KOCH SHIPPING INC v RICHARDS BUTLER

A former client may restrain solicitors from acting against its interests where they possess relevant confidential information and cannot establish that disclosure presents no real risk. The risk must be real rather than fanciful or theoretical, but need not be substantial.

The assessment is fact-sensitive. There is no rule that formal information barriers or physical separation are invariably required. Clear undertakings from solicitors of integrity may discharge the heavy burden where only one person holds the information, no documents or computer records are involved, and effective measures prevent direct or indirect communication. The court must assess the practical risk robustly and must not balance confidentiality against the solicitors’ competing interests.

Richards Butler appealed against Andrew Smith J’s injunction restraining the firm from acting for Ariadne Maritime Ltd in an arbitration against Koch Shipping Inc: [2002] 3 Lloyd's Rep PN 201. Koch’s former solicitor, Ms Peaston, had joined Richards Butler as a consultant while retaining confidential information material to the arbitration.

The firm, Ms Peaston and Ariadne’s two case handlers offered extensive undertakings intended to prevent direct or indirect disclosure. The judge nevertheless found a slight but real risk of inadvertent disclosure while Ms Peaston worked in the firm’s building. Although Richards Butler had ceased acting in the arbitration, it pursued the appeal. The issue was whether the undertakings and surrounding circumstances reduced the risk to one that was merely fanciful or theoretical.

1. Appeal allowed unanimously. Clarke LJ, with whom Tuckey and Ward LJJ agreed, held that the undertakings and the particular circumstances established that any risk of disclosure was fanciful rather than real. Richards Butler therefore discharged the heavy burden resting upon it.

2. The former client’s right to protect confidential information grounds the court’s jurisdiction. Once the former client establishes possession of relevant confidential information without consent to disclosure, the solicitors must show that there is no real risk of disclosure. A risk may be real without being substantial, but a merely fanciful or theoretical possibility is insufficient. The court does not balance the former client’s right against the solicitors’ interests.

3. The premise that information ordinarily moves within a firm is only a starting point. Prince Jefri Bolkiah v KPMG [1999] 2 AC 222 did not establish that formal information barriers or physical segregation are invariably necessary. Whether clear and convincing evidence demonstrates effective protection depends upon the circumstances of the individual case.

4. Clarke LJ distinguished cases involving numerous potential disclosers, rotating teams, merged departments or several transferred staff. Here, one experienced solicitor possessed the information. She retained no documents or computer records, understood her continuing obligations and was trusted to comply with them. The information was confined to one arbitration.

5. The undertakings prevented Ms Peaston from discussing the arbitration, communicating with the case handlers, entering their offices, participating in relevant meetings or attending shipping-group know-how lunches. Reciprocal undertakings bound the case handlers, and the firm undertook to support those arrangements. On those facts, an indirect chain of inadvertent oral disclosure was far-fetched.

6. Tuckey LJ emphasised the need for a robust assessment so that professional mobility does not cause courts to treat fanciful possibilities as real risks. Ward LJ held that the standing and integrity of the solicitors, the extent of the undertakings and the absence of documentary leakage could properly be considered. Requiring Ms Peaston to work outside the building was unnecessary.

7. The injunction was discharged. Richards Butler received its costs in the Court of Appeal and below, with repayment of costs already paid and interest at 1% above base rate.

• Court of Appeal (Civil Division): The court unanimously allowed Richards Butler’s appeal and discharged the injunction: [2002] EWCA Civ 1280; [2002] Lloyd's Rep PN 604.

• High Court, Queen’s Bench Division, Commercial Court: Andrew Smith J granted an injunction restraining Richards Butler from continuing to act for Ariadne in the arbitration because he found a real risk of inadvertent disclosure: [2002] 3 Lloyd's Rep PN 201.