WINDS OF CHANGEFollowing a sweeping overhaul of the way large commercial trials in the UK are run, more change is heading the way of British litigators, including the consideration of a new cost regime and permission for barristers to become partners in law firms By Sandra Rubin

Reprinted with permission from the April 2010 issue of Lexpert Magazine. © Thomson Reuters

The winds of change are blowing in the United Kingdom as litigators there face several new challenges. Pushback against the high cost of litigation, bottlenecks in the courts and the tangle of multi-jurisdictional proceedings are among the forces starting to rock Britain’s cen-

turies-old legal structures. The country’s barristers and solicitors are still digesting the

fallout in the wake of a sweeping overhaul to the way large com-mercial trials are run, yet more change is already hurtling their way. The Ministry of Justice is considering a proposed new cost regime that could, if adopted, open the door to contingency fees and curb levels of disclosure.

Even the Dickensian wood-panelled barristers’ chambers aren’t immune to the forces battering law firms and legal systems around the world. Rumpole of the Bailey be damned as barristers are given licence, as of 2011, to become partners in law firms, standing centuries of British tradition on its head and promising to change the litigation Bar in ways some in the UK admit they do not yet entirely understand.

At least one thing is changing for the better from a litigator’s perspective. The level of High Court cases in the UK was still falling as recently as a year ago, leading to all sorts of collective soul-searching about access to justice and whether it had become too expensive.

But levels have rebounded in response to the financial-system meltdown, says John Heaps, head of the International Litigation and Dispute Management practice at Eversheds LLP. “For the last five or possibly 10 years, there has not been much appetite for High Court litigation and a lot of companies have turned their face against resolving their disputes through the courts. The big trend we are now beginning to see is the real fallout from the awfulness of the last 18 months or two years.

“I think most lawyers in the UK will say while it’s not neces-sarily a tsunami, as many thought it might be, there’s a steady increase in the amount of activity in the courts arising from the downturn we’ve experienced.”

Then there is the remarkable blossoming of third-party funding, special-purpose funds that invest in large commercial lawsuits and major arbitration. Although they would have been shunned a few years ago, they are now gaining a toehold in the hidebound British system.

Reprinted with permission from the April 2010 issue of Lexpert Magazine. © Thomson Reuters Reprinted with permission from the April 2010 issue of Lexpert Magazine. © Thomson Reuters

WINDS OF CHANGE

“The courts have got more of an appetite for it,” says Heaps, who is based in London. “Concern over whether the prolifera-tion of litigation is a healthy and good thing for civilized society has been replaced by a genuine concern about the funding of litigation and how, in order to provide access to justice, it’s necessary to look at other sources of funding.

“If the private equity and insurance fields are prepared to spend money investing in these cases, then I think the balance is going to be in favour of them doing so because people need to be able to get at the court system.”

As for the area of internation-al arbitration, Heaps and many others say it’s booming, with an increasing number of US and mid-market UK firms staking out international arbitration practices based in London and making the field noticeably more crowded.

“The established players will tell you that they face increased competition in arbitration,” says Pierre Bienvenu, Co-Chair of the Arbitration and Alternative Dispute Resolution Team at Ogilvy Renault LLP.

“Maybe not for the bet-the-farm mandates, but there are more players in that market competing for volume international arbitration work.”

More players means more sets of elbows up fighting for the same mandates. It promises to change the dynamics, and could even factor into whether Canadian firms should establish an ar-bitration presence on the ground there.

As someone once said, if you can’t affect the winds of change, you’d better be prepared to adjust your sails.

Talk to Ali Malek, QC, about what’s going on these days and, like John Heaps, he immediately mentions the credit-crunch litigation. But as he settles into the discussion, it becomes evident that what’s really

changing the ground under his feet is a sweeping overhaul of the way commercial trials are run in the UK.

Malek, former Chairman of the Commercial Bar Associa-tion, known as COMBAR, is one of London’s leading silks. The reforms he’s talking about were introduced about a year ago following recommendations on long trials put forward by a

working group chaired by Sir Richard Aikens, who headed the Commercial Court from 2005 to 2006.

Malek is asked what the single most important change is. “Greater judicial activism about the way cases are managed. In practical terms it means shorter pleadings and courts prepared

to try cases in a way that’s more cost-effective, looking at prelimi-nary issues to see if it can dispose of the litigation in a short way,” he says. “I think everybody rec-ognizes that it’s a much more ag-gressive approach, a more judicial, hands-on approach to cases and the way they’re run.”

The reforms were meant to address the length and expense of getting matters through court, but they may be useful to other jurisdictions. “The interesting thing from a Canadian perspec-tive, if you look at reforms, is you can actually say to yourself, ‘Maybe these are reforms we

should actually think about.’”Among the other effects are limiting the amount of cross-ex-

John Heaps; Eversheds LLP

Even Dickensian wood-panelled barristers’

chambers aren’t immune to the forces

battering law firms and legal systems.

Reprinted with permission from the April 2010 issue of Lexpert Magazine. © Thomson Reuters

WINDS OF CHANGE

amination to try and ward off unnecessarily long trials, and the use of “guillotines,” where each side can only speak for a certain amount of time.

Malek says there are also pleading limits. “Instead of producing hefty pleadings, they have to be 25 pages or less. If you want them longer than 25 pages you have to satisfy a judge. And another change is, after the pleadings are done, you have a list of core issues settled by the court, so you have discussions about what the case is about by reference to that list of issues, rather than going back to the pleadings.

“There is a whole raft of reforms — how to run disclosure, how to run document-heavy cases, what involvement the clients should have in terms of how the litigation is run. It’s a great blueprint for how things are going to change.”

Malek has already started arguing cases under the reforms and he’s noticed a huge difference. “The pleadings are much shorter, the case-management conferences very important, the list of issues is quite complicated and people find it hard to agree, and the judges are more prepared to guillotine people, to say, ‘You’re not going to have more than two hours on this and that’s it.’ What it’s doing is changing the philosophy about how cases are run.”

Does this mean that, at the end of the day, UK barristers and solicitors will be docketing fewer hours bringing a case through trial? “I can’t say that. I think it’s too early to say whether it has an effect on how things run. I just get the feeling people think it’s more efficient — but I would say it’s more cost-effective. You’re probably right, it’s going to be cheaper.”

If Lord Justice Jackson has his way, commercial trials will become a lot cheaper still. The British Court of Appeal judge conducted a comprehensive year-long review of civil litiga-tion costs in England. It’s fair to say his final report, released in January, hit the desks of Britain’s corporate law firms with a thump.

A decade after Lord Woolf ’s groundbreaking reforms, civil litigation in the United Kingdom, as is the case in so many jurisdictions, remains pro-hibitively expensive. One of Lord Justice Jackson’s

primary objectives was to ensure that access to such litigation becomes more affordable. However, some of his recommen-dations, if implemented, could dramatically alter taditional British law-firm economics in the process.

One of the most controversial is that contingency fees be permitted for contentious commercial matters. Not everyone is enthusiastic. “The change in culture that this could herald should not be underestimated,” Allen & Overy LLP cautioned in a recent client memo.

Lord Justice Jackson is not recommending unfettered con-tingency fees. He is suggesting they be both regulated by the courts and permitted only when the client has received in-dependent legal advice on the fee arrangement. He is also in favour of what he calls the “Ontario Model,” under which loser pays, but on a conventional basis — not using the contingency fees as the basis to assess costs. 

Adrian Jones, a partner in the London office of Fasken Martineau DuMoulin LLP, says people have been talking about the report since it landed, trying to figure out its ramifications. Contingency fees are “potentially quite a significant change to how law firms structure their business models,” he says. “At this stage, I think it’s a signal to the legal community of a different approach to billing, and a move away from the traditional English methods.”

Another key recommendation affects disclosure – in particu-lar the impact of e-disclosure – which has become one of the most expensive elements in big-document trials. (In Canada, the criminal prosecution of Nortel Networks executives very nearly sank under its 23 million pages.)

Lord Justice Jackson is recommending standard disclosure no longer be the default position, but rather a “menu” of options for different levels of disclosure to be agreed upon at the first case-management conference. Jones says it’s not clear what would be on a disclosure menu “but I think what’s envisaged is that certain parties, perhaps from civil-law jurisdictions, might be able to agree to much more limited disclosure.

Ali Malek, QC

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WINDS OF CHANGE

“On the other hand, other parties may feel more comfortable with a more expensive but fuller disclosure. In practical terms, I suspect that parties defending a claim that might have problems would be inclined to push for a limited disclosure, which would be resisted by claimants. So I don’t know whether it’s going to be feasible to progress down that road without the court taking a proactive role.”

The changes being suggested by Lord Justice Jackson would require legislative amendments, and the Ministry of Justice is saying only that it is considering the report and will announce the way forward when it’s ready.

As if the reforms proposed by Lord Aikens and the recom-mendations of Lord Justice Jackson weren’t enough for litiga-tors in the country, Britain is, in addition, steaming towards a series of regulatory changes that promise to radically alter the traditional trial Bar.

In the fall, the Bar Standards Board liberalized professional regulations so that, as of next year, barristers will be permitted to work in new business structures, including partnerships. That paves the way for them to set up in business with solicitors and form – or join – law firms.

In announcing the historic reforms, Baroness Ruth Deech, the board’s Chair, predicted the move “will send a shot of adren-aline through the profession.”

She couldn’t have used a more apt turn of phrase. As anyone who’s ever had their systems flooded with adrenaline will ap-preciate, it can trigger panic.

To appreciate the potential scope of upheaval, one has to understand the UK structure. Traditionally, bar-risters have access to the courts while solicitors have access to the clients.

Although lines have been blurring in recent years, it is generally still solicitors who supervise evidence gathering, document management and who decide the way a case will be argued. And it is solicitors who engage a barrister to argue it (although some law firms have set up in-house advocacy units that include solicitor-advocates, and are briefing outside barris-ters less and less).

Barristers, for hundreds of years, have been self-employed. They work together in chambers. While they are not permitted to pool fee income, they split costs and elect a head of chambers to manage things.

The plan to allow them to form partnerships and even practise inside law firms has had some people long predicting it would spell the end of Britain’s storied Bar. “The difference between the Bar and the solicitors’ profession vanishes once barristers in independent practice form partnerships,” says John Higham, QC, a partner at White & Case LLP in London. “Bar-risters will find themselves competing for the same work under-taken by solicitors and in order to do so, the advantage of lower overheads they have traditionally been able to offer will begin to disappear. When that happens, the Bar as an independent referral profession simply ceases to exist.”

Higham is not a lone voice in the woods. The Commercial

John Higham, QC; White & Case LLP

David Wingfield; WeirFoulds LLP

Reprinted with permission from the April 2010 issue of Lexpert Magazine. © Thomson Reuters

WINDS OF CHANGE

Bar Association has been soliciting comment on the proposed changes even as they are being fine-tuned and the revised code of conduct drawn up.

One of the people COMBAR has asked to weigh in is David Wingfield, a litigator at WeirFoulds LLP in Toronto. These days, Wingfield can spend as much as half his time in London working on cases for international clients. He’s been a member of the association for a decade or more. Perhaps they wanted a North American perspective.

Although Wingfield declined to provide a copy of his actual submission, he says his view is that, if the regulatory change is permitted to go ahead, it will transform the British legal landscape quite profoundly. “By allowing barristers to make whatever economic arrangements they want with one another, it will turn sets of chambers into economic organizations like law firms,” he says. “Amongst other things, that will make it very difficult for barristers to take on briefs on different sides of the same engagement.

“In the UK, many sets of chambers specialize in certain areas, insolvency or tax, for example, and the barristers are known to be experts in these areas. If those chambers were operating like a partnership, they’d find it difficult to take the opposite side of the same case, so for one thing, the provision of expertise to the Bar will change.”

But it goes beyond that. Like Higham, he sees barristers’ chambers becoming more directly competitive with large law firms, but Wingfield suspects law firms will try to attract top specialist chambers as a way to cement their lock on key practice areas. “If you’re a firm of solicitors, let’s say a Magic Circle firm that specializes in banking law, it might be advantageous for you to merge with, or absorb, a set of chambers that are special-ists in banking,” he says. “All of a sudden, you’re now a law firm that has a dominant role in banking advocacy as well as in other areas of banking.

“That is something that’s not now possible because the firm of solicitors would have to make a separate arrangement with each barrister to try to build up that specialty. But if there are 50 barristers who specialize in banking law in a set of chambers, it makes it much easier to absorb them and take their expertise in-house.”

Why should anyone care whether top barristers are in chambers or in a law firm? Simple, says Wingfield. At a time when law-firm clients around the world are screaming about the high cost of services, having the top banking barristers operating out of major law firms instead of independent chambers will jack up the cost of litigating.

“Barristers today are pretty inexpensive to hire as a group because they’re self-employed and have lower overheads. But once the changes go through, the cost of hiring the expertise will go up because you’ll be getting that expertise from larger business organizations, which charge more,” he says. “If you want a top-notch banking lawyer in North America, you

have to go to a very large law firm and hire that law firm to provide that expertise. If you want a skilled banking barrister in the UK, they can be found for a lot less money.

“So here’s the bottom line: the goal of the regula-tory change is to lower cost and increase choice. But I think the effect is going to increase cost and lower choice, because it will make it more economically viable for skilled advocates to practise in large business firms.

“So welcome to New York, basically.”

Just as in New York, London firms – squeezed by belt-tightening clients – have been scrambling to identify the next new practice area. They think they’ve found one: in-vestment arbitration.

Sophie Nappert, a full-time arbitrator who shares chambers with Ali Malek, says the explosion of investment arbitration is among the hottest trends in London arbitration circles these days. Before going any further, she immediately turns the tables and starts doing the questioning. She wants to make abso-lutely sure that the difference between investment arbitration and regular commercial arbitration is properly understood. (It wasn’t.) It’s exactly the kind of instinct that has helped propel her to the top of her game.

The Legal 500 calls Nappert “one of the top new-generation arbitrators” and Global Arbitration Review named her to its Top 30 List of Female Arbitrators Worldwide.

Investment arbitration, for anyone who doesn’t know, falls under bilateral treaties. It allows foreign investors who feel they

Heaps believes changes allowing barristers

to join law firms will have a major impact

“on the way we practise law as a business.”

Reprinted with permission from the April 2010 issue of Lexpert Magazine. © Thomson Reuters Reprinted with permission from the April 2010 issue of Lexpert Magazine. © Thomson Reuters

WINDS OF CHANGE

have been treated unfairly – by having a permit yanked at the last moment or having their land unfairly expropriated, for example – to bring an arbitration action directly against the state where the investment is located.

So it’s arbitration by a private party against a sovereign gov-ernment. “That’s a field of law that didn’t exist until 10 or 15 years ago,” Nappert says from London. “It just wasn’t handled that way. States would handle it between themselves. But now it’s become not only a trend, it’s become a developing field of law in which some of us are developing an expertise.”

Nappert says every major international, UK-based firm now has lawyers who spend a “very large part of their time” doing investment arbitration. “And they will employ lawyers who specialize in public international law, which is a field of law that was relegated to universities not very long ago. Not very long ago it was an academic field; now it’s become an extremely important field of practice.”

Nappert, by the way, is a Canadian who once articled at Ogilvy Renault LLP, although she says “we’re talking about another lifetime.” (She will not say how long ago. “You don’t want to know.”)

Back in Montréal, Pierre Bienvenu, one of Ogilvy Renault’s roster of high-profile international arbitrators, says he has also noticed the explosion of international arbitration work in London. That’s one reason that so many firms in the United States are either moving into or ramping up their presence in the city, he says.

Fulbright & Jaworski LLP, Debevoise & Plimpton LLP, Skadden, Arps, Slate, Meagher & Flom LLP, King & Spalding LLP and Gibson, Dunn & Crutcher LLP are just a few of the firms mentioned when one asks around. Some have attracted marquee names as gilt-edged calling cards — Lord Goldsmith, QC, at Debevoise and former Lord Chancellor Lord Falconer at Gibson Dunn, for example.

Between US firms manoeuvring to become global competi-tors and existing UK mid-market players positioning them-selves to scoop up international arbitration work on their doorstep, Bienvenu says competition is heating up. “It’s a growing practice, it’s a lucrative practice, and London is a key market,” he says. “I think the big UK firms are seeing the effect of that competition, there’s no question. The top-tier firms will continue to do top-tier work, but some of the volume work, your run-of-the-mill commercial ICC arbitration used to go to them, too. There’s now much more competition for that.”

So why aren’t Canadian firms there — “there” being on the ground with international arbitration practices in London? The Canadian law firms that have rep offices in London are almost entirely geared towards deal or securities work. Even Ogilvy Renault, which has a prominent international arbitra-tion practice in Canada, runs the group out of Montréal.

“A good question,” says Bienvenu. “Up until now, for counsel work, we don’t see it as an impediment not to have our team in London. But I would expect that as Canadian firms develop recognized expertise in this field, that you’ll probably see them establish a presence in London or perhaps Paris.”

Isn’t the firm concerned it may lose work to some of the newcomers to the area who have the advantage of actually being there? Bienvenu says not.

“On some of these cases, we are in competition with London-based firms for sure. But we try to lever the cards that we have. As you know, Yves Fortier is a pre-eminent arbitrator. I do quite a bit of work as an arbitrator in addition to doing counsel work, so that helps. I think expertise, results and experience continue to be good selling tools.”

Barry Leon would say there is one more tool Canadian law firms have in their arsenal: lower cost. And once the regulatory changes in the UK permit barristers to become partners inside corporate law firms, he

believes that advantage is going to become more pronounced.The existing structure of barristers and solicitors already

makes it more expensive for Canadian or US client companies to use London firms, says Leon, a litigator who left Torys LLP last summer to help ramp up the international arbitration group at Perley-Robertson, Hill & McDougall LLP in Ottawa.

Sophie Nappert

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WINDS OF CHANGE

“The way it works now in international arbitrations in London is that solicitors won’t do their own advocacy,” he says. “So if a Canadian company goes to England to retain a law firm for an arbitration, they’ll end up with a multi-lawyer team of solicitors who will then be retaining a barrister – a silk, most likely – for the advocacy part.

“So you’ve then got a team, however big it is, that has two senior people: a solicitor and a QC, and the meter is running. You’ve got the English rates, which are close to double what they are in Canada, and you’ve got this larger team. The effect is that hourly costs are probably three times what you’d be paying if the same case were being done by Canadian international arbitra-tion counsel.”

If many top advocates end up joining law firms, “those rates will just end up going up again because the skill sets may be in one place, but they’re still different skill sets,” says Leon. “So you’ll have the senior solicitor in Magic Circle firm X and his or her team of junior partners and senior associates, whatever the case needs, plus you’ll have the in-house barristers now charging a rate comparable to the senior solicitor.

“So if I’m right in saying it’s three times as expensive now, it will be somewhere north of three times the cost of using Canadian counsel for the same case.”

John Heaps of Eversheds agrees with Leon this much: he believes law firms that succeed in winning significant litigation and arbitration work in London are going to be “those firms that are able to successfully control and manage costs.” At the end of the day, Heaps believes that changes allowing barristers to form partnerships and join law firms – a move he believes is long overdue – will have a major impact “on the way we practise law as a business.”

But as for fallout from the Jackson report or the new rules or regulations governing long trials, he’s not entirely convinced – at least from a large-firm management perspective – that it’s not something of a tempest in a teapot. He says courts are going to have their hands full trying to get both sides to agree to things like limited disclosure.

“There is a recognized and established system in place for High Court trials in England and my own personal view is you can tamper with these rules and regulations all you like, but ul-timately the civil justice system in the UK has been operating for hundreds of years and, generally speaking, there is little you can do to change it.”

In other words, the winds of change may be blowing, but it isn’t yet clear whether they’ll prove strong enough to force a change of course.

Sandra Rubin is a freelance legal-affairs writer.

Reprinted with permission from the April 2010 issue of Lexpert Magazine. © Thomson Reuters Reprinted with permission from the April 2010 issue of Lexpert Magazine. © Thomson Reuters