Merging firms put lawyers at risk

Lawyers who face a conflict of interest because their firm is merging may be forced to leave newly combined firms, following a High Court ruling.

The High Court has reinforced the principle that clients' interests are paramount when a potential conflict of interest arises in mergers.

A group of Lloyd's Names tried to stop the merger of accountants Pannell Kerr Forster and Robson Rhodes, because it wanted to use expert witnesses from its long-standing accountant, Robson Rhodes, against Pannell Kerr Forster.

Mr Justice Laddie ruled that the merger should go ahead, but that Robson Rhodes would be in breach of its contract with the Names if it refused to continue advising them on their case against Pannell Kerr Forster.

He imposed “Chinese Walls” to prevent any professional contact between relevant staff until after the Names' case has been heard.

Ronnie Fox, managing partner of Fox Williams and chairman of the Association of Partnership Practitioners, says that instead of using these Chinese Walls, merged firms will tell conflicted lawyers to take the client's business to another firm.

“One of the purposes of a satisfactory merger is to get all the lawyers together as quickly as possible, and you can't do that with a Chinese Wall,” he says.

“If partners have got a case against each other, one of the firms will have a quiet word with the people working on that case and suggest they go off and join a third firm.”

With work increasingly concentrated among the top-ranking firms, more and more conflicts seem set to arise.

“There is huge consolidation going on in the legal market, and they understand there will be mergers,” says Fox.