UK litigators cash in on rise in international work
12 September 2011
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19 December 2013
Official court statistics for England and Wales showed a drop in the number of claims filed in the High Court last year, and a drop in the number of days sat by High Court judges.
On the face of it these numbers might suggest that 2010-11 would have been a quiet year for the City’s litigators. But the reality is that revenue at the top 15 litigation firms in the UK was up across the board, in some cases significantly.
Total revenue for the top 15 litigation firms hit £2.1bn, breaking through the £2bn barrier for the first time through a mixture of organic growth and the mergers of firms such Norton Rose.
The work driving that growth, however, is more diverse than ever. Although the UK courts are still seeing a number of big cases, the days of hearings lasting hundreds of days are well over. Litigators’ day-to-day jobs now involve a much wider variety of tasks in a greater number of countries.
“It’s about risk management,” says Marc Harvey, global head of Linklaters’ litigation team. “That, of course, comes before you sign the contract, it comes in the life of the contract, as you try to deal with bumps in the road on the way, and it also comes as you try to get out and people really get that. Litigators these days aren’t seen as the last resort. We’re introduced at a much earlier stage in proceedings.”
Rules and regulation
Harvey, like his counterparts in other major litigation firms, says the biggest development in the past couple of years has been the increase in advisory work for clients on regulatory investigations. Litigators are routinely brought in as a preventative measure to represent companies or executives when the regulators become interested in what a business may have been doing.
“Where there are unexpected events, all the relevant regulators have a responsibility to be doing what they can to investigate,” notes Freshfields Bruckhaus Deringer litigation chief Christopher Pugh.
This type of work has picked up considerably since the financial crisis and looks set to continue. Litigators are also being instructed by companies carrying out internal investigations; for example, Linklaters’ John Turnbull is acting for News International’s management and standards committee as it investigates the recent phone-hacking scandal.
The impact of the Bribery Act has also been felt worldwide, with reports of work for clients in many countries other than the UK. Likewise, the US Foreign Corrupt Practices Act (FCPA) has provided a significant amount of work for UK firms.
As a result of this sort of legislation, and the growth of cross-border business, litigation is now clearly a very international piece of a law firm’s business. Eversheds’ litigation head Ian Gray estimates that the firm advised on 200 cross-border disputes in the last financial year involving at least two of the firm’s offices, while at Simmons & Simmons, department chief Ian Hammond believes 50 per cent of its 20 highest-value cases had an international element.
Allen & Overy (A&O) global head of litigation Tim House says that out of the 72 cases the firm handled in the English courts last year, three-quarters involved a non-UK party. In its 200 biggest matters by revenue generated, 60 per cent involved two or more A&O offices.
DLA Piper head of litigation Stephen Sly believes the growth of the firm’s international network has delivered “in spades” for litigation over the past year, helping the department to beat its budget by 12 per cent.
The globalisation trend means that firms with strong international footprints have a clear advantage in picking up work, while UK firms continue to be able to sell the reputation of the English courts. “The international play and this globalisation of the market is really good for litigators because so much is written under English law, which tugs them back to London,” Gray points out.
Cases in point
In addition the past year saw a number of key judgments in the High Court, which helped clarify points of complex financial services law relied on by institutions worldwide. Examples are Mrs Justice Gloster’s 1 April 2011 judgment in Pioneer Freight Futures v TMT Asia and Mr Justice Briggs’ 21 December 2010 judgment in Lomas & Ors v JFB Firth Rixson Inc & Ors. Both cases dealt with the International Swaps and Derivatives Association (ISDA) master agreement, which governs derivatives contracts worldwide. Such cases, says Linklaters’ Harvey, have made the law clearer for global financial institutions.
The other thing that is driving the growth of international work is the rise in international arbitration. Much of this is taking place in Asia and the Middle East, where the concept has now taken off as an accepted form of dispute resolution. Litigators report that increasingly sophisticated clients are more aware of the rules surrounding arbitration and its uses, especially in financial and energy disputes.
International treaty arbitration is also cited as a source of work, with Paris continuing to be a centre for this. It was for this reason that A&O moved to hire a three-partner team, including arbitrator Michael Young and litigators Denis Chemla and Erwan Poisson, from Herbert Smith towards the end of the last financial year. The group is yet to actually start work at the magic circle firm, but House says it will give A&O a much better foothold into North Africa and other emerging markets.
Herbert Smith head of litigation Sonya Leydecker is sanguine about the loss. She admits that the firm will need to rebuild its Paris disputes team, although believes the arbitration practice can run well from London. She adds that 2010-11 was “one of the best years we’ve had” for litigation, particularly in London and Asia, with revenues rising 11 per cent.
But Herbert Smith is increasingly unusual in the market by not having a US litigation presence. Leydecker says establishing such a presence would need to be balanced by the loss of referral work.
However, heads of other dispute resolution practices believe it is now essential to have a strong contentious team in the US, and many have spent the year building that up.
“The new big thing is, if you haven’t got the US piece then there’s somewhere where you’re not playing at all,” says House. “The big connection is between handling US regulation and the extra-territorial aspects.”
Pugh agrees. “As a firm, many of our clients are regulated in the US, involved in US litigation, or they’re US companies with international reach that value having a US element in the global team that’s advising them,” he points out. “If you’re going to be truly international you have to have a credible, strong US litigation practice that can handle investigations and litigation in the US.”
“I do think that if you wish to be a major player in the world acting for global corporations, having a US capability is very significant,” adds Hogan Lovells litigation head Patrick Sherrington. He says that while legacy firm Lovells had always considered it had a reasonable US presence, the addition of Hogan & Hartson has substantially enhanced the firm’s profile with international clients.
Clifford Chance partner Simon Davis also believes having a US presence is “essential”, but thinks UK firms will have more success focusing on the regulatory angle and bulking up in Washington DC.
Davis predicts a battle over the next few years for dominance of the global litigation market, adding: “The US firms are to be watched in this area.” He also suggests that UK firms are unlikely to be able to compete on an equal footing to US firms in New York, although, equally, US firms are unlikely to try to beat UK firms on home turf in London.
Barlow Lyde & Gilbert (BLG) senior partner Simon Konsta is also on the US bandwagon. The firm’s imminent merger with Clyde & Co, which has offices in New York, New Jersey and San Francisco, as well as its recently acquired Canadian presence through a tie-up with Nicholl Paskell-Mede, is crucial, he says.
BLG litigation head Sarah Clover adds that the US presence is particularly important for the insurance market, which has also become more international in recent years.
“What they want is a firm that can give them advice everywhere they’re writing business,” she says of BLG and Clydes’ clients.
Ben Knowles, a litigation partner at Clydes, agrees. “We have a lot of London insurance clients expanding what they’re doing in the States and Canada, and we’d expect a good increase of work in both directions,” he predicts. “You can do a lot with a US presence. I’m not sure it’s critical, but it gives you a lot of opportunity that you wouldn’t have if you didn’t have a US presence.”
Clydes is all set to be the big winner of the current financial year. The merger will combine Clydes’ £153m litigation practice with BLG’s £82m team, making the firm the second-biggest litigator in the City behind Freshfields.
“One of the things that’s going to be a great selling point for our litigation practice is the size and breadth of it. The very simple message that we’re going to be able to get across to the market is that we’re there or thereabouts in all areas so you must come to us,” says Knowles. “We’ll be looking at the high-end work but we’ll also be looking at some of the more volume work, particularly in the insurance sector, which clients need resolving quickly and efficiently.”
Volume work has always driven Irwin Mitchell’s litigation practice and continues to be an important element in both the personal injury team and the much smaller commercial litigation department.
The firm’s corporate and commercial litigation head Mark Higgins says it is focusing on building up revenue from this side of the business. Corporate and commercial litigation now accounts for around £20m of turnover (out of a total contentious turnover of £146m) and includes a general commercial litigation group as well as a higher-volume, lower-value debt recovery department.
Like the international firms, Higgins identifies regulatory investigations as a significant growth area. He also believes Irwin Mitchell has the ability to compete with international firms in this area due to being able to offer the service for less.
Cost remains an issue for litigators despite the significant improvements in the speed and affordability of cases in the High Court in recent years.
“The pressure from clients on rates over the past two or three years has been pretty relentless, particularly in the context of panel arrangements,” says Simmons’ Hammond. “That’s probably putting something of a lid on big increases in turnover, particularly for those practices that are predominantly getting repeat work.”
DLA Piper’s Sly agrees, but says that the gradual rollout of the cost management scheme piloted in the Birmingham Technology & Construction Court to other courts should help when it comes to cases before judges. He also points to the use of third-party funding as a way of managing cost.
“The most interesting development in the past year has been how third-party funding has come into the centre of the discussion rather than on the periphery,” he says. “The biggest change we’ve seen is that more corporate counsel are likely to want to hedge the risk for less reward.”
Weighing up the risk is much more common, agrees Leydecker. “Parties are much more sophisticated and cleverer about options available to them in terms of saving costs. I think people regard litigation much more as a cost benefit risk analysis,” she says.
Good times coming
Despite the pressure on cost, litigators are confident that their share of firms’ revenue will keep going up for the next few years. Opinions vary as to exactly when the peak of the “purple patch” will be reached, but all agree it is yet to come.
Eversheds’ Gray says that after the last big recession at the start of the 1990s, the peak for litigators came between 1992 and 1996. “I think what we’re going to see between 2012 and 2014 is pretty tasty,” he adds.
Total revenue for the top 15 litigation firms rose by 13.5 per cent between 2009-10 and 2010-11. If Gray and his peers in other firms are right, this figure is likely to keep rising for the next couple of years. The changing landscape, with the increased focus on regulation and compliance, could also mean that in contrast to previous boom-bust cycles, litigation retains the profile it is currently picking up.
“There’s not been a better time to be a litigator in a generation,” concludes DLA Piper’s Sly.
Please click image below to view the Top 15 Litigation firms in the UK