Hindsight is a wonderful thing. Equity-for-fees deals have all but been written off and buried, alongside all those other failed dreams of the doomed dotcom era. And so there was some surprise to discover that Field Fisher Waterhouse, the firm credited with championing the craze the first time round, is not only at it again, but going a stage further and offering its own services on two new business-to-business (B2B) internet exchanges.
You do not have to look far for evidence that the more entrepreneurial types are beginning to lessen their grip on the security blanket that is the hourly rate. Instead, they are increasingly prepared to engage in some creative thinking on fees.
The Dare (Dispute Assessment and Risk Evaluation Service), is backed by City firms Edwin Coe and Penningtons, and Tony Guise, the president of the London Solicitors’ Litigation Association. Dare offers fixed fees for pre-litigation commercial advice through a call centre, which is administered by a leading after-the-event (ATE) insurer.
Then there is the continuing success of Lovells’ Mexican wave solution, devised by the property team for client Prudential Property Investment Management. This marries the guaranteed quality of a City firm with the lower costs of regional firms by subcontracting less complex matters to regional firms Cripps Harries Hall and Knight & Son.
Elsewhere, the profession’s traditional suspicion of risk-sharing fee arrangements – mainly conditional fee arrangements (CFAs), contingency arrangements and all stops in between – appears to be in slight retreat. Witness the enthusiasm for CFAs in the libel sector, led by Peter Carter Ruck & Partners and David Price Solicitors & Advocates, as well as the appearance of claims consultancies set up by shipping firms to work on contingency fees associated with the likes of Ince & Co and Clyde & Co. There is flexibility on fees out there, if you know where to look.
That said, there are many firms that remain sceptical about both the business case for, and the ethical problems of, such unorthodox approaches. “Cash is king,” states Jane Mann, head of employment at Fox Williams, bluntly summing up her firm’s ethos. “Firms are wise to operate on the basis that cash and cash collection matter a great deal, because that’s the way you keep the debt down and pay your own bills. It tends to lead to a stronger and healthier firm to manage.”
There are two main reasons why Mann’s firm eschews the temptations of alternative fee arrangements – and why, she argues, other firms should. “If you start, for example, taking equity instead of fees, you’re moving away from the traditional law firm model and introducing
other elements into your business – including the element of risk-sharing,” she says. “And you have to face the fact that, as a lawyer, you might know the law business, but you don’t know other businesses.”
Her second objection is the inherent “conflict of interest” between client and lawyer. For example, under a CFA there is pressure on the lawyer to settle the case as speedily as possible, which might not be in the best interests of the client. Or, in a shares-for-fees arrangement, there might be a time when the lawyer wants to sell their shares in their own client – hardly a vote of confidence.
Of course, there are less genteel reasons why other lawyers declare their opposition to such deals. “It’s been a tight couple of years and everyone’s trying to undercut everyone else. Some of these ideas have more than a whiff of desperation about them,” reflects one corporate lawyer.
Field Fisher is advising Professional Spirit and Bartercard on the launch of websites allowing businesses to offer their services or products in a cash-free economy. Chissick is being part-paid in shares by Professional Spirit, an online marketplace aimed at professional services firms such as law firms, accountants and IT companies.
The new Dare project is another innovative move designed to appeal to small and medium-sized businesses. “We’re trying to overcome a problem,” explains Brian Raincock, managing director of Litigation Protection, the insurer behind the scheme.
The scheme has two stages, with a fixed cost at both levels. The first is a simple questionnaire about the claim, which can be referred, through LawSure Direct (a Litigation Protection subsidiary) to the panel solicitors, who carry out an initial risk assessment. If the case is worth pursuing, it proceeds to Stage 2, where the solicitor will request any additional information and, if appropriate, arrange a meeting to consider the case. This leads to a written analysis.
The whole process will be completed within 28 days of seeing a Dare solicitor, who then advises the client of the best way to proceed.