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The Prince Jefri ruling highlights MDP flaws, says Rita Lowe. Rita Lowe is an insolvency partner at Cameron McKenna. The difference between the way accountants and lawyers apply conflict of interest rules was brought into stark contrast this month in a judgment that could affect the development of multidisciplinary practices (MDPs).
Two weeks ago, the High Court found that Chinese walls erected at KPMG had not been sufficiently strong to protect its former client Prince Jefri of Brunei. KPMG has appealed.
The alleged conflict arose over KPMG's investigation for the Brunei Investment Agency, which had been headed by Jefri. With only five big accountancy firms now, the potential for such conflicts is enormous.
The difference in approach between solicitors and accountants to conflicts stems from their respective professional rules. The Institute of Chartered Accountants says there is nothing improper in acting for two clients whose interests conflict. This is because accountants have a duty not to disclose any client-confidential information, even if disclosure would benefit another client.
By contrast, solicitors have a duty to inform clients about any information in their possession relevant to the client's case - including confidential information obtained from another client. This duty bars solicitors from acting for two clients whose interests conflict.
To ensure that client interests are protected, accountants' rules specifically allow for safeguards such as the use of different partners, staff and internal reporting lines - in other words, Chinese walls.
Solicitors' rules only contemplate the use of Chinese walls where two firms have merged - and even here there are stringent conditions.
The Prince Jefri case has cast doubt on accountants' ability to create an effective Chinese wall in today's working conditions. It suggests that where the role of accountants is similar to solicitors, such as in forensic work, the duty to clients should be the same. The problem may be that accountants' rules of conduct were devised at a time when their work was far more restricted.
If the ruling is upheld, the significance of the decision for global accountancy practices and the so-called "one stop shop" may be far reaching. The many solicitors who are increasingly competing with accountants will welcome the possible arrival of a level playing field.