15 October 2012
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With client-friendly funding arrangements making their mark, the litigation world is going through a busy and transformational period
In this week’s peer panel senior litigators debate the hot topics in litigation - particularly the issue of costs and pricing - in the wake of a series of reforms in the UK. They also discuss what London needs to do to retain its place as a litigation centre.
Q: How will the arrival of damages based agreements (DBAs) – or contingency fees – impact how firms bill clients? To what extent do you offer a range of litigation funding methods?
Stephen Sly, international head of litigation and regulatory, DLA Piper: DBAs will create a fundamental shift in the funding landscape. They will unlock a volume of commercial cases currently deferred, and in many cases suspended altogether, for reasons of liquidity or straight P&L [profit and loss] and budgetary issues in periods after accounting provisions have been made.
I can foresee an increase in business for third-party funders as a result, certainly in the commercial context.
Ian Gray, litigation head, Eversheds: The range of funding has been changing for five or six years now. We have big cases with third-party funders involved. In addition, at any given time we have around 6 per cent of our revenues on conditional fees funded by the firm.
Changes such as this will continue to see funding methods evolve, but there is an aversion to risk around fees from clients as well as lawyers, and many clients like to know exactly where they stand.
This leads to a default back to the hourly rate and estimates, driven more by clients than lawyers. Our experience is that clients set considerable store by well-scoped out costs estimates that their lawyers are prepared to stand by.
Ian Hammond, national practice group head, Simmons & Simmons: The arrival of DBAs will open up additional possible funding models for law firms to discuss with clients. It’s unlikely that we will see many firms acting on large commercial cases on a 100 per cent contingency basis, particularly in the early days.
There are issues around cash flow, risk analysis and profit-sharing that make pure DBAs difficult for high-value work, but there will be almost infinite possibilities in blending contingency fees, insurance products and third-party funding.
Deirdre Walker, group head of litigation and dispute resolution, Norton Rose: Firms need to be innovative and responsive to the client’s needs in determining how they bill, and alive to the challenges and opportunities presented by the proposed changes.
While a significant amount of our work is charged on the basis of hourly rates, increasingly we are being asked to provide alternative fee arrangements, especially where we have a longstanding relationship with the client.
Annabel Thomas, partner, Enyo Law: While there’s a lot of uncertainty about how DBAs will work in practice, what’s certain is that clients are looking for alternative ways to fund litigation, including moving away from the traditional hourly billing model. Fixed fee arrangements are increasingly popular.
The introduction of DBAs should make the market more competitive, with lawyers taking a percentage of damages if successful by way of payment in return for waiving or reducing their fee. Not every case will be suitable for a DBA, but firms should be in a position to advise clients on all their funding options.
Q: From April next year High Court judges will want to know in greater detail what firms are billing clients for cases in court. Firms will be obliged to tell the judge how much is being charged and when. What effect will this have on pricing?
Sly: I don’t see this as having a significant impact on pricing. It is simply driving what was intended in respect of costs transparency when the Woolf reforms were brought in.
We’ve been preparing detailed budgets for our clients for many years so this is an easy transition for us. It’s not a practical way to reduce costs, but it might mean the judiciary is better armed to impose cost-capping orders.
While that power has been in the hands of commercial arbitrators for longer, the exercise of the power has tended to be by exception rather than rule. If the real objective is to reduce costs, a revolutionary change is required.
Gray: This is not a massive change - allocation questionnaires have always asked for cost estimates, often in some detail. Summary assessments of costs and detailed assessments of costs have looked carefully at what rate and amount is being charged for the lawyers for what work.
This development will not have a material impact on pricing, which is driven by what the clients want and the prices they are willing to pay. Greater scrutiny does not always reduce costs.
Hammond: The proposals make costs a far more integral part of the process and keep them visible throughout. The aim is to make litigation more project-managed and that could have an effect in reducing costs by focusing on what work is necessary at the outset rather than at the end.
Ultimately though, it all goes to what the winner can recover from the loser and sophisticated clients are already used to the fact that you don’t get it all back. The court can’t stop clients spending what they wish, so clients will make their own assessments of value.
Walker: Firms are already required to provide details of their costs and estimates through to trial. These changes are therefore unlikely to have a significant impact on pricing or the reduction of costs. This latest initiative will, however, impose further discipline on parties and enable the judge to better monitor costs on an ongoing basis.
That said, since the introduction of the CPR [Civil Procedure Rules], there has been a significant decline in interlocutory applications, with consequently fewer appearances in court. More importantly, clients are increasingly demanding sophisticated estimates and fee reporting.
Thomas: The main aim of the Jackson reforms is to reduce the cost of litigation, and this will focus parties’ minds on costs. That said, it’s going to involve a great deal of work. Early on in a case, parties are going to have to produce estimates of the hours likely to be spent on each stage of proceedings, from pre-action to trial.
The estimates then need to be approved by a judge. This is going to be a considerable burden for firms. Litigators need to prepare so that their costs budgets and estimates are as accurate as possible, which will include training fee-earners in how to forecast costs accurately. It’s inevitable that some parties will try to use the system to put pressure on opponents.
Q: How can clients get better billing efficiency from their legal teams?
Sly: It’s all about driving a case strategically and putting in place the right resources to deliver that strategy. That includes an honest discussion about task allocation between the client and the solicitor, and having the best lawyers who promote a genuine team ethos.
Hourly rates ceased to be a reliable indicator of value years ago. We see a number of firms habitually offering to undertake work that are obviously ‘low-balling’ on the rate but then seem to put armies of fee-earners on a case. This not only contributes to inefficiencies but ultimately produces a total cost that is disproportionately high.
Gray: Clients should engage with legal teams at the outset, creating a project plan and then making sure clients and lawyers work together around activities such as evidence-gathering.
On many occasions corporate clients have better things to do with their time than chase around the business gathering evidence. As a result, they tend to outsource this to experienced litigation lawyers and pay for it.
Hammond: The costs management process will give clients a chance to get involved in scoping out litigation as a project and asking whether there are other ways of going about certain things. We are increasingly involved in discussions with clients about using different types of teams in different locations for different parts of the job.
Costs budgeting may also make clients more aware of the impact their approach has on the final bill - if you budget for a certain number of meetings and calls, clients can see the cost of exceeding that.
Walker: The key to this lies in developing a relationship with the legal team so that there are no surprises regarding billing, but also in maintaining close links in the ongoing litigation to ensure it’s managed effectively and efficiently, and resources are focused on important issues - not necessarily all of them. This requires the client to work closely with the legal team.
Thomas: Make sure your legal team keeps you updated on what the costs are and what future costs are likely to be, and make sure opponents’ budgets and estimates are scrutinised closely.
Q: Can more be done by the judiciary to help court users get better efficiencies from the court experience?
Sly: The answer lies principally in technology. Further investment can be made in electronic and communication systems within the courts.
Document management platforms and video/telepresence conferencing, coupled with robust electronic filing systems mean that even relatively heavyweight applications could be conducted without lawyers leaving their respective offices or chambers.
The failure of the e-filing system in the Rolls Building has been an embarrassment for all. The increasing pace of technological change means that know-how in this field, by both the judiciary and the profession, must improve qualitatively as well as quantitatively.
Gray: Things have improved out of all recognition in the past five years. Accessibility for solicitors and counsel is now high. Methods of communication have improved dramatically and the judiciary has become increasingly businesslike in its dealings with court users as well as in its assessment of cases. More of this is what’s needed.
Hammond: The elephant in the room is the use of technology, but that is not in the gift of the judiciary as it is a matter of budget. An electronic filing, document management and listing system is long overdue. The paper process we use is frankly archaic and time-consuming, and therefore expensive.
The other sensible step is to adopt docketing, which we are now promised will happen.
Having the same judge deciding procedural issues throughout a case has to increase efficiency and is to be welcomed.
Walker: Judges need to be more rigorous in dealing with the flouting of court orders. Often there is no sanction when a court order is breached; parties know this and some use it to gain an advantage. Connected to this, judges need to manage trials effectively to ensure the timetable does not slip - failure to do so can lead to an escalation in costs. Likewise, judges need to be rigorous in ensuring pleadings set out the case in full and in a clear manner so the parties understand the case made against them. Failure to do so leads to trial by ambush.
Thomas: It’s important that the judiciary is realistic about what the potential costs of bringing a case to trial are, and are updated on how firms prepare for trial in terms of e-disclosure, inspection, witness-proofing and so on. The work being done by the Judicial College in training judges on the costs of processes like e-disclosure is a good start.
Having an assigned judge from an earlier stage would help streamline interim applications and case management hearings.
Progress is also being made with the planned introduction of standard case management directions, case management decisions on paper if appropriate and two specific Court of Appeal judges being set aside to consider any issues on interpretation or application of the CPR. A pro-active approach by judges towards case management should only be encouraged.
Q: To what extent is the bar finding new methods of billing? Should counsel be doing more to accommodate lay clients?
Sly: In commercial cases I would say that the bar has been relatively slow to embrace alternative funding arrangements, quite simply because the best of the commercial bar have not needed to. Whilst brief fees and refreshers have come under pressure in certain types of work the converse is true for much of the premium disputes work in the City and consequently there has been little pro-activity in terms of alternative billing. That may change with the introduction of DBAs/contingency fees where there may be an appetite to explore this more energetically.
There are no obvious steps for counsel to accommodate lay clients beyond the combination of expanding the direct access scheme and the fact that most in the commercial bar have been operating empathetically with lay clients and instructing solicitors for many years.
Gray: The bar has always been flexible around how it bills and continues to be so. We find the counsel we use accommodating and flexible to fit the particular needs of the case and the clients. They can maintain that flexibility as they are sole practitioners in charge of what they do.
Equally, though, there is a limited amount of tolerance to the risks they can take personally, as they do not have the same structures as law firms.
Hammond: It’s fair to say that the bar has generally been slower to adopt new ways of charging, but it is much easier for a law firm to take the risks inherent in any sort of conditional charging arrangement than it is for barristers who are self-employed and need to maintain cash flow.
On some of our CFA cases barristers have shown a fair degree of flexibility in varying their normal hourly-rate arrangements.
Walker: The difficulty for counsel is they don’t benefit from the efficiencies of scale and it’s therefore more difficult for them to work on the basis of a CFA, particularly if it’s a large case taking up most of their time.
Thomas: While there has been some interest in CFAs we have yet to see any major developments or changes in the bar’s approach. That said, the commercial bar is clearly alive to the potential risks and rewards of contingency arrangements, but barristers’ scope for taking on cases on a contingency basis is obviously going to be much more limited than that of solicitors’ firms, alternative business structures and third-party funders.
Q: What’s the future for London as a competitive litigation centre?
Sly: English law - along with London as a centre for litigation - has been one of our greatest exports. The quality, independence and integrity of the legal profession and, most importantly, the judiciary means that London has a bright future as the pre-eminent centre for litigating international disputes, whereas the competition in terms of international arbitral seats is becoming more intense.
The crises unfolding in the financial services sector, both in a regulatory and a reputational context, mean first that there will be a surge in high-value and complex claims in London and second, that it has never been more important that the judiciary is seen to be independent as a way of helping restore London’s damaged reputation.
Nevertheless, the combination of London’s status as the leading global financial centre, the increasing political risks seen in parts of the world and the UK’s stability mean London has the potential to pull further ahead of the pack of ‘Premiership’ cities, rather than risk relegation to the ‘Championship’.
Gray: The future’s bright. London’s standing on the world stage has never been higher, in my opinion.
The prevalence of English law in transactions and deals around the world means that disputes gravitate back towards London. Even where English law is not the chosen law, often London is selected as a dispute resolution centre. Good, clear judgments, high-quality legal services and well-run cases are what will keep London at the top. Time and again, we are reminded that ultimately, for the big-time commercial disputes, these are the key factors.
Hammond: London still has a strong position as a global centre for litigation. The quality, neutrality and pragmatic approach of the judiciary is the centrepiece of that, but that is not enough.
Singapore has shown what can be done when a state sets out to establish itself as a centre of dispute resolution and even India is starting to wake up to the fact that its justice system gives it a competitive disadvantage. The biggest weakness for London is the lack of progress on technology.
Walker: London continues to be one of, if not the, major litigation centre, primarily because of the quality and independence of its judiciary.
London needs to attract the best lawyers to the bench and to do this the remuneration of judges needs to be attractive. The present treatment of the judiciary in this regard will lead to a lowering of standards that will likely have a long-term and detrimental effect. This will adversely affect London’s standing as the major litigation centre.
Other jurisdictions are investing significant amounts of money in both the judiciary and the efficient and timely conduct of matters - Dubai and Qatar being two examples. London needs to be able to continue to compete internationally both with the quality of its judiciary and with the conduct of cases - delays in listing matters for trial in some courts are giving rise for concern.
Thomas: Other jurisdictions will be watching London closely to see how the Jackson reforms pan out, but I think the reforms will make London an even more attractive litigation forum. DBAs represent a real opportunity for better access to justice and a wider range of litigation funding options for clients.