Jackson's proposals on civil litigation costs divide legal profession

Going to law is expensive, favouring those with deep pockets. If you are of modest means, you are at a serious disadvantage.
What can be done about it? Lord Justice Jackson’s extensive recommendations on civil litgation costs, published last week, have been a talking point across the legal profession. Opinions remain divided with lawyers working with middle-sized businesses, in particular, expressing their reservations about how their clients would be affected.
Jackson’s intentions are clear — to improve access to justice. But that means introducing systemic change to produce a tightly regulated market that makes radical changes by, for example, imposing a cap on the scale of success fees and stopping after the event (ATE) insurance premiums and success fees being recoverable from unsuccessful opponents.
Andrew Parker, of Beachcroft, is enthusiastic about the proposals but emphasises that they have to be seen in the round. “To achieve the change required, they must be introduced in full,” he says. “Some measures could be introduced quite quickly, others will require legislation. This means they will be phased in over time. There could be a problem if the Government introduces them only in part or does not get around to introducing them all.” Jonathan Sacher, head of litigation at BLP, agrees that Jackson’s aims are laudable but underlines the practical problems. “They are highly complex and require a vast amount of tinkering with the system. Bringing them altogether might be difficult.”
One of the biggest areas of contention surrounds Jackson’s views on claims management and insurers and other intermediaries selling on referrals to lawyers in personal injury cases.
Jackson wants to ban this practice outright. Not surprisingly, his proposal has been attacked by organisations such as Contact Law, one of the largest providers of client introductions in the UK. “Calls to ban referral fees for personal injury cases are misjudged, considering the many benefits referrals bring to consumers and law firms,” says James Vintin, of Contact Law. “With the legal market facing the huge challenges of the Legal Services Act, referrals are more important than ever in linking consumers to relevant legal practices. The issue of referral fees is a bit of a red herring.”
However, John Spencer, chairman of the Motor Accident Solicitors Society, endorses the proposals, saying that they are well researched and evidence based. “Many introducers make their decision [on to whom to refer the case] primarily, if not exclusively, on ground of price not service excellence. In this sense they provide a disservice — not service — to the consumer.” The amount of money available for genuine legal advice also is reduced significantly.
By contrast, he says, there should be more reliance on schemes such as the Law Society’s Personal Injury panel. “This operates a real competency test that is not price driven,” he says. “Its selection process is exacting.”
In another areas of important change, Sacher worries that the reforms might push the UK on a “dangerous slide” towards a North American model of contingency fees. “I work in both the US and the UK, and I don’t think that we have anything to learn from the Americans,” he says. “In the US, cases tend to be taken on a much more speculative basis in the knowledge that they will end up in front of a jury.”
The implication is that rather than access to justice, the motive in many American cases is access to a lottery-style payout from a sympathetic group of peers. We could be in danger of importing a heightened sense of litigiousness driven purely by the profit motive, a world away from what Jackson has in mind when he talks about access to justice.
Certainly, he faces criticism that while he knows about the law, he can be naive about how the money side works. For example, his endorsement of before the event (BTE) insurance is misplaced, says Michael Frisby, of Stevens & Bolton. “BTE insurance usually means that lawyers are involved on a limited scale,” he says. “I don’t think that the kind of products that Jackson favours are actually available.”
Meanwhile, Derek Patterson, managing director of IM Litigation, a third-party funder, believes that the kind of constraints that Jackson wants to impose on contingency fee arrangements will drive investors towards the US. “We are in competition with the US for investors . . . Jackson’s proposals are in danger of destroying the investor case for this country. The result is that some cases just would not attract finance.”
But would the markets adapt? Andy Lyon, head of professional negligence at TLT, is confident that solicitors will adapt and carry on — whatever the changes. “We’re prepared to be innovative and competitive,” he says. “We’ll come up with alternative ways of funding cases, no matter what.”

Former RBS chief Robertson denies Enron fraud

The former head of Royal Bank of Scotland’s (RBS) corporate banking and financial markets group has denied the bank had made a secret arrangement with Enron, the collapsed energy giant, during a £130 million structured finance deal.
Iain Robertson, who sat on the RBS executive board at the time of the Summer 2000 transaction, said that his bankers had received informal assurances from Enron that RBS would make a decent return on the deal — but these were not a clandestine legal agreement.
Mr Robertson, who retired from RBS in 2005, was giving evidence at the High Court on behalf of the bank, which is defending an allegation of fraudulent misrepresentation relating to the Enron deal.
The deal, called ETOL, was linked to Enron's giant Teesside power plant and was designed to allow the energy group to book future profits from the plant in its accounts before they had been earned Raiffeisen Zentralbank (RZB), an Austrian bank, lost the bulk of its £10 million investment in ETOL and is suing RBS for damages.
RZB claims there was a secret deal between RBS and Enron to increase the return on RBS’s stake in ETOL. RZB says that the documents shown to investors stated RBS would receive 3 per cent but Enron had secretly made a binding commitment to pay the bank 13 per cent.
RZB claims the deal should have been disclosed to other investors and it therefore invested in ETOL on the basis of misleading information.
Mr Robertson, who sat on the RBS group credit committee that approved ETOL, said that assurances from Enron that RBS would be paid 13.5 per cent were not disclosed because they were “no more than an indication” carrying “no legal weight whatsoever”.
Jeffrey Gruder, QC, for RZB told Mr Justice Clarke that Paul Chivers, Enron Europe's then chief financial officer, had told an RBS banker that the bank had Enron’s “absolute commitment” that it would receive the expected return.
Mr Robertson said: “We did not take it as a formal agreement …it was for comfort only.”
Asked whether he understood the intricacies of the ETOL deal, Mr Robertson said, after a long pause: “I certainly understood what the effects of it were” adding that he relied on bankers and lawyers working directly on ETOL to handle the complexities “within structures”.
RBS said: “These claims have been thoroughly investigated and we are satisfied that all the relevant employees acted honestly and to the highest professional standards. For these reasons, and because RBS believes the claim has no merit, we are defending this claim."

The way lawyers do business is changing - is it time for them to plan ahead?

Clients say that law firms are not doing enough to respond to the economic downturn. Law firms, meanwhile, say that clients are too focused on costs. These are two of the main findings of a recent study, commissioned by LexisNexis, on the state of the American legal industry.
Pricing emerges as the top issue, according to 71 per cent of the 150 in-house lawyers surveyed, and to 60 per cent of the 300 practitioners in private practice. Taking various findings together, American lawyers seem to agree that, in due course, hourly billing will be largely displaced by alternative billing structures — but not in 2010 and never entirely. Clients are keener on this shift than law firms.
My own research suggests that an analogous survey in the City of London would yield similar results. Here, many general counsel say that they are under pressure from their boards to cut legal budgets severely from between 20 to 40 per cent. Naturally, they are turning to their law firms to ask them to rethink their hourly rates and charging models.
In turn, firms have been proposing volume discounts, blended rates, fixed fees, various forms of value billing — and more. However, cynics say that when most firms present alternatives to hourly billing, the underlying modelling is still based on time spent. And, because they are not inclined to bid in a way that will reduce profitability, the proposals contain charging models that may seem more palatable but do not substantially reduce the final bill.
In the end, the key issue is whether charging differently will yield the savings that clients require or whether firms and clients need to start working differently. Intense recent interest in legal process outsourcing, in leasing lawyers and in sub-contracting to lower-cost jurisdictions, suggests that some clients are encouraging radical new ways of working.
The business case is clear. If routine and repetitive work can be undertaken in India at one tenth of the cost, this will bring savings far in excess of, say, volume discounts from firms that work in the traditional manner.
Given these changes in billing and working practices, opinion in the US, according to the survey (www.lexisnexis.com), is evenly split on the future of the legal industry — about half the clients and law firms believe that the recession will change permanently the way that legal business is undertaken.
Whether the profession is enduring a temporary blip or a longer-term upheaval is also a matter of discussion. Some City firms are embracing the hunker-down strategy of cutting costs, winning as much work as possible, keeping morale up and hanging on in there until the economy recovers when, it is assumed, pre-recession working and billing practices will resume.
Other firms believe that highvolume, low-margin legal work is being irreversibly changed but that, for their high-end work, clients will be happy in more buoyant times to revert to conventional ways.
A growing group of senior lawyers and clients is less sanguine. They believe that these troubled times are exposing many unjustifiably inefficient practices. They realise that new ways of working are emerging; that the costs of routine and repetitive legal work can be cut dramatically; that boards and chief executives are now aware that lawyering can be conducted differently; and that irreversible change is likely to extend to some parts of high end work, such as document review and due diligence.
This view holds that there will be no return when the economic storm passes. Even if the economy bounces back, clients will not want to go back to the old tariff.
What do these possible changes mean for the next generation of lawyers? According to the survey, 65 per cent of law students (100 were questioned) say that law schools do not teach the business skills needed to practise law in today’s economy. Ninety per cent of practising lawyers agree.
There is clearly a debate to be had about the extent to which law schools should teach about the practice of law alongside the substantive law. But the survey’s indictment of law schools, even if justified, obscures a bigger point — no one has much clue what we are training tomorrow’s lawyers to become.
A decade from now it is likely that lawyers will be undertaking at least some jobs that do not yet exist, using a range of technologies that have yet to be invented. Worryingly, it is far from clear who in the City is taking the time to think systematically about the long-term future of legal jobs and legal service.
The author lectures and consults internationally. He is Visiting Professor at the Oxford Internet Institute, the author of The End of Lawyers? (OUP, 2008)

Lawyer of the Week: Michael Wolkind

Michael Wolkind, QC, of 2 Bedford Row Chambers, acted for Munir Hussain, a businessman jailed for 30 months for permanently injuring an intruder. He was freed by the Court of Appeal headed by the Lord Chief Justice, and sentenced instead to 12 months, suspended for two years.
What were the main challenges in this case and the possible implications?
To encourage a jury to a “generous” verdict, if not, then the trial judge to a sympathetic sentence, if not, then the Appeal Court to a merciful review. Had I failed, the overwhelming mood of the public would have been left dramatically adrift from that of the courts. In the event, Mr Hussain received the benefit of a considered and enlightened judgment from the Lord Chief Justice.
What was your worst day as a lawyer?
Head down, checking my notes for a closing speech in a murder, I walked into an Old Bailey courtroom, crossed the entire room, But why was the judge there already, and a witness being cross-examined by strange counsel? The jury was unfamiliar. Wrong court.
What was your most memorable experience as a lawyer?
A defiant jury who recognised the tragedy of a young man who accidentally stabbed his brother. The prosecution eventually dropped the murder charge and he pleaded guilty to manslaughter. The jury refused to convict, ignoring the judge’s directions.
Who has been the most influential person in your life and why?
My wonderful parents whom I miss daily. Kathy, the only one of my pupils I married. Anti-Establishment figures: Tony Benn, Paul Foot, the religious philosopher Maimonides, the author Bernard Malamud and whoever wrote “excel if you must but don’t excel the World”.
Why did you become a lawyer?
I have no university degree so I was looking for something fun and easy.
What would your advice be to anyone wanting a career in law?
Don’t believe anyone who says it’s fun and easy. It’s stimulating, deeply satisfying, but constantly demanding.
If you had not become a lawyer, what would you have chosen and why?
I would have worked with children or as a bereavement counsellor. I volunteer in those areas now and am constantly enthused.
Where do you see yourself in ten years?
Still representing the most unpopular defendants like the London Nail Bomber and the occasional popular ones like Munir or Greenpeace protesters. I will still be infinitely proud of my son, David, and my daughters Rikki and Tori. I will still be enjoying my dogs Cato, Dylan and Milo, who have each promised me never to die. I will still be waiting for Barnet FC to win a game.

'Criminal barristers feel that they have an economic gun to their heads'

Paul Mendelle, QC, is one of those barristers the public loves to hate. He defends the indefensible, those accused of rape, murder, unspeakable acts of cruelty. His last big case was acting for Baby P’s mother, Tracey Connelly.
He doesn’t find it easy. “I don’t know how people do what they do. I am also incredibly squeamish — I look at photographs of post mortems pretty quickly. But like doctors, barristers develop a professional way of dealing with things.” And, he adds, “behind every headline are flawed human beings. They’re never quite as portrayed.”
But he insists: “I don’t get guilty people off. I try to ensure, along with other barristers, that people who are not guilty are not convicted.” Prosecutors, he says, tend to be more detached. Mendelle also has a natural empathy with the underdog. “I like to fight hard to win.”
Which will come in handy. As chairman of the 3,600-strong Criminal Bar Association (CBA) he is organising roadshows on the latest proposals on criminal legal aid.
function slideshowPopUp This battle is far from won. Two sets of options are on the table: one from the Legal Services Commission (LSC) on high-cost trials and the other from the Ministry of Justice (MoJ) on defence fees generally. Both mean big cuts. The MoJ paper proposes either a one-off cut of 18 per cent for all hearings or a smaller 13.5 per cent decrease over three years — but with strings attached. The LSC paper outlines three options, including one already rejected by the commission and the MoJ as “impracticable and unworkable”, Mendelle says — namely extending graduated (fixed) fees from 40- to 60-day trials. The aim is to find up to 50 per cent savings.
“We know this is an option dreamt up on the hoof because it had never featured in any discussions or negotiations we had had with the LSC and MoJ in the previous 18 months. Once again we’d negotiated with the Government in good faith and, once again, the Government has repaid us by not so much moving the goal posts as knocking them down and repainting the pitch into the bargain.”
Barristers have put forward an alternative scheme that pays a fair fee, controls costs and cuts red tape: the present management of legal aid by the LSC has been criticised by the National Audit Office as wasteful and expensive. Money could also be saved jailing fewer petty offenders, he says.
“People are very, very, very angry. They feel they don’t have a free choice. They have an economic gun to their heads. But the price of accepting the apparently better offer is a bad scheme.” The CBA is taking counsel’s advice on prospects for judicial review.
Mendelle, a father of three, grandfather of two and ardent football supporter (Manchester United — “since 1957 when they were losing the Cup Final”) came late to the Bar. He went to Ilford County High School, Essex (his father was a plant manager in an asbestos factory), then to the City after “less than distinguished” A levels, doing capital equipment finance. But the work bored him and brushes with lawyers, including winning a small claims case, persuaded him that he could do the job himself. He read for a law degree part-time while working, then gave up work to sit Bar finals.
Pupillage was with top sets, with pupil-masters Stanley Burnton, Alistair Macduff and Alan Moses (now all judges). His tenancy was in a “young and hungry” defence set and so began a mixed civil and criminal practice that is now all crime. At 63, joint head of 25 Bedford Row chambers and at the top of his game, what does he think of the justice system?
The recent Edlington boys case, he says, is “thankfully rare”, but such cases pose particular difficulties. Mendelle is wary of commenting on the basis of media reports but says that while many argue that the boys are too young to be tried or sentenced in an adult Crown Court, “this is the system we have at the moment and the court has to pass sentences that fit the crimes committed by these children. It is an exceptionally difficult balance to strike.”
He is concerned, as a passionate supporter of the jury system, that the jury-less trial may be the thin end of the wedge; and about victims of crime being misled by politicians as to how much of a role they really have in the criminal justice system. That exists, he says, to “do justice between the parties; it is not a private dispute in which victims sometimes think the prosecutor is acting for them”. And on sentencing, judges should be trusted to get it right and not fettered with ever more statutory guidelines. “Ministers can’t micro-manage every case. That produces injustice.”
Meanwhile, it is back to fighting the case for the Criminal Bar. “We are pragmatic and accept the need for cuts. But that does not have to mean these savage and unprincipled cuts to fees that have already seen their value eroded by a decade of inflation.”

Judges throw out measures to freeze assets of terror suspects

Ministers will rush anti-terrorist legislation through Parliament after the Supreme Court yesterday quashed measures introduced by Gordon Brown to freeze the assets of al-Qaeda suspects.
In a landmark decision seven Supreme Court justices ruled that ministers acted unlawfully in imposing financial restrictions on individuals without a vote in Parliament. They allowed a challenge by five men who had their assets frozen.
The orders were Britain’s response to UN Security Council resolutions calling for action to halt the financing of international terrorism. The justices ruled, however, that if the Government “considers that such far-reaching measures are necessary or expedient for combating terrorism or honouring the United Kingdom’s international obligations it must obtain approval for them from Parliament”.
The Treasury said that it was seeking cross-party support to pass emergency legislation before the election.The justices condemned the Terrorism (United Nations Measures) Order 2006 and the Al-Qaida and Taliban (United Measures) Order 2006 as oppressive and paralysing. Lord Hope of Craighead, the deputy president of the court, said that those affected were in effect “prisoners of the state”.
He added: “This is a clear example of an attempt to adversely affect the basic rights of the citizen without the clear authority of Parliament.”
The justices said that those affected by the orders had not had the opportunity to challenge the grounds on which they were suspected, but not charged, of financing terrorism.
The court will rule today on when the quashing of the orders should take effect. It may delay the move to allow Parliament to pass legislation denying the men access to their funds.
In a second ruling the court lifted the anonymity orders granted to the men after a challenge by media organisations, including The Times. Lord Rodger of Earlsferry said that there was “never the slightest justification” for the orders and called for the growing phenomenon of giving anonymity to litigants to stop. One of the men was named in an earlier decision as Mohammed al-Ghabra. The others are: Mohammed Jabar Ahmed, Mohammed Azmir Khan and Michael Marteen, known previously as Mohammed Tunveer Ahmed. The fifth was Hani El Sayed Sabaei Youssef, who was granted anonymity to protect his family in Egypt. The court heard he gave interviews regularly.
Mr Justice Collins, in the High Court, originally outlawed the Treasury’s powers to freeze assets as unfair and a breach of fundamental rights. That was overruled by the Court of Appeal and the case became the first to be heard in the Supreme Court.
The justices said that the issue was whether Parliament intended to give the Treasury power to make orders that “interfere so profoundly with individuals’ fundamental rights without parliamentary scrutiny”. Parliament “did not so intend” and in making the orders the Treasury exceeded its powers, they said.
Terrorist financing orders were supposed to give effect in British law to UN Security Council resolutions requiring member states to freeze the assets of Osama bin Laden, the Taleban and their associates.
Eric Metcalfe, of Justice, the law reform and human rights group, said: “It is right that the Government takes action to prevent the financing of terrorism. But it was wrong for the Treasury to do so by side-stepping Parliament and violating basic rights.”
Judicial defeats for terror laws
2004: House of Lords rules that the indefinite detention without trial of foreign terror suspects at Belmarsh jail is unlawful.
2007: Law lords rule that the most restrictive aspect of the control order regime — the 18-hour curfew — is a breach of human rights.
2008: Five men cleared by the Appeal Court of offences under Section 57 of the Terrorism Act; judges say that it is not illegal to possess extremist material unless it is used to inspire terrorism.
2008: Court of Appeal blocks the deportation to Jordan of extremist cleric Abu Qatada; he is later released on bail then re-arrested on the basis of intelligence that he was about to flee the country.
2008: Appeal Court blocks attempt to increase four-and-a-half year jail term for convicted terrorist Sohail Qureshi.
2009: Government forced to rescind some control orders after House of Lords ruled that suspects had to be told what some of the secret evidence against them said.
2010: Supreme Court declares that terrorist asset-freezing orders, introduced by the Treasury when Gordon Brown was Chancellor, are unlawful.

Hedge funds’ $1bn lawsuit says Porsche lied on VW ambition

American hedge fund managers sued Porsche and two of its former top managers yesterday for more than $1 billion (£620 million), in what may be one of the biggest damages claims ever received by a German company.
Four fund managers — Elliott Associates, Glenhill Capital Management, Glenview Capital Management and Perry Capital — accused the sports car manufacturer, its former chief executive and its former chief financial officer of repeatedly lying about their intention to take over Volkswagen.
The fund managers claimed that they had lost more than $1 billion because they were shorting VW stock in October 2008 when Porsche surprised the stock market by revealing a 75 per cent stake in VW, sending the Beetle maker’s shares rocketing.
Phil Beck, the funds’ attorney, said: “Porsche should be held accountable in a court of law. We’ll do whatever it takes to make sure that the rule of law is upheld.”
Other VW investors are expected to join the lawsuit, which was filed in New York, boosting the value of the claim to as much as $10 billion.
A spokeswoman for the funds said that they had tried to negotiate an out-of-court settlement with Porsche and its former executives. “Having been rebuffed, however, this suit became the only remaining avenue for the funds to protect their rights,” she said.
A Porsche spokesman said that the company rejected the claim, adding that Porsche had “always abided by current capital markets law”.
An investigation by Porsche into the conduct of Wendelin Wiedeking, its former chief executive, and Holger Härter, its former vice-president of finance, found no wrongdoing, the company said last December.
Porsche raised its stake in VW by increments between 2005 and 2008 and, according to the lawsuit, by February had decided that it wanted to own a controlling stake of at least 75 per cent. Porsche hid its rising interest, however, by buying part of the stake through cash-settled stock options that did not have to be declared under German financial markets rules. At the same time, Porsche repeatedly denied that it intended to take over VW, insisting that it wanted only an “innovative and efficient automotive alliance”.
The American hedge funds, confident that no takeover that would drive up VW’s shares was imminent, were selling borrowed VW shares, in the hope of buying them back more cheaply at a later date and pocketing the difference, in what is known as a short sale. However, on October 26, 2008, Porsche revealed that it had put together a 75 per cent holding in VW and intended to acquire the company.
The surprise takeover statement sent VW shares up, prompting short-sellers to unwind their bets. Because there were more VW shares on loan than were available in the market, the short-sellers’ scramble to buy what little VW stock was available drove the shares’ price higher and higher.
The hedge funds were caught in a “massive short squeeze”, the lawsuit said. On October 28, VW shares soared above €1,000 each, briefly making the carmaker the most valuable company in the world.
The American funds lost more than $1 billion when forced to buy VW shares at the inflated price in order to meet their obligations to return the shares they had borrowed. Porsche profited from the squeeze by selling some of its secretly aquired stock.
Porsche’s takeover of VW failed and the two are now working on a merger expected to be completed in 2011.
German regulators studied Porsche’s actions, but said that they found no evidence of market manipulation. State prosecutors are investigating the affair.