Travers Smith still faces probe after out-of-court Co-op deal
5 June 1997
The Law Society is expected to investigate Travers Smith Braithwaite's involvement in Andrew Regan's failed hostile bid for the Cooperative Wholesale Society (CWS) as it has emerged that the firm received stolen confidential CWS documents passed to it by Regan.
CWS announced that it had dropped civil actions against both Travers Smith and Regan's financial adviser Hambros, after the two firms offered unreserved written apologies. National press reports speculate that Travers Smith and Hambros together paid CWS a total of around £1m. But Travers Smith managing partner Alisdair Douglas said he could not say anything beyond what was in an official release from CWS.
Before the settlement and on the day Regan's bid collapsed (24 April), CWS had issued a press release saying that it was commencing civil proceedings against Travers Smith and Hambros because it had been advised there was "clear evidence that both organisations acted in breach of an equitable obligation of confidentiality to CWS. They had no credible grounds for believing that there was any legitimate basis for Mr Regan to have any such documents." It claimed that copies of "the most sensitive documents" were also on Travers Smith's files.
On the same day, Travers Smith hired PR firm Grandfield to defend it. Grandfield told The Independent newspaper that CWS's accusations were a "sideshow and a distraction". Later that day Travers announced: "We will resist most strongly any claim which may be made against us."
Graham Melmoth, chief executive of CWS, was furious. He faxed a handwritten note to Travers' senior partner Alan Keat on Saturday 26 April, accusing the law firm of adding "serious insult to injury".
He went on to say: "Please reflect on the following facts. One of your senior partners had sensitive and highly confidential CWS board minutes on his files. Anyone who can read will have known that they were confidential to the CWS. He knew that CWS would have nothing to do with Mr Regan or his proposals. How then did he satisfy himself that the documents had come from a legitimate source or by legitimate means?
"The conduct of your firm in this debacle is neither a 'sideshow' nor a 'distraction'. If you believe this to be so, you are making a serious error of professional judgement."
CWS revealed the following Monday (28 April) that Keat had caved in. He had written a reply saying: "We regret that we were recipients of documents confidential to CWS and accept that our conduct did not accord with the standards which we set ourselves. I offer my personal and the firm's unreserved apology to you."
Despite the settlement, the Law Society says it does not need an official complaint before it investigates a clear breach of rules. "We are aware of reports and will be looking into it carefully. What seems to be the case at this point is that Travers Smith received documents which were not authorised," said an Office for the Supervision of Solicitors spokeswoman.
CWS has formally complained to the Stock Exchange, the Bank of England, the Department of Trade and Industry and the Serious Fraud Office, which will be investigating an earlier transaction between Regan and the Co-op.
According to sources contacted by The Lawyer, the documents removed from CWS filled seven crates and included financial accounts, property valuations and a complete set of CWS main board minutes from June 1996 to April 1997.
David Chambers and Alan Green, the CWS executives who supplied Regan with the documents, are still to face criminal charges. Their betrayal emerged after CWS hired private detectives to monitor Regan's moves. At one stage they were said to be camped outside Travers Smith's offices.
Linklaters & Paines partner John Turnbull is dealing with the prosecutions on behalf of CWS. The executives were suspended on 17 April and were later summarily dismissed.
High Court injunctions were issued against the use of the information on Friday 18 April, but the bid only lapsed officially on Thursday 24 April, when the London operation of the Japanese stockbroker Nomura withdrew a £1bn finance facility. Nomura had written to Hambros, the merchant bank advising Regan, demanding assurances that information on CWS being used in the bid was legally obtained. Hambros failed to reply.
The documents involved in the dispute have now been returned to CWS. On Friday 25 April, the High Court granted a second injunction, permanently excluding the use of any of them. It is believed they were circulated around as many as 17 organisations.
Geoffrey Green, head of company and commercial law at Ashurst Morris Crisp, said the emergence of material of a suspect nature was not unusual in mergers and acquisitions. He stressed that most deals were conducted in an ethos of honesty and that illicit material rarely got as far as being shown to a lawyer. "You've got to steer clear of it," said Green. "If you do not, you will be in trouble."
The usual suspects
Lawyers involved in the CWS bid include a roll-call of top City firms. The Lawyer contacted all of them, but none were prepared to talk about their role.
Clifford Chance was advising Nomura and Allen & Overy is advising Galileo, Regan's bid vehicle.
Linklaters was hired by CWS to advise on defending against Regan's bid, while CWS's
financial adviser, Warburgs, appointed Freshfields.
It is believed Linklaters played a big part in the defence by pointing out that CWS's membership list is 8 million strong, rather than the 500,000 Regan estimated - and Regan would have been forced to contact all of them.
Linklaters litigation partner John Turnbull handled the two injunctions that CWS brought against the use of the stolen documents, the second one making the first temporary injunction permanent. It is believed that Linklaters was worried that Galileo could proceed with the bid even with stolen documents.
After consulting the Bank of England and the Securities and Futures Association, Hambros appointed Norton Rose. Fraud specialist, partner James Bagge is heading an internal inquiry at Hambros.
Lovell White Durrant is advising Travers Smith.
Travers Smith Braithwaite senior partner Alan Keat is no stranger to the excitement of hostile bids in the City of London. At dawn on the morning of 9 November 1989, he was arrested at his home in Guildford and driven by detectives to Bishopsgate police station to be charged with conspiracy to defraud.
Keat's arrest, which was connected to the Blue Arrow collapse, was met with shock and anger in the City. Many senior lawyers felt that to cast a solicitor advising on the law as a "conspirator" came close to an abuse of power on the part of the SFO.
Several prominent City figures openly suspected that political motives lay behind the arrest. It was seen as a warning to the City to clean up its act.
Ronald Fox, senior partner at Fox Williams, commented at the time: "This is an astonishing development. If, when a lawyer is advising on the law, clients' actions are taken to involve the lawyer, it would be a very dangerous situation."
Despite the fact that his innocence was never seriously in doubt, it took Keat nearly two years to clear his name. However, relations between Travers Smith and its client County NatWest - now NatWest Markets - never really recovered. Travers is no longer NatWest Market's principal adviser.