[1998] PNGLR 232

PAPUA NEW GUINEA

[national court of justice]

AERATO SECURITY SERVICES PTY LTD

V

MOTOR VEHICLES INSURANCE (PNG) TRUST

waigani: sevua j
09 September and 10 December 1998

lawyers – Duty to client – Conflict of interest – Duty of confidentiality to client – Client, Workers Compensation, Insurer of the plaintiff – Not a party to the proceedings – Same lawyer acting for plaintiff worker’s insurer previously could not now act for defendant insurance company – Possibility of conflict of interest.

Facts

On 10th December, 1993 a PTC vehicle registration no. ZPT 948 collided with a vehicle owned by the plaintiff registration no. ALE 555 along Morea Tobo Road. As a result of that accident the driver of the plaintiff’s vehicle, Andrew Koma sustained injury to his legs. The American Home Assurance Company Limited (herein referred as "American Home Assurance Company"), was the insurer of the plaintiff company workers and settled the claim on behalf of the plaintiff.

On 14th October, 1998 Young and Williams Lawyers received instructions from the American Home Assurance Company to peruse documents relating to the above accident and advise the changes of recovering what they have paid to the injured person under Workers Compensation Act. On 15th October, 1996 Young and Williams wrote a letter to PTC on behalf of the American Home Assurance Company. On 16th December, 1998 Young and Williams Lawyers wrote to American Home Assurance Company and advised that since the above said PTC vehicle was insured with the defendant and they (Young and Williams) could not act for American Home Assurance Company.

The plaintiff now seeks an injunction to restrain the law firm of Young and Williams from acting for the defendant on the basis that it acted for the defendant previously and that there was a possibility of conflict of interest.

Held

1.	The common law position is, there is no general rule that a solicitor who had acted for some person either before or after litigation began could in a case act for the opposite side.

2.	There must be some degree or likelihood of mischief, i.e. confidential information given by the former client is being used to his detriment before the court interferes.

3.	Rakusen v Ellis, Munday & Clarke [1912] 1 Ch 831, [1911-13] All ER Rep 813, (CA) adopted and applied and Re A Firm of Solicitors [1992] 1 All ER 353 and Re A Firm of Solicitors [1995] 3 All ER 482 considered.

4.	The principle expounded in the case of Rakusen v Ellis, Munday & Clarke [1912] 1 Ch 831, [1911-13] All ER Rep 813, (CA) is adopted as part of the underlying law of Papua New Guinea pursuant to Schedule 2.2 of the Constitution and applied. Rakusen v Ellis, Munday & Clarke [1912] 1 Ch 831, [1911-13] All ER 813, (CA) applied.

5.	This principle can be distinguished from a situation where the same solicitor or firm acts simultaneously for two clients with opposing interests and the solicitor or firm is paid by each side to win. In such case there will be conflict between the interests of the two clients, thus a conflict of duty on the solicitor or firm.

6.	The American Home Assurance Limited is not a party to the present proceedings and its interests, whatever the interest it may be, is not subject of the current proceedings and therefore not subject to be in conflict.

Cases cited

Rakusen v Ellis, Munday & Clarke [1912] 1 Ch 831, [1911-13] All ER 813.
Re A Firm of Solicitors [1992] 1 All ER 353. 
Re A Firm of Solicitors [1995] 3 All ER 482.

Counsel

W Neil, for plaintiff.
G Lay, for defendant.

10 December 1998

Sevua J. The plaintiff sought an injunction to restrain the law firm of Young & Williams from acting for the defendant herein.

The facts are set out in the affidavit of Ms Royale Thompson sworn on 8th September 1998, and filed on behalf of the defendant, and the affidavit of Francesca Ignas, sworn on 9th June 1998, and filed on behalf of the plaintiff.

On 10th December 1993, a PTC vehicle registration ZPT 948 collided with a vehicle owned by the plaintiff, registration ALE 555, along Morea Tobo Road. One Andrew Koma drove the plaintiff’s vehicle. As a result of that collision, Mr Koma sustained an injury to his leg, for which the plaintiff had to pay K 12,281.50 by way of workers compensation. American Home Assurance Company Limited was the workers compensation insurers of the plaintiff, and settled the workers compensation on behalf of the plaintiff. The PTC vehicle was insured with the defendant.

On 3rd October, 1998, Young & Williams, received instructions from American Home Assurance Company Limited to peruse copies of claim documents and advise the latter of its chances of recovering what it had paid to Mr Koma in workers compensation. Apart from a correspondence from the plaintiff to the Workers Compensation Tribunal enclosing a cheque as payment of the award and letters from American Home Assurance Company Limited to PTC and the defendant, seeking reimbursement, all of the correspondence emanated from the office of the Workers Compensation Tribunal.

On 14th October 1998, Young & Williams wrote to American Home Assurance Company and offered some advices. On 15th October 1996, Young & Williams wrote to PTC demanding the reimbursement of the sum of K12,281.50 paid by American Home Assurance Company. On 16th December 1996, Young & Williams wrote to American Home Assurance Company and advised that, as it has been established that the PTC vehicle was insured with the defendant, they (Young & Williams) could not continue to act for American Home Assurance Company.

The plaintiff says that Young & Williams, having previously acted for American Home Assurance Company, could not now, act for the defendant due to a possible conflict of interest. As Mrs Ignas said in her affidavit, "Young & Williams by receiving instructions from American Home Assurance and subsequently advising American Home Assurance on the prospects of the current proceedings were able to assess the strengths and weaknesses of the plaintiff’s claim against the defendant. They now cannot continue to act for the defendant and defend the plaintiff’s claim as they initially acted for and advised American Home Assurance who are the plaintiff’s insurers" 

There are two matters that ought to be emphasised here before I discuss the issue and the law as presented by counsel. Firstly, Young & Williams have never acted for the plaintiff company. Secondly, American Home Assurance Company Limited is not a party to the present proceedings.

The issue raised in this application is one of ‘conflict of interest’. As alluded so, the plaintiff objects to Young & Williams acting for the defendant in this matter. I have not been referred to any local authority, however counsel for the defendant has referred me to two English authorities, which discuss the law on this issue. The cases are Re A Firm of Solicitors [1992] 1 All ER 353, and Re a Firm of Solicitors [1995] 3 All ER 482. However, I consider it necessary to discuss the principal case of Rakusen v Ellis, Munday & Clarke [1912] 1 Ch 831, [1911-13] All ER 813, (CA), because it sets out the law on this issue.

I think it is necessary to set out the facts of that case so as to understand the test that each of the members of the Court of Appeal established.

Messrs Samuel Rakusen and Hyman Rakusen were brothers, who carried on business as partners before February 1910. They sold the business to a company, S & H Rakusen Limited in March 1910. Mr Samuel Rauksen said he was appointed Sales Manager for the company. In June 1911, the company served him with a three-month’s termination notice. He then consulted Mr Munday, a partner in the defendant’s firm. Mr Rakusen consulted Mr Munday several times and gave him much confidential information in respect of the dispute between him and the company. In October 1911, Mr Rakusen changed his solicitors and commenced proceedings against the company, S & H Rakusen Limited, for wrongful dismissal. The dispute was referred to arbitration. While the arbitration was in progress, the defendant’s law firm was appointed solicitors for the company, S & H Rakusen Ltd. Mr Rakusen sought, and was granted an injunction by Warrington, J., restraining the defendant from acting for the company.

The firm of Ellis, Munday & Clarke consisted of only two partners, Mr J.H. Munday and Mr P. Clarke. The two partners conducted their business separately and without the knowledge of each other’s clients. Each partner was served, exclusively by some of his or her clerks. Mr Clarke had never seen Mr Rakusen till 11th March 1912, and he was away on vacation when Mr Rakusen consulted Mr Munday. Mr Clarke did not know about these consultations and he never saw any documents in respect of such consultations. Mr Rakusen alleged that it was improper for Ellis, Munday and Clarke to act for the company in the arbitration proceedings in view of the confidential information obtained from him while the firm acted for him and that he would be prejudiced in the proceedings.

Warrington, J. in granting the injunction held that the principle had been laid down, a solicitor, having once been employed to act for a man, should not act against him in the same matter.

On appeal to the Court of Appeal, the Court, in unanimously discharging the injunction, held that there was no general rule that a solicitor who had acted for some person either before or after the litigation began could in no case act for the opposite side; the Court must be satisfied in each case that mischief would result from him so acting; that there could be no danger of any breach of confidence if Clarke acted for the company.

In the present case, Mr Neil for the plaintiff, submitted that there is a conflict of interest in that, Young & Williams, having acted for American Home Assurance Company Ltd, cannot now, act for the defendant. Mr Lay for the defendant, in referring to the English common law in both the 1992 and 1995 cases of Re a Firm of Solicitors, submitted that there is no confidential information involved.

In Rakusen’s case, Cozens-Hardy MR said [1912] 1 Ch 831 at 834–835, [1911–13] All ER Rep 813 at 814 & 815 " …A Solicitor can be restrained as a matter of absolute obligation and as a general principle from disclosing any secrets which re confidentially reposed in him …. It is said that in addition to the absolute obligation not to disclose secrets there is a general principle that a solicitor who has acted in a particular matter, whether before or after litigation has commenced, cannot act for the opposite party under any circumstances; …I do not doubt for a moment that the circumstances may be such that a solicitor ought not to be allowed to put himself in such a position that, however nature being what it is, he cannot clear his mind from the information which he has confidentially obtained from his former client; but in my view we must treat each of these cases, not as a matter of form, not as a matter to be decided on the mere proof of a former acting for a client, but as a matter of substance, before we allow the special jurisdiction over solicitors to be invoked, we must be satisfied that real mischief and real prejudice will in all human probability result if the solicitor is allowed to act".

The Master of the Rolls was of the opinion that there was no substance in the plaintiff’s objection in that case, and found no prejudice and mischief, therefore no ground for granting the injunction.

Fletcher Moulton LJ, agreed with the Master of Roll that each case must depend on its own circumstances, but put the test somewhat differently. He said [1912] 1 Ch 831 at 841, [1911-13] All ER 831 at 818:

"As a general rule the Court will not interfere unless there be a case where 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 an he practical necessities of life, it ought to interfere and say that a solicitor shall not act …I see no reason whatever why Mr Clarke should not act for them, and I am satisfied that no mischief will come from it"

The third member of the Court, Buckley LJ, also put the test differently. He said [1912] 1 Ch 831 at 845 [1911–13] All ER 813 at 820:

"The whole basis of the jurisdiction to grant the injunction is that there exists, or I will add, may exist, or may be reasonably anticipated to exist, a danger of a breach of that which is a duty, an enforceable duty, namely, the duty not to communicate confidential information; but directly the existence or possible existence of any such danger is negatived, the whole basis and substructure of the possibility of injunction is gone. I think that the order ought to be discharged"

I note that all three members of the Court of Appeal in Rakusen’s case had referred to "confidential information" and "mischief" and the test that each of them formulated is based on the context of where the former client had provided relevant confidential information to the solicitor. The common law established by Rakusen’s case is therefore this, there is not general rule that a solicitor who had acted for some person either before or after a litigation began could in no case act for the opposite side. Before the Court interferes in such a case, there must be some degree or likelihood of mischief, ie, the confidential information given by the former client is being used for the benefit of the new client. This principle can be distinguished from a situation where the same solicitor or firm acts simultaneously for two clients with opposing interests and the solicitor or firm is paid by each side to win. There will be a conflict between the interests of the two clients, thus a conflict of duty on the solicitor or firm. In that scenario, there will be an absolute ban on the firm or solicitor.

In the present case, I accept the evidence of the defendant. Most of the correspondence was public domain. They did not originate from American Home Assurance Company to Young & Williams. The only correspondence from American Home Assurance Company to Young & Williams is the letter dated 3rd October 1996, in which American Home Assurance Company enclosed copies of correspondence between it and other organisations including PTC, Office of Workers Compensation and MVIT. The plaintiff has not shown which of these correspondence or document contain confidential information. And I do not think any of these documents are secret or contain confidential information.

It is my view that, in such an application, the basis of the Court’s intervention can only be, to protect any confidential information imparted by a client to a lawyer. If there were any mischief or likelihood of mischief in the lawyer revealing such confidential information then an injunction would be appropriate. In the present case, I consider that there is no basis for granting the injunction sought by the plaintiff.

I reiterate that American Home Assurance Company Limited is not a party to the present proceedings. It’s interest whatever it may be, is not the subject of the current proceedings. It is therefore a misconception, in my view, to say that, Young & Williams, cannot act for the defendant in this case because it had previously acted for American Home Assurance Company. What is the confidential information that American Home Assurance imparted to Young & Williams that Young & Williams will use to the disadvantage or detriment of American Home Assurance? In my view, there is none, and as I have alluded to, American Home Assurance is not a party to these proceedings therefore the plaintiff’s application is misconceived.

Pursuant to Constitution, Schedule 2.2, I accept the principle expounded in Rakusen’s case as part of the underlying law of Papua New Guinea.

I would therefore refuse the plaintiff’s application for these reasons. I order that the plaintiff’s application be dismissed with costs.

Lawyer for plaintiff: Blake Dawson Waldron.
Lawyer for defendant: Young & William.