C.S. LOW INVESTMENT LTD. AND OTHERS v. FRESHFIELDS(a firm)

Courts practice and procedure - claim by client against solicitors for professional negligence and breach of fiduciary duty (alleged non-disclosure of material facts) - striking out pleading under O.18, r.19 and inherent jurisdiction.

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JUDGMENT

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Fuad, V.-P.:

1. This is an interlocutory appeal from the decision of Mayo J. made on 14th November 1989 whereby he dismissed a summons taken out by the defendants to strike out parts of the Statement of Claim in an action instituted against them, under RSC O.18, r.19 and the inherent jurisdiction.

2. The defendants are Fresnfields, a well-known London firm of solicitors who opened a Hong Kong office at the end of October 1985 and now, through that office, practise in Hong Kong. On 23rd June 1989 a writ was issued against them by the three plaintiffs. The writ was indorsed with a Statement of Claim which begins by stating the following. The 1st plaintiff, C.S. Low Investment Limited, is a company incorporated in Hong Kong. The 2nd and 3rd plaintiffs, Mr. Low Chung Song and Mr. Low Chung Seng ("the Lows") are directors of the company and own 55% of its share capital. The 1st plaintiff company owned over 40% of the issued share capital in the Ka Wah Bank Limited until June 1986 when, as a result of a restructuring of the Bank, that shareholding was substantially reduced. The Lows were executive directors of the Bank until 1st March 1986 and directors of the Bank thereafter until 23rd June 1986.

3. The Statement of Claim goes on to plead that between January 1986 and June 1987 the plaintiffs retained Freshrields as their solicitors, inter alia, in relation to the matters set out in a Schedule. By virtue of that retainer, Freshfields owed them a duty in contract and at common law to exercise reasonable care and skill in rendering legal advice and other professional services.

4. The Schedule refers to advice as to the extent of the statutory powers and duties of the Commissioner of Banking; concerning the resignation of the Lows as executive directors of the Ka Wah Bank, and on their liability on certain personal guarantees given in favour of the Hongkong Bank. Freshfields were also to advise upon, and represent the plaintiffs in respect of, the negotiation of capital reduction of the Ka Wah Bank and the proposed purchase of shares in that Bank by the China International Trust and Investment Corporation ("CITIC"); to attend and vote at meetings on the plaintiffs' behalf at an EGM of the Ka wan Bank; and to advise on the drafts of an audit report dated 31st December 1985 prepared by Touche Ross, as well as the terms of the representation letter to be sighed by the directors of the Ka Wah Bank.

5. The Schedule then states that Freshfields were to prepare a full statement concerning the involvement of all the plaintiffs in the Ka Wah Bank. The instructions for the preparation of the Statement included, it is said, the following matters:

"	(1)	Involvement of David Li, the Managing Director of East Asia Warburg  Limited ("E.A.W."), in discussions concerning CITIC and a Secret memo concerning E.A.W.
	(2)	The role of David Li in the AMRO/Amev/Kaihin negotiations.
	(3)	The actions of the Hong Kong Bank in connection with Ka Wah.
	(4)	The actions of the Commissioner in connection with Ka Wah.
	(5)	The involvement of Scnroders in the AMRO/Amev/Kaihin negotiations, including the interests of Paul Banner of Cambridge Financial Services Ltd."

6. According to the Schedule, Freshfields were retained also to advise on possible clams by the shareholders of the Ka Wah Bank, and on other civil and criminal proceedings which might be brought against the plaintiffs; on deeds of indemnity signed, and monies deposited by them in the Ka Wah Bank; on any possible counterclaims they might have and generally to advise the Lows as former directors of the Ka Wah Bank.

7. The Schedule goes on to say that Freshfields were also to prepare a Memorandum of Advice on the basis of the statement earlier referred to as to any potential claims the plaintiffs might have against the Commissioner and his advisers, the Hongkong Bank, East Asia Warburg, Michael Clark, W.C. Lam, David Li and Schroders. The Schedule concludes with the following statement: "The said Memorandum of Advice was completed and was to the effect that the plaintiffs have no possible claim against any of the proposed defendants."

8. Returning to the body of the Statement of Claim, I have to confess that try as I might I have found it impossible adequately to summarise all that follows the introductory paragraphs. With some regret, therefore, I feel wound to burden this judgment with the whole of the rest of the pleading:

"

5

Wrongfully and in breach of the said duty of care, the Defendants were negligent in rendering the said legal advice and professional services to the plaintiffs.

Particulars of Negligence

		(1)	Negligently advising the Plaintiffs that the 1st Plaintiff had no possible claim for conspiracy against, inter alios, David Li, Scnroders Asia Limited ("Schroders"), East Asia warburg Limited ("E.A.W.") and Touche Ross & Company ("Touche Ross") and should not commence proceedings against them for conspiracy;
		(2)	Negligently advising the plaintiffs that the 1st plaintiff had no possible claim in contract or tort against, inter alios, E.A.W. and Touche Ross and should not commence proceedings against any of them in contract or in tort;
		(3)	Negligently failing to advise the plaintiffs as to whether the 1st plaintiff had any possible claim in contract or tort, other than for conspiracy, against David Li and whether the 1st Plaintiff should commence proceedings against David Li for breaches of duties in contract or tort;
		(4)	Negligently failing to instruct leading counsel to give independent advice to the Plaintiffs on the aforesaid matters contrary to the express instructions of the plaintiffs; and
		(5)	Negligently failing to instruct any counsel to give independent advice to the plaintiffs on the aforesaid matters contrary to the normal practice of prudent and impartial solicitors in a case which clearly required and warranted the engagement of counsel.
	6.	Further or alternatively, by virtue of the said retainer, the Defendants owed to the Plaintiffs the following fiduciary duties, namely: -
		(1)	Not to place themselves in a position where their duties to the plaintiffs conflicted with their own interests or with their duties to other persons, in particular, not to act for parties whose interests were or night be adverse to those of the Plaintiffs in the course of the said retainer;
		[(2)	To give impartial advice to the Plaintiffs without being influenced by the effects which such advice might have on the interests of themselves or other persons;]
		(3)	To act in the best interests of the Plaintiffs. Such duty involves, inter alia, divulging to the Plaintiffs information and knowledge in the Defendants' possession which might have a bearing on the instructions given by the Plaintiffs; and
		[(4)	Not to obtain secret fees, profits or benefit in the course of the said retainer.]
	7.	Wrongfully and in breach of the said fiduciary duties set out in Paragraph 6(1) above, the Defendants in the course of the said retainer and without full or any disclosure to or consent by the Plaintiffs acted or continued to act as legal advisers and/or representatives for the following parties, namely: -
		(1)	The Overseas Trust Banking Corporation. and the Hong Kong Industrial and Commercial Bank which were owned by the Hong Kong Government and managed by the Hong Kong and Shanghai Banking Corporation ("the Hong Kong Bank");
		(2)	E.A.W. and David Li in Hong Kong and, through the Defendants' London Office, S.G. Warburg of London;
		(3)	The Bank of England, whose representative, Richard Farrant, was seconded to and advising the Commissioner of Banking of Hong Kong ("The Commissioner") in relation to the affairs of Ka Wah;
		(4)	The Hang Lung Bank which was owned by the Hong Kong Government and managed by the Standard Charterea dank which in turn owned 50% of Schroders in Hong Kong and which had seconded its Senior Credit Officer, Michael Clark, to be one of the two advisers to Ka Wah appointed by the Commissioner; and
		(5)	The Hong Kong Bank.
	[8.	Further or alternatively, by reason of the matters set out in the preceding Paragraph, the Defendants put itself in a position whereby they were unable to render impartial legal advice and professional services to the plaintiffs and/or failed to instruct leading counsel or any counsel to render independent legal advice to the Plaintiffs. The Defendants thereby acted in breach of the fiduciary duty set out in paragraph 6(2) above.]
	9.	Further or in the further alternative, by reason of the matters set out in paragraph 7 above, the Defendants were, during the course of the said retainer, in possession of substantial amount of information, unknown to the plaintiffs, which had or might have a bearing on the instructions given by the Plaintiffs.

particulars

	(1)	Failing to disclose to the plaintiff the fact that the Defendants were acting for the parties specified in Paragraph 7(1) to (5) above during the said retainer. Such non-disclosure was material to the said retainer in that the latter consisted, inter alia, of advice being rendered by the Defendants as to whether the Plaintiffs had any cause of action against the long Kong Bank, E.A.W., David Li, the Commissioner and his adviser and scnroders.
	(2)	Particulars of other information are within the knowledge and possession of the Defendants and will be supplied after the completion of discovery and/or interrogatories herein.
	Wrongfully and in breach of the fiduciary duty set out in Paragraph 6(3) above, the Defendants failed to divulge to the plaintiffs the information as aforesaid.

 

	[10.	Further or in the further alternative, by reason of the matters set out in paragraph 7 above, the Defendants were, during the course of the said retainer and without prior disclosure to or consent by the Plaintiffs, received for themselves from the Hong Kong Bank, E.A.W., David Li, Schroders and/or the Hong Kong Government secret fees, profits or benefits in connection with or arising from the said restructuring of Ka Wah. Particulars of such secret fees, profits or benefits are within the knowledge and possession of the Defendants and will be supplied after the completion of discovery and/or interrogatories herein. The Defendants thereby acted in breach of the fiduciary duty set out in paragraph 6(4) above and are liable to account to the Plaintiffs for the said fees, profits or benefits.]
	11.	The plaintiffs have, from time to time, paid to the Defendants upon the latters' demand professional fees for the legal advice and professional services purportedly rendered pursuant to the said retainer, the total amount whereof was HK$793,999.00. By reason of the said breaches of fiduciary duties, the Defendants are liable to repay the same to the Plaintiffs.
	12.	Further or alternatively, by reason of the said breaches of duty of care and/or breaches of fiduciary duties, the Plaintiffs have suffered loss and damage.
		Particulars of Special Damages
	The Plaintiffs had to instruct other legal advisers to render impartial advice on the matters which were within the said retainer and have thereby incurred unnecessary costs.

9. AND the plaintiffs claim: -

(1)		Repayment of the said sum of HK$793,999.00 under paragraph 11 above;
(2)		Further or alternatively, damages for breach of fiduciary duties and/or negligence to be assessed;
[(3)		An order that the Defendant do account to the Plaintiffs the said secret fees, profits and/or benefits;]
[(4)		An inquiry as to the amount of the said secret fees; profits and/or benefits;]
[(5)		Payment to the Plaintiffs of the amounts found to be due upon the said account and/or inquiry;]
(6)		Interests pursuant to s.48 of the supreme Court Ordinance, Cap.4'
(7)		Costs; and
(8)		Further or other relief."

10. The averments enclosed by square brackets were abandoned by Mr. Martin Thomas towards the end of his submissions to us. Mr. Thomas has represented the plaintiffs throughout these interlocutory proceedings.

11. Freshfields took out the summons from which this appeal arises on 11th September 1989 and, on the same day, the Waster made an order at the request of the parties that the summons be heard by the judge in chambers. The relief sought, under paragraphs (b), (c) and (d) of O.18, r. 19(1) and the inherent jurisdiction, was that the following parts of the Statement of Claim be struck out :

(i)		the words "or might be" in paragraph 6(1);
(ii)		the second sentence of paragraph 6(3);
(iii)		paragraphs 7 to 12 inclusive; and
(iv)		paragraphs (1) to (5) inclusive of the prayer for relief.

12. The summons was supported by an affidavit dated 5th October 1989 sworn by Mr Mark Freeman, the senior partner of Freshfields' Hong Kong Office. He has been a partner since 1974. He stated that the Lows were referred to him in January 1986 by the then senior partner of Slaughter & way (Hong Kong Office) acting for the Ka Wah Bank who felt that the Lows should have separate representation in the negotiations then taking place for CITIC to acquire the Bank, in the light of their substantial shareholding, through the 1st plaintiff, in the Bank. He was told that they also required advice in their capacity as directors of the Bank. Mr. Freeman said he understood that Slaughter & May would continue to act for and advise the Bank, as they had done.

13. When Mr. Freeman met the Lows, according to his affidavit, he was told that the matter upon which they needed immediate advice was whether the Commissioner of Banking of the day had the powers he had purported to exercise under section 13 of the Banking Ordinance in indirectly requiring the executive directors of the Ka Wah Bank (as we know, the Lows were such) to make themselves available in Hong Kong unless given permission by the Commissioner to go abroad.

14. Mr. Freeman's affidavit continues by saying that Fresnfields had, upon the instructions of the Lows, given them advice and had acted for them, in connection with a number of matters arising out of the restructuring of the Ka Wah Bank and their position as directors and indirect shareholders of the Bank. They had also given advice and acted for the Lows in various libel proceedings. In respect of the matters referred to in the Statement of Claim, Freshfields had ceased to act on 14th July 1987 by which date criminal proceedings had been instituted against the Lows in Hong Kong.

15. Mr. Freeman categorically denies that Freshfields ever acted for the following parties named in subparagraphs (1) to (5) of paragraph 7 of the Statement of Claim:

	(a)	the Hong Kong Industrial and Commercial Bank;
	(b)	the Hong Kong Government;
	(c)	Mr. David Li (personally or in any other capacity) ;
	(d)	The Hang Lung Bank.

16. About the Overseas Trust Bank Ltd. ("OTB") mentioned in paragraph 7(1), Mr. Freeman states that the fact that Freshfields were acting for OTB (advice which went back to December 1985) was well known to the Lows. He was "almost certain" that they were told about this in January 1986. He asserts that the fact that Freshfields continued to act for OTB in a claim against its former auditors in no way conflicted with their duties to the plaintiffs. Mr. Freeman refers to various file notes, letters, etc., copies of which are exhibited - which, he says, show that the plaintiffs were fully aware of Freshfields involvement with OTB, and he said he recalled that "there was no sense of embarrassment or awkwardness at our position following an enquiry from another firm of solicitors acting for OTB in other matters."

17. Regarding East Asia Waroburg, Mr. Freeman says that Freshfields acted for them in a small matter in August 1986 when they gave advice about the placing of a block of shares conferring control in a Hong Kong listed company to a number of independent investors without "triggering" the mandatory bid provisions of the Takeover Code. Although this matter was not mentioned to the plaintiffs, Mr. Freeman said, he did not believe that there was any possible conflict of interest between involvement in that transaction and advising the plaintiffs about a possible claim against East Asia warburg.

18. As regards S.G. Warburg and the Bank of England, Mr. Freeman acknowledges that Freshfields, through their London office, acted for them during the period covered by their retainer from the plaintiffs. He said that Freshfields had acted for the Bank of England since 1743 and worked extensively for S.G. Warburg in London. Mr. Freeman named the three other persons in his Hong Kong office who had advised the plaintiffs in relation to the matters referred to in the Statement of Claim and stated that none of them was involved in advising or acting for S.G. Warburg (or the bank of England) in London.

19. In respect of the Hong Kong and Shanghai Banking Corporation, Mr. Freeman states that Freshfields had done some work for the Bank, "mostly in Singapore, but also some in London, and one matter, and two small pieces of advice in Hong Kong."

20. Mr. Freeman also states that Freshfields did not act for any of the parties named in connection with the restructuring of the Ka Wah Bank as alleged in paragraph 10 of the Statement of Claim and firmly denies that his firm received secret fees, profits and benefits from any of them. We have seen that that paragraph has now been abandoned.

21. It is, I think, necessary to emphasize here that none of the facts averred in Mr. Freeman's affidavit, sworn now some 8 months ago, has been challenged or otherwise controverted in any particular.

22. In his extempore judgment given at the conclusion of the hearing which spread over two days, the learned judge said this, aster a brief introduction:

            "Mr. Thomas for the plaintiffs submitted that they had made out a sufficient claim for breach of fiduciary duty in the statement of claim. In particular, he referred to passages in Cordery on Solicitors and the English Law Society professional Conduct rules to demonstrate that the Defendants had a duty to pass on all material information to the plaintiffs and that they had placed themselves in an impossible position of conflict.

 

            I am satisfied from the judgment of Hinkson JA at p. 331 of Jacks v. Davis (1983). 1 WWR 327 which cites with approval Nocton v. Ashburton [1914] AC 932 that such a cause of action can arise on the material pleaded in the amended statement of claim.

 

            I regret that I reject the submissions made by Miss Li that a material averment was missing. I am satisfied that what is required is to nave regard to the overall situation. One must resist the temptation of attempting to formulate simple rules or tests. Each case has to be considered on its own merits.

 

            It is clear from the papers placed before me that the background situation when instructions were given was by no means simple and straightforward. What was involved was a complex situation involving a number of different participants. The Ka Wah Bank had got into difficulties as a result of the collapse of the Overseas Trust Bank.

 

            Where a situation of potential conflict of interest arises it is clearly the duty of a solicitor to advise its client of this. However, it would be wrong for me to attempt to go into any of this in any detail as I am only dealing with a strike out application. All of these matters will have to be ventilated in detail if and when the case goes to trial.

 

            It is only in a plain and obvious case that the stringent provisions of Order 18' r.19 can be invoked. I am satisfied that this is not such a case. I dismiss the application .........."

23. I will first deal with the cause of action in negligence pleaded in paragraph 5 of the Statement of Claim. The sufficiency or otherwise of this part of the pleading was not canvassed before the judge because the summons dated 11th September 1989 taken out by Freshfields made no mention of it. However, in the light of the preliminary views we had formed about the averments of negligence at an early stage of the hearing of this appeal we invited argument on the question whether paragraph 5 should be allowed to stand.

24. When a client alleges that a solicitor acting for him has been negligent by, say, failing to issue a writ within the relevant limitation period, or by omitting to give notice of an assignment so that he suffers loss, pleading the negligence is relatively simple. Where the claim against a solicitor is that negligent advice was given the matter becomes more complicated, but the pleader is not excused of his obligations under the rules relating to pleadings. It is surely well established that it is simply not enough for a plaintiff in effect merely to allege that the defendant has acted negligently and thereby caused him damage. He must set out all the material facts which show precisely in what respect the defendant was negligent so that the defendant knows what case he has to meet. One has only to look at subparagraphs (1), (2) and (3) of paragraph 5 of the Statement of Claim to see now lacking in the necessary particulars they are. There are averments which indicate under what heads the negligence claims are put forward but no facts are pleaded to found the allegation of negligence with which each subparagraph begins. If a surgeon is being sued for his negligent treatment of a patient, a pleading which merely avers that the surgeon negligently treated the patient, without particulars being given of the negligence and lack of skill complained of, will obviously fall short of what is required and fail to disclose a cause of action. If someone sues his stockbroker for negligently advising that he should buy certain shares, without more, his pleading will be defective.

25. As to paragraph 6(4) of the Statement of Claim, an affidavit (which was not before the judge but parts of which were placed before us without objection from Mr. Martin Tomas) sworn by Mr. Hugh Stubbs, another partner of Freshfields, draws attention to the averments in the Statement of Claim about the alleged failure of Freshfields to instruct leading counsel. He states that the plaintiffs first put forward the possibility of obtaining legal advice from leading counsel in London at a meeting he held with them in Taipei on the 26th and 27th September 1986. On 22nd October 1986, the 2nd plaintiff had told him on the telephone that he would be visiting London and had asked whether it would be appropriate for him to pay a courtesy call at Freshfield's London Office and also to discuss the matter with leading counsel. Mr. Stubbs says that he repeated advice he had earlier given that the suggestion was not practical since it would probably not be possible to brief leading counsel properly before the visit. The advice was repeated to the other Mr. Low in a telephone conversation on 25th October 1986 and in a fax message of 27th October, which is exhibited. Mr. Stubbs states that no further mention of instructing leaning counsel was made until he wrote to the Lows on 19th November enclosing a Memorandum of Advice on potential claims available to the 1st plaintiff company in connection with events surrounding the restructuring of the Ka Wah Bank. That letter is also exhibited. I think it is as well to read relevant extracts from the two fax messages, and the letter:

                    "[Fax dated 10th October 1986]

I suggest that in order to provide you with the advice we should proceed as follows:-

	1.	Identify the issues on which we should provide advice.
	2.	Provide you with a written memorandum of advice.
	3.	Discuss with you which issues advice from a London QC should be obtained on and recommend a QC accordingly."

                    "[Fax dated 27th October 1986]

We thus expect to be in a position by Monday November 17 to have a set of papers with which a QC can be properly briefed. These will comprise a comprehensive statement, a full set of papers and our advice on most of the topics referred to in my fax of 10 October. We can then review with you what issues we should be asking a QC to advise on.

 

It follows that I do not consider that we should make any attempt to arrange for CS to see a QC whilst he is in London. As I mentioned on the telephone on Saturday it is only worthwhile seeing a QC if he has had a proper opportunity to review the papers. Clearly this will take him some time."

 

"[Letter dated 19th November 1986]

 

You will see that in respect of each of the topics we have considered we have concluded firmly that you do not have an arguable claim. Frankly I do not consider that. It will be worth your while instructing a QC in London to give an opinion on any of these topics but if you would like me to do so please let me know. However you should appreciate that it will involve a lot of work for the QC to review the documents, your statement and the areas on which you will need advice and I question whether the cost of obtaining such advice makes it worthwhile." [Emphasis supplied.]

26. After first stoutly maintaininy that paragraph 5(4) had a sound factual foundation despite the unchallenged evidence of Mr. Stubbs and the documents I have set out above, Mr. Thomas later conceded that this could not be so and suggested that Freshfields' negligence lay in failing to advise the plaintiffs that they should instruct leading counsel. I mean no disrespect to Mr. Thomas when I say (using the language of O.19, r.18) that on the material before us this averment, in whatever form, is frivolous as being groundless and fanciful.

27. I now refer to paragraph 5(5) of the Statement of Claim ("Negligently failing to instruct counsel to give independent advice.....") merely (but with all due respect) to express surprise that such an averment featured in the pleading arid was then supported before us.

28. Towards the end of his submissions, Mr. Thomas withdrew all the averments, made implicitly, but clearly enough, that Freshfields had not acted impartially in the services they rendered to the plaintiffs (see paragraphs 5(5), 6(2), 8 and 12 of the Statement of Claim).

29. Mr. Thomas also withdrew the whole of paragraph 10 of the Statement of Claim with its allegations regarding "secret fees, profits" etc. "in connection with or arising from the said restructuring of Ka Wah", as well as other references to secret fees and profits in paragraph 6(4) and in paragraphs (3), (4) and (5) of the prayer for relief. It became perfectly clear during argument that these very serious allegations against a well-known firm of solicitors were totally without foundation. Quite apart from their duty to their client, taking a secret profit might be a criminal offence and will certainly amount to professional misconduct. Had counsel settled the pleading he would have been obliged to sign it; here counsel did not and so it was signed by the plaintiffs' solicitors (O.18, r.6(5)). The notes in paragraphs 18/6/1 of the white Book cite from the judgment of a case decided well over 100 years ago where it was said that the signature of counsel "to which the court [pays] the greater possible respect, is to that extent a voucher that the case is not a mere fiction." I hope it will not be thought impertinent if I ask whether solicitors signing a pleading would wish to be judged by any lesser standard of responsibility. It was an appalling error of judgment in the circumstances of the case to include paragraph 10 in the Statement of Claim. Solicitors must not allow themselves to be the instrument of their clients to settle a pleading containing groundless allegations of that sort.

30. As the claim was originally pleaded, it was no part of the plaintiffs' case that the matters in respect of which Freshfields acted, or continued to act, for the parties mentioned in paragraph 7 of the Statement of Claim were matters which in view of the nature of the retainers put Freshfields in a position where their duties respectively to those parties and to the plaintiffs were in conflict. The averment was that simply by acting or continuing to act for those parties Freshfields were in breach of their fiduciary duties to the plaintiffs.

31. When one turns to paragraph 9 of the Statement of Claim (without paragraph(1) of the particulars which was added during the hearing before Mayo J.) as we have seen, the paragraph begins with an averment that because Freshfields acted or continued to act for the parties named in paragraph 7 in the course of the plaintiffs' retainer Freshfields were "in possession of a substantial amount of information, known to the plaintiffs, which had or might have a bearing on the instructions." Particulars were promised after discovery. During the strike out application, particulars were added which in reality founds what remains of the claim against Freshfields - the failure to disclose to the plaintiffs that they were acting for the parties referred to in paragraph 7.

32. If I understood correctly the contentions advanced by Mr. Thomas in support of the judge's decision, as he developed them after considerable reformulation during the hearing of the appeal, they were to this effect. The solicitor/client relationship is a fiduciary one. One of the fiduciary duties owed to a client is that there be full disclosure to him of all material facts. It is a material fact that any member of the solicitor's firm working in an office at home or abroad has accepted instructions from a party when they were instructed by the client to advise whether he had a cause of action against that party. It is a material fact because it might affect the client's decision whether or not to retain, or continue to retain, the solicitor. If there is non-disclosure, then, whether or not there was a real conflict of duty and duty, or duty and interest, in relation to the client and the other party, an actionable breach of duty has occurred for which equity will grant relief by way of compensation. The proper measure of compensation on the facts here is for the client to recover either the fees he has paid to the solicitor who has failed in his duty or to recover the expenses he has had to meet in paying for other legal advice which he had to seek because the breach of duty destroyed his confidence in the advice he had earlier received, without any enquiry as to the nature, extent and timing of the professional services rendered to the other party. All this does not depend upon whether or not the advice first given is proves to be sound or not, or whether any loss in the real sense has resulted.

33. I do not think it can be doubted that Cordery on Solicitors (8th Edition) pp.64-65 sets out the true position as established by the authorities. I set out the "general rule":

"A solicitor who has been retained by a client is under an absolute duty not to disclose any information of a confidential nature which has come to his knowledge by virtue of the retainer, and to exercise the utmost good faith towards his client hot only for so long as the retainer lasts but even after the termination of the retainer, in respect of any information acquired during the course of and by virtue of the retainer; and the court will restrain the solicitor by injunction from any breach likely to injure the client, and award damages for breach. There is no absolute rule prohibiting a solicitor who has acted for one client in a matter subsequently acting for an opposite party in the same matter, but where a solicitor owes a duty to a third party which conflicts with his duty to a particular client he is not relieved of his duty to that client.

 

            As a general rule a solicitor should not accept instructions to act for persons whose interests are or are likely to be in conflict; if he does so he acts at his peril, and the onus of showing that the conflicting interests did hot prevent him from doing his duty to both clients must rest firmly on the solicitor. A conflict of interest does not invalidate the authority of the solicitor under his retainer out he should not act for a party in a transaction in which he has an adverse interest."

34. Paragraph 133 of Halsbury (4th Edition) Vol.44, is to much the same effect. The authors of both works rely, inter alia, on Rakusen v. Ellis, Munday and Clarke [1912] 1 Ch. 831 for the propositions most important to the issues before us. I take the facts from the headnote:

"M. and C were the only partners in a firm of solicitors named E.M. & C. and were in the habit of doing business separately and without any knowledge of each other's clients. R. consulted M. with reference to an action for wrongful dismissal which he desired to commence against a company. He then changed his solicitors and issued his writ, and the matter was referred to arbitration, the proceedings in which were still in progress. C. was away at the time and knew nothing of the consultations between R. and M., and whilst the arbitration was going oh he was appointed under the name of & C. to act as solicitor for the company in the arbitration. R.. applied for an injunction to restrain E.M. & C. from acting for the Company: -"

35. At first instance, Warrington J. held that the principle which had been laid down was that a solicitor, having once been employed to act for a man, should not act against him in the same matter; although there was no imputation against the firm of solicitors concerned and no danger of anything improper being done, they would be restrained by injunction (undertakings having been offered to the court and refused) from acting as the company's solicitors in the arbitration proceedings.

36. The Court of Appeal held that there was no such general rule (rather of the kind suggested by Mr. Thomas). Cozens-Hardy M.R. said, at p.835:

"I do not doubt for a moment that the circumstances may be such that a solicitor ought not to be allowed to put himself in such a position that, human nature being what it is, he cannot clear his mind from the information which he has confidentially obtained from his former client; but in my view we must treat each of these cases, not as a matter of form, not as a matter to be decided on the mere proof of a former acting for a client, but as a matter of substance, before we allow the special jurisdiction over solicitors to be invoked, We must be satisfied that real mischief and real prejudice will in all human probability result if the solicitor is allowed to act."

 

At p.842, Buckley L.J. said this:

 

"There is a general principle, applicable not to solicitors only but to confidential agents of all kinds, that confidential information shall not be used against the principal from whom, or for whom, and in whose employment, it has been obtained. There is no general rule that a solicitor who has acted in a particular matter for one party shall not under any circumstances subsequently act in that matter for his opponent. Whether he will be restrained from so acting or not depends on the particular circumstances ..........."

And at p.843, he had this to say:

"Mr. Cave has asserted this general principle, which he says is to be found in the authorities - that when a solicitor has acted for a client in a particular matter he or his partners, cannot act against that client in anything relating to that matter, and that this is true irrespective of the particular circumstances of the case. I am of opinion that there is no such principle. There is no law that because a solicitor has acted for a person he may not afterwards act against him in the same matter. It depends on circumstances whether he shall be allowed to act or not."

37. For Freshfields, Mr. Newman, who did not appear in the court below, relied heavily on that authority for the general principles it lays down. Mr. Thomas acknowledged that the case was against him, but submitted that the law had been developed by a number of Canadian cases which he cited to us. For my part, I did not find any assistance in those cases and I do not read them as affecting the principles applied in the Rakusen case. I have no doubt that we should follow that autnority which has stood for so long, and not attempt to extend the well-established responsibilities of solicitors when acting for opposing interests, to the confusion of the profession and the courts and without any legitimate benefit accruing to clients.

38. It seems to me clear that the plaintiffs did not have a cause of action based on breach of fiduciary duty unless they were able to plead (and later prove) an actual conflict of duty and not merely a theoretical one, with resulting loss. I accept Mr. Newman's submission that if they are to have a valid cause of action, they must plead, which they do not, a causal connection between the matters in respect of which Freshfields were retained to act for the plaintiffs and the matters in respect of which they were retained to act for the other parties. The plaintiffs made no attempt to identify the duties and interest alleged to be in conflict (they say this is irrelevant). All that is as a matter of pleading. As to facts, Mr. Freeman's affidavit (and there is nothing contra) shows that there would be ho substance in any allegations of actual conflict of interest or of any detriment whatever being suffered by the plaintiffs, if such were to be made.

39. As his judgment shows, the learned judge relied upon Nocton v. Ashburton [1914] A.C. 932. That case is, of course, of high authority for the principles it re-states. It makes it clear, inter alia, that an action may lie against a solicitor for loss suffered by his client through a misrepresentation made to him in breach of the solicitor's duty (to exercise due care and skill in the management of his affairs) without any fraudulent intent in the common law sense. There is also Lord Haldane's valuable account of breaches of duty to which equity attaches its sanction. As well, the case shows, that due to the fiduciary relationship involved, a solicitor may incur liability for failure to fulfil his duty to make full disclosure to his client even though his conduct may fall short of negligence at common law. But in my judgment, neither that case, nor the Canadian authority also relied upon by the judge, Jacks v. Davis 141 D.L.R. (3d.) 355 help to resolve the issues raised by Freshfields' summons.

40. With very great respect to tae judge who took a different view, in my judgment a proper evaluation of the pleading and the other material before the court makes it plain and obvious that the entire pleading is incurably bad; indeed I go so far as to say that all the defects enumerated in subparagraphs (a) to (d) of O.19, r.18(1) are present.

41. The claims as formulated are quite hopeless and are wound to fail. No answers to requests for particulars will save a pleading which his so fundamentally bad. No application has been made to amend the Statement of Claim and, in my view, it is not capable of legitimate amendment, however radical, for it is wholly misconceived.

42. The averments regarding secret profits and those which imply a failure to give impartial advice, all rightly, albeit rather belatedly, abandoned; the unparticularised allegations of negligence; the absence of a plea of what I will call a real conflict of interest, with resulting loss, all point, I am sorry to have to say, to a serious abuse of the process of the court.

43. An appellate court can only interfere with the discretion of a judge on well known principles which I will not re-state here. Again, with very great respect to the judge, I entertain no doubt that a discretion properly exercised in this case could only have been exercised in one way.

44. I would therefore allow the appeal and have no hesitation in proposing that the whole Statement of Claim be struck out even though the entire pleading was not sought to be struck out on the application before the judge. That we have the inherent power to do this is made plain, for example, by Huntly v. Gaskell [1905] 2 Ch. 656. We cannot allow the machinery of the court to be used as a means of vexatious oppression. These were proceedings which should never have been launched and which have been allowed to remain alive for too long as it is.

45. The order I would make, therefore, is that the appeal be allowed, the Statement of Claim in its entirety (together with the writ upon which it is indorsed) be struck out and that judgment be entered for the defendants dismissing the action.

Hunter J.A. :

46. I agree, and would only add some words of my own by reason of the unusual nature of these proceedings and of this appeal.

47. I am satisfied that these proceedings constitute the plainest abuse of the process of this court which this court of its own motion should bring to an end. My reasons for so concluding are as follows.

48. First, "the particulars of negligence" pleaded are totally hollow and lacking in substance. Particulars (1), (2) and (3) are simply heads of complaint which lack every essential allegation of fact. Particular (4) was accepted as insupportable in fact as it stands. The suggested substitution that the defendants were negligent in advising the plaintiffs not to instruct leading counsel was equally unparticularised and untenable. Particular (5) is insupportable without a particularised allegation that the defendants had authority express or implied to instruct junior counsel.

49. Secondly, until half-way through the argument in this court, the Statement of Claim contained two very serious allegations against the defendants calculated to cause them the greatest concern. The first was the overt insinuation that the advice they tendered to the plaintiffs was partial, without a single fact alleged in support of it. The second was the alleged receipt of "secret fees, profits and benefits" in circumstances which had no connection even with the earlier allegations of breach of duty. The plaintiffs properly submitted to the striking out of these allegations. But when a party makes allegations of this nature in this way, and then circulates the pleading very widely from the safety of Taiwan, he cannot complain if a court draws adverse conclusions.

50. Thirdly, the rump of the Statement of Claim can be seen to be devoid of substance both in its original form and as later amended and explained in argument. The original formulation of principle in paragraph 6(1) was in part correct when it emphasised the requirement of conflict between interest and duty or duty and duty, and the risk of conflict which arises where interests are adverse. As the decision in Rakusen v Ellis Munday and Clarke [1912] 1 Ch 831 shows, the relevant principle is part of the law of confidential relationships which applies with particular force to solicitors. As Buckley LJ emphasised at pps 643, 645, the solicitor's basic duty is "not to communicate confidential information", and when the risk of this is sufficiently proved the court will interfere quia timet by way of injunction. But the court rejected the broad technical principle formulated by Warrington J that the court would not even enquire into the facts and that the creation of any risk of conflict sufficed. As Cozens-Hardy MR observed: -

"Many busy solicitors in this country would find it impossible to carry on their business at all if that was the true rule" p 839.

51. The court made it clear that the question in every case is one of fact. Taking by way of illustration the example or a solicitor who is acting for A but is then invited to act for B, this necessarily involves consideration of the relationship between the terms and nature of the retainer from A and to the confidential information received from him, with the terms and nature of the retainer offered from B and to the nature of the confidential information likely to follows its acceptance.

52. It sees to me that the problem can be analysed thus: -

	(1)	If investigation of B's proposed retainer reveals that it is quite unconnected with the relevant affairs of A, or if there appears to be no prospect of conflict, the solicitor may safely act for B.
	(2)	If on the other hand a potential risk of conflict is revealed, the solicitor accepts instructions from B at his peril, but does not by his act of acceptance reach his fiducary duty to either.
	(3)	The solicitor only commits a breach of this duty to either client if the position of conflict leads him to give defective advice or to fail to give proper advice or information to either client.
	(4)	If in consequence of such behaviour either client suffers damage, his cause of action whether for compensation in equity or for damages is complete.

53. This analysis snows that if A wishes to complain of his solicitor's conduct in relation to B, he must be in a position to plead and prove facts which show

	(i)	Actual conflict;
	(ii)	Breach of duty;
	(iii)	Consequential loss or damage.

54. This Statement of Claim does none of these things, and indeed it is denied that they are necessary. It is fundamentally defective.

55. Mr Martin Thomas, QC sought to justify these omissions by recourse to a quite different duty from that pleaded originally or then hinted at by way of amendment, to the effect, in the example I have taken, that the solicitor committee a breach of his duty to A if without A's informed consent he accepted instructions of any Kind from any person who is the subject matter of the solicitor's advice to A and might become a defendant in proceeding by A. In this case, for example, it was said that the defendants should not have accepted instructions to act for Bast Asia warburg (EAW) even in respect of a non-contentious matter in no way  connected with any possible claim which might be made by the plaintiffs against EAW, without informing the plaintiffs so that the plaintiffs had a free choice whether to continue to retain the defendants' services. A corresponding parallel duty to inform EAW before accepting its instructions was also said to arise.

56. Such a duty is wholly unsupported by authority and would be unworkable in practice. The performance of this alleged duty of disclosure, would require the solicitors to do that which, it is quite clear, they cannot do, namely, to reveal to either client the nature of their instructions and the confidential information received from the other. The suggestion that before accepting instructions to act for EAW in this case on an unconnected non-contentious matter, the solicitors should have warned EAW that they were then acting for the plaintiffs and were advising the plaintiffs about prospective proceedings against EAW, has only to be stated to be rejected. The concept of informed choice is untenable. As the above analysis shows the problem is one which the solicitor cannot snare but must solve for himself.

Penlington J.A.:

57. I have seen in draft the judgments of Fuad, V.-P. and Hunter, J.A. with which I agree.

58. I also have no doubt that this whole action should be struck out. Mr. Thomas  has endeavoured to show that the principles set out in Rakusen should now he looked at in the light of the more recent Canadian cases which he suggests apply a more stringent standard. It is however clear that those cases all concern injunctive relies where there was a possible danger of conflict. They do no wore than re-state the fundamental principle that if a solicitor has received confidential information from client A he must not disclose it to any other person. If he then acts for client B he also has a duty to him to disclose any relevant information he has. If he cannot maintain those two positions he must not act for both clients. If he does so he may be restrained by a court order and runs the risk of being liable if one of the clients can show damage.

59. I am satisfied that in the circumstances of this case there was no danger of a conflict of interest and there is not even the remotest evidence of damage.

Fuad, V.-P.:

60. In handing down these judgments allowing the appeal and dismissing the action, we make the following order nisi as to costs:

	(a)	the plaintiffs to pay the defendants the costs of the action, including the costs of the interlocutory proceedings;
	(b)	the plaintiffs to pay the defendants the costs of the appeal.