Allocatur

Perfection is an aspiration not a goal

Perfection is an aspiration not a goal - should be a standard direction for many clients to their lawyers. Yet many lawyers, particularly young lawyers would not understand what it means.  To put it another way, "you don't need a Rolls-Royce when a bicycle will do", a quote from Rio Tinto's General Counsel.

It's all about proportionality - whilst in a perfect world, you would interview every potential witness, review every document, not matter how limited the relevance, and conduct endless interlocutory applications to compel the other party to also produce every shred of evidence, it is a rare matter where this level of work is proportional to the the issues involved.

In Australia, this statement is also now the mantra of the judicial system.  Judges and other judicial administrators have recognised that the system cannot support a perfect world.  Courts do not have the resources to allow every case to be run as the "perfect" case.  Discovery is becoming so enormous, that judges must intervene and limit the categories of documents to be produced.  In the Federal Court, the "rocket docket" recognises that parties can't have unlimited time to get their acts together in compiling and examining evidence.  The combined goals of ensuring parties get a fair hearing, whilst also ensuring disputes are finalised in a speedy fashion, mean that no case will be conducted as the perfect case.

So, it's a matter of focusing on what it most important and for clients, on where there money is best spent. Unless you plan how you are going to conduct the matter, and therefore what work you will focus on, you are in danger of doing the following:

• Reinventing the wheel (a recent example - I was asked to advise on cost orders to be sought, and pointed out that I had given exactly the same advice, on the same matter, about 18 months ago)
• Chasing rabbits down burrows but not the rabbit who is the target (example - researching a point of law that is not in issue)
• Finding the weakness in the evidence or the law too close to trial and only after very considerable costs have been incurred  

Case planning and early case assessment, when undertaken which a clear understanding of what the client sees as necessary for the case, are what is required. 

Direct Briefing of Barristers

I recently presented at a conference of In-House Counsel and in one session the question came up about whether in-house counsel would be personally liable for barrister's fees, if they direct briefed.  But what do we mean by "direct briefing" anyway?  Simply, it means that in-house counsel send a brief to a barrister directly, and not involve a solicitor as a middle-man.

The concern was, that unless barrister's cost agreement was with the in-house counsel, and thereby making him or her personally responsible for payment of the barrister's fees, the Bar Ethics Rules preventing direct briefing by a client would be breached.

I am a great proponent of direct briefing as a way of controlling costs.  I will post separately on the dos and don'ts of direct briefing but suffice to say, in-house counsel will not be potentially liable for payment of barrister's fees, nor is there is a breach of either the Legal Profession Act or the Bar ethic rules when there is a direct brief, if done properly.

This is easiest to understand if you keep in mind there are two different aspects to engaging the barrister -  firstly, who is briefing the barrister and secondly, who is agreeing to be responsible for his/her fees.

In-house counsel would brief the barrister, so the direct briefing rule is not breached as the barrister is not accepting a brief or instructions directly from a client (the definition of direct access in the Bar Rules).

However, the company itself (the client) would agree to be responsible for the barrister's fees and therefore the cost agreement would be between the barrister and the client. This arrangement is envisaged by s 3.4.26 of the Legal Profession Act (Victoria) (and equivalent provisions in other state Acts)

s. 3.4.26

(1) A costs agreement may be made:

(b) between a client and a law practice retained on behalf of the client by another law practice;

In this instance, the barrister only has to give the disclosure normally required to be given to a solicitor retaining them on behalf of a client (i.e. details of how the barrister is charging, when he/she is going to bill, and an estimate of fees to be incurred).

To clarify a couple of points:

• Unless the barrister is charging in accordance with scale, a cost agreement is always required.

• Disclosure is not required where the client is a sophisticated client (as defined by the Act), (most commonly publicly listed companies and the Government).

• Only conditional cost agreements need to be signed - for all other agreements it is possible to specify what conduct will constitute acceptance (most commonly continued instructions).

Do your lawyers ask FAQs?

An in-house counsel recently said to me that whilst his client relationship partner had that deep corporate memory, most of the younger lawyers working on his matters did not, and he was a little tired of answering the sorts of questions he felt the law firm should already know.

I was interviewed for this week's cover story in Lawyer's Weekly- "TechMate - How technology can position in-house lawyers to negotiate better with law firms".  An interesting suggestion of one of the other interviewees, Peter Moon, a partner at Logie-Smith Lanyon, was use of a wiki for a particular client, to provide FAQs - answers to those frequently asked client questions.

A wiki could be put to exactly the same use by a client involved in commoditised work.  For example, it could set out your general expectations regarding communications, your preferred format for advice, your billing and engagement guidelines, your general directions regarding accepting service of proceedings, information regarding the correct title of various persons in the organisation for reference in court documents - the list is endless. 

For those doubting Thomases

One for all those doubting Thomases who tell me that no large firm will move away from the billable hour, no matter what their clients want.  Law.com reports that the British company ITV has entirely phased out hourly billing for its legal work.  The firms involved are Slaughter and May, Lovells, Addleshaw Goddard, DLA Piper, Olswang, Charles Russell and Goodman Derrick - not exactly lightweights.  Of interest is that Freshfields have not been reappointed to the panel.

The article reports:

Garard told Legal Week: "None of the firms will bill us with reference to a measure of time on any matters. The pledge forms part of the agreement we have with the firms selected. As far as I am aware, we are the U.K.'s first major corporation to have such a panel. Hopefully people will sit up and take notice and other companies will follow suit."

Lovells ITV relationship partner Peter Watts said: "We always work with our clients to find new ways of working and new ways of thinking about our relationship. ITV is a very exciting client to work with and we hope to do much more with them in the future." 

From an earlier report it appears ITV were looking to use fixed fees, caps and floors, with the rate based on deal completion.  

Earlier this year, Freehills were recruiting a pricing analyst.  All the top tier Australian firms offer fixed fees in certain types of work and on particular matters.  But the billable hour remains the most comforting means of billing for law firms - it's what they are familiar with.

My advice to all clients is to ask.  Until you ask you don't know what the answer will be.  But look at how and what you are asking for.  When I am working with client assisting in managing their legal costs, we put suggestions to the law firms about possible alternative billing arrangements, rather than simply asking the open ended question of "what can you do for us?"  The answer to this question is often "we are interested in exploring alternative billing arrangments with you" with no solid proposals being put.

Clearly ITV put a lot of work into their RFP and were proactive in making suggestions about alternatives.  It may well be that they were also proactive in the whole tender process, with feedback about level of work and possible alternatives.  If your proposal has any element of "success fee" you will need to define what "success" means.  You may need to look at how the law firm contributes to that success.

But the payoffs in certainty of fees make the process very worthwhile.

The ACC Value Challenge

Thanks to Patrick Lamb at In Search of Perfect Client Service for the reference to a Washington Post article "Rethinking Legal Fees for Hard Times".  This article highlights the move to alternative billing and certainly my experience confirms clients are increasingly looking to control legal costs.

I was present at the recent Australian Corporate Lawyers Conferenece, where Fred Cripps, CEO of the American Association of Corporate Counsel, spoke about the ACC Value Challenge referred to in the article.  The aim of the project is:

The ACC Value Challenge seeks to reconnect value to costs for legal services. Our aim is to provide networks, tools, and dialog for both in-house and outside counsel to help us all better manage our clients’ legal affairs.

It's a really interesting concept and one very appropriate for the present times.  My dealings with corporate clients clearly show they are very keen to implement alternative billing arrangments, or something that gives them more control over legal costs and some certainty of spend.  The greatest barrier is the law firm itself, and often it's simply that the law firm itself doesn't know what to do.

My experience in assisting clients manage matters is that something as simple as requiring a matter plan and budget can result in demonstrable savings.  Just my focusing the lawyer on what they are going to do, and how they are going to do it, and tying all meetings to an planned agenda focussing on the matter plan, helps keep everyone on the same road, and reduces the likelihood of being sidetracked from the main issues (and incurring the associated additional costs).

Of course, I am a great advocate of value billing, as the fairest basis of pricing for both law firm and client.  But for those of you who want to take it one step at a time, there are other ways.

7 Habits of Highly Ineffective Lawyers

A post from JD Hull at his What About Clients blog is a lighthearted look at what makes a "useless" advisor to in-house counsel. Mr Hull notes the following attributes:

1. Be risk-averse at all times. Clients have come to expect this from their lawyers. It's tradition. Honor it.
2. Tell the client only what it can't do. Business clients are run by business people who take risks. They need to be managed, guided, stopped. Don't encourage them.
3. Whatever you do, don't take a stand, and don't make a recommendation. (You don't want to be wrong, do you?)
4. Treat the client as a potential adversary at all times. Keep a distance.
5. Cover yourself. Write a lot to the client. Craft lots of confirming letters which use clauses like "it is our understanding", "our analysis is limited to..." and "we do not express an opinion as to whether..."
6. Churn up extra fees with extra letters and memoranda and tasks. Milk the engagement. (If you are going to be a weenie anyway, you might as well be a sneaky weenie.)
7. As out-house counsel, you are American royalty. Never forget that.

I recently read an article from a former in-house counsel, who has now returned to private practice (and apologise to him because I cannot locate the article to attribute the comment). He noted that the best external lawyer was the one who when consulted would say:
"Yes, there is a problem - but I have some solutions."

The Harris Cost Lawyer/Mahlab Recruitment survey found that one of the most pressing issues for in-house counsel was keeping aware of corporate activities that may have legal implications. In-house counsel needs to be able to find solutions to issues brought to them by their internal clients. They don't need external counsel to simply present them with barriers - too many external lawyers take the approach recommended in point 2 above.

KPIs as a Marketing Tool for Law Firms?

The Harris Cost Lawyers/Mahlab Recruitment survey of Corporate Counsel/Law Firm Relationships found that 51% of corporations use panel firms, but only 23% of Corporate lawyers had procedures in place to formally review the performance of their lawyers, even if a panel was used.

Formal KPIs provide a non-threatening environment in which a client can express their concerns and desires. It is an interesting marketing tool for a law firm to propose their own set of KPIs, if the client does not do so. This assists the client, but also sets the ground rules and parameters within which the parties are operating. Identifying appropriate KPIs will require identifying the client's expectations - which is the base starting point for delivering value to the client.

We all should know that we are fortunate if a client expresses dissatisfaction, because at least we then have the opportunity to remedy the situation. 95% of clients keep quite if they are unhappy and simply never come back, or worse still, we both lose the business and end up in a dispute over costs.

Formal KPIs help avoid this.

Do In-House Counsel Charge Other Business Units?

78.4% of Australian in-house counsel do not track internal legal costs - therefore most costs are not passed back to other business units. Only 6% of Australian in-house counsel charge business units, and if they do, costs are generally based on an estimate rather than on time actually spent. Tracking internal legal costs is one way of demonstrating value of the legal department - if this work was not undertaken by the in-house department, significantly greater costs would have been incurred with external lawyers. Rees Morrison has an interesting post about the New York City in house law department sending hypothetical bills to all the City departments it represents. Both demonstrating value, but also a way of encouraging efficiency in the use of the law department. This could also be used to show how a lack of communication within a corporation about business activities can increase costs in the corporation. (see my previous post on pressing business issues).

What do Corporate Counsel want from their Lawyers?

In conjunction with Mahlab Recruitment, my law firm, Harris Cost Lawyers, has recently conducted a survey of members of ACLA (Australian Corporate Lawyers Association) about their relationship with external law firms. In the next few posts, I will look at particular results, with some comment on comparable overseas findings. The full survey results are available at www.harcosts.com or www.mahlab.com.au.

Approximately 1800 corporate counsel members of ACLA asked to respond to the survey, which was made available by ACLA in March 2006. Responses were predominantly from New South Wales (37%) and Melbourne (36%) with the major industry areas represented being Banking and Finance and Energy and Resources.

Respondents were asked what the most pressing business issue was. Number one was reducing the external legal spend, but keeping apprised of other corporate activities that might have legal implications also rated highly. These reflect the combined pressures of financial constraints and increased regulation and compliance.