Proctor : July 2019
44 PROCTOR | July 2019 Successive representation BY STAFFORD SHEPHERD The duty to protect confidences versus the duty to disclose What if: Blackstone Legal (Blackstone) was retained by Molloy Finance (Molloy) to provide advice in the areas of corporate and securities law. Molloy is in the business of providing financing to certain types of business ventures. During the engagement, Blackstone learned from Molloy that it intentionally failed to disclose the existence of a certain debt on a prospectus filed with the Australian Securities and Exchange Commission. The prospectus had been prepared in the course of a public offering of Molloy’s stock. Blackstone had no involvement in preparing the prospectus. The omitted debt was material and the omission is fraudulent. Blackstone advised Molloy to rectify the concealment but Molloy refused to do so. Blackstone terminated its retainer with Molloy. MacKintosh Property Projects Ltd (MacKintosh) has been a client of Blackstone for many years and has received various legal services. Some months after Blackstone withdraws from representing Molloy, MacKintosh informs Blackstone that it received from Molloy a proposal for the financing of one of Mackintosh’s projects and wants Blackstone to advise as to the proposal. Consider: 1. Can Blackstone represent MacKintosh in the proposed transaction with Molloy? 2. Can, or must, Blackstone disclose to MacKintosh the fact of Molloy’s admitted fraud? 3. Can Blackstone represent MacKintosh in transactions that do not involve Molloy? Rule 9 ASCR Rule 9 of the Australian Solicitors Conduct Rules 2012 (ASCR) states that “a solicitor must not disclose any information which is confidential to a client and acquired by the solicitor during the client’s engagement”, except to persons specified in rules 9.1 .1 and 9.1.2, or falling within the permitted exceptions in rule 9.2. The rule is quite broad. It does not permit disclosure of information which is confidential and acquired during the client’s engagement. As Dal Pont notes, “[the] rule premise[s] the obligation of confidence not upon the source of the information but in its connection with the [engagement], effectively deeming that information confidential”. 1 The information must have the character of being ‘confidential’ to a client. The rationale behind the rule is to encourage clients to be open and frank with us, so as Lee J said in Fruehauf Finance Corporation Pty Ltd v Feez Ruthning, a client need not fear being prejudiced by its subsequent disclosure. 2 Millet LJ in Mortgage Express Ltd v Bowerman Partners has said that “all information supplied by a client to his solicitor is confidential”. 3A contract of engagement between a client and a solicitor will usually include an implied term obliging the solicitor to keep his/her client’s affairs secret and not to disclose them without just cause: Parry-Jones v Law Society.4 The duty of confidence does not end with the termination of the engagement. Blackstone, during its engagement with Molloy, became aware of Molloy’s past fraudulent behaviour. This information is confidential. In the United States, a client’s prior commission of a crime is a confidence that an attorney may not disclose: People v Singh.5 In general, we will not be in a position to reveal Molloy’s confidence, unless permitted by rule 9.2. The exception provided by rules 9.2.4 and 9.2 .5 are not mandatory but are discretionary. Rule 9.2.4 refers to disclosure for “the sole purpose of avoiding the probable commission of a serious criminal offence”; while rule 9.2 .5 refers to “preventing imminent serious physical harm to the client or to another person”. Neither of these exceptions appears to be applicable. It does not appear that Molloy is about to commit a serious criminal offence (defined in the Glossary of Terms of the ASCR), nor could it be suggested that disclosure would prevent imminent serious physical harm. Rule 10 ASCR If Blackstone sought to represent MacKintosh in a transaction with Molloy, this raises a number of issues. Molloy is a former client (it is an entity that has previously instructed the firm – see the definition of ‘former client’ in the Glossary of Terms of the ASCR). A solicitor or law practice must avoid conflicts between the duties owed to current and former clients (rule 10.1). Rule 10.2 will permit successive representation, only if: • the law practice does not have possession of confidential information of a former client • that information is not reasonably concluded to be material to the matter of the prospective client, and • would not be detrimental to the interests of the former client. Here, if Blackstone was to represent MacKintosh in connection with Molloy’s proposal to finance MacKintosh, then Blackstone’s engagement could be said to be adverse to its former client, Molloy, because: • the fraudulent deception is confidential information • it would be material to the matter of MacKintosh’s involvement in the transaction, and • would be detrimental to Molloy if disclosed. The law practice must be in possession of confidential information – that is, information that could be used against the former client in the later representation. The information could be said to be material if it is information that could have relevance to the proposal and would tempt us to reveal or use it in circumstances where we shouldn’t. We should not accept an engagement with a prospective client where we cannot provide the fidelity and confidence such an engagement would require. Thus, confidential information will be material for purposes of rule 10.2, if it is information that we would be obliged to impart to our client if we were not subject to our duty of confidentiality. In this case study, the information is material as it would impact upon whether the client would undertake the transaction. It would also be ‘material’ if there is a likelihood that a client would think it is important with respect to activities connected to the representation and we would be obliged to disclose the information but for the duty of confidentiality.