We all expect that lawyers will be loyal to their clients, act in their best interests, and protect their confidential information. Lawyers have duties to their clients to do so. When lawyers draw their swords to go into battle on behalf of their client against another party in litigation, it would be dubious to think that they could ever be allowed to face back at their former client.

This being said, last week the Supreme Court of NSW considered these duties and found that in certain circumstances a law firm can not only act against their former client but do so in a dispute that they have previously advised on. However, there is a raft of protections that need to be in place first.

The case in question is Técnicas Reunidas SA v Andrew [2018] NSWSC 645, which was concerned with a dispute between Técnicas Reunidas SA (TRSA), who had engaged Downer EDI Engineering Power Pty Ltd (Downer) to provide structural, mechanical, and electrical works with respect to an ammonium nitrate plant. A dispute arose between the parties as to performance and fee. Downer applied to have the dispute referred to arbitration.

At the time, Downer was legally represented by Norton Rose Fulbright (Norton Rose). TRSA engaged Pinsent Masons (Pinsent) to provide legal advice with respect to the dispute. From around June 2015, Pinsent provided advice to TRSA on the arbitration applications, bank guarantees provided by Downer, and a notice of termination of the contract issued by Downer. Nothing of significance happened after October 2015, and Pinsent did not provide any further advice to TRSA.

The dispute re-enlivened in March 2016, with Norton Rose, on behalf of Downer, issuing a further arbitration request to TRSA. TRSA engaged another law firm, White & Case, to act for it. TRSA informed Pinsent of this in May 2016. In January 2018, a number of lawyers from Norton Rose left to join Pinsent, and Downer followed them as a client. Pinsent’s retainer provided that Downer could not benefit from Pinsent’s former advice to TRSA.

Pinsent set up information barriers in the months prior to the new partners joining from Norton Rose. This included the IT lockdown of the electronic TRSA file to only two London based Compliance officers, and the transport of all hard copy files to London to archived in locked storage. All of the solicitors that worked on TRSA’s file, and all of the solicitors to work on Downer’s file, gave undertakings that they would not discuss their respective matters. Pinsent informed the tribunal and TRSA of this development. TRSA objected and commenced proceedings in the Supreme Court of NSW to retrain Pinsent from acting for Downer.

TRSA ran three arguments:

  1. the Court should use its inherit jurisdiction to restrain Pinsent from acting in order to protect the integrity of the judicial process and administration of justice.

The duty of loyalty can be simply described as a duty of a solicitor not to act in a manner contrary to the interest of their client without their informed consent. It is well established that this would include acting for one client against one of their partner’s clients. What is not established is whether this duty continues after the termination of a retainer.

In considering this question, Ball J of the NSW Supreme Court stated that it may be possible that this duty continues after termination if the solicitor terminated the retainer. However, his Honour stated that in these circumstances the actual breach of the duty of loyalty would be the termination of the retainer, and the injunction would flow to prevent the solicitor from benefiting from the breach.

His Honour found that this is not what occurred in the present matter. The retainer was terminated by TRSA, not Pinsent, and this was done well before Pinsent commenced acting for Downer.

Keep it secret, keep it safe: the duty of confidentiality

Courts will restrain a law firm from acting in circumstances where they have obtained confidential information from their former client, and there is a real risk that the duty to maintain the confidentiality of the information would be breached, intentionally or otherwise. Where a lawyer holds confidential information that would be relevant or adverse to the interests of a new client, they bear the onus to establish that there is no risk that confidentiality will be breached.

It was not at issue that Pinsent held confidential information of TRSA. The question was whether the information barriers set up were sufficient to prevent the disclosure, including inadvertently, of the confidential information. His Honour was satisfied that the steps taken by Pinsent were sufficient, noting:

  • there was a geographic separation between the teams that had worked on the separate files (TRSA’s team being in London or Sydney, Downer’s team in Melbourne); and

Accordingly, Pinsent was not to be restrained on the basis that there was any risk of a breach of their duty of confidentiality.

The integrity of the judicial process: the discretion to ensure justice is done

Solicitors are officers of the court, and the court holds inherent jurisdiction over its officers in aid of the administration of justice. This includes restraining them from acting in a matter if a “fair-minded, reasonably informed member of the public would conclude that the proper administration of justice requires that a legal practitioner should be prevented from acting”.

Court’s will not exercise this jurisdiction lightly, and the court will consider the public interest in a litigant not being deprived of their lawyer of choice, as well as the costs, inconvenience, and impracticality of requiring a lawyer to cease acting.

Ball J found that the high bar for exercising this jurisdiction was not reached. The basis for this was that:

in many cases, such a conclusion might be reached where a firm of solicitors has, in effect, changed sides, as in this case. However, here there has been no breach of the duty of loyalty and no breach of the duty of confidence. [Pinsent] has put in place procedures to protect the confidential information of [TRSA]. It was [TRSA] that chose to use another firm to act for it in relation to the arbitration; and [Pinsent] came to act for Downer because the solicitors advising Downer changed firms midway through the arbitration, well after [Pinsent] had ceased to act for [TRSA]. Those solicitors had already done a large amount of work for Downer and it is apparent that it would have caused Downer considerable costs and inconvenience if it had not decided to continue to use the same solicitors following the move or if it were prevented from doing so now.

His Honour therefore concluded that a fair-minded member of the public would conclude that it is not necessary to restrain Pinsent from acting in order for the proper administration of justice to be served.

The dispute between TRSA and Downer presents a novel set of circumstances where a firm can switch sides in a dispute. However, such a characterisation runs the risk of oversimplifying the matter and misleading us to having our sensibilities offended that a law firm can be allowed to do so. Each case will turn on its facts, and as we have seen that Court found that it would not be unjust to allow Pinsent to act for Downer. In fact, his Honour appears to just stop short of suggesting that it would be unjust to restrain Pinsent from acting for Downer.

It is an important reminder as the appropriate lengths that lawyers must go to ensure that their client’s (both former and present) rights are protected. Information barriers, both physical and electronic, geographic barriers, and solicitor’s undertakings were all provided by Pinsent. TRSA had terminated the retainer, not Pinsent. The situation only arose because the lawyers acting for Downer had moved from Norton Rose to Pinsent, and this was done well after Pinsent had ceased acting for TRSA.

All of this together created a perfect storm where Pinsent would be allowed to “switch sides”. But this case makes it clear that such action can not be done lightly. It is clear that the court can, and will, restrain a solicitor from acting against a former client, all that would be required would be the balance of the facts to tip the other way.