September 2, 2019

English court refuses to grant an order restraining a firm of solicitors from acting

Glencairn IP Holdings Ltd and another v Product Specialities Inc. (t/a Final Touch) and another [2019] EWHC 1733 (IPEC)

The English court has recently dismissed an application by Glencairn IP Holdings Ltd ("Glencairn") to restrain a firm of solicitors, Virtuoso Legal ("Virtuoso"), from acting for Product Specialities Inc. (t/a Final Touch) ("Final Touch"), in proceedings brought by Glencairn. Somewhat unusually, the basis for the application was that Virtuoso had previously acted for another, unrelated party in the defence of a similar set of proceedings brought by Glencairn, which had resulted in a confidential settlement. Applications to restrain a firm of solicitors from acting are more usually made by a former client of a firm when the firm is acting for a new client with an interest adverse to that of the former client.

Glencairn alleged that there was a risk that information confidential to Glencairn and known to solicitors within Virtuoso - such as its negotiating position and the terms on which it was prepared to settle the earlier proceedings - would inadvertently be passed to Final Touch. This was despite reassurances from Virtuoso that an information barrier had been put in place, and that the relevant fee earners were not aware of the confidential terms of the earlier settlement.

The Bolkiah test

The leading authority on the circumstances in which an English court can restrain a solicitor, who has relevant confidential information, from acting remains a case from over 20 years ago: Prince Jefri Bolkiah v KPMG (a firm) [1998] 2 AC 222 ("Bolkiah"). 

While there is no general principle which prevents a solicitor from acting against a former client after the relationship between them has terminated, complications can arise because the duty of confidence is a continuing one which survives the end of the professional client relationship. As such, the English court can restrain a solicitor, who has relevant confidential information, from acting for a new client with an interest adverse to that of a former client unless it is satisfied that there is no real risk of disclosure. The English court's jurisdiction to intervene is founded on the right of the former client to the protection of its confidential information, and the extent of the duty to preserve confidentiality is unqualified.

The former client must establish that:

  1. The solicitor possesses confidential information (to the disclosure of which the former client has not consented); and
  2. The information is or may be relevant to the new matter in which the interest of the new client is or may be adverse to the former client's.

It does not involve conducting a balancing exercise. If the former client establishes that the solicitors have relevant confidential information, it is entitled to an injunction, unless the solicitors are able to demonstrate that there is no real risk of disclosure. The risk must be a real one, and not merely fanciful or theoretical, but it does not need to be substantial.

The English court has subsequently applied Bolkiah on a number of occasions and, in general terms, the threshold to establish relevant confidential information is low, and the burden on the professional to establish there is no real risk of disclosure is high.

Application of Bolkiah to the present facts

The issue in the present case was whether, and to what extent, the Bolkiah principles applied where the firm of solicitors had never acted for the party seeking the injunction. The Judge considered that the Bolkiah approach did not need to be applied with full force to the present facts.

In particular:

  1. It was appropriate to consider the likely impact of the order sought on the current client: the reasons in Bolkiah for not exercising a balancing exercise and taking into account such impact, including that a solicitor (as fiduciary) must not put either their own interests or those of another client before those of a former client, did not apply where there is no relevant fiduciary relationship.

  2. The burden of proof remained with Glencairn, rather than moving to Final Touch.

As a result, the principal issues to be decided were:

  1. Whether Virtuoso was in possession of information which was confidential to Glencairn;
  2. Whether that information was relevant to the present litigation between Glencairn and Final Touch;
  3. The likelihood that Final Touch would become aware of that information; and
  4. The likely prejudice to Glencairn (if that information became known to Final Touch) and to Final Touch (if the order sought was made).

The decision

The Judge was prepared to assume that Virtuoso was in possession of information which was confidential to Glencairn and relevant to the present litigation, and that Glencairn would suffer prejudice if the relevant confidential information were to leak to Final Touch. However, the Judge considered that the risk of inadvertent disclosure of confidential information was low, despite the relatively small size of the law firm and the fact that there was little detailed evidence on how the information barrier in place actually operated. Further, the Judge held that there would be prejudice to Final Touch if an injunction was granted, in light of the working relationship it had developed with Virtuoso, and the cost of instructing new solicitors.

As such, the Judge declined to grant the order sought because the "balance of justice" was in favour of such a refusal.  However, this is unlikely to be the last word on the matter because permission to appeal to the Court of Appeal has been granted.

Information barriers

The case highlights the use of information barriers by law firms to address confidential information issues. In this particular matter, the Judge considered that an effective information barrier needed to be in place.  However, applying Young v Robson Rhodes (a firm) [1999] 3 All ER 524, the Judge did not consider that it mattered whether the information barrier was an established part of the organisational structure of the firm. The key issue was whether it worked.

It is clear from the authorities more generally that, so far as information barriers are concerned, the English court will always be looking for arrangements which will be effective – for example, clear and workable undertakings by those who have the information not to talk to anyone about it; physical separation of personnel and their places of work (e.g. people being in different offices); the number of people involved (it will generally be easier to maintain the security of the information barrier if fewer people are involved); the training provided to the individuals either side of the information barrier; and ongoing monitoring of the information barrier for effectiveness.