Ashurst’s Web of Conflicts

As a follow-up to this popular post on Ashurst’s conduct around the receivership appointment over Sargon Capital Pty Ltd, I bring the Australian business community’s attention to issues around conflict management and how breaches of client confidentiality by Ashurst might have coloured advice given by Ashurst to China Taiping which led to Sargon’s unnecessary demise. My next post will be on Ashurst’s handling of Sargon’s transit money and likely breach of fiduciary duty. For the eager students, you can get some background in the LEGAL PROFESSION UNIFORM LAW (NSW) – SECT 140.

Let’s start with the solution:

They are seemingly struggling to hire for this role going back to at least June 2020 and it is becoming extremely urgent I can tell you. I commend Ashurst – better late than never – but have a few comments on spelling, perhaps it is the spelling issues which are causing your Sydney-office conflicts team to miss direct conflicts?

We are keen to speak to any candidates with Senior Adviosry (sic) Conflicts and Ethics experience within a legal setting who would be interested in reclocating (sic) form (sic) the UK to Sydney.

In the 12 months prior to appointing receivers over Sargon, Ashurst’s Sydney office acted routinely for and around Sargon and her allies. Typically, Ashurst would act on matters relating to financing, capital structure, note issuances and our client’s debt situations in Sargon’s Corporate Trust business. It’s a complex web of appointments, but at a high level this is what was going on:

Ashurst Client in 2019Potential Conflict with SargonConflict Disclosed and Waived
IPO Joint Lead Managers (JLMs)YesYes
Trimantium InsuranceNoNo
The Global BankYesYes
The InvestorYesYes
China TaipingYesNo

I have kept innocent parties’ names out of this post. The anonymous names (2 JLMs, The Global Bank and The Institutional Investor) are all large credible global businesses and I’m happy to share them should it become relevant.

Twenty Nineteen (2019)

What you see below is an invoice to a wholly-owned subsidiary of Sargon Capital Pty Ltd, fairly obviously associated with Sargon, called Sargon CT Pty Ltd being invoiced by partner Tony Ryan from Ashurst’s Sydney office. Tony Ryan styles himself as being a Partner in the Restructuring, Special Situations and Insolvency team. This may look familiar as it is the same team and office as Mr James Marshall, the Ashurst partner who appointed receivers over Sargon.

Concerningly, it is entirely possible that Ashurst were simultaneously assisting Sargon issue financial products to retail investors whilst advising and implementing the appointment of receivers over Sargon and creating significant risk for those same retail investors.

There are heaps of these Ashurst invoices to Sargon over 2019, this one was particularly poorly timed for them as it appears to be quite a bit after they were acting for China Taiping (in the exact same team and same office without disclosing the conflict).

In fact, the following Ashurst people were involved in the above Sargon-aligned appointments (ex. China Taiping) over 2019 and were provided confidential information regarding Sargon in that capacity (these are the ones known to me through invoices and correspondence with Ashurst at the time; there were likely more involved in the background):

  • James Marshall – Partner, Restructuring, Insolvency and Special Situations, Sydney
  • Tony Ryan – Partner, Restructuring, Insolvency and Special Situations, Sydney
  • Kyle McLachlan – Law Graduate, Restructuring, Insolvency and Special Situations, Sydney
  • Jamie Ng – Global Head of the Finance, Funds and Restructuring division
  • Lisa Simmons – Partner, Corporate Practice, Sydney
  • Rehana Box – Partner, Corporate Practice, Sydney
  • Sarah Dulhunty – Partner, Corporate Practice, Sydney
  • Con Tzerefos – Partner, Corporate Practice, Melbourne
  • Jared Lynch – Senior Associate, Corporate Practice, Melbourne
  • Kevin Lu – Senior Associate, Corporate Practice, Sydney
  • Megan Fung – Lawyer, Corporate Practice, Sydney
  • Steve Smith – Partner, Banking and Finance, Sydney
  • Jack O’Shea – Partner, Banking and Finance, Sydney
  • Elly Ko – Senior Associate, Banking and Finance, Sydney
  • Timon Ibrahim – Senior Associate, Banking and Finance, Sydney
  • Alice Au – Associate, Banking and Finance, Sydney
If you look hard, you’ll notice Ashurst’s Sydney restructuring team in the picture, having the audacity to fish for additional clients at Sargon’s launch event in October 2019, having likely already been appointed to act against it by Taiping.

From May to July 2019, Ashurst’s acted for Trimantium Insurance Partners Pty Ltd (Trimantium Insurance), related to Trimantium Capital Funds Management Pty Ltd and (indirectly) to Sargon and China Taiping by beneficial interest. The appointment was in relation to a prospective insurance venture which was in partnership with Sargon and Taiping (all of which Ashurst should have been aware).

In March 2020, shortly after the receivership appointment, Ashurst’s finance team followed up Trimantium Insurance in relation to an outstanding invoice (which was sent to Sargon’s office address) in respect of the insurance matter. The individuals acting on the matter included Rehana Box, Lisa Simmons, Con Tzerefos and Jared Lynch. This (small) invoice was missed due to an administrative oversight but Ashurst hadn’t followed up (presumably) because it was a very small balance for a strategic group client. I thought it was amusing how bad Ashurst’s conflict systems must be – this email said “Hope this email finds you well today and out of harm’s way”. No, I was not out of your firm’s harm’s way.

Trimantium and Sargon are not common names so you’d expect the conflict processes would notice them pretty quickly. Alas.

From January 2019, Ashurst’s Sydney office was engaged to act for the investment bank syndicate that had been appointed by Sargon as joint lead managers (JLMs) for Sargon’s IPO capital raising process (the JLMs having been appointed in December 2018 for a minimum period of 12 months). Ashurst likely obtained significant confidential and valuable information about Sargon throughout this process, particularly in respect of the capital structure of the company.

From Jan – May 2019, Ashurst also acted with Sargon’s and the JLM’s informed consent for a potential investor into Sargon which was a global banking group headquartered out of London. The deal was paused because the bank had a leadership change and put a pause on expansion initiatives. Sargon, Ashurst and the JLMs were all aware of, and cleared this conflict for the Global Bank.

James Marshall, award winner.

Here’s James Marshall acting for a potential Sargon institutional investor from May 2019. Ashurst sought Sargon’s consent to the appointment (due to their plethora of other roles, which Sargon provided). This was a collaborative investment conversation where James and Steve Smith likely obtained quite a lot of information about Sargon.

I wonder if this investor was ever asked for informed consent before James Marshall took on China Taiping’s retainer and decided to place Sargon into receivership. I know for a fact that this investor was continuing due diligence and structuring negotiations with Sargon while Ashurst was acting for China Taiping, and the investor had never indicated they’d changed lawyers, so for all I know Ashurst had never resigned from this investor’s brief before accepting instructions from a different party to cause an insolvency event on the investor’s prospective investment.

Concurrent client conflicts: 

11.2 If a solicitor or a law practice seeks to act for two or more clients in the same or related matters where the clients’ interests are adverse and there is a conflict or potential conflict of the duties to act in the best interests of each client, the solicitor or law practice must not act, except where permitted by Rule 11.3.

11.3 Where a solicitor or law practice seeks to act in the circumstances specified in Rule 11.2, the solicitor or law practice may, subject always to each solicitor discharging their duty to act in the best interests of their client, only act if each client:

11.3.1 is aware that the solicitor or law practice is also acting for another client; and

11.3.2 has given informed consent to the solicitor or law practice so acting

Australian Solicitors’ Conduct Rules

The crux of the conflict is that there’s no way for a law practice to fulfil their duty to act in the best interests of both clients in circumstances where the clients interests actually or potentially conflict. Even if the conflict is not immediately apparent at the time of appointment (for example, a negotiation between two clients on friendly terms), it may quickly deteriorate. As such, unless the clients are made aware of the conflict, and provide informed consent, a firm cannot act – information barriers alone are not enough. Even with informed consent, the law practice’s ability to act is “subject always to each solicitor discharging their duty to act in the best interests of their client”, and as such it’s practically impossible for a single solicitor within the practice (such as James Marshall) to act for both clients where their interests diverge

Successive client conflicts

Even if Ashurst had resigned from the bank, the institutional investor, Sargon/Sargon CT, Trimantium and JLM appointments, it’s well known that lawyers owe some residual duties to clients – most importantly, centred around preserving their confidential information. 

10.1 A solicitor and law practice must avoid conflicts between the duties owed to current and former clients, except as permitted by Rule 10.2. 

10.2 A solicitor or law practice who or which is in possession of information which is confidential to a former client where that information might reasonably be concluded to be material to the matter of another client and detrimental to the interests of the former client if disclosed, must not act for the current client in that matter UNLESS: 

10.2.1 the former client has given informed written consent to the solicitor or law practice so acting; or 

10.2.2 an effective information barrier has been established.

Australian Solicitors’ Conduct Rules

It’s unknown to me whether Ashurst obtained informed written consent from all of these clients in 2019 regarding the Taiping appointment, but they certainly did not attempt to do so with respect to their direct engagements with Sargon or Trimantium. In the course of their engagements with Sargon, providing advice and due diligence on structured finance transactions in which Sargon acted as issuer and/or trustee, Ashurst was made intimately familiar with Sargon’s upstream finance and capital structure, in addition to material volumes of other commercially sensitive information.

If Ashurst did in fact resign from all Sargon-related financing and debt capital appointments prior to accepting the Taiping appointment, they would still have needed to establish an effective information barrier. The Law Society of New South Wales sets out comprehensive guidelines to what should be included in an effective information barrier (which they encourage firms to employ as ‘minimum standards’), including:

  1. The existence of documented protocols for setting up and maintaining information barriers.
  2. A nominated compliance officer to oversee each information barrier.
  3. Obtaining acknowledgement in writing from the new client that the law practice’s duty of disclosure to the new client does not extend to any confidential information which may be held by the law practice as a result of earlier matters.
  4. Clearly identifying all ‘screened persons’ (i.e. a person who possesses confidential information from a previous retainer which is relevant to another, current retainer), with the compliance officer keeping a record.
  5. Obtaining undertakings from each screened person that the screened person will not have any involvement with the client or personnel involved with the current matter; has not disclosed and will not disclose any confidential information about the earlier matter to any person other than to a person in accordance with the instructions or consent of the client in the earlier matter, another screened person, or the compliance officer; and will, immediately upon becoming aware of any breach or possible breach of said undertaking, report so to the compliance officer.
  6. Similarly, implementing controls so that personnel involved in the new matter don’t discuss the previous matter with, or seek any relevant confidential information about the earlier matter from, any screened person. Such personnel (on the new matter) should also provide undertakings similar to those made by screened persons. 
  7. Contact between screened persons and personnel on the new matter should be appropriately limited.

The list goes on, but let’s take a pause there. Ashurst, as a ‘leading global law firm’, no doubt has some form of conflict management protocol and information barrier practice in place. After all, they did seek informed consent in the past, and have defended their “usual process” in other circumstances. Let’s consider how it may have been implemented in the current circumstances, starting by considering who would likely to be considered a ‘screened person’. 

James Marshall acted for a potential investor throughout the back half of 2019, in negotiations and due diligence for a prospective investment in Sargon. As far as I’m aware, the engagement had never been terminated prior to accepting instructions from Taiping, but even if I was to give Ashurst the benefit of the doubt and presume they resigned first, this would have been mere weeks before his advising Taiping to appoint Receivers over Sargon, and clearly required either informed consent or an effective information barrier – I imagine most prudent law firms would do both.  

I note, with some concern, that James Marshall’s side-kick, David Greenberg, revealed in the days after the Receivership Appointment (on or around 30th January 2020) to one of my lawyers that he understood that Sargon had $60 million of cash on its balance sheet. In fact, Sargon had closer to $22 million of cash which Ashurst would have known had they read the company’s 1HFY20 financials. This identifiable figure was a relic from the investor’s process (arising out of a modelled pro forma outcome of that investment had it proceeded) and could not have been known to Taiping or McGrathNicol other than through Ashurst. Remember this, it will become very important later 🙂

I ultimately have no idea what (if any) information barrier procedures Ashurst followed, but when an obvious ‘screened person’ in James Marshall is not only not restricted from interacting with the lawyers on the Taiping appointment, but is somehow the partner on the appointment, I really don’t have any confidence in Ashurst having adequately implemented an information barrier. As a practical matter, with so many Ashurst people working for or around Sargon in their Sydney office, I don’t know how you could practically enforce an information barrier even if you put one in place.

Obligations of confidentiality

At this point, it’s fair to ask whether Ashurst simply avoided the need for an information barrier by seeking informed consent from the investor (and everyone else). That seems unlikely – as you’d expect in a financing negotiation, all the information Sargon provided was provided under the strictest of confidentiality, and with the customary legal protections. It’s very difficult to think of a circumstance where the investor would consent to Ashurst acting for a different (hostile) shareholder and providing that investor any benefit from Ashurst’s work for the investor on a purely commercial basis, let alone when factoring in the potential liability exposure such consent could enliven in terms of the investor’s own confidentiality obligations to Sargon. In fact, the investor emerged as a potential bidder in the E&Y sale process (not supported by Ashurst/Taiping) – presumably, with new lawyers. 

Again, even when Ashurst acted for successive non-hostile parties, in the bank and then the investor, it sought consent not only from the bank (and the JLMs), but also Sargon – presumably both to cover off their existing appointments with Sargon CT and other subsidiaries, and also acknowledging that much of the confidential material in their brief was Sargon’s. 

No such consent was sought from Sargon prior to the Taiping appointment – perhaps they wanted to preserve the element of surprise. To be fair, there may be circumstances where seeking informed consent isn’t viable – that’s where a good information barrier can come in handy. James Marshall, as global co-head of Insolvency, Restructuring, and Special Situations, could have presumably handed the Taiping brief off to a different partner in a different office and minimised his contact as per the Information Barrier Guidelines – and should have, given his prior involvement with Sargon (which itself built off confidential information from the bank and the IPO JLMs). Instead, he took personal responsibility for the Taiping retainer. How neither he nor Ashurst’s risk and conflicts management team recognised the issues in doing so is entirely unclear.

More to come.