Expert View: Give m'learned friends a miss

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The Independent Online

One of the most frustrating hours of my life was also one of the most expensive. Working on a straightforward deal, I was forced to seek legal opinion. I sat in a chaotic office in Lincoln's Inn Fields and spent 55 minutes having to explain some of the most basic facts of City life: "what is a dividend", "interim results" etc. Finally, the lawyer gave me his considered, and incredibly non-committal, opinion. The bill for this was £3,000. I felt I should have charged him.

One of the less pleasant sides of the Americanisation of business practice has been the extraordinary rise in litigiousness. A recent survey of FTSE 350 companies found almost unanimous testament to this and, even more alarmingly, that 65 per cent expected either to invoke or threaten litigation in the next five years. In addition to suing those they do business with, more and more companies are also facing actions from ex-employees or customers.

One side-effect of all this has been a dramatic increase in companies' insurance costs. In the past two years, one engineering group has seen its premium go first from £300,000 to £550,000 and then to £800,000. As a whole, British industry is now spending nearly £2bn on guarding against such risks.

This wave, and the complex financial practices of the recent boom, have propelled the lawyer to centre stage in the City. The US concept of trans- national litigation, and the increasing threat of class action suits, have also helped. Between 1998 and 2001, business at the eight largest UK law practices nearly doubled in size. Many US law firms were tempted across the pond in this period: there are now nearly a hundred with City offices.

This boom has come in for criticism, especially as law- yers, like architects, charge by time not job. Last year, a leaked memo from junior employees at Clifford Chance in New York complained of unacceptable pressure being put on them to "pad bills". Fee-earners in US firms are often targeting 2,200 hours a year, or 42 hours a week, which doesn't leave much time for anything else.

We had evidence last week that the good times are coming to an end. Jones Day Gouldens, the London arm of a US firm, has sacked 10 per cent of its professional staff in response to the collapse in mergers and acquisitions. Denton Wilde Sapte has also announced the loss of 70 lawyers and support staff, while Clifford Chance and Allen & Overy had previously cut 55 and 31 support staff respectively.

But if you are in the profession, do not despair: while the big houses may be trimming staff, there is little evidence of them trimming bills. And in desperation, many clients are poaching outside advisers and making them inhouse lawyers. These individuals often rise as high as the main boards, further underscoring a legally-obsessed approach to doing business.

Whether this trend leads to the holy grail of reduced legal costs, instantaneous response times and contained legal risk is another matter. In his book Head to Head, Paul Gilbert observes that you should "be able to go to any inhouse team and say 'demonstrate your value' ". But so often response times become stretched, and teams of external specialist counsel still have to be brought in.

In Bleak House, Dickens describes a case where a string of City lawyers are locked in dispute over an estate for many years. A mini-industry grows up around the endless attack and counter-attack, and the lawyers' fees go through the roof. Eventually, the judge dismisses the case because the entire value of the disputed capital has been spent on fees. Nothing is left to dispute.

It's a case those 65 per cent of companies should note.

Christopher.walker@tiscali.co.uk

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