Focus: Linklaters and Gianni, Friendly fire
23 May 2011 | By Gavriel Hollander
4 November 2013
20 January 2014
20 March 2013
11 December 2013
10 February 2014
Linklaters’ battle with former Italian ally Gianni over the Credit Suisse-Parmalat negligence action highlights the dangers inherent in referring instructions
When, in October 2001, Linklaters capital markets partner Simon Firth sent an email to Bruno Bartocci, then a London-based partner at Gianni Origoni Grippo & Partners, he could hardly have known he was setting the ball rolling on what would turn out to be one of the biggest litigation actions against a law firm in living memory.
Nearly a full decade later and the magic circle firm is facing a e136m (£119.8m) professional negligence claim from major client Credit Suisse, with Linklaters’ former Italian alliance partner Gianni on the hook for a follow-on contribution claim.
In case anyone was in any doubt as to the seriousness of the claim, Linklaters has since brought in the might of Slaughter and May to fight its corner against both Credit Suisse and Gianni. Credit Suisse has enlisted Allen & Overy (A&O), while Gianni has turned to CMS Cameron McKenna.
The saga throws the spotlight not only on the transaction in question, but more interestingly on the risks involved in the relationships between leading international firms and their allies in other jurisdictions.
“It does serve to highlight the point about the need to get these kinds of relationships properly bound down in terms of who’s the client and who’s the subcontractor,” says one practice head at a top 10 firm who is taking a close interest in the case. “It reaffirms the benefits of having a big international piece of your own. If this had been done by a Linklaters Italian office, then it would have been settled without anyone knowing about it.”
That may or may not be the case, but what is true is that the matter has been complicated by the involvement of a firm that was, at that stage, associated so closely with Linklaters. Even if the UK firm had felt there were suitable grounds to contest the claim, it is fair to say that a settlement would have been reached far more easily if the original advice had come from just one firm.
Indeed, some in Italy claim that the action has come about now because a statute of limitations would have prevented Linklaters from bringing in Gianni as a co-defendant - what is known as a Part 20 defendant - if Credit Suisse had waited much longer to sue the UK firm.
Such conspiracy theorists can be dismissed easily, but once again it brings up the question of the suitability of alliances such as the one Linklaters and Gianni were engaged in.
However, not everyone necessarily agrees that the problem would have disappeared had the original advice not been essentially outsourced.
“It sounds like a communication issue as much as anything else,” suggests a City managing partner. “If your firm [gives the advice] from the Milan office and it messes up, then the result’s still the same. Where there’s a difference is that there would be one arrangement with regard to the insurer.”
Indeed, the two firms involved apparently do have different insurers behind them.
But this case does not deter the managing partner from relying on his own well-established referral relationships.
“Of course this can happen as a doomsday scenario,” he concedes. “But just because one day a car drives up onto the pavement, it doesn’t mean we should all walk in the road.”Although there is nothing unusual about a client claiming damages from a professional services firm (“You’d be surprised if you knew just how many there are of these,” one well-known litigation partner tells The Lawyer), the size of Credit Suisse’s claim and the intensity of its pursuit have raised eyebrows across the City.
The case itself relates to a structured finance deal that Credit Suisse entered into with Italian dairy giant Parmalat in 2001. The transaction saw the investment bank enter into a forward sale agreement (FSA) as part of a e500m convertible bond issued by Parmalat’s Brazilian subsidiary Parmalat Brazil. The FSA saw the company pay e248m upfront in return for an entitlement to future shares.
The terms under which the FSA was drawn up meant that, when Parmalat went into administration two years later, Credit Suisse became liable to repay part of the advanced payment, ultimately settling with the administrator on a figure of e154m.
The crux of the matter is that, in a letter before action seen by The Lawyer in February, Credit Suisse insists that it would not have entered into the original deal had it known that the advanced payment could be recovered by any future administrators of Parmalat.
According to the letter before action, sent by A&O to Clyde & Co, the adviser of Linklaters’ insurers, Linklaters had failed to include any explanation of the risk that an extraordinary administrator could terminate an open contract and reclaim money paid.
Under Italian law, the administrator had this right whether or not Credit Suisse had any forward knowledge - termed ’guilty knowledge’ - of any impending insolvency.
Linklaters, with Firth leading, sought out Gianni to help advise on this very specific aspect of Italian bankruptcy law. Firth turned to Bartocci, who was at that time managing Gianni in London and working out of Linklaters’ Silk Street office.
The advice came back suggesting that the money recouped in the FSA could only be recouped by administrators under three specific circumstances, all of which required a form of, as the advice puts it, “guilty knowledge”. This advice was then communicated to the client and, according to the claimant, turned out to be negligent.
Although Credit Suisse acknowledges that Italian law advice would inevitably have come from Gianni as a then-member of Linklaters & Alliance, the bank instructed the UK firm alone and was billed accordingly. It is this angle that has resulted in the highly unusual situation whereby not only is one firm suing another, but it is suing a firm with which it was once an ally.
“It’s quite surprising,” admits one management-level partner at another firm. “I’ve never heard of a claim like this of this size before. But the circumstances around this sound like they’re sufficiently unusual.
“The critical thing is to make sure that your professional indemnity cover is correctly drawn up so it covers advice from other firms. In a lot of cases it would have been settled without this kind of publicity.”
A senior figure at another City firm echoes the note of surprise.
“What’s interesting about this,” he says, “is that Links will have been on the Credit Suisse panel, so I can only think this must have been a very big one with some real reputational issues at stake.”
Despite such reputational issues, since the news of the action was first broken by The Lawyer earlier this year (11 February), Linklaters has been instructed by Credit Suisse. The most high-profile deal came just a week after the A&O letter first emerged, with the firm acting on the bank’s issuance of $8bn (£4.95bn) of contingent convertible bonds (CoCos).
“That shows they’re managing it well from a reputational point of view,” says another City partner. “How you respond in adversity almost says more than how you respond in the good times.”
Nevertheless, the very fact that a litigation of this size, between one of the world’s leading law firms and one of its trophy clients, has become such a public spat suggests that mediation is not yet on the agenda.
“For this sort of thing to be dealt with in this way, there must be a problem,” surmises the City litigator. “It could be that Links has just said, ’Sorry, but we really aren’t liable’. The insurers will often dictate that, but they don’t fight cases just for the sake of it, which suggests they think it’s capable of being defended.
“It’s not a try-on - this is a full-scale battle and a massive piece of litigation.”
Case study: Malmesbury v strutt & parker
While the legal world racks its brain to recall a litigation of this size played out in the public domain involving two law firms and a major client, there does appear to be some precedent in the wider realm of professional negligence.
In 2007 Mr Justice Jack ruled in favour of Lord Malmesbury and the trustees of his estate in a dispute with surveying firm Strutt & Parker over negligence in relation to the 2002
and 2003 arrangement of leases of land used by Bournemouth International Airport to provide car-park spaces. The surveyor brought West Country law firm Wilsons into
the action as a Part 20 defendant after it advised on the leases.
The outcome could be a warning to both Linklaters and Credit Suisse. Although the judgment came down in favour of Lord Malmesbury, the claim for almost £90m in loss
of earnings was rejected, with the claimant walking away with damages equating to a shade under £1m.
Of more relevance here, perhaps, is the fact that Jack J threw out any claims against Wilsons, with the firm pocketing indemnity costs paid by both Strutt & Parker and the claimant.
However, professional negligence experts have been quick to suggest that Linklaters must have some confidence in its ability to prove Gianni’s culpability given that the firm has apparently been prepared to fight the claim.
The problem with italy…
Linklaters and Gianni began their four and a half-year courtship at the turn of the century, with the Italian firm a latecomer to the Linklaters & Alliance party.
The alliance was formed in 1998 with a quartet of European firms, eventually leading to mergers in Belgium, Germany and Sweden.
But the Italian merger was one that had constantly eluded Linklaters.
The pair had intended to merge as early as 2002, but the plan was shelved as some Italian partners began to get cold feet. The following year they signed a joint venture agreement and established a six-member review committee in which partner Bruno Bartocci was one of the three Italian representatives.
A merger still seemed on the cards but resistance to a tie-up continued to come from the peninsula.
“Linklaters had started a policy to merge with Continental firms all over Europe,” says one source with links to Gianni. “There was a group of partners [at Gianni] who were working on capital markets and who were willing to consider a merger, but M&A partners just weren’t thinking the same.”
The firms dissolved the alliance in 2004 after it became clear that the drawn-out negotiations were inhibiting Linklaters’ own plans for growth in the jurisdiction.
The saga mirrors those of several international firms that have experienced difficulties establishing themselves in the country in the previous decade.
“It’s been a graveyard for all the international law firms,” says a senior partner at a City firm. “It’s just not worked for them. People have tried different strategies but have really struggled.”