Lawyers Weekly has long reported on the fate of PricewaterhouseCoopers, Ernst & Young and KPMG’s legal arms, covering their fluctuating success over the past four years. This week’s news comes as another chapter in the saga.

In December 2004, despite claims that KPMG had overreacted by jettisoning all legal services late last year in the wake of the US-led clampdown on conflicts of interest in accounting firms, the restrictions imposed saw several partners defect from other MDPs to private law firms.

KPMG Legal drew its last breath in March that year, with Middletons claiming most of the practice. PwC Legal said KPMG’s decision to cease providing legal services was overkill, but eventually found it had to cut several staff, while others walked of their own accord.

The same month that marked KPMG Legal’s demise saw six partners and 40 staff move from PwC Legal’s insurance and workers compensation practice to Hunt & Hunt. Philip Purcell, formerly of PwC Legal, said “[the environment] had restricted PwC Legal’s ability to provide legal services to PwC audit clients, particularly in the insurance sector”.

In February, PwC had rejected claims that its sale of 20 per cent of its legal arm to Hunt & Hunt and the move of two partners, one special counsel, four senior associates and three other lawyers to Maddocks was a reaction to audit-independence concerns.

Quick to disperse any suggestion that, like KPMG’s KLegal (which was disbanded in 2004), PwC Legal would be forced to close it doors, PwC tax and legal chief Paul Koenig told Lawyers Weekly that “we are not exiting the legal market, we are now embarking on a growth path in our business”.

PwC Legal CEO Kevin O’Rourke spoke to Lawyers Weekly in December 2006 on how PwC Legal avoided the audit-independence problems that the legal arms of other top-four accounting firms could not.

“There are services that we cannot provide if we are the auditor of a client,” he said. But he argued that as they were not the auditor of a client — as PwC in the broader sense does not audit a particular client — then the firm could offer a full range of legal services.

“The size of the market that is closed to us is relatively small in the scheme of things. In the same way that there are restrictions on lawyers providing services, there are restrictions on tax services that can be provided. Every one of the major accounting firms still provides tax services,” he said. But he rejected suggestions that this was at all limiting.

“There are enough clients out there, in effect. A portion of the market is closed to us, but for a substantial portion of the market that is open to us, we have the full force of the broader PwC to bring to the client, which is very attractive. We didn’t find that we gained a lot from the closure of the other legal arms of accounting firms. We gained some but not as much as you would think. I think as practitioners moved out of, say, KPMG and went across to Deacons, a lot of those client bases simply transferred with the partners,” he said.