Change Afoot Within India's Law Ministry

Opinion appears to be divided as to whether the unexpected dropping of H R Bhardwaj, from the post of India’s Law Minister, in Prime Minister Manmohan Singh's new Cabinet, will have a detrimental impact on the pace of liberalization reform for India’s legal profession. In Legally India.com’s coverage, one Delhi lawyer, discussing the likely pace of change had Bhardwaj been invited into the new cabinet, commented:

"If he had come in, we would probably be looking at a December opening."

The dichotomy of views was highlighted by Mulla & Mulla & Blunt & Caroe partner, Shardul Thacker:

"This change will not in any manner hamper the legal liberalization of entry of foreign law firms."

According to Legally India.com, Bhardwaj’s replacement, Veerappa Moily is something of an unknown quantity. With the caveat that I am simply an interested observer, and a million miles away from being an expert on the issue, from a personal perspective, bar the recent passing of the Limited Liability Partnership (LLP) Act, little progress has been made over the course of the last decade. I discuss the LLP Act’s passing in my earlier blog piece, LPO and India News Roundup.

Perhaps a fresh face is just what the doctor (or should I say lawyer?) ordered. Liberalization of India’s legal profession has been tantalizingly just around the corner now for approaching a decade. I first covered the issue in July 2007, in my blog piece Liberalization of India’s legal services market and the impact on the Legal Process Outsourcing Industry. The UK Law Society, however, carried a piece back as far back as 2001 entitled, “India may open the door to foreign practices under licensing agreement”.

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Litigation Funding and Legal Outsourcing – A Marriage of Convenience and a Glimpse into the Future

While reading an article in the U.K. Gazette, entitled "Litigation funding: an overview of a contentious area of growth", I experienced one of those rare revelatory flashes one hopes to encounter regularly but which in reality come along all too rarely.

To set the scene, let us revert for a moment to the recent ValueNotes report, "Legal Services Outsourcing- What do Law Firms Think?", and contemplate both the drivers and the barriers to entry impacting on law firms considering or rejecting legal outsourcing. Despite valiant attempts within the LPO industry to downplay its significance, cost remains the ultimate driving force. While it has become almost de rigueur to ignore the labor arbitrage differential as an attraction, I however embrace this. Simply identifying cost as the clear frontrunner in the driving forces does not equate to a disregard of quality and efficiency as being essential alternate drivers, but rather, to an accurate comprehension of our clients’ and potential clients’ motivations.

In my blog piece discussing the report’s findings, I commented that unsurprisingly data security was rated as the top concern among those that had previously offshored legal work, whereas the perceived lower quality of work was the top rated barrier to entry for those yet to dip their toes in the offshore waters.

What if there was an option that accelerated a potential litigant’s legal representation to embrace cost control, and concurrently shifted at least part of the risk burden associated with the legal outsourcing relationship on to another party’s shoulders?

That option exists in the emerging litigation funding industry. Litigation funding, a private equity and investment industry active already in the UK, is now rising in prominence in the U.S. On June 2nd, RAND Institute for Civil Justice and UCLA School of Law are hosting a conference entitled Third Party Litigation Funding and Claim Transfer at Rand Corporation’s offices in Santa Monica.

Through litigation funding, companies and organizations can seek funding to support their litigation and arbitration claims. If a claim is approved for funding because of its merit and other factors, it receives funding for legal fees and other litigation costs through to resolution and hopefully to recovery. If there is a recovery, the Funder receives out of the proceeds, the money it spent to pursue the case, and in addition, a negotiated share of the proceeds.

Funders offering funds to support claims have widely varying requirements and criteria. Some, for example, generally favor matters where the potential recovery is between about $25 million and $50 million or more, in claimed damages, and expected costs between $3 million and $10 million. Others have much lower thresholds and favored claim/cost zones. Obviously, the specifics vary depending on the case. Historically, according to unverified information in this mostly private industry, Funds have in the past generally approved 1 out of 10 applications. Today, with the surge in litigations and applications for funding, the approval rating could well be lower than before. Of course, at all stages, crucial threshold requirements come into play, including having a strong case in terms of liability, with the potential of significant damages recovery. What is especially significant to the legal outsourcing industry, is that in addition to the importance of these requirements, the level of litigation fees and costs potentially on the line for the Funder is clearly also of central importance.

Let us now turn our focus back for a moment to LPO. According to the 2007 Socha-Gelbmann 5th Annual Electronic Discovery Survey, attorney document review accounts for 24% of entire legal spend. This figure relates to the entire legal spend, not merely the costs associated with litigation. Of course those within the LPO industry have all referenced many times the much vaunted KPMG estimate that first level document review encompasses anywhere between 58% and 90% of total litigation costs.

Specifically pertaining to document review, conservative estimates identify cost savings of 50% achievable through the utilization of offshore legal process outsourcing. If we hypothesize a case with anticipated pre-LPO legal fees in the region of $2 million, and if we base our calculations on the KPMG figures, with LPO, those anticipated legal fees for our hypothesis now come down to $1.1 million to $1.42 million. How many more applications for funding would be approved if the level of fees for which the funder could potentially be on the hook was reduced by such margins?

Now let us return to those main law firm concerns i.e. security and client confidentiality and of course quality of work. Clearly any application for funding requires due diligence and investigation of the suitability of any expert, professional body and of course, if an LPO is involved or recommended, the LPO involved in the incurrence of legal fees and costs. It is not even beyond the realm of possibility that in addition to the extra layer of vetting of the LPO carried out by the Funder, that the same Funder could take on an element of the risk burden associated with the contracting for LPO services. Of course this would likely necessitate recognition of an as yet unidentified uplift in the Claimant’s costs, namely the agreed percentage of the recovery going to the Funder.

So to recap, on the client side there is the ongoing pressure to reduce legal spend; during a time when the number of litigations as well as the potential costs of litigation are rising. Both LPO and litigation funding possess synergistic solutions to this dilemma. In addition, the very existence of LPO as an option can increase the likelihood of a litigation funder to commit to funding a particular matter, whereas the involvement of the funding company might help assuage some of the main barriers to entry into LPO on the part of the client’s outside counsel representation. In an LPO world where innovative and forward thinking providers are continuously striving to identify synergistic partnerships that can provide clients with cost-effective solutions right across the legal vertical, I anticipate that over time we will witness significant collaboration with the Litigation Funding industry.

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LPO News and Articles of Interest Roundup

Lovells are reportedly extending an outsourcing programme for document production work across its London office. The firm is also in the process of piloting the scheme in several international offices. According to Legalweek.com the top 10 City law firm is planning to send document production work from all practice areas to Exigent in Cape Town, following a pilot scheme launched in its London real estate practice last year.

The potential impact of the UK’s Legal Service Act on the structure of the law firm of the future was highlighted in another Legalweek.com piece. The article discusses how external investment will radically alter the traditional operating method for the delivery of legal services. Lyceum Capital have made no secret of their intention to target the legal sector ahead of the Act’s full implementation.

The Daily Telegraph also stirred the hornets nest on this particular issue with their headline piece, “High Street Shops will Sell Legal Services within Two Years.”

Offshoring legal work is clearly flavour of the month at the Legalweek.com reporting desk. The article “Offshoring-outside the box?” provides an eloquent roundup of recent happenings in the UK’s LPO space.

For those readers wanting further information on the upcoming LexisNexis LPO event, being held in Delhi, June 3-4, the updated brochure can be accessed by clicking here.

In last month’s issue of Corporate Secretary magazine, Gwen Moran provides a detailed consideration of the growth of LPO to date in her article “Cutting Legal Down to Size”. Contributors to the article include both myself and John Croft of Integreon.

Finally it’s rare to find a gem of an article dealing with e-discovery, from the UK side of the pond. But in the article Voyage of Discovery, Reza Alexander, Lee Gluyas and Emma Hogwood, of DLA Piper UK, provide a step by step guide to effective e-discovery litigation management and readiness.

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ValueNotes Release LPO Report Based on Client Data

The latest report from ValueNotes makes for interesting reading. This is ValueNotes’ first foray into an LPO report based entirely on data provided by LPO clients and potential clients. Responses were received from 102 law firms (over 80 classified as mid or large size i.e in excess of 300 employees). Less than 3% of those surveyed testified to having utilized offshore legal resources. The naysayers may well reference this 3% figure as evidence that the LPO industry is all smoke and no fire. On the contrary, I prefer to view this as evidence that we are at the tip of the iceberg. The number of LPOs has trebled over the course of the last three years alongside an equivalent increase in revenue. Although market consolidation is surely around the corner, which will inevitably result in a deflation in the number of LPO companies, there is little doubt in my mind of the tremendous potential of this industry. Click here to access the report’s executive summary home page.

Unsurprisingly data security was rated as the top concern among those that had previously offshored legal work, (see my prior blog article “Security and Client Confidentiality the Number One Concern"). The perceived lower quality of work was the top rated barrier to entry for those yet to dip their toes in the offshore waters.

Although clearly of no statistical value, what I found particularly illuminating from a personal perspective were the anonymous quotes from those participating attorneys, belonging to the anti-outsourcing camp. These viewpoints demonstrate the necessity for ongoing LPO education of the US and UK legal professions. Clearly many who object do so based entirely on prejudice and inaccurate hearsay, as opposed to fact based research. A couple of quotes which caught my eye, illustrative of this point, follow:

“If an offshoring program takes you any time at all from a management perspective it doesn’t save you any money.”

And: -

“There is a very real risk of having the service provider sell your information.”

Finally the quote that demonstrated how out of touch many within the legal profession are with their clients:

“If we offshore legal research or contract review, how will our junior associates get trained?”

I remain both transfixed and shocked by this antiquated viewpoint even as I type this piece! In today’s technologically advanced world, what justification is there to immerse young attorneys in the repetitious drudgery of traditional “training work”, AND to bill the client for this? In his book The End of Lawyers? Richard Susskind discusses this very dilemma of how young lawyers of the future are to be trained.

“Using…wide variety of advanced e-learning systems… to simulate a wide variety of legal scenarios and in so doing provide junior lawyers with a safe, well-bounded environment within which to experiment and from which to learn.”

In addition to the above, I would simply add that whether a law firm wishes to embrace advanced e-learning and simulated training techniques is a question for the law firm, and not the paying client. What is clear, is that clients will no longer be prepared to pay firms to train their junior associates on tasks that can either be outsourced or automated or both.

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Report From Financial Times LPO Roundtable

The FT Legal Outsourcing roundtable took place the very same morning that thelawyer.com reported on Simmons and Simmons’ proposed plan to outsource work offshore. The timing could not have been more perfect!

The panel speakers included Nigel Emmerson, Partner, Dickinson Dees LLP, Iain Monaghan, Partner, Pinsent Masons LLP, Bavita Rai, Partner and Head of Litigation Operations, Weightmans LLP and John Croft, President, Global Sales and Marketing, Integreon Managed Solutions, Inc.

Two key points emerged from the discussion. First, where does KPO end and LPO begin? Second, what does the future look like for newly qualified lawyers and young associates and students still at law school in a legal profession being buffeted by the forces of LPO, the Legal Services Act, alternative billing, law firm restructuring, technological advances and globalization.

As to the first point, Wikipedia defines legal outsourcing as

the practice of a law firm or corporation obtaining legal support services from an outside law firm or legal support services company.

The question then becomes one of what are legal support services? Surely if the purchaser of outsourced support is a law firm, but the support services being outsourced are help desk, IT, or HR, this should not come within the LPO definition, rather HRO and ITO. Furthermore the passage of time clearly impacts on the particular bracket into which a service comes. Insurance claims management and large scale conveyancing transactions are routinely processed offshore in their hundreds of thousands. Only fifteen years ago these tasks were considered appropriate for fully qualified solicitors and paralegals. One only has to consider the less than $50 fee now generated for processing a remortgage to fully comprehend the impact of automation and offshoring on a task that was once a regular source of solicitor fee income. The largest players in the outsourced claims management and conveyancing markets define themselves as KPO companies, rather than LPO.

On the second point, the future for the next generation of lawyers, numerous references were made to the recently published End of Lawyers?, by Richard Susskind. There was a growing consensus that the current financial crisis is acting as a catalyst to changes that are long overdue for the legal profession. An associate at an AmLaw 5 firm asked how young lawyers would be trained in the future, if the tasks that were previously utilized for this purpose were either eliminated owing to technological progression or were outsourced offshore? I refer readers to a piece I wrote almost a year ago, Lawyer, Rainmaker, Candlestick Maker, in which I bemoaned the antiquated teaching methods and subject matter covered during the JD and LLB courses on both sides of the Atlantic. I wrote at the time:

I believe firmly that there is insufficient emphasis placed on the development of rainmaking skills within the law degree. In today’s cut and thrust economy, with law firms and corporations starting to tighten their belts, Universities must take an increased level of responsibility in helping mould young attorneys so that they are capable of hitting the ground running on day one with an understanding of the requisite qualities necessary to succeed in the business that is law.

The J.D. adopts the Case (a method of studying landmark cases) and Socratic methods (a method of examining students on the reasoning of the court in the cases studied) as its didactic approach. I am not advocating for one moment the removal of this structured form of tuition, however I question whether it alone, given the market forces discussed above, is sufficient adequately to prepare young lawyers for the real world. It is all well and good being able to regurgitate case law and to construct a written legal argument, but there are people all around the world who can also do this at a much lower cost and to whom we are now easily connected.

Insufficient time is spent on practical client interviews, networking skills, understanding the business of running a law firm, communication and negotiation techniques. Yes, all newly qualified attorneys are aware of the billing requirements soon to be incumbent upon them, but do they understand why these requirements exist? Are any law students able to learn about alternative billing structures, the history of the hourly rate, fixed fees, fee-capping arrangements and how billing accurately and clearly for the provision of legal services can actually be utilized as a marketing tool in attracting clients? Do any Law courses require their students to prove their mettle within a networking situation? Would it be impossible to replicate a networking event or to send students to such events with a variety of goals to be achieved?

As for ongoing training once newly qualified associates join firms, sophisticated clients will no longer be prepared to pay for this. Firms will need to absorb the cost of this training while retaining a profitable bottom line by paying greater attention to cost reduction as opposed to unachievable billing targets.

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Lexis LPO Event Gathers Industry Leaders

The speakers' list for the upcoming Lexis Nexis legal outsourcing conference in Delhi, reads like a who's who of the leading LPO company executives. Five of the top six 2008 Black Book of Outsourcing ranked LPOs are represented. I'm thrilled to have been invited to Chair Day 1 of the conference and to host the Ethics session.

The conference, entitled, Legal Outsourcing Management Strategies 2009, is being held on June 3-4, at Claridges hotel in Delhi. If any readers would like further information on the conference please feel free to contact me directly.

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