Magic circle firm Slaughter and May was accused of running up an ‘astronomical bill’ to the Treasury by a Liberal Democrat peer today. The firm received £22m in legal fees for work relating to ‘financial stability’ in the financial year 2008-09, according to Liberal Democrat research. The party’s Treasury spokesman Lord Oakeshott said: ‘This payment is simply mindblowing. It comes to £175,000 for every single equity partner of the law firm. ‘How can the Treasury defend allowing the firm to run up such an astronomical bill, the equivalent to 22,000 billable hours of partners’ time at £1,000 an hour? ‘Even if the financial crisis meant that there was no time to shop around at the start for the best legal deal, the Treasury should then have driven a much harder bargain, not left them like a fleet of taxis in Whitehall with their meters running for months on end.’ Slaughter and May’s practice partner Paul Olney told the Gazette: ‘We acknowledge it is a significant sum of money, but this covers work over a long period of time covering a range of projects including Northern Rock, bank bailouts and the collapse of Icelandic banks. In the context of the scale, novelty and difficulty of the work involved, and the period of time it covered, we do not consider the fees to be unreasonable. Indeed, we believe our competitors would have charged much more.’ A Treasury spokesman said much of the legal costs would be charged back to the banks concerned. He said a competitive process had been undertaken but that choice of law firm had been restricted by conflicts of interest, with many firms acting for major banks.
Rick Barrow, Marketing manager, Jackson Barrett & Gass, Wilmslow I read with little surprise at the Law Society being voted strongest Business Superbrand in its sector, or at its overall 75th placing. The Law Society is an internationally recognised brand with an enviable heritage. I have been left in doubt of this, as my firm continues to ride a promotion wave following our Excellence Award shortlisting in 2008 and Excellence Award Win in 2009. In the eyes of consumers, this credit from the Law Society is as good as a personal recommendation from the president. The Law Society must now act on this. The practice management standard, Lexcel, needs a rebrand. Clients and stakeholders alike do not know what Lexcel is, or what it represents. If it were the ‘Law Society Quality mark’ or of a similar vein, consumers would be left in no doubt as to what it represents, and it would give Lexcel-accredited firms the true promotional advantage that they deserve.
So the latest news on private equity investment in law firms is that, as far as the City firms are concerned at least, the investors have gone cold.While a year or so ago, when there was not much else to be investing in, some of them started looking at the profits a lot of firms were making and thought they might like a slice of the action, they have since had better ideas. Investing in a business that is so very reliant on the individual partners, who are free to walk whenever they choose, is not such an attractive prospect after all. But now private equity has spotted another opportunity. Investors have switched their focus from law firms themselves to the companies that provide them with technology and legal process outsourcing. What private equity recognises is the massive cost savings to be made by taking the vast swaths of low-level corporate work – document drafting, due diligence, all the boring stuff that everyone hates – out of the hands of qualified lawyers, or expensive law firms. If LPO providers, with the help of some pretty hefty external investment to get the right IT systems in place, can provide all this at a far lower cost than law firms currently do, then what is there for general counsel not to love? Private equity can see the opportunity, and so can the LPOs. But whether law firms have really seen this coming is another matter. So what, you might think. We may lose some of that dreary low-margin work, but we are focusing on the high-end stuff. Quite right, too. But hang on a minute. The partners will be concentrating on the more sophisticated aspects of legal work that really add value to the client. But what will a firm’s junior lawyers be doing? If general counsel start passing all their low-grade contract work straight to LPO providers, which will carry it out cheaply using technology and paralegals, what will newly qualified solicitors cut their teeth on? And what will trainees be doing? Once you have a situation where employing a trainee to do the commoditised corporate work becomes so much more expensive than the price at which an LPO could do it, will firms even want to employ trainees? Particularly given that there is no guarantee that the trainee will remain at the firm and become a partner. This might sound like doom-mongering, but it is something that many consultants in the know think could become a real issue. Firms should at least be thinking about what the rise of LPO providers could really mean for them. And, at the moment, it is simply not on their radar. Related articles Private equity to target legal process outsourcing
Masood Ahmed is senior law lecturer at Birmingham City University In a previous update I commented on the case of Noorani v Calver  EWHC 592 (QB). This case illustrated some of the factors which the courts are likely to take into account in assessing whether to award indemnity costs. In Noorani, Mr Justice Coulson considered two important elements of the dispute which he found to be relevant when awarding the defendant’s costs on an indemnity basis. The first was the parties’ pre-trial conduct: the more unreasonable a party’s behaviour, the more likely it is that indemnity costs will be awarded against it. The second element was the nature of the claim. If it is evident from the circumstances of the case that the claim was fundamentally flawed from the outset, but that the claimant persisted with his claim, then this will justify a costs award being made on an indemnity basis (this would also be the position if the defence is found to be flawed). Coulson J recently revisited the issue of indemnity costs in D Morgan Plc v Mace & Jones (A Firm) (No. 3)  EWHC 26 (TCC) in which he considered other factors, aside from those set out in Noorani, which will determine the making of an order for indemnity costs. Factors justifying indemnity costs D Morgan Plc v Mace & Jones Appropriate test The facts can be stated briefly. The claimant brought a claim for professional negligence against the two defendants, Mace & Jones (MJ) and John Hoggett QC (JH). The claimant argued that both defendants had provided negligent planning advice to the claimant in respect of a quarry site in Cheshire and, as a result, it had suffered damages in excess of £40m. The claimant had accepted a part 36 offer from JH, but continued its claim against MJ. Coulson J subsequently dismissed four out of the five allegations of negligence made by the claimant against MJ and found that all arguments of causation had failed, as did the vast bulk of the claim for damages. The judge went on to deal with the issues of whether, among other things, MJ was entitled to indemnity costs. MJ argued that the following six matters justified an order for indemnity costs, in accordance with Civil Procedure Rules 44.3(4) and 44.4(1): (i) This was an exaggerated claim advanced on a fundamentally flawed basis; (ii) The case as to causation was also flawed; (iii) The claimant’s principal witness had given wholly unsatisfactory evidence which, among other things, involved a number of deliberate untruths; (iv) There had been a lack of proper disclosure by the claimant; (v) There had been dilatory conduct of the proceedings by the claimant; and (vi) A part 36 offer had been made by MJ in July 2010 in the sum of £1.2m (plus costs), and that offer had not been responded to, let alone accepted by, the claimant. As at the beginning of July 2010, Coulson J disagreed with points (i)-(iv) above. Those arguments did not justify an order for indemnity costs being made against the claimant. Furthermore, points (iv) and (v) were not of any real significance to the issue of the appropriate basis of costs assessment. The appropriate test for indemnity costs is set out in the case of Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden and Johnson (A Firm)  EWCA Civ. 879 in which the Court of Appeal reiterated that an order for indemnity costs could only be made where there was ‘some conduct or some circumstance which takes the case out of the norm’. These comments were made in the light of the appeal court case of Reid Minty (A Firm) v Taylor  2 All ER 150 and Kiam v MGN Ltd [No 2]  2 All ER 242. In Reid Minty, Lord Justice May stated that a claimant’s refusal of a defendant’s part 36 offer, which he subsequently failed to beat ‘may, subject to the court’s discretion, be determinative’ of his liability to pay indemnity costs. Furthermore, in Kiam, Lord Justice Simon Brown was of the opinion that unreasonable conduct ‘to a high degree’ was required for an order for indemnity costs. Coulson J went on to note that the circumstances of the case subsequently changed from July 2010 onwards which did justify the making of an order for indemnity costs. First, the claimant had accepted the sum of £2.6m from JH who was regarded by Coulson J as being primarily liable. Second, in late July 2010, MJ made a part 36 offer which expired in August 2010 which the claimant refused to accept. Coulson J found that this refusal to accept, when seen against the background of the real problems with maintaining the claim against MJ alone, was unreasonable ‘to a high degree’. He observed: ‘I therefore regard this case as very similar to the situation in Excelsior; while the refusal by DM of the part 36 offer, and their subsequent failure to beat it, could not on its own justify an order for indemnity costs, the refusal of the offer, when considered against the background of the speculative nature of the claim against Mace & Jones, does in my judgment warrant such a finding.’ Coulson J then turned to point (iii) above, which also justified the making of an order for indemnity costs. Coulson J found that the evidence given by the claimant’s principal witness was highly unreliable and that, on occasions, he had told deliberate untruths in order to strengthen the claimant’s case. The judge also made numerous criticisms of the detail of the evidence given. The judge held: ‘When the principal witness and owner of the unsuccessful claimant seeks to bolster his speculative claim in such an illegitimate way, his conduct is unreasonable to a high degree, and he inevitably lays the claimant open to the finding that the case was pursued outside any acceptable norm. ‘That is the finding that I make in this case.’ Both the failure to accept the part 36 offer and the wholly unreliable evidence given on behalf of the claimant justified, in the opinion of Coulson J, the making of an order for indemnity costs. Like Noorani, D Morgan Plc v Mace & Jones provides further valuable judicial guidance as to the factors which a court may take into account when deciding whether to award indemnity costs. The message from Noorani and Mace & Jones is clear – parties to litigation must act reasonably at all times (both pre-action and once proceedings have been issued). A failure by a party to do so who then later loses at trial may result in that party being punished with having to pay indemnity costs.
Brown, Shipley & Co Ltd v Amalgamated Investment (Europe) BV  1 Lloyd’s Rep 488 not followed; Morris v Ford Motor Co Ltd  2 All ER 1084 considered; Esso Petroleum Co Ltd v Hall Russell & Co Ltd and Shetland Islands Council, The Esso Bernicia  1 All ER 37 considered; Boscawen v Bajwa, Abbey National plc v Boscawen  4 All ER 769 considered; Banque Financiere de la Cite v Parc (Battersea) Ltd  1 All ER 737 considered; Crantrave Ltd v Lloyds Bank plc  4 All ER 473 considered; Oxfordshire County Council v Oxford City Council  4 All ER 817 considered; Haugesund Kommune v Depfa ACS Bank (Wikborg Rein & Co, Pt 20 defendant)  All ER (D) 226 (Jan) considered. Ibrahim and Barclays Bank plc and another: Chancery Division (Mr Justice Vos): 21 July 2011 Romie Tager QC and Hugh Jackson (instructed by Winckworth Sherwood LLP) for the claimant. Patrick Goodall (instructed by Addleshaw Goddard LLP) for the first defendant. Sarah Harman (instructed by the Treasury Solicitor) for the secretary of state. Circumstances in which doctrine applicable – Loan used to pay off existing debt to third party The claimant was a businessman whose company had distribution rights for vans produced by LDV Ltd, a vehicle manufacturer. LDV Ltd was indebted to the first defendant bank. The second defendant Secretary of State for Business, Innovation and Skills (the secretary of state) agreed to guarantee a new monies facility under which £1.4m was advanced by the first defendant to LDV Ltd, on the basis that recoveries in LDV Ltd’s insolvency would be split equally between the first defendant and the secretary of state, up to the value of £3.2m. LDV Ltd entered into a counter-indemnity, by which it agreed to reinburse the secretary of state for any monies he paid to the first defendant under his guarantee. The secretary of state asked the claimant’s company to back his guarantee in case it was called. In response to a request from the claimant, UBS (Singapore) (UBS), a business providing financial solutions, issued a standby letter of credit (the letter) in favour of the secretary of state payable to him. The letter stated that it would be payable on certification that the ‘amount demanded represents and covers the unpaid sums due’ to the secretary of state from LDV Ltd. The wording of the letter did not make it payable on proof that the secretary of state had paid the first defendant under his guarantee. The claimant indemnified UBS against any sums it had to pay under the letter. In due course, the first defendant called just over £1.4m under the secretary of state’s guarantee, and the secretary of state called for payment by UBS under the letter. The claimant ultimately indemnified UBS. The claimant issued proceedings, seeking to be subrogated to the rights of the secretary of state, in relation to the secured funding provided by the first defendant. The claimant submitted that: first, the payment by UBS to the secretary of state had not discharged the debt due under the counter-indemnity from LDV Ltd to the secretary of state. Secondly, he contended that he was entitled to subrogation to extinguished rights, on the basis that the arrangements with UBS had been a mechanism to ensure that the claimant paid the secretary of state, because the debt due from LDV Ltd had not been discharged by the payment by UBS. Thirdly, he submitted that he was entitled to subrogation to subsisting rights, because the agreement or understanding between the parties had been that he would be entitled to stand in the position of the secretary of state to share in the first defendant’s recoveries from an administration of LDV Ltd if UBS paid as required. Against that background, the issue arose, inter alia, of what the words ‘represent and cover’ had meant in the context in which they were used in the letter of credit and in the demand that the secretary of state had made upon UBS (the demand). The claimant contended that UBS’s payment could not have discharged LDV Ltd’s liability without express authority from LDV Ltd, and that it was very difficult to discharge another person’s debt. The first defendant contended that the entire structure had been established so that, when UBS paid under the letter of credit, LDV Ltd’s liability under the counter-indemnity was to be ‘represented’ and ‘covered’ by the payment. It fell to be determined whether the wording of the letter stated that the secretary of state had to certify that the amount demanded was only ‘sufficient to discharge’ the unpaid sums due from LDV Ltd to the secretary of state, or that he had ‘discharged’ those sums. The claim would be dismissed. In considering the meaning of ‘represent and cover’ as used in the letter, it was necessary to give the words their dictionary meaning. The intention of the parties would be important: in the instant case, the intentions of the secretary of state as the party to whom the debt under the counter indemnity was due, and LDV Ltd as the obligor under the counter-indemnity. Although the intentions of the parties had to be primarily divined from the documents they had entered into, it was permissible to look at other evidence to consider what the parties’ understandings had been (see  of the judgment). In the instant case, UBS would undoubtedly be bound by the letter of credit. All the parties had ultimately seen the wording of the letter, commented on it and agreed to it. In the circumstances, the usual usage of the word ‘cover’ would be ‘discharge’ rather than ‘be sufficient to discharge’. In the first paragraph of the letter, the word ‘covering’ meant ‘protecting’. In the second paragraph of the letter, and in the demand, it meant either ‘be sufficient to discharge’ or ‘discharges or pays’. Consequently, the secretary of state was required, in order to make his claim against UBS, to certify that the amount demanded represented and covered (meaning discharged) the debt due from LDV Ltd to the secretary of state. In such circumstances, the secretary of state could not properly approbate and reprobate. He had secured the payment from UBS on the basis of a representation that would discharge the LDV Ltd debt. He had to be taken as to have intended that it would be so. LDV Ltd had itself given the secretary of state the authority to demand the money due from it from any other person. The fact that the certification might turn out to have been ill thought out and to have had unforseen consequences was beside the point. On the evidence, it was clear that the parties to the counter-indemnity had to be taken to have intended what the secretary of state had said had been happening when it had asked UBS for the money (see , ,  of the judgment). When UBS had paid the secretary of state, the debt due from LDV Ltd to the secretary of state under the counter indemnity had been discharged (see  of the judgment).
Richard Burnett-Hall, solicitor, Stockbridge, Hampshire The president’s address on the future relationship between barristers and solicitors is wholly commendable, not least his suggestion that both solicitors and barristers undergo the same training. Notwithstanding the efforts of the bar to broaden its intake, the costs of training for the bar and, optimistically, assuming a seat in chambers, the inevitable risk of meagre earnings for several years thereafter means that the intake is substantially skewed towards those with independent means who are often privately educated. This not only discourages able candidates from other backgrounds, but more insidiously maintains the public’s impression that the bar and the judiciary are predominantly public school- and Oxbridge-educated, and from a class apart. Far better that all lawyers should train in firms, whether of solicitors or mixed practices, where they are adequately paid during training. Those who found their talents lay in advocacy could subsequently seek to move to the bar and practise independently. Not only would the social skewing of the bar’s intake be appreciably lessened, but also barristers would have had the salutary experience both of working much more closely with clients, and equally of instructing barristers, and thus be far more aware of how their lay and professional clients perceive them.
Lord Justice Jackson’s suggestion of a fixed-cost regime is an improvement on the government’s proposals, but falls short of providing ‘copper-bottomed’ compliance with the Aarhus Convention. The convention requires that access to courts is ‘not prohibitively expensive’ in environmental cases. Jackson supports the proposed fixed cap of £5,000 on claimants’ costs. This is too high because it would deter claimants of ordinary means from pursuing environmental judicial review – £5,000 is roughly 10 weeks’ salary for the average working person. Jackson also supports the government’s proposals for defendants to be allowed to apply to set aside the cap on the basis of publicly available information about the claimant’s means. This would prohibit many environmental charities (whose accounts are publicly available documents), or even homeowners of modest means, from bringing litigation. It would be simpler to exclude all for-profit companies from the cost protection regime. This would provide affordable access to justice in genuine public interest cases, while ensuring that cases brought to promote private interests are subject to normal costs rules. We do need to fix costs to save the planet – but they need to be fixed at an affordable level. James Thornton, chief executive officer, ClientEarth London E8
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Subscribe now for unlimited access Stay at the forefront of thought leadership with news and analysis from award-winning journalists. Enjoy company features, CEO interviews, architectural reviews, technical project know-how and the latest innovations.Limited access to building.co.ukBreaking industry news as it happensBreaking, daily and weekly e-newsletters To continue enjoying Building.co.uk, sign up for free guest accessExisting subscriber? LOGIN Get your free guest access SIGN UP TODAY Subscribe to Building today and you will benefit from:Unlimited access to all stories including expert analysis and comment from industry leadersOur league tables, cost models and economics dataOur online archive of over 10,000 articlesBuilding magazine digital editionsBuilding magazine print editionsPrinted/digital supplementsSubscribe now for unlimited access.View our subscription options and join our community