Mr Justice Brian Cregan’s draft report on Siteserv’s sale to Denis O’Brien sets out intense discussion within law firm Arthur Cox as it came to act for both parties in the deal.
The dual role came despite “instinctive” reservations in the internal conflicts committee at Arthur Cox and among certain partners in the firm. KPMG, a Siteserv adviser, also had anxieties.
Arthur Cox had acted for Siteserv since its 2006 flotation and Ciarán Bolger, a partner, led its team. The draft describes how the troubled building services group signalled approval for another team in the same law firm acting for Island Capital, Mr O’Brien’s adviser, as the second round of the sale advanced.
At first, Arthur Cox said a dual role meant it could not act for Siteserv or Island in any legal dispute between them. But Siteserv ultimately kept the right to engage the firm in any dispute while Island did not – a departure from usual Arthur Cox rules. The question was settled over seven days in January 2012, two months before Mr O’Brien secured the deal.
Siteserv asked Walter Hobbs, outside observer for the Irish Bank Resolution Corporation, to check whether the State-owned former Anglo Irish Bank would approve of Arthur Cox working for Island and also Siteserv. Mr O’Brien – referred to as DOB in some deal correspondence – had contacted Colm Duggan in Arthur Cox asking if the firm would act for Island.
This matter went to an Arthur Cox committee that oversees potential conflicts of interest. The draft quotes from a January 18th email from Michael Meghen, then committee chairman, to members: “Given the likely profile of the transaction and the parties involved my instinct is not to accept a role for Denis O’Brien however I would welcome your views.”
Reaction to instruction
Individual meetings with five committee members followed. Mr Meghen told the inquiry that he and “all but one of the five” found it would be better to decline the instruction because – as the judge described it – Siteserv was a public company “and the matter was therefore more likely to be the subject of adverse shareholder/media comment”. The draft adds: “He also spoke to a number of Arthur Cox partners, who also felt it would be better to decline the instruction.”
Mr Meghen said the firm accepted the principle that it could act for both sides if the conflict was managed “through the use of ethical barriers, or ‘Chinese Walls’”, procedures to prevent any exchanges detrimental to clients.
In emails on January 18th, Des Carville of Davy, Siteserv adviser, told Dermot Hayes of Island and Mr Bolger of Arthur Cox that Siteserv had no issues.
Mr Bolger emailed the next day, noting Siteserv’s approval and saying the conflict committee “may accept” the instruction, but only if the IBRC was advised and had no objection. He also pointed out the firm’s Chinese Walls rule that it “will not be free to act for either party” in a dispute between respective clients.
Eoin O’Lideadha of KPMG expressed concern about that stipulation, using the codeword “Cable” for Siteserv. “Given that we are dealing with a plc and the potential for this matter to take many turns over the coming weeks, Cable would appear to be running an unwarranted and significant risk by potentially denying itself access to Ciarán and Arthur Cox in the event of a dispute arising (however remote that night seem at this point)?”
Mr O’Lideadha added: “IBRC may well come to the same conclusion when the matter is put to them for approval.”
Before further discussions, Mr Bolger told Mr Meghen on January 19th that Siteserv and Island “had agreed among themselves” that the firm could act for both. In an email that day to Arthur Cox colleague Brian O’Gorman, Mr Meghen said KPMG was surprised as it had signalled a wish to consider the matter further.
“This is somewhat unfortunate as all but one of the six members of the conflicts committee with whom I discussed this matter (including myself) were of the view that . . . it would be better to decline an instruction in this instance from Denis O’Brien,” the draft quotes Mr Meghen saying.
“We accept we have acted on both sides in the past but believe that Siteserv is a public company makes it more problematic.”
The draft quotes Mr Meghen – citing discussions with Mr Bolger and two other people – saying “they all share the view that it would be better to decline this particular instruction”.
It goes on to quote another email later on January 19th to Mr O’Gorman from Mr Meghan, saying he had spoken with Colm Duggan, the Arthur Cox lawyer approached by Mr O’Brien. “I explained that the majority of the committee had an instinctive reluctance to accept a role for DOB in this particular instance but we accepted that this was borne out of a PR concern rather than out of a view that we had some legal conflict that could not be managed.”
Mr Bolger would discuss the matter with Robert Dix, Siteserv’s senior independent director.
Mr Bolger emailed Mr Duggan the next day, saying Siteserv required that Arthur Cox act for it in any dispute and withdraw from Island. Island must also agree upfront to such conditions, he added.
Mr Hayes confirmed Island’s agreement. Then Siteserv sought IBRC’s consent. The bank sought from Arthur Cox that an “appropriate ethical barrier” be established between its teams. The firm wrote to Siteserv, promising to act for it in any dispute and “withdraw from acting for the other party”.
Mr Meghen said the parties recorded the agreement in clear terms. Still, that did not mean the firm “had committed to, or indeed could, act for Siteserv come what may” or that Siteserv must instruct it regardless of circumstances.
The draft report found IBRC was correct to seek assurances in writing but said “it would have been preferable” if KPMG’s concerns had been communicated to the bank when its consent was sought.