Freshfields, the £9bn M&S bid and just a touch of hubris

How Slaughter and May dashed the magic circle firm’s dreams of the biggest takeover bid of 2004

On Thursday 3 June at 3.35pm, Freshfields Bruckhaus Deringer corporate finance head Barry O’Brien left Court 70 of the Royal Courts of Justice to stand outside with the media. It was an attempt to demonstrate how seriously the firm took conflicts of interest.

The court had gone into private session to debate Marks & Spencer’s (M&S) contract with fashion guru George Davies. The contract had become a central element to the embattled retailer’s objection to Freshfields’ instruction to act for the Philip Green consortium on its takeover bid.

By 5pm, all was lost. The Court of Appeal rejected Freshfields’ pleas, leaving the magic circle firm embarrassed, out of pocket (costs awarded to M&S are estimated to be £350,000) and out in the cold on the biggest takeover bid to hit the UK this year.

A month earlier it had all seemed so promising. Over coffee at Starbuck’s, across from Freshfields’ Fleet Street offices, O’Brien listened as Arcadia’s chairman Lord Grabiner offered the firm the mandate to act on Green’s bid for M&S.

Freshfields’ conflict checking machine whirred into action, revealing that the firm had advised M&S on the original Davies contract, its subsequent restructuring and a number of litigation matters. The following day, 5 May, Freshfields’ management, led by chief executive Hugh Crisp, concluded that the Davies contract was not material to the bid, that there was no risk of conflict and that it could accept the instruction. Yet just 14 days later, O’Brien became aware that the Davies contract would form one of the
key questions that Green demanded an answer to from M&S before he would proceed with a bid. On that day, Chinese walls were set up around the Davies contract within the firm.

Any concerns over this development were allayed in the short term. That was until M&S head of legal Robert Ivens got wind of the fact that Freshfields was acting for Green.
On 29 May, everything began to change. Ivens managed to confirm with M&S relationship partner Alistair Crawford that the firm was engaged on the bid.

Enter Slaughter and May. Litigation partner Sarah Lee, with One Essex Court’s Kenneth MacLean, struck the first blow last Tuesday (1 June), when they applied to the Chancery Division of the High Court for an injunction restraining Freshfields from acting. The next day, Herbert Smith lawyer turned judge Mr Justice Collins granted the injunction.

“I’m satisfied that there’s a real or serious risk of conflict,” he ruled. Far from being “vestigial”, as was argued by Freshfields’ counsel Michael Brindle QC of Fountain Court Chambers, Judge Collins found that the Davies contract was integral to M&S, as it could form part of the bid tactics for the consortium. It did not stop there. “I cannot see, even with a firm the size of Freshfields, that effective information barriers can be put in place,” said Judge Collins.

The silk sought leave to appeal. The injunction was stayed until 10.30am the following day, leaving Freshfields with just a few hours to launch its fightback. At 2pm on 3 June, the battle began.

The court’s mid-term break limited the number of judges available to consider the leave to appeal. Two, instead of the customary three, were found: Lord Justice Kay and Lord Justice Pill, two vacation duty judges.

The hearing started badly. Kay LJ insisted on calling Brindle “Brodie”, although the QC, who had forsaken his own holiday to take up Freshfields’ baton, managed to maintain his characteristic affability throughout.

Brindle repeated the point first made to Judge Collins, that the conflict was theoretical rather than real. He added that Chinese walls would be adequate and that the undertakings offered by Freshfields would be enough to protect confidential M&S information from leaking to the Green camp. But, as Pill LJ would later remark, “the horse may well have bolted”.

As O’Brien staunchly defended his firm to the milling journalists, events were superseding them away from the court. Earlier that day, at just past 12pm, Green had told The Lawyer he would instruct new lawyers within the hour.

Merrill Lynch, one of Green’s financial advisers, was already doing the rounds searching for a replacement, and Ashurst would eventually win out. That afternoon, though, Brindle battled on, fighting not just for leave, but also appealing at the same time.

Undertakings by O’Brien were unfurled and additional bricks were added to the Chinese walls. A note was passed to Brindle, stating that all members of Freshfields’ Green team had confirmed that they had not received any confidential M&S information to date. But the judges were unrelenting.

“Judge Collins’ experience of matters such as this is unequalled amongst the judges of the higher courts. It is not arguable this court would reach a different conclusion than that reached by him,” said Kay LJ.

Then came the killer blow. He added: “There is a clear potential conflict of interest in Freshfields acting for those concerned with the bid at the time it was instructed to act for M&S on the Davies contract.” Pill LJ concurred.

Freshfields, despite the defeat, remains resolutely defiant. Crisp said: “Any lawyer, here or at any other firm, knows that beaching confidentiality spells the end of their career.”

And as far as Pill LJ and his stable doors go, O’Brien retorts: “The judge may believe the door may be open, but the horse is firmly in the stable.”