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

by Sophie Schroder27 Aug 2014
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 NZ 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 New Zealand – or indeed is it already being done Down Under?

NZ Lawyer spoke to a selection of Kiwi law firms about what value such litigation could hold, and whether or not they think it will be a part of our legal future.
 
Such a concept is nothing new, but we can certainly expect to see an increasing trend towards offering fixed-fee litigation on home soil, says Simpson Grierson partner and head of litigation, Anne Callinan.
 
“It’s something that will inevitably be done more. It’s a good idea for some types of litigation where you really want certainty as to cost. I think it’s a relatively easy thing to do when you’ve got litigation that’s quite confined in scope – like an injunction,” she says. “But equally it’s something that could be used for more complex litigation. That just takes more planning and discussion with the client up front.”
 
The main thing to keep at the fore for the client is the balance of two sets of interest: Certainty of price and the right outcome, she says. There is little point in giving someone a fixed fee and creating a set of interests where the law firm doesn’t do enough to drive the right result.
 
Callinan says successful fixed-fee disputes work is done by breaking down the litigation supply chain into parts, pricing it and giving the client a road map to go forward with. It’s also vital to have a mechanism that deals with the unexpected, she says.
 
“It’s like having a builder build your house. You can have a fixed price, but then if you want something changed, you need to talk to the builder and allow the scope of change [in the price]…But if you didn’t have that mechanism, then the person who is building your house would include all that risk in the upfront price and that’s not necessarily in someone’s interests. In broad brush terms that’s how any fixed fee on litigation would work.”

Minter Ellison Rudd Watts partner Andrew Horne agrees that we’re likely to see a growing trend towards this type of fee arrangement for litigation in New Zealand, especially for portfolio cases and for elements of individual cases.
 
It’s something that his firm already carries out on certain cases.
 
“We already conduct portfolio litigation for clients on a fixed fee basis, sometimes within set assumptions and parameters, but not always, and we are discussing similar arrangements with others,” Horne says. “We regularly provide estimates for each stage of major cases that are usually accurate and it is a short step from this to agreeing fixed fees.”
 
In terms of challenges going forward, the most obvious one is uncertainty of scope and cost, given that cost blow-outs or reductions can occur as a result of the conduct of the other parties, interlocutories, joinders, mediations and early or late settlements.
 
A further challenge is in ensuring that lawyers remain incentivised to deliver a high quality and properly resourced service when fees are not linked to time worked, he says.
   
“Less obvious but also important is the challenge of meeting client expectations when time costs are lower than expected, when clients will typically expect a discount and professional conduct rules may not permit agreed fixed fees to be charged.”
 
Taryn Gudmanz, a senior associate at Anderson Lloyd, says that while fixed-fee litigation is an area that has been attracting attention, the question of viability is a whole different ball game. There will always be certain cases that it is appropriate for, but large-scale use is unlikely, she says.
 
“We are always happy to work with clients to find an arrangement that will suit their needs, but the file does need to be one that lends itself to this sort of arrangement. Where we have a long standing relationship with a client and often carry out the same type of work, for example, debt recovery files, then a fixed fee arrangement could be a particularly suitable approach for both of us,” she says.   
 
But the biggest challenge comes from balancing the benefit of certainty for the client and the risk to the firm of an unexpected event.
 
Gudmanz says if firms under-estimate, then they can take a very substantial hit - but if they use too many disaster scenarios in the planning, the fee will simply not be palatable for the client, and they could accidentally receive what is effectively a windfall.
 
Buddle Findlay’s litigation partner Graeme Hall agrees that getting the balance right in fixed-fee dispute work is a tricky concept because the litigation is never exclusively within the control of one party.
 
It is therefore “almost impossible” to predict the many twists and turns that a proceeding may take, he says, meaning that if a fixed fee is agreed there is every possibility either the solicitors or their client will be dissatisfied with the outcome.
 
But more common are arrangements where fixed fees are agreed for particular steps in a proceeding, he says. By breaking down the proceeding in this fashion, costs can be predicted with more certainty and mechanisms can be built in to allow for adjustments to the fee where warranted.

“Solicitors generally appreciate that clients seek certainty, notwithstanding that litigation itself is inherently uncertain.  It is entirely usual therefore to provide estimates for various steps in the proceeding and to keep clients fully appraised of any circumstances which might require estimates to be revised,” says Hall. “However, endeavouring to fix a fee for an entire piece of litigation is fraught with difficulties and, except in relation to very routine matters, is unlikely to achieve an outcome which is satisfactory both to the client and solicitors concerned.” 

COMMENTS

  • by Ron Pol, TeamFactors.com 27/08/2014 2:53:30 p.m.

    Great to see firms embracing fixed fees in litigation, although many examples here are still just hourly rates by a different name. And which NZ's quaintly archaic paternalistic rules tend to reinforce.

    The best results I have seen are when the hourly rate link is broken completely, the client's legal costs are cut, and outcome and the firm's profitability both improved.

    Win-win isn't just a slogan, but it does takes a different kind of thinking, a genuinely collaborative approach (without the old zero-sum game in which either firm or client dictates price), and structuring it to align interests.

    This has been hugely successful for clients and firms in the context of some big budget litigation and transactional work, and across the board pricing including litigation, with sophisticated firms and sophisticated clients prepared to invest in better outcomes.

    It may take more time to filter to one-off transactions; but a few firms are working on this too, and some have been quietly (for now) very successful at improving profitability and revenues at the same time as bullet-proofing clients delighted by demonstrable cost savings and better results.

    The new thinking behind these schemes isn't hard, but in my experience only ever seems to work properly when firms and clients both ditch the zero-sum thinking and craft solutions that genuinely benefit both. It's possible. It's working. But it's far from widespread.

  • by Shaun Plant 27/08/2014 4:39:13 p.m.

    Well said Ron.

  • by Steven Zindel 27/08/2014 8:44:40 p.m.

    Just make sure the fixed fee litigation is not on legal aid terms.