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House of Lords
Session 1998-99
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Judgments - Prince Jefri Bolkiah v. K.P.M.G (A Firm)


  Lord Browne-Wilkinson   Lord Hope of Craighead   Lord Clyde
  Lord Hutton   Lord Millett





Oral Judgment:
18 November 1998
18 December 1998


My Lords,

    Shortly after the conclusion of the argument in this case we gave judgment allowing the appeal and granting an injunction, saying that we would give our reasons at a later date. I have had the advantage of reading in draft the speech to be given by my noble and learned friend, Lord Millett. It fully sets out the reasons which led me to allow the appeal and grant the injunction.


My Lords,

    I have had the advantage of reading in draft the speech which has been prepared by my noble and learned friend, Lord Millett. For the reasons which he has given, with which I agree, I also was in favour of allowing the appeal and granting the injunction.

    I consider that the nature of the work which a firm of accountants undertakes in the provision of litigation support services requires the court to exercise the same jurisdiction to intervene on behalf of a former client of the firm as it exercises in the case of a solicitor. The basis of that jurisdiction is to be found in the principles which apply to all forms of employment where the relationship between the client and the person with whom he does business is a confidential one. A solicitor is under a duty not to communicate to others any information in his possession which is confidential to the former client. But the duty extends well beyond that of refraining from deliberate disclosure. It is the solicitor's duty to ensure that the former client is not put at risk that confidential information which the solicitor has obtained from that relationship may be used against him in any circumstances.

    Particular care is needed if the solicitor agrees to act for a new client who has, or who may have, an interest which is in conflict with that of the former client. In that situation the former client is entitled to the protection of the court if he can show that his solicitor was in receipt of confidential information which is relevant to a matter for which the solicitor is acting, against the former client's interest, for a new client. He is entitled to insist that measures be taken by the solicitor which will ensure that he is not exposed to the risk of careless, inadvertent or negligent disclosure of the information to the new client by the solicitor, his partners in the firm, its employees or anyone else for whose acts the solicitor is responsible.

    As for the circumstances in which the court will intervene by granting an injunction, it will not intervene if it is satisfied that there is no risk of disclosure. But if it is not so satisfied, it should bear in mind that the choice as to whether to accept instructions from the new client rests with the solicitor and that disclosure may result in substantial damage to the former client for which he may find it impossible to obtain adequate redress from the solicitor. It may be very difficult, after the event, to prove how and when the information got out, by whom and to whom it was communicated and with what consequences. In that situation everything is likely to depend on the measures which are in place to ensure that there is no risk that the information will be disclosed. If the court is not satisfied that the measures will protect the former client against the risk, the proper course will be for it to grant an injunction.

    As my noble and learned friend has shown in his careful analysis of the facts in this case, K.P.M.G. have been unable to demonstrate that they can provide the protection to which Prince Jefri is entitled in order to ensure that there is no risk that confidential information which they have acquired from him will be disclosed to those engaged on Project Gemma. The terms of the injunction are designed to protect him against that risk, while enabling K.P.M.G. to continue to provide services to B.I.A. as its auditors.


My Lords,

    I have had the advantage of reading in draft the speech prepared by my noble and learned friend, Lord Millett. The reasons which he fully sets out are those which led me to allow the appeal and grant the injunction.


My Lords,

    I have had the advantage of reading in draft the speech prepared by my noble and learned friend, Lord Millett. The reasons which he fully sets out are those which led me to allow the appeal and grant the injunction.


My Lords,

    The question in this appeal is whether, and if so in what circumstances, a firm of accountants which has provided litigation support services to a former client and in consequence has in its possession information which is confidential to him can undertake work for another client with an adverse interest. The question has become of increased importance with the emergence of huge international firms with enormous resources that operate on a global scale and offer a comprehensive range of services to clients.

    Some time after the conclusion of the argument your Lordships gave their unanimous opinion that the appeal should be allowed and stated that they would give their reasons later. I now give my reasons for allowing the appeal.

The facts

    Your Lordships have been supplied with an agreed Statement of Facts. It is the principal though not the only source from which the following summary is derived.

    The respondents ("K.P.M.G.") are a large and well-known English firm of chartered accountants with associated but separate firms around the world. Their London office employs almost 5,000 staff and has at least 350 partners working from different offices. The staff of the forensic accounting department alone numbers more than 100. K.P.M.G. are the auditors to between 20 and 25 per cent. of all listed companies in the United Kingdom. They are one of the five largest firms of accountants not merely in this country but in the world.

    Ever since the Brunei Investment Agency ("the B.I.A.") was established in 1983 K.P.M.G. have undertaken the annual audit of its core funds. The B.I.A. was formed to hold and manage the General Reserve Fund of the Government of Brunei and its external assets and to provide the Government with money management services. The exact size of its core funds is secret but they are valued in many billions of dollars. In the last three years, K.P.M.G. have undertaken over 6,000 hours per year of chargeable time on the audit. The engagement partner responsible for the audit work was Mr. Peter Harrison. The affairs of the B.I.A. are secret and under its governing Act unauthorised disclosure is a criminal offence. The B.I.A. did not authorise the disclosure in these proceedings of the details of K.P.M.G.'s relationship with it until after the hearing at first instance, and this has caused K.P.M.G. difficulties in the presentation of their case which have led to adverse criticism of their apparent lack of candour. In addition to their audit work, K.P.M.G. also carried out associated advisory and consultancy work for the B.I.A. On average, about 4,000 hours a year of chargeable time is spent on this work. A long and close working relationship between the B.I.A. and K.P.M.G. has resulted.

    The appellant ("Prince Jefri") is the third and youngest brother of the Sultan of Brunei. Until March 1998 he enjoyed a very close relationship with the Sultan. He is a former Minister of Finance and was for many years the Chairman of the B.I.A. He is, however, no longer in favour. He has recently been removed from his position as Chairman of the B.I.A., and partners of Arthur Andersen have taken control of his companies as Executive Managers under powers conferred by emergency decrees.

    Over the years numerous large transfers of capital ("the special transfers") were made out of the core funds. The destination and use of these transfers did not form part of K.P.M.G.'s audit. K.P.M.G. were required to accept an annual representation from the Board of the B.I.A. (of which Prince Jefri was Chairman) that the transfers were made on behalf of or for the benefit of the Brunei Government and accordingly carried out no further investigation of them.

    Over a period of 18 months between 1996 and 1998 K.P.M.G. were also retained by one of Prince Jefri's companies on his behalf and at his request to undertake a substantial investigation in connection with major litigation (the "Manoukian litigation") in which he was personally involved. The investigation, which was given the code name Project Lucy, was mainly conducted by K.P.M.G.'s London forensic accounting department, though their taxation department was also involved. The engagement partner on Project Lucy was Mr. Adam Bates.

    Project Lucy involved the forensic accounting department in the provision of extensive litigation support services in the course of which they performed tasks usually undertaken by solicitors. They investigated the facts, interviewed witnesses with or without solicitors being present, searched for documents, took part in conferences, including telephone conferences, with counsel and in the absence of solicitors, drafted subpoenas, reviewed draft pleadings and prepared ideas for cross-examination. They took instructions and obtained information directly from Prince Jefri's own staff without the intervention of solicitors.

    In the course of Project Lucy, as well as a number of other personal assignments which they undertook for Prince Jefri, K.P.M.G. were entrusted with or acquired extensive confidential information concerning Prince Jefri's assets and financial affairs. In particular they became privy to a substantial volume of information concerning the identity of his assets, their location, the legal structure of their ownership, the identity and structure of corporate and other vehicles used by Prince Jefri to hold assets, and the manner and financing of their purchase. Altogether some 168 K.P.M.G. personnel, 12 of whom were partners and 81 of whom were assistant managers or above, worked on assignments for Prince Jefri between 1996 and 1998. K.P.M.G. were paid approximately £4.6 million for their work.

    Project Lucy was subject to a degree of security, but the effectiveness of the steps taken by K.P.M.G. to keep the work confidential is disputed. After January 1997 Project Lucy was accorded a separate area within the forensic accounting department, and after July 1997 it was housed in rooms on a separate floor with restricted access. Team members were forbidden to take work home to avoid the risk of papers being stolen or mislaid. In briefings Mr. Bates stressed to members of the team that Project Lucy was exceptionally confidential and should not be discussed outside the team.

    The Manoukian litigation was settled in March 1998, and thereafter no further work was undertaken on Project Lucy. K.P.M.G. were formally instructed to discontinue the project on 14 May 1998. Following the settlement of the litigation the Inland Revenue served notices under Section 20B(1) of the Taxes Management Act 1970 on K.P.M.G. in respect of information in their possession relating to the Manoukians. All documents in the possession of K.P.M.G.'s tax department were gathered together and delivered to their solicitors in March 1998. Thereafter K.P.M.G. were involved in only two relatively minor assignments on behalf of Prince Jefri, and work on these had also ceased by the middle of May 1998.

    In June 1998 the Government of Brunei appointed a Finance Task Force ("the Task Force") to conduct an investigation into the activities of the B.I.A. On 16 June 1998 Mr. Harrison was summoned by the Ministry of Finance to Brunei where he attended a meeting with the Task Force. He had been requested to co-operate with the Task Force, and he explained the nature of his firm's audit of the core funds and what little K.P.M.G. as auditors knew of the special transfers. He was asked to assist the Task Force in establishing the position of the core funds as at 31 May 1998 and to prepare a summary of movements on the core funds since the establishment of the B.I.A. in 1983. These movements included the special transfers. All the information necessary to perform this task was capable of being extracted from the audited accounts and the auditors' working papers. The work was carried out by members of the audit team and was covered by an engagement letter negotiated by K.P.M.G. and eventually dated 2 July 1998. K.P.M.G. reported to the Task Force on this project on 8 July 1998. K.P.M.G. are plainly correct in maintaining that the work thus far was a natural extension of their audit function.

    In the meantime, however, Mr. John Ellison, a partner in the forensic accounting department, was approached on 2 July on behalf of the B.I.A. and asked whether K.P.M.G. would be able to assist the Task Force in carrying out further investigations into the destination and the present location of the money which had been the subject of the special transfers. On 3 July 1998 Mr. Ellison, Mr. Harrison and another partner Mr. Michael Fowle met to consider whether K.P.M.G. could properly accept these instructions. The meeting was attended by K.P.M.G.'s solicitors. Mr. Ellison had spoken by telephone to Mr. Bates beforehand and discussed the matter with him. The view was taken that there was no conflict of interest as K.P.M.G. had ceased to act for Prince Jefri more than two months previously and there was no longer a client relationship with him. It was concluded that the B.I.A.'s instructions could properly be accepted, but that it would be necessary to establish special arrangements to provide additional protection against the use or disclosure of confidential information relating to Prince Jefri which was still in K.P.M.G.'s possession.

    On 8 July 1998 the B.I.A. formally instructed K.P.M.G. to provide assistance in connection with the investigation of the withdrawal of assets from the B.I.A. by means of the special transfers. It was at about this time that it became clear that the assignment was at least in part adverse to Prince Jefri's interests. The work was covered by an engagement letter dated 13 August 1998. This required K.P.M.G. to assist in establishing the extent of the withdrawal of funds, the use made of the withdrawn funds, the assets acquired with them, the present location of such assets, and the identity of the persons or entities now controlling them. K.P.M.G. were instructed to work with the B.I.A.'s legal advisers in obtaining evidence and where appropriate to trace, secure and recover assets belonging to the B.I.A. both in Brunei and overseas.

    This further assignment was given the code name Project Gemma and Mr. Harrison was appointed as the lead partner. He had never been in receipt of any confidential information relating to Prince Jefri's business, financial or personal affairs. Although he was to head the project, this was clearly not simply an extension of the audit; it would involve the tracing and recovery of assets and might well lead to civil and even criminal proceedings against Prince Jefri. It would be undertaken by members of the forensic accounting department and would be likely to involve them in the provision of litigation support services. It must have been obvious, and indeed is common ground, that some at least of the confidential information obtained by or provided to K.P.M.G. in the course of Project Lucy was or might be relevant to Project Gemma. It must also have been obvious, and again is common ground, that in relation to Project Gemma the interests of the B.I.A. were adverse to those of Prince Jefri. K.P.M.G. did not inform Prince Jefri of their new assignment, nor did they seek his consent to their acceptance of the project.

    K.P.M.G. employed some 50 people on Project Gemma, 11 of whom had previously been engaged on work for Prince Jefri. Most of them worked in Brunei but never more than 15 at a time. K.P.M.G. contends that none of the 11 was in possession of information confidential to Prince Jefri.

    Over 7,500 hours were spent on work for the B.I.A. between 18 June and 15 September when Pumfrey J granted an injunction to restrain K.P.M.G. from continuing with work on Project Gemma. A large number of transactions then still remained to be investigated. K.P.M.G. allege that the work which they had already undertaken, based on information provided to them by the B.I.A., had already demonstrated that very substantial sums had been paid to or for the benefit of Prince Jefri from funds of the B.I.A. and appeared to have been used to acquire assets for himself or for entities which he controlled.

    When K.P.M.G. accepted instructions in relation to Project Gemma, Mr. Ellison gave instructions that an information barrier (popularly known as a "Chinese Wall") should be put in place within the forensic accounting department, and special arrangements were established from 3 July 1998 to protect the confidentiality of information in the possession of K.P.M.G. which related to Prince Jefri. These arrangements had two components. First, the selection of staff was intended to ensure that nobody who was in possession of such information was permitted to work on Project Gemma. Secondly, steps were taken to avoid the risk of such information becoming available to those working on Project Gemma in the future. It was made clear at a meeting on 3 July 1998 that no one who was in possession of any confidential information deriving from Project Lucy could work on Project Gemma. Staff were appointed to Project Gemma only after confirming that they had no material prior involvement with Prince Jefri and were not in possession of any information which was confidential to him. Staff who had done work of a minor administrative nature on Project Lucy were permitted to work on Project Gemma but only after K.P.M.G. had satisfied themselves that they were not in possession of confidential information relating to Prince Jefri. Most of the work on Project Gemma was carried out in Brunei. Work in London was done in a separate project room with restricted access in a building separate from that which houses the forensic accounting department. Since the services of the notices by the Inland Revenue the documentary records of Project Lucy had been in the possession of K.P.M.G.'s solicitors and were not available to those working on Project Gemma. Separate computer file servers were used for Project Gemma, and all electronic information relating to Project Lucy was deleted from K.P.M.G.'s servers.

    In order to confirm the effectiveness of these arrangements, all Project Gemma staff were interviewed by K.P.M.G.'s solicitors about their knowledge of Project Lucy. All those interviewed confirmed on affidavit that they were not in possession of confidential information acquired from Prince Jefri whether in the course of Project Lucy or otherwise. The solicitors attempted to contact all the personnel who had worked on Project Lucy or the other projects for Prince Jefri. 146 persons were contacted and confirmed that they had not discussed confidential matters outside the team. 23 could not be traced because they were no longer employed by K.P.M.G..

The decisions below

    In the course of the hearing before Pumfrey J. K.P.M.G. offered a voluntary undertaking not to use or disclose any information about Prince Jefri's affairs acquired in the course of Project Lucy. K.P.M.G. submitted that this was sufficient to protect Prince Jefri's interests and was the only relief to which he was entitled.

    For its part the B.I.A. acknowledged that it was not entitled to require K.P.M.G. to make use for its benefit of any information which was confidential to Prince Jefri. It protested that an order which prevented K.P.M.G. from continuing to work on Project Gemma would cause unnecessary disruption to the investigations being carried on in Brunei. K.P.M.G. confirmed its assertion that a replacement could not readily be found since only a limited number of firms possess the necessary skills and resources to undertake an investigation of the magnitude required. The B.I.A. added that it was reluctant to increase the number of people and organisations in possession of information which was confidential to the B.I.A. It expressed particular concern at the prospect that an injunction might prevent K.P.M.G. from completing the audit of the core funds for 1997.