How the banks have played the panel system and firms’ fear of conflicts – and destroyed client choice
Research by The Lawyer indicates that any company that wants to sue one of the UK’s big five clearing banks will now find it virtually impossible to instruct a top law firm.
A reluctance to accept instructions against the Royal Bank of Scotland (RBS), Halifax Bank of Scotland (HBOS), Lloyds TSB, Barclays and Hong Kong Shanghai Bank (HSBC) on the grounds of commercial conflict now pervades the City.
Of the top 30 firms in The Lawyer 100, only four – Beachcroft Wansbroughs, Bird & Bird, Clyde & Co and Salans – would not have to turn down instructions from at least one of the big five clearing backs.
Most of the top 20 have big or growing banking practices and are actively targeting work from several or all of the banks. It is therefore highly unlikely that they would even accept instructions to act against banks they do not currently work with.
Of the top five banks, it is understood that Barclays, HSBC and RBS have clauses in their panel agreements prohibiting firms from litigating against them.
HboS and Lloyds TSB have less well-developed panel systems, but law firms that advise them say that they manage their external legal functions on similar principles.
The banks include a provision for a waiver of this responsibility, but litigators claim that it is virtually impossible to seek a waiver without revealing information confidential to the potential plaintiff.
In addition, most lawyers interviewed said that regardless of the formal panel terms, it would be commercial suicide for them to sue the UK clearing banks.
The issue is heightened with regard to Barclays and RBS, both of which use a very wide range of law firms. In the last nine months, two potential claimants have had difficulty in finding legal advice against the two clearing banks on very high-profile matters (see RBS case study, below).
HSH Nordbank has turned to Richards Butler on its £84m dispute with Barclays, but it is understood that the German regional bank was rebuffed when it attempted to instruct other City firms.
Richards Butler is in fact on Barclays’ panel, but it is understood that the firm only does a small amount of work for the bank and so – in a highly unusual move – sought a waiver. As revealed by The Lawyer (12 May 2003), Richards Butler has repositioned itself as a litigation referral practice to take advantage of conflicts at the top City firms, and so is less sensitive to commercial conflict issues.
However, the firm has far less experience in derivatives – the issue at the centre of the dispute – than firms with major banking practices such as Allen & Overy or Clifford Chance. Richards Butler would also struggle to act against RBS because it is on its panel (see box) and does a significant amount of work for the bank.
A major turning point was Freshfields Bruckhaus Deringer’s decision to act against Citibank on behalf of the government of Brunei in 1999. Despite the fact that Freshfields obtained a waiver from one part of the bank, Citibank blackballed the firm and it received no new instructions for several years.
Since then both Herbert Smith and Lovells, traditionally litigation giants, have made commercial decisions not to confront UK clearing banks or the global investment banks.
Patrick Sherrington, head of alternative dispute resolution at Lovells, said: “From the position of the firms, we’re on a number of major panels and would aspire to being on others. There is undoubtedly a tension between growing a finance practice and growing a litigation practice.”
One former regulator told The Lawyer that if the practice were widespread enough, it could conceivably form the subject of a market investigation by the Office of Fair Trading (OFT) or the Competition Commission. The OFT could not respond in time.
The banks declined to comment.
|Don’t mess with RBS|
When the Brascan consortium sought to stop Canary Wharf selling off £1.1bn of property to the Royal Bank of Scotland (RBS) last December, it was unable to find any City law firm to help it.
RBS has a huge law firm panel which gets £160m of work annually from the bank.
Clause 8 of the ‘General Requirements’ section in the bank’s panel tender document states: “Due to the close nature of our relationship and the fact that you are, or will become, privy to much confidential information concerning the Group, we would be unable to continue instructing you if you were to commence or threaten to commence litigation against any member of the Group.”
All the firms on its panels are bound by the term.
The battle for Canary Wharf saw Brascan go up against Morgan Stanley in one of the UK’s longest contested takeovers.
Morgan Stanley’s recommended bid was conditional on the sale of the property and Brascan wanted some preliminary advice on how to stop it.
Brascan’s lead adviser was Freshfields Bruckhaus Deringer, which could not afford to irritate the bank with which it has been rebuilding relations since it was removed as its board-level corporate adviser last year. Neither could Herbert Smith or Macfarlanes, which were also advising Brascan members.
Brascan also turned to other, uninvolved firms, but one partner who turned down the instruction said: “No law firm that had the experience would touch it.”
Eventually the consortium went straight to the bar for advice.
|Barclays||Addleshaw Goddard, Allen & Overy, Ashurst, Barlow Lyde & Gilbert, Berwin Leighton Paisner, Bond Pearce, Boyes Turner, Clifford Chance, CMS Cameron McKenna, Davenport Lyons, Denton Wilde Sapte, Dickinson Dees, DLA, Eversheds, Fennemores, Freshfields Bruckhaus Deringer, Halliwells, Herbert Smith, Linklaters, Lovells, Osborne Clarke, Pinsents, Richards Butler, Rollits, Sidley Austin Brown & Wood, Simmons & Simmons, SJ Berwin, Slaughter and May, Taylor Walton, Ward Hadaway, Weil Gotshal & Manges, White & Case, Withers, Wragge & Co|
|RBS||Allen & Overy, Addleshaw Goddard, Ashurst, Barlow Lyde & Gilbert, Berwin Leighton Paisner, Clifford Chance, CMS Cameron McKenna, Denton Wilde Sapte, DLA, Dundas & Wilson, Eversheds, Freshfields Bruckhaus Deringer, Hammonds, Herbert Smith, Linklaters, Macfarlanes, Masons, Norton Rose, Pinsents, Richards Butler, SJ Berwin, Slaughter and May, Stephenson Harwood, Travers Smith Braithwaite, Watson Farley|
|HSBC||Addleshaw Goddard, Allen & Overy, Bevan Ashford, Eversheds, Freshfields Bruckhaus Deringer, Hammonds, Irwin Mitchell, Linklaters, Morgan Cole, Nabarro Nathanson, Norton Rose, Pinsents, Stephenson Harwood, Wragge & Co|
|HBOS||Allen & Overy, Berwin Leighton Paisner, Burges Salmon, Denton Wilde Sapte, DLA, Eversheds, Gateley Wareing, Hammonds, Herbert Smith, Linklaters, Lovells, Matthew Arnold & Baldwin, McGrigors, Shepherd + Wedderburn, Shoosmiths, SJ Berwin, Walker Morris, Wragge & Co|
|Lloyds TSB||Allen & Overy, ASB Law, Ashurst, Barlow Lyde & Gilbert, Bird & Bird, Clifford Chance, CMS Cameron McKenna, Linklaters, Norton Rose|