What’s a fiduciary duty got to do with it? Lawyers, successive parties, and confidentiality

Following a recent guest post on Singaporean developments in the law of confidence, this Kat is now turning to a similar scenario considered by the Court of Appeal (England & Wales). In Glencairn v Final Touch [2020] EWCA Civ 609, the Court upheld the decision of the Intellectual Property Enterprise Court to refuse to find the existence of a true fiduciary duty between a solicitor and an opposing party in circumstances where the firm acted for separate successive parties against that same opponent.

Background

The underlying facts concerned disputes over whisk(e)y glasses between Glencairn and two separate defendants. Glencairn launched the first set of proceedings against Dartington Crystal in September 2018, shortly followed by issuing a letter before action against Final Touch in the same month. The former concerned alleged infringement of a registered design; the latter, a variety of claims including infringement of a registered design, EU trade mark infringement, and passing off. In November 2018, Glencairn issued the claim form against Final Touch. 

In December 2018, Glencairn engaged in confidential mediation with Dartington, by which point the law firm representing the defendants decided to set up an information barrier between its teams working on the Dartington and Final Touch matters. The three solicitors participating in the mediation on Dartington’s behalf, none of whom went on to act for Final Touch, all signed a confidentiality agreement. The barrier included measures such as maintaining separate teams, one in Leeds and the other in London, and encrypting electronic files.

Glencairn and Dartington subsequently reached a settlement dated 8 January 2019, which included a confidentiality clause binding on the parties, though not their respective solicitors. Glencairn’s solicitors asked the law firm to stop acting for Final Touch in February 2019 and in March 2019 applied for injunctive relief given their refusal to do so. It contended that Final Touch could gain an advantage if they became aware of confidential information which might have arisen in the course of the Dartington negotiations.

The (supposed) test

The leading case on professional advisors’ potential conflict of interest is Bolkiah v KPMG [1999] 2 AC 222¸where professional advisors (in an analogous position to solicitors) formerly acted for an applicant who then wished to restrain them from acting for its opponent. The restraint depends on the application of a two-stage test: (1) the solicitor holds relevant information which may be adverse to the former client’s interests in the new proceedings, and (2) there is a real risk that it will be applied. 

At the first stage, it is the former client who must establish that their former solicitor holds such information; at the second, the solicitor must demonstrate that there is no real risk of disclosure. Lord Millett identified a number of elements which could comprise a sufficient information barrier (or Chinese Wall) within a firm, down to the detail of seating solicitors separately at lunchtime, as well as holding an educational programme and ensuring adequate sanctions for breach.

Application

At first instance, Hacon HHJ recognised the crucial distinction that the law firm in question had never acted for Glencairn. Consequently, could the Bolkiah principles still apply?

He considered a number of cases from England & Wales and the Commonwealth, separating them into three classes: (1) Bolkiah, or ‘former client’ cases, at [35], (2) where confidential information to one party has simply come into the possession of solicitors who act for an opposing party, like Stiedl, where the relief only went as far as to restrain the solicitor from using the confidential information, and (3) an intermediate class between the first two, where the present case would fall. As useful as classification may be, he nevertheless considered that each case should be considered on its merits according to a proportionate balancing exercise.

While Lord Millett in Bolkiah had explicitly stated that the assessment should not be a balancing exercise, this depended on there being a fiduciary duty owed by a solicitor to a former client to prioritise his interests. Without such a relationship involved, Hacon HHJ moved to consider what the balance of justice would require. On the law firm’s evidence, unchallenged by Glencairn, nothing of relevance reached the Final Touch team from the Dartington team. Glencairn nevertheless argued that the arrangements were too ad hoc. While it might suffer prejudice if there were a leak, so would Final Touch in having to find new solicitors and establish a working relationship. Because Hacon HHJ characterised the risk of significant prejudice to Glencairn occurring as “extremely unlikely, to the point of being fanciful,” the balancing exercise favoured Final Touch. 

Appeal

Glencairn’s two grounds of appeal sought (1) the application of the Bolkiah test, or (2) even if the correct test had been applied, a reversal of the first instance findings. It wanted to expand the application of Bolkiah beyond a fiduciary relationship between a firm and its former client, to a duty to uphold confidentiality in a situation where without prejudice privilege applied. It also objected to the adoption of Laddie J’s rather functional approach from Robson Rhodes to effective information barriers (“what matters is whether it works,” at [56]) and its application on the facts to Virtuoso’s allegedly ineffective arrangements.

Flaux J, presenting the unanimous decision of the Court of Appeal, rejected Glencairn’s submissions. Following Lord Millett’s explanation in Bolkiah, the strict duty of confidence in a former client case (even after termination of the retainer) arises because the solicitor obtained the information in the course of the fiduciary relationship in the first place. Otherwise, the general law of confidentiality applies instead of any special shift in the burden of proof. A solicitor in those circumstances would be restrained from using the confidential information, not from acting at all. As Virtuoso had not been a party to the confidentiality clause of the Settlement Agreement, the document which held the most potentially relevant information, its solicitors could only be described at most as coming under an equitable duty of confidence.

While it can be tempting to draw many different kinds of relationship under the umbrella of ‘fiduciary duties’, this does not make the nature or scope of the duties owed in each individual circumstance identical. Even if the law firm’s Dartington team did owe a relationship to which the label ‘fiduciary’ might be applied, this would not mean that the full force of the Bolkiah jurisdiction should follow.

As a result, the Court of Appeal confirmed the first instance approach to the (non-)application of the Bolkiah test and substitution of a balancing exercise taking account of potential prejudice to both parties’ interests. Not only would it be reluctant to displace first instance findings of facts, but logically the full Bolkiah information barrier requirements would not apply in the absence of the underlying jurisdiction. Therefore, the judge at first instance was entitled to rely on the unchallenged evidence from Final Touch that the information barrier – even without comprising all of Lord Millett’s stringent elements – did work in practice.

The Court of Appeal’s affirmation that the special Bolkiah jurisdiction would not extend to these circumstances marks both a welcome confirmation of the legal position in England & Wales, and an interesting contrast to the most recent Singaporean shift to a prima facie presumption of breach once the first two limbs of the Coco test are satisfied.