The debate over conflicts of interest took a dramatic twist this week with the referral of two top Freshfields Bruckhaus Deringer partners to the Solicitors Disciplinary Tribunal and the news that the conflicts probe into Allen & Overy (A&O) has been dropped. Freshfields UK corporate head Tim Jones and former head of corporate Barry O’Brien have been called before the tribunal following a long-running Law Society investigation. The case relates to their conduct in deciding to act for Philip Green on his £9bn bid for Marks & Spencer (M&S) in 2004, despite the fact that the firm had previously acted for M&S.
Meanwhile, it has emerged that the Law Society’s investigation into fellow magic circle firm A&O was dropped at the end of September after three years. A&O was being investigated by the regulatory body after acting for both Wm Morrison’s financial adviser ABN Amro and Wal-Mart’s financial adviser Dresdner Kleinwort Wasserstein — both of which were involved in the bidding for the Safeway supermarket chain.
The news comes as business lawyers continue to argue over the effectiveness of the new conflict rules, which were introduced this spring. City partners have alleged that some firms are flouting rules requiring them to secure written client consent to act in conflicting situations. Firms are also being accused of getting consent in circumstances where this would not protect them from a charge of contravening the rules.
One Ashurst corporate partner commented: "The rules are so draconian that I would think there are a lot of times that firms are technically in breach of the rules — particularly with private equity when everything is an auction."
Norton Rose head of compliance Jonathan Ody added: "Firms are permitted to act with written consent only for two clients that have a common interest or where both are bidding for the same assets. Many lawyers may feel that the rules are not wholly appropriate for firms engaged in cross-border deals."
Other partners added that firms are putting provisions in their engagement letters stating they have no duty to disclose information they may have learned while advising rival clients.
A group of top City firms is currently lobbying the Law Society to amend the guidelines to enable them to act without having received client consent in certain circumstances. The firms, which include Clifford Chance, Linklaters, Slaughter and May and Herbert Smith, argue consent could be withheld by clients to deny rivals access to top advisers.
The Freshfields case comes at an important time for the Law Society as it moves to prove itself as an effective regulator ahead of the implementation of the Legal Services Bill. One council member said: "It is likely that the split between the representative side and the regulatory side gave the Freshfields case a kick forward."
The tribunal, which is expected to hear the case next year, has the power to strike solicitors from the Roll, suspend them from practice, fine or reprimand them. The maximum fine currently stands at £5,000 per charge, although it is understood the Law Society wants to increase it.
Two other Freshfields lawyers, former chief executive Hugh Crisp and former head of corporate Gavin Darlington, who were also being investigated by the Law Society, have not been referred to the tribunal. The Law Society has confirmed there is no-one else from the firm left in the frame.
Talkback: Are City firms adhering to the current conflicts rules? Should they be liberalised?
