Legal firms 'go offshore' to avoid litigation

Many of Britain's biggest law firms are poised to follow the nation's accountants and set themselves up offshore, or give up being partnerships, to protect themselves against rising litigation claims.

Dibb Lupton Broomhead, the Leeds-based firm that has expanded aggressively recently to make a mark in the City, has appointed KPMG, the accountancy firm that has incorporated its audit arm, to carry out a feasibility study on the issue, while Linklaters & Paines, one of the most respected firms, has asked a working party of senior partners to report on the matter in the next few weeks.

Other firms, including the leading City establishment Freshfields and the national firm Eversheds, are understood to be investigating it.

The news comes as Clifford Chance, the City's largest firm of solicitors, with more than 200 partners, is facing a C$1.3bn (pounds 610m) claim from four Canadian banks that suffered heavy losses in the collapse of Canary Wharf in London's Docklands. Clifford Chance, like other firms, is keeping the issue under review in the wake of the Law Society's recent relaxation of its rules on incorporation, but is not yet planning anything specific.

The claim is thought to be the biggest suit against a London law firm made public, but one partner said there were many others that were settled without being reported. "Nobody likes to see another firm being sued, because you think 'There but for the grace of God go I'," he said.

However, these claims have not yet reached the level of those in the accountancy profession, where suits following the collapses of such organisations as the Bank of Credit and Commerce International, the Maxwell empire and British and Commonwealth caused serious concern in the profession.

Late last year the partners of Binder Hamlyn, which is now part of the US-based Arthur Andersen organisation, faced bankruptcy after a case involving the purchase of a company by ADT went against the firm.

While KPMG has opted for partial incorporation to deal with this problem, fellow "big six" accountancy firms Price Waterhouse and Ernst & Young have banded together to help the States of Jersey develop a law under which partnerships can limit their liability in much the same way as limited companies. Under the arrangements being proposed, the firm would remain liable for all its debts, but individual partners would not face losing personal assets, such as houses, because of the negligence of other partners.

Both Dibb Lupton and Linklaters will be looking at the Jersey option, but Terence Kyle, managing of partner at Linklaters, pointed out it was difficult to come to a conclusion about the implications of that route since the situation was "still a moving target".

Nigel Knowles, Dibb Lupton's managing partner, suggested the firm's main motivation in changing its status was financial. It wanted to meet long-term investment requirements out of retained profits and also to be able to "properly remunerate all the staff" and give them a share of the profits.

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