Conflicts of interest and sufficiency of "ethical screens" (information barriers)

A recent decision of the Commercial Court has reinforced the high threshold professional firms must meet to persuade a court as to the adequacy of information barriers put in place to prevent the disclosure of one client's confidential information that is potentially relevant to an engagement for another client.

Georgian American Alloys, Inc and others v White and Case LLC [2014] EWHC 94 (Comm)

Background: The Bolkiah principles

The principles on which a court will consider whether an injunction is appropriate to restrain a firm from acting for one client on grounds that the firm holds the confidential information of another client are set out authoritatively in the judgment of Lord Millet in Bolkiah v KPMG [1999] 2 AC 222. From that judgment, a number of key principles can be distilled:

• The duty to preserve the confidentiality of information provided to a professional adviser is unqualified, and is not merely a duty to take all reasonable steps to do so;
• The former client cannot expect to be protected completely from accidental or inadvertent disclosure but is entitled to expect protection from exposure to avoidable risk, including the acceptance of instructions to act for another client with an adverse interest for which the confidential information is or may be relevant;
• The degree of risk that offends that entitlement is low – the court should be prepared to intervene unless it is satisfied that there is no real risk of disclosure. It will not do so if the risk is fanciful or theoretical, but the risk does not have to be substantial;
• There is no rule that information barriers are insufficient to eliminate the risk but the starting point is that, without special measures, information moves within a firm and that "unless satisfied on the basis of clear and convincing evidence that effective measures have been taken to ensure that no disclosure will occur", the court should restrain the firm from acting for the second client; and
• To be sufficiently effective to meet this test, the information barrier needs to be an established part of the organisational structure of the firm, not created ad hoc and dependent on the acceptance of confirmations given by members of staff engaged in the relevant work.

The present case

In Georgian American Alloys v White and Case, injunctive relief was sought by various companies whose ultimate owners were two Ukrainian businessmen, Mr Bogolyubov and Mr Kolomoisky, against the law firm White and Case to prevent the firm from continuing to act in litigation which it was pursuing against them on behalf of another Ukrainian businessman, Mr Pinchuk. The dispute arose from the operation of a joint venture between Mr Pinchuk, Mr Bogolyubov and Mr Kolomoisky (the "Joint Venture").

The basis of the application was the confidential (and privileged) information that White and Case held as a result of work carried out for the Claimants in a significant corporate restructuring carried out in 2011-2013 (the "Optima Engagement"). This work was carried out by a team primarily based in New York, and involved that team gaining detailed information about the identity and location of the Claimants' assets and the workings of their businesses.

In mid-2012, Mr Pinchuk instructed a White and Case team primarily based in London and Moscow to evaluate, and subsequently bring, potential claims against Mr Bogolyubov and Mr Kolomoisky in relation to the Joint Venture. The justification for White and Case's decision that they could accept this instruction notwithstanding the Optima Engagement was not disclosed to court, and the judge was plainly unimpressed with the decision to act for Mr Pinchuk in the litigation at all. However, shortly before proceedings were issued in March 2013, a decision was taken internally at White and Case that "ethical screens" should be put in place between the Pinchuk and Optima Teams.

In support of the litigation being pursued against Mr Bogolyubov and Mr Kolomoisky, Mr Pinchuk made ex parte applications in US courts seeking to obtain a large volume of corporate documents from a number of the Claimants. In light of the nature of these applications, the Claimants raised concerns with White and Case about whether the applications had been informed by confidential information which it held from the Optima Engagement passing to the Pinchuk Team. White and Case appointed an internal "Neutral Team" to investigate these concerns, by interrogating White and Case's IT systems for evidence of any breaches of the ethical screens, and interviewing the vast majority of the Optima and Pinchuk Teams. On the basis of the investigation, the partners who headed the Neutral Team were able to confirm to the court that there was no evidence that any information held by White and Case on behalf of the Claimants was passed to the Pinchuk Team.

The key question for the court was whether White and Case had done enough to show that there was no real risk that the Claimants' confidential information had already or would come into the possession of any member of the Pinchuk Team. On that question, White and Case argued that the investigatory steps taken by the Neutral Team, the geographical separation of the Pinchuk and Optima Teams and the ethical screens it had put in place allowed the court safely to conclude that there was no real risk of either past or future disclosure. However, on each of these points the court was not satisfied that White and Case had discharged the evidential burden as to the risk of disclosure and granted the injunction:

• The ethical screens were not in place throughout the whole period during which White and Case was acting for both the Claimants and Mr Pinchuk;
• The confirmation that no-one from the Pinchuk Team had accessed electronic documents on the other file did not preclude oral disclosures;
• The confirmations from the employee interviews conducted by the Neutral Team were not comprehensive (as some of the ex-employees could not be reached). In any event there remained the possibility that there had been inadvertent disclosure, or that disclosures may have been forgotten by interviewees; and
• There were employees, albeit a small number, on each side of the ethical screens who had been located in the same office. In any event, employees of large firms communicate in a number of different ways and not necessarily through face to face meetings at the same location.

The decision to grant an injunction enforces the Bolkiah line that only very strictly applied information barriers, rigorously enforced from the very outset of the new instruction and with teams segregated on structural lines (rather than by ad hoc arrangements), will have any realistic prospect of discharging the heavy burden of proof which firms face.