How the banks found a new way to block access to justice
Some problems never really go away. In the legal industry one such issue is the difficulties a claimant faces when attempting to sue a bank.
It might feel like this problem was solved years ago when law firms such as Quinn Emanuel Urquhart & Sullivan and Stewarts sprung up with the resources and expertise necessary to properly challenge such large financial institutions. Crucially, these litigation-only firms do not have the banks as clients and so are able to take cases against them.
But in reality, the issue remains, due to the fact that banks have found a new way to frustrate firms like these. If they can’t employ their old tactics of arguing the law firm itself is conflicted, they’ll try to argue its lawyers are.
This argument was used a couple of years ago when Royal Bank of Scotland stopped City boutique Cooke Young & Keidan from acting on a Libor claim against it because one of the firm’s associates used to work at Clifford Chance. It was claimed the lawyer in question would have had access to confidential RBS documents while he worked there. The claim was enough to make the client nervous and Bird & Bird ended up taking over the case.
Other litigation boutiques do not want a repeat of that episode, so some have started seeking waivers from specific banks when they want to hire any lawyer who has ever acted for them. The waivers explain that the lawyer in question would never be involved in acting against the bank, but that the firm wants an assurance that the bank will not attempt to get the law firm thrown off a case simply because they employ that individual.
Predictably enough though, the banks are refusing. They have never been ones to help law firms that act against them.
To be fair, some banks will have legitimate concerns. How can they be sure that a lawyer that once had access to confidential information would not use it against them? Why would they take the risk if there is any chance the Chinese walls these firms put in place could fail?
Banks are effectively saying: ‘You should trust us, but we do not trust you'
Yet this argument would carry more weight if banks were not highly reliant on Chinese walls themselves. City workers have long questioned how banks can have departments selling shares while operating ‘independent’ teams of analysts rating the same stock, for example. Sometimes stories come to light questioning banks’ motives when they advise investors on where to place their money, which could be into bonds or equities being issued by another part of the bank. And the complex and murky world of proprietary trading, where banks trade off their own balance sheet and could be tempted to trade ahead of clients, has been subject to intense debate.
By questioning the information barriers law firms put in place, banks are effectively saying: ‘You should trust us, but we do not trust you.’
Of course, the Chinese walls debate is not really the issue. If banks were really worried about that they would not use law firms that also advise their rivals. This is simply a new tactic they are employing to make themselves immune from legal challenges. And it would almost be worth praising their ingenuity if the repercussions were not so serious.
The effect of their actions is that the one route corporations and individuals have if they want to litigate against banks is at danger of being blocked. If a lawyer from a large firm has ever been close to advising a bank – and working for a large law firm this is likely – they will struggle to join a conflict-free firm, which has the clear potential to damage the business model of boutiques from Quinn Emanuel and Stewarts to Signature Litigation and Enyo Law.
And it is not just these firms that could suffer. With no chance to move to a conflict-free firm later in their careers, lawyers are unwittingly being made to choose their career paths very early on.
While it has long been rare for lawyers to switch from defending large corporations to acting against them, the choice has been more straightforward until now, as almost all the top firms were simply on the side of the banks. Now there is a selection of firms on offer, but many lawyers will have already chosen their path without knowing it.
And the biggest loser of all is every person and every company that is not a bank. Because they are the ones who might one day want to sue a bank and could find there is no top law firm able to do so.
