What are the rules about ‘Chinese walls’ (information barriers)?

('Information barrier' is the current preferred term for what have been known as 'Chinese Walls').

In 2005/06 the Law Society of New South Wales and the Law Institute of Victoria jointly developed Information Barrier Guidelines. In 2006 both bodies adopted these guidelines for use by their members.

The Victorians have provided a useful 2 page précis of the full version of the Guidelines.

The Queensland Law Society Council has approved these guidelines for use by its members.

For Queensland solicitors the relevant conduct rules are the Australian Solicitors Conduct Rules (ASCR): Rule 9 ‘Confidentiality’ and Rule 10 ‘Conflicts concerning former clients’.

Rule 10 states:

Conflicts concerning former clients

10.1 A solicitor and law practice must avoid conflicts between the duties owed to current and former clients, except as permitted by Rule 10.2.

10.2 A solicitor or law practice who or which is in possession of confidential information of a former client where that information might reasonably be concluded to be material to the matter of another client and detrimental to the interests of the former client if disclosed, must not act for the current client in that matter UNLESS:

10.2.1 the former client has given informed written consent to the solicitor or law practice so acting; or

10.2.2 an effective information barrier has been established.

In the Glossary of Terms in the ASCR there is this specific definition:

“former client” for the purposes of Rule 10.1, may include a person or entity that has previously instructed:

(a) the solicitor;

(b) the solicitor’s current law practice;

(c) the solicitor’s former law practice, while the solicitor was at the former law practice;

(d) the former law practice of a partner, co-director or employee of the solicitor, while the partner, co-director or employee was at the former law practice, or, has provided confidential information to a solicitor, notwithstanding that the solicitor was not formally retained and did not render an account.

Also Rule 11 ‘Conflict of duties concerning current clients’ specifically refers to ‘an effective information barrier’ – see further below.

The guidelines need to be read in conjunction with these rules and the law relating to confidentiality.

The guidelines are for law practices which need to quarantine information to avoid a breach of confidentiality in cases where the law practice wishes to act in a matter where it has information relevant to the matter but which is confidential to a former client. The guidelines aim to assist law practices with measures to guard against a breach of the duty of confidentiality owed to the former client. In the absence of an effective information barrier the law practice would normally not be able to act due to the conflict of interest. The conflict is between the duty of confidentiality to the former client and the duty to the current client to disclose and or use all information at the law practice’s disposal for the benefit of the current client’s matter. The law practice should be able to act where it can establish that there is no unacceptable risk of breach of confidentiality. This may be possible by compliance with the guidelines. The burden of establishing that there is no unacceptable risk will fall on the law practice.

The guidelines may also be used to address similar issues created by ‘migratory lawyers’, that is lawyers moving between law practices who have had some involvement with a relevant matter at their previous practice.

The guidelines may also be used to rebut the presumption of imputed knowledge, that all solicitors in a law practice are presumed to have the knowledge of all other solicitors in the practice.

The guidelines state that they are not intended to apply to 'concurrent retainers' where a law practice acts concurrently for two or more clients with conflicting interests, as different considerations apply. A barrier is not, of itself, a solution to a situation where there is a conflict between current clients. It does not remove the duty of undivided loyalty owed to each current client. However, in such situations a law practice may be able to act with the fully informed consent of each client. Consent may be obtained on the basis that confidentiality is to be preserved by an effective information barrier. Alternatively, there would need to be waivers of confidentiality, but these may not be appropriate or forthcoming. See the article by Ross Perrett (below) at pp. 46-48. (Note that the article refers to the Solicitors Handbook and various Queensland rules which have been repealed).

In the current rules, the Australian Solicitors Conduct Rules (applying to Queensland from 1 June 2012), Rule 11 ‘Conflict of duties concerning current clients’ contains in sub-rule 11.4 provision for an established and effective information barrier to permit a law practice and its solicitors to act in a concurrent conflict subject to certain other conditions being satisfied.

The guidelines assist practitioners in assessing whether an information barrier can be used effectively and give guidance on what measures the courts have found to be effective.

In summary, the guideline measures are:

•established, documented protocols for maintaining information barriers
•a compliance officer to oversee the process
•the current client’s consent to non-disclosure of the former client’s confidential information
•identification of all ‘screened persons’(the persons in possession of the confidential information which is to be protected by the arrangements)
•undertakings that there will be no contact between the screened persons and those acting in the current matter
•securing of all confidential information, paper or electronic
•sanctions for any breach of the arrangements
•an ongoing education program about information barriers for all staff.

The first of these measures refers to established protocols. A barrier established ad hoc to meet a particular problem rather than one which is built on established institutional arrangements is unlikely to be seen as effective by the courts. The procedures and practices underpinning information barriers must be part of the culture and organisational structure of the law practice.

An effective barrier must prevent not only deliberate disclosure of confidential information but also accidental or inadvertent dissemination, and as illustrated in Asia Pacific Telecommunications Limited v Optus Networks Pty Limited [2007] NSWSC 350, even any inadvertent involvement in a matter by a ‘screened person’.

Whilst acknowledging that they are intended for all law practices, the guidelines state, in “Common Questions”, that it may be extremely difficult for small practices to demonstrate compliance with the guidelines as a question of fact, particularly the requirements to keep staff and files physically separate. In fact, it has been said in one case that it will be 'almost impossible' for a small firm to construct an effective information barrier (see Ross Perrett's article (below) p.53). Almost all of the reported cases have involved large firms.

Whether an information barrier will be effective depends on the facts of each case and ultimately is a question for the court. The guidelines have not been endorsed by the courts, but they do refer extensively to, and are based upon, relevant case law.

The guidelines refer to solicitors having a 'duty of loyalty' to former clients in Victoria. In his article (see below) Ross Perrett deals with this question (at p.49) and concludes, on the basis of the decision in Flanagan v Pioneer Building Society Ltd [2002] QSC 346, that there is unlikely to be such a duty in Queensland.

Please note that the Queensland Law Society, the New South Wales Law Society and the Law Institute of Victoria are currently (July 2009) reviewing these guidelines, in particular in relation to the decision in APT v Optus (see above). Accordingly, for the time being practitioners should take note of that decision, and may also read an article which looks at that case Sshhh! The (Chinese) walls have ears... by Neil Watt in Proctor June 2007 pp.41-42.

The article by Ross Perrett of Clayton Utz, Chinese Walls appeared in The Verdict Vol 2 2007 pp.46-56. This was published in March 2007 and so predates both the APT v Optus case, the Solicitors Rule 2007 and the current Australian Solicitors Conduct Rules.

 

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