City firms in power struggle with clients

Savvy businesses are increasingly trying to impose 'challenging' terms of engagement on City law firms, in what has been described as shift in the balance of power between lawyer and client.

A study commissioned by the Solicitors Regulation Authority (SRA) and undertaken by Dr Steven Vaughan of the University of Birmingham and Claire Legal Ltd has explored the lawyer-client relationships in larger firms.

The researchers interviewed senior corporate and finance lawyers from 20 of the largest corporate firms in England and Wales. The findings showed there was pressure to deliver value for money for clients in an increasingly competitive market, which in turn was placing additional risk on City firms.

Three-quarters of respondents outlined a scenario whereby they were forced to accept more challenging terms of engagement with little room for manoeuvre.

However, firms that routinely pushed back on 'unacceptable' proposed terms of engagement still received instructions. The researchers found no correlation between a firm's size or heritage and its ability to resist more challenging terms.

The study also found how third-party 'shadow clients' are seeking to influence the behaviour of some legal advisers and dictate which firms can and cannot act for certain parties, reshaping the market for financial services litigation. The result is that some litigants are no longer able to secure their lawyer of choice.

The researchers accepted there is no absolute right to a lawyer or law firm of first choice. However, it was concerning that such contractual provisions might be used strategically by some clients to deny claimants representation from a tier of firms.

A small number of respondents claimed that firms may be appointed to a panel and made to sign 'no sue' clauses, even where the client has little or no intention of giving that firm work.

By agreeing to accept restrictive terms by clients, a firm may be taking on obligations that have the potential to affect duties owed to current or future clients, researchers suggested.

Coupled with potential breaches of confidentiality arising from client terms, firms have responded by using risk, opinion, and/or pricing committees.

In addition, compliance officers for legal practice (COLP) are now often seen as the 'holder' of professional values for a whole firm. However, this suggested the potential erosion of individual professionalism by lawyers.

Crispin Passmore, the executive director for policy at the SRA, said: 'In the wake of the Tomlinson report and concerns around financial institutions' influence over law firms, we wanted to test our understanding of city firms' lawyer-client relationships.

'We seem to be seeing real pressure on law firms from clients, which makes it all the more important that the professional principles of independence and ethical practices remain at the heart of solicitors' decision-making.'

John van der Luit-Drummond is deputy editor for Solicitors Journal
john.vanderluit@solicitorsjournal.co.uk | @JvdLD