Longer arm of the Law

The prospect of outsourcing standard legal work to South Africa or India is getting closer as fixed fees force law firms to cut costs. Jon Robins reports

As union activists last month paraded a 10-foot pink inflatable elephant around the country – imaginatively named ‘Pinkie’ – in a colourful protest at BT setting up two call centres on the Indian subcontinent, Kerry Underwood, personal injury (PI) specialist and senior partner at St Albans firm Underwoods, was putting the final touches to a pilot scheme to subcontract his low-value PI work to lawyers in South Africa.

Almost every week another blue-chip UK company announces that it is outsourcing jobs to Bangalore and elsewhere, from typing and telephony to underwriting services. And so, the argument goes, why not legal services? Forget the Government’s much vaunted vision of ‘Tesco Law’. This is ‘Call Centre Law’.

“What’s the difference between me going downstairs and handing a claim to one of my assistant solicitors and me faxing it to Cape Town and getting a response back in the morning, as long as my clients have access to me?” asks Underwood.

It has never been done before. But the lawyer has had the go-ahead from the Law Society of South Africa, as well as an overwhelmingly enthusiastic response from some 45 firms in Cape Town. Underwood expects to begin the pilot through his company Law Abroad (set up earlier this year to promote CPD training courses overseas) when the new fixed costs regime comes in on 6 October – and if it works for PI, then why not probate, conveyancing and any other standardised legal work?

In a few weeks time, PI lawyers will be subjected to a new fixed-fees scheme that will further squeeze the already tight profit margins on a staple source of income – routine road traffic accident claims. Underwood believes that this will prompt firms to take a radically different approach to low-value PI work. “If you have fixed costs here and you know what the bottom line is going to be, and you ‘sub’ it out for another fixed cost, you can make a guaranteed profit,” argues Underwood. “You haven’t got the Health and Safety Executive trying to close you down every five minutes, you haven’t got 12 per cent national insurance contributions to pay, or the costs of running an office. But you’re guaranteed the profits without the risks of running a business.” He reckons that the legal costs in South Africa are about a third of those in the UK. But he also insists that the workforce available for this kind of work is of a far higher quality and more committed than here.

The measure might seem in keeping with the deregulatory spirit of the review of legal services carried out by David Clementi, a former deputy governor of the Bank of England and chairman of Prudential, but for many lawyers, subbing out work to foreign lawyers seems one step too far.

“It’s misconceived,” says Jeff Zindani, managing director of online claimant PI consultancy Forum Law and a former partner at Russell Jones & Walker. “While there’s the appeal of low overheads by using South African firms, it opens up a whole Pandora’s box as far as other issues are concerned, such as the training of fee-earners to fully appreciate how English liability law works, as well as an understanding of the value of cases appropriate for fast-track.” Zindani sees the idea as another aspect of what he calls the “commodification of PI work”, which has led “many people in the profession to think it’s just a product that you buy and sell”.

“It’s not as if we’re talking about the Toyota motor company moving one plant from Derby to South Africa because the labour and raw materials are cheaper,” he says. “Instead, it’s part and parcel of work done in the UK.”

Martin Cockx, partner at leading PI firm Amelans, which has been on the front line of the claimant costs war with the insurance industry, believes that such a move could be playing into the hands of insurers who are already in a combative mood. “We tend to be under the microscope in terms of costs,” he says. “I can just imagine saying I want £1,600 costs when the true cost is three ha’pence because it’s been done by some guy in Cape Town for next to nothing.” Defendant insurers would start pushing for a revised fixed costs regime to take into account the cheaper costs. “If I was thinking of doing that, I wouldn’t be shouting it from the rooftops,” he adds.

Another PI lawyer is less charitable about the lawyer’s motives. “I think Kerry’s using it as a gimmick, as if to say, ‘Look what’s happening to PI, it’s so bad that I’m having to send it off to a South African lawyer to make it work’,” he says. “It just isn’t that bad. You can still make a lot of money out of the work.”

As it happens, Underwood is working on a book on fixed costs. However, he is well known for his groundbreaking approach to conditional fee arrangements (even though he has recently given up on them) and for putting his money where his mouth is. Underwoods was the first firm to embrace TV advertising, with a £350,000 prime-time campaign.

So how would the scheme work? Under the new fixed costs regime, which covers all road traffic accident costs-only cases, claimant solicitors would receive fixed recoverable costs of £800, plus 20 per cent of the damages, agreed up to £5,000, and 15 per cent of the damages, agreed between £5,000 and £10,000. For example, agreed damages of £7,523 would result in recoverable costs of £2,178.45 (that is, £800 plus 20 per cent of £5,000 and 15 per cent of £2,523).

The scheme would initially be piloted on his own firm’s cases, but if all goes well it will be rolled out to other UK firms and administered by Law Abroad. The South African firms would do the work in rands for £300 per case and pay Law Abroad £30. There is talk of charging UK member firms 10 per cent of their recovered costs. If a case becomes litigious, the UK firm would take it back.

The preferred model at the moment is that Law Abroad would not act as “a filter” and so would not be making any risk assessment of a case. “We don’t want to become anything like the claims management companies that interfere with the way English solicitors work,” Underwood stresses. “There is no interference with the choice of medical experts or counsel and we wouldn’t get a cut from anyone except the solicitors on each side.” Law Abroad has already commissioned the company that handles the IT system for the Ministry of Defence’s medical records to ensure that client confidentiality will be guaranteed.

The economic argument is fairly plain to see. But how does Underwood feel about packaging off his clients to lawyers on the other side of the world. “I agree that’s a valid objection, and I don’t like doing work where I can’t see the client,” he replies. “But the reality is that the vast majority of PI clients never see their solicitors as a result of the arrival of claims management companies and legal expenses insurers. In that sense, the traditional service isn’t being provided anymore, and once that’s broken down the work could be done anywhere in the world.”

So what do foreign lawyers know about UK law? “Many of the people doing routine PI work here are fresh out of school anyway – they aren’t even lawyers,” Underwood says. “I’ve been saying for years that if the PI claimant market insists on employing unqualified people, ultimately it will become deregulated as the justification for lawyers’ fees goes.” He reckons that clients will get a far better deal from high-quality lawyers in Cape Town than from an unqualified school leaver in the UK.

As for long-term aspirations for the new venture, Underwood, never one to risk understatement, answers: “For it to be a huge multimillion-pound business that redefines the way that legal services are delivered in this country.”

Perhaps somewhat surprisingly, Chancery Lane has no say in the farming out of legal work to lawyers abroad. “Provided the UK lawyers are supervising it properly, they’re on the record in relation to any court proceedings and they’re simply subcontracting this work out to the South African lawyers, we can’t see any particular conflict with the Law Society’s rules,” explains Bronwen Still, the Law Society’s head of policy and professional ethics.

What about the fact that a client might not appreciate that their solicitor is in a legal factory in Calcutta, and not in Barnsley? “The fact that they’re overseas rather than in this country I don’t think is an issue,” she continues. “English solicitors can fee-share with foreign lawyers, and so if they wanted to pay them on that basis that wouldn’t be a problem.”

Nor does it matter that the client is unaware of the arrangement provided the UK firm has reliably sourced the people to do the work, says Still, although the Law Society has yet to hear of any schemes that are subcontracting legal work abroad.

While the Law Abroad project appears to be unique, there are a number of ‘outsourcing’ arrangements. Most notably, there is Lovells’ ‘Mexican wave’ deal, which won the Client Care Programme of the Year at this year’s The Lawyer Awards. The innovative arrangement secured the City firm the Prudential Property Investment Management work with a fund value of almost £12bn. Under the scheme, Lovells subcontracts less complex matters to regional firms Cripps Harries Hall and Knight & Son so the work can be completed at a lesser cost to the client.

In the legal aid sector, where national coverage is creaking to the point of breaking and advice deserts are expanding by the week, ‘call centre law’ has its most obvious appeal – to the Government at any rate. After all, if we have NHS Direct, how long will it be before we have non-qualified advisers informing defendants of their rights from a call factory in Skelmersdale?

Already the Legal Services Commission (LSC) has awarded a contract to the commercial call centre Capita Assistance to provide such services. The Law Society has granted a waiver to Capita to enable employed solicitors to give advice under the Legal Help scheme, and housing advice is already provided by telephone in parts of the country where there are no firms on the ground.

On the criminal defence side, it does not take a conspiracy theorist to see such an approach as an appealing proposition for the Government to run duty solicitor advice schemes in this way in light of the current wrangles over the new general criminal contract. At present there is a bitter stand-off between the solicitors and the Government over the new contract, which proposes to impose fixed fees for telephone advice and restrict police station advice.

Rodney Warren, director of the Criminal Law Solicitors Association and chairman of the Law Society’s access to justice committee, acknowledges that it would be “possible in theory” to have a call centre for duty solicitor work. “In fact, there’s a hint of this in the LSC’s corporate plan,” he adds. “They might want to pilot the idea of having a call centre, so all cases go through to a centre where a solicitor would give initial advice over the telephone and then, only if necessary, would they deploy a duty solicitor to go to the police station.”

Unsurprisingly, the prospect is an anathema to defence lawyers. As Warren points out, the only way for a defendant to have adequate and proper advice on their legal rights would be face-to-face, and a phone call holds no guarantee of any privacy. “But there’s also a legal problem here, and I’ve already pointed this out to the LSC,” he continues. “Insofar as there’s a specific provision within the Access to Justice Act, allowing for the creation of a Public Defender Service, that preserves the right of a defendant to choose his lawyer.”

Nevertheless, Warren predicts that “changes in the delivery of criminal justice services are almost inevitable. We have to make sure that quality is properly addressed at all times and any service provided is properly and adequately resourced.”

As for privately-funded work, it is the conveyancing market where ferocious competition from non-lawyers has had an even more seismic impact and where many firms have taken the ‘factory’ approach.

Richard Barnett, senior partner at bulk conveyancing firm Barnetts Solicitors, reckons that the outsourcing model could work. “In a conveyancing transaction, generally there are about 20 administrative functions and there are probably four that are regulated and require a solicitor to do it. But it doesn’t mean that, say, 14 of those functions couldn’t be done somewhere else,” he says. “After all, preparing a contract for supervision by a solicitor has to be done by somebody, so why not by somebody in a different country?”

However, from a PR perspective, Barnett sees resistance from lenders, such as the banks and building societies, which would be reluctant to see the inevitable job losses as a result of work that they have subcontracted out being processed in another country. “But I’m sure it’s going to happen in the future,” he admits. “On the volumes of transactions we’re doing, if we were to increase those five-fold, [then we would ask ourselves], ‘is it worth taking on more staff here or recruiting those staff in another country?'”

So how does Underwood respond to the suggestion that he is ‘dumbing down’ PI law in pretty much the same way as those dodgy claims companies he has vilified over the years? He insists that such is the quality of South African firms, that the quality of work would actually be upped.

“In an ideal world I wouldn’t have it that way,” he admits, “but we’re not living in an ideal world. Instead, we have a manically regulated Government trying to knock lawyers at every turn… Is it better that people get justice paid for by work being done in South Africa rather than not at all? Yes, it is. But would I have started from this position? No, I wouldn’t.”

Anyhow, if you see any pink elephants floating over St Albans, you will know why.