The high and open-ended cost of legal services is a perennial issue for companies and individuals alike.
Chicago law firm Bartlit, Beck, Herman, Palenchar & Scott has a business model that challenges accepted wisdom in the legal profession.
In the vast majority of cases, the US firm eschews hourly billing in favour of alternative arrangements that reward success and efficiency.
The most common arrangement is a fixed monthly fee, with the client holding back between 10 and 20 per cent. This amount, plus a potential bonus, is paid only if the client achieves a successful outcome.
It’s an extreme response to client disquiet over the traditional six-minute billing system, and is unlikely to be widely adopted.
However, many law firms are tentatively exploring modified billing arrangements, according to Harris Costing director Michael Jones.
“Clients want more value, more accountability and more transparency,” Mr Jones said. “Time costing just doesn’t lend itself to that.”
“There are all sorts of methods that lawyers are starting to recognise, for their own benefit and for their clients.”
The debate over billing arrangements is just one aspect of the wider issue of legal services costs.
With the ongoing Bell Group litigation highlighting the extreme costs that can be incurred in court cases, there is plenty of interest in alternative dispute resolution (see page 13).
There will also be a big focus on reform of Western Australia’s court system, with new chief justice Wayne Martin QC putting law reform at the top of his agenda.
In his welcome speech earlier this month, Mr Martin outlined numerous reform proposals, including the creation of specialist divisions within the court system and cutting down on wasteful interlocutory processes.
His experience was that a “wholly disproportionate amount of time and money” was expended on such matters.
Mr Martin supported the establishment of specialist divisions so that judges “can develop processes and procedures apt to that type of case and hone their expertise in that area of law”.
He also supported further development of the ‘docket’ system that has already been introduced.
Under this system, each case would be assigned to a judge who has responsibility for managing the case through to trial.
This would confer “much greater flexibility and discretion upon the judicial case manager as to the interlocutory program to be adopted”, Mr Martin said.
“Interlocutory disputes should be actively discouraged and, where permitted, quickly resolved.”
Mr Martin questioned the current approach to pleadings and disclosure of documents, which can consume vast amounts of time and money.
He also believes trial judges should have more capacity to direct the course of a trial, for instance by limiting both the number of expert witnesses and the time taken in oral addresses.
The ‘chess clock’ approach, in which each side is given a specified time to present its case, “has been very successful in commercial arbitration and should be at least considered”, Mr Martin said.
While conservative barristers may resist the reform push, Mr Martin’s proposals appear to be widely supported in the legal profession.
Clayton Utz partner Scott Crabb backed the introduction of a docket system “of the type that has operated so successfully in the Federal Court”.
In terms of specialist divisions, he favoured the establishment of a Commercial Court based on the models adopted in NSW, Victoria or England.
Mr Crabb also supported the swift introduction in WA of uniform evidence legislation, which has already been adopted by the Commonwealth and NSW governments and would achieve national consistency.
He believed reforms aimed at limiting the scope and number of pre-trail procedures would be more contentious but suspected they would win support if they resulted in disputes being resolved quickly.
“If fewer pre-trail procedures are needed to achieve that objective then I would not be surprised if business leaders take the view that the reforms should be supported,” Mr Crabb said.
Freehills partner Paul Evans said the Federal Court had been able to apply effective limits on the discovery process.
“The capacity for that already exists under the rules in WA but it has never been applied effectively,” he told WA Business News.
Sparke Helmore partner Simon Lee believed the WA courts could learn from experience in the NSW Supreme Court.
“They will set a trial date relatively early on and stick to it, they will eliminate interlocutory processes so there will be as few steps along the way as possible, and there is a more robust view in relation to time frames in terms of filing documents or serving evidence,” Mr Lee said.
In terms of managing the cost of legal action, many lawyers believe that budgeting and case management were more important than the billing method.
Mr Lee said his clients were keen to explore alternative billing arrangements but almost invariably opted for hourly billing, so they only paid for work carried out.
“At this point in time, people are most comfortable with hourly costing because they think that is what provides the best value for money,” he said.
Blake Dawson Waldron practice leader, Perth, Philip Edmands said his firm was exploring alternative billing arrangements but had also put a big effort into budgeting and client communication.
This included preparing detailed monthly budgets, followed by reports that specified variances from the budget and itemised the work done by staff engaged on each matter.
Mr Edmands’ colleague, Jon Carson, said the trend toward tighter budgeting of legal services reached ”a new level” last year.
He led a team that spent nearly 12 months working for the state government on the disaggregation of Western Power.
During this process Mr Carson had to provide detailed weekly budget reports on 17 different work streams.
Mr Crabb said businesses should ensure they had appropriate risk management and compliance measures to prevent legal disputes arising in the first place.
Similarly, he said businesses should ensure they had appropriate processes to deal with any crises that may arise.
Where disputes do arise, there are several alternatives to the courts, including mediation, expert determination or arbitration.
“In some cases, these procedures are highly effective and compare favourably to formalised court proceedings,” Mr Crabb said.
However, he said it was dangerous to assume they would always be cheaper or quicker.
Freehills’ Paul Evans said his experience was that 95 per cent of commercial disputes were settled before going to trial.
“The cases that go to trial are by far the exception rather than the rule,” he said.
Barrister Scott Ellis said alternative dispute resolution offered a lot of flexibility, since the parties involved had more capacity to mould the process to suit their circumstances.
This included the capacity to keep the proceedings and the settlement out of the public eye, and to select an arbitrator with relevant technical expertise.
Mr Ellis said another factor was that trials usually produced a winner and a loser, whereas alternatives could deliver a structured outcome that allowed the parties to maintain a commercial relationship.
“Any competent lawyer would look at the alternatives before going to court,” Mr Ellis said.
