Legal Risk Study

Readers who have not seen this already might be interested in the executive report from a study I am leading on Legal Risk: Definition, Management, and Ethics. It looks at legal risk practices in large corporates here in the UK.  It can be found on SSRN and UCL’s webpages.

The report raises key questions about the role of in-house lawyers in balancing commercial and professional considerations; the readiness of in-house lawyers for the complex leadership and management tasks involved in legal risk management; and the extent to which professional ethics are embedded within those teams.
KEY FINDINGS INCLUDE:

• There was no shared sense of the correct approach to legal risk.

• The in-housers we spoke to were not always clear or confident about their approach, or the best approach, to legal risk management

• There is a clear divide between those who take a, ‘I know it when I see it’ approach to legal risk and those who deliberately applied systems, foresight, thematic and strategic thinking around legal risk.

• Those interviewees with the most developed systems seemed most likely to see cultural dimensions to legal risk, with some emphasising the need to be authentically committed to the spirit as well as the letter of the law as part of a business commitment to compliance, legality and business ethics.

• There is a need for in-house teams to reflect on the extent to which processes of legal risk engage rigorously in assessment, mitigation, communication, monitoring and overall evaluation of legal risk management. Many of our interviewees did not have well developed approaches to each of these elements of a risk strategy.

• Some aspects of risk management may lead to overconfidence and approaches to mitigation which shift risk from the company to third parties, with the potential to raise questions about the appropriateness of this in certain circumstances.

• There is the potential for risk management to change risk appetite by altering perceptions of, and appetites for, risk. In general, risk management increased the appetite for risk because it increased confidence that risk was both understood and manageable. This opens up for debate the question: is risk management as robust as such confidence suggests?

• Objectivity and independence are necessary for risk assessment to be accurate and useful to the business but are in tension with the pressures on in-house lawyers to be commercial team players. These tensions are both overt and implicit. There are overt pressures and implicit biases at work which may sometimes undermine objectivity.

• Appetite for legal risk involves accepting, even welcoming, tolerance for conduct which may be, or even may be likely to be, unlawful. This is sometimes in tension with the professional obligation to promote the rule of law and the guidance to solicitors that they must treat the public interest in the administration of justice as definitive of conflicts between professional obligations.

• Such tensions also impact on corporate interests: there are relatively recent, serious conduct risk examples of allegations involving lawyers in and/or instructed by Standard Chartered Bank, the News of the World, Barclays, The Times newspaper, BNP Paribas and General Motors.

• The extent and nature of these public interest facing obligations are neither understood, nor well-articulated in professional practice generally, nor in-house practice in particular.

A significantly more detailed academic piece is in train.

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The SDT and the Chamber of Secrets

harry potter

Neither Steven, nor Birmingham Law Library

This is a Guest Post from Steven Vaughan and Julian Webb.  Steven begins…

I am doing some work on the concept of lawyer independence. I’d read the LSA, and the relevant SRA principles and guidance, and searched the SRA website to see where Principle 3 was mentioned. Principle 3 says that a solicitor must, “not allow [his/her] independence to be compromised.”

I’d then gone to look for case law, found an interesting case from the High Court on referral fees (Reed v George Marriott [2009] EWHC 1183 (Admin)) and had the Farooqi case helpfully pointed out to me by Richard Moorhead. He blogged on it here.

I then went to go search rulings by the Solicitors Disciplinary Tribunal. I’d done this for two reasons. First, the vast majority of cases involving alleged, or actual, solicitor misconduct never get appealed (and so aren’t reported in the higher courts). Second, I had seen in the SRA’s recent report on litigator’s duties a reference to a 2004 SDT ruling which mentioned independence (In the matter of Paul Francis Simms, Solicitors Disciplinary Tribunal, 2 Feburary 2004) and wondered if any other rulings had similar dicta.

The SDT website (http://www.solicitorstribunal.org.uk) allows you to search judgements, or you can browse them all in one long list. If you want to search, you can do this by: (i) Case Reference; (ii) Full Name; (iii) Allegation Type (‘Breaches’; ‘Delays’; ‘Account Rules’ etc); (iv) Outcome (‘Fines’; ‘Strike Off’ etc); or (v) Date. What you cannot do is search by keyword. So, I cannot find all the judgements that consider, say, Principle 3, or the term “duty to the court”.

I emailed the SDT to ask for their help. I won’t put their reply below, as I hadn’t said I was going to publish it, but, in effect, they said this was a resources issue. I can see that. In part.

I posted my incredulity about this onto Twitter. Julian Webb was the first to respond. I’ll let him take over here…

…I can’t say I was surprised by Steven’s experience. It echoed my own from a couple of years ago when I started wondering about the uses the SDT has made of professional disrepute in its decisions, and the range of penalties imposed – a topic which, in the absence of more substantial (ie funded) research assistance, I decided to park in the too difficult box, largely because of the limits of search functionality on the website.

To be sure, what we have now is a quantum advance from the days when SDT decisions were only available on request, and, of course, the SDT is not alone. The Register of Disciplinary Action (RODA) in my new home of Victoria is similarly geared to the simplest of category-driven consumer searches. But it is hard to see why text-based and Boolean search functionality, like keyword searching, should be an issue; indeed the Scottish SSDT website already provides it.

Does it matter? It may be objected that this is a real minority concern (I did joke to Steven that we might be the only two people on the planet to consider this a significant problem; I was wrong; in the end there was six of us in the conversation…) and that the SDT is not there to facilitate research. But the issue actually deserves a better response than that, because there is a more fundamental point to be made about the relationship between accessibility of decisions (and in the digital age that must surely imply a certain threshold of functionality), public trust, accountability and education. Indeed, the Tribunal’s own publications policy makes the point for us:

Publishing Judgments is important in ensuring that the Tribunal’s processes are transparent. The content of Judgments assists in Informing and educating users of legal services and the profession. Publication enables the Tribunal’s stakeholders to be reassured that the Tribunal’s decision-making powers are being exercised proportionately and consistently, and that the Tribunal is accountable for its decisions.

These are sentiments with which we concur, but does the SDT really believe its site has the functionality to enable anyone to make assessments of ‘proportionality and consistency’ at anything but a very basic level of comparison?  In the context of increasing concerns about the accountability of professionals, and the historic evidence from a number of jurisdictions of under-enforcement of disciplinary breaches, the point should not be considered purely academic. Now back to Steven for our conclusion….

…In its 2013/2014 Annual Report, the SDT notes a 2013 running cost of £2.1m. Just under £900,000 of this is spent on employment costs. The Legal Services Act 2007 requires that the full cost of funding the SDT comes from a levy on the profession via the annual practising certificate fee. The SDT’s 2013/2014 Annual Report sets out that the proportion of total practising fee income paid to the SDT was 2% in 2013-2014. In 2013, only £9,600 was spent by the SDT on its website. That’s 0.005% of the SDT’s overal running cost. Wouldn’t it be better to spend say, a little less money on employment costs (or AGMs or Training Days or SDT Members’ fees) and a little more on making the website fit for purpose and allowing the law on solicitors’ discipline and punishment to be better known, and more open to proper evaluation?

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Not robots, but cyborgs?

Mark Gould has written a very (very) interesting blog on the human bit of complex systems. His post is on what keeps (inefficient) law firms alive.  It’s well worth reading.

The bit that caught my eye was this which is taken from Richard Cook’s work on comnplex systems:

12) Human practitioners are the adaptable element of complex systems.

Practitioners and first line management actively adapt the system to maximize production and minimize accidents.

And:

17) People continuously create safety.

Failure free operations are the result of activities of people who work to keep the system within the boundaries of tolerable performance. These activities are, for the most part, part of normal operations and superficially straightforward. But because system operations are never trouble free, human practitioner adaptations to changing conditions actually create safety from moment to moment. These adaptations often amount to just the selection of a well-rehearsed routine from a store of available responses; sometimes, however, the adaptations are novel combinations or de novo creations of new approaches.

It struck me as very relevant to the debate about automation in law and the extent to which we can and should move towards systems and automation in law.  The basic lesson I draw is: systems are (or can be) great, but they need human insight and engagement to keep them healthy.

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Online divorce research: fitter, happier, more productive?

The LSCP have published some interesting research into the online delivery of divorce services, comparing online and face to face services for the first time, at least in this country.

“The objectives of this research were to provide insight into the consumer experience of divorce and to seek to understand whether this differs by type of channel e.g. face to face services vs. online services.” The intention also was to understand potential regulatory risks as regards the tow models.

Clients of the two services were surveyed at periodic intervals during the handling of their case and at the end of the case.  The aim was to get more reliable and episodic data rather than simply relying on one survey at the end of the case where customer perceptions may be influenced by outcomes.  Just over 180 clients were interviewed or surveyed.

As the researchers say, “sample sizes are small.”  But, “the research allows [one might say “may allow”] some comparisons between the different groups in terms of their experience of the service.”  What kinds of things did they find?

The chief earner in online divorces, “was more likely to be in a higher managerial position” than a user of face to face services, suggesting there may be some greater inhibition of more regular members of the public using online services.  Conversely, “the value of the estate for people using a face to face service was twice that of online services” suggesting more complex disputes were handled face to face.  Divorces handled online appeared to be generally more amicable (they may have been more amicable to start with or being online may have kept them more amicable, though the report suggests they started off as more amicable online) and less likely to involved domestic violence (although a third of online divorces were reported as having involved domestic violence).  We are not told whether these differences are significant.  They may be simply be random patterns in small samples.

We are told there is, “a high degree of self-selection with consumers making rational choices about choosing the online route.”  The rational choice argument has picked up some press so it is worth dwelling on what the researchers mean here.   Self-selection means that the researchers are limited in the comparisons that can legitimately make been online and face to face clients.  The implication is that the nature of the cases are different (online cases seem to be more amicable and less complicated) and we might not be able to read very much into a comparison of consumer experiences as a result.    The rational choice argument needs some qualification: what the survey shows is that some (perhaps most) clients think of their choices based on some rational criteria.  I think my divorce is less complicated and amicable and I feel reasonably confident I can do it online so I choose to do it on line.  This kind of rationality judgment is a fairly limited assessment of the quality of those choices.  It does not tell us that the consumer assessment of their own situation is accurate (a divorce perceived as simple may in fact be complex) or that they make the best choice of service for their problems (it is possible, for instance, that (some) heated divorces may be better dealt with online).

So whilst online divorces were “reported to be significantly cheaper” this may be (the researchers observe but do not model this statistically) because, “the complexity and time required on the case, are also likely to be relevant factors here”. Those using a face to face provider found costs were higher than they expected about twice as often as (41%) than online (19%).  If these figures are representative; client care, cost prediction and management still, it seems, has some way to go in traditional legal provision but also -interestingly – online even given greater fixed pricing.  Whether it is better online depends in part as to whether one expects more or less predictability when cases are less complex.

Similarly, one has to bear in mind the different needs and expectations of the two sets of consumers when we hear their evaluation of the service.

“Almost 9 in 10 online petitioners said they would broadly get any future divorce via an online provider. Further, the ‘customer effort’ scores were much lower among online users.

“…There are good levels of satisfaction across all providers (79% for face to face providers and 83% for online providers) and no fundamental issues to address.

“It is clear that online users are nearly three times as likely to recommend their online provider when compared to users of a typical high street law firm.”

It’s a big looking difference, and heartening for those who believe significant (but not all) legal advice delivery can be managed online, but we really need a stronger basis of comparison.

The most important finding is really this:

“Overall from the consumer experience of the process, the research did not find any evidence of any regulatory risks arising from the delivery of services online. While there is room for service improvement in both methods of delivery, there is no evidence to suggest that petitioners initially chose the ‘wrong’ channel and therefore changed midway through the process.”

This finding needs some qualification.  There is a gentle hint in the words, “from the consumer experience of the process” that the finding is a limited one, but it perhaps merits a bit more spelling out.  We know that consumer satisfaction with legal services delivery is generally (and this seems to be true whatever model you are looking at) very high.  We also know that where consumer satisfaction is compared with a more technical or expert assessment of quality (or risk) then there will be a significant body of consumers (I’m thinking roughly in terms of about 20% but it could be higher or lower) who will be satisfied with their case handling even though they have, on an expert assessment, received help which is flawed, less than competent or worse.  This research provides no assessment of that potential problem.  It is to be contrasted with, for example, the work done on wills by IFF for the Legal Services Board and others when reservation of will writing was on the agenda.  That too had small samples but a better assessment of risk.

That said, as long as it is not held out as a thorough risk assessment, the LSCP is to be applauded for conducting research in this important area.  Such small samples and limited methods are not a basis for sound policy, but they are an inevitable result of meagre research budgets and a longstanding culture within the legal profession that they know how the world works and reserchers cannot help them.  It at least provide some illumination on what clients think of online legal services in the key area of family law.  The work also suggests, but no more than suggests, that there is considerable potential for cheaper (and so more accessible) online services to work well.

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Litigate, Equivocate, Marmelise: Gray and Kroll in Flaux J’s dock

Former barrister and Dubai based (now suspended) solicitor partner of Gibson Dunn, Peter Gray, has hit the news for all the wrong reasons.  Flaux J has given judgment in Mahmoud Boreh v  Republic Of Djibouti and others [2015] EWHC 769 (Comm) as to whether he was deliberately misled by Gray. The judge found he deliberately and dishonestly mislead the court and his opponents.  He also makes interesting allegations against Kroll, the security consultants.  For those not willing to wade through the 46,000 word judgment it may be worth summarising some of the key talking points.  It is still, I am afraid though, a long post.

What did the judge think Mr Gray did wrong?

Mr Gray had conduct of the Republic of Djibouti’s application for a freezing order against Mr Boreh. Boreh was a political opponent of the regime and had been convicted in absentia for terrorism offences in Djibouti.  It seems this was almost entirely on the transcripts of a telephone call. The original transcripts dated that call as 5th March 2009. A conversation took place which Djibouti alleged proved Boreh had organised an explosion that took place that day. The timing of the call and the explosion were crucially aligned and formed the basis of the conviction in absentia. This conviction formed one of the bases on which the freezing order was sought against Boreh. Importantly, it also formed the basis of an extradition request so that Boreh could serve his sentence.

During the conduct of the case, it became clear that the telephone call took place on the 4th March. There was no explosion on the 4th March.  Djibouti security and police forces and their lawyers could not find reliable evidence to support that claim.  According to the judge, Gray described the discovery of this date difference, as “massive” at the time he discovered it.  It called into question the conviction in absentia of Boreh,  it would call into question the basis on which the freezing order was subsequently made.  It also called into question the basis on which the extradition request was made.

Mr Gray did not make plain the error, but instead is recorded as saying he was: “Going to fudge the error of the date, it doesn’t  effect the underlying evidence”.  He was trying to run the argument that the transcripts still evidenced terrorism on the basis that they remained, at least, suspicious even if they could not be linked to the specific attack for which Boleh had been convicted.  The judge disagreed: they looked significantly less suspicious in the absence of the explosion which it was claimed the transcripts discussed and they fatally undermined the conviction.

One reason for Gray holding the line, according to the Judge, was to ensure Djibouti (and Gibson Dunn) could maintain pressure on Interpol to get Mr Boreh extradited.   To make matters worse, even though Gray knew of the flaws in the evidence, counsel instructed by him relied extensively and with emphasis on the transcripts as providing significant and persuasive evidence of Mr Boreh’s involvement in terrorism.  At the hearing, the judge relied on this evidence, and indicated he accepted the likelihood that Mr Boreh had been involved in terrorism.  The judges words were then used by Gibson Dunn lawyers, under Mr Gray’s direction and supervision, as a finding of fact to try to persuade Interpol that the extradition request should be taken seriously.

After this hearing it became apparent to the solicitors for Mr Boreh that there was an error in the transcript date and that the transcript could not then be relied upon in the way it had been. The court had been misled. The question was whether this was done knowingly. In seeking to ascertain this, Boreh’s solicitors challenged Gibson Dunn to provide details of who knew what when.  Mr Gray then engaged in what he described subsequently to the court as an “acceptably evasive” attempt to conceal his own knowledge of the matter from his opponent. The judge described this as “breathtaking”: an  attempt “by an English solicitor and partner in a City firm to justify a positively misleading letter to the other side’s solicitors.”  He also seems to have sought to downplay the seriousness of what was going on internally within Gibson Dunn as the truth started to come to light.   At one stage, to the judges horror, he pretended to a colleague that it may have been the fault of other lawyers in the firm, not him.

Mr Gray’s case was that he, “had been guilty of serious errors of judgment, but he maintained throughout his evidence that he had not intended to mislead the court and had certainly not done so deliberately.”

There are a few points worth dwelling on.

Readers familiar with the Alistair Brett case will recall a problem with ‘compartmentalised thinking’, Brett’s way of trying to explain how he took an overly client-focused view of the truth and how to represent it in litigation.  A similar lack of independence may be at work here.  The judge’s view was that once Mr Gray had realised the problem with the transcript evidence he had a duty to think much more independently about the case he was making. What Gray did was seek to maintain a line between the original case and the discovery of the flaw in the evidence which ignored the substance of the flaw. He could not say Mr Boleh is a terrorist and rely on the conviction or transcripts as evidence of that if that evidence was presented in a misleading way.  Gray said he could do so as the transcript remained suspicious even if it did not directly link the suspect to the specific attacks which had formed the basis of conviction in absentia.  The judge said this:

 That suggestion that, even when the telephone calls were given their correct date there was still a case to answer, became something of a mantra in Mr Gray’s evidence. I find that explanation of the approach Mr Gray adopted hard to accept. It seems to me that any competent and reputable solicitor faced with the “big issue” and potential “disaster” of the misdating of the transcripts would have been anxious to scrutinise the transcripts carefully and critically to see if, when they bore the correct date, they supported a case that Mr Boreh had instigated terrorist attacks.

The judges view is that rather than rethink the validity of the extradition request, which could not in his view be supported on the basis of what was now a fatally flawed conviction, Mr Gray persisted with an extradition request where only the date of the transcript was altered.

I consider that any competent and reputable solicitor faced with the misdating issue and an appreciation that the conviction and the confession were unsafe would not have been embarking on an exercise of trying to tinker with the dates in the extradition request or, as he put it at a meeting the following day, 27 August 2013: “fudge the error of the date”, but would have advised his client that the only appropriate course was to give the full information about the dating error to the Dubai court and to inform that court that the extradition request could only be justified on the basis that there would be a retrial, because both the conviction and the confession were unsafe.

The judge also says:

In my judgment, the failure to inform the court about the unreliability of the conviction and the evidence on which it was obtained is quite remarkable.

Now up to this point litigators may be feeling some sympathy for Mr Gray (although I suspect that reading the judgment may dissuade most of that). He does not wish to do his opponents job for him. One is not ordinarily obliged to reveal damaging facts and (as is argued later in the judgement somewhat inconclusively) the application for the freezing order may be a situation where full and frank disclosure was not required of the solicitor in his affidavit (in contrast to an ex parte application).

The difficulty is underlined however by the persistent reliance on the transcripts and conviction in affidavits before the court and in extradition documents as evidence of terrorism justifying extradition and the freezing order.  The problem reaches its zenith when counsel for Djibouti (Mr Qureshi QC) in the freezing order application seeks to dismiss Boreh’s claims that he is the victim of politically motivated oppression not justice.  The judge quotes extensively from Mr Qureshi’s submissions and summarises the problem:

It is difficult to see how this position of righteous indignation could have been maintained, at least as regards the terrorism conviction, if that conviction was unsafe and the evidence on which it had been based was unreliable, which Mr Gray knew, even though Mr Qureshi QC did not. It is tolerably clear that if Mr Boreh had found this out, he would have exploited it to suggest that Djibouti was acting from illegitimate political motives to oppress him. Again, on the basis that Mr Gray was listening to and concentrating on the submissions, this must have been something he was acutely conscious of, particularly given the discussion with Al Tamimi [Djibout’s local lawyers] at the meeting only two weeks previously about the importance of not implying, in the context of the extradition request, that the Djibouti judgment was incorrect.

The judge points out that opposing counsel appears also to have been misled. And then he turns to the crucial issue of whether this amounts to deliberate dishonesty using the two stage test of finding objective then subjective dishonesty:

It seems to me that any honest solicitor with the knowledge of Mr Gray as to the dating error and its impact on the safety of the conviction, who was listening to and concentrating on the exchange between the court and counsel would have appreciated that both counsel and the judge were proceeding on the misapprehension that the telephone calls were on 5 March 2009, after the Nougaprix attack, and would have taken immediate steps to correct that misapprehension. On that basis, the limb of the test in Bryant of objective dishonesty is satisfied, but the critical question which remains is the one of subjective dishonesty, what was Mr Gray’s state of mind at the time of the 10 and 11 September 2013 hearing.

In his sixth affidavit sworn for the present hearing, Mr Gray says that he has no independent recollection of the exchanges between the court and counsel. He ascribes his failure to correct the misapprehension both the court and counsel were under to a number of factors: exhaustion and a lack of focus; his failure to notice that the wrongly dated transcripts rather than the corrected ones had been exhibited to the extradition request and, thus, the third affidavit; not appreciating the significance of the transcripts because of his firm belief (which he thought the court seemed to share) that the whole political persecution case was irrelevant to whether a freezing order should be granted; that from an early stage the court seemed to be receptive to Djibouti’s submissions, so that from the early afternoon of 10 September, as his emails indicated, his thoughts had turned to issues of the steps to be taken in multiple jurisdictions if freezing relief was granted; that he sent and received a number of emails during the hearing, the majority concerned with this litigation, which may have affected his focus on the detail of the submissions and an assumption that Mr Qureshi QC would bring to the court’s attention anything which should be brought to its attention, believing as he says he did that Mr Qureshi QC was aware of the misdating issue which meant that he paid less attention than he should have done to what was said at the hearing.

Mr Gray’s explanation is not accepted by the judge for a number of reasons: the strategy of non-disclosure was deliberate; Mr Qureshui was not given the full picture on the inaccuracies about the transcript; there was a pattern of what he regarded as evasive communication; but also, that Mr Gray, immediately after the hearing, was keen to recycle the judge’s comments about Mr Boleh arguably being a terrorist in support of the extradition process at work against Mr Boleh:

 … once Mr Qureshi QC started making the submissions he did on the morning of the first day of the hearing quoted at [81] above, Mr Gray must have appreciated that the discussion with the court was proceeding on the false basis that the phone calls had been after the Nougaprix attack, not before, as he knew was in fact the position. It beggars belief that he did not realise that counsel and the court were under that misapprehension. Furthermore, as the passages from the transcript of both days of the hearing which I have set out at [81] to [95] above demonstrate, the issue about the telephone calls being evidence that Mr Boreh was implicated in a grenade attack on the Nougaprix supermarket the night before the calls was not the subject of some passing reference, but was an issue to which counsel and the court returned again and again. In those circumstances, I simply do not accept Mr Gray’s evidence that because he was tired or doing his emails or leaving it all to Mr Qureshi QC, he was not listening or concentrating. On the contrary, the fact that immediately after the hearing had finished on 11 September 2013, he asked Ms Kahn to include in the draft Interpol letter references to the transcript of the previous day where the court had said there was an arguable case that Mr Boreh was involved in terrorism, demonstrates that he was listening and concentrating as one would expect of the partner in charge of a case of this seriousness, sitting behind counsel in court. Of course what I had said about the case being arguable was on the basis of my reading of the transcripts, which was that they were on 5 March 2009, referring to the Nougaprix attack the previous night. Mr Gray knew that the court was proceeding on the wrong basis.

Furthermore, at Mr Gray’s request, Ms Ngo Yogo II highlighted in yellow extensive sections of the transcripts of the hearing which I am quite sure he did go through and discuss with the associates which passages should go into the draft letter to Interpol.

…Even if, contrary to the findings I have already made, Mr Gray was not aware at the hearing that the court and counsel were proceeding on a false basis, he was aware of it when he read this and it was incumbent upon him to come back to court straightaway to correct the error.

Instead of raising the fact the court had been misled, various correspondence was sent seeking to emphasise that a High Court judge supported the claim that Boleh was a terrorist and that the transcript evidence supported these claims.

Once Mr Boleh’s solicitors discovered the error on the transcript and pursued the issue of the court being misled Mr Gray emails counsel with this:

“I think we’re on thin ice if we say we didn’t ever know about this from the beginning until their letter [of 4 September 2014].  Remember, they know we’ve been to see Interpol lots of times.

I think it’s better we say we were not alive to the distinction at the hearing, which is true.  I’ve re-read the transcript, and it’s only Butcher who cites the wrong date…”

Here we see an example of the difference between something which is technically true but misleading.  I wonder if all litigators would see a problem in the language used. The judge says:

In my judgment, Mr Gray’s attempt in cross-examination to justify this letter or the email he sent was hopeless. On any view, the reference to being on thin ice was not the comment of an honest solicitor, but of someone who was practising equivocation.

…Mr Kendrick QC put to him that the letter of 7 November 2014 was “straight dishonest” which he cavilled at but his response about the letter gave an important insight into his real state of mind:

“Well, I don’t think that, no.  We were only answering a question — as I said, we were only answering the question on the hearing.  I accept it was a very evasive letter, but I thought it was acceptably evasive because — and that’s why — but I realised it was important, and that’s why I was very careful to run it past leading counsel.  This is not the sort of letter that I would have sent out by myself, as it were, because I recognised that it was important.”

Quite apart from the unedifying attempt to pass at least some of the blame onto leading counsel, who of course did not know that Mr Gray had sat through the September 2013 hearing knowing about the full implications of the misdating error, I found the attempt by an English solicitor and partner in a City firm to justify a positively misleading letter to the other side’s solicitors as “acceptably evasive” breathtaking.  This letter was clearly dishonest and it was designed to deceive Byrne & Partners into thinking that Mr Gray had not been aware of the dating error at the September 2013 hearing. It had the desired effect, because Byrne & Partners wrote back on 9 November 2014 saying: “You have now told us that Mr Gray and leading counsel were not aware of the misdating and we accept that.”

Now at this point in the judgment I found myself wondering whether that leading counsel for Djibouti should have done more.  Was Mr Gray’s attempt to finesse his knowledge about what/when he knew of the transcript error in the ‘evasive letter’ a red flag which should have alerted Mr Qureshi to the potential that he had, albeit inadvertently, misled the court? The court does not delve in it, but Boleh’s legal team and the judge are at pains to point out that no allegation of misconduct is levelled at anyone other than Mr Gray in the application before the judge.

Motivation

The judge suggests Mr Gray may have been too invested in winning the case or the broader tactical aims of the client, in a passage which has deeper resonance when we come to consider the role of Kroll:

It seems to me that the answer is to be found in something that was recorded as the priority at the meeting at Kroll’s offices on 27 August 2013 to which I refer in more detail below: “Avoid at all costs for Boreh to be released and passport given back”. His desire to ensure that the terrorism allegation stuck against Mr Boreh, irrespective of whether the original conviction was a safe one, seems to have outweighed all other considerations and coloured his conduct at that time and thereafter.

Kroll are described in the judgment as security consultants and private investigators who were instructed by Djibouti.  Interestingly the case strategy adopted by Mr Gray appears to have been agreed with them and the client:

It seems to me that what emerges from the notes of the meetings at Kroll and Al Tamimi is in effect a strategy of not disclosing to any court (in the first instance in Dubai for extradition purposes then in England for the Freezing Order Application) that the conviction in Djibouti was unsafe and the evidence on which it was based was unreliable.

There is another element to Kroll’s involvement which is -if the judge’s view is correct – serious and deserves emphasis:

 At the same time [after the freezing order was granted] as these efforts by Djibouti to have the Red Notice [an international notice sseking he locatin and arrest of suspects] fully reinstated and to persuade the Dubai authorities to extradite Mr Boreh were taking place, Djibouti was seeking to put what can only be described as improper commercial pressure on Mr Boreh to settle the present litigation. This took the form of threats to continue and expand the campaign against him through use of the terrorist charges made on behalf of Djibouti by Kroll. These threats were made in without prejudice discussions in January 2014 which Mr Boreh recorded secretly. However, Djibouti has not objected to their being disclosed and used in the present hearing which is perhaps not surprising, since the threats would fall within the exception to privilege identified by Robert Walker LJ in Unilever Plc v Procter & Gamble Plc [2000] 1 WLR 2436 at 2444, where exclusion of the evidence “would act as a cloak for perjury, blackmail, or ‘unambiguous impropriety’”. It is not necessary to go so far as to say that Kroll was blackmailing Mr Boreh, but contrary to the submissions made by Lord Falconer to the effect that what was said did not go beyond the permissible in settlement of hard fought commercial litigation, I have concluded that there was unambiguous impropriety given the nature of the threats.

The judge refers in detail to a conversation between Kroll and Boleh where, in the judges view:

…it became clear that Djibouti was seeking to extract a “price” in excess of the amount of the claim in the Commercial Court proceedings for not pursuing criminal proceedings against Mr Boreh…

And then after going through the transcripts in some detail

It is not suggested by Mr Kendrick QC that Mr Gray or Gibson Dunn were party to these discussions or aware of what Kroll was saying on behalf of Djibouti. However, I have referred to them extensively because, as I have already held, contrary to Lord Falconer’s submissions, the threats made to Mr Boreh go way beyond what is permissible even in the hardest fought commercial litigation. What was being said was that, if he settled the litigation (in fact for more than it was worth) he could avoid the risks of extradition to Djibouti, being in prison there for the rest of his life, money laundering and similar criminal-related actions in the US and elsewhere which would force his “money out of the system”, those actions being expanded to members of his family, restrictions on travel and having to spend the rest of his life; “looking over [his] shoulder”.

It is not suggested that Gibson Dunn or, more specifically, Mr Gray were party to the conversation, or the specifics of this “unambiguous impropriety” but it is shown in the judgment elsewhere that Mr Gray was engaged in advancing the strategy of applying pressure to keep Mr Boleh in jail which was in accordance with strategy being agreed with Djibouti at a meeting with Kroll.  Indeed the judge sees this as a key motivator for Mr Gray’s conduct.  It would be interesting to know whether Kroll is being investigated by the police in the light of the judge’s findings (which do not determine whether Kroll did anything wrong, just give us the judge’s view of it).  It should also be important for the SRA, in considering Mr Gray’s conduct, to look into this aspect of the sorry tale too. Commendably, Gibson Dunn reported the case to the SRA: perhaps they too have considered the detail of the Kroll connection.  If they have not, perhaps they should.

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Corporate Lawyers + Corporate Clients: Power, Practice & Privilege

Birmingham Law School are hosting an ESRC sponsored two-day symposium on ‘Corporate Lawyers and Corporate Clients’, organised by Dr Steven Vaughan,  June 29 and 30.  You can book here.  I’m giving a keynote, but the rest of the programme is excellent!

Over the two days, we will explore various aspects of large law firm practice, including: the relationships between corporate lawyers and their clients; lawyer’s ethics; lawyer independence and the rule of law; legal professional privilege; law firms, businesses and human rights; legal risk; the changing role of General Counsel; bribery and corruption; lawyers’ duties; talent and inclusion; and conflicts of interest. Thanks to the ESRC, the conference is free to attend.

Paul Philip (Chief Executive, Solicitors Regulation Authority) will open the conference. Our keynote address on the Monday evening will be by Richard Moorhead, Professor of Law and Ethics at University College London. There are, in addition, 33 other speakers, from the Legal Services Board, the SRA, the Law Society, partners in large law firms, in-house lawyers, consultants and academics from the US, Australia, UK and wider EU. A full programme will appear in due course on the project website:https://limitsoflawyers.wordpress.com

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Organised irresponsibility? How lawyers can make it worse

This morning the too big to manage arguments about HSBC again hitting the newspapers. Robert Jenkins, a former banker and member of the Bank of England’s Financial Policy Committee and now a senior fellow at the Better Markets lobby group has called on the Chairman of HSBC to resign in the FT.  The too big to manage argument always strikes me as a bit of an odd one.  If there is a problem in a sub-part of an organisation, selling off that sub-part will not make it better managed, it will just distance the parent from the problem. And if the parent cannot manage its sub-parts, it is not immediately obvious why getting rid of one bit of it will help.  True, it may reduce the load, so a board required to scrutinise (say) 23 sub-parts only has to scrutinise (say) 22 next time – but the more pressing issue is the quality of risk, compliance and audit functions.  The responsibility and integrity of those have to be right at every level of the organisation.  Without that the divisions of labour inherent in corporate life operate, deliberately or accidentally, as a form of organised irresponsibility.

Lawyer’s role in these processes can sometimes be acute and they sometimes contribute to organisational irresponsibility.  The way General Motors dealt with claims related to their faulty ignitions may be a case in point.  Standard Chartered Bank is an example where the role of the lawyers deserves some scrutiny.  The following account is gleaned from the Order of the US regulator/prosecutor that investigated the matter.  In that case SCB want to take Iranian Transactions and process them quickly into dollars.  US sanctions law was a problem but they formed the view that the transactions were not banned if they qualified as U-turn transactions.  As I understand it, US law required due diligence on such transactions be done in the US.  SCB did not want to do that because it slowed things down.  Why due diligence in the US would be slower than due diligence outside the US is not immediately obvious.  They formed a plan to do due diligence outside US and then strip the transactions of Iranian identifiers. Internal lawyers advised on ‘enforcement proofing’ this approach.  The Prosecutor’s Order put it like this:

As early as 1995, soon after President Clinton issued two Executive Orders announcing U.S. economic sanctions against Iran, SCB’s General Counsel embraced a  framework for regulatory evasion. He strategized with SCB’s regulatory compliance staff by advising that “if SCB London were to ignore OFACs regulations AND SCB NY were not involved in any way & (2) had no knowledge of SCB Londons [sic] activities & (3) could not be said to be in a position to control SCB London, then IF OFAC discovered SCBLondons [sic] breach, there is nothing they could do against SCB London, or more importantly against SCBNY.” He also instructed that a memorandum containing this plan was “highly confidential & MUST NOT be sent to the US.”10 (emphasis in original)

Part of the plan included advising that they get another (competitor) bank to clear the funds into the US.  The Order quotes:

Email from SCB’s General Counsel to SCB’s Group Compliance Manager dated June 1, 1995, SCB- 00038523 (emphasis in original). SCB’s General Counsel added that “when dealing with OFAC countries that are not on the UK’s list SCB London should use another US Dollar clearer in NY. It should not in any event use SCB NY.” In fairly mercenary terms, he recommended that “SCB should use eg [National Westminister Bank] who in processing the transactions would breach OFAC regulations & would expose themselves to a penalty.”

SCB staff outside of the US were told explicitly not to let SCB in the USA know of the plan: if they were aware of the plan or the fact that any of the transactions came from Iran, then SCB in New York could be enforced against.  SCB’s head of Legal and Compliance Wholesale Bank, UK/Europe, commented to other legal and compliance staff by email that the document, “read in isolation, is clearly . . . designed to hide, deliberately, the Iranian connection of payments.”  The Bank also got advice from outside counsel who advised that the scheme “did not comport with the law or spirit of the law”.

So much so very interesting.  Perhaps there was a legitimate and tenable difference of view about the legality of the scheme, but in the context of the debate about oversight at HSBC, whilst teaching the SCB case to my students this week I noticed this very interesting passage in the Prosecutor’s Order.

A 2006 memorandum from SCB’s General Counsel advising SCB’s Audit and Risk Committee that “certain US$ clearing transactions handled in London were processed with the name of the Iranian Bank excluded or removed from the ‘remitter field’” despite the “requirement that due diligence in respect of ‘U-turn’ payments should be undertaken by our office in New York.” SCB’s chief legal counsel strategized, much as he had in 1995, that “it is reasonable to undertake due diligence on behalf of New York outside the US” even though “we are potentially placing our SCB New York office and the Bank at risk if our due diligence procedures are not fully effective.”

The presentation of the wire-stripping strategy  states the legal requirement.  In this sense the risk committee are seized of the risk, yet the legal requirement (which outside counsel is clear is violated) is reshaped as a question of reasonableness and a question about the quality of the due diligence process.  The point being made may be that it is unlawful, but reasonable, to do due diligence outside the US and we may not get into trouble because our (non compliant) due diligence system is good.  It is like a magicians trick, diverting attention from the relevant to the irrelevant.  Arguments are being reshaped as facts and those facts are of questionable relevance to the legal risk in question.  The lawyers may have begun to believe their own hype or the work of organised irresponsibility may have been forgotten in the time from strategy formulation to review all those years later.

Whether I am right in that analysis or not there is a further uncomfortable fact for all those involved in design, approval and maintenance of SCB wire-stripping .  There were doubts about the extent to which the transactions being cleared in this way were in fact U-turn transactions – due diligence (no matter where it was conducted) could not solve the problems of all these transactions:

An executive SCB compliance attorney made the point more sharply, observing that SCB’s London staff believed “that any payment that could conceivably give rise to an OFAC problem should always be dealt with [in a way to avoid detection].”

The prosecutor was even blunter in his assessment:

Consistent with its historical views, SCB apparently decided that regulatory compliance would impede any such business expansion. Summarizing the bank’s linchpin consideration, SCB’s chief legal and compliance officer for its wholesale banking business explained that SCB wire stripped because “there would be a delay in the OFAC que [sic] if an Iranian name was spotted by the OFAC filter in New York and the payment would get held up.” Any such delay, he concluded, would be “a deal-breaker” in SCB’s efforts to develop new business.

To avoid such deal-breakers, SCB instituted a system of so-called “offshore OFAC due diligence.” The entire concept was a sham. Any off-shore substitute for OFAC compliance would have necessarily caused the exact delay threatened by OFAC compliance at the New York branch. Under the law governing at the time, any legitimate due diligence was premised on investigative delay. SCB undertook its off shore due diligence program, however, specifically to escape OFAC’s watchful eye, not to be examined by it.

SCB’s overseas due diligence staff members were responsible for both SCB’s UTurn “repair procedures” and OFAC “compliance” – a paradoxical task to say the least. These staff members did not know the elements of a lawful U-Turn transaction other than that the payment “had to be offshore to offshore,” and they were not trained to determine whether the underlying transactions were valid according to the Iranian Trade Regulations.

In fact, as late as August, 2006, SCB’s operations staff still “resolve[d] ‘hits’ on sanctioned names directly with the customer” – a method ill-designed to detect client misconduct. (emphasis added).

Yet senior SCB management knowingly embraced the bank’s fraudulent U-Turn procedures.

Of course we cannot be sure that the Prosecutor’s account is an entirely fair or balanced one.  It is though based in large part on documented sources (emails and the like), and -at the very least – it provides an interesting insight into how lawyers can contribute to, manage even, organisational irresponsibility in an attempt to be ‘reasonable’ when dealing with legal risk.

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