AD v ZX

 
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[2010] NZLCRO 39

LCRO 87/2010

Concerning An application for review pursuant to Section 193 of the Lawyers and Conveyancers Act 2006

and

Concerning a determination of the Auckland Standards Committee 3

Between
AD of Auckland, Barrister
Applicant
and
ZX of Auckland, Solicitor
Respondent

AD as the Applicant

Mr X QC as Counsel for the Applicant

ZX as the Respondent

The Auckland Standards Committee 3

The New Zealand Law Society

The names and identifying details of the parties in this decision have been changed.

Application for review of a decision of the Auckland Standards Committee which held that the applicant had breached Rule 8 (confidential information) and Rule 8.7 (lawyer not to act against a former client) Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 — applicant represented employees of a firm in a personal grievance claim and had previously represented the company — whether the information provided by the employees was confidential or could have been sourced from public sources.

Held: The test applied when considering whether a conflict of interest existed was that of a reasonable bystander. The four elements of Rule 8.7.1 were: (1): whether the applicant held confidential information; (2): whether disclosure of that confidential information was likely to affect the interests of AAB adversely; (3): whether there was more than a negligible risk of disclosure; and (4): what was the nature of the fiduciary obligation owed to the former client?

Element 3 could be discounted as it was a given that there was more than a negligible risk of disclosure. The duty in regard to element 4 was that the duty of loyalty related only to the information, skills and knowledge related to the particular matter for the lawyer was engaged. The fiduciary obligation of confidence was coloured by the prior duty of loyalty. A lawyer's duty of confidence was more stringent than in cases where the duty of confidence arose in other circumstances. Therefore, if the first 3 elements were satisfied then the fourth element would follow, provided the confidential information held by the lawyer related to the same subject matter. Here AD was acting for the previous employees against AAB, having previously acted for ACC against its employees. Consequently, the same subject matter was satisfied.

The information held by AD (such as the company's structure and the joint employment claim) was information which would have been available to AD independently and to any other counsel acting for the employees; other than that ZX could not point to any other matter with certainty. AD had provided ZX with all details of his state of knowledge; in the circumstances a finding of unbecoming conduct was inappropriate. If ZX's main objective was to prevent AD from representing the employees, there were other remedies available such as s138(1)(f) LCA (Decision to take no action on complaint — petition the House of Representatives or make a complaint to an Ombudsman).

Under s211 LCA (Powers exercisable on review) the decision of the Committee was reversed.

DECISION
Background
1

On 17 August 2009 the receivers of AAB (AAB) dismissed a number of employees.

2

The Applicant was engaged through an instructing solicitor by a number of employees with regard to the dismissal, and proceedings were filed on their behalf in the Employment Relations Authority.

3

AAB had been created as a result of a merger of AAC (AAC) and AAD (AAD).

4

The Applicant had previously acted for AAC, and he had also been consulted in respect of a distinct matter arising during the course of the merger.

5

The Respondent lodged a complaint with the Lawyers Complaints Service alleging breaches of Rule 8, and in particular Rule 8.7.1 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008.

Standards Committee Decision
6

In its decision dated 22 April 2010 the Committee accepted the Respondent's submission “that when providing advice on a restructuring procedure, a lawyer will usually have some knowledge of the restructure itself. In any event, [the Applicant] has knowledge through previously acting for the AAD and AAC about redundancy procedures, which are the subject matter of the present claims.”

7

The Committee also acknowledged that AAB “is in a difficult position in terms of obtaining information (and potentially assistance on evidential issues) from [the Applicant] as the company's previous lawyer about such matters given he is acting on the present claims.”

8

The Committee found that there was a conflict of interest and determined that there had been conduct unbecoming on behalf of the Applicant pursuant to Section 152(2)(b) of the Lawyers and Conveyancers Act 2006 (the Act). Section 152(2)(b) provides for a finding of unsatisfactory conduct. Section 12 of the Act defines unsatisfactory conduct, and s 12(b)(i) includes conduct unbecoming as constituting unsatisfactory conduct. The finding presumably is therefore, one of unsatisfactory conduct by virtue of s 12(b)(i) of the Act.

9

The complaint by the Respondent alleged a breach of Rule 8.7, and in particular Rule 8.7.1. The consequence of a breach of the Rules is a finding of unsatisfactory conduct by reason of s 12(c) of the Act. The Committee's determination of conduct unbecoming is therefore confusing, but hopefully that is resolved by this decision.

10

An Order was made by the Committee that a conflict of interest existed so that it was inappropriate for AD to continue acting for the former employees of AAB. The authority under which such Order was made is not provided, and is not an Order which it is open to the Committee to make under s 156. However, the practical consequences of a finding of conflict of interest, is that the Applicant could not continue acting for the former employees.

11

In addition, the Applicant was ordered to pay costs to the New Zealand Law Society in the sum of $500.

Application
12

The Applicant has applied for a review of the decision by the Standards Committee, on the grounds that the decision was based on errors of fact and law.

13

The Applicant submits that the error of fact is that the decision to make the Applicant's clients redundant was made by the receiver. The Applicant has never acted for the receivers, and therefore there could be no argument that the Applicant was able to avail himself of institutional knowledge in bringing the proceedings against AAB (in receivership).

14

The errors of law relate to the reference by the Committee to two decisions of the Court, one of which the Applicant submitted could be distinguished, and the other of which the Applicant submitted had been extended by a subsequent decision which refined the test as to what constitutes confidential information.

Review
15

A review took place by way of a hearing on 8 December 2010.

16

Mr G, QC appeared on behalf of the Applicant who was also present. ZX appeared for himself.

17

As recorded above, this matter concerns an allegation by the Respondent that the Applicant was in breach of Rules 8. 7 and 8.7.1 by accepting instructions from the previous employees of AAB, in circumstances where he had previously acted for AAC and had also given advice in respect of a distinct aspect relating to the merger.

18

Chapter 8 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 is headed “Confidential Information”. The Rules relating to conflicts of interest are contained in Chapter 6 and apply to conflicts when acting concurrently for more than one party.

19

It is appropriate to record the provisions of Rule 8. 7 and 8.7.1 in full.

8.7
    A lawyer must not use information that is confidential to a client (including a former client) for the benefit of any other person or of the lawyer. 8.7.1 A lawyer must not act for a client against a former client of the lawyer or of any other member of the lawyer's practice where – (a) the practice or a lawyer in the practice holds information confidential to the former client; and (b) disclosure of confidential information would be likely to affect the interests of the former client adversely; and (c) there is a more than negligible risk of disclosure of the confidential information; and (d) the fiduciary obligation owed to the former client would be undermined.
20

The Rules reflect the exercise by the Court of its inherent jurisdiction to control its own processes, one of the aspects of which is the power to determine which persons should be permitted to appear before it as advocates. Hana New Zealand Ltd v Stephens 1 NZLR 833 p.11.

21

Nevertheless, it must be noted at this point, that the complaint and this application rest on a breach of the Rules, rather than a consideration of whether the Applicant is in a conflict of interest situation...

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