England and Wales High Court (Chancery Division) Decisions

Young and Irby v. Rhodes and Attwood [1999] EWHC Ch 242 (30th March, 1999)

B E T W E E N

Mr. G. Pollock QC and Mr. B. Doctor instructed by Bracher Rawlins for the Plaintiffs
Mr. Ali Malek QC and Mr. D. Quest instructed by Lovell White Durrant for the Defendants

DATED: 30 March 1999

Contents

A. Introduction

B. The Retainer Claim

(i) The course of conduct.
(ii) The parties' respective arguments
(iii) Was there a retainer?
(iv) What type of retainer?
(v) Relief for repudiatory breach.

C. The Confidentiality Claim

(i) Prince Jefri Bolkiah v KPMG
(ii) Chinese Walls
(iii) Approach and conclusions

ANNEX I - Proposals for Information Barrier

ANNEX II - ORDER

SCHEDULE - Information Barrier

Mr. Justice Laddie:

A. Introduction

1. The plaintiffs in this action, Mr. Nigel Young, Mr. Henry Young and Mr. Paul Irby are or were Names at Lloyd's and members of Lloyd's Syndicate 190 ("the Syndicate"). Mr. Nigel Young and Mr. Henry Young are brothers. A firm of auditors, Messrs Pannell Kerr Forster ("PKF") were auditors, or joint auditors, to the Syndicate. The Syndicate has incurred very large losses. Some 659 members of the Syndicate, including Messrs Young and Irby, have commenced four actions in the Commercial Court against PKF alleging negligence and breach of contract. The pleadings are extensive and the allegations made against PKF include assertions of impropriety. Mr. Richard Slade, a solicitor acting on behalf of the plaintiffs, has summarised the claim made against PKF as follows:

"(1) PKF acted negligently and in breach of duty in making, participating in, agreeing, approving or reporting on the decisions to close the 1979-1988 years of account into each succeeding year, and/or the assessment and effecting of the reinsurances to close (RITCs) in relation thereto and/or the fixing of premiums therefor;

(2) They committed such breaches of duty deliberately in circumstances in which they were unlikely to be discovered by the Names for some time; or alternatively, they knew that they were committing breaches of duty or were reckless as to whether they were or not."

That précis of the causes of action is not disputed for the purpose of this action.

2. For the purpose of formulating and advancing the cases against PKF, the Syndicate Names needed the help of a firm of accountants with relevant accountancy and auditing expertise. On 1 December, 1997, the Names' then solicitors, Charles Russell, contacted Mr. Frank Attwood, a partner in Robson Rhodes ("RR"). They are respectively the second and first defendants in the present proceedings. There is no dispute that Mr. Attwood and the team of people he works with in the forensic accountancy department of RR have a considerable reputation in relation to this type of litigation. They have assisted in a number of actions brought by or on behalf of Lloyd's Names. It was as a result of their pre-eminence in this field that they were approached on behalf of the Syndicate Names. Mr. Attwood agreed on behalf of RR to assist the Syndicate. As a result, over the next year or so Mr. Attwood and another RR partner, Mr. Hamedani together with two other RR employees, a Mr. Bowling and a Ms. Bell worked on the litigation against RR. Mr. Bowling is no longer employed by RR. Ms. Bell is a chartered accountant and senior manager within the firm.
3. The relationship between the Syndicate Names on the one side and RR and Messrs Attwood and Hamedani on the other suffered a damaging and, from the Names' point of view, quite unexpected blow on 8 March 1999 when Mr. Attwood telephoned Mr. Nigel Young to tell him that there would be press announcements on the following day of a planned merger between RR and PKF. The negotiations for the proposed merger had been conducted over a number of months but had been kept confidential to a very limited number of people within the two firms. Apparently Mr. Attwood did not hear of them until a meeting of Executive Committee of RR on 13 January, 1999. When Mr. Attwood told Mr. Young some two months latter, he said that if the merger went ahead, RR would have to cease acting for the Syndicate Names. This news caused the Names grave concern. Not only were they to lose their chosen forensic accountants but they were, in effect, going to join the enemy camp.
4. On 10 March, the plaintiffs' solicitors, Bracher Rawlins, sent a letter before action to Mr. Attwood and RR. They asked for an undertaking from RR that the merger with PKF would not proceed until after the trial of the Names' actions against PKF. I understand that it is likely that that would involve a delay of some 12 to 18 months. In any event, no such undertaking was forthcoming. On 11 March, the writ in this action together with a notice of motion were served on the defendants. In it the plaintiffs sue on their own behalves and on behalf of the other 656 Names who have brought proceedings against PKF. A statement of claim was served on 12 March. On the return date of the notice of motion, 16 March, the matter came on for hearing before Hart J. He ordered certain further and better particulars of the statement of claim to be served by 18 March, dispensed with further pleadings, set a timetable for the service of affidavit evidence and ordered the action to be tried on Thursday 25 March. The reason for setting such a short timetable is that the partners in RR and PKF are due to vote on the proposed merger on 17 April of this year. If approved, the merger will take place on 1 May. So, when the action came on for hearing, the statement of claim and particulars had been put together in a hurry, there was no formal defence, evidence was by affidavit or affirmation and there was very little discovery. This was not an impediment. Neither party had any difficulty understanding and responding to the other's case.
5. The main relief sought by the plaintiffs is an injunction to restrain the defendants from proceeding with the proposed merger with PKF until such time as the trial of the actions against the latter firm are completed. It bases its claim to relief on two causes of action. First it says that RR and Mr. Attwood were retained to act on behalf of the Syndicate names in their actions against PKF, to give expert witness evidence at the trial and to prepare an appropriate expert report. The merger would make that impossible. So they sue for breach of contract. Amongst other things, the defendants say that they owe the plaintiffs no continuing obligation.
6. Second, the plaintiffs say that Mr. Attwood, Mr. Hamedani, Mr. Bowling and Ms. Bell have had access to valuable, indeed crucial, confidential information relating to the conduct of the cases against PKF. If the merger proceeds, there is a risk of some of that information passing to PKF to the detriment of the Names. That is a risk to which RR should not subject its clients. So the plaintiffs sue for breach of confidence. In relation to the latter issue the plaintiffs rely in particular on the recent decision of the House of Lords: Prince Jefri Bolkiah v KPMG [1999] 2 WLR 215. The defendants accept that they have had access to valuable confidential information. But they have offered extensive undertakings, which they refer to as their "Proposals for Information Barrier" and which are set out at the end of this judgment, designed to safeguard the Names' interests. With those undertakings in place, the defendants say that the risk of harmful disclosure to personnel within PKF is fanciful or merely theoretical.

B. The Retainer Claim

(i) The course of conduct.

7. The parties' arguments in relation to the contractual issue can only be understood by having in mind at least an outline of the relationship created between them and the work done by the defendants over the 18 months before the 8 March 1999 telephone conversation.
8. Charles Russell first approached Mr. Attwood by telephone on 1 October, 1997. There is an attendance note of that conversation (Trial Bundle Vol. 2 p. 1.). Mr. Attwood was asked whether he would be prepared to help the Syndicate in its litigation with PKF. He was told that the proceedings were at an early stage, that the Syndicate needed expert accountancy opinions and that the purpose of the telephone call was to "put down a marker and get [Mr. Attwood] on board before anyone else contacted him". This conversation was followed by a letter of 2 October from Charles Russell (Trial Bundle Vol. 2 p. 3.). Insofar as material it states:

"... At the present time it is anticipated that accountants' evidence will, broadly speaking be required in relation to various audits carried out by Pannell Kerr Forster, with particular reference to RITCs during the period 1982 to 1991. In this regard the Plaintiffs are currently considering the question of the appropriate expert or experts to provide such evidence and you have been recommended. You indicated during our conversation that you would be interested in providing your services.

Subject to being able to agree appropriate terms and conditions the Committee of the Syndicate 190 Names Association, through whom we receive instructions, would like to retain your services for the purposes outlined above."

9. This letter was responded to by letter of the same date (Trial Bundle Vol. 2 p. 5.). It was headed "Action against the auditors of Syndicate 190". It set out RR's hourly charging rate and included the following:

"We are writing in relation to instructions regarding the above matter.

You would require us to act as accounting and auditing experts and furnish you with a written report in respect of any negligence or breach of duty in connection with the audits of Syndicate 190 relating to the closure of years ended on or after 31 December 1979."

10. This correspondence was then followed by a meeting on 22 October attended by Mr. Attwood, Mr. Hamedani and the Young brothers. The relevant attendance note (Trial Bundle Vol. 2 p. 8A.) records that as a first stage an expert auditor's report was required, not for litigation purposes, but to confirm to Counsel that he was "on track". Apparently the Youngs explained that if the report was favourable, this would lead to litigation proceeding and formal expert analysis of documents obtained from PKF would be required. The Youngs explained that they had 2 prospective experts in mind, RR and a firm called Newton Grant. This meeting was followed by a letter of 23 October (Trial Bundle Vol. 2 p. 16-18.) from Mr. Nigel Young to RR which included the following:

"As a result of his views on limitation Mr. Doctor [junior Counsel for the plaintiffs] requested we engage a person familiar with the duties of Lloyd's auditors during the 1980's and 1990's, not for the usual formal purpose of performing as litigation expert (with which you will be familiar), but for the somewhat unusual purpose of confirming that which appears to be apparent from the papers so far obtained and also to "sharpen up" the Points of Claim if necessary. ...

We have invited you, subject to agreeing mutually fair and suitable terms, to provide us with this assessment and thereby make yourselves eligible to become our audit and accounting expert witness. We are also inviting one other firm to make a similar proposal with a view to making our choice at the end of the first week in November. ...

In essence, this preliminary report is a prerequisite to appointment as litigation expert. ...

If, as I anticipate, the report is favourable, I cannot see how but that its preparers will be selected as the Association's expert's (sic) for the purposes of the litigation."

11. In a letter of 28 October (Trial Bundle Vol. 2 p. 19.), RR referred to its extensive expertise in acting, inter alia, as an expert in High Court litigation and then set out the terms on which it would be prepared to produce the preliminary report required by Mr. Young. Negotiations relating to the terms on which the preliminary report was to be produced then followed. Nothing turns on this save that in a letter of 26 November (Trial Bundle Vol. 2 p. 34.), Charles Russell stated:

"The primary purpose of the report you are being asked to prepare is to assist in the evaluation and future formulation of the Plaintiffs' case on the basis of the views of an expert who is prepared to give evidence in support of the same."

12. The preliminary report was finally produced at the end of March 1998. Thereafter there was no formal appointment of RR or Mr. Attwood as experts for the Names. There was no suggestion either that anyone else had been appointed as an expert. The parties undertook additional steps to prepare the plaintiffs for the action. There were discussions on how best to prepare documents for trial (Trial Bundle Vol. 2 p. 79.), Mr. Attwood made suggestions as to the amendment of the Names' pleadings (Trial Bundle Vol. 2 p. 81.) and there were conferences at which RR, and Mr. Attwood in particular, were asked to and did comment on PKF's points of defence and the further particulars to be sought and on quantum.
13. In the summer of 1998, the plaintiffs changed solicitors. Their new solicitors, Bracher Rawlins, wrote to Mr. Attwood on 6 August (Trial Bundle Vol. 2 p. 88.) in the following terms:

"Dear Mr. Attwood,

THE SYNDICATE 190 NAMES ASSOCIATION and PANNELL KERR FOSTER

Further to our recent meeting and to our appointment as Solicitors on the record in place of Charles Russell, I am simply writing formally to confirm my firm's agreement to take over your retainer on the same terms as before. Would you kindly confirm that this is acceptable to you. ..."

14. RR replied on 12 August (Trial Bundle Vol. 2 p. 89.) confirming that:

"... we will be happy to retained on the same terms as previously and enclose a copy of our previous letter of engagement."

The letter so enclosed was the one dated 2 October 1997 which set out RR's hourly rates.

15. Further work was done by RR and Mr. Attwood in the latter part of 1998. This is evidenced by an analysis of costs (Trial Bundle Vol. 2 p. 136.) produced by RR and sent to Mr. Nigel Young on 4 January, 1999. The RR fees involved are not large. Indeed, as Mr. Attwood put it in his affidavit in this action, from RR's point of view this job has not been a substantial one.

(ii) The parties' respective arguments

16. Based on this material, and the evidence filed and give orally before me, the parties advanced their respective cases. The plaintiffs' is that RR and Mr. Attwood were retained to be their experts through to the trial. They rely on the fact that when the defendants were first approached by Charles Russell in October 1997 they were told that the plaintiffs had in mind a two stage process as regards the defendants' participation in the proceedings. The first, consisted of the preparation of an initial report assessing the plaintiffs' case against PKF. If that indicated that the plaintiffs' claim was worth pursuing then the plaintiffs would move to the second stage, which would consist of appointing forensic accountancy experts for the trial. If the report was favourable, the most likely candidate for the latter stage would be the defendants. In fact the report was favourable and thereafter the defendants continued to assist the plaintiffs in the preparation of their cases. The plaintiffs say that both sides proceeded on the basis that RR, and particularly Mr. Attwood, would be the plaintiffs' expert at the trial. After the preliminary report had been produced, it was not suggested that the plaintiffs were looking for any other expert or that they needed to. When there was a change of solicitors, some 5 months after that preliminary report had been signed off, Bracher Rawlins took it for granted that the defendants were retained and so expressed themselves in their letter of 6 August. RR did not dissent. It confirmed that it was retained. The plaintiffs' case is that such retainer was, and could only be, as experts for the trial. They say that that was the common understanding and expectation of both sides. Mr. Pollock, who appears for the plaintiffs in the action before me, relies, amongst other things, on Mr. Attwood's evidence in the witness box to the effect that his expectation was that he would write the expert report for the plaintiffs in the action against PKF and that he had every expectation that he would be on the plaintiffs' side for the trial. The plaintiffs say that the effect of the correspondence, discussions and actions of the parties was that a retainer came into existence.
17. The defendants deny that any such retainer ever existed. Although they accept that the plaintiffs intimated to them that a two stage process as referred to above was in contemplation, that never matured into a retainer. On the contrary, terms were agreed for the preparation of the preliminary report and it was duly produced. Thereafter, although RR and Mr. Attwood were contracted to, and continued to, work on an ad hoc basis for the plaintiffs, they had no ongoing obligation to do so. They rely on the absence of any express term in any document appointing RR or Mr. Attwood to act for the Names through to the trial. They also say that no such retainer can be implied into the relationship between the parties. Among the matters relied upon are the following. (i) There was no agreement or request that Mr Attwood's time should be set aside exclusively to carry out further work for the Plaintiffs although the work envisaged by the Plaintiffs might take weeks or months of his time. (ii) There was nothing in the arrangements with the plaintiffs which would prevent Mr Attwood from leaving RR or retiring (he is 56 years old) or working on other projects. (iii) The retainer would be very one-sided: RR would be required to ensure that it has personnel and resources available to carry out the plaintiffs' instructions, yet the plaintiffs would have no corresponding obligation to provide work to RR and would be free to use other experts at any time. (iv) The plaintiffs did not offer to pay a commitment or retainer fee to guarantee Mr Attwood's availability. (v) The work and the actions were still at an early stage: RR have not yet been asked to review PKF's working papers, the point at which the bulk of the work of the expert in an audit negligence action is done. (vi) There was no agreement on RR's fees for further work and no certainty that the parties could reach agreement on future work.
18. Mr. Malek, who appears for RR and Mr. Attwood, also relies on Mr. Attwood's affidavit evidence that it had never been his understanding that RR, as a firm, nor he, as an individual, were under any contractual commitment to give expert evidence in the litigation although they hoped that all being well they would be asked to do so. His understanding was that the plaintiffs were taking the matter step by step in a series of specific assignments. He said that he believed they would probably ask RR and him to do further work but recognised they were also free to instruct someone else if they preferred. This evidence was also bolstered by his oral evidence, in which he said that he believed that he could refuse to work any further for the Names at any time. Mr. Malek also relies on Mr. Hamedani's oral evidence to the effect that RR would not have agreed to act as expert witnesses in an action without putting in place a proper contract of engagement setting out what the remuneration and obligations of RR were to be.

(iii) Was there a retainer?

19. Having listened to all the witnesses and read the documents, I have little doubt that both parties by the middle of 1998 understood and acted on the basis that RR and Mr. Attwood were retained as the Names' expert for the trial of the four actions brought against PKF. I accept, of course, that it would have been better had an express contract been signed by the parties. But the fact that no such written document exists does not mean that there was no such retainer. RR and Mr. Attwood knew that the Names intended to appoint their experts for the trial as soon as possible after the preliminary report had been received. They had been told at the very outset that they had been approached with a view to their engagement as experts to give evidence at the trial. They had been told that the production of the preliminary report was the pre-requisite to appointment as experts and that, if the report was satisfactory - as it proved to be, it was almost inevitable that they would be on board for the trial. They knew that they were only in competition for the appointment with one other firm. By the beginning of 1998 they must have known that no other potential experts were involved. That was why Mr. Attwood was fairly confident that he would be asked to prepare the expert's report for the trial. When, some 5 months after the preliminary report stage was finished, Bracher Rawlins confirmed to Mr. Attwood that it would take over his retainer and Ms Bell responded by confirming that RR would be happy to be retained on the same terms, the only retainer which could have been in mind was a retainer to continue to help the Names in the preparation of their case and to be the expert witness at the trial. I have little doubt that if, at that time, anyone had asked what the retainer was which was referred to in the August correspondence, both parties would have so identified it. In fact at one point during his cross-examination, I think Mr. Attwood came close to accepting that he and his firm were retained on an ongoing basis to the trial. When asked whether he could refuse to help the Names he said that he would have been able to do so "if there was a reason".
20. I am not persuaded by Mr. Malek's arguments that there could be no retainer because there was no agreement as to how much time Mr. Attwood should set aside for the action, that Mr. Attwood might have to retire, that there was no commitment fee and that there was no agreement on fees. As to the last of these, there was an agreement. RR's hourly rates had been set out and accepted by the Names. As to the amount of time Mr. Attwood should set aside, no doubt at an early stage it would not be possible to put a figure on this. In any event, although the absence of discussion of this might have resulted in the opportunities for future disputes as to the size of bills, that does not mean that no retainer existed. RR and Mr. Attwood would continue to do the necessary work on the hourly rates they set. The fact that Mr. Attwood might retire would not prevent him from continuing to act as an expert. Finally there is no immutable rule that there must always be a commitment fee.

(iv) What type of retainer?

21. The fact, as I find, that RR and Mr. Attwood were retained does not, however, determine the issues on the contractual part of the plaintiffs' claim. What sort of retainer was involved? Mr. Pollock argues that the correct starting point is to consider what would be the position of a solicitor who was retained to act in litigation. This was considered in Underwood, Son & Piper v. Lewis [1894] 2 QB 306 in which Lord Esher M.R. said:

"When one considers the nature of a common law action, it seems obvious that the law must imply that the contract of the solicitor upon a retainer in the action is an entire contract to conduct the action to the end. When a man goes to a solicitor and instructs him for the purpose of bringing or defending such an action, he does not mean to employ the solicitor to take one step, and then give him fresh instructions to take another step, and so on; he instructs the solicitor as a skilled person to act for him in the action, to take all the necessary steps in it, and to carry it on to the end. If the meaning of the retainer is that the solicitor is to carry on the action to the end, it necessarily follows that the contract of the solicitor is an entire contract - that is, a contract to take all the steps which are necessary to bring the action to a conclusion. When it is shewn that there were no special terms, but only the ordinary retainer for the purposes of the action, the implication I have mentioned is that which every reasonable person would make, and therefore the implication which the law makes in such a case. ...

... there may be circumstances which justify the solicitor in putting an end to the contract, but ... he cannot do so without giving reasonable notice. The result ... seems to me to be that, though there may be valid reasons for giving such a notice, if no such notice is given, the contract of the solicitor is an entire contract, and he cannot sue for his costs before the termination of the action." (p. 309)

22. Mr. Pollock accepts and asserts that an entire retainer is, by its very nature, unequal. The professional cannot terminate without reasonable notice and for good cause. The client can. Notwithstanding that, he says that the law should imply such an entire retainer where an expert is engaged to produce an expert's report and give evidence at the trial. In many cases the whole of the party's case will be dependent on what the expert has indicated he will say. To allow him, on a whim, to back out at any stage up to the trial flies in the face of common sense and fairness.
23. Expert evidence comes in many forms and for many different types of litigation. Where an expert is retained it is possible that the nature of the retainer differs according to factors such as the nature of the litigation, the importance of the part to be played by the expert and the stage of the proceedings at which the expert becomes involved. I do not think it is necessary or appropriate to decide whether an entire retainer applies in all or only some cases and, if so, which. All that I have to consider is whether, in the circumstances of this case, RR and Mr. Attwood were engaged on the terms of an entire retainer to assist the Names at least to judgment in their actions against PKF.
24. RR, like many large accountancy firms has set up a forensic accountancy department. It goes beyond merely supplying expert evidence for use at trials. On the basis of the information before me in this action, the purpose of the department is to provide detailed professional support and input at all stages of litigation. Some flavour of the extent of RR's forensic departments' expertise and input can be gathered from its letter of 28 October (Trial Bundle Vol. 2 p. 19.):

"Robson Rhodes has had experience in acting in over 1000 International or High Court cases since 1980. This includes considerable experience in the field of professional negligence and long tail litigation. We have acted as investigators and experts on BCCI, Maxwell Pensions, Eagle Trust, DeLorean, Magnet and Wallace Smith Trust Bank, as examples. ... We have also extensively discussed the issues involved in long tail actions with 10 different Action Groups, Solicitors, Counsel and in Court.

Our experience in the above areas, as well as in the drafting of full Expert's reports, means that if we are appointed the association will save on the learning costs of thinking and researching the issues involved and will benefit significantly from our existing experience. Effectively the Names will receive free of charge our work in general areas such as the relevance and applicability of Lloyd's Guidelines, Auditing Standards and Equity between Names."

25. In fact RR and particularly Mr. Attwood and Ms. Bell formed an integral part of the team which refined and advanced the Names' cases against PKF. The further and better particulars of the statement of claim allege:

"Inter alia, Robson Rhodes were instructed to and did the following work:

(a) additional work to cover areas suggested by Counsel not dealt with in the preliminary report, resulting in an amplified report dated 27 March 1998;

(b) comments on Counsel's Advice on limitation;

(c) comments on Amended Points of Claim and Reply;

(d) comments on the desirability of electronic document management systems;

(e) Robson Rhodes proposed amendments to the Amended Points of Claim;

(f) they were sent a copy of the finalised Amended Points of Claim and Points of Reply;

(g) comments on the Defendant's Amended Points of Defence, and a possible Request for Further and Better Particulars that they would like to see;

(h) discussions on quantum and the effects of the Lloyd's settlement agreement on quantum and the desirability of a split trial;

(i) comments on Counsel's draft Further and Better Particulars; two long conferences were held to receive their comments and discuss the implications."

26. None of that is disputed. Furthermore it is apparent that, had there not been the announcement of the merger in early 1999, RR expected to be, and would have been, involved in a detailed analysis of PKF's discovery. In my view they went far beyond merely acting as potential expert witnesses in an action. So much appears to be accepted. As the defendants put it, the role proposed for RR, and the one which it in fact undertook, was to assist in the presentation and advocacy of the actions, rather than the conventional role of the expert preparing an impartial report for the primary purpose of giving independent evidence. They make a similar assertion about the position of Mr. Attwood personally. They also assert that because of the material supplied by the plaintiffs to RR and the assistance given by Mr Attwood, and having regard to the provisions of the new Civil Procedure Rules which compel an expert to disclose his instructions, it may now in any event be impossible for Mr Attwood to act as an independent expert witness.
27. In my view RR and Mr. Attwood were professionals who became an integral and crucial part of the Names' legal team in the conduct of the litigation against PKF. Just as the solicitors on the team were engaged under an entire retainer, so too, and for the same reasons, RR and Mr. Attwood were engaged. It would offend against common sense and basic concepts of professional responsibility to a client were they to back out as and when they liked, as Mr. Attwood and Mr. Hamedani suggested they were free to do. In holding themselves out as forensic accountants and participating in the detailed formulation and refinement of the Names' case, the defendants accepted obligations to their clients which reflected their importance to the litigation team. To adopt the words of Lord Esher M.R. in Underwood, Son & Piper, in this case the implication of an entire retainer is that which every reasonable person would make, and therefore the implication which the law makes.

(v) Relief for repudiatory breach.

28. If, as I have held, the defendants entered into an entire retainer, there is no dispute that their current refusal to work further for the Names amounts to a repudiatory breach. The Names have not accepted that repudiation. They ask for an injunction to restrain the RR from merging with PKF at least until the trial of the negligence actions is over. Mr. Pollock accepts that he could not ask for a mandatory injunction to compel RR, Mr. Attwood, Mr. Hamedani and Ms. Bell to continue to work for the Syndicate, but he says that an injunction restraining the merger is appropriate because it would have the effect of removing the block from such continued support so that, as a practical matter, RR and its team would return to the Syndicate fold. He says that only if damages are an adequate remedy would it be appropriate to refuse such an injunction. In support of this submission the plaintiffs filed evidence to the effect that it would be very difficult if not impossible to find any expert of the quality of Mr. Attwood or backup like that available from the forensic department of RR. Extensive efforts to find a replacement have failed.
29. Mr. Malek disputes the assertion that it would be impossible to find a replacement. But, even if it is, that is no justification for granting the relief sought by the plaintiffs. He points to the fact that in this action the plaintiffs assert or imply that Mr. Attwood and Mr. Hamedani might deliberately leak confidential information to PKF. He says that the relationship of trust and confidence between the parties has broken down and, irrespective of the outcome of this action, his clients would not consider working further for the Syndicate.
30. I accept the plaintiffs' evidence that it will be very difficult for them to find replacement forensic accountants possessing the relevant expertise. The result may be that the plaintiffs will suffer significant loss as a result of RR's repudiation of their retainer. But this does not persuade me that it would be appropriate to grant an injunction as sought. The whole purpose of the injunction is to coerce the defendants into assisting the Syndicate in its litigation. Save in very special circumstances the court does not grant injunctions which seek to enforce contracts of personal service. Questions of adequacy of damages are irrelevant to this issue. Sometimes, of course, the courts may grant an injunction to restrain a person from leaving one employment to take up the same or similar employment with another employer. Such an order may have the effect of persuading the employee to stay where he is. That course can be appropriate where continuation of the employment does not depend to any great extent on the personal relationship between the plaintiff and the defendant. But this is not such a case. Here the plaintiffs will need to be confident that their team is giving it unqualified, though objective, support. That support extends to those parts of the Syndicate's claim which allege deliberate or reckless wrongdoing by PKF. I cannot see how the plaintiffs could ever be confident that such support would be forthcoming from the defendants. If the merger proceeds, and it is possible for Mr. Attwood, Mr. Hamedani and Ms. Bell to be excluded from it for about 18 months, it would be impossible for the relationship of trust and confidence to thrive. For example, if Mr. Attwood were to show reluctance to support the attack of deliberate wrongdoing by PKF, would the plaintiffs be confident that such reluctance was based on an objective assessment of the facts rather than an unwillingness to say strong and unflattering things about a future partner? I think not. Indeed, how could Mr. Attwood and his RR team be expected to give unstinting support to the plaintiffs in attacking the probity and competence of RR's proposed partners? If, on the other hand, separating Mr. Attwood and his team from RR is not a possibility - and the evidence given before me was that it is not because of very substantial obligations that Mr. Attwood and others owe to other clients whose trials are imminent - then the injunction will simply prevent the merger. Mr. Connor, the Managing Partner of RR, gave evidence before me that if the merger did not go ahead now it would founder for ever. This may be a too pessimistic view, but I accept that a general injunction granted now would seriously prejudice the merger. In such circumstances the strains generated within RR itself may be considerable. In effect Mr. Attwood's activities will have spoilt his partner's financial and professional expectations. That is hardly likely to make him a willing member of the Syndicate team.
31. If granting an injunction will not persuade the defendants to return, there is no point in granting it and I decline to do so. As far as the contract claim is concerned, the plaintiffs' remedy must sound in money only. I accept that such a result is of small comfort to the plaintiffs who no doubt feel that RR's obligations to them have been brushed to one side in the partners' pursuit of their own financial gain. The oral evidence of Mr. Connor to the effect that when he was told of the potential problem caused by RR's work for the Syndicate he put the interests of all RR's clients, current and future, in the forefront of his mind rather than the interests of the Syndicate Names, can only have reinforced the plaintiffs' feelings on this score. However the problem is that an injunction will give them no greater comfort save for that obtained by causing unrelated damage to RR and PKF.

C. The Confidentiality Claim

32. In his second affidavit in these proceedings Mr. Nigel Young gave the following evidence:

"Mr Attwood, Mr Hamedani and others have attended several meetings at which I or members of the Committee, or our solicitors, or counsel, or a combination of these persons, have been present. There has been full and frank discussion at such meetings about (a) the strengths and weaknesses of the Names' case; (b) the identification of issues by our solicitors or counsel as being important or less important issues; (c) our difficulties whether by reason of fact or law in relation to identified issues; (d) our tactics; (e) our strategy; (f) the quantum of our claim, and the effects on that of the Lloyd's settlement; (g) the evidence on numerous issues, including limitation.

In the course of such discussions, RR has heard and made an assessment of the views of solicitors and counsel, and they have themselves given advice in relation to issues raised in their preliminary report, and issues not dealt with. They have discussed and advised on the defences that have been raised by PKF, and the impact that will have on the claims and the evidence which we have so far obtained in support of the claims. They have heard discussions about the nature of the Names' Association, and its impact on the strategy, tactics, and objectives of the litigation. Any of this information would be of interest to the PKF, and some of it would be invaluable. The mere fact that RR has had access to this information means that even an innocent answer, or a silence, could be interpreted by PKF and give them an advantage."

33. Although Mr. Attwood cavilled, unjustifiably in my view, at the suggestion that he had been involved in deciding matters of tactics, the defendants do not dispute that they are in possession of the Names' confidential information and that the supply of that information to PKF would be damaging. It is in the light of that concession that they have offered the undertaking set out at the end of this judgment.
34. Mr. Pollock says that those undertakings do not go far enough. He argues that the individuals who have helped the Syndicate case must be isolated entirely from the merged firm for the period of the PKF litigation or the merger must not take place. He says that entire isolation will only be achieved when all the relevant people on the RR team employed in the Syndicate litigation are prevented from having contact, direct or indirect, social or professional with all those inside PKF who are either implicated in the four actions or are working on them on behalf of the firm. In practice this would mean that Mr. Attwood, Mr. Hamedani, Ms. Bell and their support team would have to work in an office away from the rest of RR and PKF and would need to be isolated from any contact with their colleagues in the merged firm for 18 months or so. Since the defendants were not prepared to offer such a solution, Mr. Pollock says that the merger must be prohibited and that this course is mandated by the House of Lords decision, Prince Jefri Bolkiah v KPMG [1999] 2 WLR 215.

(i) Prince Jefri Bolkiah v KPMG

35. In Prince Jefri the forensic department of accountants KPMG had worked for the plaintiff for four years while he was the chairman of an investment agency established to hold and manage the general reserve fund and the external assets of the Government of Brunei. KPMG had already stopped working for the plaintiff when the Government appointed a finance task force to conduct an investigation into the activities of the agency. It was suggested that certain assets of the agency had been wrongfully diverted to the plaintiff's personal use. KPMG was appointed to assist in that investigation. The plaintiff objected on the ground that during the period it had acted on his behalf, KPMG had had access to highly confidential information which was or might be relevant to the Government inquiry. Although KPMG offered undertakings not to disclose any such information to, and to use different staff for, the task force, the plaintiff said that he would not be adequately protected. He sued for an injunction to restrain KPMG from acting for the agency. In the House of Lords he succeeded.
36. Mr. Pollock says that in that case the House of Lords the two arguments advanced were as follows. For KPMG it was said that the proper approach involved a balancing exercise in which a low level risk of disclosure or misuse of confidential information was acceptable when weighed against the interests of the accountants or their new client, particularly where the accountant had taken all reasonably available steps to minimise the risk. Credit should be given for the fact that accountants operated in a particularly strong climate or culture of confidentiality, and were therefore peculiarly well-adapted to minimise risks of misuse or disclosure which, in other hands, might be regarded as unacceptable. The plaintiff argued that a much stricter line was the proper approach and that low level of risk was unacceptable; a client was entitled to require that his confidential information be exposed to no avoidable risk. Mr. Pollock says that the plaintiff's submission was accepted. In particular he relies on the following passages from the speech of Lord Millett [1999] 2 WLR 215:

"Whether founded on contract or equity, the duty to preserve confidentiality is unqualified. It is a duty to keep the information confidential, not merely to take all reasonable steps to do so. ... The former client cannot be protected completely from accidental or inadvertent disclosure. But he is entitled to prevent his former solicitor from exposing him to any avoidable risk ... (p. 225G)

It is in any case difficult to discern any justification in principle for a rule which exposes a former client without his consent to any avoidable risk, however slight, that information which he has imparted in confidence in the course of a fiduciary relationship may come into the possession of a third party and be used to his disadvantage. ... It is of the highest importance to the administration of justice that a solicitor or other person in possession of confidential and privileged information should not act in any way that might appear to put that information at risk of coming into the hands of someone with an adverse interest. (p 226F)

Once the former client has established that the defendant firm is in possession of information which as imparted in confidence and that the firm is proposing to act for another party with an interest adverse to his in a matter to which the information is or may be relevant, the evidential burden shifts to the defendant firm to show that even so there is no risk that the information will come into the possession of those now acting for the other party. There is no rule of law that Chinese Walls or other arrangements of a similar kind are insufficient to eliminate the risk. But the starting point must be that, unless special measures are taken, information moves within a firm. In MacDonald Estates v Martin (1990) 77 DLR (4th) 249, Sopinka J said at p.269 that the court should restrain the firm from acting for the second client "unless satisfied on the basis of clear and convincing evidence that all reasonable measures have been taken to ensure that no disclosure will occur." With the substitution of the word "effective" for the words "all reasonable" I would respectfully adopt that formulation." (227F)

37. Mr. Malek does not dispute Mr. Pollock's analysis, as far as it goes. In particular he accepts that the central issue is whether the merger of RR and PKF gives rise to an increased risk that the Names' confidential information would be inadvertently transmitted to PKF. If there is such an increased risk, even if it is small, then the plaintiffs are entitled to further protection. However he pressed on me the necessity to look at the question of risk from a common sense point of view. As Lord Millett said in Prince Jefri:

"…the court should intervene unless it is satisfied that there is no risk of disclosure. It goes without saying that the risk must be a real one, and not merely fanciful or theoretical." (p. 226H).

38. Mr. Malek argues that the facts in Prince Jefri were unusual. A very large number of different staff in KPMG's forensic department worked for Prince Jefri over a long period: about 10-15 at any one time and in total about 12 partners, 15 directors, 9 consultants, 1 assistant general counsel, 43 managers, 5 administration and information technology managers and 18 assistant managers. KPMG billed over £4 million. The work also involved staff in other departments. The difficulty of preventing even inadvertent disclosure of confidential information in those circumstances was apparent and commented on by Lord Millett:

"When the number of personnel involved is taken into account, together with the fact that the teams engaged on Project Lucy and Project Gemma each had a rotating membership, involving far more personnel than were working on the project at any one time, so that individuals may have joined from and returned to other projects, the difficulty of enforcing confidentiality or preventing the unwitting disclosure of information is very great." (p. 228H)

39. By comparison, in the present case the confidential information is confined within the minds of a well-defined and very small group: Mr Attwood, Mr Hamedani, Ms Bell and Mr Bowling (who has left RR) and perhaps a couple of secretaries. The work to date had only generated fees of some £67,000. All of the documents and computer records have been removed from RR. The circumstances of the present case, including the extensive undertakings offered, distinguish this from Prince Jefri. With that proposed barrier in place, the risk of inadvertent disclosure is no more than theoretical or fanciful. Mr. Malek challenges Mr. Pollock to put forward a scenario in which a harmful inadvertent disclosure could take place.

(ii) Chinese Walls

40. Mr. Pollock's criticism of the undertakings really amounts to a complaint that they are too little and too late. Since his argument is that any contact between the Attwood team and involved members of PKF, whether direct or indirect, social or professional must be prevented, it is difficult to see how any undertakings would work. Any contact by Mr. Attwood with any member of the merged firm might be said to give rise to a risk of indirect contact with an involved member of PKF. The only undertaking which would meet Mr. Pollock's requirements would therefore consist of Mr. Attwood's exclusion from the merged firm. Furthermore he says that undertakings are too late in that they have been put in place after the event and are therefore an ad hoc arrangement. He relied in particular on the following passage in Lord Millett's speech in Prince Jefri:

"... In my opinion an effective Chinese Wall needs to be an established part of the organisational structure of the firm, not created ad hoc and dependent on the acceptance of evidence sworn for the purpose by members of staff engaged on the relevant work." (p.229B)

(iii) Approach and conclusions

41. I do not accept Mr. Malek's suggestion that Mr. Pollock must give examples of instances where a harmful inadvertent leak of information could take place. Not only do the plaintiffs not know how many PKF personnel are or have been involved in one way or another with the events leading up to the Syndicate's actions or have since become involved in defending them, but they do not know where they are currently located, where they will be located if the merger goes ahead (assuming it does so), with whom they will be working and what other tasks they are engaged on which could give rise to contact with members of the Attwood team. The fact, as confirmed in the witness box by Mr. Hamedani, that it is proposed that the RR and PKF forensic accountancy departments should merge, cannot reassure the plaintiffs. Furthermore, even if all these factors were known to the plaintiffs, it would still be unrealistic to ask Mr. Pollock to describe an example of a damaging and inadvertent leak. It is impossible to tell in advance how mistakes might be made. The approach to be adopted by the court is to ensure that even if there are mistakes, no additional risk of damage is inflicted on the former client. Such damaging mistakes can occur when potential disclosers and disclosees are in regular and working contact with one another. The fact that there are fewer potential disclosers here than in the Prince Jefri case may alter the scale of the risk, but does not mean that it is fanciful.
42. On the other hand, I do not accept Mr. Pollock's interpretation of Lord Millett's reference to ad hoc arrangements cited in paragraph 40 above. As I understand the Prince Jefri case, the court must ensure that there is no additional risk to the client. It must be satisfied that barriers are in place which are effective to prevent disclosure of confidential information. The crucial question is "will the barriers work?" If they do, it does not matter whether they were created before the problem arose or are erected afterwards. It seems to me that all Lord Millett was saying was that Chinese walls which have become part of the fabric of the institution are more likely to work than those artificially put in place to meet a one-off problem. Nor do I accept Mr. Pollock's suggestion that only a barrier which prevents direct or indirect contact both socially and professionally is acceptable. It would prevent Mr. Attwood meeting at a Christmas party another partner of RR who, for part of his time happens to work with an ex-PKF partner who is or was connected in some way with the Syndicate litigation. In my view that goes far beyond preventing leakage of information and extends into the realm of the fanciful and theoretical.
43. It seems to me that for so long as the Syndicate's action against PKF continues, the Names are at risk of inadvertent leakage of confidential information if members of the Attwood team work alongside or are in regular professional contact with those members of PKF who have been or are connected with the litigation. An order requiring PKF and RR not to merge would result in forcing apart the vast majority of the members of the two firms - contact between whom could have no adverse effect on the plaintiffs. An injunction in those terms would inflict unwarranted harm on both firms, would be of no legitimate benefit to the plaintiffs and should be avoided if possible. The undertakings offered by the defendants go some of the way, but not far enough. The only way of ensuring the protection of the plaintiffs' interests is to impose sufficient physical separation between the members of RR who have been engaged in the Syndicate's actions and those in PKF who are or have been involved in them. On this basis, and subject to any acceptable refinements suggested by Counsel, I shall require the following to be done to enable the merger of the two firms to proceed:

(1) The undertakings set out at the end of this judgment will be offered. A date must be included in paragraph 7(b).

(2) PKF will identify to the plaintiffs' solicitors every partner and member of staff, current and past, who was involved in or consulted in relation to the audits of Syndicate 190.

(3) PKF will identify to the plaintiffs' solicitors every partner and member of staff, current and past, who has been involved in or consulted in relation to any of the four actions brought against PKF by the Syndicate.

(4) The merged firm will identify to the plaintiffs' solicitors every partner and member of staff who it proposes to involve in relation to any of the four actions brought against PKF by the Syndicate.

(5) Until judgment in the said four actions, Mr. Attwood, Mr. Hamedani and Ms. Bell shall not work in any premises in which any of the persons indicated in (2), (3) and (4) are working nor shall they have any professional contact with any of them.

44. I do not think it is necessary to make provision proscribing social contact. With the above restrictions in place, the prospect of there being any disclosure of confidential information at social events is fanciful.

ANNEX II