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Decision 1 of 2012

Decision 1 of 2012

January 26, 2012

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THE DUBAI INTERNATIONAL FINANCIAL CENTRE COURTS

“A”
v
“B”

CODE OF CONDUCT DECISION

This is the decision in the complaint made on behalf of “A” against the law firm of “B”.

History

The complaint was submitted to the Courts by “A” on 12 September 2011. On 13 September 2011 I wrote to “B” stating that, as per the DIFC Courts’ Code of Conduct, I did not consider the complaint to be ‘frivolous or vexatious’ and requesting a response to the complaint by 4pm on 22 September 2011. A reply was received, following which there was ongoing correspondence between the parties and me with regard to the complaint. At the request of the parties, a hearing was held on 12 December 2011 before me. In that hearing the representative of “B”, “C” made certain statements of fact, which he was asked to put into evidence through the submission of an affidavit with exhibits. That affidavit was filed on 25 December 2011, and “A” has had the opportunity to make its submissions regarding the affidavit, which it has done. “B” and “A” have both corresponded subsequently with the Courts, and each other, about this complaint.
Further to Article 23 of the Code of Conduct, “B” consented to the matter being investigated and decided by the Registrar alone.

Issues

The issue to be considered is whether “B”, on a balance of probabilities, acted in breach of the DIFC Courts’ Code of Conduct, particularly Article 7 thereof, by accepting instructions from and/or providing advice to “D” in “D”’s case against “A”. Article 7 of the Code of Conduct provides:

“7. Practitioners shall not act for a client in proceedings before the Court if:
(i)            the Practitioner owes a separate duty to act in the best interests of another client in relation to the same or related asset, liability or matter and (a) those duties conflict or there is a risk that those duties may conflict; and (b) the Practitioner does not have the consent in writing of the said other client to act for the client in question; or
(ii)           the Practitioner’s duty to act in the best interest of the client conflicts, or there is a risk that it may conflict, with the Practitioner’s own interests in the same or related asset, liability or matter”.

“B” has confirmed that, prior to accepting instructions from “D”, it had acted for “A” in relation to funds work (which was said by “C” not to have progressed) and in relation to a DFSA investigation. “B” ceased to act for “A” on 24 May 2011. “C” stated that on 26 May 2011 “D” approached him seeking advice in relation to an employment claim “D” had filed with the DIFC Courts on [date redacted] against “A” (albeit that service of the claim is said not to have been effected until 13 June 2011). It was “C’s” evidence that he conducted a form of conflict check with “B”’s Abu Dhabi office, and with reference to the Code of Conduct, and that because “D”’s case was employment related a decision was taken that “B” could accept “D”’s instructions. It has been submitted that “D” engaged “B” in relation to “D”’s claim on 26 May 2011.

Various submissions have been made by “B” to support its position, which may be summarised as follows:

1.    “B” could not have been in breach of the Code of Conduct on or around 26 May 2011 by accepting instructions from “D” because it was not a registered practitioner with the Courts until 23 August 2011 and, therefore, not bound by the Code of Conduct until 23 August 2011. This point was not made substantively (if at all) by “B” until 25 December 2011.
2.    Even though it was not obliged to do so, because it was not covered by the Code of Conduct at the time, “B” referred to the Code when undertaking a conflict check. The conflict check undertaken was of a type that might reasonably be expected of a firm of the size of “B”. In the circumstances, “B” determined that it would not be a breach of the Code of Conduct to accept the employment related instructions from “D” on 26 May 2011.
 3.    In any event, because of “D”’s position as the former SEO of “A”, there would not be any information or documents in “B”’s possession or control that derived from work with “A” that would not also be in the possession or control of “D”. (Subsequently “C” has suggested that, following an investigation about “B”’s possession of “information that could possibly be construed as confidential information”, there were some documents in “B”’s possession which related to the DFSA investigation. However, if I have understood him correctly, he contends that they do not contain any information which would not otherwise be known by “D”).
4.    Immediately upon becoming aware of a potential for conflict, being when “D” first asked “B” to include in the ‘Reply to Defence and Counterclaim’ reference to the DFSA investigation, “B” took all reasonable steps to terminate the relationship with “D” and, further, did not provide any advice or draft any provisions that pertained to the DFSA investigation.

“A” challenged these submissions as follows:

1.    “A” contended that despite “B” ceasing to act for it, “B” continued to act for a related company (“E”) and for the shareholders of “A”, which “A” contends was a continuing conflict of interest even after 24 May 2011.
2.    “A” suggested that the termination of the relationship with “D” on 3 October 2011 was not as a result of the identification of a conflict, but because of the complaint filed by “A” against “B” on 12 September 2011.

It will not be necessary to deal with all of the above arguments, or any others set out in the considerable weight of correspondence. However, I will deal with the following questions:

Did “B” become bound by the Code of Conduct on 26 May 2011 or 23 August 2011?

I find that “B” became bound by the Code of Conduct from the moment that it accepted instructions from “D” to provide advice in relation to the case that “D” had filed with the DIFC Courts on [date redacted].
The registration of “B” in Part I of the Register of Practitioners confers, as stated in Exhibit [reference redacted] to “C”’s affidavit, “the right to issue and conduct proceedings on behalf of others …”
As such, prior to 23 August 2011, “B” might be said to have had no authority to conduct proceedings before the DIFC Courts. It is not a matter that requires a decision in this complaint, but if “B” was acting in breach of the DIFC Courts’ requirements  by providing advice in relation to a case without “B” being a Registered Practitioner, and such advice constituted “B” ‘conducting proceedings’, then that would be a serious matter. In any event, it cannot be the case that a firm can escape the obligation to comply with the Code of Conduct when giving advice in relation to proceedings before the DIFC Courts by want of registration and, as such, I hold that “B” was bound by the Code of Conduct from 26 May 2011, being the date it accepted “D”’s instructions. It is my suspicion that “B” was aware of this at the time, both because it referred to the Code of Conduct in its conflict check done by telephone on 26 May 2011, and because this issue was not raised in any of the correspondence until 25 December 2011 (or at least not in any substantive manner), but I make no finding in this regard.
Even if one were to accept “B”’s submission that it only became subject to the Code of Conduct on 23 August 2011, which I do not, it was not until 3 October that “B” ceased to act for “D”.

Were there documents or information in the knowledge or possession of “B” as a result of the DFSA investigation that were not already known to “D” as a result of “D”’s position as the former SEO of “A”?

“C” has confirmed that there were some documents in “B”s possession that related to the DFSA investigation and might be construed as confidential to “A”. However, “B” argues that nothing contained in those documents was used by “B” for the purposes of the advice given to “D”, and all that comprised the claim derived from “D”’s personal knowledge.

Was there, on a balance of probabilities, a breach of the Code of Conduct, specifically the prohibition from acting for a client in proceedings before the Court if “the Practitioner owes a separate duty to act in the best interests of another client in relation to the same or related asset, liability or matter and (a) those duties conflict or there is a risk that those duties may conflict; and (b) the Practitioner does not have the consent in writing of the said other client to act for the client in question.”?

I hold that there was a breach of the Code of Conduct by “B” acting for “D” in “D”’s case against “A”. “D” was the SEO of “A” until “D”’s employment purportedly ended on 17 May 2011. “B” had worked closely with “D” in relation to an investigation by the DFSA, and held documents of “A” in relation to that investigation even after it terminated its relationship with “A” on 24 May 2011. Indeed, the proximity of the relationship between “B” and “D” is indicated in paragraph 9 of “D”’s Particulars of Claim, which refers to “D”’s actions following 18 May 2011 as “The Claimant then instructed [“D”’s] lawyers, “B” to prepare and send to the defendant a letter before action dated 7 June 2011 …”
There is considerable case law around the world regarding a lawyer’s right to act against a former client and, the traditional view in other common law jurisdictions, is that the matter is to be determined by reference to misuse of confidential information (Prince Jefri Bolkiah v KPMG (A Firm)). In essence, the questions to be asked might be set out as follows:

– Has the lawyer acted previously for that client?
– Has the lawyer acquired confidential information in respect of the client?
– Was the confidential information material to the action or proceedings presently on foot?
– Could the former client reasonably conclude that there is a likelihood the information might be used in the present proceedings?
– Would its use would be to the detriment of that person?

Recent decisions in Australia go further. Ipp J in Mallesons v KPMG Peat Marwick & Carter in relation to the test to be applied in deciding whether a solicitor should cease acting because of the acquisition of confidential information which could be used to the detriment of the former client, held that the Court “would restrain a solicitor from acting where there is a real and sensible possibility of confidential information being disclosed or used to the detriment of the former client”.
This test of real and sensible possibility has been adopted in a number of recent cases in Australia.
Further, I do not propose to dwell on the principle of a continuing duty of loyalty said to be owed by a firm to its clients as has been referenced in the UK House of Lords (now Supreme Court) and Australian cases (including Spincode Pty Ltd v Look Software Pty Ltd & Ors), although the views of His Honour Justice Brooking are persuasive, including: “There is a good deal of authority for the view that a solicitor, as an officer of the court, may be prevented from acting against a former client even though a likelihood of danger of misuse of confidential information is not shown.” In his judgment he discussed a large number of cases from New Zealand, Canada and Australia, as well as the work of Professor Finn on fiduciaries all of which, in his view, supported the above contention. He found that there are “three independent bases: first, the danger of misuse of confidential information; secondly, breach of the fiduciary’s duty of loyalty; thirdly, the desirability of restraining the solicitors as officers of the Court.”
For the purposes of this decision, I need look no further than the position in relation to the misuse of confidential information.
It is, perhaps with the benefit of hindsight, clear that to accept instructions from “D” two days after concluding a relationship with the very company against whom “D” has a claim, is something that a reasonable bystander might consider to be a conflict in and of itself. However, when married with the fact that “B” had confidential information about “A” obtained during its work in relation to the DFSA investigation, it is, or should, have been obvious to “B” that such information might be used in “D”’s case against “A”. It is suggested by “B” that because of “D”’s knowledge of “A”, there was no confidential information known to “B” which was not already known to “D”. That, frankly, is not relevant to the question of a potential risk of a conflict.
The Code of Conduct refers to there being a conflict when there is a “… separate duty to act in the best interests of another client in relation to the same or related asset, liability or matter …” Whilst “B” submits that “D”’s case was an employment case, and “B”’s work was related to a DFSA investigation, the likelihood of “D” using the DFSA matter in “D”’s submissions was real, and indeed turned out to be real. As such, there existed on 26 May 2011 a real risk that “B”’s duty to “A” in relation to the confidentiality of information “B” had obtained (and continued to hold) as part of the DFSA investigation, and “B”’s duty to fearlessly advance, defend and protect the interests of “D”’s in the claim against “A”, would conflict.

The Issue & Decision

Having decided that “B” breached the Code of Conduct, the Court imposes the following sanction:

  1. Private Admonition, although a copy of this decision shall be published with the names of the parties redacted.
  2. A fine against “B” of US$5,000.
  3. Leave to apply within 14 days in accordance with Article 25 of the Code of Conduct. If no application is made, then the sanctions shall take effect on the 14th day after the issue of this decision.

Mark Beer
Registrar
Date of Issue: 26 January 2012

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