Running a law firm has always been about the art of managing an unpredictable workflow, and there is no better case in point than litigation and dispute resolution. Despite the reputation for being a counter-cyclical practice, there are still varying reports as to the amount of disputes work that is flowing through to firms.
One of the more high-profile litigation practices, that of Clayton Utz, is a case in point. The practice grew by 17% in FY2009 as a result of several large cases coming to a head, but FY2010 has been somewhat quieter by comparison. Nonetheless, the firm has several matters in the pipeline – which CEP David Fagan says is likely to keep the team busy in coming months.
Law firms are pondering the contrast between the current disputes environment and that of earlier recessions. “It hasn’t been a repeat of the early 1990s. Banks have been more measured in managing their exposure and been careful not to put people into receivership,” says Mallesons partner Roger Forbes. “They’re sensitive to the impact on asset prices and the fact that if they force the borrowers’ hand, they may not get their money back.”
Blake Dawson’s Ashley Wharton agrees, adding that the reluctance to litigate seems to be a broader corporate trend: “[Corporates] view litigation with diffidence because of the intensity, cost and executive time it absorbs – they would rather be devoting management time to core business issues.” The result is an increased focus on advisory and alternative dispute resolution work for law firms.
While the true post-GFC pattern may not emerge for another 12 to 18 months, the consensus is that the disputes environment has changed for good. While the epic proceedings between the Bell Group and multiple banks in Western Australia set a new benchmark for protracted litigation last year, few are expecting this case to set a trend for future disputes. To the contrary, experts are largely of the view that there will be less, rather than more, mega-litigation. In contrast to previous recessions, major actions by liquidators will be the exception rather than the rule. These are trends which may have implications for firm identity, as law firms which have traditionally been known for their litigation expertise may need to gravitate away from this focus in the long term.
But those firms such as Holman Fenwick Willan may prove such talk to be premature. Dispute related work is a key segment of the firm’s practice and it has experienced very strong growth over the past three years. The firm opened its doors in Australia in 2006 with ten lawyers, and had expanded its numbers to 24 prior to the GFC. Now the firm has over 30 lawyers. However, partner Gavin Vallely points out that Holman’s growth is not simply GFC-related – continuing strong growth in the offshore oil and gas sector in WA, for example, has generated disputes of its own. Supply and procurement issues, competition for use of assets such as oil rigs and parties attempting to terminate contracts to take advantage of a rising market are also examples of disputes which are characteristic of a healthy market, rather than an imploding one.
Class actions and regulator actions
The advent of litigation funders such as IMF and plaintiff law firms such as Maurice Blackburn has given rise to a new breed of more sophisticated and aggressive class actions. The causes may vary, but actions under Pt IV or V of the Commonwealth Trade Practices Act are prevalent. Blake Dawson’s Wharton says that the jury is still out on whether class actions will retain their present popularity – there are some aspects of the process, such as proving causation, which are still attended with uncertainty.
It would be easy to assume that the bigger players such as Mallesons Stephen Jaques always act for the defendant. However, Mallesons has acted for institutional shareholder plaintiffs such as AMP and Colonial Mutual. Such shareholders may choose to participate in the class action or begin their own. A high-profile example of the latter course is the decision by Cadbury-Schweppes, as it was then known, to launch its own action against Amcor over anti-competitive conduct. Mallesons represented Cadbury in that case.
While companies may be less keen to sue each other there are some types of disputes, like taxation, where they are still likely to stand their ground. “Many companies are still willing to go to court if that’s what it takes,” says Blake’s Wharton. The ACCC and ASIC are also major players, although ASIC’s alleged bungling of litigation has attracted some criticism of late. “ASIC suffered a bit last year, but you win some and lose some – they continue to be pretty active,” says Mallesons’ Forbes. “A fair bit of this work is GFC-related.” A number of matters are known to be under ASIC investigation and more announcements in this space are expected to be forthcoming.
International arbitration
Firms are attracted to the prospect of luring international disputes to Australia for arbitration. It is clearly seen as a growth area, although it is uncertain whether this potential is based on actual client demand, or simply a desire by firms to expand and diversify their business. And even if Australia is not the venue for arbitration, there is no reason why local firms cannot assist their clients offshore.
Mallesons has invested some effort into developing this capability and has represented clients in diverse jurisdictions across Europe and Asia. Disputes over contracts involving the supply of iron ore and coal have been particularly prevalent of late. “The client might be Australia-based, but find it is easier and cheaper to deal with us [internationally],” says Roger Forbes. “They find we can do the work as well as a US or a UK firm.”
Experience in international disputes has clearly been a major factor in the ascendancy of Holman Fenwick Willan. Again, defaults under commodities contracts, particularly into Asia, has been the trigger for a chain of disputes relating to transport. “Under CFR sales, the Australian exporter enters into an agreement with a ship operator and, following a default under the sale contract, is left stranded with chartered tonnage and no cargo that requires shipment,” explains Holman’s Vallely. “The ship operators may have also chartered from each other, so the whole thing spirals, you end up with parties invoking financial hardship provisions, force majeure and so on. And obviously, the default under the commodities contract itself gives rise to work on its own.”
SME and private client space
The experience of disputes practices in the SME and private client space has not been dissimilar from that in the larger-scale commercial area. Aitken Partners managing partner Andrew Blogg says that the past six months have been “not absolutely flat out, but still ticking along.” He says that disputes work has increased, but not in line with traditional counter-cyclical expectations.
Blogg contrasts the present situation with the last recession in the 1990s, when he says a new file would come across his desk “every couple of days” without him soliciting it. While his current practice services a different set of clients and is not directly comparable, he says that anecdotal evidence indicates that practitioners are not seeing the same level of work that they did following the previous recession. Like his colleagues in larger firms, Blogg has noticed that clients such as banks have refined their operations and are more prepared to manage distressed debt, rather than resorting to litigation or mortgagee sales.
Harry Snow of Swaab Attorneys is another practitioner who has found that the GFC has not delivered the workflow that previous recessions did. “There has been an upswing this time, but not as much as expected,” he says. Snow nominates shareholder disputes, insolvency matters and ASIC litigation as the key drivers at the firm’s disputes practice at present.
Aitken Partners’ Blogg says that property disputes, such as disputes between partner developers involving “off-the-plan” buyers, are also on the rise, while heavy government investment in infrastructure has had the unintended effect of prompting valuation disputes associated with the compulsory acquisition of land. Family disputes are also prevalent. “Victoria last year expanded the definition of ‘domestic partner’ in the Wills Act, so that the class of person that can claim an entitlement has increased. So we’re expecting an increase in disputed estates. People are also living longer so there are more applications for guardianship,” explains Blogg.
Practice matters
In recent years the courts have introduced new measures to expedite processes. These include the introduction last year of a new specialist Commercial Court in the Supreme Court of Victoria, which aims to have trials commenced no later than nine months after the date of issue. In a similar vein, the Federal Court’s ‘fast track’ list seeks to limit the time from commencement of a proceeding to the receipt of judgment to eight months at maximum.
Mallesons’ Forbes says that he can see both the pros and cons of the new initiatives. “The problem is that the new measures impose incredible time frames and it is possible to incur huge amounts of cost – you have to really throw bodies at it [to make the deadlines]. On other hand, the prospect of actually going to trial does sometimes encourage settlement – it focuses the mind.”