Case: Prince Jefri Bolkiah v KPMG [1998] UKHL 52 ; [1999] 2 AC 222
Outcome: followed
A favoured technique for dealing with conflicts of interest which arise from the carrying on of business by large financial institutions is the use of Chinese walls. They are widely used by institutions in Australia, the United Kingdom, the United States and Canada: see Prince Jefri Bolkiah v KPMG [1998] UKHL 52 ; [1999] 2 AC 222 at 238 per Lord Millett; see also Law Commission Consultation Paper at [4.5]. 309 Chinese walls are a means of restricting the flow of information between different departments of the same organisation: see Bolkiah at 238 per Lord Millett; see also Law Commission Consultation Paper at [4.5.1]. 310 In Bolkiah at 238, Lord Millett described Chinese walls as a technique for "managing" conflicts of interest. The use of this word is significant because it suggests that Chinese walls do not eliminate conflicts; they are no more than a technique for managing conflicts of interests which continue to exist. 316 Cases dealing with claims brought by former clients of solicitors and accountants to restrain the firm from acting against it show a willingness by the courts to accept the concept of Chinese walls as a means of quarantining information within the firm: see Bolkiah at 237-238 per Lord Millett; Photocure ASA v Queen's University at Kingston (2002) 56 IPR 86 at [61] per Goldberg J. 317 The relief sought in those cases turned upon the question of whether there was a risk of disclosure or misuse of confidential information. Lord Millett said in Bolkiah at 237-238 that there is no rule of law that Chinese walls are insufficient to eliminate the risk of disclosure but the Court should restrain the firm from acting unless satisfied that effective measures have been taken to prevent disclosure. 318 Thus, the question of whether Chinese walls are effective will be a question of fact in each case, although Lord Millett emphasised that the wall must be "an established part of the organisational structure", not created ad hoc : see Bolkiah at 239. The same approach must be taken in determining whether Chinese walls constitute adequate arrangements for the management of conflicts of interest within s 912(1)(aa) of the Corporations Act . 319 In Bolkiah, Lord Millett at 238 drew upon the observations in the Law Commission Consultation Paper to illustrate the type of organisational arrangements which would ordinarily be effective: see also Law Commission Consultation Paper at [4.5.2]. These are: &#8722; the physical separation of departments to insulate them from each other; &#8722; an educational programme, normally recurring, to emphasise the importance of not improperly or inadvertently divulging confidential information; &#8722; strict and carefully defined procedures for dealing with situations where it is thought the wall should be crossed, and the maintaining of proper records where this occurs; &#8722; monitoring by compliance officers of the effectiveness of the Chinese wall; &#8722; disciplinary sanctions where there has been a breach of the wall. 448 Nevertheless, as I have said above at [310], [318] [319], in Bolkiah , Lord Millett referred to Chinese walls as a technique for managing conflicts of interest and he described the types of organisational structures that would ordinarily be effective. 449 Mr Monaci's statement of evidence set out in great detail the measures which Citigroup has in place. These appear to me to comply with the requirements stated by the UK Law Commission and adopted by Lord Millett in Bolkiah . I will not repeat the evidence but the paragraph numbers of Mr Monaci's statement which describe the arrangements are as follows: &#8722; physical separation by departments, [85] [94]; &#8722; educational programmes, [95] [106], especially [103] and [105]; &#8722; procedures for dealing with crossing the wall, [109] [116]; &#8722; monitoring by compliance officers, [117] [123] and [131] [144]; &#8722; disciplinary sanctions, [100]. 450 Mr Monaci also referred in other parts of his statement to Citigroup's policies and procedures for the identification and management of conflicts of interest that arise in its business. He referred to some of the written policies which apply to Citigroup's Australian operations. They were set out at [147] of his statement. 451 Mr Monaci said at [149] that Citigroup's written policies are available to all employees and regular training is provided. He said at [150] that the written policies make clear that employees must be alert to the possibility of conflicts and "escalate any issues in relation to actual, apparent or potential conflicts of interest."