Prince Jefri Bolkiah V Kpmg Summary

Prince Jefri Bolkiah v KPMG [1999] 2 WLR 227

Theme of the case: whether 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. 

Outcome: appeal allowed and injunction granted

Interest 1

Interest 2

Facts:

• Respondent (KPMG): large accounting firm
• KPMG undertook annual audit of core funds of BIA. BIA formed to hold and manage the General Reserve Fund of the Govt of Brunei and its external assets and to provide the Government with money management services.
• Confidential information: exact size of its core funds of BIA. Affairs of BIA are secret; unauthorised disclosure under governing Act is a criminal offence.
• Appellant: third and youngest brother of Sultan of Brunei. Former Minister of Finance and Chairman of the BIA. No longer in favour and removed.
• Over the years, numerous large capital transfers (“special transfers”) made out of core funds. Destination and use of these special transfers did not form part of KPMG’s audit; KPMG required to accept representation from the Board that they were made on behalf of Brunei Government; no further investigation.
• KPMG retained by Prince Jefri’s companies on his behalf and at his request to undertake a substantial investigation in connection with major litigation in which he was personally involved – Project Lucy.
• Project Lucy involved the provision of extensive litigation support services (perform tasks usually undertaken by solicitors). Investigated facts, interviewed witnesses, searched for documents, took part in conferences, drafted subpoenas, reviewed draft pleadings, and prepared ideas for cross-examination.
• KPMG were entrusted with or acquired extensive confidential information concerning Prince Jefri’s assets and financial affairs (information concerning identity of his assets, their location, the legal structure of their ownership, the identity and structure of corporate and other vehicles used to hold assets, the manner and financing of their purchase).
• Effectiveness of steps taken by KPMG to keep the work confidential was disputed. Separate area within forensic accounting department; housed in rooms with restricted access; team members forbidden to take work home; stressed that Project Lucy was exceptionally confidential.
• Litigation was settled, and no further work undertaken by KPMG on behalf of Prince Jefri.
• June 1998, Govt of Brunei appointed a Task Force to investigate into activities of BIA, where Harrison (partner responsible for audit work) was asked to co-operate; explained nature of firm’s audit of core funds and what they knew of the special transfers.
• Ellison (partner in forensic accounting department) approached on behalf of BIA and asked to assist the Task Force in carrying out further investigations into destination and present location of money involved in special transfers. Harrison, Ellison and Fowle (another partner) met to consider whether KPMG could properly accept these instructions. Decided that there was no conflict of interest as KPMG ceased to act for Prince Jefri for more than two months, there was no longer a client relationship with him. Concluded that BIA’s instructions could properly be accepted, but necessary to establish special arrangements to provide additional protection against the use or disclosure of confidential information relating to Prince Jefri still in KPMG’s possession.
• BIA’s assignment was code named Project Gamma; Harrison appointed as lead partner. He had never received confidential information relating to Prince Jefri’s business, financial or personal affairs. KPMG did not inform Prince Jefri of their new assignment, and did not seek his consent to their acceptance of the project.
• Must have been obvious that some of the confidential information obtained by/provided to KPMG in the course of Project Lucy was/might be relevant to Project Gemma. Must have also been obvious that in relation to Project Gemma the interests of BIA were adverse to Prince Jefri.
• Injunction granted to restrain KPMG from continuing working on Project Gemma.
• Ellison made sure that an information barrier was put in place within the forensic accounting department to protect the confidentiality of information relating to Prince Jefri. First, the selection of staff was intended to ensure nobody working on Project Gemma was in possession of such information. Second, steps were taken to avoid the risk of such information becoming available to those working on Project Gemma. 

Trial judge:

• “Chinese Walls” (information barrier) were well adapted to deal with foreseeable or deliberate disclosure of information; however not well adapted to deal with disclosure which was accidental, inadvertent or negligent.
• A former client should not be exposed to the risk of such disclosure outside of powerful reasons (of which there were none).

Court of Appeal:

• Majority did not accept that there was inevitably a risk of disclosure or that Chinese Walls were incapable of removing any real risk.
• The injunction would “set an unrealistic standard for the protection of confidential information” creating impediments in the way large international firms conduct their business.
• As (previous) Chairman of BIA Prince Jefri was aware when he retained KPMG that they had a long standing relationship with BIA as their auditors; and that Prince Jefri would have been aware the BIA would be put to inconvenience and expense if his retainer were to interfere with their use of KPMG’s service. 
• KPMG’s duty should be limited to making reasonable efforts to protect Prince Jefri’s confidential information and that it was not reasonable for Prince Jefri to require KPMG to be dismissed unless he “really would suffer serious damage” if they were not.

Judgment:

LORD HOPE OF CRAIGHEAD

• 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.
• this jurisdiction applies to all forms of employment where the relationship between the client and the person with whom he does business is a confidential one.
• solicitor under duty not to communicate to others any information in his possession which is confidential to the former client; duty extends well beyond that of refraining from deliberate disclosure; 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 solicitor agrees to act for a new client who has an interest which is in conflict with that of the former client. 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. 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 or anyone else for whose acts the solicitor is responsible.
• The court will not intervene via injunction if it is not satisfied that there is no risk of disclosure. 
• It may be very difficult to prove how and when the information got out, by whom and to whom it was communicated and with what consequences. 
• Test: assess the measures which are in place to ensure that there is no risk that the information will be disclosed. If court not satisfied that the measures will protect the former client against the risk, the injunction will be granted.

• KPMG 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.
• terms of injunction are designed to protect him against that risk, while enabling KPMG to continue to provide services to BIA as its auditor.

LORD MILLETT

Basis of the jurisdiction

• A man cannot without the consent of both clients act for one client while his partner is acting for another in the opposite interest. 
• Prince Jefri’s disqualification has nothing to do with confidentiality of client information.
• Clear distinction between the position of a solicitor and an auditor; large accountancy firms commonly carry out the audit of clients who are in competition with one another; however identity of their audit clients is publicly acknowledged.
• Plaintiff who seeks to restrain former solicitor from acting in a matter for another client to establish (i) the solicitor is in possession of information which is confidential to him and to the disclosure of which he has not consented (ii) that the information is or may be relevant to the relevant to the new matter in which the interest of the other client is or may be adverse to his own.

Extent of solicitor’s duty

• Duty to preserve confidentiality is unqualified; duty to keep the information confidential, not merely to take all reasonable steps to do so. Not merely a duty not to communicate the information to a third party. Duty not to misuse it without consent of former client.
• Former client cannot be protected completely from accidental or inadvertent disclosure, but entitled to prevent his former solicitor from exposing him to any avoidable risk; includes increased risk of the use of the information to his prejudice arising from the acceptance of instructions to act for another client with an adverse interest in a matter to which the information is or may be relevant.

Degree of risk

...