Crisis management

The Irish recession has prompted a significant and ongoing rise in contentious work, but has also put lawyers on the defensive

Like many of their counterparts around the world, Irish litigators are busier than they can remember right now. The fallout from the country’s economic problems continues to provide rich pickings for contentious teams, even as their transactional colleagues struggle for instructions.

Yet the work is not all related to court cases – indeed, provisional figures from the country’s Commercial Court show a 10 to 15 per cent drop in new matters entered on to the court’s list last year. Instead, the breadth of Irish litigation continues to expand.

“We’re working harder than we ever worked and the work is harder to do now,” says Arthur Cox litigation head David O’Donohoe. “The hours are longer and money’s harder to make – there’s a lot of pressure on fees.”

“The overriding trend is it’s recession-driven and it’s really never been busier, although it’s toxic for clients. There’s no good story,” says McCann Fitzgerald dispute resolution head Helen Kilroy.

William Fry litigation head Owen O’Sullivan agrees. “There’s no problem being busy,” he observes. “The challenging thing at the moment is being busy doing the right kind of work. The market is more competitive than ever and particularly for the volume work – we have to tender for a lot of it.

“What we’re also seeing in litigation for the first time is that clients for whom we’re doing good work and high-value work are looking for us to be very creative on fee structures.”

A&L Goodbody dispute resolution head Liam Kennedy says the focus for large commercial firms has turned very much to largescale litigation. “It’s different from other recessionary periods because there’s been less of the small- and mid-sized litigation. The fundamental dynamics have changed. We’ve actually been fairly busy because there’s been more big ticket stuff and more high-profile regulatory litigation,” he says.

Mason Hayes & Curran litigation head Declan Black says: “There’s real competition and pressure on rates but because there’s such an amount of debt to be worked through this has another three to five years in it.”

Litigation surge

Litigators identify a number of key areas that are particularly busy at the moment.

Insolvency is clearly top of the list, with Ireland’s biggest-ever administration – known in the Republic as an ‘examinership’ – having just been agreed to rescue

telecoms group Eircom, which had €4bn (£3.2bn) of debt when it filed for examinership in March. McCann Fitzgerald has been acting for the examiners.

On 22 May, Mr Justice Peter Kelly ruled in favour of the scheme drawn up to wipe out 40 per cent of the company’s debt and allow it to exit examinership. Kilroy says the successful conclusion followed a “lot of background negotiation” between affected parties.

Some litigation has also emerged connected to the work of Ireland’s ‘bad bank’, the National Asset Management Agency (Nama), the most high-profile connected to property developer Paddy McKillen. McKillen claimed that the transfer of a portfolio of loans worth €2.1bn to Nama was void, because the transfer had taken place before the agency’s official establishment.

In December last year, the case was heard before the Supreme Court of Ireland, with McKillen’s victory prompting speculation that other developers could follow him in suing Nama. The case also has ramifications in the UK as McKillen is fighting media tycoons David and Frederick Barclay over the purchase of shares in London hotels.

Regulatory change

The after-effect of Ireland’s property bubble is also creating a considerable amount of construction litigation, say solicitors.

“An awful lot of building took place in a short space of time so building defects are something that we’re seeing,” reports Maples and Calder’s Dublin litigation head Dudley Solan.

More broadly, the financial services sector remains hit by disputes and also regulatory investigations. Ireland has dramatically increased the number of regulatory agencies and, as a result, more clients need advice and support in regulatory investigations or enforcement actions.

“That’s becoming ‘bet the farm’ important for various boards of directors. Every time you turn over a stone in Ireland you find three new regulators with draconian powers,” says Kennedy.

“There’s a perception that things were too easy for far too long,” adds O’Sullivan. “A lot of the regulators are now having to justify their position, they’re having to flex their muscles.”

Sharon Daly, head of litigation at Matheson Ormsby Prentice (MOP), says the increase in regulation will have a long-term impact.

“I think there’s been a sea-change in relation to how business is going to be done. A lot of the issues you see on the regulatory side are compliance breaches because people didn’t have sufficient resources. They’re not one-off issues,” Daly says.

Other fora are also being utilised to deal with financial disputes, adds MOP partner Carina Lawlor.

“Another fallout from the financial crisis is the increased level of misselling claims before the financial services ombudsman. It’s more of a systemic issue that clients come to us for advice on,” she says.

Mediation matters

All this means there are fewer actual cases in court, report lawyers. As well as the Commercial Court statistics, anecdotal evidence suggests that there are more summary judgments now, and a greater willingness to look at alternative dispute resolution.

“If you look at the type of claims going through the Commercial Court a lot of them now are summary claims for financial institutions seeking to recover loans for substantial sums of money or personal guarantees for substantial sums of money.

They tend to be wham-bam types of applications,” O’Sullivan says. “It’s a good thing in that it focuses people on process as much as anything else.”

The most popular alternative means of settlement has proven to be mediation. In November 2010, court rules changed to allow a judge to suspend a trial so that mediation can be explored as a possibility. It remains voluntary, but is becoming increasingly popular.

“I don’t think it’s unfair to say that 10 to 12 years ago mediation was almost unheard of in commercial litigation in Ireland. It’s becoming an ­increasingly prevalent factor in Irish litigation,” says Solan.

O’Donohoe agrees. “Businesses are much more inclined now to get some sort of alternative resolution,” he says.

Kilroy points out that mediation is common in family disputes, but agrees that its use is now spilling over into commercial cases.

“There’s such pressure on costs at the moment. It can provide a very economic resolution for parties and it’s a process that I believe in. I think it’ll continue to rise,” she says.

Other strands of work that are continuing to be busy, but thath are not connected directly with the recession, include IP and pharmaceutical litigation, healthcare-related matters and a rise in media cases, according to Dublin firms.

Insurance claims

But the litigation sub-sector that has most grabbed the attention of lawyers and the Irish public alike is professional negligence.

“Insurers are more robust about fighting claims than they might have been 10 years ago, but they’re also facing so many claims,” reports Kilroy. “It’s challenging because in a crisis when things have gone wrong people are always looking for somebody to blame and they’re looking for someone with a deep pocket.”

So far the two biggest claims against the solicitors’ profession have had very different outcomes. In December 2011, MOP and Dublin firm LK Shields were found not to have been negligent in their advice over a €25m loan issued to businessman Philip Lynch and his family by Allied Irish Banks.

However, there was a less happy outcome for Byrne Wallace, one of Ireland’s 10 largest firms, in March. Mr Justice McGovern found Byrne Wallace legacy firm BCM Hanby Wallace had breached its duty by failing to ensure security over loans made by KBC Bank to property developer John Kelly and solicitor Thomas Byrne, who ran his own firm, Thomas Byrne & Co.

The finding of breach of duty has surprised the profession less than McGovern J’s additional finding that the firm had deceived the bank – which was not one of the claims made against Byrne Wallace by the claimants.

Ruling that KBC should be entitled to recover all its losses – up to €25m – from the failed loans, McGovern J said: “In reality, the breach of duty goes so far as to amount to a deception on the part of the defendant because it was aware that the required security was not in place but led the bank to believe that it was. The defendant accepts that although the bank had agreed to make the loans, the funds would not actually have been released if the true position had been made known to the plaintiff. If the funds had not been released, the bank would have suffered no loss. The loss arose, not so much from the failure to obtain the necessary security, but rather, from the bank being deceived into permitting the release of the funds on express assurances from the defendant firm which were untrue and which it knew to be untrue.”

Deception disagreement

The deception finding has shocked many other lawyers.

“Leaving aside the amount of the claim, the comments of the judge are just a body-blow,” says one.

Others say that while the firm may have made a mistake, McGovern J went too far in making the deception finding.

Byrne Wallace managing partner Paul McGennis says: “The firm is shocked and disappointed at the judgment and in particular the finding of the trial judge that the defendant deliberately misled the plaintiff and that the breach of duty amounted to deception. The firm, as defendant in the proceedings, does not agree with a number of the findings of the trial judge and will be appealing the final decision of the High Court at the earliest possible opportunity.”

However, that appeal must wait until the damages hearing in the case has taken place. Should Byrne Wallace ultimately lose, the damages are believed to be covered by the firm’s insurers, but the reputational fallout could end up being costly.

Trial backlog

On a broader basis, several lawyers say that there are a host of claims on the court list against solicitors which have not yet got to trial and will take another couple of years to work through the system. Luckily for the profession, however, the statute of limitation relating to claims arising from the boom before the bust will run out soon and already new notifications are said to be down.

“Most of the claims against solicitors were arising out of conveyancing transactions and there’s very little conveyancing taking place in our country at the moment. So the level of claims is down,” one lawyer asserts.

Another points out that the sheer level of property transactions is probably to blame for the number of claims arising from before the crash, as there was little scrutiny of the advice being given.

“The situation is in truth that there was so much banking activity they tended to appoint lawyers who did what they wanted to get things done quickly,” the partner says.

The good news is that the slowdown in claims has brought insurance premiums down after several years of rises, although some believe that in contrast to this, insurers are becoming stricter about the areas they cover and are also increasing their excess. 

While the level of negligence claims and court cases more generally are dropping off, no one thinks contentious work more generally will reduce from its current levels. Firms all report an increase in the amount of turnover derived from litigation in recent years, with the average proportion of overall revenue earned by contentious teams now sitting at around 25 per cent.

“Litigation has always been a significant part of our business but it has increased in the past five years. A lot of what we’re doing doesn’t arise from the financial crisis. I don’t see any reason why that business wouldn’t be sustained,” concludes Daly.

 

The future of the bar

The Irish Parliament’s Select Committee on Justice, Defence and Equality is currently considering possible amendments to the Legal Services Bill first published by justice minister Alan Shatter in October 2011. The biggest impact is likely to be on the barristers’ profession, with proposals including the introduction of rules allowing barristers to team up in associations, multi-disciplinary practices and direct access all currently on the table.

However, solicitors do not think many of the proposals will make a big impact when it comes to high-value commercial litigation.

“I think there’s been a lot of misunderstanding about what’s been proposed in the bill,” says A&L Goodbody litigation head Liam Kennedy, pointing out that contrary to some assertions – the abolition of the bar is not being suggested.

The concept of barristers being able to form partnerships with solicitors is perhaps the most controversial area on paper, but solicitors do not think many will want to take up the opportunity should this be passed.

“Someone who’s got a thriving practice at the bar will probably want to remain independent. I don’t see all the best barristers would decide en masse that they want to rush off and join A&L Goodbody,” Kennedy says.

“Entrepeneurial barristers could join up with entrepeneurial solicitors,” suggests William Fry litigation head Owen O’Sullivan. “But I’d be surprised if you see it at the top end in the early days. It’s hard to see top barristers tying their wagons to a single firm.”

The idea of a chambers system, similar to that which works well in England and Wales, also receives mixed reviews.

“All of the pooling and sharing of costs by sharing physical facilities happens anyway,” points out Mason Hayes & Curran head of litigation Declan Black.

But Matheson Ormsby Prentice litigation head Sharon Daly says she would welcome a clerking system, as it would make negotiating fees easier and clearer.

Maples and Calder litigation head Dudley Solan agrees. “Certainly from a solicitor’s perspective dealing with a clerk in chambers rather than an individual barrister would be an improvement in terms of administrative efficiency,” he says.

He says he would not see any changes to the bar – such as direct access – being a threat to solicitors. Rather Solan’s hope, which is shared by others, is that the bill could end up making Irish litigation a more efficient process.

 

Major Irish litigation

Irish Bank Resolution Corporation/Quinn Group

The Irish Bank Resolution Corporation (IBRC) was created in 2011 as a result of a merger of the Anglo-Irish Bank and the Irish Nationwide Building Society, both of which were nationalised. There are a number of contentious issues still ongoing, including litigation against businessman Sean Quinn. Quinn and the IBRC are disputing sums of €2.8bn (£2.3bn), connected to a property portfolio owned by the Quinn Group, which has also been restructured. Meanwhile, there continues to be a number of issues connected to both legacy banks, including regulatory investigations.

Firms involved include McCann Fitzgerald and Arthur Cox, with A&L Goodbody instructed by the Quinn Group on its restructuring.

Eircom

Irish telecoms operator Eircom and mobile network Meteor, along with a related company, went into examinership in March 2012. The companies owe creditors more than €4bn and the examinership was Ireland’s largest ever. Eircom exited examinership at the end of May 2012 after a deal was struck between the company and its creditors and approved by the High Court.

McCann Fitzgerald was acting for the examiners, and A&L Goodbody has been acting for lenders.

RTE

In May 2011, state broadcaster RTE showed a documentary in its Prime Time Investigates strand which was subsequently found to have defamed its subject, a priest. The Broadcasting Authority of Ireland subsequently carried out the first-ever statutory investigation into a broadcaster. RTE turned to Matheson Ormsby Prentice for advice.

Madoff/Thema International

William Fry is acting for the Thema International Fund, which was one of those to invest in Bernard Madoff’s Ponzi scheme in the US. Thema is seeking $1.1bn from HSBC, which was the custodian for Thema’s investment in the Madoff funds. The case is one of the largest ever to arise before the Irish courts.