Dispute warning over conflicts

City law firms are not sticking to the conflicts of interest principles and will be dragged into disputes as a result unless they are more strictly policed or draw up a code of conduct, a top City litigator told the Gazette last week.

David Gold, head of litigation at City firm Herbert Smith, said that 'people don't like to turn down work and think of ways that they can counter the conflict rules to enable them to accept instructions'.

He gave two examples of scenarios in which City firms might act for clients against conflicts principles.

First, takeovers in which a firm acts for two companies seeking the same target company.

He said: 'There may be no direct conflict because both companies are running bids separately.

But it goes without saying that if you succeed in acting for the bid of one company, the other's bid fails.'

He described this as 'mighty close to the wind'.

Mr Gold also cited the example of project finance deals where firms act for the lender and the borrower simultaneously.

He said: 'We here [at Herbert Smith] don't accept such instructions, but there are many others who do.'

He predicted disputes ahead between parties who share the same adviser and added: 'Issues may arise relating to action taken by lawyers if the lawyers owe duties to both sides.' Mr Gold called either for firmer guidance and intervention by the Law Society, or for an agreed code of conduct to govern the principles of conflicts of interest for all City firms.

Bronwen Still, head of policy in the Society's professional ethics department, said new conflicts rules are scheduled to be put before the Society's council for approval later this year, or early next.

But Ms Still said the issues raised by Mr Gold related to enforcement.

She said the big corporate clients of City firms would normally take a conflicts dispute directly to court, and the Society would only hear about it afterwards.

Jeremy Fleming