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Contracting out of fiduciary relationships in engagement letters: the Citigroup case
Legal context. In their current form and the extent to which firms can use Chinese Walls as a method of meeting their common law and regulatory duties. The three claims against Citigroup were:
- That Citigroup had breached its fiduciary duty to Toll;
- That Citigroup had failed to manage the conflict of interest adequately; and
- That Citigroup had engaged in insider dealing.
Facts. Citigroup conducted both investment banking for clients and equity trading on its own behalf. Employees who work on the equity trading side of the business are known as ‘public side’ employees. Conversely, those employees who are exposed to sensitive information by virtue of working in areas such as the investment banking side of the business are known as ‘private side’ employees.
In January 2005, Toll Holdings Limited ("Toll") employed Citigroup's Investment Banking Division (on the company's private side), to advise them on a proposed A$4.6 billion takeover bid of Patrick Corporation Limited ("Patrick").
Analysis. This case confirms that firms may continue to rely on methods such as Chinese Walls, engagement letters and the acquisition of informed consent as means of managing conflicts of interest and modifying the relationship between the firm and its customers.
Correspondence: *Adam Carvalho, Financial Services Team, Farrer & Co., 66 Lincoln's Inn Fields, London, WC2A 3LH. Tel: 020 7917 7170; Email: azc{at}farrer.co.uk