by Rochelle Manderson

This is an interesting area of law, so a warning to all those avid readers who have been following my blogs over the past months, this one contains some relevant case law AND reference to Conduct Rules … and Chinese walls. You have been warned!

The issues surrounding the concept of acting for more than one party is very relevant to practically every area of law, and one that is often treated a little differently depending on circumstance. Popular culture knows of the concept of ‘Chinese Walls’, and no, they are certainly not the latest fashion in home décor, but what are they? And how can they affect you when you visit a law practice with a problem to resolve?

Chinese walls

Let us start with basic principles, a lawyer or law firm cannot act when there is a conflict of interest, and whilst this blog will not plumb the depths of conflicts, when they arise and what they can mean, suffice to say as a lawyer, we just don’t do it. Lawyers have a duty, among others, to act in the best interests of their client, and if we can’t do that, we have a conflict. So it follows then that if we are acting for one client, we cannot act for another, right? Well, not always…

You may be wanting to transfer a property you own to your adult child as a gift. It would seem ludicrous to engage one solicitor to act for you, and another to act for your adult child, as well as expensive. And in such a circumstance, it really is not necessary. It is a very basic transaction with very little area for conflict to arise. Your solicitor will ask you and your child to sign a document that they are ‘Acting for Both Parties’ acknowledgement under our Solicitors Conduct Rules, and both parties agree for the solicitor to act for them both. However, should a conflict arise, the solicitor will stop acting for both parties and they will need to engage separate representation. So you need only go to one firm to have your property transferred for your child. Easy, common sense, nice.

However, what if you were involved in a litigation matter, Or you were going through a family separation and needed to engage representation, clearly this situation is very different. Obviously, the answer is a definite NO! No, no, NO! You will require separate representation than the opposing party. Very simple.

But what about the situation where a firm has acted for a party in a previous matter, and in doing so have obtained information relevant to the other party in the current matter. Can anything be done to allow the current client to be represented by their favoured firm? To answer that, let’s look at the law:

If the solicitor can disclose all material facts to both clients, a conflict of interest may not necessarily be fatal, however, often this will be impossible to do. Lowy v Alexander[2000] (that’s right avid readers, enter case law!) states that it is not possible to obtain informed consent where the solicitor is in possession of knowledge of one client that they cannot disclose to the other. Rule 10.2 of the Australian Solicitors’ Conduct Rules prevents a solicitor acting for a current client if they, through another client (be it current or previous), possess information detrimental to that client, unless an effective information barrier is established. Enter the ‘Chinese Wall’.

A Chinse Wall is essentially an information barrier that prevents two solicitors who work within the one firm from exchanging information on a current matter where the firm is representing both parties. More commonly, it can be used to allow one member of a firm to act for a client when another member of the firm has dealt with another client previously and, through the previous client, has obtained information to otherwise create a conflict situation. In fact, a ‘Chinese Wall’ is an Information Barrier, and both Law Institute of Victoria and Law Society of NSW have produced guidelines for creating such barriers. This is how it can be done … a firm will need to:

Nominate a compliance officer to oversee the information barrier.

  • A compliance officer should be chosen to manage the information barrier and all the documents that will be on either side of that barrier. This officer could be any lawyer in the firm or a member of this very conflicts committee as long as they have experience and knowledge of the law of confidentiality and conflict of interest. Unfortunately, according to the ruling in Prince Jefri Bolkiah v KPMG[1999], ad hoc barriers rarely work and these protocols must be ingrained in the running of the firm and part of risk management.

Identify all those with confidential information from the earlier matter, these will be ‘Screened Persons’,

  • It is critical to ascertain whether the current lawyers in this firm possess any confidential information that is directly related to the matter that has brought the current client to seek legal help.

 Those ‘Screened Persons’ provide undertakings not to have any involvement in the current matter or disclose any confidential information from the earlier matter.

  • A screened person can include all staff, not just the lawyers involved, staff such as clerks and legal assistants and support staff who may have assisted the earlier matter. This was discussed in Bureau Interprofessional Des Vin De Bourgogne v Red Earth Nominees Pty Ltd [2002] FCA 588).  

The client in the current matter needs written consent and acknowledgement that the duty to disclose does not extend to confidentiality of the earlier matter.

  • Should a solicitor breach an Undertaking, it is deemed to be unsatisfactory professional conduct, very serious indeed!

Any files held in relation to the earlier matter would need to be stored in a secure place where only ‘screened persons’ and the compliance officer have access to.

And now to the important part, a Court’s acceptance of the information barrier:

The court begins with the assumption that, without special measures, “information moves within a firm” placing the onus on the firm to show otherwise (yes avid readers, that’s from Prince Jefri Bolkish v KPMG[1999]). Screening must be effective, meaning there is no “real and sensible possibility” of the misuse of confidential information (from another case, that of Australian Liquer Marketers Pty Ltd v Tasman Liquer Traders Pty Ltd [2002]), or as Prince Jefri Bolkish v KPMGmore simply states, a “no risk” requirement.

Generally Courts don’t like ‘Chinese Walls’, and most solicitors will not touch a case when a real conflict of interest exists. Should such an event occur, your solicitor will likely decline your matter and suggest you attend another firm, and in all the circumstances, it is in your best interest to do so, and leave the Chinese Walls to the latest home décor magazine.