Lenihan's legal conflicts

12 July 2009
It is just over three months since Minister for Finance Brian Lenihan told Financial Times editor Lionel Barber he was planning to introduce tough legislation to clamp down on crony capitalism in Ireland.
Lenihan said last March that the measures would include a ban on cross-directorships and on chief executives becoming chairmen of companies.‘‘There is a problem in all small countries with too many incestuous relationships,” he noted at the time.
Last Monday, the Financial Times returned to the theme of close relationships in Ireland, following the government’s decision to appoint law firm Arthur Cox as legal adviser to the National Asset Management Agency (Nama), which is charged with taking the banks’ development loans off their balance sheets.
Arthur Cox is one of the most reputable law firms in the country. But it has already advised the Department of Finance on the banking crisis, while it is also corporate counsel to Bank of Ireland, which has secured a €3.5 billion taxpayer injection. It has also advised many other Irish banks and property developers.
Some solicitors are unhappy about the decision to appoint Cox to advise Nama. This may be partly down to professional jealousy among Cox’s competitors, many of whom would also have found themselves potentially conflicted if they had won the contract.
But it isn’t just solicitors who competed for the Nama work who are critical.
One country solicitor complained that solicitors were often hauled over the coals by the judiciary on conflict of interest issues in relatively minor property deals, even when the parties originally consented to being jointly advised. He wondered why the big Dublin law firms shouldn’t be held to the same standard.
Few have voiced their concerns on the record, for fear of irritating the government, and for fear that if the conflict of interest debate is given too wide an airing, the government may award future Nama-related contracts to the big British law firms instead of the big Irish ones.
One who did stick his head over the parapet was Barry Lyons of Kenny Lyons solicitors, who asked in an Irish Times article if it was sensible that Arthur Cox was acting as adviser to so many competing interests linked to the banking crisis.
Other s have privately pointed out difficulties in advising the government and Nama, which have an interest in getting best value for the taxpayer, while simultaneously advising Bank of Ireland which has an interest in getting best value for its shareholders.
They have also questioned the potential difficulties in acting for Nama, a body which could have an adversarial relationship with banks and developers, when a firm has also advised some of those banks and developers.
One lawyer drew attention to the Law Society’s guidelines on conflicts of interest. The guidelines state that ‘‘if a conflict of interest arises between two clients in a matter in which the firm is acting, the firm must cease to act for either client in that matter.”
However, the guidelines allow that, in exceptional circumstances, one of the clients may consent to the other client remaining.
Others point out that potential conflicts are effectively unavoidable in a small market the size of Ireland and that many British law firms would also have advised Irish banks and property developers. They say that any possible conflicts were disclosed in the context of Arthur Cox’s tender for the Nama work and that Arthur Cox emerged as the winner in that process.
Its bid was believed to have been significantly lower than the next lowest of its main competitors.
But a Labour Party source said the Nama work could have been given to the chief state solicitor’s office in order to avoid any perception of conflict of interest, though he noted its staff capacity had been run down during the boom years.
Arthur Cox said in a statement that the work it was doing for Nama covered the provision of advice on the establishment of that agency, and did not relate to its operation.
‘‘Once Nama is established, there is undoubtedly potential for conflicts of interest to arise for any firm working with Nama in its transactions with banks and property owners. This is not what we have been appointed to do,” it said.
The day-to-day legal work of recovering debt from developers whose assets are transferred to Nama will separately be put out to tender. It is expected that a panel of law firms will be retained, and that the legal work involved in recovering assets will be given to firms that have not represented the borrower.
Many companies seek to allay concerns about conflicts of interest by establishing ‘‘Chinese walls’’ between the departments representing clients with potentially conflicting interests.This is to prevent information gained while acting for one client leaking to people in another part of the same firm that are acting for another client to whom that information may be highly relevant.
In Arthur Cox’s case, the team advising the government on Nama is headed by managing partner Padraig O’Riordain, while the team advising Bank of Ireland is separately managed under the leadership of Arthur Cox chairman Eugene McCague.
The problem of potential conflicts of interest is a routine one faced by accountants, investment banks and other professionals. One retired banker said such conflicts were probably unavoidable in a small market and the most practical solution was that the conflicts should be disclosed and managed by the establishment of Chinese walls.
But clients sometimes worry whether such walls are sufficient to protect their interests. The Irish Law Society’s 2002 guidelines on conflicts of interest make specific reference to the British case taken by Prince Jefri Bolkiah of Brunei against chartered accountants KPMG.
Prince Jefri wasn’t happy that Chinese walls adequately protected him. He sought a High Court injunction restraining KPMG from acting for the Brunei Investment Agency which was investigating certain dealings. KPMG had earlier acted for the prince, who feared that information concerning his personal finances obtained by KPMG could leak out to those now contemplating action against him.The prince was successful in obtaining the injunction, which was subsequently upheld in the House of Lords.
The House of Lords found that ‘‘a man cannot without the consent of both clients act for one client while his partner is acting for another in the opposite interest’’.
There have been other cases since the Irish guidelines were drafted.
For example, Marks & Spencer successfully obtained an injunction to stop leading British law firm Freshfields advising businessman Philip Green on his subsequently aborted stg£9 billion bid for Marks & Spencer. It argued that Freshfields had also worked for Marks & Spencer on contracts with former Next boss George Davis.
The Law Society, which regulates Britain’s legal profession, subsequently investigated Freshfields. In 2007, it fined one of Freshfields’ partners for breaching the solicitors’ code of conduct on conflicts of interest. The partner was fined for failing to act in Marks & Spencer’s best interest and for bringing the profession into disrepute.
However, it is important to note that the work in which Arthur Cox is engaged is about setting up the Nama structure rather than about executing decisions to recover specific assets.
People who have met O’Riordain say that he is unhappy with the suggestion that his firm was appointed out of political favouritism. They say that he is probably closer to Barack Obama than to Brian Cowen, having been in the same class as the now US president at Harvard.
Senator Eugene Regan of Fine Gael suggested in the Seanad last week that developers were flocking to Arthur Cox in the belief that it had the inside track on Nama, and that the appointment of Arthur Cox as advisers to Nama was ‘‘the type of Fianna Fáil cronyism which has destroyed the economy.”
The irony that these remarks were made under parliamentary privilege following a discussion on the defamation bill will not have been lost on Arthur Cox’s lawyers, who are likely to have seen them as very unfair in circumstances where Arthur Cox was not there to defend itself.
On one thing all sides agree: the publicity is unwelcome. The question is whether the concerns that have been raised about possible conflicts of interest are legitimate public interest questions - or whether they are merely a convenient stick with which the country’s law firms can beat a more successful competitor, which has won some plum contracts in very hard times.

© Thomas Crosbie Media, 2009