Whose brief is it anyway?

In today's global market, conflicts of interest are a burning issue. The gentlemen's agreement is no longer adequate to protect client confidentiality. The time has come for formal, international guidelines
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The Independent Online

Lawyers from around the world met yesterday in Amsterdam to review an issue that cuts to the heart of the legal profession in the 21st century. On the subject of conflicts of interest, how far should today's business of law be subject to the rules of an older - and different - profession?

Lawyers from around the world met yesterday in Amsterdam to review an issue that cuts to the heart of the legal profession in the 21st century. On the subject of conflicts of interest, how far should today's business of law be subject to the rules of an older - and different - profession?

Conflicts are a huge issue for UK and UK-origin firms as their transnational business grows. Chris Perrin, deputy chief operations officer at Clifford Chance and chair of the City of London Law Society's working party on conflict rules, says: "In the past our firm, although it was fairly international, tended to approach conflicts from an English law perspective. Since our merger at the beginning of this year, 70 per cent of our work has come from outside the UK, so we have started to have to apply the conflict rules in a more regional manner."

"Clients are also far more interested in the conflicts issue - as the relationship between major clients and their lawyer grows stronger, those clients get more and more concerned when a conflict prevents a law firm from acting for them. This year we have created four 'clearance centres' staffed by experts in conflict management. Fifty people operate from London, New York, Hong Kong and Frankfurt handling, on average, 430 requests per day for clearance of every sort."

Finding a solution to a modern conflict of interest rule is vital to the future development of the legal profession worldwide. This week's International Bar Association 2000 Conference marks the launch of the Association's initiative to develop a global set of conflict ground rules fit for this century.

Lawyers must follow strict conflict of interest rules, which prevent them from compromising client interest in favour of another client's, or their own, personal interests. The rules ensure that confidences are kept and that lawyers are loyal to clients. The rules are obviously sensible, but they evolved back in an era when firms would be regarded as tiny by current standards. Today's largest firms are multi-officed, multi-jurisdictional enterprises employing thousands of professionals around the world.

The Spanish lawyer Ramon Mullerat - former president of the Council of Bars and Law Societies of the European Union (CCBE) - has predicted that in less than 20 years there will be just 50 global law firms and a few marginalised regional players. Clients have changed. The largest global corporations employ hundreds of staff lawyers - often as smart and sophisticated as many a QC. And they have the whip hand over their law firms. With these changes, conflicts issues have become much harder to keep track of and to manage.

One tried and tested solution in addressing the issue of conflicts is the use of Chinese walls. Two years ago, in its most important decision on conflicts ever, England's top court, the House of Lords, stopped KPMG from acting against a former client, Prince Jefri Bolkiah. Even though KPMG is a professional services firm, and its roots lie in accounting, the same rules applied to it as to lawyers. The court took a much tougher view of conflicts laws than it had done traditionally. It set strict standards for setting up Chinese walls, requiring institutionally structural, as opposed to ad hoc, arrangements to prevent the leaking of confidential information.

The decision effectively moved English law closer to American and Commonwealth models and away from Continental requirements. Lord Millet refused to let what was seen by some to be a lax Edwardian precedent set standards for today's world of sophisticated players in high-stakes litigation.

In the year 2000, the issue of conflicts is a priority agenda item for regulatory authorities around the world. In July, the American Bar Association (ABA) founded its opposition to multi-disciplinary partnerships on conflict concerns. Back in Washington, Arthur Levitt and the Securities and Exchange Commission have recently weighed in on auditor independence. Some claim that it is Levitt's ambition to break up the Big Five accounting firms. At heart is a fear that conflicting interests may compromise the independence of the auditor. The SEC would bar audit firms from providing legal services to their clients.

The SEC's position puts at risk the move towards one-stop shopping for professional services - not merely in the US, but globally. The CCBE has drafted a comprehensive Code of Conduct for lawyers which recognises the reality of cross-border practice. The code has been "adopted" by the Law Society of England and Wales, but it is unclear to what extent it currently has any application.

Mr Perrin's working party released a bombshell report on the matter earlier this summer. The report takes square aim at the Law Society's tough (some would say outdated) rules - and implicitly at the courts. The report suggests that the Law Society is out of touch with City reality; that business and financial institutions are sophisticated enough to weigh the risks, accept Chinese walls and waive any concerns; and that conflict rules should be loosened to permit clients to opt out of protection. If the rules are not changed, warns the City of London Law Society, London's primacy as a legal centre would be threatened by competition from European lawyers, who are not fettered by such strict regulation. Whether the Law Society will take up the gauntlet thrown down by the City is not yet apparent.

In the meantime, the courts remain the ultimate arbiters. Even though everyone concerned consents, the courts will have their final say in whether consents and waivers are really effective - and whether Chinese walls have been made watertight. Sceptical judges will require powerful evidence that there has been full disclosure and that client interests have not been sacrificed.

There is a clear need for a global conflicts code. Today's reality is that the legal profession is a profession in motion, and the pace is torrid. Mergers abound. Even senior lawyers can defect to competing firms. And legal practice spans every time zone.

* The writer is Chairman of the International Bar Association Section on Business Law