James Murdoch Gets His Own Lawyers – But at What Cost?

Reuters: James Murdoch testifies before the House of Commons

James Murdoch, who appeared a second time before the Commons Select Committee on Culture Media and Sport yesterday, has instructed Clifford Chance to represent him personally in connection with any issues arising out of the phone-hacking scandal. The independent directors of News Corporation in the US have also decided to retain their own legal advisers.

Given that Clifford Chance’s hourly partner rate is not likely to be less than £500, I ask myself how directors can best protect themselves from having to pay large legal fees in situations where, like Mr. Murdoch, they find themselves in actual or potential conflict with the companies on whose boards they sit.

Morgan Crucible Case

“Who foots the legal bill?” is a subject on which I have written in the past in relation to Ian Norris, the former CEO of FTSE-250 engineering company Morgan Crucible, which was embroiled in a carbon products price-fixing scandal in the late 1990’s.

In 2002 Morgan Crucible and its US subsidiary pleaded guilty to price fixing and witness tampering charges in the US. They paid a fine of US $11 million. The plea agreement excluded Mr. Norris, who resigned in 2002.

After a lengthy seven-year extradition battle with the US Justice Department, Mr Norris was eventually extradited to the US in March last year on charges of obstructing the cause of justice. It is not a matter of public knowledge to what extent he had the benefit of any insurance for these costs.

Legal Professional Privilege

The Ian Norris not only raised questions about who pays for legal fees, but also highlighted the issue of legal professional privilege.

Norris’ previous employer decided to waive its right to assert legal professional privilege and released documents and testimony of Morgan Crucible’s former lawyers. This was used as evidence to support a case against Mr. Norris that he had been responsible for trying to influence the evidence to be given to the grand jury by other employees of Morgan Crucible.

Lessons to Learn from Norris Case

Directors of other companies should heed the outcome of the Norris’ case and take the following precautionary steps:

  1. Boards should have in place emergency crisis response plans that clearly set out whose lawyer directors should be seeking advice from and on whose behalf.
  2. A safe default assumption should always be made by directors that the company’s lawyer is only ever there to advise the company. In case of any doubt, clarification should always be sought from the lawyer concerned and, if necessary, independent legal advice for individual directors or officers should be contemplated.
  3. The question as to how any such independent legal advice would be funded should be addressed. It may, for example, be relevant for directors to establish whether and in what circumstance the company would be prepared to fund such legal expenditure.
  4. In case of doubt or uncertainty, directors might also do well to consider whether such costs would be met under the terms of the company’s directors and officers liability insurance cover. Whilst many such policies do not automatically provide this protection, it is now usually possible to obtain it.

About Francis Kean

Francis is an Executive Director in Willis Towers Watson's FINEX Global, where he specializes in insurance for Dir…
Categories: Directors & Officers | Tags: , ,

2 Responses to James Murdoch Gets His Own Lawyers – But at What Cost?

  1. claire nightingale says:

    Francis,

    The point you make about seeking cover from D&O insurers for the costs of separate counsel to represent either non executive directors or individuals is very much tied up with the issues around privilege, and care needs to be taken around the drafting of such insurance cover for this very reason. It is not very helpful to have insurers agree to the appointment of more than one law firm, only where a “material” conflict arises. By that point, given the concerns which you raise about privilege, to whom it belongs and whether it may have been waived, it may well be too late. What is needed, in my view, is an arrangement whereby insurers will consent to more than one law firm being appointed where either the director or the company reasonably believe there is a potential conflict of interest. Materiality is not the point

    • Francis Kean says:

      Couldn’t agree more Claire. The whole point here is to try to persuade insurers they should address potential conflicts because, as you say, once conflicts have arisen it’s often too late. Indeed, I would go further and suggest that a key aspect of a lawyer’s necessary skills and experience is to draw attention to this risk at an early stage. I don’t see how insurers can justify forcing him or her to convince them not simply that there’s a potential for a conflict, but that there’s a “material” conflict. Do the insurers have in mind the claim against the insured or the claim under the policy or both and why should it matter anyway?

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