Zalfen v Gates - [2006] WASC 296

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: ZALFEN & ANOR -v- GATES & ANOR [2006] WASC 296

CORAM: MASTER NEWNES

HEARD: 1 NOVEMBER 2006

DELIVERED : 21 DECEMBER 2006

FILE NO/S: CIV 1742 of 2006

BETWEEN: ELKE ZALFEN
First Plaintiff
QBE INSURANCE (AUSTRALIA) LTD (ACN 003 191 035)
Second Plaintiff
AND
DREWFUS GATES
CHELINAY GATES
Defendants

Catchwords:

Practice and procedure - Injunction to restrain solicitors acting - Confidential information - Partners of firm acting for defendants in litigation joining firm acting for plaintiffs - Relevant principles - Turns on own facts

Legislation:

Nil

Result:

Solicitors restrained from acting

Category: B

Representation:

Counsel:

First Plaintiff                :     Ms K A Vernon
Second Plaintiff            :     Ms K A Vernon
Defendants:     Mr J Gilmour QC & Ms C Davies

Solicitors:

First Plaintiff                :     Phillips Fox
Second Plaintiff            :     Phillips Fox
Defendants:     Lavan Legal

Case(s) referred to in judgment(s):

Australian Commercial Research & Development Ltd v Hampson [1991] 1 Qd R 508
Carindale Country Club Estate Pty Ltd v Astill (1993) 42 FCR 307
D & J Constructions Pty Ltd v Head (1987) 9 NSWLR 118
David Lee & Co (Lincoln) Ltd v Coward Chance (a firm) [1991] Ch 259
Effem Foods Pty Ltd v Trade Consultants Ltd (1989) 15 IPR 45
Fordham v Legal Practitioners' Complaints Committee (1997) 18 WAR 467
Fruehauf Finance Corporation Pty Ltd v Feez Ruthning [1991] 1 Qd R 558
In re a firm of Solicitors [1997] Ch 1
Macquarie Bank Ltd v Myer [1994] 1 VR 350
Mallesons Stephen Jaques v KPMG Peat Marwick (1990) 4 WAR 357
Newman v Phillips Fox (a firm) (1999) 21 WAR 309
Prince Jefri Bolkiah v KPMG (a firm) [1999] 2 AC 222
Re a firm of Solicitors [1992] QB 959
Sent v John Fairfax Publication Pty Ltd and Hills [2002] VSC 429
Tottle Christensen v Westgold Resources NL [2003] WASCA 224
Yunghanns v Elfic Ltd, unreported; SCt of Vic (Gillard J); 3 July 1998

Case(s) also cited:

Corrs Pavey Whiting & Byrne v Collector of Customs (Vic) (1987) 14 FCR 434
Frankland River Olive Company Ltd v Charters Securities Pty Ltd (Receiver and Manager Appointed) [2004] WASC 88
O'Brien v Komesaroff (1982) 150 CLR 310
Unioil International Pty Ltd v Deloitte Touche Tohmatsu (a firm) (1997) 17 WAR 98

MASTER NEWNES: This is an application, in effect, for orders restraining Lavan Legal and Mr Martin Bennett ("Mr Bennett") and Ms Colette Davies ("Ms Davies"), from acting as solicitors for the defendants ("the Gates") in proceedings in the District Court in action number 1232 of 2003 ("the District Court action").
As is not uncommonly the case nowadays in applications of this nature, it arises out of the movement of partners from one law firm to another.

The background

The relevant facts are largely undisputed. In the District Court action, the Gates have brought claims for damages for personal injury against the first plaintiff in this action ("Ms Zalfen"). The second plaintiff in this action ("QBE") is the insurer of Ms Zalfen. On or about 19 August 2003, QBE agreed to indemnify Ms Zalfen against any liability Ms Zalfen may have to the Gates in the District Court action.
Since 19 June 2003, Ms Zalfen has been represented in the District Court action by the law firm which practices in Western Australia under the name Phillips Fox.
In the period 19 June 2003 to 31 March 2006, apart from a period of leave, a partner of Phillips Fox, Mark Williams ("Mr Williams"), had the conduct of the District Court action on behalf of Ms Zalfen, on instructions from QBE. Mr Williams also supervised employed solicitors and clerks who were engaged on the matter from time to time. One of those who had some involvement in the conduct of the matter was a Ms Jocelyn Williams ("Ms Williams"), then an articled clerk employed by Phillips Fox.
Mr Williams took long service leave between December 2003 and February 2004. During that period the conduct of the matter was assumed by another partner of Phillips Fox, Geoffrey Bourhill ("Mr Bourhill"), who supervised an employed solicitor, Catherine Elphick ("Ms Elphick"), who had the day to day conduct of it.
On the other side, from about August 2004 Bennett & Co acted for the Gates in the District Court action. Mr Bennett, a partner of the firm, and Ms Davies, an employed solicitor, had the conduct of the matter on behalf of the Gates.
Prior to 31 March 2006, the law firm of Phillips Fox in Perth (the "franchise firm") operated under a national franchising agreement with P F Lawyers Ltd, which operated the Phillips Fox partnership throughout Australia. The franchise firm comprised a number of divisions, one of which was known as the "insurance" division. That comprised two groups of partners, one group known as the "commercial insurance" group and the other known as the "casualty insurance" group, with each of the partners in each group supervising one or more employed lawyers. Mr Williams, Mr Bourhill and Ms Bettina Mangan ("Ms Mangan") were among the partners in the casualty insurance group.
On 31 March 2006, the franchise firm was dissolved and, on 3 April 2006, six of the former partners of the franchise firm commenced practice in Western Australia as partners of a national Phillips Fox partnership, under the name Phillips Fox. Mr Williams was one of those partners.
At the same time, a new firm was created by a number of former partners of the franchise firm and a number of partners of the firm of Bennett & Co. The new firm practices under the name Lavan Legal from the offices of the former franchise firm. Mr Bennett, who was formerly a partner in Bennett & Co, became a consultant to Lavan Legal and Ms Davies, who was formerly employed as a solicitor by Bennett & Co, was employed by Lavan Legal. Mr Bourhill and Ms Mangan became partners in Lavan Legal. A number of solicitors, clerks and administrative staff formerly employed by the franchise firm were employed by Lavan Legal. Ms Williams was one of those employed.
As from 3 April 2006, Ms Zalfen and QBE continued to be represented by Phillips Fox, in its new incarnation.
On 7 April 2006, Mr Williams received a copy of a chamber summons filed on behalf of the Gates in the District Court action seeking leave to amend the writ and statement of claim. The chamber summons referred to Bennett & Co as the solicitors for the Gates.
Mr Williams wrote to Ms Davies at Lavan Legal on 10 April 2006 referring to the chamber summons and noting his assumption that in fact Lavan Legal were now acting for the Gates. Mr Williams said that, in that event, his clients considered that Lavan Legal had a conflict of interest and must cease acting. In fact, a notice of change of solicitors from Bennett & Co to Lavan Legal was filed on behalf of the Gates on 10 April 2006.
Mr Bennett, on behalf of Lavan Legal, replied to Mr Williams on 10 April 2006. In that letter Mr Bennett said, among other things, that he and Ms Davies, and any other solicitor who may work on the matter, were prepared to provide undertakings, in terms to be agreed, that they would not discuss the District Court action with any former partners of the franchise firm who were at Lavan Legal. Mr Williams responded later that day saying that the proposed steps were inadequate and that Lavan Legal could not continue to act.
Mr Williams sent an e‑mail to Ms Davies on 28 April 2006 enquiring whether Lavan Legal intended to continue to act for the Gates.
On 4 May 2006, Mr Bennett, on behalf of Lavan Legal, wrote to Mr Williams saying that it had not been established that Lavan Legal was in possession of confidential information and the partners of Lavan Legal said to have that information had not been identified. Mr Bennett said he would immediately propose a regime whereby Ms Zalfen's interests would be protected, but without more information in relation to the alleged confidential information it was impossible to provide a more comprehensive undertaking.
Mr Williams wrote on 29 May to say that he had been instructed to apply to restrain Lavan Legal from acting for the Gates. In that letter, Mr Williams referred to Mr Bourhill's supervision of the matter while Mr Williams was on long service leave, a letter signed by Mr Bourhill during that time, and discussions regarding damages Mr Williams had had with Mr Bourhill and Ms Mangan while they were partners in the franchise firm. He asked that Lavan Legal reconsider its position.
If there was any further correspondence on the matter, it was not put into evidence. This application was filed on 19 July 2006.

The relevant events

The issue in these proceedings is whether Lavan Legal may act for the Gates in the District Court action. QBE and Ms Zalfen seek to restrain the Gates from continuing to instruct Lavan Legal, and Mr Bennett and Ms Davies. They say that Lavan Legal is in breach of a duty of confidence, a duty to avoid conflicts of interest and a duty of professional loyalty, in circumstances where Mr Bourhill and Ms Mangan are now partners in Lavan Legal where Mr Bennett is general counsel, and where Ms Davies is employed as a solicitor, and in circumstances where, from 3 April 2006 to 10 April 2006, the partners and staff of Lavan Legal had access to the computer database of the franchise firm on which confidential information relating to Ms Zalfen's defence of the District Court action was stored.
I should say that there is no suggestion that any of the partners or employed solicitors who were formerly at the franchise firm and who are now at Lavan Legal would be involved in the conduct of the Gates' case. The conduct of their case will continue to lie with Mr Bennett, Ms Davies and such other solicitors or clerks at Lavan Legal as they may cause to assist them.
Mr Williams says that he has had the conduct of the District Court action on behalf of Ms Zalfen since 19 June 2003. Between December 2003 and February 2004, he took long service leave and Mr Bourhill supervised Ms Elphick in the conduct of Ms Zalfen's defence. On or about 23 February 2004, Mr Bourhill signed a five‑page letter prepared by Ms Elphick, summarising Ms Zalfen's evidence on matters that are in issue in the District Court action. The letter included evidence of Ms Zalfen in response to any evidence that Chelinay Gates ("Mrs Gates") witnessed the disputed events, and any evidence of a medical practitioner that Mrs Gates suffered or suffers mental disorders to the extent that such evidence is based on statements made to that medical practitioner that Mrs Gates witnessed the disputed events.
Mr Williams says he knows that it was Mr Bourhill's usual practice to read documents before he signed them. It can therefore be assumed that Mr Bourhill read the letter before signing it.
A copy of the letter was stored in electronic form on the firm's Media Manager/TrackFile programme on its computer system.
I should interpose that at that stage Mrs Gates was not a party to the action. Mrs Gates was joined as second plaintiff on 30 May 2006. However, in her current defence to Mrs Gates's claim, Ms Zalfen has not admitted that Mrs Gates witnessed the relevant events and has denied that some of the events that Mrs Gates says she witnessed ever occurred.
Mr Williams also says that, on 17 September 2004, he provided QBE with advice on, among other things, the quantum of damages likely to be awarded to Drewfus Gates ("Mr Gates") should he be successful in the action. Prior to finalising the advice, Mr Williams said he had a discussion with Mr Bourhill about the evidence that had been discovered that was relevant to quantum and expressed his own views on the likely award of damages for pain and suffering and loss of enjoyment of life. He says he sought Mr Bourhill's views. Mr Williams says he also had a similar discussion with Ms Mangan, although it was a very brief discussion, lasting only a minute or so.
Mr Bourhill says he has a general recollection of a discussion with Mr Williams regarding the claim, but no recollection of the specific details of that discussion and, in particular, no recollection of any evidence that had been discovered and no recollection of Mr Williams's views about the quantum of damages. Mr Bourhill says he has no recollection of anything he said to Mr Williams regarding damages. He says he has not discussed the Gates' claim with Mr Bennett or Ms Davies and undertakes that he will not do so, nor will he discuss it with any solicitor or clerk who may be assisting them.
Ms Mangan says she has a vague recollection of Mr Williams informing her that he was acting in the matter and that they briefly, and in passing, discussed the human interest aspect of the Gates' claim. Ms Mangan says that Mr Williams may have asked her what she considered the quantum of the Gates' claim might be, but she says she has no specific recollection of it. Ms Mangan says she otherwise has no recollection of discussions about any legal aspect of the claim. She says she has not discussed the claim with Mr Bennett or Ms Davies or any other member or employee of Lavan Legal and she undertakes that if she does recall anything further, she will not discuss it with them.
Mr Williams says that while he was a partner of the franchise firm documents which it produced were stored on a database accessible by software called "Media Manager" and subsequently "TrackFile". All legal and secretarial staff had access to the database by means of an individual login and password and they could read any documents stored on the database that had the security classification "profile". The typical, and the default, security classifications for documents relating to litigation was "profile".
Mr Williams says the franchise firm also maintained a database that enabled it to record certain information about matters it was conducting on behalf of its clients. The database was called "Matter Manager". This information included a summary of advice the franchise firm had provided to insurer clients as to the reserve the insurer should establish in relation to any claim in respect of which the insurer had instructed the firm.
Mr Williams says that between the time the franchise firm was first instructed and 31 March 2006, he provided QBE with written advice on the issues in dispute in the District Court action. The documents containing that advice were stored on the document servers accessed via Media Manager or TrackFile and had a "profile" security classification. He also provided QBE with advice on the reserve it should establish in relation to the claim. That advice was stored in Matter Manager.
On 30 and 31 March 2006, Mr Williams caused the paper copies of all documents that he knew were in the possession of the franchise firm relating to its defence of the District Court action to be placed into removal boxes. He supervised the removal of those boxes from the franchise firm's offices on 31 March 2006. He did not cause the electronic copies of documents relating to the franchise firm's defence of the District Court action stored on the database, or the claim reserve data, to be deleted or otherwise to be the subject of any security restrictions beyond those that had existed previously. He is not aware that anyone else increased the security restrictions.
That material was stored on the computer system at the time that Lavan Legal took it over upon moving into the former premises of the franchise firm on 3 April 2006.
An affidavit of the information technology manager at Lavan Legal, Mr Marco Marcello ("Mr Marcello"), was put into evidence. Mr Marcello was previously employed by the franchise firm. Mr Marcello is not a lawyer and has no involvement in the legal matters conducted by his employer. Mr Marcello says that documents that were prepared on the computer of the franchise firm and saved on the computer database using the TrackFile software were assigned a file number. The documents relating to the defence of the District Court action had a particular file number. On each occasion a document on a file was opened, copied, archived, printed or modified, a record of that action was created in the computer system.
Mr Marcello has produced a report in relation to the documents on the database of the franchise firm relating to Ms Zalfen's defence of the District Court action. That report was prepared on 31 October 2006. It appears from the report that since the formation of Lavan Legal the only people who have accessed documents on the database bearing the file number of the defence of the District Court action are Mr Marcello and an employee of the information technology department. Mr Marcello says that he accessed the file in order to delete the contents of each of the documents and the employee was assisting him in that process. Mr Marcello says he believes the entire contents of the file have now been deleted.
Mr Bennett says that he was engaged by the Gates after the action had been commenced because of the Gates' concern at the quality and speed of their former solicitors in the conduct of their claim. As a result of the fees paid to their former solicitors, the Gates were in a precarious financial position and Mr Bennett says he agreed that he would only render fees at the conclusion of their claim.
At the time Mr Bennett took over the conduct of the claim, Mrs Gates's claim for damages had not been formulated and she was not a party to the proceedings brought by Mr Gates. No proof of evidence had been taken from her. Mr Bennett formulated the Gates' claim, which involved preparing an amended writ and amended statement of claim to add additional plaintiffs. Since that time Ms Zalfen has admitted liability.
Mr Bennett says that prior to the creation of Lavan Legal there was a without prejudice discussion at the premises of Bennett & Co to discuss a possible settlement of the District Court action. Mr Williams attended on behalf of Ms Zalfen and Mr Bennett and Ms Davies attended on behalf of the Gates together with the Gates themselves. During the conference Mr Williams disclosed the plaintiffs' view as to the quantum of general damages, but no agreement was reached.
Mr Bennett says he has never accessed electronic copies of documents created by the franchise firm nor the claim reserve data to which Mr Williams has referred. He has not discussed the claim with Mr Bourhill, Ms Mangan or Ms Williams. Mr Bennett undertakes to ensure that any solicitor or clerk who works on the claim is personally supervised by him and instructed not to discuss it with Mr Bourhill, Ms Mangan or Ms Williams. Mr Bennett also undertakes that he will not discuss it with Mr Bourhill, Ms Mangan or Ms Williams and that he will take steps to ensure that Lavan Legal's file in the matter is retained by his secretary, kept secure and separate, and is not made available to the firm at large.
Ms Davies also says that she has not discussed the Gates' claim with any of Mr Bourhill, Ms Mangan or Ms Williams and she undertakes that she will not do so. Ms Davies says that she will take steps to ensure that the file at Lavan Legal is retained by Mr Bennett's secretary, kept secure and separate, and is not made available to the firm at large.
There was also filed an affidavit of Ms Williams, who had worked on the file while employed as an articled clerk at the franchise firm and who was subsequently employed by Lavan Legal. Ms Williams says she has no recollection of the file beyond the fact that she had worked on a file in which the name of the plaintiff was "Gates". She says she has not discussed the matter with Mr Bennett or Ms Davies and she undertakes she will not do so. In fact, since swearing her affidavit Ms Williams has left Lavan Legal to join another firm.
Affidavits of Mr Gates and Mrs Gates have also been filed. Mr Gates says that he and his wife chose Mr Bennett as their lawyer because they had "suffered grievously, financially and emotionally, at the hands of other lawyers". They considered that Mr Bennett was the first one to have an immediate grasp of their case and to chart a reasonable course of action and that he has the right skills to handle the next phase of it. Mr Gates says that to start again with another lawyer would be risky, heartbreaking, time consuming and expensive and would probably set their case back at least another year. He says that is more than they could bear as the injury itself occurred on 9 September 2001, some five years ago.

Mr Gates says that his capacity and his wife's capacity to earn have been seriously curtailed since his injury and they have accumulated enormous debts. For five years they have been under enormous strain trying to look after four young children and coping with a huge debt. They have survived financially by re‑mortgaging their property for increasing amounts in a period of rising property values. But that has involved large interest payments and mortgage insurance fees, which have been made possible only by small loans from friends and by the fact that Mr Bennett has agreed not to charge any fees until after the action is resolved.
Mrs Gates says that she is suffering from post‑traumatic stress disorder and major depression that developed as a result of witnessing the immediate aftermath of Mr Gates being burnt. Dealing with the District Court action on a day to day basis and instructing solicitors on the events surrounding the fire and the aftermath has been extremely distressing to her. Mrs Gates says that when she discusses the fire she is likely to suffer flashbacks and, in effect, re‑live the entire event.
Mrs Gates says she cannot effectively start to recover from the accident until the proceedings are complete. Her life has been irreversibly changed by her husband's injuries and the mental stress and suffering that she has suffered as a result. The prospect of instructing new solicitors at this stage is therefore "extremely harrowing" for her. It will mean that she will need to go through the very painful process of re‑telling the circumstances surrounding the accident and the effect it has had on her. Mrs Gates says that she has confidence in Mr Bennett that she has not had in the other lawyers that they have dealt with.

The plaintiffs' submissions

It was submitted on behalf of the plaintiffs that Mr Bourhill and Ms Mangan are in possession of actual knowledge of matters confidential to Ms Zalfen and QBE, as is Ms Williams who previously worked on the file for the franchise firm and has worked since with Mr Bennett at Lavan Legal. Despite the best intentions of the lawyers concerned - and the plaintiffs' counsel made it clear that the integrity of the individuals concerned was not in question - there is a risk of inadvertent disclosure or seepage of information, so it cannot be said there is no real risk of disclosure of that information. In addition, the accessibility of the confidential information to Lavan Legal creates a real and sensible possibility of a risk of misuse of that information and a fair‑minded, reasonably informed member of the public might reasonably anticipate the danger of misuse of it.
Counsel for the plaintiffs said the plaintiffs accepted that there was no evidence that any partner or staff of Lavan Legal had accessed any of the confidential information on the computer system, but that did not overcome the point that it had been accessible for some months.
It was submitted that the undertakings of Mr Bennett and Ms Davies are insufficient because they have been offered too late (coming 10 days after the commencement of Lavan Legal), they were not provided as a matter of course, and the proposal for maintaining the confidentiality of the information is ad hoc and there are no proposals for either education or sanctions at Lavan Legal so as to ensure compliance. The same applies to the undertakings of Mr Bourhill, Ms Mangan and Ms Williams. Moreover, the undertakings do not include other staff, formerly employed by the franchise firm, who may have knowledge of confidential information relating to Ms Zalfen's defence of the District Court action.
It was also submitted that once Lavan Legal commenced acting for the Gates, a conflict of interest arose, or potentially arose, in relation to the solicitors' duty of loyalty because members of the firm had previously acted for Ms Zalfen and QBE in the franchise firm. Counsel argued that a duty of loyalty prevents a solicitor assuming a position hostile to a former client concerning the same matter. The existence of the former relationship has the potential to create in the mind, not only of the plaintiffs, but also of the reasonable bystander, a reasonable apprehension that use would be made of confidential information provided in the course of the plaintiffs' retainer of the franchise firm to their detriment, now that Lavan Legal, which includes some members of the former franchise firm with actual knowledge of the District Court action, is acting against their former clients.
A fair‑minded, reasonably informed, member of the public would conclude that to permit the Gates to continue to retain Lavan Legal in the District Court action would give rise to a breach of the obligation of loyalty owed by the members of the franchise firm to the plaintiffs as former clients.
It was further submitted that Lavan Legal should be restrained as part of the inherent jurisdiction of the Court to ensure the due administration of justice, which includes preventing counsel appearing for a particular party in order that justice should not only be done, but seen to be done. The objective test to be applied is whether a fair‑minded and reasonably informed member of the public would conclude that the proper administration of justice required that counsel be prevented from acting.
In this case, such a member of the public would conclude that Lavan Legal are acting for the Gates in circumstances where there appears to be a changing of sides. There is a real and sensible risk of a lack of objectivity by Lavan Legal which gives rise to an undue risk of unfairness or disadvantage to Ms Zalfen and QBE, sufficient to enliven the intervention of the Court to ensure the administration of justice is not brought into disrepute by the conduct of solicitors and to preserve the integrity of the judicial process.

The defendants' submissions

It was submitted on behalf of Lavan Legal that the plaintiffs have failed to establish that Lavan Legal is in possession of any confidential information. The evidence of those allegedly in possession of the confidential information is that they have no recollection or present knowledge of it. The plaintiffs have also failed to identify precisely what confidential information is allegedly held by the partners of Lavan Legal or to show that any information held is relevant to the District Court action.
The circumstances of the case are not such that, viewed objectively, the reasonable bystander would consider Lavan Legal to have any conflict of interest in continuing to act for the Gates. It is important to recognise that this is not a case in which solicitors have ceased acting for a client and have, at some later time, commenced or purported to commence acting for another client in conflict with the interests of their former client. The alleged conflict has arisen because of the creation of an entirely new law firm and the movement of lawyers from the franchise firm and Bennett & Co to form Lavan Legal.
It was submitted that no weight ought to be given to the allegation that all former members of the franchise firm, including those now employed at Lavan Legal, had access to the confidential information on the computer database. There is no evidence to suggest that that information was ever accessed by anyone presently employed by Lavan Legal. Since the establishment of Lavan Legal, the information on the computer system has not been accessed by anyone apart from the technology manager and his assistant in the course of deleting it from the system.
Undertakings have been put in place that those concerned in the conduct of the Gates' action, and those who had any involvement in or connection with the defence of the action by Ms Zalfen at the franchise firm and are now employed by Lavan Legal, will not discuss the matter.
There is no relevant conflict of interest. The minimal involvement of Mr Bourhill, Ms Mangan and Ms Williams in the conduct of the District Court action several years ago - of which they have no current recollection - cannot be said objectively to constitute even an apparent conflict of interest.
It was also submitted that it was a relevant factor on this application that there had been a lengthy delay in the commencement of these proceedings by the plaintiffs. The announcement of the merger between Bennett & Co and some members of the franchise firm occurred in October 2005 and actually took place on 3 April 2006. The issue was first raised on behalf of Ms Zalfen and QBE on 10 April 2006. It was not raised by Mr Williams either with Bennett & Co or any former member of the franchise firm prior to the merger. This application was not filed until 14 July 2006, nine months after the merger had been announced and three months after it had occurred.
In the circumstances, the Court ought to consider whether the plaintiffs have a serious and well‑founded concern that Lavan Legal is in possession of confidential information and that a conflict of interest actually exists.
Counsel submitted that it was a serious step to deprive a party of counsel or solicitors of their choice and it is only in a clear case that a court will make an order that would interfere with that right. This is not such a case.
In the proper exercise of its jurisdiction to govern the conduct of officers of the Court, it is also necessary for the Court to have regard to the effect upon the Gates of having to engage alternative solicitors at this stage of the proceedings. It is an important consideration that the District Court action is about to be entered for trial and Mr Bennett and Ms Davies have had the conduct of the proceedings on behalf of the Gates for more than two years. Lavan Legal has also agreed to act for the Gates without rendering an account for legal fees until a judgment or settlement sum is obtained and the evidence of the Gates is that they would have financial difficulties in prosecuting the action if they were required to engage solicitors who would render interim accounts. They would also suffer severe personal distress if forced to engage new solicitors.

The relevant principles

It is well‑established that ordinarily litigants are entitled to solicitors and counsel of their choice and only where it is clearly necessary to do so will the Court make an order that would interfere with that right: Tottle Christensen v Westgold Resources NL [2003] WASCA 224 at [4]; Fruehauf Finance Corporation Pty Ltd v Feez Ruthning [1991] 1 Qd R 558 at 566; Carindale Country Club Estate Pty Ltd v Astill (1993) 42 FCR 307 at 313; Macquarie Bank Ltd v Myer [1994] 1 VR 350 at 352.
In Newman v Phillips Fox (a firm) (1999) 21 WAR 309, Steytler J (as his Honour then was) said (at 315) that the justification for intervention by the Court in applications of this nature has traditionally been founded on one or more of three grounds, namely:
(a)for the protection of confidential information;
(b)to prevent a conflict of interest;
(c)to control the conduct of solicitors as officers of the Court and to ensure the administration of justice is not brought into disrepute.
In Newman v Phillips Fox (a firm) (supra), Steytler J said (at 314 ‑ 315) in connection with the first ground:
"… the court is … able to intervene in a case in which the solicitor in possession of the confidential information is employed by or becomes a partner in a second firm which is acting in proceedings against the solicitor's former client in circumstances in which that information is or might be relevant to the conduct of those proceedings against the former client and there is a risk that the information will be disclosed to those having the conduct of the proceedings against the former client."
As to the second ground, the courts have always been prepared to intervene in cases of conflict of interest between solicitor and client, but as Steytler J pointed out, it has been clear at least since the decision of the House of Lords in Prince Jefri Bolkiah v KPMG (a firm) [1999] 2 AC 222, that where the Court's intervention is sought by a former client the exercise of its jurisdiction cannot be based on any conflict of interest because once the retainer has been terminated the solicitor has no obligation thereafter to advance the former client's interests. But the solicitor's duty to preserve the confidentiality of information imparted during the subsistence continues notwithstanding the termination of the retainer.
In relation to the third ground, Steytler J referred with approval to the judgment of Gillard J in Yunghanns v Elfic Ltd, unreported; SCt of Vic (Gillard J); 3 July 1998, where Gillard J (at 9) affirmed that the Court has an inherent power to control and deal with members of the legal profession and to ensure that the administration of justice is not brought into disrepute by the conduct of those members. Steytler J also noted that there was a public element in the work that a solicitor does in that he or she is an officer of the Court and, in performing his or her professional function, plays an integral part in the administration of justice. There was involved in that the public interest in preserving confidence in the administration of justice.
As Steytler J observed in Newman v Phillips Fox (a firm) (supra), there is a substantial body of authority which suggests that in a case such as this the knowledge of those joining the new firm should not automatically be imputed to or attributed to other lawyers at that firm. In Prince Jefri Bolkiah v KPMG (a firm) (supra), Lord Millett (at 235) said, in a case concerned with the preservation of confidential information, that there was no cause to impute or attribute the knowledge of one partner to his fellow partners, but whether a particular individual is in possession of confidential information is a question of fact which must be proved or inferred from the circumstances of the case. In Newman v Phillips Fox (a firm) (supra), Steytler J (at 317) considered that to be the preferable approach.
In Newman v Phillips Fox (a firm) (supra), Steytler J referred to two policy considerations which bear upon the test to be applied on an application of the present nature. The first is what his Honour referred to as a concern "with the general preservation of confidentiality and encouragement of full and frank disclosure between client and solicitor". That concern is that any person should be entitled to seek and obtain legal advice in the conduct of his or her affairs without the apprehension of being prejudiced by any later breach of confidence. The second policy consideration has been referred to in the cases as the concept of "loyalty". In that connection, Steytler J referred to the decision of the Full Court in Fordham v Legal Practitioners' Complaints Committee (1997) 18 WAR 467, where Malcolm CJ (with whom the other members of the Court agreed) said (at 489 ‑ 490) that:
"In the context of loyalty it is the establishment of the hostile relationship against the former client in relation to the same or a related matter which is the breach of professional duty. To put it another way, it is the existence of the former relationship which has the potential to create in the mind not only of the former client but also of the reasonable bystander a reasonable apprehension that use will be made of information provided in the course of the former relationship to the detriment of the former client …"
Steytler J observed that the notion that a lawyer can readily change sides undermines the appearance that justice is being done. His Honour referred to D & J Constructions Pty Ltd v Head (1987) 9 NSWLR 118, where Bryson J (at 123) said, in this context, that cautious conduct by the Court is appropriate "because the spectacle or the appearance that a lawyer can readily change sides is very subversive of the appearance that justice is being done". Bryson J went on to say that the appearance which matters is that which is "presented to a reasonable observer who knows and is prepared to understand the facts." See also, Fruehauf Finance Corporation Pty Ltd v Feez Ruthning (supra) at 566; Mallesons Stephen Jaques v KPMG Peat Marwick (1990) 4 WAR 357 at 362 ‑ 363; Australian Commercial Research & Development Ltd v Hampson [1991] 1 Qd R 508 at 516.
In a case such as the present, where the plaintiff seeks, in effect, to restrain solicitors from acting on the basis that they are in possession of confidential information of the plaintiff, the onus is on the plaintiff to establish that the solicitor is in possession of information imparted in confidence and that the new firm proposes to act for an interest adverse to the plaintiff in circumstances in which the information is or might be relevant to the conduct of the proceedings against the plaintiff: Prince Jefri Bolkiah v KPMG (a firm) (supra) at 234 ‑ 235.
For the purpose of the law imposing constraints upon solicitors acting against the interests of former clients, the law is concerned with the protection of information which:
(a)was originally communicated in confidence;
(b)at the date of the later proposed retainer was still confidential and may reasonably be considered remembered or capable, on the memory being triggered, of being recalled; and
(c)was relevant to the subject matter of the subsequent proposed retainer.
See In re a firm of Solicitors [1997] Ch 1, per Lightman J at 9 ‑ 10.
In In re a firm of Solicitors (supra), Lightman J said (at 10), that generally it is not sufficient for the client to make a general allegation that the solicitor is in possession of relevant confidential information, if this is in issue; some particularity as to the confidential information is required. But the degree of particularity required must depend upon the facts of the particular case, and in many cases identification of the nature of the matter on which the solicitor was instructed, the length of the period of original retainer and the date of the proposed fresh retainer and the nature of the subject matter, for practical purposes will be sufficient to establish the possession by the solicitor of relevant information.
The degree of particularity with which the confidential information is required to be described must take into account that sometimes a lesser degree of precision may be necessary to avoid annihilating the confidence sought to be protected: Yunghanns v Elfic Ltd (supra) at 10; Sent v John Fairfax Publication Pty Ltd and Hills [2002] VSC 429 at [69].
In Prince Jefri Bolkiah v KPMG (a firm) (supra), the House of Lords held (at 236 ‑ 237) that where the solicitor is in possession of relevant confidential information the Court should intervene unless it is satisfied that there is no risk of disclosure of the confidential information. The risk must be a real one, and not merely fanciful or theoretical. But it need not be substantial. Once the former client has established that the defendant firm is in possession of information which was imparted in confidence and that the firm is proposing to act for another party with an interest adverse to his in a matter to which the information is or may be relevant, the evidential burden shifts to the defendant firm to show that even so there is no risk that the information will come into the possession of those now acting for the other party. The Court should restrain the firm from acting for the second client unless satisfied on the basis of clear and convincing evidence that effective measures have been taken to ensure that no disclosure would occur.
That was adopted by Steytler J in Newman v Phillips Fox (a firm) (supra) and in my respectful view states the law in this State.
There is, I think, also a strong body of authority to the effect that in circumstances where there is a real risk of disclosure it will rarely be the case that a "Chinese wall" will be sufficient justification for allowing a firm to act: see, for example, D & J Constructions Pty Ltd v Head (supra), Effem Foods Pty Ltd v Trade Consultants Ltd (1989) 15 IPR 45, David Lee & Co (Lincoln) Ltd v Coward Chance (a firm) [1991] Ch 259, Re a firm of Solicitors [1992] QB 959.

In D & J Constructions Pty Ltd v Head (supra), Bryson J (at 122 ‑ 123) said that the Court would not usually undertake attempts to build walls around information in the office of a partnership, even a very large partnership, by accepting undertakings or imposing injunctions as to, among other things, communications among partners and their employees. His Honour noted that among the difficulties involved in attempting to contain information in that way:
"[e]nforcement by the court will be extremely difficult and it is not realistic to place reliance on such arrangements in relation to people with opportunities for daily contact over long periods, as wordless communication can take place inadvertently and without explicit expression, by attitudes, facial expression or even by avoiding people one is accustomed to see, even by people who sincerely intend to conform to control."
Similarly, in David Lee & Co (Lincoln) Ltd v Coward Chance (a firm) (supra), Browne‑Wilkinson VC said (at 674):
"When one has sensitive information in a firm or in any other group of people, there is the element of seepage of that information through casual chatter and discussion, the letting slip of some information which is not thought to be relevant but may make the link in a chain of causation or reasoning."
In Prince Jefri Bolkiah v KPMG (a firm) (supra), Lord Millet (at 237) said that while there was no rule of law that Chinese walls or similar arrangements are insufficient to eliminate the risk of disclosure, the starting point must be that, unless special measures are taken, information moves within a firm. Lord Millett referred (at 228) to a "Consultation Paper on Fiduciary Duties and Regulatory Rules" prepared by the Law Commission in England in 1992 which described Chinese walls as normally involving some combination of the following organisational arrangements:
"(i)The physical separation of the various departments in order to insulate them from each other - this often extends to such matters of detail as dining arrangements;
(ii)an educational programme, normally recurring, to emphasise the importance of not improperly or inadvertently divulging confidential information;
(iii)strict and carefully defined procedures for dealing with a situation where it is felt that the walls should be crossed and the maintaining of proper records where this occurs;
(iv)monitoring by compliance officers of the effectiveness of the wall;
(v)disciplinary sanctions where there has been a breach of the wall."

Should Lavan Legal be restrained from acting?

I do not consider that any issue of the protection of confidential information arises in respect of the information on the computer database relating to Ms Zalfen's defence of the District Court action while the computer database was in the control of Lavan Legal. I accept the evidence of Mr Marcello that at the time Mr Marcello deleted it from the computer database the information had not been accessed by anyone at Lavan Legal. Counsel for the plaintiffs did not contend that anyone at Lavan Legal had accessed the information but said it was sufficient that the opportunity had existed for someone to do so. I do not agree. Once it is accepted, as I do accept, that the computer records establish that the information was never in fact accessed - and that the opportunity to access it has now forever gone - it is not to the point that the opportunity to access it had once existed.
There is no evidence as to who had occasion to access the documents on the database at the franchise firm and, in particular, whether anyone now at Lavan Legal had occasion to access them.
I turn then to the position of Mr Bourhill and Ms Mangan as partners of Lavan Legal, and Ms Williams as an employed solicitor. I should preface what follows by reiterating that there is no question as to the integrity of Mr Bourhill, Ms Mangan or Ms Williams, and counsel for the plaintiffs accepted that they are practitioners of honesty and integrity. I, too, accept that without hesitation.
As I have said, Mr Bourhill acted for Ms Zalfen and QBE for a period of some three months while Mr Williams was on long service leave. During that time Mr Bourhill supervised the solicitor who had the day to day conduct of the defence and signed a letter relating to the action. It is, I think, reasonably to be inferred that Mr Bourhill would not have been prepared to sign the letter without having read it and without some understanding of the matter and of the relevance of the content of the letter to the defence of the claim.
I do not accept the contention on behalf of the Gates that the information conveyed to Mr Bourhill in the letter and the subsequent discussion in relation to damages between Mr Williams and Mr Bourhill is not relevant to any matter currently in issue in the proceedings.
In that connection, it is necessary to turn to the issues in the District Court action, so far as they are relevant to this application.
Mr Gates is an artist by occupation. In the District Court action, commenced in June 2003, he claims damages for personal injury suffered on 9 September 2001, at a location known as "Porcupine Rock" in the Gibson Desert. Mr Gates pleads that a fire lit by Ms Zalfen, an arts officer and nurse with the local community, spread to the area in which Mr Gates was sketching and caused him to suffer severe burns. Mr Gates says that his injuries were caused by the negligence of Ms Zalfen in, among other things, lighting the fire, failing to monitor it and failing to keep it under control.
On 30 March 2006, an application was made to join Mrs Gates as a plaintiff, leading to orders being made in the District Court on 30 May 2006 joining Mrs Gates as the second plaintiff.
In the amended statement of claim, Mrs Gates pleads that, until 9 September 2001, she was self employed as an artist and was one of Western Australia's foremost female painters. It is alleged that, on 9 September 2001 at "Porcupine Rock", Mrs Gates had remained in their motor vehicle while Mr Gates went to "Porcupine Rock" to sketch. When the fire spread to and engulfed "Porcupine Rock", Mrs Gates ran to that location where she heard Mr Gates's screams as he was burnt by the fire. Mrs Gates saw that Mr Gates had been severely burnt by the fire. Mrs Gates pleads that she assisted him back to the vehicle and, with Ms Zalfen, they drove back to Patjarr township, a journey which took approximately 75 minutes. During the journey Mr Gates did not receive any medical treatment. Mr Gates was subsequently taken by the Flying Doctor Service to Royal Perth Hospital. Mrs Gates alleges that between his arrival at Patjarr and the arrival of the Flying Doctor Service, Ms Zalfen failed to administer any or any adequate pain relief to Mr Gates.
Mrs Gates alleges, among other things, that as a result of those events she suffers from a major depressive disorder and a post‑traumatic stress disorder. The effects and symptoms of those disorders include "flashbacks and re‑living of the fire and the events that followed in full detail" and "recurrent dreaming of the fire and her inability to save her husband".
In the amended defence, Ms Zalfen admits that she lit the fire and that she breached her duty of care to the Gates, but otherwise does not admit the allegations made by the Gates. Relevantly for present purposes, Ms Zalfen does not admit that Mrs Gates ran to the edge of "Porcupine Rock" when the fire spread to it or that she heard Mr Gates's screams as he was burnt by the fire; that as the fire was subsiding Mrs Gates saw that Mr Gates had been severely burnt; that Mrs Gates drove with him to the Patjarr township in a journey taking approximately 75 minutes during which time Mr Gates did not receive any medical treatment; or that the events at the Patjarr township occurred as alleged. Ms Zalfen pleads that she administered first aid to Mr Gates after reaching the Patjarr township and before the arrival of the Flying Doctor Service.
The letter of February 2004, signed by Mr Bourhill, included evidence of Ms Zalfen in response to any evidence that Mrs Gates witnessed the relevant events and it was presumably written, at least in part, in anticipation of the very claim that has subsequently been made by Mrs Gates. As I have mentioned, Mrs Gates did not become a party to the action until 30 May 2006. Up to that point Mr Gates was the sole plaintiff.
I am satisfied that the contents of the letter were confidential information that was, and is, relevant to Ms Zalfen's defence of the District Court action on the issue of damages. Similarly, the disclosure in September 2004 to Mr Bourhill of Mr Williams's views on the likely award of general damages to Mr Gates was the disclosure of confidential information that was, and is, relevant to Ms Zalfen's defence.
I do not therefore accept the submission that the plaintiffs have failed to identify any relevant, confidential information that has been disclosed to Mr Bourhill. I also do not accept that the confidential information has not adequately been particularised. The degree of particularisation that is required depends upon the circumstances of the case and in the present case, particularly having regard to the need to avoid destroying the confidentiality by disclosing the details of the information, it has, in my view, been sufficiently particularised.
The position of Ms Mangan is somewhat different. Her conversation with Mr Williams was very brief, about a minute in duration. Ms Mangan was not familiar with the matter apart from newspaper reports. In light of the brevity and the apparent general nature of the discussion, it is not surprising that Ms Mangan now has no recollection of its contents. It also seems unlikely that any confidential information of substance would have been disclosed in a discussion of that nature and brevity.
Ms Williams was directly involved in the conduct of the defence of Ms Zalfen. It appears from the evidence that while employed by the franchise firm, in connection with tasks given to her, Ms Williams had occasion to read a letter of advice of 23 July 2003 to QBE in relation to the matter, and to communicate with Ms Zalfen both by telephone and in writing. Ms Williams has recently left Lavan Legal, so for the future no difficulty arises in relation to her position.
If the only disclosure had been to Ms Mangan I think it would have been possible to resolve the matter by appropriate undertakings on her part not to discuss the matter with, or in the presence of, anyone at Lavan Legal and by corresponding undertakings from those having the conduct of the matter for the Gates not to discuss it with, or in the presence of, Ms Mangan. Undertakings of that general nature have already been proffered.
The difficulty, it seems to me, is that the disclosure went further than that. Mr Bourhill and Ms Williams were both involved, at one time or another, in the actual conduct of the matter on behalf of Ms Zalfen and saw a significant amount of confidential material.
Senior Counsel placed some emphasis upon the fact that Mr Bourhill has no recollection of the contents of the letter he signed or of the discussion he had with Mr Williams. I do not, however, consider that that necessarily takes the matter very far. It is a matter of common experience that recollection of something thought to have been completely forgotten may at a later time be triggered by some comment or event or simply come to mind. The fact that Mr Bourhill currently has no recollection of the matter is a factor to be taken into account, but cannot be regarded as establishing that any relevant information about the matter is lost to him forever.
As I have mentioned, Mr Bourhill, Ms Mangan and Ms Williams have said they have not discussed, and have undertaken that they will not discuss, the conduct or progress of, or matters relating to, the Gates' claim, or any matter relating to the defence of that claim, with Mr Bennett, Ms Davies or any solicitor or clerk at Lavan Legal who assists in the conduct of the Gates' claim. Mr Bennett and Ms Davies have said they have not discussed the matter with Mr Bourhill, Ms Mangan or Ms Williams and have undertaken that they will not do so. Mr Bennett and Ms Davies have also said they will take steps to ensure that Lavan Legal's file is retained by Mr Bennett's secretary, kept secure and separate, and is not made available to the firm at large.
Counsel for the plaintiffs described those undertakings as too little, too late. It seems to me that the measures proposed do fall short of what is required. The proposed safeguard is ad hoc, it will not be accompanied by any educational programme or procedures of the kind referred to in Prince Jefri Bolkiah v KPMG (a firm) (supra), there are no proposals for monitoring and there are no proposals for the imposition of disciplinary sanctions. There are also no measures proposed in respect of clerical and other non‑legal staff formerly employed by the franchise firm and now at Lavan Legal who may have received confidential information. Indeed, it is not apparent from the evidence before me whether any enquiries have been made as to that.
In my view, notwithstanding the best intentions of those involved and their undoubted honesty and integrity, there is a risk of inadvertent disclosure of confidential material. The considerations referred to in D & J Constructions Pty Ltd v Head (supra) and David Lee & Co (Lincoln) Ltd v Coward Chance (a firm) (supra) which I have set out above raise very difficult, if not almost intractable, problems in the environment of a law firm where there is inevitably frequent interaction of both a professional and social kind, including casual conversations where, with the best will in the world, things can inadvertently slip out.
In addition, the undertakings suggested by Lavan Legal in April 2006 were in somewhat more limited terms and did not appear to recognise the dangers of inadvertent wordless communication or seepage of information beyond direct discussion. The current proposals do not seem to me to do so either. It seems that no other measures of the sort to which I have referred above, including such things as monitoring and sanctions, have yet been introduced and nothing is apparently proposed in relation to non‑legal staff.
While there is no question as to the integrity of those concerned, the plaintiffs might fairly be concerned, as might a fair‑minded, reasonably well informed and disinterested observer, that there could already have been some inadvertent disclosure.
I do not consider that in the circumstances there has been unreasonable delay on the part of the plaintiffs in making this application. Nor is there any evidence that any delay that has occurred has caused any significant prejudice to the Gates.
I am very conscious that a requirement that they instruct other solicitors will cause real personal distress to the Gates and it is likely to cause some delay in the ultimate resolution of their claims, although I do not see why it should cause a delay in the order of 12 months as they fear. Whether, or to what extent, it will involve them in more cost is by no means clear. It is well known that a number of lawyers practising in the field of personal injuries are prepared to enter into arrangements by which payment of their fees is deferred until the case is resolved, so the Gates' fears that any change of solicitors will involve liabilities for costs that are beyond their capacity to meet must be viewed in that light. The prospect that it may involve additional cost is, however, a matter that must be taken into account. I accept that, in any event, a change of solicitors at this point will cause them considerable distress and inconvenience.
Those matters have caused me great concern. In the end, however, I consider that the interests of justice require that Lavan Legal, and Mr Bennett and Ms Davies of that firm, not be permitted to act for them.
Although the relief sought by the plaintiffs was in the form of an injunction restraining the Gates from instructing Lavan Legal, and Mr Bennett and Ms Davies, in my view the appropriate order - to the extent formal orders may be necessary - is an order restraining Lavan Legal, and Mr Bennett and Ms Davies, from continuing to act for the Gates in the District Court action.
I will hear the parties as to whether any, and if so what, orders are necessary to give effect to this decision.