On 12 January, the House of Lords rewrote English law relating to
conflicts of interest and ’Chinese walls’. While law firms, accountants
and management consultancies react to the judgement, the PR industry has
PR consultancies tend to think conflict of interest starts and finishes
with the question: ’can we work for client X and, in the process, still
work with/pitch for client Y.’ Actually, this is just the flotsam
surrounding the ’conflicts’ issue.
PR consultancies - especially those in financial PR - often talk airily
about using Chinese walls, when at best they are really talking about
separate teams working on different accounts. In truth, many PR firms’
walls are a little shabby: lots of creepers tumbling over the side. The
House of Lords has now thrown into doubt the whole nature of Chinese
walls and questions whether most have any meaning at all.
The case that caused this furore was Prince Jefri of Brunei versus
In early 1998, the Manoukian family sued Prince Jefri of Brunei.
Subsequently, the Sultan of Brunei asked KPMG to mount an investigation
into his brother, Jefri’s, financial affairs. Prince Jefri sought to
prevent KPMG from doing this, as they had already acted as his adviser,
and applied for an injunction from the courts. The House of Lords
rejected KPMG’s argument that they had erected Chinese walls to prevent
The result had a sobering impact on accountants and lawyers around the
country. And it is becoming increasingly clear that this judgement
affects all professionals and also applies to anyone you once worked
for, rather than anyone you do work for.
Lord Millett, in his judgement, said Chinese walls in this case ’were
established ad hoc and erected within a single department ... an
effective Chinese wall needs to be an established as part of the
organisational structure of a firm’. Thus did the House of Lords rule
that separating clients between distinct teams, as a way of avoiding
conflicts, was not enough to form a Chinese wall. In doing so, it
probably demolishes most PR consultancies’ definition of a Chinese wall
Now, without giving legal opinion (see your own lawyer), PR
consultancies who want effective Chinese walls should consider several
First, write it down. It was clearly important to the court that a firm
had a written formal policy about conflicts of interest and acted in
accordance with it. Then, carefully select staff on projects to ensure
that, in working on one mandate, they are not conflicted by
confidentiality obligations to past, as well as current, clients.
It is unclear just how ’physical’ a wall needs to be. Clearly sharing
the same floor of an office is likely to undermine any claim that a wall
is in place. It was interesting that the House of Lords considered it
likely that people talked to each other about work where physically able
to do so, even if in separate departments.
Unfortunately, within most PR firms, even with formally segregated
departments, it is nearly impossible to create impregnable IT walls. Can
staff from one side of the ’wall’ access computer files on the other
side? Even passwording documents is not enough and proper IT ’fire
walls’ are necessary.
Several City law and accountancy firms have concluded, in the face of
this judgement, that the best Chinese wall is no wall at all.
Accordingly, they have greatly tightened up their definition of what
constitutes a conflict.
What does seem clear, however, is that when consultancies say to clients
’we have a Chinese wall here’, they had better be prepared to prove
Stephen Lock is managing director of Ludgate Public Affairs.