Confidentiality, Conflicts of Interest and Chinese Walls
| Published date | 01 November 1992 |
| Date | 01 November 1992 |
| DOI | http://doi.org/10.1111/j.1468-2230.1992.tb00943.x |
Confidentiality,
Conflicts
of
Interest
and
Chinese
Walls
J.
R.
Midgley
*
Introduction
There is no rule prohibiting lawyers from appearing against former clients’ and,
in many instances, communications between lawyers and former clients have no
bearing on later unrelated cases. However, when a lawyer appears against a former
client in the same matter, or in one closely connected to his former mandate, the
former client may
feel
that he might be unfairly prejudiced by the fact that the
opponent’s lawyer was privy to confidential information.
At first, courts were seldom called upon to consider the issues that arise when
lawyers represent adversaries of former clients. Once a workable general rule was
established, lawyers had little difficulty in adhering to it. However, as the size
of law firms increased and different methods of legal practice developed,*
so
pressures were placed upon rules which were not designed for an era of amalgama-
tions and mega-firms. Some firms, for example, are today partnerships in name
only. Changes in management structure have caused large law firms to adopt the
bodies of partnerships and the minds of corporation3 and, inevitably, they have
had to introduce special mechanisms to comply with professional requirements. One
of these, the Chinese wall, is an internal control measure, the aim of which is to
prevent communication of certain information between members of a firm. Closely
associated with the idea is the concept
of
a ‘cone of silence’ which is created when
one person undertakes not to disclose information to fellow members of a firm.
Chinese walls are likely to arise in instances where persons are instructed to appear
against former clients, where firms merge and in situations where lawyers transfer
from one firm to another. In such cases, our concern is the effect of three duties,
two of which are variations of a lawyer’s duty to show good faith towards a client
or any other person with whom he is in a fiduciary relationship. The first is the
duty to maintain confidentiality; the second is the duty to avoid a conflict of interest;
while the third duty is that which a partner owes to the partnership. But there are
additional issues: the question of lawyer and client privilege; the extent to which
knowledge of a lawyer is imputed to other lawyers within a firm; and, the common
thread in all the above issues, the protection of the integrity of the legal system
by ensuring that a person receives a fair trial.
*Associate Professor, Faculty of Law, Rhodes University.
1
In
Robinson
v
Van Hulsreyn, Ffetham and Ford
(1925) AD 12, where the dispute concerned alleged
secret profits made by a director at the expense of
a
company, the South African Appellate Division
said:
‘Prima facie
therefore the respondents (who had acted
on
previous occasions
for
both the director
and
the
company) were entitled
to,
MY,
were
in
duty bound
to
take up a
case
on
behalf of the shareholders
against any director of the company who was charged with having appropriated
to
himself assets which
belonged to the company.’
2
See
Abel, ‘Between Market and State: The Legal Profession in Turmoil’ (1989) 52 MLR 285; Galanter,
‘Law Abounding: Legalisation Around the
North
Atlantic’ (1992)
55
MLR
I
;
and
Lee,
‘From Profession
to
Business: The Rise and Rise of the City Law Firm’ (1992)
31
Journal of Law and Sociery
31.
3 Lee,
op
cit
n
2, at 38.
822
7he Modern Law Review
55:6
November 1992 0026-7961
November 19921
Conjdentiality, Conflicts
of
Interest and Chinese Walls
A
Controversy
in
England
The dominant influence in this sphere of the law is
Rakusen
v
Ellis,
Munduy
&
Cl~rke.~
Rakusen, whose appointment as sales manager had been terminated by his
employer, consulted Munday, one of two partners in the defendant firm, with
reference to an action for wrongful dismissal. During several interviews, Rakusen
disclosed confidential information regarding the matter to Munday
.
Rakusen then
changed solicitors and the matter was referred to arbitration. During the course
of these proceedings, Clarke, the other partner in the firm and who was away on
holiday when Rakusen had consulted Munday, was appointed
to
act for the company.
Rakusen sought to prevent the firm from appearing against him. Evidence showed
that Munday and Clarke usually conducted business separately without any knowledge
of each other's clients. Clarke knew nothing about Rakusen's consultations with
Munday and the company, and the firm undertook to ensure that only Clarke partici-
pated in the proceedings. Munday undertook not to disclose any information
concerning Rakusen. Present in this case, therefore, was a Chinese wall and a cone
of
silence, although such terms were not familiar to courts at that time. At first
instance, Rakusen's contention was upheld, but the decision was reversed on appeal.
The Court of Appeal laid down an important principle which subsequently would
form the basis of a number of judgments. The court was unanimous that the mere
fact that a solicitor had previously acted for someone did not prevent that solicitor
from acting for someone else in the same matter.s The next step was to determine
in which circumstances a lawyer should be
so
prevented. The common criterion
in the three judgments was the probability
of
mischief or prejudice occurring.
However, a minor controversy arose almost eighty years later over the different
formulations by their Lordships of the standard to be applied when determining
the circumstances in which
a
lawyer will be prevented from acting for the later
client. Cozens-Hardy MR applied the following test?
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.
Fletcher Moulton
LJ
set out a slightly wider rule7:
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
4 119121
1
Ch
831
(CA).
5
ibid
at
837-838, 840
and
843.
At
842,
Buckley
W
said: 'There
is
no general rule that a solicitor
who has acted in a particular matter
for
one party shall not under any circumstances subsequently
act
in
that matter
for
his opponent. Whether he will be restrained from
so
acting or not depends on
the particular circumstances.' His Lordship continued, at
844:
'Of course he owes his former client
the duty not to disclose that which he has learned confidentially. but there is no duty
in
the solicitor
to
abstain from serving another client in that matter if there is no breach
of
that confidence.' See
also
Jonson
v
Marriott
(1833) 149
ER
725
and Horne,
Corden's
Law
Relating
to
Solicitors
(London
and Edinburgh: Butterworths, 8th ed,
1988)
p
64.
6
ibid
at
835.
7
ibid
at
841.
823
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