Thursday, December 27, 2007

Lawyers, Law Firms and the Stabilization of Transnational Business

Fabian Sosa and I have written a new paper, Lawyers, Law Firms and the Stabilization of Transnational Business. The paper can be found at my website and at SSRN. We welcome comments from interested readers. This is part of the research we have been doing at the SFB597 Institute for the Study of the Transformation of the State at Bremen University

The abstract reads as follows:

Globalization is having profound effects on the practice and the organization of law. In the field of cross-border transactions the role of the state and its legal system has diminished such that private ordering through contracting is now the key mode of lawmaking. The vast majority of private ordering is undertaken by large law firms with international practices. Moreover, these law firms tend to adopt Anglo-American common law principles when putting together transactions. Yet within Europe there is competition from the law firms of the civil law countries, which are becoming adept at identifying markets not fully taken over by the American and English firms. But in order to understand the roles of lawyers in such cross-border transactions, we start from Abel and Lewis’ question: what is that lawyers do? By using a number of case studies of transactions and disputes, we attempt to theorize how it is that lawyers create enabling and support structures for transnational business. We draw on Luhmann’s ideas of stabilization of expectations and Gilson’s depiction of lawyers as transaction cost engineers to help explain our findings.


Wednesday, December 12, 2007

What is a Court?

Birkbeck Law School held a symposium on adjudication this week, organized by Linda Mulcahy with the help of the Journal of Law and Society.

The main focus was "Courts and the Public Sphere" which was addressed by three papers presented by Judith Resnik of Yale Law School, Simon Roberts of LSE, and Linda Mulcahy. The title of this post is taken from Simon's paper.

He examined the Mayor's and City of London Court during 2006 looking at the way it handled cases. The court is a county court in the City of London hearing civil cases not assigned to the high courts. These involve contractual disputes and personal injury claims and the like.

The starting point was seeing if the Woolf civil procedure reforms on promoting settlement rather than trials was being effective. It was doubtful within the range of data collected if that could be answered. Simon Roberts collected statistics on case trajectories and observerd some pre-trial case reviews.

The figures for 2006 are telling:

Claims issued: 5,777
Defences entered: 2,021
Cases allocated to track: 914
Cases listed for trial: 637
Cases determined at trial: 140

The attrition rate is enormous. From close to 6,000 claims to 140 cases tried through to result. As soon as a defence is entered a huge proportion of cases settle as soon as the two sides learn more about the other's case. And as Roberts quoted from many lawyers, "Listing focusses the mind." With the result that only a relatively few cases are tried.

The idea that trial and judgment was the norm is a fallacy. What we do know is that judges spend little time on cases, and less on trying them. Apparently, the worse thing that could happen was for a case to be argued on a point of law because the result would be entirely unpredictable. This was a great promoter of settlement.

The conclusions of this preliminary study are profound. Most cases are resolved through bilateral negotiations (in the shadow of the law and court). The court's mediation role is small. The main task for judges is to supervise the negotiations.

Do we need courts? Do we need judges? Or as many of them as we have?

Monday, December 10, 2007

Comparing Law, Lawyers, Soft Law and More

Last week I participated in an author meets critics forum at the Institute of Advanced Legal Studies in London. The book in question was Comparative Law: A Handbook edited by Esin Örücü and David Nelken.

Perhaps, as one of the contributors and audience members, William Twining, said, out of the four speakers (Nelken, Örücü, Woodman, Flood) only one, i.e. Örücü, was a declared comparative lawyer, which meant that, in effect, we are all comparativists now. That was a fair resume.

The book is designed to inform students about the field of comparative law. It is, however, almost impossible to define or to set limits around. Depending on one's perspective there are alternative ways of analyzing the topic, including economics, systems theory, or appeals to globalization. Nevertheless, in the modern world there is a tendency away from examining other legal systems towards believing one's own system is superior. This form of ethnocentrism is catastrophic for lawyers as it induces tunnel vision.

Comparative Law: A Handbook contains diverse views, as to be expected from the range of authors within it. Each chapter ends with a set of questions to guide the student to further thinking and examination. It is also a user-friendly book in that readers can either travel straight through or dip in wherever they want. Moreover, no author writes in isolation of the others often commenting or critiquing various approaches to the subject.

Is the book successful? Yes. Does it have limitations? Yes. But then this is rather like saying that one doesn't have all the answers. Because it isn't the answers that are important, it's the questions.

My critique focussed on what I saw as a lack of diversity in treatment of comparative law. I would have liked to see an acceptance of legal or normative pluralism recognizing that law comes in many guises: regulation, contracts, international standards, model codes, soft law, lawyers' opinions and so forth. As I, and my Bremen colleagues, have written, the legal system as personified by the state is no longer a sufficient condition nor an adequate basis for the stabilization of expectations because legal systems are too weak and fragmentary. For example, Errol Meidinger's work on product certification in the timber industry is a pertinent case in point.

Moreover, we can't always rely on states to tell the truth about what they do with their legal systems. For example, Greece states it has a legal aid system which is available to many, but unfortunately it has no budget so it exists nominally but not in reality. Instead the state relies on the pro bono activities of lawyers or families contributing to defence expenses.

Another example, is found in the way Russia has forced a restructuring of the production sharing agreement on Shell over Sakhalin II. This private ordering scheme between the Russian state and the oil companies and banks depended on profits being remitted to the state once costs had been met. Costs, however, doubled and Russia was seeing no return. Using the threat of environmental breaches as a pretext for withdrawing exploitation licences, Russian compelled Shell to hand over 51% of the investment. Thus power is a considerable factor in the comparative study of law.

For me, the most significant omission from the text was the legal profession. In this respect comparative law is often at an abstract level that ignores much of the legal and normative work being done that stabilizes people's expectations. Two areas that interest me are the globalization of insolvency and capital markets, both shaped and tested by lawyers rather than states.

My final comment refers to a deficiency within the book. Although some writers commented on legal systems from the south and the east, there were no contributors from these regions.

Of course, these criticisms do not decry the book, rather they portend the coming of the second edition. We have to start somewhere and this is a good starting point, one that puts down a challenge to others.

Tuesday, December 04, 2007

Judges Returning to the Bar or Becoming Coal Miners

Is there a problem with judges retiring from the bench and returning to practice at the bar? If you are the minister for justice, the answer is yes. It is a bad thing. It has traditionally been so and we are not going to change it.

So when judges retire and wish to embellish their pensions, they rejoin their old chambers and hang out their shingles that say "arbitrator and/or mediator". They are no longer advocates, they are quasi-judges instead. It is probably slightly preferable to becoming the English equivalent of Judge Judy.

It seems that the bar itself is no longer so enamoured of its judicial brethren returning to skim their work: "One magic circle set member said judges in arbitrations has now become "an overheated market"."

Frankly, this is all very childish. In the US judges can retire and join law firms as lawyers. They even appear in court, often with the honourific title, "Judge." Some become attorney general or head a government agency. Over here we think that it is unseemly for judges to abandon their olympian ideals in favour of partisan advocacy.

It is also a restrictive practice without justification. If a judge wants to become an advocate again, then the market will adjudicate on his or her fitness to practise. The clerk will soon announce that a change of direction into another line of work is to be preferred if the work isn't there.

Perhaps as judging is becoming more specialized--needing tickets to be a family judge or commercial judge and so on--we should reconsider the basic qualifications for a judge. Is being an advocate truly the most appropriate credential? Why not make judging a career choice out of law school as in Germany, for example. However, let's leave the last word to that searing critic of human malaise, E L Wisty, as he lamented:
Yes, I could have been a judge but I never had the Latin, never had the Latin for the judgin', I never had it, so I'd had it, as far as bein' a judge was concerned. I just never had sufficient of it to get through the rigourous judging exams. They're noted for their rigour. People come out staggering and saying "My God, what a rigourous exam!" - and so I became a miner instead. A coal miner. I managed to get through the mining exams--they're not rigourous, they only ask one question, they say, "Who are you", and I got 75 per cent on that. I'd rather have been a judge than a miner. Being a miner, as soon as you are too old and tired and sick and stupid to do the job properly, you have to go. Well, the very opposite applies with judges.


Sunday, December 02, 2007

The Temporality of Legal Practice

Two items read recently chime with each other. A survey by Citi quoted in Legal Week said non-equity partners are the least productive partners because they bill 100 hours less than equity partners and 150 less than associates. The second item is a new law business has opened in London called Axiom Legal, which hires out lawyers to corporate clients on a temporary basis.

The Legal Week story reinforces the approach in the legal profession to making equity partnership a harder ideal to achieve. Moreover, it will remain exclusive, the inner core. While the race for partnership might still have some strength in it, we are seeing a move to the deprofessionalization of law practice as more professionals are assigned to the category of permanent employee. The result is that commitment and loyalty can no longer be taken for granted: they have to be bought. And there is the free rider problem as the Citi survey shows.

Axiom represents a way out of this. In essence it is a kind of legal outsourcing. Axiom hires lawyers who are discontented with the way of the corporate law practice, offers them a reasonably good salary, consistent and predictable work hours and no responsibility. When a business needs lawyers to handle corporate matters it can take in one or more of the Axiom crew and keep as long as necessary. All the resources the lawyer needs by way of research and backup is provided by Axiom. Hourly rates are lower than a law firm and salaries for the lawyers are lower than those paid by law firms. All Axiom has to do is monitor performance and ensure consistent hiring. For the lawyers it's like being a permanent temp.

The largest, the most complex, and the most urgent transactions will continue to require the input of the large law firms with the oversight of equity partners. Certain niche areas will need high levels of expertise, such as complex litigation. But most legal work is routine and mundane and doesn't necessitate the highest qualified and most expensive lawyers to do it. This is the very point made by Wachtell Lipton: "We specialize in matters that require special attention, extensive experience, a high level of sophistication and the reputation of our partners."

A lot of law firms are going to find it difficult to compete in this variable, ever-changing market.