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Law Firm Precluded From Acting in $2 Billion Claim

In a case which underlined the limitations of Chinese walls and ethical screens, a top international law firm has been ordered to cease advising a client in a $2 billion commercial dispute despite pointing to a battery of precautions that it had taken to ensure that it could fairly represent potentially conflicting clients.

The firm had taken instructions from a businessman who claimed that he had not been paid his rightful share of profits from a joint venture. It had also agreed to give advice in respect of a corporate restructuring exercise. It had emerged that the two defendants in the claim relating to the joint venture were amongst the ultimate owners of the businesses concerned in the restructuring exercise. In those circumstances, the businesses sought an injunction precluding the firm from acting for the businessman.

In arguing that it should be permitted to continue to represent the client, the firm pointed out that, in order to guard against any potential conflict of interest or leakage of confidential information, it had erected ethical screens to ensure that there was no relevant communication between the teams working on the two matters. Those screens were monitored by industry-standard software and policed by a global compliance team of more than 30 individuals.

A ‘neutral team’ had investigated the matter and found no basis for the businesses’ concerns, and it was argued that the businessman would suffer serious prejudice if required to instruct new solicitors. The firm also pointed to its geographical and departmental separation of the two teams and its proffered undertaking that no solicitor would work on both matters.

However, in granting the injunction sought, the High Court noted that no precautions, however sophisticated, could do away with the possibility that confidential information had passed between colleagues prior to the erection of the ethical screens. With such large numbers of solicitors working on both matters, there was also the risk of inadvertent oral disclosures or information passing conversationally during events organised by the firm. In those circumstances, the firm had failed to discharge the evidential burden as to risk and it was enjoined from acting further for the businessman in proceedings before the Commercial Court.