Legal Week’s Litigation Forum this week, sponsored by Ernst & Young, was rather different from the (many) others I have been to this year. They have been e-disclosure conferences with litigation practice and procedure as a context. This week’s event was about litigation, with the disclosure element (from me amongst others) merely a component in the wider setting.
The former Lord Chancellor, Lord Falconer, was the chairman and, in the event, the giver of the keynote speech in the absence of Lord Goldsmith who had been billed to deliver it. The quality which made Falconer one of the few likeable members of Blair’s government was a nice line in self-deprecation. When he was a young barrister, he said, much of his work consisted of Peter Goldsmith’s returns; he was glad to see that nothing had changed.
Lehman Brothers had collapsed two days earlier, and the overnight news was that the US Government had bailed out AIG. Lord Falconer emphasised how the week’s events had changed the map for litigators. A year of the credit crunch had had little impact on the levels of commercial litigation, but that was because the large institutions – Bear Sterns and Northern Rock – had not been allowed to go under. A rash of insolvencies must follow the failure of a player the size of Lehmans and the consequential litigation will cover three main areas:
- What are the liabilities? Once the accountants and administrators turn their spotlights into every corner, arguments must inevitably surface as to the extent of the obligations owed to others.
- What happens to the assets? Lehmans may have near-record liabilities, but it also had very large assets, and there will be fierce arguments as to how they are to be divided up.
- Who is to blame? The administrators will seek out targets to take or share responsibility for the failure and the individual elements which led to it. The failure of BBCI, Barings and the Maxwell companies all led to significant litigation.
Nor will the arguments be confined to the major banks and other financial institutions – the knock-on effects will spread into smaller players and into businesses and individuals whose nexus with international finance is at second or third hand.
Other factors, Lord Falconer said, are changing the litigation market. The strengthening of the US dollar against the Pound is making US law firms more competitive in the London market – no great regrets from Charlie Falconer on this subject since he is now Senior Counsel for Gibson, Dunn & Crutcher in London. There is an increasing foreign element, notably from Russia, whose businesses appreciate the fairness and even-handedness of the British Courts.
On the procedural side, he said, the big trial era has gone. This is largely a budgeting matter, the costs regime proving ineffective to bring down the expense. We can expect more court-driven case management and a need for applied technology, he added. This is the aspect which most obviously affects the usual readership of this site and is one I will come back to separately.
The expense is driving new approaches to funding litigation, including what is effectively a new market in third party funders. There was to be a session on this later, and one on making sure that London retained its place as the centre of dispute resolution. A wider aspect of third party funding derived from the forthcoming right of law firms to seek external investment, which must inevitably change the face of the legal market.
Whilst today’s downturn would create litigation work to fill the gap left by M&A, property and other more positive business, any long-term view of litigation must take account of the fact that there is relatively little new business being done at present. In the mid- to long term, Lord Falconer said, that was an inevitable feature of the economic cycle. The firms best-placed to meet this will be those who can anticipate and adjust to the foreseeable trends in work.
This was a good piece of scene-setting, encompassing all the ensuing sessions. It is hard to see any good coming from an economic downturn of the kind we are engulfed in, but there are potential benefits beyond the short-term profits of those whose businesses thrive in recession. I started work in litigation in 1980, so this is the third serious downturn in my working life. Each of the others (1981-82 and 1991-92) has prompted not just more litigation work but a reappraisal of the way litigation business is conducted. The analogy with the after-effects of a forest fire or other natural cause of devastation – new growth forced on by the loss of the former habitat – takes the form of a review of the processes and the skills needed to compete, and indeed to cope with, the new work.
The decade since the launch of the Civil Procedure Rules has seen a serious downturn in litigation work. This is explained in part by the fact that businesses have concentrated instead on winning new work and opening new markets in the long period of world-wide growth for which Gordon Brown, as Chancellor, would like to claim all the credit. The litigation slump derived as much, however, from the disproportionate expense of legal proceedings. There are arguments – well rehearsed at the conference – to the effect that the CPR itself is in part to blame for the increased costs, and particularly the front-end costs. These include exorbitantly high court fees, a good example of the way in which this government’s greed for short-term income strangles longer-term prosperity, in this case the flow of invisible exports of services for those who, on all other grounds, would bring their legal business to London – my observation, I hasten to add, not Lord Falconer’s.
There is little room for argument, however, that the massively increased volume of documents, and particularly electronic documents, has been a major contributor to the expense of litigation. To some extent, that is simply an inevitable concomitant of doing business in an age of easy and rapid communication. To a great extent, however, the expense has been unnecessary. Lawyers, so quick to grasp technology’s ability to create more information, have been slow to see technology’s potential to clean up after itself. Litigation technology has been narrowing the gap, with search and filtering technology gaining on the volumes which business creates.
The problem is not just a slowness to grasp technology. Whatever the defects in the CPR (and there are some who call for a root-and-branch overhaul of the entire system), it gives much more power to judges and practitioners to reduce the costs of document-handling than is thought. If no other benefit comes from the time ahead so ably summarised by Lord Falconer, competition between solicitors for the expected new work, and the pressure on the courts which will result from that work, must be a powerful stimulus to both courts and practitioners to look more seriously at what the existing rules offer as weapons to combat cost and delay, and at the technology available to help.
I will write separately about the conference sessions themselves.