High Court breaches 'Chinese walls'

Roger Pearson reports on a conflict of interest ruling against KPMG, a state of affairs as yet foreign to most accountants.

The question of preservation of confidentiality, when members of a profession are instructed to act for a client whose interests conflict with those of another client, has come under close scrutiny in both the High Court and Court of Appeal recently.

The case of Bolkiah v KPMG, the outcome of which could still be the subject of further appeal moves in the House of Lords, is being closely scrutinised by professionals in the accountancy and legal fields.

In the High Court Mr Justice Pumfrey banned KPMG from assisting the Brunei Investment Agency (BIA) in a bid to track down massive sums of money, because it had previously acted for Prince Jefri, one of the world's richest men, who is currently the target of major investigations.

David Donaldson QC, acting for KPMG, argued that a "Chinese wall" had been put in place to prevent the leak of confidential information obtained from the prince while KPMG was acting on his behalf.

However, Mr Justice Pumfrey argued that KPMG should end its involvement in the project – code-named Project Gemma – because despite this so-called Chinese wall, there was still a risk of information being inadvertently or negligently leaked to the Brunei authorities.

The Court of Appeal decision of Lord Woolf and Lord Justice Otton, with Lord Justice Waller dissenting, over-turned the decision and ruled that the ban should be lifted.

For the prince, Gordon Pollock QC argued that he was being accused of "stealing a lot of money" – several billion dollars are said to be involved – and should be entitled to defend himself against these allegations without the risk of any confidential information belonging to him turning up on the other side.

But Lord Woolf said that to continue the High Court injunction "would be to set an unrealistic standard for the protection of confidential information which would create impediments in the way large international firms conduct their practice".

He did not consider that the prince was likely to suffer any real prejudice if the injunction was discharged, pointing out that a fresh team had been brought in by KPMG and steps taken to minimise any overlap.

He said there was no single test as to whether accountants or solicitors should be barred from taking instructions from a client to act against former clients. "The answer in each case will depend on the steps which the firm has taken to protect the interests of the former client," he said.

Roger Brown of Stephenson Harwood, who represented KPMG, was quick to point out that the judgment would have only a "minor impact" on the legal profession.

Solicitors, who are professionally obliged to use all information they possess in favour of a client, are at the same time barred from acting simultaneously or consecutively for clients where one client could benefit from the confidential information of the other. Accountants, however, are under no such obligations or restrictions.

In the light of the different approaches of the two professions, Brown considers the judgment is not nearly as relevant to solicitors as it is to accountants.