Arbitration: Little big league

Ex-Freshfields star Jan Paulsson is the latest arbitrator to set up a boutique practice. They’re small and perfectly formed – but are these firms the future?

Arbitrators are feeling restless and their itchy feet are leading them to the boutique firms springing up across Europe.

Boutiques have long been the answer for conflicted arbitrators seeking pastures neutral, but the news that retired Freshfields Bruckhaus Deringer star Jan Paulsson was setting up a boutique with his former colleagues last month really hammered home the trend.

Jan Paulsson

Paulsson’s exit came in early March last year but at the beginning of 2014, he set up Three Crowns with Freshfields arbitration chief Constantine Partasides QC and Paris partner Georgios Petrochilos. They were joined by Covington & Burling London partner Gaëtan Verhoosel, Shearman & Sterling’s Todd Wetmore from Paris and Jones Day’s Luke Sobota, currently based in Washington, DC.

The boutique is based in London, Paris and Washington and has both surprised and impressed the marketplace. Unlike other recent launches such as Bonelli Erede Pappalardo partner Luca Radicati di Brozolo’s in 2013, this has the unique hallmark of being made up of heavy-hitting partners from not one but three different firms.

The exit wound will have been felt by Freshfields – it has also recently lost partner Christian Borris to a German boutique and senior associate Quirijn Biesheuvel, who set up Dutch boutique Biesheuvel Jansen Advocaten with three Stibbe and Linklaters lawyers. But the firm refuses to let the departures dampen its enthusiasm for the practice area, having made up two new arbitrators in its 15-strong promotions round. This followed three last year.

It isn’t the only firm losing arbitrators to boutiques or the bar, either. In Paris, Hogan Lovells and Mayer Brown have both seen partners leave to do their own thing. The former said adieu to veteran arbitration partner Jean-Georges Betto a year ago and the latter lost partners Renaud Semerdjian and Christophe Ayela to the same fate in September.

Three Crowns has certainly garnered the most attention, something Winston & Strawn international arbitration co-chair Joseph Tirado says is partly down to the “cult of personality” surrounding the high-profile arbitrators.

“Jan is the number-one name and he deserves the star title,” he says.

Baker Botts international arbitration co-chairman Jay Alexander agrees. “There have been a large number of new boutiques created recently, but Paulsson’s catches a lot of eyes because of the people involved,” he says. He hastens to add that the trend is nothing new. “Over the past 10 years there have been dozens of boutiques in Europe and the US too.”

What is the allure of the boutique, then? Sobota’s vision for Three Crowns is of a “nimble” group of partners able to offer flexible billing options to a group of high-value clients without the issue of conflict.

“Conflict is the real biggie for me, I guess,” he says. The new six-partner firm launched on 7 April with 10 associates and is aiming to have 20 within three months. However, Sobota says the appeal of the boutique lies in its ability to stay small.

“We certainly intend to stay lean and focused,” says Sobota. “The vision is partners being hands-on throughout the case. We’re going smaller, taking fewer cases and taking more dedicated teams. Our size and structure allows us tremendous flexibility in the way we do things.”

The partners are shunning the co-working model embraced by Hage Aaronson, a boutique set up by tax silk Graham Aaronson QC with former One Essex Court barrister Joe Hage in 2013. The aim of this London boutique is to work in partnership with chambers. Three Crowns instead wants to take on as much as it can itself.

Former Hogan Lovells partner Jean-Georges Betto agrees that flexibility is key to the boutique. His new firm, which has just four partners, has shunned billable hours and does not even log time spent.

“Big firms were very keen on protecting the concept of hourly rates. We thought this was the past,” he says. “It’s a structure that the majority of clients don’t want, and we wanted to offer lump-sum prices to our clients just like our clients offer to theirs.”

However, as well as pull factors there are some clear push factors for arbitrators looking for an exit. It seems that being in a top UK firm is no guarantee of happiness, as issues arise more and more through conflict of interest as well as a perceived lack of enthusiasm for arbitration within firms.

One source says: “A lot of firms have a real problem generally with arbitrators. They just don’t get it.”

“Magic circle firms have a tradition of corporate deals,” says another. “The profit centre for magic circle firms are transactions, so the disputes people have a more difficult time with conflict and are generally just less important to the overall firm.”

Those excelling appear to be US firms and larger boutiques such as Quinn Emanuel Urquhart & Sullivan, as well as the bar. In January Herbert Smith Freehills’ big-hitting advocacy chief Murray Rosen QC left to return to the bar, having launched the team in 2005 with Ian Gatt QC. The news followed the exits of former global arbitration co-head Charles Kaplan for Orrick Herrington & Sutcliffe and litigation head Ted Greeno for Quinn Emanuel in March.

Quinn Emanuel has been particularly successful at tempting arbitration partners from international and magic circle firms. For example, Allen & Overy global arbitration head Stephen Jagusch and partner Anthony Sinclair arrived on the firm’s doorstep in May 2012. Jagusch – whose exit was a harsh blow for A&O – now heads the firm’s international arbitration practice from London.

Sources say that buoyancy in today’s market means that leaving for a boutique or specialist firm is not the risk it once was, but one source proffers a word of caution to the new Freshfields boutique.

“Launching with partners from different firms has never been done before and there is a reason why,” he says. “It’s a splendid casting but the profitability has to be demonstrated. Each of the Freshfields boys has to integrate with the other guys and with thousands of kilometres between each partner you don’t know for sure it will work.”

Still, with the market the way it is, it looks like a good time to try.