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Part 2 of a 2-part series on law firm Kim & Chang
Kim & Chang’s practice has generated some ’dual agency’ controversies, meaning that a law firm represents both parties in the same case. The Rules of Professional Conduct for Lawyers ban a law firm to act as a legal representative for both parties in the same litigation. The Ethics Code for Lawyers also restricts a firm from undertaking a new case that bears conflict of interest with an ongoing legal case at the firm. Kim & Chang was in fact slapped with criminal liability charges by the Korean Bar Association in 2003 for such a practice. It all started in 1997 when Jinro Distillers Company sought a legal settlement with the court through Kim & Chang. The following year, the settlement was approved. In 2003, the investment bank Goldman Sachs, which held some of Jinro’s shares, filed a suit to put Jinro under its legal management. In the process, it was revealed that the documents submitted to the court by Goldman Sachs’ lawyer turned out to have come from Kim & Chang - Jinro’s legal agency. The dual agency controversy thus erupted. Jinro voiced its protest to the Korean Bar Association: "This is testament to the fact that our legal counsel, Kim & Chang, has been also representing Goldman Sachs, which is hostile to Jinro. This is not only an illegal dual representation but also involves a breach of trust."Kim & Chang vehemently denied the allegations. It argued that "the fax document in question was only to help with communication between the lawyer and Goldman Sachs, because the lawyer lacked English skills." Later, the charges were dropped by the Prosecutor’s Office and the Korean Bar Association (KBA). An official with the KBA who reviewed the case said, "Kim & Chang was acquitted because we received a document from Jinro stating that it had actually agreed to Kim & Chang’s representing Goldman Sachs." However, Jinro and Kim & Chang differ in their views on the statement. According to Jinro, the law firm approached it with a proposal that the liquor company write a statement agreeing to the law firm’s representing Goldman Sachs. The firm was said to have promised that it would help to amend the relationship between the two. So, Jinro wrote the statement, it says, but it argues that its agreement was specifically meant to grant the firm mediation abilities only. According to Jinro, it was not a statement expressing that it had agreed to Kim & Chang’s representing Goldman Sachs in other circumstances. However, Kim & Chang has a different take on it. A Kim & Chang representative told The Hankyoreh, "The legal counsel working for Jinro contacted us requesting our mediation in amending the relationship. We took up their offer, on condition of receiving the statement." When Hankyoreh asked why it requested the statement when it had previously all along denied that it was representing Goldman Sachs, the Kim & Chang representative, "Jinro kept making a big fuss, claiming that we represented both parties. That was annoying enough. So, we told it if it wanted to work with us, it had to write [the statement]." Regardless of whose version of the story is accurate, it is clear that the presence of the statement worked in Kim & Chang’s favor. Kim & Chang’s scandals regarding dual representation did not stop there. In 2003, it was again involved in yet another dual agency controversy surrounding a management dispute between Chey Tae-won, the scandal-tainted head of SK Group, and Sovereign Asset Management. It was then revealed that Kim & Chang, which legally represented the SK chairman, also helped to file a stock acquisition report on behalf of Sovereign. At the time, Sovereign owned 14.99 percent of SK stock. If its share were to reach 15 percent, then SK would be automatically classified as a foreign-invested company, resulting in the reduction of Chey’s voting rights on the board of SK Telecom Co. To this, a Kim & Chang representative said, "We didn’t know about Sovereign’s acquisition of SK stock. Sovereign came to us to file a report after it had purchased the SK shares." But it is hard to understand why Sovereign bothered to come to Kim & Chang only to ask such administrative requests, when at the time it already had a law firm that was advising the company on legal affairs. The Kim & Chang representative replied, "Even from our view, it was rather odd for Sovereign to come to us for such a procedure. Maybe people there weren’t organized enough." Not just two, but three at once Kim & Chang even got itself entangled in representing not just two, but three different parties at the same time that eventually led to a dispute among the three. In 1997, the investment bank J. P. Morgan started to sell Southeast Asian currency-denominated financial derivatives to Korea’s domestic security and trust companies. At the time, Korean domestic banks joined the business as guarantors of payment for any possible losses. But when the Thai currency collapsed during the Asian Financial Crisis, the companies that purchased these financial products suffered huge losses, leading ultimately to a lawsuit the following year. It was Kim & Chang that represented all three parties involved, including the seller, J.P. Morgan; the buyers, security and trust companies; and the banks that guaranteed the payment. Then, a dispute arose among them surrounding the scope of payment. To this, a Kim & Chang representative explained, "In some routine deals, we sometimes help all of the concerned parties to come up with a unified contract they all agree upon. Since we obtained each party’s consent to do that, it was not a problem." Critics point out that Kim & Chang’s offering of legal counsel on behalf of Ford Motor Company in its takeover bid for Kia Motors in 1998 was also problematic because just one year prior, the firm had represented Kia in a financial settlement case. Critics argue that Kim & Chang’s intimate knowledge of Kia Motors could have been used for Ford’s benefit. To this, a Kim & Chang representative responded, "Since we only covered the legal aspects of the deal, we didn’t regard it as dual representation." Currently, Kim & Chang also represents both Kookmin Bank and an American investment company, Lone Star Funds - the bidder and seller of the murky sellout deal of Korea Exchange Bank. "It’s not problematic," a Kim & Chang representative again said. "We are working under both parties’ consent and we are only conducting very neutral and limited roles such as interpreting the Korean banking laws. The dual agent issue is a technical and complicated one that should be judged carefully case by case." A Kim & Chang representative argued that "dual agency should not be a subject for automatic criticism based on simplistic and unilateral logic. Besides, nowadays, the relevant law is increasingly becoming deregulated and such a practice is becoming a global trend in developed nations." The controversy surrounding dual agency so far has mainly come from the ill-intentions of a party wanting to take the upper hand in negotiations by smearing the other’s legal representative, the law firm added. "If a case involves legal counseling, not a lawsuit, and if there is consent among the clients, dual agency is allowed in international practice as long as the lawyers in the same law firm working for different parties of the same case stick to a so-called ’Chinese Wall’ policy." Chinese Wall refers to the practice of separating a firm’s departments in order to restrict access to other departments, usually in order to avoid the illegal use of inside information and to avoid conflict of interest.
