Ireland – Court Appeal

Asked whether the Irish legal market is awash with contentious work, one leading litigator sighs deeply and quips: ‘Well, the country is certainly full of contention.’ Every dip in any economic cycle brings a raft of litigious work, but the spectacular collapse of Ireland’s banking and property sectors following the global credit crisis has brought unprecedented large-scale litigation, restructuring and administration (termed examinership in Ireland).

‘We are busier than we’ve ever been,’ confirms Liam Kennedy, head of dispute resolution at A&L Goodbody. ‘The first half of last year was all crisis litigation, but since then we’ve had a lot of big-ticket work, such as high-level restructuring, insolvency, regulatory and international asset tracing litigation.’

It’s the same story across the entire top end of the market. ‘We’ve been extremely busy over the past year, which is reflected in our budget performance being appreciably up on the same time last year,’ says Declan Black, litigation head at Mason Hayes & Curran. ‘The firm is a litigation-led practice, with approximately half of our 66 partners handling contentious-related work across a broad spectrum, ranging from banking litigation to international commercial litigation and arbitration, so it’s a very broad church.’

Nothing ignites the imagination more than the restructuring and litigation surrounding the once-mighty Quinn Group (see box, below). The rags-to-riches story of Seán Quinn – his downfall following the collapse of Anglo Irish Bank (now the nationalised Irish Bank Resolution Corporation), and allegations of hidden assets as far afield as Russia,
India, Belize and Panama – is the stuff of Hollywood movies, never mind Irish caselaw, or folklore, even.

Running alongside this are the Irish aspects of the mammoth Madoff litigation, which is finally heading for trial in Ireland after a marathon discovery exercise. Then there’s the headline examinership of eircom, Ireland’s largest-ever examinership and one of Europe’s biggest, regarded as such a success that other jurisdictions are taking note. Finally there’s the immensely high-profile defamation case against Ireland’s main broadcaster RTÉ followed by the first-ever statutory investigation into a broadcaster by the Broadcasting Authority of Ireland (see box, ‘Reynolds v RTÉ: State investigation into RTÉ’). There are countless other high-profile and complex matters on Ireland’s court lists, the majority of which were born in the boom and bust years.

Without prejudice

Unlike areas such as state-related corporate work and banking, litigation is more evenly spread across the market – a consequence of big-firm conflicts, fee levels and a pool of expertise outside of the Big Six firms. Last year, Eugene F. Collins (EFC) was victorious in the Supreme Court on behalf of Paddy McKillen, Ireland’s most prolific property developer, who succeeded in his challenge against the transfer of his €2.1bn loan portfolio to the National Asset Management Agency (NAMA). ‘We are the only firm with the only client to have successfully challenged NAMA and to have had the assets released from their clutches,’ says EFC partner John Olden. ‘Paddy is very resilient,’ he adds.

He needs to be: in a separate case, McKillen recently lost his attempt in the UK Court of Appeal to win control over three London landmark hotels – Claridges, the Berkeley and the Connaught – following NAMA’s sale of €660m of debt secured against the hotels to shareholders Sir Frederick and Sir David Barclay. Herbert Smith is advising McKillen, with Weil, Gotshal & Manges representing the Barclay brothers with Irish law input from Matheson Ormsby Prentice (MOP).

Also outside the Big Six, Philip Lee acts for some international household names in a variety of litigation. Dispute resolution partner Patrick Walshe says: ‘The firm’s large litigation practice is extremely busy due to a combination of factors. There has been a marked increase in financial recovery proceedings, breach of contract, demands for payment of arrears, enforcement of bonds, recovery of commission entitlements, etc. The firm is also involved in some big-ticket commercial litigation involving the likes of Ryanair and Tesco, as well as cement cartel and telecoms licences cases.’

‘A lot of firms have restructured their teams, so have moved corporate associates around into areas such as restructuring and litigation.’ – Portia White, Laurence Simons

Lavelle Coleman is leading a class action against ACC Bank, advised by A&L Goodbody, alleging mis-selling of an investment product that was produced and marketed by the bank and recently succeeding in an application to amend the statement of claim to include allegations of fraud. Although Goodbodys was able to persuade the Supreme Court to strike out some claims for being statute barred, a further 260 plaintiffs are still lining up for the fight.

‘There is no real recognised procedure for group actions here as there is in the US,’ explains Michael Lavelle, managing partner at Lavelle Coleman. ‘Here, group actions have developed through trial and error and effectively each case has to be conducted on its own merits. We have fashioned a niche for ourselves in taking large actions against major institutions, acting for a lot of investors and we are handling cases against stockbrokers and other investment intermediaries, which is another good growth area in the current market.’

Other mid-sized firms are also in on the litigation act. LK Shields Solicitors is defending Motorola in a €107m action brought by internet service provider IBB Internet Services; Beauchamps Solicitors is playing a significant role in the judicial review brought by Treasury Holdings concerning the actions of NAMA, advised by William Fry; and leading investment funds firm Dillon Eustace is instructed in the Madoff litigation, acting for a number of investors.

‘Is very interesting that the banks and big corporates are looking outside their traditional firms for reasons such as responsiveness and fee rates, etc,’ says John White, managing partner at Beauchamps. ‘So there are opportunities for smaller and mid-tier firms to get big-ticket work.’

Joe O’Malley, litigation partner at Hayes Solicitors and chair of the Dublin Bar Association litigation committee, adds: ‘There is a noticeable trend with commercial litigation clients moving from larger firms to medium-sized firms where they are satisfied that the skill set for handling their litigation work remains at a high standard and such firms are properly resourced. This transition is often motivated by concerns about conflicts and costs and ensuring that they have a direct connection with the case handler.’

Hayes Solicitors, for example, secured Ireland’s largest-ever jury award of €10m for client Donal Kinsella in a defamation action against Kenmare Resources, although the case is pending appeal before the Supreme Court.

Money matters

The emergence of smaller firms in big-ticket litigation does not detract from the work of Ireland’s largest firms. Just a glance at the headline cases (see boxes) reveals the involvement of the entire Big Six – A&L Goodbody, Arthur Cox, Mason Hayes & Curran, MOP, McCann FitzGerald and William Fry. And the sheer scale of the litigation is bringing in very respectable fees. ‘The big firms cut the fat ruthlessly in the bad times and so now, as their fee incomes rocket, they are making extremely handsome profits,’ speculates a partner at a firm outside the Big Six.

Latest figures revealed in the Irish parliament show NAMA has spent €27.5m on external legal advice since its inception two years ago, albeit on a range of advice, not exclusively litigation. Of the Irish firms acting for NAMA, the highest beneficiaries are: Arthur Cox, €3.07m; Maples and Calder, €2.05m; MOP, €1.58m; Byrne Wallace, €1.51m; William Fry, €1.45m; A&L Goodbody, €1.37m; Dillon Eustace, €1.19m; and Beauchamps, €1.17m.

Five of the Big Six firms remain as tight-lipped on their financial performance as they have ever been. The exception is Mason Hayes & Curran, which posted an 8% increase in turnover in 2011 to €42.2m – nine successive years of growth. ‘Financial services and dispute resolution continue to generate workflow, reflecting the broader economic climate in Ireland,’ says managing partner Emer Gilvarry.

Surprisingly however, firms have not recruited in earnest to keep pace with the surge in contentious work. ‘There haven’t been as many litigation opportunities as you might think,’ says Portia White, UK and Ireland director at international recruitment consultants, Laurence Simons. ‘A lot of firms have restructured their teams, so have moved corporate associates around into areas such as restructuring and litigation. There has been some recruitment, but not to the degree anticipated.’

While state bodies, financial institutions and multinationals keep the work rolling into large firms, they are not immune to market pressure to lower fees or re-examine billing structures. Dudley Solan, head of dispute resolution at Maples and Calder, reveals: ‘It’s an issue for all firms in the current market and cashflow is a problem for all companies. In common with every other firm, we have clients who are struggling, so we have had to adjust to that to prevent difficulties from occurring. We work in partnership with the client, through thick and thin, and it is incumbent on us to work with them through the difficulties they may be facing. So we have been very innovative in our approach to fees.’

‘There is good money to be made if you’re in a firm turning over the work in volume for state clients.’ – Tony Williams, Simon McAleese Solicitors

Innovations at many firms include fixed or capped fees and greater transparency and dialogue over billing. Contingency fees are not permitted for commercial litigation in Ireland.

‘The way to avoid problems is to provide transparency on billing from the outset,’ advises Neil O’Mahony, insolvency and restructuring partner at Eversheds. ‘This helps avoid surprises for the client and in turn serves to reduce the risk of fees being left unpaid. We try to take account of the particular client’s circumstances and to offer a degree of flexibility on billing. However, Ireland hasn’t embraced conditional fees as in the UK.’

Hugh Garvey, managing partner at LK Shields, says: ‘One of the side consequences of the economy is that, in good times the litigation was done and you got paid for it at the end. Now, litigation pays for itself as you go along and, as a model, we find this works.’

‘Fees are an issue across the board, not just in litigation,’ adds Garrett Breen, litigation partner at William Fry. ‘But it is a challenge for clients, particularly in litigation, where a lot of costs are front-loaded. So we have to come up with inventive ways of assisting clients, for example fixed fees, especially for particular stages of proceedings as we go along. We are certainly doing a lot more fixed-fee work and you definitely have to run a lot faster to stay still in this market.’

William Fry is acting for Thema International Fund, the main plaintiff in the Madoff litigation, regarded as a defining case in recent years in Ireland. MOP is defending HSBC in all three of the main actions. The case involved the largest e-discovery exercise in Ireland (see box, ‘Madoff’).

Head of dispute resolution at MOP, Sharon Daly, gives an insight into the billing of the case: ‘We certainly had to be innovative in how we carried out the discovery in the Madoff litigation. It was a massive exercise and it is necessary that we provide a service to our client that is as cost effective as possible. We do not train our lawyers to be review lawyers and they are too expensive at our chargeout rates for this work. Not only have we made the best use of technology, but we recruited 45 review lawyers (semi-qualified lawyers who specialise in review) at very cost-effective rates. This is a good alternative to outsourcing to markets such as India and it is a secure environment for the client’s documents.’

Tax rates

In addition to market pressure on fees, Ireland’s High Court taxing masters (responsible for assessing costs when parties to litigation cannot agree) are flexing their muscles since new individuals were appointed at the start of the year. The legal profession was rocked by the decision in May of taxing master Declan O’Neill in the high-profile libel case brought by Father Kevin Reynolds against RTÉ (see box, ‘Reynolds v RTÉ: state investigation into RTÉ’, on page 127). O’Neill cut the plaintiff’s solicitor’s costs
by almost 70%, from €275,000 to €80,000, while fees claimed by counsel were reduced by 60%. The solicitor was from a small firm in County Meath.

‘It is unusual for the taxing master to deliver a written judgment and the perception is that he was laying down a marker for future reference outside the confines of the particular case before him,’ explains Tony Williams, partner at media and litigation boutique Simon McAleese Solicitors. ‘He said he had to take into account the economic downturn in reducing very substantially the costs sought in that case and his decision received a lot of media coverage.’

Simon McAleese Solicitors was not involved in the case, but acts for Mirror Group Newspapers and Ireland’s largest newspaper group, Independent Newspapers.

In practice, the fallout from the taxing decision will mean greater scrutiny of bills, says Robert Ryan, managing partner of Doherty Ryan & Associates. ‘It was always the case that solicitors had to vouch for their work whenever a matter went to taxation. However, the level of scrutiny is even more focused on actual work done and work required, as well as on applicable hourly rates,’ he says.

Such scrutiny is not necessary in the commercial arena, argues LK Shields’ dispute resolution partner Michael Kavanagh: ‘In commercial litigation, you are already dealing with sophisticated clients who are prepared to pay for quality, talent and effort. These days we have sophisticated time recording procedures and we find counsel are also more sophisticated in quoting costs.’

The Taxing Master’s decision in the Reynolds case is especially hard on firms at the lower end of the market, where solvent clients are in short supply. Tales of emptying out filing cabinets to find plausible work-in-progress are not unheard of, says one solicitor.

‘The SME market for smaller and medium-size law firms who focus on local Irish clients has suffered in the recession,’ reflects Lavelle. ‘SMEs have been adversely affected by the credit squeeze and cashflow issues. You’re not seeing people with the money to fight, so like marriages, companies and shareholders in trouble have no choice but to live together.’

The environment for firms outside of the significantly sized commercial bracket is so challenging, say some, that there is a polarised profession. ‘What we have is a two-speed legal economy,’ says Williams. ‘If you’re getting a lot of work from the state, state bodies or multinational companies then there is no legal recession. Years ago, some of the larger firms would almost have been wary of state work, but now it is among the most lucrative and sought after, working for NAMA, the Department of Finance, or state-owned banks, for example. There is good money to be made if you’re in a firm turning over the work in volume for state clients. But take a step down and you will see a legal economy in crisis.’

Supply and demand

The difficulties faced by smaller firms in this climate suggest the market is not ripe for specialist litigation boutiques, a trend witnessed in other jurisdictions in answer to high fees and conflict issues at tier-one firms. Helen Kilroy, head of dispute resolution at McCann FitzGerald, doesn’t think there is a sufficient market in conflicts for someone to set out alone and establish themselves with conflict referrals as their primary source of work. She says the general trend among the big firms in Ireland when there are conflicts is to refer to the next tier of firms. ‘In my experience, where we have a conflict, and it may not be a purely legal one, we don’t seem to have any difficulty in assisting the client with identifying an appropriate firm,’ she says.

Simon McAleese Solicitors is a boutique, specialising in media and select areas of commercial litigation. The key to success is specialist expertise and an established following, advises managing partner Simon McAleese. Firms need a collection of very solid clients who are regularly involved in disputes and who want their firms by their side all the way. ‘In our experience, it’s not just about the expertise, but your reputation for expertise,’ he says. ‘That will bring the work in, along with good personal contacts. There is a great opportunity for litigation boutiques, subject to those caveats.’

In fact, as trends go, it is the larger firms that are creating specialist teams in-house as opposed to specialists breaking out on their own. Breen at William Fry considers it inevitable that disputes boutiques will set up in Ireland but the current economic climate means it may not be the best time to set up a new practice. ‘The environment is difficult for smaller firms,’ he says. ‘ The larger firms like ourselves are, in any event, setting up specialist teams within and across departments which can provide a boutique-type service but with the big firm support. A classic example of this is in the financial regulatory space, with our Central Bank flexing its muscles, where William Fry has a specialist team dealing with this.’

Growth areas in the litigious arena include debt enforcement work involving banks, where there are many challenges being made and follow-up procedures are necessary, such as bankruptcy. Meanwhile, personal insolvency is a new market about to hit Ireland, according to Barry O’Neill, corporate recovery partner at EFC and chair of the Irish Society of Insolvency Practitioners. He explains: ‘It was recognised some years ago that our existing personal insolvency law simply could not cope with the scale of personal insolvency which has arisen in Ireland. Significantly, the Troika programme for Ireland included a key condition, namely that the government would introduce radical new personal insolvency laws to address the problem.’

As a result, the Personal Insolvency Bill 2012 is expected to be law by the end of the year. ‘The proposals are radical and impressive,’ he adds. ‘The law in England is so attractive that people are going over there and making themselves bankrupt. It’s bankruptcy tourism. But the Bill will end that.’ As the law stands, bankrupts in the Republic of Ireland must wait 12 years to be discharged.

Despite the personal nature of the client all firms, even the largest, are expected to handle the work, says O’Neill.

Another area of marked growth is regulatory work. Kieran Cowhey, senior partner and head of dispute resolution at Dillon Eustace, says: ‘The regulator himself has tooled up incredibly and has a number of people that are aggressively pursuing companies.’

McCann FitzGerald acted for the Central Bank, which found ‘unauthorised and improper transactions’ in its inspection of the affairs of Customs House Capital, which managed €1.1m of funds. Kilroy notes: ‘It reflects a new-broom approach by regulators. Since the appointment of Matthew Elderfield as financial regulator, there has been a good deal of activity and renewed standards and it reflects where Ireland is going now. Strict rules for financial markets and strong regulatory enforcement indicates a maturity in the regulation of business here.’

‘The whole regulatory area is growing, there is no doubt about it,’ confirms Conor McDonnell, litigation partner at Arthur Cox. ‘We see it as an area for further expansion in the coming years, on all fronts. Following an increase in regulation, particularly in the financial area, there will eventually be more disputes/prosecutions. There is a whole raft of issues waiting to be dealt with when the economy settles down and people look back and analyse what happened. We can expect to see the start of prosecutions at the end of the year.’

The final standout area of growth, as reported by LB last year, is professional negligence, with the number of cases against solicitors continuing to rise. McDonnell reports a surge in professional negligence cases, particularly against solicitors, who seem to be the number one target.

‘The number of claims we are seeing against solicitors continues to grow as more companies and clients move away from renegotiating bad deals to blaming their advisers,’ says Kavanagh at LK Shields. ‘We currently have a lot of breach of undertaking cases against solicitors.’ The firm was itself subject to a high-profile claim last year, alongside MOP, although the High Court found both firms were not negligent in their advice concerning loans provided by KCB Bank to property developer Philip Lynch. Cork firm Ernest J Cantillon acted for LK Shields and Mason Hayes & Curran for MOP. The plaintiffs are appealing.

The latest big-name law firm in the spotlight is ByrneWallace, the largest Irish firm outside the Big Six. This summer, it was ordered to pay €17.7m in damages to KCB Bank, advised by Arthur Cox, for failing to ensure the bank had adequate security for loans provided to property developer and former solicitor Thomas Byrne. The case is listed for appeal, with another Cork firm, Ronan Daly Jermyn advising ByrneWallace. The real sting in the tail, aside from the damages award, was the wording of the judgment handed down by Mr Justice McGovern, who stated the firm’s breach of duty amounted to ‘a deception’. Deception had not been alleged throughout the lengthy trial. There is a second action against the firm in the pipeline, a claim brought by Anne Maye, widower of property developer Liam Maye regarding €4.6m of loans. Mrs Maye has instructed MOP.

The overwhelming consensus among lawyers in Dublin is that the judgment in the KCB/ByrneWallace case was harsh and there is widespread sympathy from across the City. It’s heartening in such a competitive legal market, that those interviewed unanimously highlighted the quality of the firm. With litigation being a priority source of revenue for firms there’s blood in the water but, as the saying goes: ‘There but for the grace of God, go I.’ LB

kate.durcan@legalease.co.uk