Concern has been growing over the potential conflicts faced by magic circle law firms when they are instructed to act against a major financial institution. Some major banks are now even stipulating that panel firms must give an undertaking not to become involved at any level against them if they are to retain their place on the panel.
While this may be a worry to litigators in the top 20 City firms, who see their highest sources of fees vanishing while their banking and corporate partners continue to enjoy profitable relationships, the situation favours other firms with the opportunity to act against such high-profile defendants. The problem, of course, is like the old chicken-and-egg poser. How can a litigator establish their credentials sufficiently to act against a major institution without first having done so? Without a big name behind them, they are likely to fall victim to this classic Catch-22.
But the advent of group litigation, where the client is not highly experienced in the ways of commercial law, combined with the possibility of using arbitration instead of seeking remedy in the High Court, now means the artificial barrier to entry has been lowered, so some firms can break into this highly specialised field.
Winckworth Sherwood has recently concluded a multi-party action in which the firm represented more than 150 members of an ‘action group’. It required the team to come up with an entirely new approach to case management in order to weld together such a disparate group with diverse goals and expectations.
The dispute arose out of the collapse of a company that provided foreign currency to individuals and businesses in the UK. The company ceased trading as a result of its liquidation, and the estimated shortfall in the client’s funds exceeded £22m. The action group’s redress was targeted towards a well-known City institution on the basis that it had failed to regulate properly the company’s accounts and activities. A number of issues made this case unusual. They included the speed with which such a complicated and client-diverse action was concluded, the limited costs expended and the organisation required to maintain confidentiality within a group of 152 individual claimants, ranging from private individuals who had lost their entire life savings, to multinational corporations which had lost millions on a single transaction.
From the outset, it was clear that a proper foundation was required on which to build the action group. A steering committee was formed within days of the company’s collapse, governed by a constitution to which all members of the action group were bound. This maintained discipline and control in the management of the case. A decision-making body was put into place to avoid regular general meetings and ensure an effective decision-making process. This helped develop strategy and tactics while maintaining absolute confidentiality.
A case of this value, given the number of parties involved, would usually take many years to resolve; however, cooperation from all parties, including major assistance from the facilitators of the alternative dispute resolution (ADR) process, allowed the parties to conclude the claim from start to finish within 18 months.
A range of skills were required to hold the group together, so that it consistently acted as one body and spoke with one voice. One of the most important issues for the firm was the need to maintain discipline and confidentiality within such a large number of individuals and corporates. This was the key to resolving the case. The desire of many within the action group to go public at the time seemed like a dam waiting to burst and, virtually on a weekly basis, Winkworth had to strengthen the walls and remind the group of the reasons why confidentiality was essential.
With actions such as these, where there is a diversity of interests with one common objective, a well-considered, tailor-made ADR process is certainly the way forward. The aim should be to avoid costly, lengthy and bitter court disputes. Indeed, the old Native American tradition of passing the peace pipe around the floor still holds true today in bringing about a sensible resolution.
Jim Rai, partner and head of litigation, Winckworth Sherwood