The in-house lawyer is in a stronger position than before the recession, with external advisers now having more hoops to jump through to win the best litigation mandates
The litigation landscape is changing. As The Lawyer reports today, litigation billings have increased over the past year – but not dramatically enough to take the place of corporate work. This is not necessarily because clients are reluctant to litigate, but because in-house lawyers are simply not paying the same level of fees. Indeed, in the scramble for litigation business law firms are being forced to reassess what they can do to differentiate themselves from the competition.
The winning ticket
One big-ticket case can underpin the financials of a whole practice, but winning the instruction is getting tougher. In-house counsel have found themselves in the powerful position of being able to dictate terms and they are demanding that external advisers offer portfolios of value-added services.
Combined, the country’s leading litigation practices pulled in an overall revenue figure of £1.85bn in the past financial year compared with £1.78bn a year earlier. The figures reported by the eclectic mix of firms (see box) show steady revenue increases, with the exception of Clifford Chance, which saw its revenue slide by 5 per cent, from £189m to £179.5m – a drop that is also reflected in the firm’s overall turnover.
In a bid to extend market share and contribute more to their profit pools, firms are looking to increase workloads for individual clients. By offering value-added services and being more flexible on price, practices are kept busy while building the foundations of future relationships. It is a long-term game played for a long-term gain.
When the recession hit there was much talk about the viability of hourly billing and much speculation on whether the hourly rate was dead. In the risky world of dispute resolution, however, charging by the hour is attractive to in-house lawyers, who can measure spend on a regular basis.
In the know
In the uncertain litigation environment, what in-house lawyers want to give to boardrooms is certainty; in-house counsel want to know upfront what they are paying for.
“Litigation is always a problem; it can and is almost always a source of frustration,” says Benjamin Scott, the director of legal at FTSE250 company Homeserve. “They [lawyers] don’t seem capable of giving accurate estimates in a way that other professions are able to.”
Reynolds Porter Chamberlain (RPC) managing partner Jonathan Watmough recognises that clients have need of financial clarity. “It’s usually perfectly possible to predict costs by stages of the litigation,” he says. “Within the insurance industry the need for accurate reserving makes this a fundamental skill.”
The price is right
With litigation revenue accounting for 70 per cent of its practice, RPC recorded a litigation turnover of £42m. RPC, like Addleshaw Goddard and Norton Rose, sits outside The Lawyer top 15 litigation practices. Yet the trio of firms are offering flexible pricing models and additional services to attract new clients, and this is putting added pressure on their peers.
Addleshaws revealed its litigation revenue for the first time this year, posting £55.6m, a third of overall turnover, while Norton Rose posted a 23.6 per cent rise in revenue, from £34.8m to £43m. All three firms have track records for offering alternative billing structures. Addleshaws’ former head of litigation Simon Twigden, for instance, has been a keen supporter of third-party funding and legal expenses insurance.
According to Scott at Homeserve, RPC is not alone in looking at alternative billing methods.
“Some larger firms, such as DLA Piper and Pinsents, are getting better,” he says. “Some do try to come up with models about where legal expenses are incurred and can identify specific areas where you can do that. You can then see if you can handle any of those areas in-house.”
Lawyers are being forced into a delicate position: give too much away and there is a risk of losing the instruction; alternatively, be too protectionist and there is a risk of losing the client altogether. In addition, there are those cases where price-fixing or estimating will simply not work.
“In some cases it’s possible to give an estimate, and some firms are willing to do that,” says BAE Systems head of dispute resolution Joanna Talbot. “In other situations it’s almost impossible to do and we wouldn’t expect it.”
In-house departments are getting more sophisticated and, according to Lycatel general counsel Mohammed Malique, it is a trend that means less litigation is being sent to external advisers.
“There’s now far greater confidence among in-house lawyers, who often think they’re better placed than anyone to handle the work because they have a much better insight into the business,” he says. “In-house lawyers now tend to take the lead role on a piece of litigation. The first question you now ask is, ’can we handle this in-house?’”
Having the ability to maintain caseloads in-house is just one of a number of factors having a profound effect on the lawyer-client relationship. Not only does it reinforce the general counsel’s negotiating position when it come to costs, it also influences what work is sent out and what instructing lawyers can demand from their advisers.
“What we’ll see in the future is that external firms will always be instructed, but in more specialised areas such as cross-border litigation, mid-size companies will try and retain a lot of work in-house,” comments Malique.
But what of institutions? A place on the panel of a major bank is not a guarantee of a strong income stream – at least, not without considerable investment on the part of the firm.
Lloyds Banking Group retail dispute resolution head Aamir Khan echoes many other in-housers when he says he wants his external lawyers to be proactive. Typically his unit will have five secondees in the legal team at any given time, but Khan also wants feedback on wider industry trends and regulatory issues – often without the clock running.
“It’s that kind of value-added, proactive approach that we’re after,” he says.
Khan is one lawyer who has benefitted from the power shift in-house. He recognises the change in how firms are working with their clients. “I think there’s been a reassessment of the client-solicitor relationship,” he says, “and that’s not necessarily a bad thing.
“I’m not saying that in-house lawyers were taken for granted in the past, but there’s now a lot more competition, particularly from foreign law firms setting up in the UK.
he current environment requires firms to market themselves in a different way and the value-added element is critical.”
Jonathan Peddie, Barclays Group director of litigation and special investigations, has changed the bank’s secondee profile from newly qualified and trainee solicitors to a system targeting partners and senior associates.
In the past year several partners have arrived on secondment, including Simmons & Simmons senior litigation partner Colin Passmore and Addleshaws financial litigation partner Michael Isaacs.
Simmons is another firm that is threatening its peers with significant expansion. At the 2008-09 year-end the firm posted a turnover of £291.3m, £79m of which came from the contentious practice. A year later overall turnover fell by 14 per cent to £250m, but the firm’s litigation revenue rose to £84m, or 33.6 per cent of total turnover.
“Partners are keen because they can get out of touch and this allows them an insight into how we make decisions and to get a sense of focus about the business,” says Peddie of the more senior-level secondments.
Passmore was instructed to act for Barclays in the bank charges litigation, when six high street banks and a building society successfully batted off an attempt by the OFT to investigate overdraft fees. He was part of an elite legal team that included partners from Allen & Overy, Freshfields Bruckhaus Deringer and Slaughter and May.
“The way I look at it,” says Passmore, “is that so many clients have enormous legal departments. Like at Barclays, they are very sophisticated and they can do much of the work themselves. It’s vital that you know them and their business as well as you can.
“We have a frequent programme of secondments – it’s the best way to stay in touch.”
This, however, is not a universal opinion. One senior dispute resolution head says his firm is under increasing pressure to send out partners. “It’s not always possible and it’s not always fair,” the partner says. “Why should we have to supplement teams that have been reduced because of the recession? We’ll only do it if it benefits the firm, the partner and the client.”
Demand for face-to-face partner time is also on the rise.
“We’re increasingly finding that clients are keen to have senior associates and partners working on their cases,” explains Slaughters litigation head Richard Clark. “We think it fits well with what the general counsel wants.”
Return of the litigators
During the economic boom years litigators were often perceived as the poor relations of their corporate counterparts. Over the past two years, however, dispute resolution teams have undergone a renaissance to become a central part of their firms.
The current market provides litigators with an opportunity to beef up their client portfolios, but only if they come armed with an array of innovative schemes that differentiate them from the competition.
For in-house lawyers there has never been a better time to get more from their external advisers.
Freshfields Bruckhaus Deringer extended its lead over Clifford Chance at the 2009-10 year-end, posting an 8.1 per cent rise in turnover, from £232m to £250.8m. Clifford Chance saw its revenue fall by 5 per cent, aligned with a decline in overall turnover, from £189m to £179.5m.
Allen & Overy emerged as one of the biggest winners in dispute resolution circles at the 2009-10 year-end, posting a 24.2 per cent rise in revenue, from £110m to £136.6m a year later. The firm moved up into the top five, leapfrogging three firms that have also experienced solid years: Clyde & Co (up 9.6 per cent to £130.5m), Hogan Lovells (up 6.6 per cent to £130m) and Linklaters (flat at £129.8m).
Of the EC3 firms, Kennedys posted the largest jump in revenue, up by 32.2 per cent to £76.7m from £58m a year earlier. That said, with 125 partners Kennedys has the largest litigation partnership in the top 15, with a revenue per litigation partner (RPLP) of £610,000.
Compare that with Barlow Lyde & Gilbert, which suffered the largest slide in turnover, down by 8 per cent, from £70m to £64.4m. The firm’s RPLP, however, at £1.07m, outstripped Holman Fenwick & Willan’s, which with 78 partners posted an RPLP of £1.04m.