GROUP ONE: THE BIG AND BOLD

When firms within this group were asked to set out the criteria used in determin­ing whether they could act in a conflict situation, a typical response was as follows:

Well, of course, first off, we consider whether there is a legal conflict.

As to what was meant by a legal conflict, one senior partner defined it as:

A legal conflict, quite simply, is a situation where if one party decided to go to the Law Society and complain, the Law Society would uphold that complaint. So it’s a true conflict.^[375]

On the face of it, therefore, these firms felt themselves bound by the Law Society’s rules. Yet my follow-up interviews revealed this not to be the case. The senior partner quoted above was asked whether his firm adhered to the rules laid down by the Law Society in its Guide to Professional Conduct. This was his response:

Well, I think at some stage someone is going to have a big argument about what that guide actually means. Part of the difficulty stems from the fact that the Law Society is a hopelessly inadequate animal to guide the profession as it now stands. And that isn’t a criticism of the Law Society. It has an impossible task because it has a committee filled with lower-level solicitors, whose interests are fundamentally different from ours. It’s just that rules that would apply to us, they don’t like because they wouldn’t work well applied to them and vice versa. The rules are fine in principle but they don’t work for our particular firm. We think we’ve got a better feel for these things than any­one at the Law Society might have.^[376]

His views were echoed by a managing partner in a different firm:

The Law Society rules, it seems to me, are fine.

It soon became apparent that all the firms within this group adopted a similar stance. Two other partners justified ignoring the rules by saying:

Well, I just think the Law Society is out of touch. If we enforced the rules on conflicts, we’d be losing work hand over fist and life would become impossible. You get no value out of consulting the rules—they’re hopeless. We, the City firms, live by certain stan­dards which are high and, therefore, we just apply our own rules.^[378]

The interests of our clients might be prejudiced if we were to be ‘conflicted out’ under the rules because they would be forced to use other firms lacking the necessary resources and expertise.^[379]

So although these large City firms claimed to abide by Law Society rules, in real­ity their approach was quite different. Whether or not the reasons provided for disregarding Law Society guidance are defensible will be examined later.^[380] First we should ask: what criteria do these firms adopt when deciding whether to act in a conflict situation?

Comments such as ‘We live by certain standards, which are high, and... apply our own rules’ and ‘We, the City firms, apply our own standards’, might be taken to suggest that these firms have a defined set of rules to guide their decision-making.

All practices within this group draw a distinction between direct conflicts of interest and other types of conflict. Where two clients had directly opposing interests this was seen as a ‘true’ conflict and it would be considered unprofes­sional, and indeed dangerous, to take on such work. Examples quoted were par­ties opposing each other in litigation, vendors and purchasers, and borrowers and lenders.^[381]

In situations where clients are not directly opposing each other but are nonetheless in competition, a slightly different approach might be adopted. The collapse of Barings Bank, referred to in the last chapter, provided one clear illus­tration of this:

When Barings Bank collapsed, we found that we were acting for people who might technically have had a conflict between them because they were competing over what was left. If you said that you could only act for the first person who got in touch with you, people would soon get fed up. We had something like seventy or eighty people demanding urgent advice. Clients are perfectly happy to accept that you will be acting for other people and that it is on the basis that the work you do for each client will be, as it were, ‘Chinese Walled’, but there is an understanding that if there were a spat and two clients were fighting over the same piece of security, we would have to consider our position and decline to act for either party.^[382]

Another firm allowed itself similar freedom of manoeuvre when dealing with rival bidders:

Barings was obviously up for sale after its collapse and a lot of clients asked us to act in bidding for the bank or for the fund management side of it. We, therefore, asked each client whether they minded us acting for other potential bidders provided we kept everything in strict compartments so there was no possibility of rival bidders knowing what you were thinking of bidding.

It would seem, therefore, that even where clients’ interests are in direct conflict, large City firms may still be prepared to act.^[384]

Common-goal conflicts are handled in a similar way:

We are happy to act for the different parties because although they have conflicting interests, they are all interested in getting the documents done properly and securely in the right place. If they wanted different solicitors in every part of the transaction, first of all, there wouldn’t be enough lawyers to go round and, secondly, it would be much more expensive because each lawyer would need to be up to speed on all the transactions. If we didn’t agree to act for all, the clients would take their business else- where.^[385]

Firms within this group also drew a clear distinction between what they termed a ‘straight’ or ‘direct’ conflict and professional difficulties arising from the pos­session of confidential information. As one firm put it:

The rule that solicitors’ retainers require the firm to deploy relevant confidential information held on one client for the benefit of another seems to me to be ridiculous. It is usually relatively easy to deal with, because you can make the papers so that they are not generally available and warn those concerned not to discuss it.^[386]

Possession of such information may be regarded not as a ‘true’ conflict so much as an ‘inconvenience’. This view was also, it appeared, shared by major com­mercial clients. Client B explained:

We have established relations with the top five firms in the City but this does create conflict situations. We are relatively sophisticated however about assuming that we’re not their only client.

Where two or more clients would benefit from knowledge of confidential information held by the firm, it is common practice to obtain all parties’ consent to the firm acting in this ‘theoretical’ conflict situation:

In the main, clients tend to accept this as part of the commercial world in which we live. They are quite happy to agree to us acting for various parties by ensuring that all information is kept confidential by use of Chinese walls. If we couldn’t act in this man­ner, the City would simply grind to a halt. We act for the world’s major banks, gov­ernments and corporations. So the people we are dealing with are sophisticated clients, many of whom have their own in-house legal advice. Usually it’s their own lawyers we’re talking to when we are clearing these things.^[387]

Another firm expressed its position as follows:

Under a strict interpretation of the Law Society rules, we know we should not act in this way. Such rules are too restrictive for the kind of situation in which we operate. We a dealing with very sophisticated clients, normally with in-house lawyers. They know precisely the score and are well able to protect themselves. But, more impor­tantly, at the end of the day we are not going to do something which is going to dam­age our reputation. You are looking at things which everyone agrees are mutually convenient.^[388]

Sometimes, however, a firm will not be able to obtain consent from a client because that client does not want its solicitors to act for a competitor. Large commercial clients may take a sophisticated view of conflicts, but they also have a sharp appreciation of their own commercial interests, and of the power that they wield. Client C put it like this:

I have no wish to strengthen my competitors in any way.

The economic value to them of this particular client is something that firms will take into account when deciding whether to abide by the client’s wishes:

We often have the situation where a firm, for example ABC Ltd, uses six firms of solic­itors for their corporate work. We are approached to make a bid for them. We know that they use five firms apart from us to handle their affairs and we have only done two tiny jobs for them in the last four years. We don’t really know anything relevant. This is a wonderfully big job we are being offered. What do we do? Well, the first thing we have to do is ask whether, if we take the job on, we will be a burden to the new client. Will ABC Ltd go to court immediately for an injunction saying that we have confi­dential information? If we conclude no, then there is the commercial judgment. Is it so exciting to be asked by this client to bid for them that we are willing to cut ABC off the list and never have anything more to do with them? ABC Ltd are a huge concern and if we were to be given more work from them it would be very profitable for the firm. I may also experience difficulties with the client partner of ABC if we decide to drop them as a client. At the end of the day it has to be a commercial decision: what will be the most profitable thing to do for the firm in the long run?^[389]

A similar approach might be adopted when it came to acting against former clients:

If we’d done some work for a client and they’d never instructed us again, say there had been a three-year gap, we would not take the view that there was an outstanding solic­itor/client relationship but you would say: ‘What did we learn in that transaction and is there a confidential information part of it?’ If we decided we knew nothing, then, we would act against the former client. Sometimes these issues are raised as a litigation tactic and you just have to stand firm.³⁷

Other large firms reported occasions when they had been challenged over their right to act and had been forced to send the client elsewhere:

Since 1991 I’ve received three complaints of this type. Two out of the three were raised by US corporations as they take a much tougher line on the issue of conflicts of inter­est, using it as a tactical advantage. In these two cases, we concluded that we had to cease to act. Luckily, in both cases it happened fairly early on but our clients didn’t like it.³⁸

US corporations are not the only firms to have raised these issues. Other bodies have voiced slightly different concerns about solicitors acting for and against them in litigation. They may be concerned not so much about the firm’s knowl­edge of specific confidential information as the insight it will have gained into their business practices:

We sometimes act for accountants and we sometimes act against them. In the last two years, we acted on their behalf defending claims. We, therefore, know all about their insurance cover, their partnership affairs and how they approach a case in terms of set­tling it and what would be contributed by the insurers and what by the partners. So, even though you don’t have confidential information on the facts of this particular case and there isn’t the traditional solicitor/client block on acting, you still have information on how they operate.³⁹

But this group of firms maintained their freedom to act even in these circum­stances, basing their decision on purely commercial considerations:

Clients have raised the fact that we have ‘insider knowledge’ of how they operate, but unless they are willing to say that they will only use us for their legal work, they recog­nise that we are at liberty to sue them.⁴⁰

Another firm justified this approach as follows:

This situation is no different from that whereby you are frequently up against the same lawyer from another firm or the same insurers. You think that you have some under­standing as to how they approach claims but no two cases are ever the same and the response is always different. This is the nature of litigation.⁴¹

It can be seen that firms within this group adopt a highly pragmatic approach in deciding whether to act in a particular matter. Although they are wary of acting

³⁷ Firm 14.

³⁸ Firm 29.

³⁹ Firm 14.

⁴⁰ Firm 14.

⁴¹ Firm 29.

for parties directly opposing one another, they are happy to act in most other conflict situations provided their clients consent:

Although the courts distrust walls, it doesn’t really matter because we would never allow the thing to be litigated. If there was any prospect that someone would be so angry about it, we would not take the risk. So it all depends on the attitude of the client. We would only take the risk, and we have had this, where someone is abusing a very tenuous historical client relationship as a way of preventing their own solicitor from acting for someone else.^[390]

One firm, however, claimed to take into account the public perception of their acting for a particular party. When asked what precisely was meant by ‘public perception’, the senior partner said:

We don’t want to draw too much attention to ourselves. People will say, ‘How on earth can [Firm XYZ] be acting in that capacity for that person and in that capacity for that person?’ or ‘Oh look, there’s [Firm XYZ] acting again. They’re absolutely des­perate to earn any fee they can. Surely they shouldn’t be doing that.’ We could hardly come back and comment by saying that the rules are all unfair and nonsensical or say to the public not to worry because we especially put it to the two clients and the two clients agreed. We can’t start talking about our clients’ affairs. So we sometime decline to act even where the clients have agreed because it would not look good. We would look greedy. Obviously, this does not occur with smaller clients, as no-one is really interested in small transactions.^[391]

Where it is apparent that a firm can act for only one party in a transaction, the matter is usually decided on economic grounds:

We assess which client is likely to produce the most income for the firm and we go with them.^[392]

Perhaps inevitably, this decision will not be popular with all members of the firm:

Occasionally sending one client away will involve upsetting one partner’s relationship with a client for the benefit of the firm as a whole, but it is very infrequent as we usu­ally find a way of accommodating both clients if they agree to it.^[393]

As to whether these firms ever worry about falling foul of clients or regulatory bodies when acting in conflict situations, the following comment was typical:

Of course there is always a risk that a client will complain but it is minimal. After all, we would not do anything that they weren’t happy about and didn’t agree to. If there were any suggestion of their taking action against us, we would settle the mat­ter. We don’t worry about interference from the Law Society because in order for them to get involved a client has first to complain and that simply isn’t going to happen.^[394]

It could therefore be said that clients effectively have the final say on whether firms act in such situations. This is understood by the clients themselves. Client D, for example, said:

If a conflict were to arise the law firm would ring up and say ‘We may have a conflict’ and explain to me that they may be able to act for both sides if both sides are happy. So if it were a norm, as it were, it would be handled in a sort of consensual way, both sides being aware that there may be a conflict and then both sides deciding whether they are happy with it.

In these circumstances the client’s decision will reflect the information provided by the firm. It would seem, however, that these clients are on the whole content to rely upon that information:

I think generally speaking our big firms behave honourably and sensibly. I am sure that they are very aware that they don’t wish to fall out with us as it is not good busi­ness sense for them to ride roughshod over conflicts of interest.^[395]

This belief stems from two factors. First, these clients are familiar with the potential risks that conflicts of interest pose because they regularly encounter such situations and their in-house legal teams are available to oversee the firms’ procedures. In other words, they regard themselves as sophisticated consumers of legal services:

We understand the process and therefore I suppose conflicts are one of those things you could be worked up about unnecessarily if you didn’t understand what was going on and if you didn’t know the law firms very well. I mean suppose two companies from outside London which didn’t normally do the sort of transactions we do want to use a London law firm for the first time and someone came along and said ‘Oh, by the way, that same law firm will act for the other side as well’. If it was your first dabbling into that sort of transaction and you didn’t have your own in-house lawyers, you might easily convince yourself that it was a much bigger risk than it really is.^[396]

Second, these clients are aware that they generate millions of pounds in fees for law firms. They know their own commercial power, and believe that firms will not lightly act against their financial interests:

They clearly won’t act in a hostile manner to us as we are a big client and we pay a lot of fees.^[397]

It is little wonder then that such clients tend to support these firms in their view that the Law Society rules bear no relationship to daily practice. As Client D put it:

The horrible reality is that we see the Law Society’s view as completely and utterly irrelevant to real life. To be honest I don’t particularly care what the Law Society rules say.

Rather than conforming to Law Society rules, the manner in which firms within this group ‘manage’ conflicts broadly corresponds with the position reported by the City of London Law Society in its review of the subject.^[398] It stated that:

The lack of any definition of ‘conflict of interest’ leaves the meaning of 15.01 unclear and open to starkly differing interpretations. Some practitioners interpret the wording to mean that a firm cannot act against the interests of an existing client even in a mat­ter which is unrelated to the pre-existing instructions. That interpretation is then often ‘softened’ (at least within the City) because the main financial institutions do not in practice object to a law firm which acts for them on a transaction acting for another party in another transaction.