Wanted: law firm to sue the UK’s big five banks

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.