejudice to the applicant if the solicitors continued to act. The question has however been very recently considered by Sir Nicolas Browne-Wilkinson V-C in Supasave Retail Ltd v Coward Chance (a firm), David Lee & Co (Lincoln) Ltd v Coward Chance (a firm)[1991] 1 All ER 668 at 673–674,[1991] Ch 259 at 267–268. Having set out the three versions of the test appearing in the judgments in Rakusen’s case he said: 

‘I do not find those tests very easy to equate. Hoffmann J in a later case, Re a solicitor (1987) 131 SJ 1063, said that the test was whether mischief was rightly anticipated. That seems to me to be a fair expression of what the court has to look for.’

It appears from this that Sir Nicolas Browne-Wilkinson V-C considered that he was following Hoffmann J’s decision, when the Lexis printout demonstrates that this was not so. We therefore find ourselves with two inconsistent decisions at first instance and the task of determining which of the three tests or some other test is to be applied. I have no hesitation in rejecting the test propounded by Cozens-Hardy MR. If adopted it would seem to me to enable a firm which had acted for client A in one matter thereafter to act for client B against client A in the same or a related matter provided only that there were undertakings which, if fulfilled, would ensure that those in the firm who had knowledge of client A’s affairs would not act in any way for client B and would not communicate to those acting for client B any information obtained by them when acting for client A. Given such undertakings it could only be said that in all human probability mischief would result if the firm continued to act for client B on the basis that in all probability the undertakings would be breached by the firm or, I suppose, that the undertakings, although tendered in good faith, were such that in all human probability they could not be complied with. This cannot in my judgment be right.

I turn then to the test suggested by Fletcher Moulton LJ, namely that the court will act ‘where mischief is rightly anticipated’. Like Sir Nicolas Browne-Wilkinson V-C I consider that this, so far as it goes, is a fair expression of what the court has {*362} to look for. I say as far as it goes, for it does not cover such matters as the nature of the mischief or by what standard one considers whether mischief was ‘rightly anticipated’.

Some help is in my view to be gained from Buckley LJ’s test ‘whether there may reasonably be anticipated to exist a danger’ of breach of the duty not to communicate confidential information. This appears to me to suggest that the proper approach is to consider whether a reasonable man informed of the facts might reasonably anticipate such a danger.

To approach the matter in this way has the advantages, in my judgment, that an over-sensitivity on the part of the objector would be excluded and that public confidence in the process of litigation would not be undermined. If a reasonable man with knowledge of the facts would say ‘If I were in the position of the objector I would be concerned that, however unwittingly or innocently, information gained while the solicitor was acting for me, might be used against me’, the court in my judgment can and should intervene. Were it not to do so the court would be permitting to exist a situation of apparent unfairness and injustice. That this should be avoided is in my view every bit as much a matter of public interest as the public interest in not unnecessarily restricting parties from retaining the solicitor of their choice.

At this point it is convenient to consider certain of the provisions of chs 11 and 12 of The Law Society’s Guide to the Professional Conduct of Solicitors (1990). Chapter 11 is entitled ‘Conflict of Interests’. Paragraph 11.02 sets out the following principle:

‘If a solicitor or firm of solicitors has acquired relevant knowledge concerning a former client during the course of acting for him, he or it must not accept instructions to act against him.’

Paragraph 1 of the commentary which follows is:

‘Any knowledge acquired by a solicitor whilst acting for the former client is confidential and cannot be disclosed without that client’s consent. (See Principle 12.01). However, a solicitor is under a duty to his present client to inform him of all matters which are material to his retainer. (See Principle 12.07). Consequently, a solicitor in possession of knowledge concerning his former client which is, or might be relevant, is put in an impossible position and he cannot act against that client. Moreover, if a solicitor would feel embarrassed in acting against his former client, he should not act.’

Since the plaintiff companies were at no time clients of the firm this is not directly applicable. For my part, however, I consider that the principle is one which the court should enforce for the reasons set out in para 1 of the commentary. It is to be observed that the principle is absolute in the case of relevant knowledge and applies whether as in Rakusen’s case the matter concerned is the same as or different from the matter in which the solicitor acted for the former client. This is clearly necessary. When acting for a former client a solicitor may for example have acquired knowledge relevant to a totally different matter in which he seeks to act for another client against his former client.

Chapter 12 is headed ‘Confidentiality’. Paragraph 12.07 sets out this principle:

‘A solicitor is usually under a duty to pass on to his client and use all information which is material to his client’s business regardless of the source of that information. There are, however, exceptional circumstances where such duty does not apply.’

Bearing in mind the special circumstances prevailing when the firm’s clients {*363} were strictly ASM but A & A and subsidiaries were providing information and, in my view, were informal or quasi clients I regard principles 11.02 and 12.07 as equally applicable in the present case. Apart from the question of the ‘Chinese wall’ to which I next turn I would regard it as clear that in the present case the court should intervene to prevent the firm from continuing to act for Mr Denby in the main action.

As to the ‘Chinese wall’, although not then so-called, it was on the basis that, in the very particular circumstances of Rakusen’s case the undertakings given coupled with the retainer being not of the firm but of Mr Clarke personally, afforded an impregnable barrier against leakage or misuse of information that the court allowed Mr Clarke to act. The situation here is very different. The firm is a very large one and it acted for three years in a matter which attracted great public interest and much discussion in the legal profession and in the insurance world. Those who were then immediately concerned for ASM will almost certainly have discussed it extensively with others not immediately concerned. All may genuinely believe that they have forgotten all about what then happened but anyone in the legal profession knows that a chance remark may bring details of an apparently forgotten case flooding back. In Supasave Retail Ltd v Coward Chance (a firm)[1991] All ER 668,[1991] Ch 259 Nicolas Browne-Wilkinson V-C had to consider whether the arrangements there proposed for preventing leakage, i e a ‘Chinese wall’, eliminated the risk which prima facie arose. He held that they did not. In the present case we have much more background evidence than was available to Sir Nicolas Browne-Wilkinson V-C. I do not doubt for one moment that the firm intend that such proposals will eliminate any risk and believe that they will do so. For my part, however, I am not satisfied that they would do so. Moreover, even if for a period they would, no one can tell whether in the course of the litigation something might occur which would put the firm in an embarrassing position. That would be disastrous.

In my judgment any reasonable man with knowledge of the facts, in the present case, including the proposals for a ‘Chinese wall’, would consider that some confidential information might permeate the will and would indeed regard it as astonishing that the plaintiffs should be faced with solicitors on the other side to whom, over a considerable period, they had forwarded much confidential information concerning matters being investigated in the main action.

Although I have not named the firm in the course of this judgment it appears to me that it will not be difficult for some to identify them. I therefore conclude by saying that the fact that they originally accepted the retainer and that they have continued to resist the application casts no reflection whatever on their integrity and does not indicate in any way that they have been guilty of putting the profit motive above those higher standards which are to be expected of officers of the court which were stressed in Rakusen’s case. They were chosen by their client to act at short notice in a matter in which they were well qualified to act at a time when the trial was not far off. They believed that there was no reason why they should not do so and they later went to considerable trouble to try to create an impregnable wall. In my judgment they were mistaken in their belief and the wall cannot be regarded as impregnable.I add finally that, save in a very special case such as Rakusen’s case, I doubt very much whether an impregnable wall can ever be created and I consider that it is only in very special cases that any attempt should be made to do so.

STAUGHTON LJ. Like Parker LJ I am satisfied that between 1982 and 1985 the solicitors received confidential information from Alexander & Alexander {*364} Services Inc (A & A) and others, some of which is relevant to the action presently proceeding in the commercial court between Sphere Drake Insurance plc (Sphere Drake) and Mr Denby. I am also satisfied that, in the unusual circumstances of this case, the duty of the solicitors in relation to that confidential information is the same as if it had been provided by a client of the firm, although those who provided it were not in fact clients but rather in dispute with the actual clients at the time, Alexander Syndicate Management Ltd (ASM).

The question then, as I see it, is whether a firm of solicitors can ever act against a former client if the firm has obtained confidential information from the former client which is relevant to the present dispute, and if so in what circumstances. In theory there are three possible sources of material for deciding this question. The first is the general law as to the protection of confidential information, the second, the powers of the court to control the conduct of solicitors as its officers, and the third, The Law Society’s Guide to the professional Conduct of Solicitors (1990). In so far as the guide represents the law, it must be derived from the first two sources. Where it goes further and provides advice on conduct and ethics, it does not seem to me to concern us in this appeal.

The first part of the question is in my judgment answered by the case of Rakusen v Ellis Munday & Clarke [1912] 1 Ch 831,[1911–13] All ER Rep 813. That case represents the law so far as this court is concerned. I bear in mind the observation of Sir Nicolas Browne-Wilkinson V-C in Supasave Retail Ltd v Coward Chance (a firm), David Lee & Co (Lincoln) Ltd v Coward Chance (a firm)[1991] 1 All ER 668 at 674,[1991] Ch 259 at 268 that it may be desirable to rethink what was laid down as the law in 1912. But this court has no more power than the Vice-Chancellor to depart from the rule laid down in Rakusen’s case.

That case decided, as is set out in the headnote (see [1912] 1 Ch 831), that there was no general rule that a solicitor who had acted for some person either before or after the litigation began could in no case act for the opposite side. What is more, the decision was reached in a context where the former client had provided relevant confidential information to the firm. Before the court will interfere, even in such a case, there must be some degree of likelihood of mischief, that is to say of the confidential information imparted by the former client being used for the benefit of the new client.

There is, however, an absolute ban on the same firm acting simultaneously for two clients with opposing interests, although even that rule may be subject to rare exceptions. The reason for it, as it seems to me, is that the firm will be paid by each side to win; there will be a conflict between the interests of its clients, and therefore a conflict of duties resting on the firm.

No such conflict exists when the firm has ceased to act for a former client, unless the firm is obliged to supply to the new client all the relevant information which is possessed by any of its partners and staff. If there is such a duty, it was totally overlooked by the Court of Appeal in Rakusen’s case. There Cozens-Hardy MR Said ([1912] 1 Ch 831 at 839,[1911–13] All ER Rep 813 at 817):

‘I think solicitors of the highest honour and integrity may frequently be perfectly able to act in the same matter for a new client, and at the same time may be perfectly able to avoid disclosing secrets without putting any strain upon their memory, conscience, or integrity.’

Yet the Law Society’s Guide has this principle in para 12.07:

‘A solicitor is usually under a duty to pass on to his client and use all information which is material to his client’s business regardless of the source {*365} of that information. There are, however, exceptional circumstances where such duty does not apply.’

The exceptions discussed in the commentary do not include confidential information obtained from a former client. That is consistent with para 11.02 of the Law Society’s Guide:

‘If a solicitor or firm of solicitors has acquired relevant knowledge concerning a former client during the course of acting for him, he or it must not accept instructions to act against him.’

The justification for this rule is said in the commentary to be the principle in para 12.07, quoted above.

The judge in the present case considered this obligation of disclosure as of crucial importance. So it may well be in general, although Mr Denby has released the solicitors from it in order to retain their services. But is it the law? The case cited to us in support of it was Moody v Cox [1917] 2 Ch 71,[1916–17] All ER Rep 548. In that case Hatt was a solicitor and Cox was his managing clerk. Together they were trustees of a public house, a piece of land and four cottages. But they acted for Mr Moody in the purchase of the property by him, and failed to disclose information in their possession as to its value. It was held that Mr Moody was entitled to rescission for non-disclosure. Warrington LJ said ([1917] 2 Ch 71 at 83, [1916–17] All ER Rep 548 at 554):

‘On these facts I come to the conclusion that at the time this contract was made the relationship of solicitor and client subsisted as between Moody and Hatt, and that as a matter of law there was an obligation upon Hatt to disclose to Moody all material facts in his knowledge.’

I cannot detect in that case any authority for the proposition that a large firm of many partners is obliged to disclose to each client any knowledge relevant to his affairs that may be possessed by any of its partners or staff. Nor do I think it right to enlarge the law to that extent, quite apart from the authority of Rakusen’s case. There has no doubt been a change in the way that many solicitors practice since 1912. In that case Mr Munday and Mr Clarke were the only partners in the firm; they were in the habit of doing business separately and without any knowledge of each other’s clients, and each of them had the exclusive services of some of their clerks. There are, of course, still many sole practitioners or small firms today. But there are also giants with 100 partners and more, employing large numbers of assistant solicitors and articled clerks (as I shall still call them). The solicitors in the present case comprised 107 partners at the last count. It seems to me impracticable and even absurd to say that they are under a duty to reveal to each client, and use for his benefit, any knowledge possessed by any one of their partners or staff. I would not hold that to be the law.

Another consideration is whether the law should look only at the actual likelihood of mischief in a particular case, or also at the apparent likelihood as it might be perceived by the former client. So far as concerns the law on confidential information, this can in my view only be invoked when there is an actual likelihood of mischief, as in any other quia timet situation. But I suppose that the court’s power to control solicitors could, in theory, be exercised also in the case of apparent likelihood. The maxim so often quoted, that justice must not only be done but also be seen to be done, is a sound general principle in cases of bias or conflict of interests as in other contexts, although I suspect that it may on occasion result in timid reluctance to risk some imaginary appearance of conflict which has no substance. The practice as to when magistrates are regarded as disqualified may be an example. That doctrine is probably the justification for the law in {*366} some jurisdictions, as explained by Sir Nicolas Browne-Wilkinson V-C in Supasave Retail Ltd v Coward Chance (a firm)[1991] 1 All ER 668 at 673–674,[1991] Ch 259 at 268:

‘I was referred to certain North American and New Zealand authorities as to the circumstances in which the court would intervene. It is clear that in certain jurisdictions in North America the law has been taken much further than it was in Rakusen’s case, to the extent of saying that where, if a solicitor continues to act where his partner has acted for the other side this would give rise to a possible perception of impropriety, irrespective of the substance of the matter, the court would not permit that to continue.’

Sir Nicolas Browne-Wilkinson V-C added:‘That is not the law in this country.’ I agree, for to hold otherwise would be inconsistent with Rakusen’s case. Alongside the need for justice to be seen to be done there is a countervailing public interest, that the choice of solicitors open to the public should not be unduly and unnecessarily restricted. In Rakusen’s case it was argued that such restriction ‘would work great hardship in small towns where there were few solicitors’(see [1912] 1 Ch 831 at 833). The same may occur in a large city where there are many solicitors, but only a few of them have experience in a recherché and specialised field. To deprive a litigant of his chosen solicitor may cause him inconvenience, expense and dismay, which may be why (as we are told) it is not uncommon practice for his opponent to attempt to do so in the United States. It is a step which should only be taken on solid grounds.

What then is the precise degree of likelihood of mischief required before the court will intervene? In Rakusen’s case [1912] 1 Ch 831 at 835,[1911-13] All ER Rep 813 at 815 Cozens-Hardy MR required that ‘real mischief and real prejudice will in all human probability result …’ Fletcher Moulton LJ considered that a solicitor should not be allowed to act—

‘where there is such a probability of mischief that the Court feels that, in its duty as holding the balance between the high standard of behaviour which it requires of its officers and the practical necessities of life, it ought to interfere …’

(See [1912] 1 Ch 831 at 841,[1911–13] All ER Rep 813 at 818.) Buckley LJ said ([1912] 1 Ch 831 at 845,[1911–13] All ER Rep 813 at 820):

‘The whole basis of the jurisdiction to grant the injunction is that there exists, or, I will add, may exist, or may be reasonably anticipated to exist, a danger of a breach of that which is a duty, namely, the duty not to communicate confidential information.’

There is a considerable difference of emphasis and degree in those judgments. In Re a solicitor (1987) 131 SJ 1063 Hoffmann J applied the test of Cozens-Hardy MR, although it may very well be that he would have reached the same conclusion if instead he had followed Fletcher Moulton LJ or Buckley LJ. In Supasave Retail Ltd v Coward Chance (a firm)[1991] 1 All ER 668 at 673,[1991] Ch 259 at 267–268 Sir Nicolas Browne-Wilkinson V-C, who did not have a full report of the judgment of Hoffmann J, attributed to him a test of whether ‘mischief was rightly anticipated’; and said that the test was ‘whether there is or is not a reasonable anticipation of mischief.’ I am content to accept that test. Indeed I am inclined to think that it is the right test to apply. So it comes down to the measures which the solicitors have taken to ensure that confidential information entrusted to them by the A & A companies will not reach those who are now acting for Mr Denby. These have been called a ‘Chinese {*367} wall’; but in order that metaphor may not cloud meaning, I prefer to call them an information barrier. They are set out in the second affidavit of a litigation partner, sworn on 26 February 1991. In essence they amount to this: that the documents relating to the firm’s involvement up to 1985 were put in store in 1986 and will remain there; that a separate team will act for Mr Denby from those who acted for ASM and received confidential information; they are in a different department, and for the most part in a separate but interlinked building; they have not had and will not have any discussion or communication with the previous team concerning the subject matter of either case. Mr Goldsmith QC for the A & A companies advanced a number of detailed criticisms of the information barrier. They were, in my judgment, all in greater or lesser degree fanciful. Of course it will be possible, and perhaps easy, for the barrier to be deliberately breached if anyone is minded to take that course. But it is not suggested that mischief will be caused deliberately, for the people involved at the firm of solicitors are assumed to be all honourable men. That a breach should occur accidentally cannot be ruled out as a remote possibility. But I can see no ground for supposing, in the words of Sir Nicolas Browne-Wilkinson V-C in the Supasave case, that mischief is rightly anticipated, or that there is a reasonable anticipation of mischief.

I have not overlooked Mr Goldsmith’s argument that the situation may change in the course of the action, and that at some stage confidential information may be found to be both relevant and in the possession of the new team. A change of solicitors at a later stage would cause far more disruption than it would cause now, or would have caused last November. But I cannot find that this is likely to happen, or is rightly or reasonably anticipated.

It is said that one dent or loophole in the information barrier has already been found. There was apparently a telephone conversation on 16 September 1985 between Mr T, a partner in the solicitors’ firm, with accountants who were advising ASM. Yet the affidavit describing the information barrier has not named Mr T as one of those in the former team who had acquired confidential information. The explanation on behalf of the solicitors is that Mr T was involved only in giving tax advice (and negotiating with the Inland Revenue) in relation to a proposed settlement. That would appear to be consistent with the document which revealed his participation. I do not regard this episode as undermining the view that I have formed as to the probable effect of the information barrier. I would allow this appeal.

Since writing this judgment I have had the advantage of reading the draft judgment of Parker LJ. I am afraid that I cannot regard Rakusen’s case as decided upon special facts which distinguish it from this case. True, it was concerned with a very small firm, whereas we are concerned with a very large one. That does not affect the principle which it lays down. It is the effectiveness of the information barrier which must be considered in each case. It is also true that in Rakusen’s case the court apparently attached some importance to the undertaking that the proceedings would thenceforth have the name of Mr Clarke on the record, rather than the name of the firm. But Cozens-Hardy MR had expressly said that the case should be treated on the basis of substance, not form. How then could such window-dressing, as I would regard it, be important? For me that remains an unsolved mystery, unless it was felt that there could be no harm in paying some attention to form, once a correct decision had been reached upon substance.

SIR DAVID CROOM-JOHNSON. The history of the events concerning the parties to this application and their relationships with each other have been fully {*368} set out in the judgment of Parker LJ, which I have read. It is clear that in 1983 and 1984 Alexander & Alexander Services Inc (A & A) gave detailed information to Alexander Syndicate Management Ltd (ASM), for whom the firm of solicitors were then acting. Although they were not strictly the clients of the firm they were as good as their clients, and for the purpose of the present application should be treated accordingly.

The court’s jurisdiction in matters of this kind has been exercised on various occasions in the past, but Rakusen v Ellis Munday & Clarke [1912] 1 Ch 831,[1911–13] All ER Rep 813 appears to be regarded generally as a starting point for any consideration of the law. The appellant firm in this case do not suggest that Rakusen’s case is direct authority binding on us, but submit that it should be applied by analogy. It is worth seeing what it was that Rakusen decided. The immediate issue was that Warrington J had held that there was a principle that a solicitor, having once been employed to act for a man, should not thereafter act against him in the same matter. The Court of Appeal decided there was no general rule and that each case must be decided on its own facts: the substance, and not the form, was what mattered. The members of the court all gave guidance on what should be borne in mind in making such decisions. Cozens-Hardy MR said that before the special jurisdiction over solicitors is invoked ‘we must be satisfied that real mischief and real prejudice will in all human probability result if the solicitor is allowed to act’(see [1912] 1 Ch 831 at 835,[1911–13] All ER Rep 813 at 815). In view of the circumstances of that case (a two-man firm where the partners were effectively at arms length, and the undertaking that only one of the partners would henceforth be the solicitor on the record) he held that there was no prejudice and no mischief, and refused the injunction. Fletcher Moulton LJ also put the test on the basis of probability ([1912] 1 Ch 831 at 41, [1911–13] All ER Rep 813 at 815):

‘As a general rule the Court will not interfere unless there be a case where mischief is rightly anticipated. I do not say that it is necessary to prove that there will be mischief, because that is a thing which you cannot prove, but where there is such a probability of mischief that the court feels that, in its duty as holding the balance between the high standard of behaviour which it requires of its officers and the practical necessities of life, it ought to interfere and say that a solicitor shall not act.’

He, too, relied on an undertaking by one partner not to make any inquiries or obtain information from the other.

Buckley LJ put the test differently ([1912] 1 Ch 831 at 845,[1911–13] All ER Rep 813 at 820):

‘The whole basis of the jurisdiction to grant the injunction is that there exists, or, I will add, may exist, or may be reasonably anticipated to exist, a danger of a breach of that which is a duty, namely, the duty not to communicate confidential information …’

He did not rest the test on probability of breach, but on risk.

Hoffmann J in Re a solicitor (1987) 131 SJ 1063 put the test in this way: ‘Is there any possibility that the solicitors’ ability to discharge the one duty may come into conflict with their ability to discharge the other?’ He, too, based the test on risk. 

Sir Nicolas Browne-Wilkinson V-C in Supasave Retail Ltd v Coward Chance (a firm), David Lee & Co (Lincoln) Ltd v Coward Chance (a firm)[1991] 1 All ER 668 at 673,[1991] Ch 259 at 267–268 equated mischief ‘rightly anticipated’ with ‘a reasonable anticipation of mischief’. {*369} Putting aside the facts for the moment, what is the correct question which the court should ask itself before exercising its jurisdiction? It must, in answering it, obviously take into account what has come to be called the ‘Chinese wall’. It would not be right to require that there should be no risk at all. Human affairs being what they are, it is impossible to say that there is never a risk of confidential information being revealed or leaked, or professional duty being breached. But in my view it is relaxing the necessary precautions required to be taken to protect confidential information too much to ask whether the test is one of probability as the applicant firm ask us to do. They submit that the requirement of probability before a quia timet injunction is granted is what is appropriate, but that is too broad a test in the exercise of this jurisdiction. Cozens-Hardy MR said in Rakusen’s case [1912] 1 Ch 831 at 834–835,[1911–13] All ER Rep 813 at 814:

‘We expect and indeed we exact from solicitors, who are our officers, a higher standard of conduct than we can enforce against those who are not our officers.’

The appellant firm have in good faith, which nobody doubts, erected what reads like a formidable Chinese wall to prevent leakage of information within their organisation. For this injunction to continue there must be a possible, but real, risk of such a leakage, inadvertent or not. It is the inadvertent which matters here. I agree with the test set out by Parker LJ, based as it is on that put forward by Buckley LJ in Rakusen’s case and echoed by Sir Nicolas Browne-Wilkinson V-C and Hoffman J. This is that the court will act if danger of a breach of duty may reasonably be anticipated.

Adopting that test, what is the position in this case? The firm have put all the documents relating to the earlier inquiries and actions in special store. There seems to be no risk of leakage of those. The staff and personnel who are handling the present litigation are not those who were concerned in the earlier cases. But in view of the complexity of the issues in all the cases, the reasonable man knowing of the overlap could not be confident that in the course of the present case some inadvertent revelation might not take place, caused perhaps by the awakening of a memory or by someone consciously or unconsciously availing himself of information which had in the past been obtained from A & A and communicated to him in the course of his work or even in social meetings with other members of the firm. He might well not appreciate the origin of the information, but the risk is there. There is no analogy to be drawn from the two-man firm in Rakusen’s case to a large firm of 107 partners and obviously a correspondingly large staff of executives and other employees. The reasonable man would recognise the existence of a risk of use of the earlier information no matter what steps the firm had taken to protect it.

The Law Society’s Guide to the Professional Conduct of Solicitors (1990), ch 11 on ‘Conflict of Interests’, may be perhaps more strict than the general law (it could not be less so), but I find that the principle set out in para 11.02 is persuasive:

‘If a solicitor or firm of solicitors has acquired relevant knowledge concerning a former client during the course of acting for him, he or it must not accept instructions to act against him.’

Once one puts A & A in the position of having been tantamount to a client, that principle applies. Evans J in the judgment now being appealed from, referred to the Law Society’s attitude to Chinese walls in a leaflet dated May 1988. It is enough to say that the Law Society suggests that where there is conflict, they should be used only in exceptional circumstances where there is an overriding and compelling need. That is certainly not the case here. {*370} Evans J went on to give his reasons why in this case there was a risk that a Chinese wall might not be a sufficient protection. He pointed out that the alleged wrongdoing of Mr Posgate, the leading underwriter for Lloyd’s Syndicates 126 and 127, and four other individuals known as ‘the gang of four’ was widely publicised at least until 1989 when the criminal trial took place. It was, he said, notorious. He regarded the risk that what had been told to the firm in 1983 and 1984 might surface again in discussion or in the stress of litigation as sufficiently real. I agree with his reasons.

I agree with Parker LJ that this appeal should be dismissed.

Appeal dismissed.

Wendy Shockett Barrister.