In the muckraking tradition, Jack Hodder

Thirty Pieces of Silver: A big New Zealand law firm and its concept of professional responsibility viewed through its words, its works and its documents
Anthony Molloy QC
Howling at the Moon Productions, $34.95
ISBN 0 958371 71 7

In the late 20th century, lawyers are a prominent and unloved feature of the social and economic order. In the English-speaking world, a significant percentage of lawyers in private practice are in large firms providing legal services to large corporate clients. New Zealand is no exception to this, nor to the lack of general knowledge of, and perhaps vague resentment directed towards, such firms.

Non-lawyers rarely have to think about law firms, but contemporary unflattering public opinion might be founded on modern popular fiction (the grandly corrupt Memphis version found in John Grisham’s first successful novel), and on modern history (the banally corrupt Upper Hutt version, Renshaw Edwards). Add to those connotations the fact that lawyers were retained to structure and document the investment deals and restructurings of the 1980s and 1990s, and one has an environment in which anti-lawyer jokes flourish and a niche emerges in New Zealand publishing (and politics) for advocacy of conspiracy (racier than cock-up) theories involving law firms.

It will be recalled that our most prominent conspiracy theorist, Winston Peters MP, almost single-handedly generated the long-running and ultimately pointless “Winebox” inquiry, and complained loudly that the inquiry had taken too narrow a focus by failing to involve itself in exhuming various film and bloodstock investment schemes of the 1980s. Those film and bloodstock schemes provide the material for Thirty Pieces of Silver, Molloy’s sustained polemic against the prominent large firm, Russell McVeagh McKenzie Bartleet & Co (hereafter “RMMB”).

There can be no doubt that the preparation and publication of Molloy’s book is a bold step, given RMMB’s prominence and the perils of the law of defamation. On the other hand, it is a work in the “muckraking” tradition, (literally) an exercise in advocacy, featuring self-proclaimed but unambiguous possession of the moral high ground.

The intended audience for this book is not entirely clear. Although it is presumably aimed at a readership wider than lawyers, most of the numerous footnotes will mean nothing to non-lawyers. In any event, the book may be considered as having, in broad terms, two main components. The first is the litany of specific accusations of professional wrongdoing against RMMB in relation to film and bloodstock investment schemes of the 1980s. The second, less explicit, is to raise more general questions about what is meant by the “profession” of law, in particular as practised in large law firms. This review has more to say on the second component.

2

To state the obvious, a law firm is a partnership of lawyers. The partners are the owners of the business, and invariably employ more junior lawyers, most of whom aspire to become partners (and owners) at some future date. The limited liability available to shareholders in a company is not available to partners in a law firm. That means that each partner is, in a “doomsday” insolvency scenario, liable for the entire debts of the firm.

As partnerships, law firms are not required to file annual reports with the Companies Office or any other regulatory agency. Among other things, this means that the profitability of such firms is a matter of (usually optimistic) conjecture by outsiders.

Until perhaps the late 1960s, law firms were relatively small, usually with loyal local clients, many of them individuals or families. The process of consolidation of commercial activity in regional, then national and now multi-national corporations has resulted in corresponding growth in the firms providing key professional services to those corporations. The trend has been well exemplified by the huge growth in the size of US law firms, initially those based in New York’s Wall Street, and in the City of London firms of solicitors. The largest of these now number their partners in the hundreds (and have partner/other lawyer ratios of perhaps 1:3).

The large law firms have concentrated on the areas of law which concern large corporate clients, with individual lawyers becoming specialised in particular sub-topics, jettisoning other (less remunerative) areas of practice such as family and criminal law. The income expectations of partners and employees of such firms have risen, as have the overheads of high technology of offices in high rent CBDs, with the result that the services of these “mega firms” are outside the price range of virtually all individual clients.

These firms can offer the incentives of high salaries and intellectually interesting work to attract the “best and brightest” of each year’s crop of law graduates. On the other hand, large corporate clients are demanding, large law firm work is often stressful, the working hours are often at a level that would have been barely tolerable in 19th century factories, and the increasing size of the firms inevitably involves internal bureaucracy. The overall result is a regular departure of a variety of lawyers seeking a different working environment.

One of those environments, for those who have practiced in litigation, is the separate Bar. This echoes the British tradition of a separate profession of individually self-employed advocates, distinct from the firms of solicitors which provide services direct to clients. This has no counterpart in the USA, but has grown strongly in New Zealand over the past two decades. Members of the separate Bar can identify with the British tradition which goes back several centuries: they aspire to the “QC” label, and indulge in Mittyesque tendencies to see themselves as individual champions of liberty and the oppressed, usually against corporate Goliaths and other forces of evil. Such is the environment in which Anthony Molloy QC has long practised law.

As emerges clearly from his book, one of Molloy’s modern briefs was to act as counsel for investors in various investment syndicates which were structured and documented by RMMB. Lengthy litigation against RMMB followed with some investors falling by the wayside and others accepting an eve-of-trial settlement. This book appears to be the continuation of that litigation by other means, in part because of the unexplained obtaining of documents not available prior to the settlement.

3

The target of Molloy’s book, RMMB, is perhaps the most prominent of the large New Zealand law firms. In recent years, it seems to have attracted more publicity than its major competitors, and has commissioned a handsome firm biography, The Making of Russell McVeigh (1991), by Russell Stone. It was the merger of Russell McVeagh & Co in 1969 with the smaller firm of McKenzie & Bartleet that created RMMB. Stone observes that:

in its first 20 years the newly merged firm . . . did remarkably well. Because it was the first Auckland practice to develop specialist sections, it was able to steal a march on competitors. By the mid-seventies it had won the reputation of being able, within the one practice, to service the legal needs of the largest modern New Zealand corporations of that time …

Dismissing Stone’s book as “hagiography”, Molloy’s central theme is that RMMB became so client driven that it failed to adhere to wider professional obligations. To this reviewer, who has been involved in a number of pieces of vigorously contested litigation against RMMB’s clients over the past decade, that claim is difficult to believe. On the other hand, some of the material in Molloy’s book cannot be comfortable reading for RMMB partners past and present. Beyond that, given that RMMB’s interpretation of .events is not available, and that these matters have been submitted to the New Zealand Law Society’s jurisdiction, discussion of Molloy’s specific allegations cannot sensibly be pursued here.

4

There can be little doubt that RMMB is perceived to take an “aggressive” approach to issues of conflict of interest. This means no more than that, on the spectrum of arguable positions, RMMB have, in at least three prominent cases, taken a view that there was no conflict when others of a more delicate disposition might have conduced that there was. High Court judges have tended to favour the delicate end of that spectrum, with the result that in two pieces of litigation (one involving two pharmaceutical companies, and the other one of the recent clashes between Pharmac and pharmaceutical companies) RMMB’s view of a lack of conflict has been reversed by the High Court.

A third case, involving the scrap between Ron Brierley’s Guinness Peat Group (GPG) and (the ex-Government Life) Tower Corporation, indicates that there can be more than one legitimate point of view on conflict issues. In late August 1998, the Court of Appeal reversed a High Court ruling that RMMB’s knowledge of Tower’s affairs, from work done by Wellington tax partners, was sufficient to disqualify Auckland RMMB corporate partners from acting for GPG in what was effectively a hostile reverse takeover of Tower. The Court of Appeal decision was that of a 4:1 majority, and concluded that the time lapse and lack of substantive informational overlap meant that there was no risk that RMMB would improperly disclose confidential information about Tower to GPG, and thus no conflict. The majority judges also expressed the view that, in New Zealand there is a limited number of law firms available to handle large and complex commercial issues, and that RMMB was entitled to offer its services to any client seeking them provided there was no risk of an actual conflict of interest (such as disclosure of confidential information to another client).

The dissenting judge, Justice Thomas, adopted a rather different analysis, in which he considered the impact of increasing competition for corporate legal work on the professionalism of the mega firms. He said:

The aggressiveness with which a client’s interests have been pursued is at times apparent in the background to cases coming before this Court. Ironically the sense of fierce loyalty which such firms demonstrate in pursuit of their client’s interests can increase the risk that the firm’s fiduciary obligation to another client will be slighted or overlooked.

5

In his early and concluding chapters, Molloy appears to go well beyond Thomas’s “risk” identification to argue that “unbridled” competition for corporate law work has inevitably caused large law firms to “prostitute” themselves, abandoning obligations of trustworthiness and honesty for increased fees based on immoral and “aggressive” professional conduct. If that is his thesis, it is both insulting and stupid. A more charitable view is that these chapters are a rather disorganised collection of general observations, offering a possible explanatory context for the specific allegations he makes against RMMB.

It is of course true that law firms compete for business. So do members of the separate Bar and every other business entity in the private sector. It is not true that law firms’ competition is incompatible with the maintenance of professional ethics and obligations. This is markedly so in relation to the mega firms which have established reputations and sufficient size to resist any particular client’s desire for assistance with an illegal enterprise. It is no accident that Renshaw Edwards and other modern thefts by lawyers have been associated with small firms or sole practitioners.

The mega firms’ size permits them to establish internal systems for training of junior staff (including on ethical issues), for review of conflicts, and for peer support and collegiality. Their clients are of course looking for competitive advantages in terms of experience, expertise and delivery of services, but not in terms of malleability or untrustworthiness. There are no necessary incentives for a “client driven” law firm culture to degenerate into (Molloy’s oft-repeated charge of) “prostitution”.

The major deficiency in Molloy’s approach to most of these matters, inevitable enough in a work of populist advocacy, is a lack of doubts or recognition of grey areas. Laws are a body of rules, ultimately enforceable through statutory and governmental structures. These rules are not always self-evident in their general meaning, or in their application to specific circumstances. (That at least must be obvious to an author like Molloy with a specialisation in tax law.) The role of lawyers is to advise on the limits that the law places (that is, that a court may be predicted to place) on some particular set of facts, and that is often difficult. In structuring a transaction, clients and lawyers are entitled to aim for the (vague) margins of corporate and tax laws. In negotiations or in litigation, the lawyer makes the strongest arguments possible to advance the clients interest. All of this is what lawyers are hired to do. No more and no less.

Similarly, and contrary to the thrust of Molloy’s advocacy, there are doubts or grey areas in professional rules. As the Tower/GPG litigation shows, none of the Court of Appeal judges criticised the particular RMMB lawyers involved. All of this leaves room for scepticism about, for example, Molloy’s claim that every partner has been delinquent in not making restitution (under the Rules of Professional Conduct) to investors in the bloodstock schemes who had never participated in, or had abandoned or had settled their litigation against RMMB.

6

In essence, Molloy’s point is that his specific charges illustrate an observation (by Australian journalists) that, in the boom years of the 1980s, there was “a betrayal of the investing public by the professions”. The observation refers to bankers, auditors, valuers, financial advisers, brokers and lawyers. Given the uncomfortable subsequent exposure to daylight (and litigation) of many 1980s schemes, a degree of suspicion is understandable; But even if Molloy’s specific charges were ultimately proven correct before an appropriate tribunal, that would show only an inexcusable departure from the very high professional standards that mega firms profess and almost invariably achieve, not some inherent incompatibility between increasing size and maintaining standards.

Molloy’s book reflects his wide reading, and contains some interesting nuggets (including the remarkably late demise of trial by combat under English law). Lawyers (and members of their families) will recognise the force of his points about the pressures of modern legal practice on personal development. These are recycled from Yale law professor Anthony Kronman’s The Lost Lawyer (1993); but no less important for that. Further, he is right to bemoan the currency of the idea that “aggression” is a worthwhile indicator of legal skills.

Nevertheless, it would be depressing and misleading if Molloy’s work were to become accepted as recording the professional standards of contemporary New Zealand lawyers, whether in mega firms or elsewhere. It does not. Nor, in its general coverage, does it grapple with the larger issues of maldistribution of legal services, of interdisciplinary practices and of globalization. It is a genuine polemic, in the “muckraking” tradition. Like most others in that tradition, it is unlikely to stand the test of time, and is not particularly easy to read, but illustrates the potential power of the impassioned pen (or word processor) to “keep the bastards honest”.

Jack Hodder is a partner with Chapman Tripp Sheffield Young, one of Russell McVeagh’s large law firm competitors. He has also been a member of the separate Bar.

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