Farrow Mortgage Services Pty Ltd (in liq) & Ors v Clayton Utz [1995] QSC 219

IN THE SUPREME COURT OF QUEENSLAND No. 1721 of 1993 Brisbane Before the Hon. Justice White [Farrow Mortgage Services Pty Ltd & Ors v. Clayton Utz] BETWEEN: FARROW MORTGAGE SERVICES PTY LTD (in liquidation) (A.C.N. 006 125 757) AND: PYRAMID BUILDING SOCIETY (in liquidation) GEELONG BUILDING SOCIETY (in liquidation) COUNTRYWIDE BUILDING SOCIETY (in liquidation) Plaintiffs CLAYTON UTZ (a firm) Defendant JUDGMENT - WHITE J Judgment delivered 4 September 1995 CATCHWORDS: Counsel: Solicitors: Solicitors previously acting for opposite party - opposite party seeking injunction retaining the firm from continuing to act for client - alleged clearance - Chinese Walls - principles to be . applied Mr J Bell QC for plaintiffs Mr C Hampson QC and with him Mr P O'Shea for the defendant Firm Mr E J Lennon QC and with him Mr S Doyle for Jefflane Pty Ltd Corrs Chambers Westgarth for the plaintiffs Mallesons Stephen Jaques for the defendants Clayton Utz for Jefflane Pty Ltd Hearing dates: 21, 22, 23, 24 March 1994 -- 1 of 53 -- IN THE SUPREME COURT OF QUEENSLAND No. 1721 of 1993 BETWEEN: AND: FARROW MORTGAGE SERVICES PTY LTD (in liquidation) (A.C.N. 006 125 757) PYRAMID BUILDING SOCIETY (in liquidation) GEELONG BUILDING SOCIETY (in liquidation) COUNTRYWIDE BUILDING SOCIETY (in liquidation) Plaintiffs CLAYTON UTZ (a firm) Defendant JUDGMENT - WHITE J Judgment delivered 4 September 1995 The plaintiffs ("Farrow") seek an injunction restraining the defendant firm of solicitors from acting as solicitors for any one or more of Jefflane Pty. Ltd., John Michael Haseler, Ian Alexander Dor~, Garth Ronald Barrett, Geoffrey John Wilson and James Frederick Wilson in Writ No. 1106 of 1991 or from communicating to any one of them information obtained or advice given to Farrow whilst acting as Farrow's solicitors or otherwise obtained in consequence of their so acting. Overview of Facts Jefflane Pty. Ltd. ("Jefflane") was a borrower from Farrow of funds to purchase and develop the Police Barracks Precinct in Brisbane and the named individuals were guarantors of the loan. The events the subject of this action occurred from 1989 to the end of 1993. Until 31 December 1991 the defendant firm of solicitors carried on business in Queensland under the name Henderson Trout. From 1 January 1992 it changed its name to Clayton Utz a name under which separate partnerships carried on -- 2 of 53 -- 2 the business of solicitors in other States. One of the guarantors, Mr Geoff Wilson, had been a client of Henderson Trout since 1970 another, Mr John Baseler, had been a client for about 10 years. Henderson Trout had acted for Jeff lane and the guarantors on the loan and acquisition of the property in about April 1989. It will be convenient to refer to the defendant as "the Firm", it is hoped without any adverse inference being drawn, to encompass the partnership known initially as Henderson Trout and then as Clayton Utz, except where the context requires a reference to the partnership name at the time. On 13 December 1990 Mr A Hodgson a partner in Ferrier Hodgson, chartered accountants, was appointed the liquidator of Pyramid Building Society, Geelong Building Society and Countrywide Building Society. On 17 April 1991 he was appointed the liquidator of Farrow Mortgage Services Pty Ltd. Prior to that appointment Mr Kenneth Russell had been administrator of the Societies from 22 June 1990. These entities were based in Geelong, Victoria. Early in 1991 Mr Geoffrey Harley, a litigation partner in the Firm, received instructions to act in a number of matters for Farrow. In March 1991 Mr Jim Wilson, one of the guarantors of Jefflane, received a notice of demand in respect of another matter from Farrow and noted that the Firm was acting for Farrow. Mr Geoff Wilson raised with Mr Jeremy Charlston, a commercial and property partner with the Firm who had looked after the Jefflane interests, whether there were any matters of conflict which might prevent the Firm from acting for Jefflane and the guarantors should any litigation with Farrow over the loans to Jeff lane -- 3 of 53 -- 3 ensue. At this stage there were differences between Jeff lane and Farrow about the availability of funding for the continuation of the project. Mr Charlston raised this concern with Mr Harley. In due course Mr Harley told him that he had obtained a clearance from Farrow for the Firm to do work for Jefflane in any litigious matters against Farrow as well as retaining the Farrow work and that suitable guards against leakages of information from one section in the Firm to the other would be put in place. In mid 1991 Jefflane issued a writ against Farrow and in November delivered its statement of claim. Mr Harley continued to do work for Farrow on a number of files through 1991 and 1992. At the end of 1992 Mr Robert Edge, an accountant in the liquidator's office who had principal responsibility for the loans recovery aspect of the liquidation of the Societies and the Farrow companies became aware, allegedly for the first time, that the Firm was acting against Farrow in the litigation brought by Jefflane and the guarantors. It was a policy of the liquidator that a firm of solicitors could not act both for Farrow and against it and in due course all the Farrow files were taken from the Firm. It was not until November 1993 that the writ was issued seeking to prevent the Firm from continuing to act for Jefflane and/or the guarantors. The Issues The issues which arise for consideration in this action are: did the Firm receive confidential information from Farrow in the course of its retainer such as might be relevant to Jefflane's action against Farrow the scope of the obligation owed by the Firm to Farrow -- 4 of 53 -- 4 the question of the clearance and its extent by Farrow to the Firm the isolation of the confidential information within the Firm and the undertakings offered how ought the discretion as to an injunction be exercised bearing in mind questions of delay on the part of Farrow and the adverse effect upon Jefflane and the guarantors. Jefflane was not served with the notice of motion seeking the injunction in this action, nor made a party to the action. The court was informed that it was aware of the action and the application and that it wished to make submissions against the granting of the injunction. Counsel appeared at the end of the hearing and made submissions without objection but did not otherwise attend during the course of the hearing which was appropriate considering the issues of confidentiality which were being canvassed. The Farrow background The three plaintiff building societies were put into administration on 22 June 1990 and on 13 December of that year Mr A Hodgson was appointed liquidator to the societies. On 17 April 1991 he was appointed the liquidator of Farrow Mortgage Services Pty Ltd. That company and the societies were part of a group of building societies and companies of which there were some 46 entities or legal structures which were known as the Farrow Group. To summarise, somewhat simplisticly, the societies for some period had gone beyond the traditional building society role of lending on predominantly domestic residential properties -- 5 of 53 -- 5 and had moveo into high risk commercial and construction projects. Farrow Mortgage Services Pty. Ltd. was the vehicle through which the Societies lent outside the State of Victoria as they were not registered interstate as building societies. On appointment the liquidator identified the control and administration of the loan portfolios as requiring the most immediate action. Since February 1991 Mr Robert Edge had principal responsibility for the loans recovery function within the liquidation. This involved converting the loans departments of the group into a loans recovery division of the liquidations. His responsibilities included the pursuit of legal proceedings against borrowers and guarantors. Initially there were two divisions of the liquidator's office - one in Geelong where much of the Farrow Group's work had been done and one in Melbourne. In due course he sought to bring the two offices together and to rationalise the work. Some 2,000 files were involved in legal recovery actions. The litigation work was briefed out to firms of solicitors and the liquidator retained the Victorian firm of Madgwicks to do recovery work in that State and also to act as a distributor of judgments, counsels' opinions, briefing papers and other documents to those other firms around Australia concerned with Farrow recovery work. The Jefflane background It is convenient to refer to the borrowing company and the guarantors collectively as "Jefflane". Mr Charlston initially received instructions to act for Jefflane in the acquisition of the property known as the Police Barracks on about 10 April 1989. This included the acquisition, development and project financing -- 6 of 53 -- 6 and sale of parts of the property. Flower and Hart, solicitors, acted on behalf of Farrow in connection with the project finance arrangements. Mr Charlston received instructions from Jefflane to advise in respect of potential defaults by Farrow pursuant to their project finance agreements on 24 May 1990. Jefflane was concerned about failures by Farrow to meet the progress claims and its ability to provide funds for the duration of the project. Mr Geoff Wilson for Jefflane had several meetings in Geelong with officers of Farrow in mid-1990. This coincided with the appointment of the administrator to the societies. In December 1990 Mr Charlston was contacted by a solicitor from Melbourne whose firm acted for the directors of the Farrow Group. Proceedings had been commenced by the administrator of Pyramid Building Society, a member of the Farrow Group, against the common directors of the Society and several Farrow companies concerning the propriety of the loans to Jeff lane. The pleadings and transcript of evidence were obtained by Mr Charlston. Later that month Mr Charlston sought and was given advice by Mr H. Oriti of the Firm's banking and finance section to advise on Farrow's potential breaches of the Victorian Building Societies Act 1986 in respect of the Jefflane loans and guarantees. Mr Oriti provided that advice in early January 1991 and conferences were held with the clients. The Farrow Work The first Farrow file came to the Firm by chance. A solicitor at the Gold Coast whose firm was doing Farrow recovery litigation work contacted the Firm in February 1991 to ask if it would take over a particular file in which he was said to have -- 7 of 53 -- 7 a conflict. This was an action brought by Farrow against Edgeflex Pty Ltd and some of its directors ("Edgeflex"). Mr Harley contacted a Mr P Mcclusky in the liquidator's office and indicated that the Firm was happy to take over this file and any other matters for Farrow. Mr Harley was put in touch with Mr A McCoy, in Geelong. He was a former employee of one of the building societies who, along with other society employees, was assisting the liquidator. On 22 February 1991 Mr Edge contacted Mr Harley and told him that he was in charge of all default matters, while Mr McCoy had the day to day management of the Edgeflex file and suggested that someone from the Firm should travel to Geelong to inspect the Farrow documents for discovery purposes. Thereafter Mr Harley received a number of other Farrow files. He issued a default notice on behalf of Farrow against a company associated with Mr Jim Wilson, one of the Jeff lane guarantors who, as I have mentioned, contacted Mr Geoff Wilson who in turn contacted Mr Charlston on 22 March 1991 expressing concern as to whether this would cause a problem in the Firm acting for Jefflane against Farrow. Mr Charlston, having ascertained that Mr Harley was the partner acting for Farrow, sent him a memorandum on that day setting out the background of the relationship between the Firm and Jefflane and some of its guarantors. He wrote: ". . . I would like to be able to assure our clients that we won't get ourselves into a conflict situation so that we can't continue to act for them by accepting instructions from Farrow's or Pyramid's liquidators. Can you please confirm that we are free to continue to act and will not accept any instructions that could put us into conflict. -- 8 of 53 -- 8 Farrow/Pyramid don't yet know that we're involved or that our clients are planning to take them on. However there has been litigation in Vic involving the Jefflane loan. I also understand that there are other disputes between Farrow & other developers in Qld that are likely to end up in litigation." Mr Charlston and Mr Harley discussed the matter by phone that day and Mr Harley agreed to take the issue up with the liquidator. In cross-examination Mr Harley said that he did not then know what the issues were between Jefflane and Farrow or were likely to be should litigation eventuate. The Edgeflex defence did not involve issues of illegality or capacity to fund on the part of Farrow which came to be aspects of Jeff lane's case against Farrow. Mr Charlston says that a short time later Mr Harley told him that he had a clearance from Farrow for the Firm to act for Jefflane against Farrow. Some months later Mr Ross Perrett, a litigation partner with the Firm, was brought in to represent Jeff lane in litigation against Farrow and was told of the clearance by Mr Charlston. Mr Harley and Mr Collins, a junior solicitor in his section, travelled to Geelong on 25 March 1991 to meet the relevant personnel involved in the recovery work and to inspect the Edgeflex documents. On the 26th Mr Edge gave Mr Harley another file which he regarded as very important involving a large sum of money and allegations by the borrowers that Farrow had breached the Building Societies Act 1986 (Victoria) and that accordingly the loans were illegal and unenforceable. This was the Building Developments Limited (BDL) action. Soon after this visit Mr Harley received other instructions to act for Farrow on other files. The day to day work on those files was done by solicitors in his section under his supervision. On at least one -- 9 of 53 -- 9 occasion, probably in 1992, Mr Harley travelled to Victoria to conduct a workshop for the liquidator's staff on legal aspects of recovery work. It will be convenient to deal with the question of the clearance first since if it were given that would dispose of the action. The Clearance Mr Harley did not raise the appropriateness of the Firm continuing to act for Jefflane with Mr Edge in Geelong during his visit on 25 and 26 March, but there can be no doubt that it was in his mind. His discussion with Mr Charlston had occurred on the previous Friday and he was in Geelong on the Monday and Tuesday following. He spoke on several occasions to Mr Edge during that visit and was aware that he was in charge of recovery work. When asked why he did not raise the matter of Jefflane Mr Harley said that he thought it inappropriate to do so at that stage. It is instructive to consider his answers in cross-examination: "That's right, you say it was inappropriate. Why was it inappropriate?-- Well, if you consider the position of a solicitor having been appointed - a firm of solicitors having been appointed to act for a new client. Within about three weeks they had the first meeting with the people and the client - they go to the client's offices. I would think it a very unusual thing for any solicitor first meeting a client for the first time to introduce into the discussion the question of, "By the way, we are acting for somebody that is on the other side from you. Can we act against you?" ... No. I judged it inappropriate to go to a client's office for the first time and say, 'Thank you for these instructions. We hope you get a lot more, we hope you like our work, and by the way, do you mind [if] we see you in another case?' -- 10 of 53 -- 10 Yes, exactly. In fact, it is inappropriate, I suggest to you, because you saw it as commercially unwise for your own interests. You might lose the Farrow connection if you told Edge this right at the start. That is why it was inappropriate, wasn't it?-- Well, you want to bed down a relationship with a client. That's right?-- This was a matter I realised had to be raised with Farrow. There is no question about it. It just didn't " T/S 176-177 Mr Harley said that shortly after the trip to Geelong he raised the matter of Jefflane with Farrow. He said that he could not recall whether he attempted to speak to Mr Edge by telephone and failing that spoke to Mr McCoy or whether he simply raised it with Mr McCoy. Mr Harley suggested that Mr Edge was extremely busy and often hard to get on the phone. Mr Edge said that he always returned his phone calls at the end of the day. Mr Edge appeared as a person who paid attention to such things and I conclude that Mr Harley did not attempt to raise this with him. The evidence of Mr Collins would support this conclusion (para. 5 of Collins' affidavit). Mr Collins said that he was in Mr Harley's office and heard Mr Harley speaking to someone (not on loud speaker), whom he, Collins, understood to be McCoy. He said that he heard Mr Harley say that Mr Charlston had a longstanding client and that it would be embarrassing for Henderson Trout if it could not continue to act if litigation ensued but that that action would be handled by a different section which would have nothing to do with Mr Harley's section. Mr Collins did not give evidence that he heard "Jefflane" mentioned. He heard Mr Harley say words to the effect "It's okay with Robert (or Edge)" and not, he thought, in a questioning tone. -- 11 of 53 -- 11 Mr McCoy has no recollection of the conversation at all. He did not deny that it occurred. Mr Harley said that he asked Mr McCoy, having outlined what Mr Charlston had told him about Jefflane, and, given that Farrow already had its own solicitors acting in the matter (Freehill Hollingdale and Page "Freehills") and that Henderson Trout had been acting for Jefflane in the negotiations, whether there would be any problem in Henderson Trout continuing to act for Jeff lane and its directors if litigation ensued. He added that there would be no communication between the Farrow people and the Jefflane people in Henderson Trout. According to Mr Harley, Mr McCoy said that he would get back to him. In cross-examination Mr Harley agreed that he knew that Mr Edge was in charge of all default matters and would have been surprised had Mr McCoy himself, a file management officer, given immediate approval. Mr Harley recalls a second conversation within a week of the first with Mr McCoy who conveyed to him that there would be no problem in Henderson Trout continuing to act for Jefflane. It is not clear which conversation Mr Collins overheard but, because it contained an explanation of what the Firm was doing with Jefflane, it seems likely that it was the first. Mr Collins said that sometime after July 1991, after McCoy had been particularly critical of Collins' handling of aspects of the Edgeflex file, they were discussing by telephone another file and the defences raised by the borrowers when McCoy allegedly observed that those defences were the same as in the Jefflane matter and added as a casual comment that the Firm was acting on the other side in that matter. Mr Collins said that -- 12 of 53 -- 12 he asked McCoy if that were a problem and McCoy replied that Henderson Trout had been cleared to act. McCoy has no recollection of this conversation. Mr Edge said that he did not discuss a clearance for the Firm to act in the Jefflane matter with McCoy and I accept this. I accept that Mr Edge made it clear to Mr Harley during his visit in March to Geelong that his, Mr Harley's, instructions were always to be as a result of direct authority from himself. Until then Mr Harley had always written to the file managers in respect of the early files which he had received from Farrow. Following the visit in March, according to Mr Edge, on every occasion Mr Harley confirmed his instructions in writing, initially by copy to Mr Edge and then directly to Mr Edge instead of to the file managers. This was not disputed. Mr Edge said the reason for this was that the Supreme Court of Victoria had permitted the liquidator to delegate his authority only to two people of whom Mr Edge was one. Accordingly all decisions of a substantive kind had to come from Mr Edge, the liquidator or the other delegate. At that time he had approximately 2,000 files under management and about 130 staff located at Geelong. As an example, Mr Edge said that the direction to solicitors as to whether interrogatories in any particular action had to be prepared could be issued by a file manager but the particular answers to the interrogatories would come to him to be settled. Matters that had to be referred to Mr Edge were required to be committed to writing either by way of memorandum or by reporting in the monthly file review for that file. -- 13 of 53 -- 13 Mr McCoy had been the manager of the Jefflane file from December 1989 until May 1990, that is prior to the administrator being appointed to the societies. The file was then a conveyancing/loan file of a non litigious kind. At the time of the conversation with Mr Harley, Mr McCoy had not been responsible for that file for some 10 months. Mr Harley agreed that he did not ask Mr McCoy who the current file manager for Jefflane was or indeed if McCoy was the file manager for Jeff lane. There are a number of features about the clearance that cause concern: • Mr Harley did not put in writing his request for a clearance from Farrow for the Firm to continue to act for Jefflane should the matter proceed to litigation. • He did not write to Farrow confirming the clearance said to have been given by Mr McCoy on behalf of Mr Edge. • He did not make a diary note of either of the conversations with Mr McCoy or that he had attempted to telephone Mr Edge. • He did not give a written memorandum to Mr Charlston about the outcome of his conversation with Mr McCoy. • There is no written note recording the request for clearance or the clearance on any Farrow file. It is astonishing that such a serious matter should have had no contemporaneous written record made within the Firm, bearing in mind the importance which Mr Charlston attached to his continuing relationship with Jefflane and those of the guarantors for whom the Firm acted. When Mr Edge raised the question of conflict -- 14 of 53 -- 14 with Mr Harley in December 1992 Mr Edge recalled that Mr Harley said that he had a clearance from Mr McCoy who, by then, had left Farrow. I do not find that Mr Harley had no conversation at all with Mr McCoy about the Jefflane matter but I do conclude that the information conveyed by him was in such general terms that "conflict of interest" would not have been made obvious to Mr McCoy. No proceedings had issued or been threatened as was made clear in Mr Charlston's memorandum to Mr Harley. Mr Harley had not enquired of Mr Charlston what the issues were likely to be between Jefflane and Farrow. Mr Harley had no idea whether Mr McCoy was the file manager for Jefflane or not and made no enquiries to that end. Mr McCoy was not a lawyer, indeed had been a loans officer in the building societies for some years but was only a young man. Mr Harley was his senior by some years and in professional standing. They had met in Geelong recently. Mr McCoy may never have raised the question of Jeff lane with Mr Edge. He may have understood Mr Harley to have been indicating that he had already discussed the matter with Mr Edge when he said, "It's alright with Robert (or Edge)" not, according to Collins, in a questioning voice. If he did mention it to Mr Edge, by the time the request was translated to him it had no conflictual significance. This would be reinforced for both Mr McCoy and Mr Edge because it had not been raised during Mr Bartley's Geelong visit some days previously and there was nothing in writing from Mr Harley. Mr Harley had no note or precise recollection of the second conversation with Mr McCoy when he says he was given the clearance. -- 15 of 53 -- 15 It seems quite unlikely that Mr McCoy would have raised the Jefflane matter in casual conversation with Mr Collins. Mr McCoy had numerous files which did not include Jefflane and was very busy. The writ in the Jefflane actin was not issued until July 1991 and the statement of claim until November. There is no basis for supposing that Mr McCoy was likely to know what the Jefflane defences were. If the name was mentioned in passing it seems unlikely that it would have been linked to a clearance but, even if it were, what it was about had never been made clear to Mr McCoy. Mr Harley's concern was that his section should not receive instructions "out of the blue" to act against Jefflane should the matter become litigious and that, if anything, would have been the thrust of the conversation with Mr McCoy. The Jefflane statement of claim alleged, inter alia, breaches of the Victorian Building Societies Act ("the illegality allegation") and the incapacity of Farrow to fund. Mr Harley accepted that he became aware of those matters whilst he was holding the BDL file which raised the illegality defence after the alleged clearance from McCoy but Mr Harley did not raise the issue of conflict with Farrow again. His explanation was that Farrow would know what the issues were in all the actions and because nothing was said by Edge or any other Farrow officer it confirmed his understanding that the clearance continued. He said he was comfortable with and had confidence in the oral arrangements he had made that the people in his section must not speak about Farrow matters to the people in Mr Charlston's and Mr Perrett's sections. -- 16 of 53 -- 16 Jefflane is desirous of the Firm continuing to act in its litigation with Farrow and has relieved the Firm of its obligation to put at Jeff lane's disposal any information obtained by it in the course of acting for Farrow in any matters or to seek to obtain any such information arising out of that relationship. This is necessary because the person who engages the services for a partner engages the services of the partnership itself and not simply the persons who actively render the service within the partnership. A solicitor must put at his client's disposal not only his skill but also his knowledge, so far as is relevant, " ... and if he is unwilling to reveal his knowledge to his client he should not act for him: what he cannot do is act for the client and at the same time withhold from him any relevant knowledge that he has " Spector v. Ageda [1973] 1 Ch. 30 at p. 48 per Megarry J•. It is plain that that obligation was not in the forefront of Mr Harley's consideration when he accepted the BDL file from Mr Edge in Geelong. If Farrow through McCoy gave its consent for the Firm to continue to act for Jefflane against Farrow whilst retaining the Farrow work the critical issue is whether that consent was informed. "No agent who has accepted an employment from one principal can in law accept an engagement inconsistent with his duty to the first principal from a second principar, unless he makes the fullest disclosure to each principal, to the double employment." Fullwood v. Hurley [1928] 1 K.B. 498 per Scrutton LJ at p.502. As was observed by the Court in Commonwealth Bank v. Smith (1991) 102 A.L.R. 453 at p. 477 there is no precise formula which will determine in all cases if fully informed consent has been -- 17 of 53 -- 17 given - it is a question of fact in the all the circumstances. However it cannot be sufficient simply to inform the client of the double employment. The significance of the Firm's continued representation of both clients and the potential for conflict needed to be explained. I accept that Mr Harley was concerned that the Firm would not be given instructions to act for Farrow against Jeff lane in the not unlikely event of litigation. It might be argued that the situation which prevailed was thus different from that of an agent or fiduciary acting for both parties in the one transaction. I think that the principles to be applied however are the same in a situation where the same or very similar issues arise in different litigation which is or is likely to be conducted concurrently with the subject client's litigation in the same firm and adversely to it. At the very least the Firm, through Mr Harley, was obliged by virtue of its duty of fidelity to Farrow to communicate the nature of Jefflane's assertions against Farrow and explain the limitations upon its capacity to provide Farrow with relevant confidential material relating to Jefflane. It should have put to Farrow the detail of proposals to ensure effective independent representation to each of Jefflane and Farrow and particularly, as far as Farrow was concerned, to protect the security of its confidential information from Jefflane and its advisers within the Firm. It was, in my view, insufficient to assume that the officers of Farrow knew the details of all litigation brought against it and by it and the names of the firms of solicitors retained in each case against it. Mr Harley had a fair idea as 1991 -- 18 of 53 -- 18 proceeded of the size of the Farrow liquidation and the extent of the recovery work to make this a somewhat disingenuous explanation as to why he did not raise the matter with Mr Edge after June 1991 when Jefflane issued proceedings against Farrow. I have concluded that even if there were conversations between Mr McCoy and Mr Harley along the lines suggested by him that the initial disclosure was insufficient for Farrow to make an informed decision and that there was a continuing obligation on the part of the Firm through Mr Harley to inform Farrow of any relevant changed circumstances and, in particular, that Jefflane was asserting the illegality claim in its action against Farrow which was part of the defence in the BDL action in which the Firm was acting for, Farrow. In these circumstances I have concluded that the Firm had no clearance from Farrow to act for Jefflane while it still retained Farrow work covering the same issues. Confidential Material In the course of acting for Farrow Mr Harley received material from Farrow in respect of the files held by the Firm and also from Madgwicks, Melbourne solicitors who performed, inter alia, a co-ordinating role in respect of the firms of solicitors around Australia doing Farrow work. Amongst the documents received were counsels' opinions, briefing papers and miscellaneous papers on topics related to the files held by Mr Harley's section. Some of them clearly related to matters not in issue in the Jeff lane action. The Firm's position with respect to relevant documents is that many are not confidential for any one of a number of reasons - they have been or ought to have been discovered in the Jefflane action; they are in the -- 19 of 53 -- 19 public arena; or they can with little difficulty be obtained from solici tars in other actions against Farrow. Where the Firm concedes that confidentiality resides in some of the documents - and they tend to be counsels' opinions and some briefing papers - it maintains that the in-house arrangements to segregate the Jefflane action from the people working on Farrow work have been adequate to protect Farrow's interests in the past and the proposed undertakings will protect them in the future. The documents in which confidence is said to reside are extensive. It is not disputed by the Firm that it received material from or on behalf of Farrow as an aspect of its retainer and was thereby obliged to keep it confidential. Mr Bell QC for Farrow submitted that the Court was bound by the authority of the Full Court in Mills v. Day Dawn Block Mining Company Limited [ 18 82] 1 Q. L. J. R. 62 to accept the evidence of Mr Edge that the communications received by the Firm from Farrow were confidential without resolving conflictual testimony. The Firm does not go so far as to say that it has not received any confidential information from Farrow, indeed Mr Harley in his letter of 3 February 1993 to Farrow conceded as much as did counsel for the Firm in their submissions. The Full Court in Mills was concerned not to require actual proof of the existence of the confidence, what it was and whether it would prejudice the client's interest because to do so would remove the very protection which the client was seeking. For that reason the Court proposed that less mischief would result from accepting the client's testimony over that of the solicitor, see per -- 20 of 53 -- 20 Lilley CJ at p. 63. There are two observations to make. Today courts feel freer to mould orders to protect from general scrutiny material filed or testimony given, but more importantly, the development of the law with respect to breaches of confidence requires that a plaintiff be able to identify with some specificity the information and whether it has the necessary quality of confidentiality, The Commonwealth v. John Fairfax and Sons Ltd (1980) 147 C.L.R. 39 at pp. 50-1; O'Brien v. Komesaroff (1982) 150 C.L.R. 310 at pp. 326-8; Corrs Pavey Whiting and Byrne v. Collector of Customs (Vic) (1987) 14 F.C.R. 434 at p. 443. See also D.R.J. Constructions v. Head (1987) 9 N.S.W.L.R. 118 at p. 124. Mullane J. in The Marriage of Griffis (1991)F.L.C. 92-233 at pp. 78, 600-1, considered that the mischief caused by requiring a detailed investigation of the confidential nature of the material said by the former client to have been received by the solicitor strongly supported the approach taken by the Full Court in Mills that a prima facie case was all that needed be shown by the former client. This was the approach taken by Frederico J in The Marriage of Thevanez (1986) 11 Fam. L.R. 95 at p. 97. It may well be that in particular areas of the law very little will be required to demonstrate the confidential nature of the information. Matters covered by the jurisdiction of the Family Court will be one and where a firm seeks to move from a defence to a prosecution role arising out of the same alleged criminal conduct as occurred in Mallesons Stephens Jaques v. KPMG Peat Marwick (1991) 4 W.A.R. 357, would be another. Orders have been made by consent in this action to protect the confidential nature of some of the material that there be no access to that -- 21 of 53 -- 21 material without the consent of the parties or the leave of the Court. There are,_ however, difficulties because if the confidential nature of the information is to be preserved a detailed analysis of that information ought not be undertaken in the published reasons for judgement. What is thought appropriate to ventilate will vary from case to case. The Canadian Supreme Court has imposed a rebuttable presumption that information imparted to the solicitor in the course of the retainer is confidential, MacDonald Estate v. Martin (1991) 77 D.L.R. (4th) 249 at p. 268. There is much to be said for that approach. I have concluded that whoever bears the burden of proof, the evidence demonstrates that the Firm has received confidential information in the course of its retainer. It is not necessary to canvass all the documents. Mr Edge deposes to categories of documents in his affidavit and elaborated upon them in cross-examination and re-examination. Ms Davies, a solicitor with Madgwicks, prepared volumes of materials which, without contest, were said to have been sent to Mr Harley. Mr R Lindwall, a partner at Corrs Chambers Westgarth, Farrow's present solicitors on the BDL file, has exhibited documents on the BDL file which were formerly in the possession of the Firm some of which are relevant to the Jefflane action. They are also extensive. Whilst some of the material includes reported and unreported decisions of courts, pleadings, and transcripts of evidence which cannot be characterised as confidential, there is other material such as counsel's opinions and briefing papers pertaining to the ability to fund and the illegality defence which fall within that description. Some of -- 22 of 53 -- 22 the briefing papers relate to the management of Farrow and its financial position at various stages of its lending including a daily liquidity analysis of each society from the beginning of 1990. Farrow had provided Mr Harley with an analysis of the weaknesses in the loan statements. Mr Edge considered that those weaknesses had not become apparent in the court cases already heard involving Farrow. The briefing papers that the Firm received from time to time indicated the attitude of the plaintiffs to such things as applications for security for costs, which barristers to use, the capacity to fund and the illegality defence. It was submitted on behalf of the Firm that other cases have decided the issue of illegality particularly the decision of the Full Federal Court in Edgar v. Farrow Mortgage Services Pty Ltd (in liquidation) (1993) 114 A.L.R. 1 so that there could be no longer any matters of confidentiality in respect of it. However that is not to the point. Hayne J observed in Farrow Mortgage Services Pty Ltd (in liquidation) v. Mendall Properties Pty Ltd unreported decision of 10 February 1994 (No. 2099 of 1993), where the same briefing paper was under consideration, that that does not - "detract from the force of the point made by the plaintiff that its former solicitors have in their possession, a document prepared as a briefing paper ..... acting for FMS [Farrow] in actions of the very kind in which it seeks now to act against FMS. The Firm knows what FMS and its liquidator have been told about the defence of illegality. It knows what FMS and its liquidator have been told about how demands should be made in the case of the present kind, about what response should be made to applications for security for costs, about what barristers to use. All these matters may well bear upon the conduct of the present proceedings and the Firm knows these matters only because of its earlier retainer." -- 23 of 53 -- 23 The very fact that Farrow itself has identified areas of weakness in its own pre-liquidation processes is of considerable value to an opponent who may independently have reached the same conclusion. Mr Harley also had telephone conversations with Ms Davies about, inter alia, the defence of illegality. I conclude that the Firm received confidential information in the course of its retainer with Farrow which, if disclosed, could assist Jefflane in its approach to the litigation. Ought the Firm be restrained The English Court of Appeal decision of Rakusen v. Ellis Munday and Clarke [1912] 1 Ch. 831 is generally accepted as the starting point of the modern law in respect of restraint of solicitors acting against former clients and that is the approach which has been pressed upon the Court by the Firm. Cozens-Hardy MR preferred that each case be decided on its own facts rather than laying down a broad principle which the judge below had done. In that case it was a two partner firm and the partner who proposed to do the new work did not propose to act as a partner of the firm which had previously acted for the former client. At p. 838 Cozens-Hardy MR said of this approach: "With great respect to Warrington JI think that goes a great deal too far, [namely that a solicitor is an officer of the Court and cannot be allowed to put himself into a position in which his duty to the present client may conflict with his duty to his past client]. Many busy solicitors in this country would find it impossible to carry on their business at all if that were the true law. I think solicitors of the highest honour and integrity may frequently be perfectly able to act in the same matter for a new client, and at the same time may be perfectly able to avoid disclosing secrets without putting any strain on their memory, conscience or integrity." -- 24 of 53 -- 24 Earlier at p. 835 he concluded that the proper test was that the court: " must be satisfied that real mischief and real prejudice will in all human probability result if the solicitor is allowed to act." Fletcher Moulton LJ expressed his approach somewhat differently at p. 841: "As a general rule the Court will not interfere unless there be a case were mischief is rightly anticipated. I do not say that it is necessary to prove that there will be mischief, because that is a thing which you cannot prove, but where there is such a probability of mischief that the Court feels that, in its duty as holding the balance between the high standard of behaviour which it requires of its officers and the practical necessities of life, it ought to interfere and say that the solicitor shall not act." Buckley LJ enunciated a different test at p. 843 as one where if: " it is shown to be reasonably necessary to restrain the employment of the solicitor by the new client the injunction will be granted, but on no other ground could such an injunction be granted as against the client." In the much earlier Full Court decision of Mills supra, Lilley CJ had a quite different approach. He said at p. 62 that: "It is the duty of the attorney not to place himself in such a relation as ~ight lead to there being even an unwitting breach of duty." Parker LJ in In re A Firm of Solicitors [1992] 1 Q.B. 959 thought it was clear from the judgments in Rakusen that the Court reached its decision on the basis of undertakings and but for them would have reached a different conclusion. Having considered the decisions of Hoffmann Jin In re A Solicitor (1987) 131 S.J. 1063 and Sir Nicolas Browne-Wilkinson V-C in David Lee & Co (Lincoln) Ltd v. Coward Chance (A Firm) [1991] Ch. 259, which appeared to follow Rakus en, he rejected the test of Cozens-Hardy MR and concluded at p. 969 that: -- 25 of 53 -- 25 " the proper approach is to consider whether a reasonable man informed of the facts might reasonably anticipate such a danger [that is, a breach of the duty not to communicate confidential information]." He concluded: "To approach the matter in this way has the advantages, in my judgment, that an over sensitivity on the part of the objector would be excluded and that public confidence in the process of litigation would not be undermined. If a reasonable man with knowledge of the facts would say 'If I were in the position of the objector I would be concerned that, however unwittingly or innocently, information gained while the solicitor was acting for me, might be used against me, ' the court, in my judgment, can and should intervene. Were it not to do so the court would be permitting to exist a situation of apparent unfairness and injustice. That this should be avoided is in my view every bit as much a matter of public interest as the public interest in not unnecessarily restricting parties from retaining the solicitor of their choice." Whilst Bryson Jin D & J Constructions Pty Ltd v. Head and Others trading as Clayton Utz (1987) 9 N.S.W.L.R. 118 preferred the Rakusen test he rejected the principle upon which it was based. "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. The appearance which matters is the appearance presented to a reasonable observer who knows and is prepared to understand the facts. The court should weigh the facts and assess the risks in the eye of reality, theoretical risks should be disregarded and when as here there is no confidential information available and there never was a relationship of solicitor and client w~th any partner the appearance of the matter is not a basis for the court to assume control over the retainer. Some ages and some classes of business could well require a more ready apprehension of mischief than the Court of Appeal of England thought appropriate in 1912 or than I think appropriate here and now." Gummow J in National Mutual Holdings Pty Ltd v. The Sentry Corporation (198~) 22 F.C.R. 209 supported a stricter approach than that advocated in Rakusen referring to a possibility of -- 26 of 53 -- 26 conflict and adding that even among fiduciaries solicitors stood in a special position, at pp. 229 and 230. Mackenzie J in Australian Commercial Research and Development Limited v. Hampson [1991] 1 Qd.R. 508, although referred to Sentry, did not think it necessary to consider the arguments raised there but followed the test in Rakusen as did Lee Jin Fruehauf Finance Corporation Pty Limited v. Feez Ruthning (A Firm) [1991] 1 Qd.R. 558. In the Family Court Federico J applied a strict test in Thevanez supra, while Smithers J adopted the Rakusen approach in The Marriage of A and B (1990) F.L.C. 92-126 but noted that the strict approach was also satisfied. Mullane J in a careful review of the authorities in Griffis, supra, rejected the Rakusen approach. Ipp Jin Mallesons Stephen Jaques v. KMPG Peat Marwick supra preferred to approach the question in the following way at pp. 361-3: "In my view the issue as to which of the two approaches should be adopted is to be resolved by having regard to the principles applicable, generally, to conflicts of interests involving fiduciaries, and to legal professional privilege, these being, as I have mentioned, the foundations of a restraint order of the kind being sought in this case. The relationship between client and solicitor is one of the most important fiduciary relationships known to the law; see Re Van Laun; Ex parte Chatterton [1907] 2 K.B. 23 at 29; Law Society (NSW) v. Harvey [1976] 2 N.S.W.L.R. 154 at 169-170. Lord Cranworth LC in Aberdeen Railway Co v. Blaikie Bros (1854) 1 Macq 461, when dealing with the duties of a fiduciary, said (at 471): 'It is a rule of universal application, that no-One, having such duties to discharge, shall be allowed to enter into engagements in which he has, or can have, a personal interest conflicting, or which possibly may conflict, with the interests of those whom he is bound to protect.' -- 27 of 53 -- 27 Thus an agent i's liable to account for profits he makes out of trust property if there is merely a possibility of conflict between his interest and his duty to his principal: see Phipps v. Boardman [1967] 2 A.C. 46 at 103. See also Furs Ltd v. Tomkies (1936) 54 C.L.R. 583 at 592; Chan v. Zacharia (1984) 154 C.L.R. 178 at 199. In Green & Clara Pty Ltd v. Bestobell Industries Pty Ltd [1982] W.A.R. 1 Burt CJ (at 5) held that a claim lay against a fiduciary who placed himself in a position 'where as a real and sensible possibility' his duty and interest might conflict. The above cases were not concerned with injunctive relief arising out of a conflict of interest brought about by a solicitor being in possession of information subject to legal professional privilege, but I see no reason in principle why a distinction should be drawn; cf. National Mutual Holdings Pty Ltd v. Sentry Corporation, at 228. The protection of such information when there is a real and sensible possibility of it being disclosed or used to the detriment of a former client by a solicitor is consistent with the importance which the courts attach to legal professional privilege. In Grant v. Downs (1976) 135 C.L.R. 674 at 685 Stephen, Mason and Murphy JJ said (at 685): 'The rationale of this head of privilege, according to traditional doctrine, is that it promotes the public interest because it assists and enhances the administration of justice by facilitating the representation of clients by legal advisers, the law being a complex and complicated discipline. This does by keeping secret their communications, thereby inducing the client to retain the solicitor and seek his advice, and encouraging the client to make a full and frank disclosure of the relevant circumstances to the solicitor.' In Baker v. Campbell (1983) 153 C.L.R. 52 Deane J said (at 118): 'The general and substantive principle underlying lega·l professional privilege is of fundamental importance to the protection and preservation of the rights, dignity and equality of the ordinary citizen under the law in that it is a precondition of full and unreserved communication with his lawyer.' -- 28 of 53 -- 28 See also Attorney-General (NT) v. Maurice (1986) 161 C.L.R. 475 at 487, 490-491; Attorney-General v. Kearney (1985)158 C.L.R. 500 at 511. The remar~s of Deane Jin Baker v. Campbell are, with respect, particularly apposite. He said (at 115-116): 'The principle underlying legal professional privilege is that a person should be entitled to seek and obtain legal advice without the apprehension of being prejudiced by subsequent disclosure of confidential communications ... ' Finally, in my view, public interest considerations require that a solicitor be restrained from acting for a former client when there is a real and sensible possibility that the solicitor's duty and interest might conflict. As was stressed by Bryson Jin D & J Constructions Pty Ltd (supra) (at 123) it is extremely important that the courts should take 'careful measures to secure not only that justice is done but also that it is apparent that it is done, an appearance which would not survive any general impression that lawyers can readily change sides.' Accordingly I conclude that if, by a solicitor acting for a new client, there is a real and sensible possibility that his interest in advancing the case of the new client might conflict with his duty to keep information given to him by the former client confidential, or to refrain from using the information to the detriment of the former client, then an injunction will lie." This approach found favour with Spender Jin Murray v. Macquarie Bank Ltd (1991) 33 F.C.R. 46 and Burchett Jin Wan v. McDonald, ibid, at p. 491 to similar effect. In Carindale Country Club Estate v. Astill (1993) 42 F.C.R. 307 Drummond J said at pp. 312-3: "It would be inconsistent for the law to encourage the client to repose confidential information in a solicitor by making those confidences privileged from disclosure without the client's consent, if the law, on the other hand, were to readily allow the solicitor to act for a new client in a matter adverse to the interests of the old client, ie, to act in circumstances in which a perception that confidences might not be kept could easily arise. The modern cases recognise that it is the need to avoid such inconsistency that justifies a more stringent test than that in Rakusen, which a solicitor must meet -- 29 of 53 -- 29 before he is free, over a former client's objection, to act for the new client in a matter which may be against the old client's interests. See Mallesons Stephen Jaques v. KPMG Peat Marwick at 361-362; National Mutual Holdings Pty Ltd v. Sentry Corporation at 229-231; and Murray v. Macquarie Bank Ltd at 51. See also Farrington v. Rowe McBridge & Partners [1985] 1 N.Z.L.R. 83 at 89 and MacDonald Estate v. Martin at 225-256. In recognition of the special position of the solicitor as a fiduciary and of the importance now placed on the need for the appearance of integrity on the part of solicitors, as repositories of confidences, in the role they play in the administration of justice, I think that the stringent approach to when a solicitor will be free to act adverse to the interests of a former client that has been taken in recent cases is preferable to the more lenient approach that was generally, but by no means invariably, adopted in past times. In my opinion, a solicitor is liable to be restrained from acting for a new client against a former client if a reasonable observer, aware of the relevant facts, would think that there was a real, as opposed to a theoretical possibility that confidential information given to the solicitor by the former client might be used by the solicitor to advance the interests of a new client to the detriment of the old client. The better view may be that the mere threat of disclosure of information given in confidence will ordinarily be enough to enliven the jurisdiction to restrain the disclosure and that it is not necessary to prove that disclosure would result in a detriment to the source of the information. See RP Meagher, W M C Gummow and J R F Lehane, Equity: Doctrines & Remedies (3rd ed, 1992), §4110; P F Finn (ed), Essays in Equity (1985), p 112; F Gurry, Breach of Confidence (1984), pp 177-178. However, the cases all indicate that before a solicitor will be restrained from acting for a new client at the behest of an old client, not only must there be a threat of disclosure of information given in confidence, but there must be evidence that such disclosure will be to the former client's disadvantage. The requirement of proof of detriment is at the core of the rule in Rakusen. It is emphasised as a requirement in the later cases: see, eg, D & J Constructions Pty Ltd v. Head (t/a as Clayton Utz), (supra) at 124; Murray v. Macquarie Bank Ltd at 49 and MacDonald Estate v. Martin at 2 67. There may be justification for insisting upon proof of detriment where it is sought to prevent a solicitor acting for a new client. A solicitor should not too readily be disqualified from acting for a new client who wants his services: it is in the public interest -- 30 of 53 -- 30 that the services of solicitors (who, together with barristers, have a monopoly in the provisions of legal services) should be freely available. Cf Fruehauf Finance Corporation Pty Ltd v. Feez Ruthning (1991) 1 Qd.R. 558 at 566 and MacDonald Estate v. Martin at 270. This public interest will be unnecessarily intruded upon unless it is shown that disclosure by the solicitor of confidential information will disadvantage that confiding client." Hayne Jin Mendall Properties (supra) was of the view at p. 8 that: " the weight of authority, especially more recent authority such as the Mallesons Case and In re a Firm of Solicitors, clearly supports the view that the test to be applied in resolving an application of the present kind is not that put forward by Cozens-Hardy M.R. in Rakusen but is a less stringent test. Although it is necessary to be acutely conscious of the fact that the court is asked to interfere with the right of a litigant to be represented by the solicitor of the litigant's choice, it is not necessary to conclude that harm is inevitable (or well nigh inevitable) before acting to restrain a possible breach of the duty that a solicitor owes to clients and former clients to keep confidential information given to the solicitor in confidence and not use that information against the interests of the client who gave it to the solicitor. For present purposes I do not need to consider whether anything turns on the differences in expression of the test as given by Parker L.J. and Ipp J. It is enough to say that I consider that injunction should go if there is a real and sensible possibility of the misuse of confidential information." The Canadian Supreme Court has taken stricter view of the necessity for the appearance of the utmost probity in the conduct of lawyers than has generally been expressed in Australia or England. In Martin v. Gray (cited as MacDonald Estate v. Martin) (1991) 77 D.L.R. (4th), 249 the court rejected the Rakusen test. Sopinka J with whom Dickson CJC and La Forest J concurred said at pp. 254 et seq, in deciding whether there was a conflict of interest in a particular case which would lead to restraint on -- 31 of 53 -- 31 the part of solicitors, that the Court was concerned with at least three competing values: "There is first of all the concern to maintain the high standards of .the legal profession and the integrity of our system of justice. Furthermore, there is the countervailing value that a litigant should not be deprived of his or her choice of counsel without good cause. Finally, there is the desirability of permitting reasonable mobility in the legal profession. The review of the cases which follows will show that different standards have been adopted from time to time to resolve the issue. This reflects the different emphasis placed at different times and by different judges on the basic values outlined above. The legal profession has changed with the changes in society. One of the changes that is most evident in large urban centres is the virtual disappearance of the sole practitioner and the tendency to larger and larger firms. This is a product of a number of factors including a response to the demands of large corporate clients whose multi-faceted activities require an all-purpose firm with sufficient numbers in every area of expertise to serve their needs. With increase in size come increasing demands for management of a law firm in accordance with the corporate model. These changes in the composition and management practices of law firms are reflected in changes to ethical practices of the profession. Some of the old practices have been swept aside as anachronistic, perhaps with justification. Advertising to inform the public in a tasteful way of the services provided by a firm and of its fee .schedule is but one example. Merger, partial merger and the movement of lawyers from one firm to another are familiar features of the modern practice of law. They bring with them the thorny problem of conflicts of interest. When one of these events is planned, consideration must be given to the consequences which will flow from loss of clients through conflicts of interest. To facilitate this process some would urge a slackening of the standard with respect to what constitutes a conflict of interest. In my view, to do so at the present time would serve the interest of neither the public nor the profession. The legal profession has historically struggled to maintain the respect of the public. This has been so notwithstanding the high standards that, generally, have been maintained. When the management, size of law firms and many of the practices of the legal profession are indistinguishable from those of business, it is important that the fundamental professional standards be maintained and indeed -- 32 of 53 -- 32 improved. This is essential if the confidence of the public that the law is a profession is to be preserved and hopefully strengthened. Nothing is more important to the preservation of this relationship than the confidentiality of information passing between a solicitor and his or her client. The legal profession has distinguished itself from other professions by the sanctity with which these communications are treated. The law, too, perhaps unduly, has protected solicitor and client exchanges while denying the same protection to others. This tradition assumes particular importance when a client bares his or her soul in civil or criminal litigation. Clients do this in the justifiable belief that nothing they say will be used against them and to the advantage of the adversary. Loss of this confidence would deliver a serious blow to the integrity of the profession and to the public's confidence in the administration of justice." These observations can, with respect be applied equally to the legal profession in Australia. His Honour discussed the two approaches for determining whether a disqualifying conflict of interest exists, namely the probability of real mischief as found in Rakusen and the possibility of real mischief. He concluded that the clear trend of Canadian authorities was to favour a stricter test than that found in Rakusen. He then turned to the appropriate test at pp. 267-9: "What then should be the correct approach? Is the 'probability of mischief' standard sufficiently high to satisfy the public requirement that there be an appearance of justice? In my opinion, it is not. This is borne out by the judicial statements to which I have referred and to the desire of the legal profession for strict rules of professional conduct as its adoption of the Canadian Code of Professional Conduct demonstrates. The probability of mischief test is very much the same as the standard of proof in a civil case. We act on probabilities. This is the basis of Rakusen. I am, however, driven to the conclusion that the public, and indeed lawyers and judges, have found that standard wanting. In dealing with the question of the use of confidential informati'on we are dealing with a matter that is usually not susceptible of proof. As pointed out by Fletcher Moulton L.J. in Rakusen, 'that is a thing which you cannot prove' (at p. 841). I would add 'or disprove'. If it were otherwise, then no doubt the public would be satisfied upon proof that no prejudice -- 33 of 53 -- 33 would be occasioned. Since, however, it is not susceptible of proof, the test must be such that the public represented by the reasonably informed person would be satisfied that no use of confidential information would occur. That, in my opinion, is the overriding policy that applies and must inform the court in answering the question: Is there a disqualifying conflict of interest? In this regard, it must be stressed that this conclusion is predicated on the fact that the client does not consent to but is objecting to the retainer which gives rise to the alleged conflict. Typically, these cases require two questions to be answered: (1) Did the lawyer receive confidential information attributable to a solicitor-and-client relationship relevant to the matter at hand? (2) Is there a risk that it will be used to the prejudice of the client? In answering the first question, the court is confronted with a dilemma. In order to explore the matter in depth may require the very confidential information for which protection is sought to be revealed. This would have the effect of defeating the whole purpose of the application. American courts have solved this dilemma by means of the 'substantial relationship' test. Once a 'substantial relationship' is shown, there is an irrebuttable presumption that confidential information was imparted to the lawyer. In my opinion, this test is too rigid. There may be cases in which it is established beyond any reasonable doubt that no confidential information relevant to the current matter was disclosed. One example is where the applicant client admits on cross-examination that this is the case. This would not avail in the face of an irrebuttable presumption. In my opinion, once it is shown by the client that there existed a previous relationship which is sufficiently related to the retainer from which it is sought to remove the solicitor, the court should infer that confidential information was imparted unless the solicitor satisfies' the court that no information was imparted which could be relevant. This will be a difficult burden to discharge. Not only must the court's degree of satisfaction be such that it would withstand the scrutiny of the reasonably informed member of the public that no such information passed, but the burden must be discharged without revealing the specifics of the privileged communication. None the less, I am of the opinion that the door should not be shut completely on a solicitor who wishes to discharge this heavy burden. The second information question will be is whether the confidential misused. A lawyer who has -- 34 of 53 -- 34 relevant confidential information cannot act against his client or former client. In such a case the disqualification is automatic. No assurances or undertakings not to use the information will avail. The lawyer cannot compartmentalise his or her mind so as to screen out what has been gleaned from the client and what was acquired elsewhere. Furthermore, there would be a danger that the lawyer would avoid use of information acquired legitimately because it might be perceived to have come from the client. This would prevent the lawyer from adequately representing the new client. Moreover, the former client would feel at a disadvantage. Questions put in cross-examination about personal matters, for example, would create the uneasy feeling that they had their genesis in the previous relationship. The answer is less clear with respect to the partners or associates in the firm. Some courts have applied the concept of imputed knowledge. This assumes that the knowledge of one member of the firm is the knowledge of all. If one lawyer cannot act, no member of the firm can act. This is a rule that has been applied by some law firms as their particular brand of ethics. While this is commendable and is to be encouraged, it is, in my opinion, an assumption which is unrealistic in the area of the mega-firm. Furthermore, if the presumption that the knowledge of one is the knowledge of all is to be applied, it must be applied with respect to both the former firm and the firm which the moving lawyer joins. Thus there is a conflict with respect to every matter handled by the old firm that has a substantial relationship with any matter handled by the new firm irrespective of whether the moving lawyer had any involvement with it. This is the 'overkill' which has drawn so much criticism in the United States to which I have referred above. Moreover, I am not convinced that a reasonable member of the public would necessarily conclude that confidences are likely to be disclosed in every case despite institutional efforts to prevent it. There is, however, a strong inference that lawyers who work together share confidences. In answering this question, the court should therefore draw the inference, unless satisfied on the basis of clear and convincing evidence, that all reasonable measures have been taken to ensure that no disclosure will occur by the 'tainted' lawyer to the member or members of the firm who are engaged against the former client." Ipp J in Mallesons emphasised the long accepted tenet of partnership law that the knowledge of one partner is to be imputed as the knowledge of the others, at p. 374. Cory Jin -- 35 of 53 -- 35 MacDonald Estate with whom Wilson J agreed would impose a stricter duty than that enunciated by Sopinka J, at pp. 271-2: "Neither the merger of law firms nor the mobility of lawyers can be permitted to adversely affect the public's confidence in the judicial system. At this time, when the work of the courts is having a very significant impact upon the lives and affairs of all Canadians, it is fundamentally important that justice not only be done, but appear to be done in the eyes of the public. My colleague stated that this appeal called for the balancing of three competing values, namely: the maintenance and integrity of our system of justice; the right of litigants not to be lightly deprived of their chosen counsel; and the desirability of permitting reasonable mobility in the legal profession. Of these factors, the most important and compelling is the preservation of the integrity of our system of justice. The necessity of selecting new counsel will certainly be inconvenient, unsettling and worrisome to clients. Reasonable mobility may well be important to lawyers. However, the integrity of the judicial system is of such fundamental importance to our country and, indeed, to all free and democratic societies that is must be the predominant consideration in any balancing of these three factors. Lawyers are an integral and vitally important part of our system of justice. Its they who prepare and put their clients' cases before courts and tribunals. In preparing for the hearing of a contentious matter, a client will often be required to reveal to the lawyer retained highly confidential information. The client's most secret devices and desires, the client's most frightening fears will often, of necessity, be revealed. The client must be secure in the knowledge that the lawyer will neither disclose nor take advantage of these revelations. Our judicial system could not operate if this were not the case. It cannot function properly if doubt or suspicion exists in the mind of the public that the confidential information disclosed by a client to a lawyer might be revealed. There can be no question that such a doubt would certainly be instilled if the public were to gather the perception that lawyers, by their actions, such as changing firms, create situations where the possibility of a conflict of interest exists." -- 36 of 53 -- 36 Some brief mention can be made of the United States' approach. Gummow J commented in Sentry that there was a real possibility that the law in Australia is no less stringent than that which Sentry submitted to be the law to be applied in that case in the New York proceedings. The approach of the American Courts is conveniently summarised by Sopinka J in MacDonald Estate v. Martin supra, at pp. 258-261. The Courts in the United States have generally adopted the "possibility of real mischief" test. Once it is established that there is a "substantial relationship" between the matter out of which the confidential information is said to arise and the matter at hand, there is an irrebuttable presumption that the lawyer has received relevant information and there is a presumption that knowledge within a firm is shared with other members of the firm. This latter presumption may be rebutted in some circumstances, such as the setting up of a "Chinese wall" or a "cone of Silence", see Analytica, Inc v. NPD Research Inc 708F. 2d 1263 (U.S.C.A. 7th Circ., 1983), Silver Chrysler Plymouth Inc v. Chrysler Motors Corp 518 F. 2d 7 51 (U.S.C.A. 2nd Circ., 1975); and "Developments in the Law - Conflicts of Interest in the Legal Profession" in (1981) 94 Harv. L.R. 1247. The New .Zealand courts have not had many occasions to consider this question. In Equiticorp Holdings Ltd v. Hawkins [1993] 2 N.Z.L.R. 737 Henry J preferred the approach of Ipp Jin Mallesons. At p.739 he said: " ... it seems to me that the appropriate first inquiry to make in the present case is whether there is, viewed objectively, a reasonable apprehension that material information confidential to the 16th defendants may be disclosed to the plaintiffs or their advisers. It is the existence of a reasonable -- 37 of 53 -- 37 possibility of disclosure, not its probability, which in my judgment should govern the inquiry. Anything less demanding would not, in my view, in today's conditions meet public expectation. If the answer is in the affirmative the second inquiry is whether on balance the risk of such disclosure outweighs the other two public interest factors. It must always still be important to determine and apply the particular factual situation, and then to form a final judgment as to where in the circumstances the overall public interest lies." Seminal articles have been written by Professor ( as his Honour then was) P Finn criticising the Rakusen test as untenable. See particularly "Conflicts of Interest and Professionals" in Professional Responsibility (N.2. Legal Research Foundation). His views have been widely quoted in the more recent Australian decisions and by Sopinka Jin the Canadian Supreme Court in MacDonald Estate v. Martin. There is now a strong policy in favour of ensuring not only that there not be actual conflict of interest when a solicitor acts against a former client but there be no appearance of conflict. That is not to say that a solicitor ought be restrained when "in theory" there could be a breach of confidence. That give too little weight to another public interest, namely, that a litigant ought not be deprived of its choice of lawyer without good cause. Therefore if there is "a real and sensible possibility" that in advancing the case of the present client a firm of solicitors might conflict with its duty to keep information conveyed by the former client confidential, then, subject to other discretionary matters, an injunction ought issue, Mallesons; Mendall Properties; Murray v. Macquarie Bank; Wan v. McDonald; Carindale Country Club. -- 38 of 53 -- 38 This recognises the need to protect community confidence in the legal profession to whose members clients may give their confidences comfortable in the knowledge that they are protected by legal professional privilege as well as recognising the other public interest in preserving the freedom to choose ones own lawyer. Notwithstanding the limits placed by Jefflane on the retainer there is in this case a real and sensible possibility that the Firm has placed itself in a position of conflict. The Risk of Disclosure Mr Harley was confident that the information and personality barriers (the so-called "Chinese walls" and "cones of silence") which he put in place in the firm ensured the security of the Farrow material. A "Chinese wall" involves effective "screening" to prevent communication between the tainted lawyer and other members of the firm. A "cone of silence" is achieved by means of a solemn undertaking not to disclose by the tainted solicitor. Those who have had access to confidential material from Farrow have offered undertakings in the following form: "I am prepared to undertake to this Honourable Court that I will not directly or indirectly act for or advise Jefflane or the other plaintiffs in action no. 1106 of 1991 [the Jeff lane action] against the defendants therein and that I will not use or disclose, directly or indirectly, to any person without the prior consent of the plaintiffs, [Farrow] any information which I have acquired in the course of or as a result of acting for the plaintiffs [Farrow] in any matter, except any information which I may have derived from reading judgments of decided cases, or other information which has been published and is available to the public generally." In oral evidence, no doubt recognising the inherent shortcomings in such an undertaking, undertakings were offered in a form dictated by the Court. Counsel for the Firm indicated that they -- 39 of 53 -- 39 had instructions from other deponents, not required for cross-examination, to give undertakings in a form proposed by the Court. The Firm no longer holds any relevant Farrow material. It is necessary to look at how the system operated in the past to see if information in the form of documentary information or personal contact, even if inadvertently, passed or might have passed to those doing the Jefflane work. The concept of Chinese walls within a firm, particularly within a large firm, has been the subject of adverse criticism in recent years: Mallesons at pp. 371-4; D & J Constructions at pp. 122-3; McDonald Estate v. Martin pp. 269-70; Finn; op. cit; Searles "Conflict of Interest - Chinese Walls or the Emperor's New Clothes" (1991) 22 Q.L.S.J. 61; and Gronow "Chinese Walls and Conflicts of Interest" (1993) 67 Law.Ins.J (Viet) 502. The focus has been upon unintentional and unavoidable breaches rather than want of integrity, but more significantly, upon the very nature of a partnership and its attributes which has tended to be overlooked in the very large firms. Mr Harley said that he instructed the people working in his section not to communicate information to staff and partners acting for Jefflane. He said that when the matter was first raised, he and Mr Perrett agreed that if anyone in the Firm doing work for Farrow attempted to talk to Mr Perrett about Farrow matters or the Jefflane action, Mr Perrett would not talk to them. He said that he instructed Mr Collins and Ms Forde that they should not discuss Farrow matters with anyone in Mr Perrett's section and that if anyone in that section raised the Jefflane matter they were to break off the conversation - the -- 40 of 53 -- 40 "cone of silence" protection. Those procedures may avoid obvious disclosure but it does not and rarely can adequately address inadvertent disclosure. Having said that and accepting as correct the trenchant criticism of the concept of information barriers within a firm, the nature of the confidential material in this case was not of a kind of which there was a real likelihood that it was or could have been passed between the people involved inadvertently. None of the people working on the Jefflane file were required for cross-examination and their assertion that they were unaware of the details of any instructions received by the Firm in the course of acting for Farrow has been accepted. Mr Perrett said that there was no system of administration in place within the Firm of which, without some special arrangement, another section would become aware. Not everyone whose name appeared in the summary of work in progress records relating to the Jefflane matter or who worked in Mr Harley's section gave affidavits, but no adverse inference is to be drawn from that. Numbers of them did the most trivial work such as delivering documents and others are no longer with the Firm. However, Mr Harley can recall speaking only to Ms L Forde and Mr Collins in his group. New people may not have received the warning. Both Mr Perrett's section and Mr Harley's section were located on the some floor at Santos House. Articled clerks moved from one section to another. The photocopying machine was used by both sections. The papers received from Madgwicks and Farrow were in a filing cabinet in Mr Harley's room to which access needed to do so. could be gained by those in his section who Mr Harley would give copies of relevant papers -- 41 of 53 -- 41 to Ms Forde who put them in her filing cabinet in her room. Mr Edwards, on at least one occasion, circulated a memo inviting interested persons in the section to consult a briefing paper from Madgwicks concerning, inter alia, illegality. Mr Charlston swore that he has never seen or had any knowledge of any instructions given to Mr Harley by or on behalf of Farrow or of any information acquired by Mr Harley in the course of acting for Farrow. Neither he nor Mr Perrett were required for cross-examination but it would only be in an unusual case that the former client would have knowledge sufficient to cross-examine on such assertions. Mr H Oriti was asked in December 1990 by Mr Charlston to give certain advice in respect of the illegality of the loan by Farrow to Jefflane. He was in the insolvency section of the Firm and subject to the supervision of Mr L Nash the partner in the Firm responsible for that section. That section did a number of Farrow matters but all of them were after judgment had been obtained. Mr Oriti said that whilst he received certain security documents from Farrow relevant to the files that he was handling he received no information of the type which was relevant to the Jeff lane defence. When he was asked for his advice on the illegality question Farrow had not then retained the Firm, and much of the information concerning the Jefflane loan, came from the pleadings and transcript of proceedings in the action against the Farrow directors which were received from the Victorian solicitors acting for the Farrow directors. Mr Edge appeared not to be familiar with this action. -- 42 of 53 -- 42 As I have said there was no suggestion that any of the solicitors or articled clerks involved or possibly involved were not persons of the upmost integrity who would not consciously discuss confidential matters. However it must be said that there were no careful safeguards apparently put in place by Mr Harley which would ensure that the documentary material received from Madgwicks of potential relevance to the Jefflane action could not possibly come to the attention of anyone in Mr Perrett's section. Perhaps the greatest concern is that Mr Perrett's section and Mr Harley's section were on the same floor. At the very least some physical separation ought to have been put in place. Although I accept that no breach of confidence has overtly occurred, and probably has not inadvertently (and this will be of relevance to the injunction), the arrangements were quite inadequate and showed no proper appreciation of the fiduciary obligations of the partners. The Injunction The final question is whether in view of the above findings any injunction ought to issue restraining the Firm from acting for Jefflane. Mr Edge said that he first began aware that the Firm was acting for Jefflane in December 1992. It is plain that the liquidator Mr Hodgson received the writ in the Jeff lane action under cover of a letter from Henderson Trout in June 1991. Mr Edge says he cannot recall seeing Henderson Trout correspondence in the matter but he did recall meeting with Mr G Wilson in June 1991 in Geelong about the loan when Mr Wilson threatened to institute litigation against Farrow. In a liquidator's memo dated "as at 17 July 1991" concerning the -- 43 of 53 -- 43 Jeff lane loan, the meeting between Mr Edge and Mr Wilson is noted and on p. 3 the following appears: "I have received copies of letters from Mr Kennedy [of Madgwicks] to Henderson Trout who are acting on behalf of Jeff lane Pty Ltd It appears from receiving copies of correspondence between Madgwicks and Henderson Trout ... " Certain action was recommended in that memo and it was signed off as approved by Mr Edge. In cross-examination he said that he received some 200-300 such documents a week in file reviews and at the time did not note Henderson Trout's name in that part of the memo or if he did it did not convey anything in particular to him. Mr Denis Coghlin, a file manager with Pyramid Building Society and employed by the liquidator, had the day-to-day management of the Jeff lane file. A bundle of correspondence between Farrow under his signature and Jefflane and/or the Firm as "Henderson Trout", "Henderson Trout in association with Clayton Utz" and finally "Clayton Utz", showed that Mr Coghlin was in no doubt that the Firm was acting for Jefflane. That file was moved to the Melbourne office at about the end of July 1991. Mr Edge did not merge the two departments, that is the Geelong and Melbourne recovery offices in Melbourne until March/April 1992 and that merger was not completed until November 1992 when Mr Edge says he first became aware that the Firm was acting for Jeff lane. Mr Edge visited Mr Harley in Brisbane several times towards the end of 1991 and in 1992. Mr Coghlin was aware almost from the beginning of the Jefflane litigation that the Firm also acted for Farrow in other litigious matters. A list was compiled in -- 44 of 53 -- 44 the latter half of 1992 in Mr Edge's office setting out actions involving Farrow, the solicitors acting for Farrow and the solicitors for each party. This was to enable the liquidator's office to identify instances where firms of solicitors were acting both for and against Farrow. It is clear that at that time there were a great many firms of solicitors doing Farrow work around Australia. There was some concern on the part of the liquidator with respect to the wide distribution of confidential material being sent to them. The liquidator had a firm policy that a firm could not act both for and against Farrow though when this policy became widely known within Farrow was a matter of some dispute. It is unnecessary to resolve that matter. Mr Edge said that until the list was compiled the liquidator relied upon "our advisers" to identify conflict situations. There were some 2,000 files under consideration and Mr Edge said that the opposite parties (and often more than one) frequently changed solicitors so that it was virtually impossible to keep a check on which solicitors were acting. In January 1993 Mr Edge and Ms Davies met with Mr Perrett in Brisbane about the Jefflane action and then spoke separately to Mr Harley expressing concern that the Firm was acting both for Jefflane and for Farrow in other illegality actions. Mr Edge told Mr Harley that the Firm ought not to be acting in opposition to Farrow and Mr Harley said that he would discuss the matter with some of his partners. Mr Harley wrote to Mr Edge on 3 February 1993 · proposing undertakings not to disclose to the Jefflane people Farrow's confidential material; returning all briefing papers on illegality to Farrow or Madgwicks; and -- 45 of 53 -- 45 proposing no further matters raising illegality be sent to the Firm pending the resolution of the Jefflane matter. Mr Harley indicated orally to Mr Edge that if those proposals were not satisfactory then the Firm would remain acting for Jeff lane. About a month after receipt of the letter Mr Edge replied orally to Mr Harley that the liquidator would not accept the proposals and removed all the Farrow files which might have involved the confidential material from the Firm, save the settling of interrogatories in the BDL action. In December 1992 Freehills had written to the Firm threatening to appoint a receiver to Jefflane. That firm acted for Farrow in the Jeff lane action. This was within days of Mr Edge raising with the Firm the double retainer. It was suggested by counsel for the Firm that this was an attempt by Farrow to get an advantage over Jeff lane by putting inappropriate pressure on its legal representatives to cease to act for it. This was denied by Mr Edge who explained that he had decided that the Jefflane litigation was travelling too slowly, that Farrow ought to have been receiving the income from the Police Barracks property and accordingly the appointment of a receiver was appropriate, and finally, that as a result of the management of the various portfolios he was able to identify for the first time that the Firm was acting against Farrow and had he acted promptly. Notwithstanding Mr Edge's evidence it is hard to resist the conclusion that there is something in this allegation but it is of little relevance to the outcome. In explaining the delay between the December 1992 telephone call, the January 1993 meeting with Mr Harley in Brisbane, Mr -- 46 of 53 -- 46 Harley's letter of 3 February 1993 and the issue of the writ in this matter in November 1993, Mr Edge said in his affidavit that he initially believed that he could protect the liquidator by removing the Firm from acting for the liquidator in the other contested litigation in Brisbane. In cross-examination he said that he initially believed at the time that that was all he could do, that he then proceeded to take legal advice and that his solicitors at Freehills were slow to give the advice that he could seek to restrain the Firm from continuing to act for Jefflane in its action against Farrow. Freehills, by its solicitor Ms F Kingham, wrote on 10 June 1993 requiring the Firm to withdraw as solicitors for Jefflane stating that: "We are instructed that your firm acts on behalf of our clients in a large number of actions involving similar issues as those involved in this case. Our clients are extremely concerned that your firm is in a position of conflict of interest and requires your firm to withdraw as solicitors for the Plaintiffs in this matter. Unless we receive your confirmation, by the close of business on Tuesday 15 June that your firm will be so withdrawing we are instructed to report the matter to the Law Society and to take action to have the firm removed as the solicitors for the Plaintiffs." As Mr Edge conceded in cross-examination the assertion that many files were held by the Firm dealing with the same or similar matters as those raised in the Jeff lane action was incorrect since the BDL file was the only action with the Firm which fell into that category (the Giannarelli defence did not raise the illegality until after these events by amendment). Mr Edge said that he received joint advice from Madgwicks and Freehills concerning Farrow's entitlement to have the Firm removed from acting for Jefflane. However Mr Edge did not tell Madgwicks of the conflict until, at the earliest, August 1993. Ms Davies -- 47 of 53 -- 47 continued to send material, including briefing papers, to Mr Harley after Mr Edge became aware of the conflict in November 1992. She sent papers on 24 December 1992 and continued to do so until August 1993. No embargo was placed upon the information that was to be sent to Mr Harley until that time. Ms Davies had accompanied Mr Edge to Brisbane and attended the meeting with Mr Harley on 19 January 1993 when the conflict issue was discussed. There would have been no difficulty in issuing that instruction at that time, or any other time before August. Ms Kingham was first told of the possibility of conflict in the Firm by Mr Edge in December 1992. Nothing more was mentioned to Freehills until March or May (she was unable without the file to be precise) when Mr Edge came to Brisbane to discuss it with her. Between then and 10 June, when the letter to which I have referred was written, demanding that the firm withdraw as Jefflane's solicitors in the action, Ms Kingham sought to ascertain the details of the relationship between Farrow and the firm from employees in the liquidator's office. She said that she gave advice to Mr Edge in about September. The writ was issued in November 1993. Between November 1992 and November 1993 the Firm continued to act for Jefflane and the guaranto~s. Mr Perrett has set out the work done ~or Jefflane in its litigation against Farrow. He swears that he has received from Jefflane and its directors extensive and detailed instructions as to the dealings with Farrow before the facility between Farrow and Jeff lane was entered into and subsequently. As a result of his investigations and research he has developed a considerable knowledge of the -- 48 of 53 -- 48 factual and legal issues in the Jefflane action. He has personally carried out inspection of documents discovered by the defendants. That process took over three days for a period of some hours on each day. He has obtained from the defendants copies of approximately 550 pages of those documents. He has also inspected each of the documents discovered by Farrow and a number of privileged documents. That process took him in excess of one week working full-time. In adcition he spent many days proofing witness on behalf of Jefflane. Mr Perrett swears that he has a thorough understanding of Jeff lane's documents and Farrow's discovered documents and is able to find his way quickly through them. He is of the view that much if not all of his work in relation to the documents and the witnesses would have to be duplicated by a new solicitor if the injunction were to issue. He estimates that the costs of such extra activity would be in terms of tens of thousands of dollars. Farrow has not sought to contradict those assertions in any way. There is no doubt that should the Firm be enjoined from acting for Jefflane it would result in a most significant costs' burden to Jefflane. Counsel for Jefflane described as "a severe psychological blow" that the solicitors of choice with whom Jefflane and the guarantors have had a long relationship would no longer be acting. Jefflane behaved with the utmost proprietary. As soon as the potential for conflict was raised Mr Wilson on their behalf drew the matter to Mr Charlston's attention. Jefflane and the guarantors would suffer significant prejudice should the injunction issue. That much must have been quite plain to Mr Edge from the moment of discovery of possible conflict -- 49 of 53 -- 49 particularly as he was involved from the earliest stages of the liquidation in the Jefflane negotiations recovery action. It has not been sought to be submitted for the Firm that Farrow in fact knew of the dual employment through Mr Coghlin, the Jefflane file manager from mid-1991. As I have found, it was the duty of the Firm to inform Farrow of the potential for conflict arising from the dual retainer which it failed to do. But once the position was realised by Mr Edge in November 1992 it was necessary to move without delay to minimise the clear prejudice to Jefflane. As soon as Mr Harley conveyed the Firm's decision to remain with Jefflane in February 1993 Farrow was in possession of sufficient facts to make an application for an injunction, as it threatened to do in the letter of 10 June. The evidence of Ms Kingham makes it clear that Farrow did not seek advice from Freehills before June 1993. Madgwicks was said to have given joint advice but no evidence was forthcoming that it did prior to June and indeed the continuation of the flow of information from Madgwicks to the Firm until mid-August 1993 suggests that no such advice was sought. The delay from then until September would appear to lie with Farrow. Its solicitors may have contributed in part to it, but Mr Edge was in a position to expedite matters had he given those instructions. This is not a case where the dilatoriness of solicitors, if indeed there was any, ought not to be visited upon the client. Hardship upon a third party not joined in the proceedings is a factor which may be taken into account in exercising the discretion whether to grant an injunction, Perrey v. Mordiesel [1976] V.R. 569 at 576; Sharp v. Harrison [1922] 1 Ch. 502. -- 50 of 53 -- 50 Where adequate undertakings are offered they will be accepted in lieu of an injunction if that can satisfactorily protect the plaintiffs' interests. Farrow submits that undertakings would be impossible for the Court to supervise and ought not be accepted. Criticism has been levelled at undertakings and affidavits offering not to breach the confidence imparted by a former client. In effect they say "trust me". Sopinka J concluded that this put the court in the invidious position of deciding which lawyers are to be trusted and which are not, MacDonald Estate v. Martin, supra at p. 270; Ipp J was of a similar mind in Mallesons, supra at p.372. A long period has elapsed between the Jefflane matter becoming litigious in 1991 and the hearing of this action. No instance of breach of confidence was revealed or suggested. The Farrow submissions are couched on the possibility of risk of breach rather than breach having occurred. In balancing the risk of disclosure with the prejudice to Jefflane I have come to the conclusion that in the circumstances the predominant interest lies in permitting the Firm to continue to act for Jefflane. Undertakings are appropriate to be given. Al though Jeff lane has relieved the Firm from the duty to put at its disposal all its knowledge Farrow is entitled to the comfort that such undertakings may bring. Ms Forde is no longer employed by the Firm. She had extensive access to relevant Farrow material and has offered her undertakings. It would not be usual to require undertakings from a person who has left the relevant firm and, in Ms Forde's case, I have no doubt that she was correct when she said that she never -- 51 of 53 -- 51 discussed her files outside professionally or socially. her own section whether An appropriate form of undertaking is as follows: • I [ each solicitor in the Firm who had knowledge of the Farrow work concerning illegality and/or capacity to fund]: • undertake that I will not directly or indirectly disclose to any person, without the prior consent of the plaintiffs herein, any information or knowledge acquired in the course of or as a result of acting for the plaintiff's herein; • undertake that I will not directly or indirectly act for or advise Jefflane Pty Ltd or the other plaintiffs in action No. 1106 of 1991 against the defendants therein. • I [ each solicitor in the Firm who acted for or who is employed on the Jefflane action, No. 1106 of 1991] undertake that I will not seek to obtain any information whatsoever from the partner, employed solicitors or other persons who acted for the plaintiffs herein. • I [Mr G. Harley or other appropriate partner] undertake to instruct all employees who had any part directly or indirectly in Farrow work concerning illegality and/ or capacity to fund not to disclose any information in relation to that work to any persons now acting in the Jefflane action. Costs Farrow has been unsuccessful ultimately in obtaining an injunction. It was however successful in establishing that no -- 52 of 53 -- 52 clearance was given and that confidential information was given to the Firm. The undertakings offered were inadequate in the sense that no proper recognition was accorded to the risk of inadvertent disclosure when discussing material in the public domain. An appropriate order might be that the Firm pay a percentage of Farrow's costs which should be in the vicinity of one half. I shall hear argument on costs. Jefflane's costs, it not being a party, are not a matter for this court. An order has already been made with respect to the confidential material. Orders Upon the defendant through its partners and employed solicitors and Leneene Veronica Forde giving undertakings in a form similar to that set out in these reasons, I dismiss the plaintiffs' action against the defendant. -- 53 of 53 --