FEATURE


This article discusses the recent High Court decision in Vorobiev Nikolay v Lush John Frederick Peters [2010] SGHC 290 and considers whether the Canadian jurisprudence provides a more nuanced test on when matters are “related” in former client conflicts.

 

Acting Against a Former Client – When are Matters Not “Related”?



Introduction

 

Almost a century ago, the English Court of Appeal established in Rakusen v Ellis, Munday & Clarke (“Rakusen”) that a solicitor would not be prohibited from acting against a former client in the same matter unless the Court was “satisfied  … that mischief would result from his so acting”.1 In the plethora of English cases following Rakusen, the English Courts affirmed that the protection of confidential information was the touchstone of judicial intervention in former client conflicts. The Singapore Courts, too, appeared to espouse the English approach in two decisions in the early 1990s.2

 

The recent High Court decision of Vorobiev Nikolay v Lush John Frederick Peters3 (“Vorobiev Nikolay”) has, however, opened a new chapter by holding that r 31 of the Legal Profession (Professional Conduct) Rules (“PCR”), which was enacted on 1 June 1998, had superseded the common law rule. Significantly, the High Court observed that the new touchstone of judicial intervention extended beyond the protection of confidential information in view of the “larger public interest  … and that is the solicitor-client relationship of trust and public confidence in the integrity of the legal profession”.4 Applying the new touchstone, the Court held that two matters could be “related” under r 31 even if the solicitor did not receive confidential information relevant to the subsequent matter.

 

This article discusses the High Court’s enunciation in Vorobiev Nikolay of the “related” matter test under r 31 and considers whether the Canadian jurisprudence offers a more nuanced test and a better fit with Singapore legal practice in justifying the extension of judicial intervention in former client conflicts where the protection of confidential information is not in issue.

 

Facts and Holding in Vorobiev Nikolay

 

The Vorobiev Nikolay case arose from a number of corporate retainers involving an arrangement amongst several parties to own shares in a company known as Petroval Pte Ltd (“PPL”). Between December 2005 and July 2006, the defendants had engaged a Singapore law practice (“the Practice”) to advise them on this arrangement. They had apparently intended to own a certain proportion of the shares in PPL through a company called Everon which was supposed to hold these shares through another company called Stainby. The Practice was engaged to advise the defendants on their shareholders’ dispute with Everon and negotiations with Everon on the terms of the purchase of Everon’s shares in Stainby. These retainers were ultimately resolved by the defendants buying Everon’s shares held in Stainby. The Practice also advised the defendants on certain shareholders’ loan arrangements made by the defendants and the plaintiff to Stainby, and then from Stainby to PPL, in June 2006.

 

 

In or about 2009, the plaintiff engaged the Practice to sue the defendants for their fraudulent misrepresentations made to induce him into entering an agreement in 2006 to purchase  20 per cent of the shares in Stainby, which were, inter alia, that the defendants were ultimate beneficial owners of the PPL shares and that the plaintiff’s purchase price for the PPL shares was based on the amount paid by the defendants to Everon for its beneficial shareholding in PPL. The plaintiff claimed that in fact, the defendants’ shares in Stainby were held on trust for another company and the defendants did not have to pay Everon for Everon’s shares held in Stainby. As a result of the alleged misrepresentations, the plaintiff claimed damages for losses suffered for the purchase of the 20 per cent stake in PPL and for the shareholder loans made.

 

Subsequently, the defendants applied to the High Court for an injunction to restrain the Practice from acting for the plaintiff based on r 31(1) PCR, which prohibited a solicitor from acting against a former client in a subsequent matter if he had acted for the latter in a matter which was the same as or related to the subsequent matter. The defendants alleged that the Practice had acted in matters which were the same as or related to the suit. The plaintiff applied for the application to be struck out.

 

After considering the ethical rules in the United Kingdom and the United States, the High Court interpreted r 31(1) to mean that two matters would be “related” if they involved “the same asset or liability” or “the same transaction or legal dispute”,5 which coincided with the public interest rationale behind r 31 as observed by the Court of Three Judges in Law Society of Singapore v Seah Li Ming Edwin.6

 

The High Court found that the previous corporate retainers and the suit were “obviously related” matters under r 31(1), “given that the previous retainers dealt with the shareholders loan and price of Everon shares, the very matters which [were] the subject of dispute in this suit”.7 Moreover, the Practice had conceded at the hearing before the Court that the matters were “related” “to the extent that the previous retainers pertained to matters the subject of the present litigation even though there was no confidential information at risk”.8 The Court also held that the entire Practice was disqualified by virtue of r 31(2) which imputed the personal disqualification of the Practice’s solicitors handling the previous corporate retainers to all the solicitors in the Practice, irrespective of whether the latter solicitors were personally involved in the previous retainers.9 Accordingly, the Court granted the defendants’ application.

 

Commentary

           

Three interesting questions arise from the High Court’s decision in Vorobiev Nikolay, which have important practical ramifications for practitioners.

 

1. If Two Matters are “Related” Under r 31 by Virtue of the Same Subject Matter, When is a Matter the “Same” As a Previous One?

 

A clear distinction between “same” and “related” matters under r 31 is necessary as it would be inefficient for parties to enter into a protracted argument on whether matters are “related” when they are in fact the “same”. In Vorobiev Nikolay, the High Court noted the guidance given by the Ethics Committee of the Law Society of Singapore that the matters may be the “same” because of “an identity or overlap of parties, legal or factual issues or subject-matter”.10 

               

Although the High Court did not expressly explain why it preferred to treat the previous retainers and the suit as “related” but not the “same” when they involved the same subject-matter, one reason may be that the Court considered that the legal advice given in both the corporate and litigation retainers involved different rights and remedies. In two of the corporate retainers, the Practice had been engaged to advise the defendants on their rights and remedies relating to the ownership of the PPL shares through the Everon deal, and not those vis-à-vis the plaintiff’s purchase of 20 per cent of the shares in Stainby. Likewise, in the other corporate retainer, there did not appear to be any dispute between the defendants and the plaintiff on the purchase of the shares which led to the loan arrangement or the loan arrangement itself.

 

In contrast, the plaintiff’s suit focused exclusively on the rights and remedies arising from his purchase of the Stainby shares, which he claimed was a result of the defendants’ fraudulent misrepresentations. Therefore, while there was an overlap of subject matter in the two matters, they were not the “same” matters because the advice given by the Practice on the respective rights and remedies of the parties differed for each retainer.

               

However, where the legal advice given in the respective corporate and litigation retainers concerns the same subject matter and the same rights and remedies, the two matters are likely to be the “same”, as recent Canadian jurisprudence suggests. In Consulate Ventures Inc. v Amico Contracting & Engineering (1992) Inc., Windsor Factory Outlet Mall Ltd,11 (“Consulate Ventures”) the solicitor had, in 1999, advised the client on a dispute with the developers of an outlet mall following the termination by the latter of the client’s services. The solicitor had met and advised the client for about two hours and subsequently had no recollection of or other involvement in the matter until 11 years later in 2010, where he was retained by the mall to act in an appeal from a judgment arising from the same dispute.

               

Notwithstanding the substantial passage of time, the Court of Appeal of Ontario granted the order to remove the solicitor and his firm from acting for the mall. The Court rejected the solicitor’s argument that the “matter” could not be “characterized generically as the dispute arising out of the outlet mall development” because the issues that the mall intended to raise on appeal were “relatively narrow … relating to the [former client’s] expert evidence of valuation and the trial judge’s refusal to admit evidence of valuation from the [mall’s] expert”.12 The Court held that such a characterization would create “practical problems” as “the scope of any appeal [was] not defined exclusively by the appellant much less by the appellant’s grounds of appeal”, but was also shaped by the respondent and the Court.13 An “exhaustively predetermined” scope of appeal would not only fail to achieve the “prophylactic purpose of the conflict rule”, but also “unduly” favour the lawyer at the former client’s expense.14 Applying a “functional approach … from a reasonable client’s perspective”, the Court held that the two retainers involved the same subject matter, “albeit viewed from the perspective of two very different stages of the legal process”, because the client’s rights and remedies arising out of his dispute with the developers were the subject of both retainers.15 

               

Practitioners should also be mindful that the characterization of the corporate and litigation retainers in Consulate Ventures as a single “matter” coincides with the guidance given in the Law Society of Singapore’s Guide to Professional Conduct for Advocates and Solicitors (“Guide”)16 on the meaning of the word “matter” in r 31 as follows:

 

The word “matter” in Rule 31 does not mean a particular law suit or set of formal legal proceedings. Instead, “matter” is sufficiently wide to cover the subject-matter on which [a solicitor], or another solicitor in [the law practice], acted for [the client] or his associates whether or not it is contentious, and whether or not it comprised formal legal proceedings at the time of acting or only subsequently. In these circumstances, it is irrelevant that [the solicitor] does not acquire or hold, or does not recollect, any information of [the client] which was and remains confidential.17 

 

2. Where Confidential Information is Not At Risk, are Matters Always “Related” Under r 31 If They Involve the Same Asset, Liability, Transaction Or Legal Dispute?

 

Where the matters involve the same asset, liability, transaction or legal dispute, the identical feature(s) should only offer a starting point in deciding whether the matters are indeed “related” and should not be conclusive, especially when the solicitor did not receive confidential information relevant to the subsequent matter. There are two reasons for this view. Firstly, the contexts in which the UK and US ethical rules (that the High Court relied on in interpreting the term “related” under r 31) operate do not suggest that identical features in both matters are determinative of whether they are “related”. Secondly, where confidential information is not at risk of being disclosed or misused, it is desirable to interpret the term “related” in r 31 more narrowly.

 

Contexts of the UK and US ethical rules

 

In Vorobiev Nikolay, the High Court noted that r 3.01(2) of the UK Solicitors’ Code of Conduct 2007 (“UK Code”), unlike r 31, limited “the prohibition against solicitors acting in “related” matters to instances where there would be a conflict of interest, or risk of it”.18 Rule 3.01(3) defined a “related” matter to “always include any other matter which involves the same asset or liability”.

 

But Rule 3.01 was a rule governing concurrent client conflicts which naturally entails a far higher level of fiduciary obligation to the current client than would be expected for former clients. This is supported by para 3 of the Guidance to Rule 3.01 in the UK Code which gives the example of a solicitor acting for “one client which is negotiating with publishers for the publication of a novel” and he receives another “instruction from another client alleging that the novel is plagiarised and breaches copyright, [which] would be a related matter.”19 The rule that governs former client conflicts in the UK Code is found in r 4.03, which does not rely on the concept of relationship between the matters, but rather on the materiality of the confidential information and the existence of an “adverse interest” between the former and current clients.20 

 

This is not to say that matters involving the same asset or liability are irrelevant to determining whether they are “related” under r 31. Quite the opposite, they are, on a commonsense view, relevant but it is necessary not to stop the analysis at this stage. In this regard, para 4 of the Guidance to Rule 3.01 in the UK Code provides useful guidance:

 

However, there would need to be some reasonable degree of relationship for a conflict to arise. If you act for a company on a dispute with a garage about the cost of repairs to a company car, your firm would not be prevented from acting for a potential bidder for the company, even though the car is a minor asset of the company and would be included in the purchase. If you act for a client selling a business, you might conclude that your firm could also act for a prospective purchaser on the creation of an employee share scheme which would cover all the entities in the purchaser’s group, this work perhaps requiring the future inclusion of the target within the scheme and consideration as to whether this raised any particular issues.21 (Emphasis added).

 

Similarly, the High Court’s reference to the “substantial relationship” test in r 1.9 of the American Bar Association Model Rules of Professional Conduct (“US Model Rules”) should be viewed in the proper context. The High Court cited Comment [3] to r 1.9 which stated that a “substantial relationship” between two matters existed if they involved “the same transaction or legal dispute or if there otherwise is a substantial risk that confidential factual information as would normally have been obtained in the prior representation would materially advance the client’s position in the subsequent matter”.22 (Emphasis added).

 

Comment [3] goes on to provide an illustration of the application of the “substantial relationship” test:

 

For example, a lawyer who has represented a businessperson and learned extensive private financial information about that person may not then represent that person’s spouse in seeking a divorce. Similarly, a lawyer who has previously represented a client in securing environmental permits to build a shopping center would be precluded from representing neighbors seeking to oppose rezoning of the property on the basis of environmental considerations; however, the lawyer would not be precluded, on the grounds of substantial relationship, from defending a tenant of the completed shopping center in resisting eviction for nonpayment of rent.23 (Emphasis added).

 

Accordingly, the thrust of Comment [3] is, however, not directed towards a scenario where confidential information is not at risk, but is targeted at the protection of confidential information. Thus, where matters involve the “same transaction or legal dispute”, there is presumably a higher than substantial risk that confidential factual information may be disclosed or misused. The “same transaction or legal dispute” yardstick is, therefore, not determinative in cases where confidential information is not at risk, although it provides a useful starting point.

 

Where confidential information is not at risk, a recent decision by the Supreme Court of New Jersey  City of Atlantic City v Trupos24 – suggests that a “substantial relationship” exists when “the facts relevant to the prior representation are both relevant and material to the subsequent representation”.25 In that case, the Court held that notwithstanding the “purely superficial similarity” between the two retainers involving tax appeals, the facts of the earlier matter were not relevant or material to the subsequent matter and, therefore, no “substantial relationship” existed.26

 

In summary, the identical features in two matters are not determinative of whether matters are “related” under the UK Code or “substantially related” under the US Model Rules. A “reasonable” relationship between the matters or the “relevance and materiality” of the facts of the prior representation to the subsequent matter are further required to be shown.

 

Where confidentiality is not at risk, a narrower interpretation of “related” in r 31 is desirable

 

While the two tests suggested above go some way towards providing a more nuanced “related” matter test under
r 31, they do not provide a theoretical basis for a narrower interpretation of “related” where confidential information is not at risk as they were not intended to address former client conflicts involving subsequent developments arising from the original matter, as was the case in
Vorobiev Nikolay and Consulate Ventures.

 

For such scenarios, a better fit would be the test established by another recent Canadian authority in Brookville Carriers Flatbed GP Inc v Blackjack Transport Ltd,27 (“Brookville Carriers”) which was endorsed in Consulate Ventures. In Brookville Carriers, the solicitor had jointly represented Brookville and the Jenkins in defending a claim that the Jenkins had, from 1997 to 2002, “for their own benefit forced [the plaintiff] to pay bribes by threatening to reduce the amount of work he would be assigned for Brookville if he failed to pay.”28 The claim was later dismissed in 2004. In 2005, the same solicitor acted for Brookville against the Jenkins claiming that the latter “conspired against, defrauded, stole from and breached their fiduciary duties to Brookville during a time that overlapped with the allegations in the [earlier] action”.29  

 

The Nova Scotia Court of Appeal observed that the scope of the solicitor’s duty was “very limited absent confidential information being at risk”30 and added as follows:

 

This broader continuing duty of loyalty to former clients is based on the need to protect and to promote public confidence in the legal profession and the administration of justice. What is of concern is the spectre of a lawyer attacking or undermining in a subsequent retainer the legal work which the lawyer did for the former client or of a lawyer effectively changing sides by taking an adversarial position against a former client with respect to a matter that was central to the previous retainer.31 (Emphasis added).

 

The Court, however, cautioned that the solicitor’s duty in such cases should “not be applied too broadly”, in view of the “important right of parties to retain and instruct the counsel of their choice or of lawyers to earn a living free of undue restriction”, as well as the “possible strategic use of applications to disqualify counsel”.32

 

On the facts of Brookville Carriers, the Court disqualified the solicitor from continuing to act for Brookville in the second suit as the two retainers were closely related in that “the Jenkins’ honesty and integrity in carrying out their employment duties with Brookville … during an overlapping period of time” were attacked in both matters.33 The solicitor had effectively “changed sides” by representing Brookville “on the heels of the prior retainer”.34

 

It is submitted that the Brookville Carriers test, which is similar to the more well-established American principle of attacking a lawyer’s own former work.35 should be adopted by the Singapore Courts in interpreting the term “related” under r 31 for three reasons. First, the principle of not attacking a lawyer’s own former work is consonant with the ethical obligation in r 29 of the PCR that a solicitor who has “acted for more than one party in the preparation of a document creating rights and obligations between them” cannot act for any party to the transaction if a dispute has arisen between them on the enforceability of the document or “where the dispute is such that the [solicitor] is likely to be in conflict”.

 

Second, instead of focusing the inquiry purely on the factual relationship between the matters, for which reasonable lawyers may have different views, it directs the Court’s attention to “the work product that the [solicitor] actually generated for the former client”36 and “does not require presumptions, either irrebuttable or not, to be deployed as prophylaxis to protect loyalty”.37

 

Third, it provides a sounder justification for the extension of judicial intervention in former client conflicts where the protection of confidential information is not in issue. Although the High Court in Vorobiev Nikolay endorsed the public interest rationale in Edwin Seah, the latter case was in fact concerned with a “same” matter conflict as the firm had acted for the accident victim who suffered personal injuries and damage to his motorcycle, and then for the rider of the other motorcycle in the same accident. In “related” matter conflicts where confidential information is not at risk, Brookville Carriers strikes the right balance between recognising a “modest”38 role for a solicitor’s duty of loyalty owed to a former client and preserving the current client’s right to choose his own counsel, which are both important public interest rationales.

 

If the test in Brookville Carriers had been applied to the facts in Vorobiev Nikolay, would it have affected the High Court’s decision that the matters were “related”?  Based on the limited facts presented in Vorobiev Nikolay, it is indeed difficult to conclude that the Practice was effectively attacking the legal advice which it had given in the corporate retainers, as the scope of the work required under the corporate retainers seemed very specific and the rights and remedies involved in both matters appeared to be different. On the other hand, the overlapping period of time for the subject-matter of both retainers and the potential difficulty in segregating the work product in both retainers involving an intricate shareholding arrangement in PPL would probably lean in favour of the Court’s decision.

 

3. Is the “Related” Matter Test Ultimately a Useful Yardstick to Decide Whether a Solicitor Should Not Act Against a Former Client Where Confidential Information is Not At Risk?

 

The “related” matter test should not be the exclusive yardstick to decide whether a solicitor should not act against a former client where confidential information is not at risk. As observed by the Canadian Bar Association (“CBA”) Task Force on Conflicts of Interest in its August 2008 report titled “Conflicts of Interest: Final Report, Recommendations & Toolkit”,39 the “related” matter yardstick is intended as a “proxy” to “[assess] the impact of confidential information that the use of circumstantial evidence is justified to avoid examination of that which cannot be examined i.e. confidential information”.40

 

To use the same evidential yardstick where confidential information is not in issue no doubt provides a convenient shorthand to allow the courts to regulate solicitors from acting against former clients based on the broad notion of public interest. But this merely belies the true basis of the prohibition and makes it difficult for solicitors to obtain certainty on when the public interest would dictate that matters are “related”. Another danger of relying exclusively on such a yardstick is that solicitors will miss the forest for the trees by focusing on making convoluted arguments on the narrow issue of whether matters are factually “related”, when the real public interest issue may be whether they are attacking or undermining their own former work. Ultimately, the yardstick may produce decisions which have low precedential value and create the knock-on effect of encouraging former clients to remove the current client’s counsel and his entire law practice for tactical reasons, given that Vorobiev Nikolay decided that the imputation principle under r 31(2) applied to all “related” matter conflicts.

 

Therefore, it would be more appropriate to regulate the specific ethical harm concerned where confidential information is not at risk, as opposed to relying exclusively on the “related” matter yardstick. In this regard, following the August 2008 report, the CBA amended, in 2009, a guiding principle in its Code of Professional Conduct relating to former clients to follow the Brookville Carriers approach as follows:

 

Acting Against Former Client

 

12. A lawyer who has acted for a client in a matter should not thereafter, in the same or any related matter, act against the client or otherwise act against the client where:

 

(a) the lawyer might be tempted to breach the Rule in Chapter IV – Confidential Information; or

 

(b) the lawyer’s duty to the other client would require the lawyer to attack the legal work done during the prior matter or, in effect, change sides on a central aspect of the prior legal work. The term “legal work” refers to the very legal advice, representation or work product that the lawyer provides to a client in a specific dispute, transaction or similar mandate.41 (Emphasis added).

 
Conclusion

 

The story so far on the threshold for judicial intervention in former client conflicts in Singapore is that it has become increasingly difficult for solicitors and their practices to act against former clients under r 31, even though no confidential information is at risk. The strict stance does not give sufficient weight to the equally compelling public interest that the current client’s choice of counsel should be respected. Short of legislative reform, exclusive reliance on the “related” matter yardstick in future cases may do more harm than good in the long-term where the protection of confidential information is not the goal. A more nuanced yardstick along the lines of the Canadian jurisprudence is necessary to prevent former client conflicts in Singapore from descending into a narrow factual inquiry where reasonable lawyers may disagree and will give more certainty to the legal profession on the true ethical harm that lies behind the “related” matter yardstick.


Alvin Chen* 
Chief Legal Officer
Director, Representation and Law Reform
The Law Society of Singapore
E-mail: alvin@lawsoc.org.sg  

 

*The views expressed in this article are the personal views of the author and should not be taken to represent the views of the Law Society of Singapore or the Law Society’s Ethics Committee.

 

 
Notes 
 

 1      [1912] 1 Ch 831.

2      See Alrich Development Pte Ltd v Rafiq Jumabhoy [1994] 3 SLR(R) 38 and Seet Melvin v Law Society of Singapore [1995] 2 SLR(R) 186. 

3      [2010] SGHC 290.


4      Ibid. at [24].

5      Ibid. at [23].

6      [2007] 3 SLR(R) 401 at [24].

7      Supra, note 3, at [25].

8      Ibid.

9      Ibid. at [26].


10    Ibid. at [20].

11    2010 ONCA 788.

12    Ibid. at [13].

13    Ibid. at [14].

14    Ibid. at [14] – [15].

15    Ibid. at [16].

16    Alvin Chen, ed. (The Law Society of Singapore, 2011).

17    Ibid. at 57.

18    Supra, note 3, at [23].

19    See http://www.sra.org.uk/solicitors/code-of-conduct/rule3.page.

20    See
http://www.sra.org.uk/solicitors/code-of-conduct/rule4.page.

21    Supra, note 19. .


22    Supra, note 3, at [23].

23http://www.americanbar.org/groups/professional_responsibility/publications/model_rules_of_professional_conduct/rule_1_9_duties_of_former_clients/comment_on_rule_1_9.html

24    992 A. 2d 762 (N.J. Sup. Ct. 2010).

25    Ibid. at 774.

26    Ibid. at 775.

27    2008 NSCA 22.

28    Ibid. at [7].

29    Ibid. at [12].

30    Ibid. at [51].

31    Ibid.

32    Ibid. at [52].

33    Ibid. at [62].

34    Ibid.

35    See eg Charles W. Wolfram, “Former-Client Conflicts” (1997) Geo. J. Legal Ethics 677 at 696-702.


36    Ibid. at 701.

37    Ibid.

38    Ibid. at 696, 702.


39    See http://www.cba.org/CBA/groups/conflicts/.

40    Ibid. at Ch 2, 69.


41    See http://www.cba.org/CBA/activities/code/.