Business of Law Firms
Dechert's dire dispute​

By Jake Rickman​

What do you need to know this week?

This week’s article in the Business of Law Firms series will examine one of the most high-profile disputes involving a law firm and its senior partner in recent years.

On one side is the claimant, Eurasian Natural Resources Corporation (ENRC). On the other, two joint defendants, Philadelphia-based firm Dechert LLP and one of its former senior partners and head of white-collar crime (since retired), Neil Gerrard. The UK’s Serious Fraud Office (SFO) is also a separate defendant in the proceedings.

In an action commenced in 2017 and contained in a May 2022 High Court judgment (the “May 2022 Judgment”), ENRC alleges that Dechert and Gerrard grossly breached the duty of care they owed to ENRC as a client by disclosing confidential and privileged information to the SFO, which arose from an internal investigation Dechert was helping ENRC conduct related to possible fraud and criminal conduct ongoing in one of ENRC’s Kazakhstani subsidiaries.

ENRC further alleges that Gerrard himself leaked the confidential and privileged information to widen the scope of Dechert’s instruction and consequently “generate massive amounts of legal fees”.

The May 2022 Judgement, which was only concerned with establishing to what extent, if any, the professional duties were breached, largely found in favour of ENRC. In particular, the trial judge concluded that Gerrard’s conduct amounted at the very least to recklessness and accordingly meant his liability exceeded that of mere negligence.

ENRC seeks more than £40m in damages. A “Phase 2” trial is scheduled to commence in the next couple of weeks to assess causation and damages.

ENRC has initiated separate contempt of court proceedings against Gerrard after the May 2022 Judgment was handed down, claiming that Gerrard committed perjury in the Phase 1 trial. On Monday, the trial judge recused himself from ruling on the contempt of court proceedings, citing the concerns that a “fair-minded observer would conclude there is a real possibility” of pre-judging the contempt matter.

Why is this important for your interviews?

If you’re applying or interviewing with Dechert, it may not be wise to bring this story up, as it is undoubtedly a sore subject and doing so could be viewed as less than tactful. However, for all applicants, this development is valuable to familiarise yourself with because it demonstrates the extent to which professional negligence and misconduct claims represent a real risk to a firm’s business and reputation.

For starters, according to a Law.com article published shortly after the May 2022 Judgment was handed down, Dechert has already accrued a legal bill of £38m. If ENRC obtains a judgment awarding the full value of the costs claimed, Dechert may owe more than £100m — or around 10% of its annual revenue (having already made a £20m interim payment to ENRC).

While regulation and prudential management both dictate that a law firm has in place adequate professional indemnity insurance to protect from a fee-earner’s negligence, because Gerrard’s conduct likely amounted to recklessness rather than mere negligence, Dechert’s insurer may resist paying out under the policy.

This is to say nothing of the reputational fallout that has already ensued. Gerrard has gone from one of the most respected financial crime lawyers in the UK to a retired partner with a sullied legacy.

Citing the same Law.com article, Dechert has taken steps to distance itself from Gerrard, such as by issuing a statement following the May 2022 Judgment saying that “his ‘conduct is completely at odds’” with the firm and its values.

However, Dechert will struggle to wholly distance itself from Gerrard, especially with rumours reported by Law.com that others within Dechert facilitated Gerrard’s conduct. What is more, at paragraph 259 of the May 2022 Judgment, one of Dechert’s London partners disclosed to another in advance of Gerrard’s recruitment from DLA Piper to Dechert that Gerrard had a reputation for providing “unduly negative” advice to clients that amounted to “scaremongering in order to increase DLA’s fees”. As the Law.com article observes, it is certainly possible that this could prejudice Dechert’s ability to claim under the policy.

Separately, the SRA has since launched an investigation and could take further regulatory action against the firm and potentially Gerrard, despite the fact he is now retired.

How is this topic relevant to law firms?

Hogan Lovells represents ENRC, while Clyde & Co represents Dechert. Eversheds Sutherland represents the SFO.