LegalForce to challenge the traditional model of legal services delivery

This week sees the launch of an innovative new business in the legal services sphere.  LegalForce is launching simultaneously in the US and UK a business aimed at servicing the technology industry through highly unusual retail-style premises (styled LegalForce BookFlip) which could easily be mistaken for a trendy coffee shop or a high street book-store.

The business is focused on tech-start-up businesses which need advice on intellectual property protection and general commercial legal services but which may not have the budget to hire one of the mainstream commercial firms, and delivers its services in a manner which is a long way from the traditional stereotype of a stuffy law firm.  Customers can drop into the retail-feel store, and use on-line do-it-yourself precedents, with guidance and advice where needed from a team of lawyers at a knock-down rate ($45 for 15 minutes in the US) and without the need to make an appointment.

The stores will sell a wide range of books, documents and tablets as well as having lawyers available to offer legal advice, and will run workshops on subjects designed to appeal to entrepreneurs.

The 8,000 square feet US store front has just opened in Silicon Valley, a short stroll from Stanford University, with a look and feel designed to appeal to the uber-cool vibe beloved by tech entrepreneurs.  The store is open unconventional hours for a law firm – including evenings and weekends.   

In the UK, the intention is to open a store front in either Soho or Shoreditch – both centres for a lot of high tech business start ups.  Initially, the UK business will be run by south London law firm Freeman Harris (who are also part of the QualitySolicitors network and a member of Rocket Lawyer’s panel), but if the business model succeeds then it is planned to add a number of other firms into the network to broaden the range of advice that will be provided. 

LegalForce was formerly known as Trademarkia, which launched in 2009 as an online trademark search service and which bills itself as being the world leader in US trade mark applications, with over 23,000 trademarks having been registered.  Over the course of the last year been morphing into a wider commercial e-law brand, and the opening of the physical stores is an attempt to re-engineer the way in which young tech entrepreneurs access legal services.

It is interesting to see a legal services business which started up as an entirely on-line business moving into having physical premises through which it interacts with customers, at a time when many others are moving in the other direction.  However, I can't help but think that this is a shrewd move which is well aimed at a particularly part of the legal-services-buying public, and I have high hopes that it will be a great success.

Axiom Legal Financing Fund - CIMA takes a stance

The various stakeholders caught up in the Axiom Legal Financing Fund fiasco show no signs of agreeing a route forward any time soon, but last week saw the Cayman Islands Monetary Authority (“CIMA”) taking a visible role for the first time.

The Fund’s directors believe that the fund should be put into receivership, and would prefer KPMG to carry out that function.

These plans are opposed by Tangerine Investment Management (“TIM”) - the company which was sacked as the fund’s manager last year, following serious allegations of mismanagement and possible fraud – who do not want the fund to be wound up at all, but to be allowed to trade out of its present difficulties. 

The beleaguered investors (or at least some of them) are believed to have been convinced by the directors that receivership is the most appropriate course, but disagree as to who should conduct the receivership, favouring Grant Thornton over KMPG due to perceived conflicts of interest relating to KPMG.

Taylor Moor, who promoted that fund, have vocally lobbied for it being liquidated rather than being put into receivership, in the belief that a liquidator will have greater flexibility and will be better placed to investigate what has gone wrong with the fund to bring it to such a sorry current state, but agree with the other investors that Grant Thornton are best placed to take the role.

In the meantime, City Equities Limited (“CEL”), an FSA regulated company who has no official standing in the situation at all, is calling on the fund’s investors not to wind up the fund, but instead to allow CEL to take over its investment management function, in the belief that it can make a success of the business.  An optimistic view in the circumstances one might think, but they are reported to be offering to pull off this feat of management brilliance by charging significantly lower fees than the fund was hitherto bearing. But the plot thickens further.  CEL is reported to be owned by BVI company Otterswick Limited, which also owns TIM, and both companies are represented by BVI law firm, Forbes Hare.  Although the beneficial ownership of the companies involved is not a matter of public record, it is hard to avoid the conclusion that they are all owned by the same individual(s) – in all probability Tim Schools, who is himself facing investigation by the Solicitors Regulation Authority in the UK. 

After months of public silence on the matter from CIMA, the Cayman regulator has finally put its head above the parapet and taken a stance in the sorry saga, saying that it will oppose CEL’s bid to take over management of the fund because of the perceived conflict of interest, but that it has no objection to the appointment of Grant Thornton as receiver.  It is difficult to see how CIMA could possibly support CEL’s bid in the circumstances.

The hearing of the application took place on 31 January 2013 and 1 February 2013, but the judge has reserved judgment for the time being and so investors will have to wait a little longer before they learn the outcome of their fund’s future.

Cobbetts calls in the Administrators

I have blogged before on the question of how quickly a professional services business can descend into a death spiral once the confidence of the partners is lost and they start to depart (most notably in the case of Dewey & LeBoeuf  (http://www.blogger.com/blogger.g?blogID=759712752327313714#editor/target=post;postID=4182441567666633396.)

The latest casualty of this phenomenon seems to be troubled northern law firm Cobbetts, which is set to enter administration in an attempt to secure a fire-sale of its business.

Cobbetts has almost 500 staff and 74 partners across 3 offices.  In 2007/8, before the financial crisis, the firm was performing strongly, turning in revenues of almost £60 million.  Corporate work was booming, and the firm expanded rapidly.  However, it was hit hard by the financial downturn and managed only £45.2 million of revenues for the 2011/12 financial year.  Given the significant fixed costs associated with the expansion during the boom years, this appears to have been a disastrous scenario. The management team attempted to address the problem through three separate redundancy rounds – a necessary step but something which saps the morale of a people-led business – but to no avail.  Four partners then defected to Gowlings, and another two to Gateley last year, which must have led to a greater crisis of confidence for those remaining, and so the spiral began.

In an attempt to reverse its decline, the firm considered a number of merger opportunities – most notably with DWF last year, but talks collapsed because of the market uncertainty.  It would, perhaps, not be entirely surprising if DWF emerges as an acquirer of the business through the administration process.

It is perhaps surprising that Cobbetts is the first major failure of a UK law firm since the fall of Halliwells in 2010, although the UK office of Dewey collapsed as part of the larger global group.  I suspect that, sadly, more may follow.

Capita enter the legal process outsourcing market

Capita has for many years been synonymous with business process outsourcing, but not in the legal services sector.  That is all set to change as it looks to enter the LPO market on the back of a successful pilot project with Pinsent Masons (“Pinsent”).  Given Capita’s size and capital resources, the existing incumbents in that market will doubtless be forced to sit up and take note.

Pinsent has recently been using a Capita office in Krakow to review documents in an e-disclosure exercise for a large legal dispute.  Capita assembled a team of 85 individuals, whose work was overseen by Pinsent lawyers shipped out to Poland for the purpose, in an attempt to drive down costs for the client (and presumably drive up margins for Pinsent at the same time).  This is not the first time that Pinsent has used a legal process outsourcer – it was one of the earlier pioneers of the practice - but it is the first time that Capita has entered that arena as a provider.

From the perspective of a law firm, outsourcing labour-intensive tasks such as e-discovery offers not only the ability to carry out work in a lower cost location, but also obviates the need to carry the fixed costs of large teams of people who may not be fully utilised all of the time.  In today’s tough market where many firms are scrabbling to reduce fixed costs, this is a significant consideration.

Although Capita will doubtless be hoping to receive more work from Pinsent, it appears that the pilot was not designed with this particularly in mind – according to an article in The Lawyer, Pinsent intends to decide which LPO provider to use on a case-by-case basis rather than electing to partner with any one provider for future projects.  Nevertheless, Capita are apparently sufficiently pleased with the way that the pilot went that they plan to move aggressively into this new niche, competing with the likes of CPA and Integreon.

More redundancy misery for UK lawyers

It seems there is a chill wind blowing through the legal services sector.  Well over 4 years into the financial crisis, law firms are still making further cutbacks to try to sustain profitability for those who are lucky enough to avoid the cull.

January has seen a raft of firms putting jobs "at risk" and starting redundancy consultations - 166 jobs are at risk in Eversheds (and this comes on the back of 4 previous rounds of redundancies, which have seen a total of 737 jobs being shed), 250 jobs are at risk in DLA Piper, 40 in CMS Cameron McKenna, 12 in Farrers, and 43 in Allen & Overy, which is moving more jobs to Belfast.

Take your tax advice from a lawyer rather than an accountant if you want to keep it confidential from HMRC

In recent years, there has been a blurring of responsibilities between the legal and accountancy professions, particularly when it comes to tax advice.  Lawyers frequently advise on tax matters which would previously have been within the remit of accountants, and accountants often given advice on the legal implications of tax schemes.  The blurring of the lines becomes even more marked with the introduction of multi-disciplinary practices.  However, a recent Supreme Court decision has confirmed that if you want to keep your tax planning discussions with your advisers confidential, then you will need to instruct a practising lawyer, rather than an accountant or a non-lawyer tax adviser.

The UK Supreme Court has ruled that legal professional privilege (LPP) should only apply to communications between lawyers and their clients and not between clients and accountants, even when the accountants are giving legal advice.   So in essence, the identical conversation between a client and his adviser regarding his tax affairs will be covered by LPP if he is talking to a lawyer, but not if he is talking to an accountant.

In the case of Prudential plc v Special Commissioner of Income Tax, HMRC had served Prudential with notices demanding the disclosure of documents related to a tax avoidance scheme promoted by PricewaterhouseCoopers (PwC).   Prudential resisted disclosure on the grounds that the documents contained legal advice on tax matters, from, amongst others, the accountants PwC.  The Supreme Court rejected this, saying that LPP could not be extended without legislation to do so, and that to extend the concept of privilege through court interpretation would lead to unwelcome uncertainty in an area where there is clarity on what the current law means.  Lord Neuberger said:

"The suggestion that it should apply in any case where legal advice is given by a person who is a member of a 'profession [which] ordinarily includes the giving of legal advice' suggests to me that this is an inappropriate formulation for us to adopt, as it would carry with it an unacceptable risk of uncertainty and loss of clarity in a sensitive area of law.”

As far back as 1983, the Revenue Commissioners recommended the extension of LPP to tax advice given by accountants and tax advisers belonging to certain professional bodies, but this did not get governmental backing was never acted on.

Not surprisingly, accountants are very unhappy at this situation. Michael Izza, Chief Executive of the Institute of Chartered Accountants in England and Wales, said:

"The current position on LPP is unprincipled and anti-competitive for individuals and businesses who we believe should be able to seek the best professional advice upon the same terms whether from lawyers, accountants or indeed other appropriately qualified professionals.  The way in which legal services are provided is changing as a result of the Legal Services Act with the creation of Multi-Disciplinary Practices.  As a matter of urgency, Parliament needs to find a way to resolve how issues such as LPP are addressed within these new structures."

In the meantime, tax lawyers will no doubt be making hay whilst the sun shines.

.

Grant Thornton to be appointed Receiver of Axiom Legal Financing Fund

Faced with a storm of criticism from shareholders, the directors of the embattled Axiom Legal Financing Fund have reluctantly agreed to the appointment of Grant Thornton as receiver, rather than KPMG which had been the directors’ choice.

In a letter to shareholders on Tuesday, the directors confirmed that they will support the application to have a receiver appointed for the fund at a February court hearing.

KPMG had been appointed in October to conduct an audit of the fund’s assets following fraud allegations which had been made, principally by OffshoreAlert, and for this reason the directors thought that they would be best placed to act as receivers.  However, it became clear that a significant majority of investors opposed this view because of concerns over independence and fee levels, and so the directors have reluctantly bowed to investor pressure to support the appointment of Grant Thornton instead.