Gus Consulting GmbH v Leboeuf Lamb Greene & Macrae

A former client is not automatically entitled to restrain a law firm from acting against it. The firm bears a heavy, but not impossible, burden of showing by clear and convincing evidence that effective measures will prevent disclosure or misuse of confidential information. The court must assess each case carefully, focusing on evidence about the effectiveness of the safeguards, including an established ethical wall, enforceable undertakings, lack of access or knowledge, and professional integrity. If those precautions eliminate a real risk, an injunction is unnecessary. The assessment is ordinarily for the first-instance judge, and the Court of Appeal should intervene only if satisfied that the assessment was wrong.

CAIB, formerly CAIB InvestmentBank AG and now Gus Consulting GmbH, appealed from an order dated 21 October 2005 by HHJ Mackie QC, sitting as a deputy High Court judge in the Commercial Court. The judge dismissed CAIB’s application under section 44(2)(e) of the Arbitration Act 1996 and the inherent jurisdiction to restrain LLGM from acting for DCL in an LCIA arbitration.

LLGM had previously advised CAIB and related companies on Russian transactions. Issues in the arbitration included the corporate veil and allegations of fraud and dishonesty. Lawyers conducting DCL’s arbitration moved to LLGM, creating an alleged risk of inadvertent disclosure of CAIB’s confidential information. The judge accepted that relevant confidential material existed but found, in light of the ethical wall, the evidence and undertakings, that there was no real risk of disclosure or misuse. The central issue was whether that conclusion justified refusing an injunction.

The Court of Appeal unanimously dismissed the appeal. Mummery LJ gave the judgment, with Scott Baker LJ and Brooke LJ agreeing.

1. The principles of client confidentiality impose strict standards, but they do not create a bright-line rule that a law firm can never act against a former client. The firm bears a heavy burden of showing that there is no real risk of disclosure or misuse. That burden is not impossible to discharge. As stated in Koch v Richards Butler [2002] EWCA Civ 1280, a restraining order is unnecessary where clear and convincing evidence establishes that all effective measures have been taken to prevent disclosure.
2. The question whether the risk is real depends on a careful judicial assessment of the quality and effectiveness of the precautions in the circumstances of the particular case. The assessment is ordinarily one for the first-instance judge. The Court of Appeal should intervene only if satisfied that the assessment was wrong, applying Civil Procedure Rules 1998 Part 52.11(3)(a).
3. Although CAIB had established that LLGM possessed confidential material relevant to the arbitration, and although the court shared serious reservations about LLGM’s decision to act, those concerns did not themselves require an injunction. The relevant risk was accidental or inadvertent oral disclosure rather than access to CAIB’s files.
4. The judge was entitled to rely on the combined effect of LLGM’s detailed undertakings, its conscientious and sophisticated ethical wall established under existing procedures, the unchallenged evidence concerning the arbitration team’s lack of knowledge and access, the former advisers’ current knowledge of transactions conducted years earlier, and the unquestioned professional integrity of those involved. That evidence entitled him to conclude that CAIB was effectively protected. His refusal of the injunction was not wrong. The court did not thereby approve or validate LLGM’s wider decision to act.

Appeal dismissed.

• Court of Appeal (Civil Division) — Permission to appeal was granted on a renewed application on 20 January 2006. The appeal was unanimously dismissed on 26 May 2006.
• High Court of Justice, Queen’s Bench Division, Commercial Court — HHJ Mackie QC, sitting as a deputy High Court judge, dismissed CAIB’s application by order dated 21 October 2005.