Chinese Walls verdict fuels merger doubts

Last week’s High Court case between mid-tier firm Robson Rhodes and a group of disaffected Lloyd’s Names left both sides claiming victory. In one sense, however, the verdict was clear: the issue of the adequacy of Chinese Walls in accountancy firms is far from resolved.

The case – which failed to bring clarity to the issue – is the first in what is likely to become a flurry of legal skirmishes following last year’s House of Lords judgment in the Prince Jefri case.

The ruling by the Lords that KPMG’s Chinese Walls were inadequate to cope with the conflicts of interest arising from its work for Jefri, has fuelled the debate over how a professional firm can best deal with situations where it finds itself representing opposing parties in a dispute.

Now feverish consolidation among firms added to the increasing litigiousness in society has brought the problem sharply into focus.

The Syndicate 190 Names Association, which brought the case, had hired Robson Rhodes to act as expert witness in a legal action they are bringing against Pannell Kerr Forster, former auditor of the syndicate, over losses incurred in the Lloyd’s market. Robson Rhodes dropped the Names last month when it announced plans to merge with PKF and form Pannell Rhodes.

The Names claimed victory last week when the judge imposed strict terms on the merger. Personnel involved in the case on both sides were ordered not to have any personal contact with each other, and even banned from working in the same location.

‘They will not even be able to work in the same building, let alone attend meetings or speak on the telephone,’ said Richard Slade, the lawyer from Bracher Rawlins who represented the publicity-shy Names.

Rawlins also pointed to the judge’s ruling that Robson Rhodes was in breach of its contract with the Names, and said the path was open for them to sue the firm for damages. Robson Rhodes, however, said the Names had failed to stop the merger taking place, and argued that the judge’s ruling illustrated that accountancy firms could construct adequate Chinese Walls.

Hossein Hamedani, a Robson Rhodes partner ordered to be segregated from some of his new PKF colleagues, said: ‘It will be a relief to many that, in the right circumstances and with an understanding of what the law requires, an effective, ad hoc Chinese Wall can be erected.’

No doubt relieved that its merger plans can proceed, the firm played down the operational difficulties thrown up by the physical separation of staff. The judge’s order that staff involved must work in separate buildings may have established an expensive precedent for accountancy firms, but the legal profession is set to find the changes more welcome.

Last week was a rematch for the legal teams who were involved in the Prince Jefri case. Gordon Pollock QC, who had acted for Jefri, acted for the Names, while Ali Malek, who had acted for KPMG, also represented Robson Rhodes. Both they and the solicitors involved look likely to sweep up more fees by reprising similar arguments in future cases.

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