Two trends in the commercial legal market are significantly increasing the risk of potential client conflicts within law firms that service corporate and government clients in Australia – ongoing international & national consolidation of commercial law firms through merger & acquisition and the entrenchment of lateral partner recruitment as a means of business growth.
Merging or acquiring law firms invariably brings with it an expanded client base and potentially a suite of clients operating in the same highly competitive industry. This in turn gives rise to a heightened potential conflict between serving their interests within the one firm. Lateral partner recruitment, similarly, brings with it an expanded client base (assuming, the partner’s regular clients follow her or him) and a new legacy of former clients. These trends mean effective practice management within commercial law firms is more critical than ever to identify, avoid and manage conflicts arising from a lawyer’s duties to clients.
Information barriers (traditionally known as ‘Chinese walls’) are commonly used by commercial law firms operating in Australia as a way of managing the risk of conflicts, particularly in circumstances where the firm is:
A key question for clients is how effective are information barriers and how have Courts viewed the use of information barriers in the context of a lawyer’s professional responsibilities and duties.
The majority of Australian cases that examine the effectiveness of information barriers involve commercial law firms which have sought to erect ‘Chinese walls’ as a means of protecting the confidential information of former clients. The cases indicate that Australian courts, whilst willing to accept effective information barriers, will scrutinise the barriers and take a cautious approach in determining whether they are, in fact, effective (as opposed to something that is potentially porous). Indeed, the ad hoc creation of an information barrier is unlikely to survive judicial scrutiny. Rather, law firms need to incorporate the use of information barriers into their practice management structure so as to ensure that ongoing education, and appropriate monitoring, is in place to keep up the level of consciousness within the firm of the requirements of information barriers (including the specific requirements of any and all such barriers operating within the firm). In essence, adherence to information barriers must be engrained into a law firm’s practice management psyche.
Further, an information barrier alone is not sufficient in double employment / simultaneous representation matters, but rather fully informed consent from each client must be obtained before a law firm can act in such matters.
Finally, and importantly, information barriers cannot and do not release a lawyer from their overriding duty to the Court to ensure the lawful, proper and efficient administration of justice and the Court can and, in exceptional circumstances, will exercise its inherent supervisory jurisdiction over its officers to ensure that ‘justice should not only be done but manifestly and undoubtedly be seen to be done’.
The above is a brief summary of ‘The rise of the information barrier: Managing potential legal conflicts within commercial firms’ which was published and appeared in The Australian Law Journal – (2014) 88 ALJ 428 (Thomson Reuters). Click 'Download' to view the full article.
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