Choice of Nama's legal advisers poses difficult questions
BUSINESS OPINION:Role with the State will require Arthur Cox to address conflicting interests
AND THE winner is . . . Arthur Cox! Once again, the State’s pre-eminent law firm has cut its way through an apparently impenetrable thicket of conflicts to win a plum job; in this case, legal advisers to Nama.
The Government, its other advisers, the National Treasury Management Agency and presumably all of Cox’s other clients are satisfied that the firm will be able to navigate the minefield of conflicting interests to give them all the best and some of the most expensive advice.
And presumably we should be too – and of course we are. But it would be nice to know exactly how they will manage it, given that the taxpayer is going to be picking up the bill for Nama and thus Cox’s fees for some time to come; 15 years if some of the more gloomy estimates prove correct, although Cox’s contract only runs until September.
And the apparent conflicts are numerous. Cox are the lawyers for Bank of Ireland who are going to be one of Nama’s biggest “clients” and at best will have a robust relationship with the agency if it does its job properly.
The firm is also advising the Minister for Finance on the banking crisis and presumably played a part in the process that led to Nama being created.
The Minister will presumably need ongoing advice and also his dealings with the banks, including Bank of Ireland. There is nothing to suggest that Arthur Cox will step back from this role.
The firm has also had an involvement with the private equity consortium Malabraca which was looking at opportunities earlier this year, and presumably has not ruled out doing business with Nama.
The firm has also, according to its website, acted for Anglo Irish Bank and AIB in property transactions, one of which is the McDonogh Junction development in Kilkenny which is in trouble and must be Nama-bound.
And then there are its property developer clients. The firm has worked with Seán Dunne, Seán Mulryan and Davy Hickey. It’s a pretty safe bet that any developer of scale is going to do business with Nama. They will either owe it money or be trying to buy property off it. When it is all put together is seems like quite a job to manage all these conflicts.
Presumably, Cox will rely on the normal practice of seeking the consent of clients and setting up “Chinese walls” between the different parts of the firm dealing with the various clients.
You can’t helping thinking that by the time the Nama process is over, there will be so many “Chinese walls” at Cox’s head office that they will, like their namesake, be visible from space. And that is not to mention the “Chinese walls” that some of the Cox’s lawyers will have to erect in their own heads.
On a more serious note, you would have to question the value of hiring one of the big firms –and paying big fees – if they operate on a “Chinese walls” basis. In theory, all you are getting is the services of a small group within the firm.
Equally, it’s hard to understand why a big client like Bank of Ireland would give its consent for Arthur Cox to act for Nama if – because of the Chinese walls – it is going to narrow down the number of lawyers at Cox available to work on the same sort of issues on their behalf. Managing conflicts is a tricky business, as Cox found out when they tendered along with ABN Amro corporate fiance for the job of selling ICC Bank for the Government. They were successful, but had to withdraw when it emerged they had a conflict of interest. The nature of the conflict was not disclosed despite efforts under the Freedom of Information Act to obtain details of the tender.
Arguably, it is unfair to single out Cox. All the big law firms operate in the same way, as do the accountancy firms, in particular PriceWaterhouseCoopers, who have picked up the contract to provide tax advice to Nama, having done consultancy work for the Government on the banks and audited Bank of Ireland.
The justification for this – in so far as anyone really bothers to justify it – is that conflicts are inevitable in a small market and if you want to hire the best firms, you have to rely on them to manage the conflict.
But an issue that has to be faced up to is the extent to which this incestuous culture contributed to bad decisions and the sort of collective delusion about the property market that brought us to where we are today.
Was the point where the big law firms, the accountancy practices and their clients became comfortable with the idea that pretty much any conflict of interest could be managed another milestone on the road to economic disaster?