The partners of one of Australia's most prestigious law firms, Allen Allen & Hemsley, have been found personally liable for A$22m (u9m), arising from the fraudulent activities of a former managing partner in the London office.
The 100-partner firm, which is based in Sydney and Brisbane, has been rocked by a string of adverse judgments in the courts relating to fraud and negligence.
“They remain one of the top five but can no longer say they are the pre-eminent firm. Their reputation and prestige has rather been tarnished,” says Jeremy Kriewaldt, managing partner of the London office of rival Australian firm Blake Dawson Waldron.
This latest judgment, delivered by the New South Wales (NSW) Court of Appeal on Friday, relates to Adrian Powles' financial deals with the Nauru Phosphate Royalties Trust.
As a result of Powles' actions, which he committed while he was the managing partner of Allen Allen & Hemsley's now defunct London office, the firm paid out A$22.2m to the republic of Nauru, an independent island in the Pacific.
The court has overruled last year's decision by the NSW Supreme Court, which found that the firm could recoup the money from its insurers because of a “dishonesty exclusion”.
Lawyers must look closely at their external and internal auditing systems, says Kriewaldt.
“Large partnerships have to throw out some of the kid gloves when it comes to the handling of partners. They have to be subject to scrutiny, especially when it comes to overseas offices,” he says.
Allen Allen & Hemsley is considering an appeal to the High Court, Australia's equivalent of the House of Lords.