Should GCs be appointing more off-panel specialists?

The panel appointment process is a necessary method of locking in expertise, rates and service level agreements to provide for the predicted needs of a business over the life of the appointment, creating a more or less predictable level of budgeted legal spend over any given financial year. Litigation, of course, is very difficult to predict and budget for with any degree of precision. 

The private practice disputes market has evolved substantially over the last five or six years with arguably some of the most innovative and challenging work now being conducted by boutique or specialist litigation/arbitration firms.

In founding Three Crowns, Georgios Petrochilos said:

‘The firm has created a new structure, which will offer a unique business model in the legal sector. Three Crowns’ structure permits partners to have hands-on involvement throughout, as well as lean staffing and flexibility in pricing, ensuring that clients receive value without waste.

We think that this model will provide better service for clients than the large firms can offer. We can be more focused on delivering efficient outcomes and we can ensure more hands-on partner involvement. Law firms now impose so many duties on partners that they are unable to take as active a role in the work as their clients are demanding, so we provide a much better alternative.’

These comments hold true for many pure disputes firms, from the well-established Stewarts Law & Quinn Emmanuel, to relative newcomers Enyo Law and Signature Law, and actual newcomers (to London) Jenner & Block. Pure litigation firms are structured and managed entirely to service disputes efficiently – they need to be efficient not only to compete with full service firms but also because this is all that they do. They cannot rely on transactional departments 
to level out the financial peaks and troughs of litigation and this means that they need to staff and manage their workloads in a lean and efficient manner. The benefits 
they gain from this approach are shared 
by their clients.

In large, full service firms there can be a tension between the corporate/corporate services teams and the dispute resolution teams; the former may worry about the client relationship and reputation during high-stakes litigation – the more important the client, the greater the worry – and the litigators worry about hard-won instructions being lost due to conflicts arising from other departments, offices or jurisdictions.

For the lawyers conducting the work, there is clearly an argument in favour of practicing from a specialist disputes-only practice not least the fact that they can manage the litigation and client relationship without reference to or oversight from a client relationship manager. Can the same be true for GCs? Can they, and the businesses they represent, benefit from a wider use of specialist dispute firms?

Most off-panel instructions conducted by litigation-only firms comes to them because a conflict has prevented the panel firm(s) from acting. This work is usually referred to a trusted litigation-only firm by a full-service practice that is happy to refer knowing that the matter will be conducted to the highest possible standards and that there is no prospect of the litigation firm seeking to take ownership of the client relationship.

In some cases, such as the RBS shareholder litigation conducted by Stewarts Law and Enyo Law, the firms act on behalf of hundreds of institutional and individual investors and it would be almost impossible to imagine a full-service firm being in a position to represent all claimants involved. Similarly, in the Mastercard litigation Stewarts were able to act for 12 major UK corporates seeking a recovery of sums paid to Mastercard who, the European Commission found, operated as a cartel in fixing the interchange rates charged to corporate users of their services.

There are relatively few instances of large corporates electing to directly instruct litigation-only firms for litigation or arbitration disputes that are not either conflicted out of their panel firms or very large multi-party disputes. Often there are excellent reasons why a panel firm will be the preferred choice for the dispute – they may have litigated a similar matter on behalf of the organisation several times and have no learning curve to overcome or simply have a degree of familiarity with the systems, needs and objectives of the business that cannot easily be replicated by a firm without that degree of exposure to the business.

Litigation-only firms are not only geared to manage very large scale and high-value disputes extremely efficiently, but they are also very well placed to offer alternative funding models to corporates, whether through the use of litigation funders, full or blended rate conditional fee agreements and eventually, once we have a workable system in place, damages-based agreements. They are a resource that seem to be under-used by corporates at present: this may be because there is no challenge to the use of a pre-approved panel firm and little chance of repercussions for doing so, but it seems unlikely that panel firms will always offer the best value for money or route to a successful conclusion of a dispute than a highly specialised litigation only firm. The blame, if that is the right word, seems to lie largely with the litigation firms themselves in that they have not as yet clearly and effectively set out their value proposition to the corporate market. In-house counsel are naturally conservative in approach, but may find that greater engagement with the specialist market would yield improvements in cost and efficiency, while simultaneously allowing their businesses to de-risk their high-value disputes through the use of innovative alternative funding models.

Professional services work is all about relationships, no-one, no matter how 
open minded, will instruct external counsel that they have not met and formed a positive impression of, let alone rely on them for their ‘bet the farm’ litigation. 
The solution must be for partners in specialist litigation firms to invest more time in interacting with the in-house market and for GCs to find a little time in their admittedly packed diaries to meet with specialist firms and determine for themselves whether they are able to offer a superior solution in some instances than their panels.