(1) NIGEL JAMES YOUNG (2) HENRY JOHN YOUNG (3) PAUL ANTHONY IRBY (Plaintiffs) v (1) ROBSON RHODES (a firm) (2) FRANK ATTWOOD (Defendants) (1999)


Ch.D (Laddie J) 30/3/99






Where expert forensic accountants retained for litigation by a Lloyd's syndicate were investigating the syndicate's auditors, a proposed merger with the auditors constituted both breach of retainer and breach of confidence. The former did not merit injunctive relief, but for the latter injunctive orders were made, creating Chinese Walls but not preventing the merger from proceeding.


Plaintiffs' application for an injunction restraining the merger of two accountancy partnerships. The plaintiffs ('P') were representative Names at Lloyd's and members of a syndicate who commenced four actions against a firm of auditors, Pannell Kell Forster ('PKF') alleging negligence and breach of contract. For those actions, expert forensic accountancy services were required and P had contacted the second defendant ('A'), a recognised expert and a partner in the first defendant, a firm of accountants ('RR'). However, on 8 March 1999, P had been informed that RR and PKF planned to merge, which led to demands for undertakings not to merge until after the conclusion of the action against PKF. P issued proceedings seeking injunctions which were brought to trial swiftly in view of the planned merger date of 1 May 1999, to prevent the merger until such time as the trial of the actions against PKF was completed. P relied on two causes of action as follows: (i) breach of contract ('the retainer claim') where RR and A had been retained to act for the syndicate for the purpose of the proceedings against PKF and the merger would make that impossible; and (ii) breach of confidence ('the confidentiality claim'), where RR and A had access to crucial and confidential information relating to the litigation against PKF and there was a risk that some of that information would pass to PKF to the detriment of the Names. P relied on the recent House of Lords decision in Prince Jefri Bolkiah v KPMG (1999) 2 WLR 215. In the retainer claim, the defendants denied any ongoing obligation, claiming an ad hoc relationship. In the confidentiality claim, the defendants accepted that they had had such access but sought to rely on extensive undertakings which had been offered.


HELD: (1) The retainer claim. (i) Retainer: despite the absence of an express contract, by the middle of 1998 both parties clearly understood and acted on the basis that RR and A were retained as the Names' expert. (ii) Type of retainer: this finding alone did not determine the contractual part of the claim. However, the involvement of RR went beyond that of the conventional role of expert witnesses; RR's role was to assist in the presentation and advocacy of the actions as part of the Names' legal team. Just as the solicitors were retained under an entire retainer, so too, were RR and A engaged, and they could not back out as and when they liked. RR and A accepted obligations to their clients by holding themselves out as forensic accountants. The implication of an entire retainer was that which every reasonable person would make. (Underwood, Son & Piper v Lewis (1894) 2 QB 306 considered). (iii) Relief for repudiatory breach: the repudiatory breach had not been accepted by the Names, who sought injunctive relief not to compel co-operation but to prevent the merger until after the main litigation was over. Although it would be difficult to find replacement forensic accountants and significant losses might result, the whole purpose of the injunction sought was to coerce RR and A into assisting the syndicate in its litigation. Save in very exceptional circumstances, the court did not grant injunctions which sought to enforce contracts of personal service and it would not to do so here, not least because by doing so RR and A would not be persuaded to return. The contractual claim must therefore only sound in damages.


(2) The confidentiality claim. (i) The question was whether the undertakings offered went far enough. P claimed that in light of Prince Jefri (supra), the merger should be prevented by injunction, but RR and A sought to distinguish the case. If there was even a small increase in risk that the Names' confidential information would be inadvertently transmitted to PKF, then P were entitled to further protection. Following Prince Jefri, the risk had to be a real one and not merely fanciful or theoretical. (ii) It was unrealistic to require examples where a harmful inadvertent leak of information could take place. Rather, the court had to ensure that even if there were mistakes, no additional risk of damage was inflicted on the former client, which could occur when potential disclosers and disclosees were in regular and working contact. That there were fewer potential disclosers here than in Prince Jefri did not make the risk fanciful. The court had to ensure that barriers to prevent disclosure of confidential information would work. If those barriers did work, it did not matter whether they were created before or after the problem arose. Dicta in Prince Jefri as to ad hoc arrangements meant that "Chinese Walls", which had become part of the fabric of an institution, were more likely to work than those artificially put in place to meet a one-off problem. Furthermore, barriers which did not prevent both direct and indirect contact, including social contact, could still be effective, or else the requirement would extend into the realm of the fanciful and theoretical.


(3) Conclusions: the Names were at risk of inadvertent leakage of information if members of the team were in regular professional contact with those members of PKF who were connected with the litigation. An order against merger would force apart the many members of the two firms, whose contact could have no adverse effect and should be avoided if possible. However, the only way to ensure protection of P's interests was to impose sufficient physical separation between the relevant members of RR and those in PKF. Therefore: (a) PKF was to identify every partner and member of staff, current and past, who had been involved in or consulted in relation to the audits of the syndicate or in relation to any of the four actions brought against PKF by the syndicate; (b) the merged firm would identify every partner and member of staff whom it proposed to involve in relation to any of the four actions; (c) until judgment in the actions, certain persons were not to work in any premises in which the persons in (a) and (b) above worked, nor to have any professional contact with them. There was no need to make provision as to social contact.


Application dismissed but damages and injunctive relief accordingly.


Gordon Pollock QC and Brian Doctor instructed by Bracher Rawlins for the plaintiffs. Mr A Malek QC and Mr D Quest instructed by Lovell White Durrant for the defendants.


LTL 31/3/99 : TLR 11/5/99 : (1999) 3 All ER 524


Judgment Approved - 25 pages


Document No. AC7600224