Simmering conflicts

Globalisation and law firm mega-mergers are storing up problems over client conflicts - and observers think the issue will soon reach boiling point, reports Jeremy Fleming

Clifford Chance's mega merger with US firm Rogers & Wells on 1 January 2000 made it the world's biggest legal employer, with 3,000 legal advisers.

Unsurprisingly, the other first it achieved that day - when it became the first firm to set up a dedicated conflicts clearance centre - went by unnoticed.

However, the latter move could set a trend as merged global firms doing cross-border deals find themselves increasingly lost in the conflicts labyrinth.The regulation of conflicts in England and Wales - some of the strictest in Europe - are currently a hot topic, with the recent publication of the City of London Law Society's review of the rules (see [2000] Gazette, 6 July, 5).

The report was the product of unusual collaboration between the national Law Society and leading City practitioners, and aimed to give a realistic commercial critique of the rules as they stand.

The report's compilers have not held back.

The report said the current rules are unclear, leaving English and Welsh firms without the competitive edge afforded to Continental firms by their comparatively liberal regulations.The report should go some way to rectifying a situation made bleaker by case law in the past year.

The celebrated Prince Jefri case - whilst it made no clear-cut recommendations - said clients could only be protected from 'inadvertent leakage of confidential information' by 'sufficient physical separation'.

But the question of what constitutes sufficient separation remains opaque; and Chinese walls remain a touchy subject in the City.The fact that City lawyers have no blueprints to work from in ascertaining what exactly constitutes 'sufficient physical separation' added more uncertainty for lawyers wanting to combine a commercial approach with acting in the best interests of their clients.It is these uncertainties that the report sets out to change, giving a series of draft amendments which, if adopted, would see English regulations start to reflect the continental rules.Angela Robertson, director of Clifford Chance's London conflicts centre, says: 'In effect, I suspect that the reform proposals, if adopted, would result in the current system becoming more like the German and Continental systems.' She characterises these regimes as follows: 'It is generally accepted there that you can act in a case that is against the interests of your current client if you are acting in a different matter, whereas here the position is unclear.'Ronnie Fox, senior partner of City firm Fox Williams and chairman of the Association of Partnership Practitioners, welcomes the fresh approach of a report that represented the Law Society tapping into the resources of City firms 'because it is the City firms who are always dealing with problems surrounding conflicts issues'.

Mr Fox says the opacity of the current rules is unacceptable.He points out that they can deprive clients of choice; nor do they allow clients to agree that their lawyers may act against them in certain specified circumstances.However, Mr Fox is most keen to see an end to businesses using conflict rules to achieve a tactical advantage in the market.

He says he has first-hand experience of this practice.

A company sends a small piece of legal work to a firm of solicitors with a specialist reputation.

The firm acts for the company, and then, when the firm is subsequently approached a few weeks later to act against that company in a much larger matter, the firm finds that it is conflicted from so doing.'There may always be good reasons why you should not act for someone,' Mr Fox says.

But where there are not good reasons, 'It should be sufficient simply to disclose the fact that you are acting to the client'.

Mr Fox says the best point about the report is the continuing emphasis laid on the protection of the clients' interests.Conflicts regulations are critical to the future development of multi-disciplinary partnerships (MDPs).

One of the biggest problems with MDPs lies in the differences between the conflicts regulations of accountants and solicitors.

The solicitors' rules are framed around the overriding interests of their clients, whereas accountants rules are framed to account for public interest issues, and are generally more relaxed.

The new review of the solicitors rules did not explicitly consider the issue of MDPs, but nevertheless Ronnie Fox says: 'If lawyers can sort out their conflicts rules, this will be a way towards smoothing the path to MDPs.'Michael Simmons, head of professional practice at City firm Finers Stephen Innocent, is more sceptical.

He sees problems with the UK adopting an approach incompatible with that in the US.

He explains: 'Suppose Mr Smith, an Illinois registered lawyer, comes over from Chicago to work in his firm's London office.

Mr Smith has been acting for company X in America, but in London he receives instructions from company Y in a massive litigation against company X.

Bound by his Illinois regulations, Mr Smith is unable to act.

Meanwhile, down the corridor, Mr Jones, and English lawyer, is at liberty to accept the case.

There is a clear conflict.''Scratch the surface of these conflicts issues and you begin to see what problems may emerge,' he continues.Is there a solution to these problems? Mr Simmons says that the only viable long-term solution is for the International Bar Association to try to harmonise conflicts rules worldwide.

Though he acknowledges that 'the parochial attitude' taken by local Bar associations does not bode well for the chances of creating such a global code.Clifford Chance now has a conflicts checking centre in Frankfurt and New York, and plans to open a new one in Hong Kong in the near future.

Ms Robertson agrees that the London office could find itself working in sync with the German office if the current rules go ahead, with the New York office following a different path.

US conflicts rules are among the world's strictest - litigating against a client, even in a totally dissimilar matter, is out of the question, although there are moves to amend this.

The ABA's business law section, citing the incompatibility of this position with a global firm with dozens of offices worldwide, is looking to allow the 'screening' out of conflicted lawyers and advanced consent waivers against future conflicts.Do the proposed changes to the English rules pose any threat to destabilise the cultural affinities between firms such as Clifford Chance and Rogers & Wells? Not really, Ms Robertson says.

For a start, the conflicts clearance centres take a strict line.

If, for example, the Frankfurt office is clearing a case involving only German companies, but one of those companies has a link with a US company, giving rise to the risk that US courts could have jurisdiction in any subsequent conflicts dispute, the clearance centre will reject the case.The centres' co-operation ensures that all the firm's offices' interests are taken into account, she says.But Mr Simmons says that for firms of Clifford Chance's size, the problem of conflicts is a growing one.

He says that he recently acted for two doctors setting up a partnership.

Subsequently, one of the doctors approached him and asked him to act for him; the partnership had dissolved.

Mr Simmons was incapable of acting for him, or for the other party: there was a clear conflict.

When you are acting, as Clifford Chance does, for the world's largest multi-national companies, the risk of inadvertently saying 'a plague on both your houses' to your clients, is the stuff of nightmares, he contends.

And the ever-expanding ambitions of the largest law firms brings the prospect of this nightmare ever closer, Mr Simmons maintains.

'The bigger you are, the worse it is.'