City firms have been forced to examine their procedures on conflicts of interest following the Law Lords’ judgment in the case of Bolkia v KPMG.
The Lords upheld a High Court injunction last month preventing KPMG acting for the Brunei Investment Agency in its investigation of the finances of Prince Jefri of Brunei, the Sultan’s estranged younger brother. KPMG had acted for Prince Jefri in the past, and the Lords ruled that the “chinese wall” put in place by KPMG to prevent leaking of confidential information was insufficient protection against disclosure.
The Lords ruled that ad hoc barriers and the standard of “reasonable probability” of disclosure are inadequate. There must now be permanent barriers and protection against any risk of inadvertent disclosure. They also laid down criteria for chinese walls including physical separation of staff, training for staff in conflicts of interest, in-house monitoring and punishment for offenders.
Ronnie Fox of Fox Williams, a partnership expert, says the Lords’ ruling has severe implications for lawyers. “Large firms will have to be extremely careful. Where there are potential conflicts of interest, they will have to look very carefully at their procedures.”
John Rink, managing partner at Allen & Overy, says the firm is examining its procedures in the light of the ruling and is looking to strengthen its chinese walls.
But he says: “There is a danger that the extreme circumstances in the KPMG case may be applied to cases where minor problems of conflict can be easily overcome.”
John Turnbull, litigation partner at Linklaters, believes the Lords are applying a double standard in criticising chinese walls when barristers acting on opposing sides of a case may share the same clerk, room and fax machine: “Their legal position is clear, because they are separate practices, but we all know that’s rubbish,” he says.
He says the ruling does not mean the end of chinese walls in the City or in law firms.
But Fox sounds a note of warning: “This case is saying that setting up a chinese wall is not good enough. This concept will virtually disappear among the larger companies.”