Does Bolkiah apply outside of former client cases?

May 26, 2020

By Joel Finnan

Glencairn IP Holdings Limited, Glencairn Crystal Studio Limited v Product Specialities Inc (t/a Final Touch), Jeray (Sales) Limited (t/a Original Products)

Court of Appeal (Civil Division) [2020] EWCA Civ 609, 2020 WL 02199044

Judges: David Richards LJ, Flaux LJ, Arnold LJ

Introduction

At first instance, the Appellants sought an injunction to restrain the Respondents’ solicitors from acting for the Respondents, where those solicitors had acted against the Appellants in similar litigation.

The key issue for which the Court of Appeal provided useful guidance was whether, and in what circumstances, a firm of solicitors can be restrained from acting for a defendant where, in similar and earlier litigation, the same firm has acted for another defendant against the same claimant, in circumstances where that earlier litigation had been settled through a mediation and/or confidential settlement.

In doing so the Court examined a number of related scenarios in order to give guidance as to the test and criteria to be applied.  The Judgment is essential reading for firms considering acting, or presently acting, in matters where there is a perceived risk of disclosing confidential information obtained in other, but similar, litigation.

Background

The First Appellant held IP rights used by the Second Appellant in the course of its business and are together simply referred to as the Appellants.  The Appellants had formerly, in September 2018, brought an action against a third-party company (‘the third party’) not involved in the instant litigation in respect of an alleged infringement of a UK Registered Design for a whisky glass.  The third-party company was represented by a firm called Virtuoso.

In September 2018, the Appellants also became aware of another whisky glass that, in their view, infringed their IP rights.  The manufacturer of the offending product was the First Respondent, an Ontario based company.  The importer and seller of the products was the Second Respondent.  The Respondents also appointed Virtuoso to represent them.

In November 2018, the Appellants issued the claim partially underlying the instant appeal.  At around the same time, the Appellants and the third party mediated, and whilst the mediation did not conclude settlement, the third-party action was in fact later settled by Tomlin Order.  By the time of the mediation, Virtuoso had formed the view that the team working on the third-party litigation would be unable to be involved in the present litigation.  As a result, they implemented a ‘Chinese wall’ within the firm, which was erected on the day of the mediation.

The Appellants ultimately had cause to concern that the Chinese wall was inadequate, and their solicitors invited Virtuoso to cease to act for the Respondents, which was declined.  The Appellants’ main concern was that Virtuoso had become aware of information disclosed by them leading up to, during, and after the mediation, such that there was a risk of confidential information being disclosed to the Respondents in the present litigation giving them an unfair advantage.

First Instance

His Honour Judge Hacon summarised, then considered and applied, the principles established in Prince Jefri Bolkiah v KPMG [1999] 2 AC 222, which was the authority on potential conflicts of interest for professional advisers acting for different parties.

The Judge went on to consider a number of cases within the jurisdiction and Commonwealth with similar facts, and from them distilled at least two broad scenarios that a given matter may fall in.

• ‘The first consists of actions like Bolkiah in which a former client seeks to restrain a solicitor (or equivalent professional advisor) from acting for a party with an interest adverse to the former client. In these circumstances there is a continuing fiduciary duty owed by the solicitor to the former client and a risk of disclosure of information which is both confidential to the former client and privileged’.

• ‘In the second class, information confidential to a party has come into the possession of solicitors who are acting for another party with an adverse interest to the first party. The solicitors have never acted for the first party and therefore owe him no fiduciary duty’.

A third category was considered, but the Judge was reluctant to apply more than an abstract ambit to this class.  In effect, this class comprised of factual scenarios falling somewhere between the first and second classes.  It was commented that ‘…it may be that the simpler and more accurate point is that each case must turn on its facts and the proportionate approach to granting relief is liable to vary accordingly’.

Forming that view, the Judge partially applied Bolkiah on the basis that the instant facts fell between classes 1 and 2. The application was dismissed on application of the facts to the test.

Grounds of Appeal

The grounds of appeal were summarised at [35] as follows:

• The Judge erred in not applying the Bolkiah test to the present situation, and had he done so, he would inevitably have concluded that the Appellants were entitled to the order sought;
• Even if the Court concludes that the Judge applied the correct test, his conclusion applying his own test that the balance of justice was in favour of dismissing the application was unsustainable and made several errors of law and fact, so that it should be reversed.

Decision

The Court of Appeal held that there was a crucial distinction to be drawn between a solicitor who had formerly acted against an applicant (described as the ‘former opponent’ case) and a solicitor who was formerly acting for the applicant (described as the ‘former client’ case).

The distinction was considered essential because in the case of a former client, the solicitor has come into any confidential information in the context of a fiduciary relationship of trust and confidence.  This places the relationship at one end of the spectrum, where the former client’s protection is of utmost importance.

The other end of the spectrum was held to be the ‘no relationship’ case, where the solicitor has not acted for or against an applicant in prior litigation but has come into possession of privileged information of the applicant’s. These situations normally occur in accidental disclosure.  Whereas in the ‘former client’ case, an analysis of prior decisions demonstrated a willingness from the Court to grant an injunction preventing the solicitor from acting, in other cases of no, or limited, relationships, the Court has tended to favour more limited injunctions preventing use of the confidential information.

Importantly, in the ‘no relationship’ cases, prior decisions had not favoured applying the Bolkiah jurisdiction.  Instead, the burden was on the applicant to demonstrate that there is a ‘real risk of prejudice to him from the other party’s solicitor having had access to confidential or privileged information’.

The facts in the instant appeal therefore fell somewhere between the two, as the confidential information complained of had allegedly fell into the Respondents’ solicitors’ hands by virtue of disclosures made in the context of mediation and settlement.

It was specifically rejected that in the ‘former opponent’ case the disclosee was drawn into a true fiduciary relationship.  Whilst they may fall under a contractual or equitable duty of confidence to the disclosor, such obviously differs.  As such, the Bolkiah jurisdiction ‘should be limited to cases where there is or was a true fiduciary relationship’ (e.g., the ‘former client’ case).

The appeal from first instance was dismissed on the first ground for the reasons aforementioned.  The second ground was dismissed in that the first instance Judge did not err in the exercise of his discretion.

Comment

The present scenario is an unlikely one, but the decision is nonetheless likely to be welcome to practitioners seeking clarity on the extent of their obligations.  It also provides helpful reading for best practice where intra-firm measures are taken to protect information with Chinese Walls and separating teams.  Whilst ultimately the measures proved adequate in the present Appeal, it is not unforeseeable that in different circumstances a firm complained of might find itself in difficulty and unable to properly act.

Summary

• The Bolkiah jurisdiction ought only to apply to true fiduciary relationships.
• A scenario where a lawyer comes into contact with the other party’s confidential information does not create a true fiduciary relationship.
• In non-Bolkiah cases, the burden is on the applicant to show that a ‘real risk of prejudice’ exists to him from the other party’s solicitor having had access to confidential or privileged information.
• If so satisfied, the Court must undertake a balancing exercise as to whether an injunction restraining the solicitor from acting should be granted, or whether less onerous relief would be more appropriate.

Joel Finnan practises in commercial and insolvency law.