Marks and Spencer Group Plc & Anor v Freshfields Bruckhaus Deringer

A solicitor may be restrained from acting for a person whose interests are adverse to those of a client where connected matters create a real potential conflict of interest. The principle is not confined to work on the same transaction. The court must assess the relationship between the matters and commercial reality. It need not wait to see whether a takeover becomes hostile.

Where confidential client information is held, the court intervenes unless satisfied that there is no real risk of disclosure. Information barriers and undertakings must afford effective protection before adverse instructions are accepted. Measures introduced after the risk has arisen may be insufficient, particularly where information may already have spread within the firm.

Freshfields had advised Marks and Spencer on a number of substantial matters, including contractual arrangements concerning the Per Una business known as Project George. It wished to act for a consortium proposing to acquire Marks and Spencer.

Lawrence Collins J, sitting as vacation judge in the High Court, restrained Freshfields from acting or advising the consortium and refused permission to appeal. Freshfields applied to the Court of Appeal for permission to appeal, with the appeal to follow if permission were granted.

The central issues were whether the proposed retainer created a real conflict of interest and whether Freshfields' proposed information barriers adequately protected Marks and Spencer's confidential information.

1. The application for permission to appeal was dismissed with costs. Pill LJ held, and Kay LJ agreed, that there was no arguable basis for disturbing the injunction granted by Lawrence Collins J.

2. The court applied the principles in Bolkiah v KPMG [1999] 2 AC 222. A conflict is not confined to two instructions concerning the identical transaction. The court must consider the relationship between the matters. A takeover bid could become hostile, and the Davies contractual arrangements could become a significant issue in the bid. That created a real potential conflict, rather than a theoretical possibility.

3. Freshfields could not wait to determine whether the bid would be friendly before deciding whether it could act. Its proposed undertaking not to advise the consortium on the Davies arrangements did not resolve the conflict arising from its earlier services to Marks and Spencer.

4. On confidentiality, the court accepted that Freshfields held extensive confidential commercial information which might be material to the bid, even if only for consideration and rejection. The judge was entitled to find that effective information barriers could not be put in place, or be seen to be sufficient, given the number of people who might hold relevant information.

5. Kay LJ added that adequate safeguards had to be in place before Freshfields acted for the bidders. Further measures proposed only after the issue was identified came too late, since confidential information might already have spread within the firm.

• Court of Appeal (Civil Division): Freshfields' application for permission to appeal was dismissed with costs: [2004] EWCA Civ 741.
• High Court, Queen's Bench Division, Administrative Court: Lawrence Collins J restrained Freshfields from acting for or advising the prospective bidder in connection with an acquisition of Marks and Spencer, ordered Freshfields to pay costs, and refused permission to appeal. No citation was stated.