Litigators have been waiting in the wings for a while for their boom time. The former Lord Chancellor Charlie Falconer appeared to have fired the starting gun for the upswing when he announced last September that the collapse of Lehman Brothers would trigger an explosion of mega-litigation. In hindsight Falconer’s crystal ball gazing now looks a little off the mark.
A year on and those at the coal face say the sector is yet to reach full capacity as clients shy away from hefty legal bills.
“There’s been a steady upturn,” reflects Clifford Chance London litigation head Nick Munday. “All lawyers are very busy and working at full capacity. There’s a lot of work involving partners, but many clients are trying to evaluate and consider whether to launch proceedings.”
In the race to become the leading litigation practice, Freshfields Bruckhaus Deringer was the clear winner at the 2008-09 year end. With litigation now accounting for 18 per cent of overall turnover the practice was worth £232.2m. That’s 18 per cent ahead of Clifford Chance, which is now second with litigation turnover of £189m or 15 per cent of firmwide revenue.
Freshfields also outshines its magic circle rivals with the largest revenue per partner (RPP) at £3.87m, outpacing its closest rival Linklaters, which recorded a RPP of £3.17m. Allen & Overy’s (A&O) litigators recorded the lowest RPP of the magic circle at £2.68m, marginally ahead of the 2007-08 figure, which stood at £2.65m.
Clifford Chance suffered the loss of 18 partners in the last financial year, including the exit of longstanding global litigation head Mark Kirsch, who joined Gibson Dunn & Crutcher in New York during the firm’s partnership restructure. Nevertheless, while overall litigation dipped on the 2007-08 year-end by 5 per cent, RPP climbed by 23 per cent to £2.52m.
According to Munday the practice, with three and half associates to every partner, is now “about the right size”.
Clifford Chance is taking a long-term shot at being a fully utilised litigation practice when the downturn rescinds by slashing the top line. If the firm succeeds it should emerge from the recession with a stronger, leaner litigation practice that could again rise to the top of the tree.
“In London partners are over 100 per cent utilised,” Munday says. “We’re working beyond target hours because that is what the market is demanding. Partners are flat out because we’ve reduced the number of lawyers. I think we’re at the right size now; if the increase continues and more cases go to trial, I’ll hire.”
Linklaters London litigation head Michael Bennett says the 2008-09 year, “was the busiest for some time and that trend is continuing”.
Despite this, Bennett is cautious about future growth and bringing in lateral hires.
“We don’t need to be bigger just because it’s busier,” he says.
“The problem is that litigation practices are busy at the moment, but it’s not clear how long that will last,” argues another litigator. “You don’t want to go around hiring expensive lawyers who you may have to lay off when it quietens down again. That would be a pointless exercise. It means that litigators are going to busy for some time to come.”
Yet both Freshfields and A&O are keen to grow. Freshfields global litigation head Chris Pugh says any dynamic commercial organisation needs to be able to grow, highlighting the firm’s busiest streams as being European cartel litigation, construction in London and the investigations practice.
A&O litigation head Tim House aims to ramp up the practice so that it accounts for 15 per cent of overall turnover by 2012. He plans to fulfil this aim by establishing A&O as a market leader in each of the 22 jurisdictions where it has a presence.
The firm has got off to a promising start. In the last year London opened 25 per cent more files than the previous year, an instant increase of £12m in fees. Internationally, the firm has seen the number of matters involving four or more partners based internationally grow by 23 per cent.
Across A&O’s practice portfolio, litigation has in the past lacked investment. During the last financial year, however, the firm added four litigation partners, reflecting a change of direction. Yet it still lags behind London’s leading litigation practices, Herbert Smith and Lovells. The litigation practices at this pair bring in £162m and £122m respectively, outperforming their magic circle rival.
Nevertheless, Herbert Smith is home to 78 partners globally, each generating a revenue of £2.08m while Lovells has 118 partners globally bringing in revenues of £1.03m each. Contrast that latter figure in particular with A&O’s 41 partners producing revenues of £2.68m each.
Herbert Smith litigation head Sonya Leydecker is confident that litigation spinning out of the recession will keep the global practices busy for some time to come.
“I think there’s going to be loads of litigation,” she insists. “It’s all pre-action protocol stuff at the moment. During the last recession the big problems started to emerge two or three years after the recession hit. We’re always busy. In the last year we’ve had the Buncefield litigation, EDS and Talco, there has never been a lull, but now it’s really taking off.”
Lovells global head of litigation Patrick Sherrington agrees, but adds that the litigation practice is not fairly reflected by the firm’s headline figures.
“It is about 23 per cent of the overall firm as defined by Lovells but in reality this is about 30 per cent,” he says. “That would include the litigation people who sit in tax, real estate, intellectual property and employment.”
If litigation did account for 33 per cent of overall turnover , Lovells would overtake Herbert Smith with fee income of £175.2m, 7 per cent ahead of its rival.
There is much change at the top of the litigation hierarchy, with the second tier of firms looking to close the gap in the next financial year. While Clifford Chance and Linklaters appear to be content with their workloads, A&O is pushing ahead into the international arena and Freshfields looks to capitalise on its lead.
The magic circle may well rule the roost for the time being, but Lovells and Herbert Smith have both continued to move upward. If 2008-09 has brought about a shake up in the litigation rankings, 2009-10 could see all change again.