2011 saw the SRA called in to investigate three high-profile cases of alleged expenses fraud, while negligence actions abounded and the phone-hacking scandal dominated the headlines
It is often the case that times of crisis expose financial wrongdoing – just look at Bernard Madoff’s investment scheme fraud, or the MPs and Lords expenses scandals – and this summer saw the exposure of three alleged cases of expenses fraud involving lawyers at big City firms.
The first case to come to public attention was that of senior Hogan Lovells litigator Christopher Grierson. Grierson was dismissed from the firm’s partnership after an internal investigation uncovered false expenses claims amounting to £1m. Grierson is alleged to have filed claims mainly for flights booked and not taken, with the repayments from cancelling the flights going to his account rather than the firm’s.
After coming under intense pressure, Hogan Lovells went on to report Grierson to both the SRA and the City of London Police. Grierson was charged with four counts of false accounting by the City of London police on 5 December and will appear in the City of London Magistrates’ Court in January.
The second case to emerge involved former Addleshaw Goddard partner Mark Gilbert. According to the firm, Gilbert resigned from Addleshaws after “an internal investigation discovered apparent discrepancies relating to expenses and disbursements”.
At the same time Gilbert joined Devonshires as a consultant. He denied any wrongdoing and Addleshaws added that no clients had been affected. Like the Grierson case, Gilbert’s was referred to the SRA.
The third – and financially most significant – case involved former Ince & Co partner Andrew Iyer.
Iyer resigned after a period of suspension for “irregular financial behaviour” in July 2010, but it emerged in May that Ince had referred the case to the Metropolitan Police and the SRA.
What marks the Iyer case out from the Grierson and Gilbert allegations is that clients could have been affected. Iyer is alleged to have moved £3m of client money into accounts in his name.
Ince said that, when the case was discovered, “we immediately took steps to ensure no clients would suffer any loss”.
All three cases were greeted with a mixture of shock, surprise and irony on TheLawyer.com, with commentators remarking on the strong reputations of Grierson and Iyer in particular.
Several noted that Grierson had practised insolvency and fraud litigation. Indeed, one of his best-known cases was defending Bank of Credit & Commerce International (BCCI) liquidator Deloitte & Touche in its fraud claim against the Bank of England. He also had a role in post-Madoff litigation.
The SRA investigations into all three cases are understood to be ongoing.
Negligence claims: law firms in the frame
Law firms of all shapes and sizes have been hit by a number of high-profile professional negligence claims during the course of 2011. Some have been settled or won, while others are still hanging over the firms concerned.
By far the biggest case filed against a firm this year was London Underground’s (LUL) £141.96m claim against Freshfields Bruckhaus Deringer. LUL is claiming that Freshfields was negligent in the drafting of contracts relating to a PPP deal with Metronet. The claim was only filed in the summer and is yet to reach the courts. Freshfields is determined to fight the case “vigorously”.
Fellow magic circle firm Linklaters was hit by two claims, both of which it settled. The biggest was launched by Credit Suisse in February, claiming that Linklaters had been negligent in its advice over a convertible bond issue from the Brazilian subsidiary of Italian dairy company Parmalat.
Linklaters’ former alliance partner Gianni Origoni Grippo & Partners was dragged into the case when the magic circle firm claimed that the Italian firm had provided it with negligent advice on the deal.
A number of City firms, including Allen & Overy, Slaughter and May, Clyde & Co and CMS Cameron McKenna, picked up advisory work on the negligence claim. But the parties settled for an undisclosed sum in October, before the case could go to trial.
Linklaters also settled a negligence claim brought by former client Levicom, a Baltic telecoms company, for £13m, two years after Mr Justice Andrew Smith ordered the firm to pay just £5 in damages.
There was better news for other firms. Mace & Jones, Mills & Reeve and Beachcroft all successfully fought negligence claims through the courts, winning cases worth £800,000, £1.3m and £2m respectively.
Pinsent Masons went to court in August in a bid to strike out a £10m claim brought by Shepherd Construction, and judgment is awaited.
Other firms to have faced negligence claims this year include Withers, which went to court in March over a £700,000 claim brought by a former client before settling on confidential terms. Withers was then hit by a breach of contract claim in December from another client.
Meanwhile, Collyer Bristow is defending itself against a £50m claim currently being heard before Mr Justice Hamblen that has also led to a dispute with the firm’s insurance broker. Judgment will be handed down next year.
Phone-Hacking: the legal winners and losers
The explosion of the phone-hacking scandal at The News of the World (NoW) has been one of the biggest legal stories of the year, leading to questions over the actions of in-house counsel and external lawyers as well as providing work for a host of solicitors and barristers.
The newspaper had already been facing civil claims alleging phone-hacking, with Mr Justice Vos assigned to oversee them. Six test cases will be heard in early 2012, brought by MP Chris Bryant, former footballer Paul Gascoigne, football agent Sky Andrew, actor Jude Law, interior designer Kelly Hoppen and Sheila Henry, the mother of 7/7 victim Christian Small.
The group will be jointly represented by Matrix Chambers’ Hugh Tomlinson QC on common issues, with other counsel including Jeremy Reed of Hogarth Chambers, David Sherbourne of5RB and Sara Mansoori, also of Matrix. Four firms are involved: Bindman & Partners, Steel & Shamash, Mishcon de Reya, Atkins Thomson and Taylor Hampton.
However, when allegations broke in July that NoW had paid a freelance detective to hack the phone of murdered schoolgirl Milly Dowler, the scandal reached another level. A House of Commons select committee has heard evidence on several occasions from News International executives, as well as from the lawyers advising them.
Prime Minister David Cameron also commissioned Lord Justice Leveson to lead an inquiry into phone-hacking. Leveson LJ began hearing evidence in mid-November and is scheduled to keep going well into the New Year.
It took just days for the scandal to claim its first legal victims. Farrer & Co had long been the legal adviser to News International, the publisher of NoW, but when the company decided itneeded to draw up a code of practice it turned to Olswang, coincidentally the long-time adviser to The Guardian, which broke the story in the first place. Olswang was then instructed
by News International with a much broader remit, elbowing out Farrers entirely.
Farrers partner Julian Pike was later alleged to have recommended that Mishcon de Reya partner Charlotte Harris and Taylor Hampton solicitor-advocate Mark Lewis, both acting for hacking victims, be placed under surveillance.
Harbottle & Lewis found itself having to defend advice previously given to News International.
Meanwhile, News International director of legal affairs Jon Chapman and general counsel Tom Crone both resigned from their positions shortly after the hacking scandal blew up. The duo had insisted that they had informed James Murdoch, chief executive of News International parent News Corporation, about emails revealing the extent of the affair.
However, there has been a number of legal winners in the affair. The profile of Harris and Lewis, for example, has skyrocketed on the back of their work for victims. Magic circle firms Allen & Overy (A&O), Clifford Chance and Linklaters have all grabbed a piece of the pie.
Linklaters is advising News International on its internal investigation, A&O associate Victoria Rankmore is on permanent secondment to the company to advise on compliance issues, and Clifford Chance litigation head Jeremy Sandelson is acting for James Murdoch.
On the barrister front, One Essex Court’s Lord Grabiner QC is understood to be picking up £3,000 an hour chairing News International’s management and standards committee. 39 Essex Street’s Robert Jay QC has been appointed as counsel to the Leveson Inquiry. Sherborne, who is representing the ’core participants’ in the inquiry as well as appearing in the civil claims in the High Court, is also attracting attention.
Meanwhile, Berwin Leighton Paisner partner Graham Shear is involved in the affair in a different way. Shear has filed a breach of privacy claim against NoW after being told his phone could have been hacked. Like many others, he will have to wait until 2012 to have the matter resolved.
WE SAID, YOU SAID
“The problem is that law firms have to work on the basis that you can trust partners – especially, as in Grierson’s case, if they’re seen as jolly good chaps. The person in the lowly accounts department who challenged his version of events deserves, therefore, a round of applause.”
Catrin Griffiths, leader, 23 May
“If possession really were nine tenths of the law, then former Hogan Lovells litigator Christopher Grierson would only be faced with paying back £100,000 to his erstwhile partners.”
Lawyer News Daily, 17 May
“[Ince & Co] suspended energy chief Andrew Iyer last July over what it called ’irregular financial behaviour’. Given the news that has come out of the City of late, the firm might want to change that to ’bordering on the semi-regular financial behaviour’.”
Lawyer News Daily, 27 May
“It’s a horribly sad situation for all concerned, and a real shame that a long, admirable career should be remembered primarily by the way
Anonymous @ 17:00, 17 May
“MPs caught out fiddling their expenses to the tune of £20k-£40K went to jail for 12 months or more regardless of paying back the amounts. Why should this individual escape with just paying it back?”
Anonymous @ 02:38, 19 May
“GREED, GREED, GREED, GREED and a bit more GREED: welcome to Britain, 2011. Please leave your moral compass at the door.”
Anon @ 14:28, 27 May
“Theft is a crime regardless of his intention (deliberate or otherwise). Of course the police should be informed: ’nice chaps’ are not above the law.”
Anonymous @ 16:45, 27 May
“The money belongs to the firm and the partners, not the general public! We’re not talking about a political expenses scandal or taxpayers’ money here.”
Anonymous @ 14:35, 5 June
“I’m amused to see the claim that the misdemeanour was uncovered by a ’regular checking process’. If they’d had a regular checking process, they wouldn’t have been in this mess in the first place.”
Bemused @ 04:23, 10 June