The jury is out: How viable is fixed fee litigation in Australia?

Date: September 3, 2014
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Article from the Australasian Lawyer

London-headquartered firm Nabarro has announced it will be one of the first in the UK to embrace fixed prices for its disputes work, cranking up the competition in a market that has only recently adjusted to offering fixed fees on transactional work.

Andrew Taplin, a partner there who has been leading Nabarro’s fixed price litigation strategy, told Australasian Lawyer that he believes it could be the start of a trend.

“As pressure on businesses’ legal spend increases – or even remains as it is today – those businesses will continue to look to their advisors to deliver value and certainty across the range of services they supply – including in relation to handling disputes,” he says.

“Many firms reactively offer to cap and set costs for elements of their cases, [but] we believe that by proactively offering it at the outset, as Nabarro is doing, is a model others may also look to adopt. We also see this approach as being of particular interest to third party funders where significant cost overrun may be a risk for their investment.”

But would fixed price disputes work be something that is viable in Australia – or indeed is it already being done Down Under?

Australasian Lawyer spoke to a selection of Australian law firms about what value such litigation could hold, and whether or not they think it will be a part of our legal future.

Harriet Warlow-Shill, the managing partner of successful “start-up” firm Warlows Legal, says fixed price litigation is possible where it is a purely legal question, or where one has had much experience dealing with many matters of a similar nature.

She says Warlows Legal already use certain aspects of fixed fees for disputes work.

“For larger pieces of litigation we provide a litigation plan with a quote for each stage,” she says. “It makes for a much more cohesive relationship with the client. It is easier to build trust.”

However major challenges include the necessity of carefully wording a costs agreement so if something unpredictable happens the agreement can be revisited, and it’s vital that the clients also understand this, she says.

Holding Redlich partner Amanda Davidson is another lawyer that agrees that fixed fee litigation is likely to be a growing trend in Australia.

Increasingly, clients are looking for certainty surrounding their legal expenditure, which means they want to know what’s being done, why it’s being done and who is doing it – and they want control over those elements, she says.

“Many of us predicted this trend over 10 years ago, and some firms have been offering fixed fee services including in relation to litigation for many years now.”

Davidson says major challenges still exist when it comes to fixed-fee litigation, however.

Firstly, the accurate scoping and planning model that is required at the outset of any matter is often something that clients are not prepared to engage in, she says. Clients also sometimes prefer to take the ‘wait and see’ approach in terms of the litigation itself, and don’t want to commit up front to a fixed fee model that requires the payment of a pre-agreed amount per month.

Instead, such an approach is more likely to work with clients who have volume litigation, such as insurance companies, she says.

But there are definitely win/win aspects to putting a fixed price on disputes work: “From a firm perspective having fees known and locked in, with regular amounts being paid per month means that cash flows are much easier to manage. It is also easier to staff matters in a profitable way. From a client perspective it means no surprises, and that in house counsel or executives briefing lawyers have much more control over their budgets.”

Unlike Warlow-Shill and Davidson, Marcus McCarthy, the principal at dispersed firm Nexus Law Group thinks that a fixed fee arrangement for disputes work is unrealistic in all but a few types of litigation.

“Almost certainly not in commercial litigation. There is already fixed staged fees in some forms of litigation, which is largely the only areas where it is really possible, such as some civil litigation – injury compensation or simple debt recovery mostly,” he says.

“I consider firms offering fixed fee litigation either already operate in that area or will simply give a very fixed scope for what they say is fixed fee litigation. I feel such offerings could actually be potentially misleading to clients, especially in commercial litigation, and [it’s] more of a marketing ploy.”

Instead, McCarthy thinks lawyers should focus on ethical and accountable billing practices. His firm wouldn’t ever consider offering fixed fees for commercial litigation or large civil cases, but does already offer fixed fees in many other areas.

One of the main challenges in putting a fixed price on disputes work is in being able to scope up the work to anticipate the actions of the other party, which McCarthy says is “virtually impossible”.

“A fixed fee runs the risk of accounting for possibilities that do not eventuate and can result in a higher overall fee than if the client had just used hourly rates without unknown contingencies factored in,” he says.

by Sophie Schroder – Australasian Laywer

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