PracticeConsultingOnline Extra – KPMG loses High Court fight

Online Extra - KPMG loses High Court fight

Judge rules Chinese walls are not leak-proof and forces firm to drop client investigation. Jon Bunn reports

A High Court judge this week dealt a blow to one of the profession’s central tenets by ruling that Chinese walls could not adequately protect client confidentiality in all cases.

Mr Justice Pumfrey granted Prince Jefri of Brunei an injunction preventing KPMG revealing his financial details to a third party although he accepted that KPMG had ‘honest intentions’.

The firm had argued there was no need for an injunction because its internal Chinese walls would protect the Prince.

KPMG, which said the ruling raised ‘important issues’ for it and the profession, must now cease advising the Brunei Investment Agency in its investigations.

Counsel for KPMG claimed there was no danger of information being leaked, even though it conducted a detailed #4.6m investigation into the prince’s financial affairs and was now performing a similar task for the BIA. Jefri was the agency’s chairman until he was ousted earlier this year as part of a spat with his brother the Sultan of Brunei.

Gordon Pollock QC, the prince’s counsel, argued last week that KPMG broke English ICA rules when it failed to inform its former client, the prince, that the firm was investigating him for the BIA.

But Pumfrey said it was ‘fair to say KPMG has taken all steps one would expect’ to avoid disclosure of confidential material. He added it was inevitable some staff had retained confidential details and informal conversations were bound to occur.

In a similar conflict of interest, Allen & Overy, the prince’s lawyers stepped down.

Pumfrey expressed doubts about the effectiveness of KPMG’s Chinese walls. ‘The intrinsic difficulty with Chinese walls is that, while they are well adapted to deal with foreseeable or deliberate communication of information, they are not well-adapted to deal with disclosures which are accidental, inadvertent or negligent,’ he said.

Pumfrey said KPMG, which will appeal, should cease working for the BIA. But he directed his ruling only at litigation work. He said it should not set a precedent for other fields such as audit.

KPMG said: ‘The maintenance of confidentiality is a fundamental part of the ethos of a major multiservice firm.’

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