ENSURING CONFIDENTIALITY FOR WOULD-BE CLIENTS

A straightforward client-and-matter check cannot be used in circumstances where merely to ask whether a firm can act in a particular matter creates a con­flict of interest. Only the very large firms are affected by this type of problem.^[350] One way of handling this situation, especially when dealing with sophisticated clients, such as merchant banks, is for the firm to be given a list of six or seven names and asked whether there would be a problem in their acting against any of the names on the list.

We often get phone calls from a merchant bank [which] says I’m going to name three companies to you and I want to know whether there will be any difficulty in your act­ing in a hostile way as regards that company. I say, no problem with the first two. If the bank then says you’d better forget we had this conversation and I’m now going elsewhere, I know that the third is in the frame for the bid. My client would be fasci­nated to know that someone was actually contemplating a bid for them... But life can’t work unless the merchant bank can ask me the question ‘Are you free to act?’ I have to say that the fact we had this conversation rests with me and I will tell nobody, not even any of my partners, because one of my partners is very close to that company and there’s the danger he might go skidaddling off to them...

Several firms adopted this practice, that is, relying on the fee earner approached to keep any information gleaned from a prospective client to himself, in the fre­netic circumstances which obtained when Barings Bank collapsed. Firm 15 described the events as follows:

Mr. Leeson was arrested and Barings went under on a Friday night. There were a hun­dred and one people ringing in to every City firm and people were being rung up in the middle of the night. The way all firms dealt with it was to say to people ringing them up: ‘(1) You’ll have to take a risk and (2) You’ll have to rely on me to keep what you tell me confidential. We can’t find out now whether there is a conflict but I will find out in the next day or two. You won’t find anyone who is ready to give advice imme­diately. So you’ll just have to take the risk that we may have to turn you away after a couple of days if we find we have a conflict. But what I learn in those couple of days, I will keep to myself and not pass to my partners.’ Everyone had to proceed on that basis because of what had happened and the fact that it was all going on too quickly.^[351]

By acting in this manner firms have developed a system to deal with an area of practice which they perceive to be inadequately covered by the Guide. In effect what seems to happen is that a ‘wall’ is erected between the partner receiving the information and the rest of the firm, following which the information is deemed not to have become the knowledge of the firm. Theoretically, once the conflict is discovered, the firm should cease to act both for the existing and the would- be client. However, firms stated that this would be unworkable and would cause them to lose a substantial amount of business. They maintained that they offered maximum possible protection to the would-be client by not passing the information to anyone else in the firm. It is perhaps a little worrying that the senior partner quoted above felt that he should not tell his partners of the query as he could not trust the partner closest to the client not to divulge information. This raises the question of whether a Chinese wall can ever be effectively main­tained within a firm because, to a certain extent, the system is based on trust.^[352]

It might be argued that the would-be client receives less protection in this instance than he would if the firm were to act in a direct conflict. This is because he has only the undertaking of the partner that the information will not be divulged. There is still the chance of accidental leakage and, should this happen, it may be difficult—depending on how many firms the would-be client has approached—to establish the source of the leak.