The Legal Week Litigation Forum was dominated by talk of client pressure for a new deal on costs and managing disputes. Claire Ruckin reports

When former Lord Chancellor Lord Falconer last year predicted the credit crunch would lead to a flood of disputes, a wide grin spread across litigators faces. But a year on from the panicked predictions following the collapse of Lehman Brothers, it seems for most firms the upsurge in work has yet to come.

Speaking at this year's Legal Week Litigation Forum, held at One Whitehall Place, London, last month, Falconer (pictured)  revised his prediction: "Last year I predicted a tsunami of litigation. Although we have not yet seen any litigation department wiped away with work, there is a gathering storm."

The combined forces of the collapse of Lehman, the massive Madoff fraud and numerous share issue failures have undoubtedly shaped the future of litigation to come. All of which, Falconer believes, plays into the hands of those firms with a strong international presence, as disputes become increasingly international and cross-jurisdictional in nature.

But despite the complex nature of disputes, clients are more demanding than ever before, with lawyers facing increasing pressure to reduce costs and bring more certainty to the process.

Capping the costs

Increasing evidence of tougher budgets, fixed fees and cost capping demonstrates measures being taken by litigators to meet these demands. And it seems that this pressure is not limited to solicitors, with some chambers also going down the route of offering barristers on conditional fee arrangements.

"Commercial organisations of any size feel the pressure of costs and want to know they are getting value for money. The attitudes of many clients have radically changed," Falconer commented.

And with costs at the forefront of most litigators minds, Lord Justice Rupert Jackson's report into the high cost of civil litigation, which is due by the end of the year, was a hot topic of debate at the Litigation Forum.

Given the measures outlined in Jackson's 650-page preliminary report released in May, Falconer predicts that change is inevitable.

In a bid to drive costs down, firms have to look at how they structure their legal teams, with many firms now looking to outsource back office functions and low-level legal work. There is a feeling that in the realms of litigation this option could be more widely exploited than it has been to date. Additionally, the number of secondees being sent to clients has increased significantly, as in-house teams become more demanding in order to meet their own cost constraints.

As Slaughter and May head of disputes Richard Clark commented: "Nothing is off the table in this environment."

Case management

A number of delegates highlighted the importance the recession has brought to making sure that the client is aware of the impact of litigation, and keeping an eye at all times on what they hope to achieve. Many clients would rather avoid litigation if it meant a risk of losing business.

MAN Diesel general counsel, Louise Durose observed: "Winning the case is important, but sometimes it is not as important as ongoing relationships with a customer. It is very important to keep focused and recognise that the customer will probably still be trading with you while the litigation is ongoing."

In many circumstances, both client and customer may benefit in relationship terms from moving away from a traditional monetary-based settlement, and in addition look towards measures such as discounts on future trading.

However, this requires increasing control over costs on behalf of lawyers and a tighter grip on case management. To this end, several delegates believed that it would be beneficial if judges were more vocal during the case management process and more willing to use their powers more forcefully than is currently the case. As Falconer noted: "Case management is not working in a way that clients find attractive."

Increasing regulation

Berwin Leighton Paisner head of financial services Sidney Myers (pictured) spoke of the pressure on regulation as a result of the financial crisis, which has led to many regulators being blamed for not doing enough to prevent the crisis.

"The global financial crisis has seen unprecedented pressure on regulation," he commented. "The regulators have been blamed for not doing enough for preventing the crisis. Public anger over perceived regulatory failure has led to politicians jumping on the bandwagon, which has led to a politicisation of the regulation process."

But while increased regulation is undesirable from a client perspective, it is likely to lead to increased work for litigators, with regulators – particularly the Financial Services Authority and Serious Fraud Office – feeling pressure to prove themselves. And the number of law firms bulking up in this area has seen a notable increase.

Compared to 12 months ago, the sentiment among litigators is much less trepidatious. However, there is wide acknowledgement by both clients and private practice lawyers that change is on the horizon in terms of costing and the way disputes will be conducted and managed. While no one quite seems to have definitive answers as to how this will come about in practice, it is accepted that measures will have to be radical.

Although this means that law firms are going to have to give a lot more ground to clients in these market conditions, there is the expectation that a firm's loyalty will be rewarded when the good times return.

As Herbert Smith head of dispute resolution Sonya Leydecker commented: "Clients are suffering and these days it is not an answer to say that you cannot do cost estimates. It will not wash anymore. There needs to be a shared risk and much more of a partnership approach. It is expected that loyalty will be rewarded when the good times come back."

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Litigation best practice – key issues

Eversheds head of litigation John Heaps (pictured) and Michael Herlihy, general counsel of technology and engineering company Smiths Group, outlined some of the key issues affecting litigation best practice.

1. Uncertainty

Uncertainty is often the hallmark of litigation. There is uncertainty in relation to the ultimate outcome, uncertainty in relation to the costs incurred and uncertainty in relation to the length of time it will take for the matter to be resolved. Litigation lawyers use phrases like: "you have a 60% chance of success in this case". Do they, or more importantly their clients, really understand what that means, particularly in complex cases?

Again, when dealing with costs you hear phrases like: "it's as long as a piece of string" to try to describe the possible costs involved in the particular problem.

I well recall a lawyer from an aerospace company once explaining to an audience of litigation lawyers that if he and his team can predict the cost of a 10-year project to send a man to the moon, we should do rather better explaining the likely costs of a piece of litigation.

So the question is: in an inherently uncertain activity like litigation, do we serve our clients well when we try to assess the true nature of the risk that they face, and is the language that we use appropriate and helpful or could we do better?

2. Managing the process

In this day and age, particularly in the context of the Jackson report on costs, the old traditional 'scorched earth' approach of throwing limitless resource at a problem and charging accordingly will work only in a limited number of high-value cases.

In those circumstances, how do you help clients weigh up the true risk at the beginning and at each stage of the case? How do you reach agreement with your client about the right level of investment? What risks are run if the client and the law firm fail to arrive at a common understanding of what is required?

3. Decision-making

Over the last two years as the credit crunch unfolded, there has been much talk and criticism about the quality of board and executive decision-making. Companies, of course, operate by the decisions that they make. Those decisions are based on the information and advice they receive from internal and external sources. There are many stakeholders. How can companies improve the quality of their decision-making in the field of disputes and litigation?

4. Choosing external advisers

Success or failure can often depend on the quality of the team selected to manage the dispute. When companies select advisers for a dispute (not just solicitors and barristers, but also experts) what are the criteria?

5. Law firm risks

Risk management is a subject not just for clients, but also for law firms. What are the risks that law firms face in this field? For example, they include

• losing the case and possibly the client;
• reputational risk for the firm acting in a case that goes wrong;
• not being paid by a disappointed client or losing a case with a conditional fee arrangement; and
• failing to properly manage the aftermath of a case that goes wrong.

Prevention, not cure

Litigation lawyers are well-placed to help companies anticipate and prevent risk as well as to manage problems when they arise. How can those skills be best put to use?

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