XCHRX NISHIMATSU-COSTAIN-CHINA HARBOUR JOINT VENTURE v. IP KWAN & CO. (a firm)

HCA 19448/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 19448 OF 1999

____________

_______________

J U D G M E N T

_______________

1. This is an application for an injunction.

2. The defendant is a firm of solicitors in Hong Kong. It has been instructed by an insurance company to act for it in an arbitration brought by the plaintiff, its insured, to settle a dispute as to the insurance company's liability to indemnify the plaintiff for potential loss. The defendant is also on the record representing the plaintiff in an action brought against the plaintiff in the High Court.

3. The plaintiff by this application seeks an order restraining the defendant from so acting.

Background

4. The plaintiff is called Nishimatsu-Costain-China Harbour Joint Venture (Nishimatsu). At the material time it was engaged in construction work on the site of Hong Kong's new airport at Chek Lap Kok. One of its vehicles driven by an employee was, in May 1996, involved in an accident with another vehicle which caused injury to a worker. In May 1999 he mounted a personal injury action in the High Court naming Nishimatsu as defendant. Nishimatsu had already notified its insurers Ming An Insurance Co. (HK) Limited (Ming An) of the accident, but Ming An for reasons stated declined to accept liability to indemnify Nishimatsu. Nishimatsu instructed its own solicitors to go on the record as representing it. It also, in June 1999, gave notice under its insurance policy with Ming An that it disputed Ming An's repudiation to be determined, under the policy, by arbitration. Ming An instructed the defendant, Ip Kwan & Co. (Ip Kwan) to represent it in the arbitration. The pleadings are complete and the arbitration is pending. Ming An then through its solicitors Ip Kwan gave notice that it proposed to conduct Nishimatsu's defence in the personal injury action, whilst expressly reserving its position disclaiming any obligation. It instructed Ip Kwan in this matter also, and in June 1999 Ip Kwan filed notice to act for Nishimatsu in the personal injury action thus replacing Nishimatsu's own solicitors. That action is also pending. There is a third set of proceedings. Naming Nishimatsu as defendant, Ming An has filed an originating summons in the High Court for an order that the appointed arbitrator in the arbitration proceedings be set aside. Ip Kwan represents Ming An in these proceedings as well. They also are pending.

The Issues

5. Nishimatsu claims that Ip Kwan by acting for two clients in opposing camps in live litigation has a conflict of interest which may only properly be resolved by its withdrawing from representing both clients in the three sets of proceedings and otherwise from representing or advising Ming An in any matter arising out of the accident of May 1996. In addition, by virtue of its acting for two parties in conflict in proceedings arising from the same incident, there is or may seem to be a real risk of its being in breach of its duty of confidentiality to Nishimatsu, which may only be cured by its complete withdrawal.

6. Ip Kwan denies there is a conflict of interest or that there is an actual or potential breach of its duty to Nishimatsu of confidentiality. It says the arbitration arises from alleged non-compliance by Nishimatsu under the terms of the Ming An insurance policy and will wholly or principally turn on a point of construction of the policy. The proceedings to disqualify the arbitrator flow from her previously having acted for Ming An. Both matters are wholly separate and distinct from those to be determined in the personal injury action. Thus Ip Kwan's representation is not in conflict nor is there any risk of Ip Kwan coming into possession of information whilst acting for Nishimatsu which might be relevant, much less adverse to its interests in the arbitration.

The outcome

7. A solicitor is under a professional obligation to observe the strict standards of conduct required of members of the profession he or she has by academic and practical qualification and by displaying impeccable behaviour been permitted to join. That includes complying with disciplinary regulations imposed on its members by the Law Society. In Hong Kong these are set out in "The Hong Kong Solicitors' Guide to Professional Conduct."

8. Regulation 9.01 states: -

"9.01 When instructions must be refused

A solicitor or firm of solicitors must not accept instructions to act for two or more clients where there is a conflict or a significant risk of conflict between the interests of those clients."

Though this hardly warrants explanation, commentary 2 to this regulation states: -

"2. Where a solicitor already acts for one client and is asked to act for another client whose interests conflict or appear likely to conflict with those of the first client, he must refuse to act for the second client."

9. Whether or not there is a risk of being in breach of the duty of confidentiality becomes extraneous once the conflict of interest is apparent or appears likely to become so.

10. As Lord Millett said in Prince Jeffri Bolkiah v. KPMG (a firm) [1999] 1 All ER 517 at p. 526: -

"A man cannot without the consent of both clients act for one client while his partner is acting for another in the opposite interest. His disqualification has nothing to do with the confidentiality of client information. It is based on the inescapable conflict of interest which is inherent in the situation."

11. I am satisfied that by acceding to its client's Ming An's request to represent Nishimatsu in the personal injury action whilst acting for its opponent in an arbitration arising from the same subject matter Ip Kwan put itself in direct breach of regulation 9.01 which I have recited above. I cannot perceive how it can be otherwise. Perhaps the firm was, because of its appointment not by Nishimatsu but by Ming An, lulled into the belief that its client was and is Ming An. Maybe so. But it is on the record as acting for Nishimatsu and in that capacity has an obligation to represent its client observing towards it the utmost good faith. How could that be possible when, running in tandem, there are proceedings brought by Nishimatsu in which it acts for Nishimatsu's opponent?

12. It follows, as I find, that Ip Kwan should not have accepted the invitation to act for Nishimatsu in the personal injury action, and having done so and declined to withdraw must now be ordered to do so.

13. The question however remains: should it also be restrained from acting for Ming An in the arbitration and related matters?

14. I turn again to the Guide. Regulation 9.03 states: -

"9.03 Present clients and conflict

A solicitor or firm of solicitors must not continue to act for two or more clients where a conflict of interest arises between those clients."

Commentary 4 states: -

"If a solicitor has already accepted instructions from two clients in a matter or related matters and a conflict subsequently arises between the interests of those clients, the solicitor must cease to act for both clients, unless he can without embarrassment (see principle 9.02, commentary 1) and with propriety, continue to represent one client with the other's consent. A solicitor may only continue to represent one client where he is not in possession of relevant confidential knowledge concerning the other obtained whilst acting for the other. Even in such a case he should seek the consent of the other client (usually through his new solicitor) and should proceed in the absence of such consent only if there is no good cause for its refusal."

15. It is apparent that this rule contemplates a situation where the solicitor acts for two clients whose relationship at the outset is harmonious but later a dispute develops. It does not envisage the position, as here, where the solicitor is appointed and agrees to act for parties already at loggerheads. This surely is because his obligation to decline to take instructions from the client who comes second is too obvious to require spelling out and in any event is caught by regulation 9.01. But as it stands Ip Kwan are presently representing two clients in a matter or matters where there is a material dispute between them. Now that it is in that position it cannot, pursuant to regulation 9.03, continue to act for even one without the consent of the other. To protect its entitlement to represent Ming An it should forthwith upon invitation have declined to represent Nishimatsu. As it did not it must now be restrained from acting for Ming An also, in all matters from which the conflict with Nishimatsu has derived, and that means the arbitration and related High Court proceedings.

16. I propose to grant that part of Nishimatsu's application also.

Costs

17. Costs will follow the event and be to Nishimatsu. But as this judgment is handed down without my having had the benefit of argument on the issue of costs the order on costs will be nisi at first instance.

Orders

18. There will be an order in terms of the plaintiff's summons of 22 December 1999.

19. The order for costs shall include provision for taxation party and party if not agreed and includes for those reserved, but is subject to the parties' right to restore the same for argument on notice given within 14 days of the date this judgment is handed down.