Mine yield

Avalon Solicitors’ profit this year hit the headlines as much for how it was made as how much was made. But a Law Society investigation into its dealings will not alter the firm’s growth strategy

Andrew Nulty, the senior partner of Warrington-based ’class action’ boutique Avalon Solicitors, shows no signs of regretting telling The Lawyer how much money his firm makes. Actually he shows little public signs of anything currently, having been told by his lawyers to clam up. Whether Nulty regrets allegedly thumping a policeman, for which he and his brother were charged last week (see cover) is equally unclear.

Earlier this summer Avalon’s managing partner Anthony Chorlton contacted The Lawyer to suggest his outfit might make this year’s UK 100 Annual Report rankings, published today (4 September). The firm has never previously featured in the report and there was a degree of scepticism whether it would, in fact, make this year’s list.

But Nulty, the man who wields the power at Avalon and who flagged up his firm’s UK 100 worthiness, was convinced the revenue generated during its meteoric rise, much of it from securing compensation awards for miners, would find it a place.

“For the past five years since we set up we’ve kept our heads under the parapet,” Nulty told The Lawyer in July. “We felt the time was now right to start telling people about who we are and what we do.”

On Monday 21 August The Lawyer trailed Avalon’s appearance in this year’s report with a front-page story about the £13m profit Nulty had personally made last year. It also revealed the corresponding Law Society investigation into the firm. The story was picked up by most national newspapers along with numerous television and radio stations.

On Tuesday 22 August Avalon cancelled a face-to-face interview and photo session, scheduled for this article. On the same day Chorlton called to say that, on the advice of Avalon’s solicitors, RadcliffesLeBrasseur, Avalon would be making no further comment on the subjects raised by the stories, specifically the Law Society investigation. Since then Nulty has been permanently ’unavailable’. Compared with the summer PR bombardment it had all gone a bit quiet at Avalon.

Is it possible Nulty underestimated the backlash against a lawyer making so much money out of industrial diseases?

The background story
The public emergence of Avalon made headlines in most mainstream newspapers in August. The story was not simply about the huge amount of money made by Nulty, who is believed to be the best-paid lawyer in the UK, but the way in which he had made it.

Avalon began life just five years ago as a personal injury (PI) firm. It soon moved into handling claims from miners suffering from chronic obstructive pulmonary disease (COPD). It was this area that was to prove both the most lucrative and most controversial for the firm.

In a House of Lords debate on 11 July this year, Lord Lofthouse of Pontefract expressed his “disgust” at lawyers claiming fees from the miners’ compensation scheme when they have “already received agreed fees from the Government”.

More than 166,000 claimants had received less in compensation than the costs paid to their lawyer, contended Lofthouse. By the end of the miners’ compensation scheme, he added, solicitors will have been paid “a staggering” £1.85bn.

“Many of them betrayed their clients by double charging and acting as debt collectors for claims farmers and certain unions intent on exploiting this vulnerable group,” Lofthouse added.

Some 40 firms, including Avalon, are currently being investigated by the Law Society in relation to miners’ compensation cases. A list of firms that had received the most in costs from the Department of Trade and Industry (DTI), which administers the compensation scheme, was set out in the Houses of Parliament on 2 May. Avalon, a two-partner firm, was tenth, ahead of Irwin Mitchell, Morgan Cole and several well-known regional PI practices.

In total the firm had made £17.2m from COPD cases and in the last year alone it made £14.4m from this source.

No ordinary firm
So how could one lawyer make £13m in a single year? The answer is that Avalon is no ordinary law firm. Nulty says the most important part of Avalon’s practice is its R&D department. “We spend a fortune on this,” he says. “We have a meeting every Sunday morning to discuss ideas.”

The miners’ compensation scheme began in 1999 and closed in March 2004 to new entrants. All claims are expected to have run down in 12 months, so clearly a new business line was required. Luckily the R&D team was on hand.

“We’re now moving on to endowment mis-selling, which will be massive,” says Nulty, who adds that the firm has already spotted its next three business lines, although he prefers not to reveal what they are.

Avalon has only two partners and one associate, although it has around another 10 lawyers working for the business as consultants. It relies heavily on non-qualified managers to assist in the administration of processing claims. In total, it has 82 fee-earners. That is what you call leverage.

“We pay very well,” says Nulty. “We have to, and rightly so. You really get people to perform if you pay very well.”

It also remunerates its partners very well. With just two equity partners and a total turnover in 2005-06 of £21.2m, Avalon’s profit margin last year was 73 per cent, or £15.5m. That equates to an average profit per equity partner of £7.75m. And, in his own words, Nulty made “the lion’s share” of that. The Lawyer estimates this at £13m, a figure not denied by Nulty.

The firm is 100 per cent contingency based. “Cases are either successful or they’re not,” says Nulty. “There’s no time recording. We work through a filtration system, which means that of every 10 cases we see we’ll take around five and win maybe 60 per cent. We work on a percentage of the success.”

And the success rate on COPD? “Very high,” says Nulty.

Long-term aim
Nulty’s target is to float Avalon on AIM. “That’s our ultimate goal,” says Nulty. “But as yet we’re not allowed to. [Law Society president] Fiona Woolf may drive this forward.”

Nulty is first and foremost a businessman and his approach to the Clementi reforms reflects this.

“I’d like to be placed on the same platform as any other business,” he says. “I welcome Clementi. I feel law firms have been held back not only by the Law Society, but by the profession and lawyers themselves. We don’t use that nomenclature of lawyer in this practice. We feel [legally] unqualified people are better managers.”

He has certainly succeeded in building a hugely profitable business in a very short space of time. And until any allegations of misconduct are proved, he has done nothing wrong. Whether making such a huge profit off the back of sick miners is morally acceptable is another issue.

Certainly Avalon is not alone in making millions out of the miners’ compensation fund. Two other boutiques, Beresfords and Raleys, have made £70.75m and £50.75m respectively from COPD cases alone. Both are likely to have made The Lawyer’s top 100 this year, but neither firm supplied figures.

Avalon’s success has already attracted interest from the home of the class action, the US. According to Chorlton, Avalon is “currently being courted” by a major US firm interested in working with the UK firm. “It could be a merger, it could be another way of working together,” he says.

The chances of an Avalon AIM flotation may depend on the outcome of the Law Society’s investigation. Avalon has been accused by the Law Society of taking fees from the compensation awards despite being paid around £1,500 by the DTI for each case handled. The firm has denied the allegation.

But that is not all. Nulty and Avalon are due to appear before a Law Society disciplinary tribunal for alleged “numerous” breaches of solicitors’ accounting rules, practice rules and principles of practice.

The Law Society’s view is that cases such as Avalon’s seriously damage the reputation of the legal profession as a whole. Lawyers are already seen as ’fat cats’ by the general public. A single lawyer making £13m, much of it from miners with respiratory diseases, has led to the society receiving letters of outrage, including one from a lawyer who said cases such as Nulty’s made him “ashamed” to be a solicitor.

But even if Avalon is found guilty of all the charges levelled against it, the sanctions the Law Society can make are limited. It could suspend Nulty, or ultimately strike him off. It could also fine the firm. The highest fine ever from the Solicitors’ Disciplinary Tribunal is £30,000, although it could fine Avalon up to £5,000 per allegation, which could break that record. That, though, is unlikely to have Nulty trembling in his boots.