The front page splash in The Lawyer yesterday was that EC3 law firms would be doing well out of the forthcoming “tidal wave of litigation“.

Certain of the quotes were remarkably insensitive. The comment that”the London market’s walking around with a smile on its face” from one senior partner managed to combine smugness and hubris in equal measures. Even if that were correct, I’m not sure that I’d want to crow about it so openly.

But I am not at all convinced that it is correct.

People say that this is the early 90s all over again. That certainly was a boom time for the initially rather select band of law firms active in EC3. I cut my teeth on a plethora of E&O cases, in all fields, and there was certainly no shortage of work.

However, times have changed since then, and it’s worth bearing in mind the following factors that put us in a different place this time round:

1. Changes in caselaw: Back in the early 90s, there was not a well-established body of caselaw on the issues typically in dispute; now there is. So there is less to argue about.

2. Banks are not driving litigation: Last time around the banks were a major driver of much of the litigation against surveyors, which itself constituted a very high proportion of all E&O claims. Now, the banks will probably sit tight and keep their heads down: with a pile of our cash from the bail-out, and a perception of bankers as Public Enemy No. 1, they will not feel quite the same need to go after funds lost in shaky deals, especially when to do so might expose their own perhaps questionable practices to the public gaze.

3. Increased professionalism within insurers: Since the 90s, insurers have become very much more professional in what they write and, more importantly, in how they manage and control claims. Back then, it was comparatively rare to have in-house claims counsel or solicitors amongst your claims team; now, it is the norm. Insurers are much more capable now of triaging claims and filtering out the ones that need to go on to external solicitors. And when cases do go out to lawyers, the insurers’ claims team tends to be much more pro-active about managing them and getting results–gone are the days when a one year qualified solicitor could simply put the case on auto-pilot and then settle very shortly before trial, collecting money every time the case passed Go.

4. Changes in the Court system: Reforms in the way the courts handle cases has also had a huge effort, with claims issued in the Commercial Court dropping from (from memory) about 147,000 in 1995 to about 14,700 in 2005. Fast-track procedures, the pre-action protocols, increased and interventionist case management: all of these have had a powerful effect in weeding out unmeritorious claims (and defences).

4. Circumstances -v- Claims: Anecdotal evidence tends to support the view that, whilst the notification of circumstances has shot through the roof, that is not as yet translating into anything like the same number of claims. Claims will rise in time, no doubt, but I don’t think we’re ever going to see them anywhere near matching notifications.

5. Too many lawyers: Back in the Good Old Days, there were really only a few specialist law firms around who worked significantly with the EC3 market. Once others perceived it as a gravy train, the vultures descended and a whole raft of firms suddenly began to claim an expertise in the field. While a few fell by the wayside for various reasons–no expertise, marketing to the ‘wrong’ sector and getting killed on rates etc–there are still enough around claiming specialism to make it something of a buyer’s market.

We are undoubtedly going to see a rise in claims and a concomitant rise in work for solicitors advising the insurance industry. That is almost inevitable in a recession, for basic human reasons–when the money dries up, people frequently have to litigate to try and recoup legitimate monies (say, an architect who is not paid his fees, suing his client and then facing a counterclaim many times the value of those fees) or, fraudulently, they make false claims against insurers.

However, save in one area, I don’t think we’re going to see a “tidal wave of litigation” for all the reasons above. That one area? You may find some measure of ironic amusement in that the one field that really does seem to be motoring is…(wait for it)…solicitors’ negligence.

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It’s been a long time coming, but someone has finally seen the sense in outsourcing not just support functions but more routine legal work. Rio Tinto are parceling up their more everyday lawyering to an outfit called CPA Global in India:

It works like this: Rio Tinto is building a team of CPA lawyers in India who will operate, effectively, as an extension to its in-house legal department. That will free Rio Tinto lawyers to focus on more complex tasks. More ambitiously, on all assignments involving external law firms, Rio Tinto will ask these firms to pass tasks that can be done by lower cost lawyers to CPA people in India and elsewhere. [Source: The Times]

As Prof. Susskind (specialist subject: “the Future of Law”, or at least the future of legal practice) notes, the system already demonstrably works: “A team of 50 CPA lawyers was assembled in under 48 hours to work with a US law firm on a document review for the Federal Trade Commission. This yielded savings of $1 million (£600,000).” Ouch. Scale that up and you are looking at a lot of lost revenue for the big firms.

Now as I have never had the pleasure of working for one of the huge shops, I’ve only looked at their business model from the outside, so take what I say with a pinch of the proverbial. While I can see the financial sense of it (to them), it’s long struck me as a bit odd that clients didn’t see that there were cheaper and better ways of getting much of the work done, though I put it down to a combination of the old boy network (albeit in its modernised form) and the ‘never get shot for using IBM’ mentality. The sort of work I do is fairly ‘partner-intensive’ and therefore there is limited scope for having armies of assistants ploughing through vast amounts of paperwork (which is in any event pretty easy to deal with now with the help of electronic tools). It is also more intellectually stimulating, which is, of course, part of the reason why some of us get into the job in the first place. But I’ve little doubt that an awful lot of transactional work and even some aspects of contentious work could be handled relatively easily by less specialist, less expensive people elsewhere.

Susskind is correct, of course, to point out the step-change here: the impetus comes from the clients, not the law firms. While there has been a certain amount of tinkering from the firms in sending back-office functions offshore, that has really been aimed at saving money for the firms, money which then goes straight to the equity partners, for pensions or Bentleys as the case may be. Here, the clients are demanding–and getting–an overall reduction in costs and requiring that their law firm ‘partners’ accept that they are going to be bearing the cost of that themselves.

Novel? Not really in the wider global economy, but perhaps new in the legal world.

Generally, the puritan in me thinks this is a Good Thing for lawyers and for the profession generally. I like things done efficiently–doing them inefficiently, and thereby making more money, has always struck me as Not a Good Thing.

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In a 3-0 decision the Court of Appeal has today ruled decisively that it is beyond the power of any local authority to set up and participate in a mutual insurer.

The unanimous decision of their Lordships in the case of RMP -v- Brent [2009] EWCA Civ 490 not only reinforces but goes further than the original twin decisions, Part 1 (on vires) and Part 2 (on procurement — see below). At first instance, the Court found that Brent had not shown that it had properly considered whether its area would benefit from the supposed savings to be had from participating in LAML. The Court of Appeal has now held that question to be irrelevant — all that counts is whether an authority can participate in a mutual insurer such as LAML, and the short answer is that it cannot.

RMP is an open-market supplier of insurance services to the local authority sector. LAML is a mutual insurer set up by a number of London local authorities to provide, on a monopoly basis, insurance to London authorities. RMP were invited to tender by Brent, who then abandoned the process and awarded the contract to LAML. RMP contested this decision in two ways: first, by arguing that it was beyond any authority’s powers to set up and participate in such an insurer (the vires case); second, by contesting Brent’s decision to award the contract to LAML outside the public procurement rules, which Brent did in reliance on a European decision known as Teckal (the procurement case).

Harrow and LAML were Interested Parties, and fully legally represented, in both the original hearing and before the Court of Appeal.

The vires case

Brent relied on two statutes: s.2 of the Local Government Act 2000 (the so-called ‘well-being’ power), and on s.111 of the Local Government Act 1972.

The first argument, under s.2 LGA 2000, is that an authority is permitted to do anything which might improve the well-being of its area. Brent said that the money that it hoped to save via its participation in LAML would be put to the well-being of the area for which it is responsible and hence that its participation in LAML was thus legitimate. At first instance, Brent failed in this argument because it could not show that it had properly considered whether any such savings would, in fact, be applied thus. This part of the judgment allowed other authorities, and LAML, to claim that the decision did not apply to them, but rather applied to the particular facts of Brent’s decision to participate in LAML.

That claim has now been firmly squashed. In the leading judgment, Pill LJ said that the s.2 well-being power

“…does not extend to a power to enter into the complex and somewhat speculative attempt to save money which is the mainspring of the LAML arrangement. The guarantees and degree of speculation involved, in my view take the activity proposed beyond what Parliament intended by the well-being clause” (emphasis added).

That view was shared by Moore-Bick LJ (paras. 180-182) and Hughes LJ (para. 255(ii)).

Section 111 of the 1972 Act allows an authority to do anything that is ‘incidental’ to the carrying out of its normal functions. Those normal functions might include running schools and highways in its area, and it is plainly incidental to those functions to buy insurance to allow the authority to operate safely. To buy insurance from LAML is, it was argued, simply a form of purchasing that insurance.

The judge at first instance dismissed this defence, and the Court of Appeal has done the same. Moore-Bick LJ commented that

“…participation in LAML cannot… be treated in the round as merely one recognised way of obtaining insurance with nothing to distinguish it for present purposes from more usual forms of commercial insurance… In my view membership of the company and the obligations to which it gives rise involve a significant departure from conventional insurance arrangements and are properly to be viewed in this context as incidental to the incidental.” (para. 170)

Importantly, the Court of Appeal resoundingly rejected the idea that the LAML arrangement could be saved by relying on some form of associated risk management service. Lord Justice Moore-Bick held that

“it could [not] be said that the benefits in terms of risk management were sufficient to justify participation in LAML as incidental to those functions.” (para. 172)

The procurement case

Even had it been within Brent’s power to participate in LAML, it breached the Public Contracts Regulations 2006 by failing to award the contract by means of open tender. Brent admitted the fact, but argued that it was entitled to do so by reason of the so-called Teckal exemption (named after the EU decision of the same name). The exemption applies where the authority contracts with a third party over which it exerts the same degree of control as it has over one of its internal departments and where that third party does most of its work for the authority.

The Court of Appeal found there was insufficient control by Brent (and effectively by any other authority) over LAML for the Teckal exemption to apply. Lord Justice Pill observed (at para. 131) that “the nature of the business, and the possibly differing interests of different authorities and affiliates, are antithetic to the necessary local authority control.” Therefore, any authority seeking to join LAML would have to hold a proper open, competitive tender for the award of the insurance contract (though the point is plainly moot, given that no authority has power to participate in LAML).

Since Brent awarded the contract to LAML without the requisite tender process, their Lordships held that RMP is entitled to damages from Brent as a result.

The shared services agenda

None of this affects the government’s shared services agenda, which remains vigorously in force. Indeed, Lord Justice Pill makes specific reference in his judgment (paras. 114-120) to the government’s aim in the well-being power—to reverse the “traditionally cautious approach” to “innovation and joint action”.

But his Lordship also went on to stress that Parliament had not given carte blanche to local authorities to do whatever they wish, that there must be limits on what was permissible and that “Analysis of the expression “promote the well-being” is still required to decide what the limits are”.

The limits are still there; the LAML arrangement simply lay beyond them.

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Two years ago, I was doing a deposition with a witness in a very long-running, very messy and very costly reinsurance dispute. It was the third time that we had been through the process, with various parties, so we were very familiar with the facts, the issues and the questions likely to be put.

Asking the questions were two warring factions, each represented by its lawyers. Faction 1 was represented by two very high-profile, top gun “name” partners from a leading US and international practice. Big hitters, with shiny white teeth (lots of them) and immaculate coiffures (discreetly checked from time to time). We’ll call them Mr S and Mr S.

Faction 2 was represented by a young guy, from a leading Wall Street firm. He was probably about two years qualified. Let’s call him Mr K.

The questions began. Mr S and Mr S had plainly arrived with a version of events and nothing we said was going to get in the way of that story. They were glib and superficial, failing properly to listen to the answers my client gave or to follow up on answers that would have taken them in a direction helpful to their case. (Bear in mind that my client was probably the key witness in a claim worth about USD500m). They took messages on their Blackberries while asking questions; they took no notes; they made snide comments about questions asked by Mr K, trying to bully him. They joked with each other. They were unimpressive.

Mr K, on the other hand, was more considered, more thoughtful and infinitely more subtle. He, too, had come with a story, but he wished to turn it over, analyse it and see whether it still stood up. He was careful, deliberate and listened intently. He entirely ignored the antics of the Messrs. S, refusing even to acknowledge their grandstanding. At the close of the session, he thanked my client for attending.

As we left, my guy turned to me and said “Those two were clowns, but the young guy was much more scary. Polite and well-mannered, but scary.” He was right.

My bet would always be on substance over form. Repeatedly, in the City, one sees Men of Froth rising to high levels. In the law, this is particularly surprising, especially if one takes the view, as I do, that a lawyer’s prime responsibility is to those instructing him. By all means aim to make money, but let that take a slight but definite back-seat to your professional duties. It’s a matter of emphasis, but an important one, I think.

There’s commercial sense to it, too. How often one sees a firm deciding to expand in a certain area, buying in a Man of Froth with a big name to lead the way, only to find after a year or so–an expensive year or so–that there was nothing beneath the foamy exterior. No clients, no income, no growth.

You have to grow these things carefully, with good people, time, diligence and patience. It’s a little like gardening.

A silver lining to this latest financial turmoil may be to bring people back to a more realistic appraisal of what actually works in business, including in the business of law.

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In the recent case of Expandable Ltd. v. Rubin, the Court of Appeal has held that mere mention of a letter does not automatically waive legal professional privilege.

The judgment, given by Rix LJ, went to two points. First, had the letter been “mentioned” for the purposes of CPR 31.14; second, if it was so mentioned, did that amount to a waiver of privilege.

Their Lordships found that the letter was ‘mentioned’, noting that the test was not intended to be an onerous one, the word ‘mention’ being as general as could be (see paras 18ff of the judgment).

However, the Court was not satisfied that the mere mention of a document provided for the automatic and absolute waiver of its privilege; this would be a significant departure from previous jurisprudence with no good explanation. Privilege is a fundamental right that cannot be overridden by general words, and Rix LJ quotes Lord Justice Hoffman (in R v. Secretary of State for the Home Department, ex p Simms [2000] 2 AC 115) on the point:

>”Fundamental rights cannot be overridden by general or ambiguous words…In the absence of express language or necessary implication to the contrary, the courts therefore presume that even the most general words were intended to be subject to the basic rights of the individual.”

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The ever-excellent OutLaw reports on this case where some 16-year-old girl in Texas had her picture uploaded to flickr by her youth counsellor, a Mr Wong. Virgin used it in an ad, allegedly without permission from either Wong or the girl.

Wong apparently changed the Creative Commons licence–which defaults on flickr to ‘no use by TPs’–to the ’some rights reserved’ setting and now he and the girl’s mother have sued not only Virgin for using the picture but also the Creative Commons Corporation for allegedly failing adequately to educate and warn Wong about the meaning of the licence he had chosen (see para 35 of the Complaint).

Outlaw report that
>By default, images added to Flickr cannot be reused by third parties, even if they are made visible to all users. They are marked as “All rights reserved.” However, Flickr makes it easy to choose one of six Creative Commons licences.

>Creative Commons licences offer a middle-ground between total control over a copyright work and no control. They are described as “some rights reserved” rather than “all rights reserved”. Flickr makes it easy for users to change their default setting and with a few clicks, users can choose one of six Creative Commons licence varieties.

>Flickr directs users to the website of Creative Commons Corporation to find out about the meaning of the different licences. Wong chose an Attribution Licence, which the Creative Commons website explains, will let others copy, distribute and display your photo and derivative works based upon it, provided they give credit the way you request.

>The lawsuit says that Virgin failed to credit Wong in the ads and therefore breached the licence terms. More controversially, Wong blames the Creative Commons Corporation for failing “to adequately educate and warn him, as a user of the Creative Commons Attribution licence, of the meaning of commercial use and the ramifications and effects of entering into a licence allowing such.”

For those who have not tried it, it is *very* easy to (a) understand what the licences do and (b) to change them. Someone wanted to use one of my photos once to flog T-shirts in the Philippines. He contacted me and asked if he could use it, citing the terms of the CC licence. I allowed it. Easy enough.

What baffles me is why Mr Wong changed his default licence, especially if he was posting pictures of minors on the Net. I mean, if you say you don’t understand what your choice means, and the default is that no one can use it, wouldn’t you just leave it on the default.

Does not compute.

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First off, I shouldn’t complain too much, as I do get a listing as one of the Leading Individuals in Insurance & Reinsurance Litigation, which is nice even if it does make me sound like a luxury hotel.

However, one should treat industry directories with caution. Legal 500 have some oddities this year. Halliwells are ranked in the professional negligence section, and given this entry:

> Halliwells LLP gained further strength with the recruitment of Jolyon Patten, former head of reinsurance at Elborne Mitchell . The team has recently advised on claims against accountants, solicitors and construction professionals, including a claim against developers and a construction team arising from a landslip incident.

Do you think they might have noticed the give-away phrase “Head of Reinsurance”? Now I do do quite a bit of E&O work, but it tends to have something of a reinsurance flavour to it. Also, I don’t even get mentioned in the main section on Insurance and Reinsurance, which even on their own logic is peculiar.

This time of year is always greeted by smiles of wry amusement from those in the know, while the more insecure get rather exercised. On any view, while I have no doubt as to the veracity of the information, one does rather feel that an exercise which gathers details about 8 months or so prior to publication may be open to errors creeping in.

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There’s an interesting account in a recent Economist (and also on their website (subscription)) about a recent cyber-warfare attack on Estonia’s infrastructure. This came amidst their recent spat with Russia over the re-siting of a statue commemorating the Glorious Motherland’s achievements in Estonia during the Great Patriotic War (aka WW2), which I read somewhere that the locals referred to as “the Unknown Rapist”.

> Even at their crudest, the assaults broke new ground. For the first time, a state faced a frontal, anonymous attack that swamped the websites of banks, ministries, newspapers and broadcasters; that hobbled Estonia’s efforts to make its case abroad. Previous bouts of cyberwarfare have been far more limited by comparison: probing another country’s internet defences, rather as a reconnaissance plane tests air defences.

> At full tilt, the onslaught on Estonia was also of a sophistication not seen before, with tactics shifting as weaknesses emerged. “Particular ‘ports’ of particular mission-critical computers in, for example, the telephone exchanges were targeted. Packet ‘bombs’ of hundreds of megabytes in size would be sent first to one address, then another,” says Linnar Viik, Estonia’s top internet guru. Such efforts exceed the skills of individual activists or even organised crime; they require the co-operation of a state and a large telecoms firm, he says. The effects could have been life-threatening. The emergency number used to call ambulances and the fire service was out of action for more than an hour.

[emphasis added]

Apart from the novelty of the concept–and if you want to get rather more scary you might want to look at the US Defence Department’s 2007 Report on China’s escalating cyberwarfare capabilities–the interesting thing from a re-/insurance point of view is how far such attacks would constitute acts of war and thus might be caught by the stock war exclusion clauses.

Here is a typical example:

> WAR AND CIVIL WAR EXCLUSION CLAUSE

> Notwithstanding anything to the contrary contained herein this Policy does not cover Loss or Damage directly or indirectly occasioned by, happening through or in consequence of war, invasion, acts of foreign enemies, hostilities (whether war be declared or not), civil war, rebellion, revolution, insurrection, military or usurped power or confiscation or nationalization or requisition or destruction of or damage to property by or under the order of any government or public or local authority.

As I understand the Estonian affair, it seems to fit reasonably enough into a number of the classes there: “hostilities”, “acts of foreign enemies” (it seems possible that Russia qua nation-state was behind it), even arguably “invasion”. However, one suspects that the clause was not drafted to take account of the present sorts of ‘expanded’ peril and it may be thought sensible either to revisit the wording or to ensure that there is some sort of cyberwarfare exclusion to the exclusion.

Of course, this also leads to all sorts of potential debate as to how one differentiates between cyberwarfare and cybercrime, where both terms are inherently inchoate and rather nebulous:

> The urgent need is for an international legal code that defines cybercrimes more precisely, and offers the basis for some remedies. The Council of Europe, a continent-wide talking-shop that is the guardian of many international legal conventions, has a treaty on cybercrime dating from 2001. Acceptance has been partial. From overseas, America and Japan have signed up; Russia so far hasn’t.

There is some talk of an international treaty by 2012, but again that needs sign-up and effective policing for it to have any real effect.

(First tipped off via Lunch over IP.)

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This is apparently true:

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
ORLANDO DIVISION
Case No. 6:05-cv-1430-Orl-31JGG

AVISTA MANAGEMENT, INC.,
d/b/a Avista Plex, Inc.,

Plaintiff,

-vs-

WAUSAU UNDERWRITERS INSURANCE
COMPANY,
Defendant.
______________________________________

ORDER

This matter comes before the Court on Plaintiff’s Motion to designate location of a Rule
30(b)(6) deposition (Doc. 105). Upon consideration of the Motion – the latest in a series of Gordian knots that the parties have been unable to untangle without enlisting the assistance of the federal courts – it is ORDERED that said Motion is DENIED. Instead, the Court will fashion a new form of alternative dispute resolution, to wit: at 4:00 P.M. on Friday, June 30, 2006, counsel shall convene at a neutral site agreeable to both parties. If counsel cannot agree on a neutral site, they shall meet on the front steps of the Sam M. Gibbons U.S. Courthouse, 801 North Florida Ave., Tampa, Florida 33602. Each lawyer shall be entitled to be accompanied by one paralegal who shall act as an attendant and witness. At that time and location, counsel shall engage in one (1) game of “rock, paper, scissors.” The winner of this engagement shall be entitled to select the location for the 30(b)(6) deposition to be held somewhere in Hillsborough County during the period July 11-12, 2006. If either party disputes the outcome of this engagement, an appeal may be filed and a hearing will be held at 8:30 A.M. on Friday, July 7, 2006 before the undersigned in Courtroom 3, George C. Young United States Courthouse and Federal Building, 80 North Hughey Avenue, Orlando, Florida 32801.

DONE and ORDERED in Chambers, Orlando, Florida on June 6, 2006.
GREGORY A. PRESNELL
United States District Judge

Only in America.

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Marcan Shipping (London) Ltd v Kefalas.

CA (Civ Div). 17 May 2007

Sanctions under an ‘unless’ order take effect without the need for any further order in the event of non-compliance in any material way. The other party does not need to apply to the court for the sanction to be imposed. Rather, the party in default has to apply for relief from the sanction under CPR r.3.8 if it wishes to escape its consequences.
Appeal dismissed.

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