Grania Langdon-Down is a freelance journalist Third-party funding code of conduct?Third-party funding needs ‘soft regulation’ with a voluntary code of conduct to avoid the cost wars that arose out of conditional fee agreements, say Professor Rachael Mulheron and Dr Peter Cashman. They have researched the market and highlight key points that should be included in any code: A litigator’s job description could increasingly be said to include the skills of bookie and salesman – assessing the odds of winning a case and advising clients on the evolving market in funding their litigation. Economic downturns spark increased litigation as companies seek to recoup losses, but faced with notoriously high legal costs the key question for those wanting to bring a claim is how to fund it. But how litigation is and might be funded in future is an area in turmoil. The growth in third-party funding, while still a nascent market, is just one development in the turbulent world of costs. The issue of contingency fees is once again raising its head, as are self-funding schemes for civil actions. Implementation of the new claims process has been set back at least six months while the Civil Justice Council mediates between stakeholders. Then there is the running sore of referral fees, conditional fee arrangements (CFAs) are under review, and, on the group-action front, the CJC is recommending that judges have discretion to allow an opt-out rather than an opt-in scheme. With all that material to work on, Lord Justice Jackson’s review of the costs regime is being watched with intense interest. And the one thing that is certain, says Neil Rose, editor of the Law Society’s Litigation Funding magazine, is that the ‘fun is only just beginning’. ‘The chaos that engulfed the costs world over the last decade shows no sign of letting up, even though the pre-November 2005 challenges to CFAs are finally dwindling,’ he says, ‘and this is all before we get to 2011 and alternative business structures, when the impact on much of the litigation and costs world could be seismic.’ But, he says, there is also abroad the ‘heretical thought’ that perhaps more time should be spent on finding new ways to resolve disputes – particularly smaller claims – rather than worrying about how lawyers are paid. For David Greene, president of the London Solicitors Litigation Association, the big issue is the question mark over whether CFAs are an appropriate way of funding litigation. The Ministry of Justice is reviewing the use of CFAs in defamation and personal injury, and CFAs are increasingly being used in commercial litigation. Greene, head of litigation and dispute resolution at London commercial law firm Edwin Coe, says the central point of any reform must be that ‘you cannot divorce costs from procedure’. He also questions whether there is any ‘political appetite’ for changes that require primary legislation. Concern that costs, proportionality and contingency arrangements are key reputational and ethical issues for solicitors prompted the Law Society’s civil justice committee to issue a consultation paper. The responses are still being analysed, but committee chairman Stephen Mason, a member of Leeds-based travel law specialists Travlaw, says: ‘The Law Society is against contingency fees and we wanted to see if it is time to change that policy. My personal view is that, as long as we can devise a system that abjures the excesses of the American system, we should support developments which increase access to justice. ‘We also wanted to consult on third-party funding, which has crept up on us before anyone has thought through what rules ought to be in place, to prevent abuse without discouraging what could be a valuable tool in enhancing access to justice.’ The CJC is working on a self-regulating code of conduct produced by a small group of funders. Robert Musgrove, the council’s chief executive, says the council will not be publishing the code until it has worked through the financial and legal implications with stakeholders, including funders, the FSA, the Law Society, the MoJ and practitioners. Third-party funding is certainly provoking debate. Tony Guise, of costs specialists Guise, says there has been a lot of ‘hot air’ about third-party funding over the last 18 months. ‘Some funders are drawing in their horns because the recession means recoverability is in doubt, while others are becoming more aggressive. There is no shortage of funding available – people are putting together capital funds of £20m-£30m – but it is not clear how many cases are actually being funded this way. ‘Everyone is watching the InnovatorOne case, where Addleshaw Goddard is representing several hundred investors backed by third-party funding. Everyone is after the big commercial action but they are inherently risky and they don’t provide a good business model.’ But the litigation funding market is attracting international interest. John Rossos is principal of Canadian BridgePoint Financial Services, which funds both law firms and individual cases. He has been in the UK researching opportunities and likes what he sees. ‘While the US market is huge, we feel we have a better cultural and legal fit with the UK. I also believe that the Legal Services Act will be the “big bang” for legal services.’ Sam Eastwood, partner in Norton Rose’s dispute resolution team, has first-hand experience of the market in one of the largest independently funded cases – the Stone & Rolls £69.5m professional negligence claim against accountancy firm Moore Stephens, bankrolled by IM Litigation Funding. Does he feel the case has led to the ‘litigation revolution’ predicted when Stone & Rolls first hit the headlines in 2007? ‘The case has served as an important catalyst in demonstrating to lawyers, funders and clients that it is possible to put together finance for a substantial commercial dispute,’ he says. ‘At the time, there was a lack of awareness of the potential for third-party funding – and considerable scepticism.’ He dismisses suggestions that the outcome of the case will impact on the third-party funding market. ‘There was a strike-out application which we won at first instance, lost at appeal and we are now waiting on the judgment of the House of Lords. The interest in the case has rightly shifted from the funding novelty to the legal arguments at the heart of Moore Stephens’ strike-out application. ‘There is a common misconception that the House of Lords is deciding the merits of third-party funding. This is not the case. The House of Lords judgment will focus on some very interesting points of law which will shape the law in relation to auditors’ negligence for years to come.’ The third-party funding market has matured considerably since the still contested Stone & Rolls case was started, adds Eastwood, and its potential has secured widespread recognition. ‘It is here to stay – particularly in the current economic climate.’ Another major third-party funding case opened in 2007 involving former Status Quo band members Alan Lancaster and John Coghlan, who were backed by AllianzProzessFinanz, the German funder, in their battle for payment of back catalogue royalties. Both won at first instance, but one lost on appeal. There are ongoing detailed costs assessments. Simon Jacobs, a partner in central London law firm Seddons’ dispute resolution team, represents the claimants. ‘At the moment’, he says, ‘third-party funding arrangements are very much a “bespoke” product. The hope is the market will develop sensibly without too much satellite litigation. However, it is helpful when challenges are ruled on by the courts because it gives more certainty to the process.’ He is currently looking at this funding model for a large commercial group action. ‘It is not a panacea but it’s a great tool for the right cases.’ Graham Reid, an employed barrister at City law firm Reynolds Porter Chamberlain, advises law firms who want to try some of the ‘more novel’ forms of funding on whether they comply with the Solicitors Code of Conduct. ‘Will third-party funding become big? That depends on the extent to which, in these difficult economic times, people with money see it as a business opportunity,’ he says. ‘The downturn will mean more impoverished litigants with legitimate axes to grind who will need external funding. But there will also be a large number of impoverished litigants who want to postpone paying fees and will try to raise spurious claims.’ There is currently a push to inform the profession from outside about developments in litigation funding, such as regional briefings by insurance broker Marsh on how the current economic climate has changed the risk landscape, and how litigation funding can help firms and their clients. Reid says rule 2.02 of the Code of Conduct requires solicitors to discuss funding options with their client, but there is some uncertainty as to how far this extends. While some practitioners said, on being asked for this article, that ‘we are not salesmen for third-party funders’, Reid says the ‘sensible response is to assume that you need to discuss all options, which will increase the amount of involvement in more complicated funding arrangements’. Guise says awareness among the profession is ‘pretty poor’. ‘When my partners and I talk about it we mainly see blank faces, and it is largely untried outside London.’ His firm is seeing something backed by research. An Ipsos Mori survey of FTSE 350 senior executives, commissioned by Addleshaw Goddard, found a third of respondents were unaware of third-party funding or after-the-event (ATE) insurance. Brian Raincock, chairman of Litigation Protection Ltd, says one of the problems is that the ATE market is not that sophisticated when it comes to commercial cases, as its underwriting capability is more geared to personal injury and clinical negligence. Bob Gordon is managing director of 1st Class Legal, which provides both ATE insurance and litigation funding. His firm has been testing the third-party market, lending £12m to fund 17 cases, and plans to announce a ‘dramatically higher’ position next month. He says some funders only want cases involving a minimum of £2m in potential damages. ‘We want a spread of cases. However, the people who have real problems are those with a dispute worth £75,000, where the legal costs on each side would be £40,000, and the numbers just don’t stack up to get insurance or funding – and there are thousands of cases like that.’ Where third-party funding is available, ATE insurance complements rather than competes with it, he says. ‘You can insure a case without funding, but you cannot fund a case without insurance.’ The question of whether the ATE premium in third-party cases should be recoverable if they win is being raised at conferences, says Guise: ‘Why should funders be allowed to recover the ATE premium when the entire case is being run at least partly for their benefit, and this exposure to costs – for which they put in place ATE – is simply part of their business overheads?’ While there will be challenges over costs, Raincock does not believe third-party funding will provoke large-scale satellite litigation. ‘Most defendants are individuals and there is no unifying force to raise challenges in the way the insurance industry did on the PI side over CFAs.’ But there is potential for third-party funding in group actions, both according to funders and solicitors. Raincock says group actions pose difficulties because they tend to be complex and difficult to manage, but the CJC’s opt-out proposal ‘would certainly make them more attractive’. Gordon at 1st Class Legal says he has been approached about funding group litigation. ‘We would be happy to do it, but there must be sensible mechanisms to control overall costs.’ Matthew Weiniger, partner in Herbert Smith’s litigation and arbitration division, says claimant lawyers are already testing the boundaries of existing court procedures to try to persuade the courts to develop ‘something akin to the US-style class action’. But he points to the case of Emerald Supplies Ltd v British Airways Plc  EWHC 741 (Ch), in which the High Court struck out the representative element of the claim, as an example of the current situation. ‘The courts appear unwilling to expand the circumstances in which collective actions can be brought, pending the government’s decision as to whether to introduce new procedures for collective litigation in response to the various recent proposals for reform.’ Under rule 9.01(4) of the Solicitors Code of Conduct, there can be no third-party funding or other contingency agreement in cases that involve personal injury or death. But Reid at Reynolds says this may have to change ‘because cases such as a group action involving people harmed by a drug would be exactly the sort of case that deserves access to justice’. So, it is a question of watch this space on costs, but change is coming. As Litigation Funding’s Rose says: ‘The costs system must clearly be reformed, but how radically? Procedural reform will have to come hand in hand – especially for large commercial cases – and, though he shies away from the description, Jackson is the closest thing we’ll get to the new Woolf. ‘But Woolf was commissioned by the government’, says Rose, ‘and the huge question mark hanging over all of this is whether the MoJ, which is carrying on with its own, smaller costs reforms in the meantime, will implement what Jackson recommends’. The client wants to sue on their own initiative; The funder is subject to independent ‘checks and balances’ throughout the litigation; The funder does not have the capacity to ‘monopolise’ the litigation improperly; There is no conflict of interest between the funder and the client; The funder must have sufficient resources to meet its commitments to claimant; The funder must be willing and able to meet any adverse costs order should the action fail; The funder must not have negotiated an ‘inordinately high’ fee; and The funding agreement does not otherwise have any tendency to corrupt the legal process.
It’s just not getting any easier for solicitors when it comes to professional indemnity insurance. After two consecutive years of renewals pain, many small firms are once again burdened with uncertainty following yesterday’s bad news about Irish insurer Quinn Insurance.The Irish Financial Regulator (IFR) forced Quinn Insurance, part of Irish conglomerate Quinn Group, into administration yesterday because the IFR said it had concerns about Quinn’s ability to meet liabilities to policyholders. Quinn Insurance supplies more than 2,900 UK law firms with professional indemnity insurance (PII). Other insurers and brokers have already started to pounce on Quinn policyholders and offer them alternative PII cover. But the Solicitors Regulation Authority is telling firms to sit tight, and the IFR has made it clear that UK firms covered by Quinn can still rely on their policies. Quinn is, after all, in administration – it is not dead. While this does not remove all uncertainty from the equation, it means that more information is needed before firms make a decision on what to do next. In turn, Quinn has made some bullish statements about its financial strength, but it will take more time for administrators and the IFR to analyse the state of the company. The SRA, it must be remembered, is not a regulator of PII insurers; although it does set rules that insurers and solicitors should follow. Whether or not insurance companies are fit to trade is a question for the Financial Services Authority in the UK, and in Ireland, the IFR. If they are deemed fit to trade, then signing a qualifying insurers agreement with the SRA is little more than a formality. All eyes will therefore be on Quinn’s administrators and the IFR over the coming days. Unfortunately, this means that the uncertainty for many of the 2,900 firms affected will continue for the moment.
Any prospect of a new ban on referral fees has been dealt a second major blow in the space of a few weeks, as a new report for the Legal Services Board recommended that the fees should be retained last week. The Legal Services Consumer Panel’s report called for greater disclosure of referral fees and better regulation, but found that the payments do have a place in the legal services market and should be allowed to continue. The findings came hot the heels of an economic analysis from consultants Charles River Associates two weeks ago, which advised the LSB that there was no evidence that referral fees caused consumer detriment, in either the conveyancing or the personal injury market. Publishing the consumer panel report, panel chair Dr Dianne Hayter said: ‘Greater transparency combined with tough action against rule-breakers is needed to ensure that referral fees work in the interests of consumers. ‘Referral fees have their problems, but they can increase access to justice while not raising prices or reducing the quality of advice. So long as the issues identified in the panel’s report are successfully tackled, referral fees have their place in the legal services market.’ The panel called for action to tackle a number of problems, including: the issue of closed bids and auctions, which mean work is referred to the lawyers paying the highest referral fees rather than the best lawyers; pressure-selling tactics by estate agents and insurers to get clients to accept the lawyers they recommend; high levels of non-compliance with transparency rules by conveyancers and estate agents; and competition concerns raised by the trend for introducers to refer work to a small number of large law firms. However, despite these concerns, the panel said evidence suggests referral fees do not increase the prices paid by consumers for legal services or reduce the quality of work. The panel’s report revealed the large sums of money that change hands between lawyers and introducers. Conveyancers pay fees of up to £300 an instruction to estate agents, while claims management companies typically receive referral fees of £800 from a lawyer in respect of a client injured in a road traffic accident. Adding the costs of medical experts, car hire companies and others, the total commission paid in a single case can reach £1,500. The consumer panel as set up by the LSB last November and referral fees were the first item on its agenda. David Parton, residential conveyancing partner at regional firm Shoosmiths, said: ‘I can’t see how a ban could possibly [now] come to pass. ‘Prior to the election the Conservatives said they were not in favour of a ban. Ultimately if the LSB came down in favour of a ban, it would be going against the views of the Solicitors Regulation Authority; the consumer panel and the government.’ He said: ‘The general consensus is that a ban wouldn’t reflect the commercial reality of the way work is referred or the benefit of the system to consumers or lawyers.’ To return to a ban would be to ‘go back to the dark days’ where firms engaged in opaque arrangements to get around it, he said. Richard Barnett, senior partner at volume conveyancer Barnetts and chair of the Law Society conveyancing and land law committee, said: ‘It’s likely that referral fees will continue to be allowed, but with some revisions.’ ‘It would be useful to reflect on where there might be difficulties with the current system. There needs to be some sanction for those introducers who abuse the system,’ he said. Barnett said he would like to see ‘transparency and choice for consumers’, and those within the system should be made to ‘act responsibly’. ‘The real issue is not referral fees per se, but rather how the profession will be able to work alongside the new alternative business structures. A system needs to operate so that work can easily be referred where appropriate. If no system exists then the work will remain with those with the biggest brand name and biggest marketing budget.’ In November 2009, the Law Society Council voted to press the LSB to ban referral fees across the board. Law Society president Robert Heslett said: ‘The Society is disappointed that the consumer panel has not recommended that referral fees should be banned. We believe these fees create a real danger that consumers will be treated as commodities that can be bought and sold and that the existence of the fees will either increase prices or place tensions on solicitors’ duties to act in their clients’ best interests. ‘Whatever final conclusions are drawn, we take the view that requiring an estate agent or insurer to tell their customer how much they sold their case for must be a minimum sensible reform,’ said Heslett. Laurence Besemer, chief executive of the Forum of Insurance Lawyers, said that both the consumer panel report and the previous report by Charles River Associates, both of which found that there is no detriment to consumers, did not look at the wider public interest or economic impact of referral fees. ‘The consumer is wider than the claimant – those who pursue claims are a fraction of society. The cost of referral fees is picked up business and by those who pay insurance premiums but do not make claims,’ he said. The LSB hopes to give its position on the issue by the end of the summer at the latest.
LCS complaints HO service concerns for that lawyer by number Client testimonials You can set targets for each of the above if you wish. We do, and find this useful to chart progress and difference between lawyers. On the face of it, if one lawyer can achieve a certain target then another could with the right input or information. If someone has reached a certain performance figure in the past, it is very useful to be able to point that out to them when they are struggling a little and starting to doubt themselves. I think these are the main KPIs. What others do you think should be used? Finally, I would stress that ‘paralysis by analysis’ is to be avoided. It is a course of improvement over many months that we seek to see, and I think it is important not to concentrate on a short-term change of performance. I think KPIs give a structure to a background supervision of your lawyers, underlying a trusting and coaching management style. Lawyers will know what is expected of them and what they need to do to be the ‘right’ lawyer for your firm. The above stats can be relatively easily produced by a basic software system if there is proper input to it. Personally, I have a spreadsheet which produces a graph showing the monthly changes, which I find easier to read. Financial Leads obtained from own activity Total leads handled Conversion rate versus their history versus firm’s average Leads from recommendation Marketing Customer care Billing per month versus their history, versus firm average Fees paid in month Fees past 30 days overdue In my last blog on the role of coaching in law firms, I argued that a coaching style of management was appropriate when managing lawyers, most especially those who are senior and experienced. The blog attracted comments making the fair point that we should ensure we have the ‘right’ people in the firm in the first place. In my defence, I rather thought that was implicit. But how do we take a view on who are the ‘right’ people?I think that key performance indicators (KPIs) are of great use, especially to a busy management team. And, I hope, to the lawyers themselves. It cannot be a fair management system if those being managed don’t know the measures applied to them and have no input. I will refer to issues of motivation in a later blog, but the subject of ensuring you have the right lawyers is a subject in itself, and I do not attempt to cover if here. For now, suffice it to say that some lawyers are motivated by having stretch targets, and some are demotivated by having targets they see as tough. Of course you will choose the KPIs that are important to your firm, but there are some I suggest will be universally useful. What is important? I suggest billing, allied to client care, but bearing in mind the behaviours that lead to those two. I think the KPIs can be broken down into these headings:
Atheism and Christianity produce different law and ethics. Militant scientific atheism tells us that, biologically, a human is more intelligent but no more special than a chimpanzee or a slug. Our noblest thoughts are just chemical reactions in our brains. Kindness is just an evolutionary self-centred survival mechanism. In human history each of us and our career-building, money-making, values and hard work will be forgotten within a few years. In a universe of almost infinite time and space, to believe that the human race has any ultimate significance or value at all is illogical, unscientific and delusional – if you are an atheist. Morality, justice and freedom are all just temporary artificial human constructs with no ultimate or absolute meaning at all. Of course atheists cannot live with the logical implications of this belief. They must have some kind of moral absolute to assess behaviour, usually consisting, as with your correspondents, of vague concepts such as ‘modern morality’, the norms of 2011, ‘the law’ (of what eras? in which countries?), a maturing country, ‘improving areas’ – all philosophically meaningless. If, however, every human being was individually created and is infinitely loved by God then that’s a different story for law and ethics. Alastair Bates, Sidmouth, Devon
The collapse of not-for-profit immigration advice provider the Immigration Advisory Service (IAS) will leave thousands of clients without representation, the Law Society warned today. IAS’s legal aid contract allowed it to take on 26,700 new cases a year. It is not yet known what will happen to these cases. IAS went into administration over the weekend. It has not yet issued a statement, but there is speculation that the charity was unable to turn work in progress into revenue, because the Legal Services Commission does not pay firms until work is completed in immigration cases. The delay in receiving payments can create serious cash flow difficulties for firms, as the Law Society and others have repeatedly warned. One expert suggested serious questions should be asked about the LSC’s competence to monitor publicly funded organisations, given that it granted the IAS a significantly expanded contract only a year ago. IAS is the second not-for-profit immigration advice service to go into administration in the past year. The Refugee and Migrant Justice group collapsed in June last year, leaving 10,000 asylum seekers, including nearly 900 children, without representation and 300 specialist staff without a job. A Law Society spokesman said: ‘While Parliament debates further cuts in legal aid, today’s news of the collapse of IAS has left thousands of clients stranded. ‘This is the true impact of funding cuts. ‘The government claims that not-for-profit organisations like IAS will fill the gaps in public service provision. ‘The fact that this is the second such collapse in the sector shows that these claims are little more than wishful thinking.’
The Legal Services Commission (LSC) is inviting expressions of interest from immigration contract holders wishing to take on some of the 8,000 file caseload of the Immigration Advisory Service (IAS), which went into administration on 8 July. Administrator Cork Gully has disclosed that the open files of the now defunct IAS include 1,242 cases of unaccompanied asylum seeking children, and 385 appeal cases with hearing dates within the next few weeks, all of which the LSC says should be treated as priorities. An LSC spokesman said: ‘We are urgently identifying alternative advice provision in the areas affected, and are prioritising cases which are due in court now or in the next few weeks, so that we can achieve case transfer as quickly and effectively as possible. ‘We have invited expressions of interest from current immigration contract holders by next Monday, July 18th, with the aim of distributing clients to these advice providers next week.’ IAS went into administration last week. It has in part blamed cuts to legal aid for its financial difficulties. To complete the ‘Expression of interest’ form go to the legal services site. Return the form to Paul Benjamin by noon Monday 18 July.
Join our LinkedIn Legal Aid sub-group You don’t expect good news to come out of the scandal of elderly people suffering abuse at the hands of their carers. Where’s the good news in the indignity of an elderly woman left stuck on the toilet because everyone was too busy to assist her? And how can good news ever be associated with a carer telling a patient to shut up because he was reading the newspaper? These are just some examples of the theft, neglect, rudeness and physical abuse uncovered by the Equality and Human Rights Commission’s (EHRC) review of home care, published earlier this week. EHRC commissioner Baroness Sally Greengross said that one way to address the problem was to ensure that ‘any care that is commissioned by a local authority or another public body should come under the Human Rights Act (HRA) so people are protected from abuse’. And that’s the good news because suddenly human rights are something that protects your granny or the old guy who lives next door. Human rights have come home. They are no longer the exclusive preserve of ‘bogus asylum seekers’ or sex offenders who demand pornography while in prison. They are not even the sole preserve of immigrant cat owners, as home secretary Theresa May in her ignorance told the Tory party conference. But before we get too excited: this is not the dawning of a new age for how human rights are reported in the right-wing press. The Telegraph lost no time in rubbishing Greengross’s words. We need basic human decency, Ed West wrote in a blog, not ‘new human rights being created and more lawyers enriched’. Human rights and ‘basic human decency’ are one and the same thing – the right to life, dignity, freedom from inhumane treatment and the rest of all that good stuff. And who’s suggesting ‘new human rights’? We can make do very nicely with our current crop, thank you, and won’t be paying any lawyers to pen fresh ones. The British Institute of Human Rights has long argued that human rights play an unrecognised role in protecting our basic freedoms and that more noise should be made about the positive things they achieve on our behalf. Its website gives numerous case histories, from the ‘learning disabled couple’ who had to resort to the HRA to have CCTV removed from their bedroom (you couldn’t make it up!) to the elderly couple who used it to stop their local council from separating them from one another. Unhappily, you don’t read these stories in the popular press. The two words ‘human rights’ are always said with a sneer, as some sort of alien, European encroachment on our hard-won British liberties. We should be reminding people that respect for human rights, as embodied first in the European Convention on Human Rights and then in our own HRA, has not only fostered peace between European nations since the second world war. It is also doing a good job of protecting granny and granddad, and you and me.
The City of London Law Society has issued a useful Guide to assist practitioners in providing English law opinion letters in financial transactions. The aim of the Guide (available at the website) is to save time and costs spent in discussing which law firm should provide an opinion letter, what it should cover and who may rely on it. The Guide suggests 12 questions which a law firm practising English law should consider addressing when seeking or providing an opinion letter. It explains the key considerations, including the professional conduct rules which must be observed. It does not lay down rules or a code of conduct. Each firm is free to decide on its own policy for providing opinion letters. The Guide focuses on opinion letters delivered by a law firm (typically at completion of a transaction) to its client or, at a client’s request, to a third party, where the opinion is to be relied upon by the client or the third party, or reference is to be made to the opinion in a public document or to obtain a debt rating. Written advice to a client for its sole use on points of law or on its legal position falls outside the scope of the Guide. It is appropriate to consider, before requesting another law firm to provide an opinion letter, whether, if the roles were reversed, the requesting law firm would itself be willing (and permitted by professional conduct rules) to give the opinion requested. This approach – sometimes called the ‘golden rule’ – can avoid many of the difficulties which may otherwise arise. The normal practice is that an English opinion letter in a financial transaction is given by the lender’s own legal advisers. Exceptions may occur where it is convenient and saves costs, or where market practice has adopted a different approach and, in each case, where giving the opinion is consistent with professional conduct rules. There are differing views about the extent of the exceptions. One exception recognised by some (but not all) law firms is that, if one party requires an opinion letter only on the capacity and authority of the other party to enter into the transaction documents, it may in certain cases be most cost-efficient for the law firm acting for that other party (or its in-house lawyer) to provide the opinion letter. There is a significant difference between practice in the US and practice in England and Wales. The US approach is to expect more from the borrower’s legal advisers. A lender in a US financial transaction will often require the borrower to provide an opinion letter for the lender’s benefit from the borrower’s legal advisers on the enforceability of the documentation. The golden rule may appear difficult to apply in cross-border transactions because of this difference in approach. In practice, a common answer (consistent with professional conduct rules) is that the opinion letter should be given by reference to the practice generally applicable in the jurisdiction whose law is the subject of the opinion. So an opinion letter on English law would take into account the normal approach that applies in England and Wales, and an opinion letter on New York law would take into account the normal approach which applies in New York. The Guide examines several factors relevant to opinions for third parties. In particular, applicable professional conduct rules must be observed where, for example, a request for a third-party opinion may give rise to a possible conflict between the law firm’s duty to its own client and the responsibilities assumed by it to the recipient of the opinion. Additionally, the giving of the requested opinion letter may have the effect that responsibility for advising the addressee on certain features of the transaction is transferred inappropriately from the addressee’s legal advisers to the opinion provider. The Guide explains the purpose of an opinion letter and the proper role of the opinion provider. The purpose is to state conclusions of law as to the ability of a party to enter into and perform its obligations under an agreement and/or the legal effect of the agreement. Most opinion letters are subject to at least some qualifications. An opinion letter often states conclusions of law without a detailed legal analysis. Closing opinions do not normally address the legal consequences if, for example, the contracting party were to enter into insolvency proceedings. This possibility would involve complex legal issues. The time and expense involved in the analysis of these issues may be disproportionate in the context of the transaction. So, the opinion letter will normally include a qualification that any opinion is subject to all provisions of insolvency law and other laws affecting creditors’ rights generally, unless a reasoned opinion is necessary to satisfy the requirements of rating agencies or regulators. It is often regarded as inappropriate for a law firm to give an opinion as to the effect of security, unless it has been or is responsible for preparing and registering the security documents. Even if a law firm has prepared the security documents, it may be unwilling to opine on priority, unless the legal position is capable of being established conclusively by priority searches at the relevant registry (for example, in the case of a mortgage of land). The views contained in an opinion letter are expressions of professional judgement on the legal issues addressed and not guarantees that a court will necessarily reach a particular decision. The provider of an opinion letter may be liable to the addressee if the opinion is negligently given, but is not necessarily negligent merely because an opinion proves to be at variance with a decision ultimately reached by a court at a later date. The provider of an opinion letter is not an insurer against risks which may affect the parties. The Guide highlights the importance of the distinction between fact and law. An opinion letter will generally be given only on specific questions of law. The provider of an opinion letter is not a warrantor of factual matters. An opinion letter is invariably expressed to be based on relevant factual assumptions, which may in turn be covered by warranties in the transaction documents. Where an opinion letter is given to a client, it is often helpful not only to the recipient but to the law firm providing it, since it defines the scope (and, at least in a reasoned opinion, records the substance) of the opinion given. Geoffrey Yeowart is a partner at Hogan Lovells
Subscribe now for unlimited access Get your free guest access SIGN UP TODAY To continue enjoying Building.co.uk, sign up for free guest accessExisting subscriber? LOGIN Subscribe to Building today and you will benefit from:Unlimited access to all stories including expert analysis and comment from industry leadersOur league tables, cost models and economics dataOur online archive of over 10,000 articlesBuilding magazine digital editionsBuilding magazine print editionsPrinted/digital supplementsSubscribe now for unlimited access.View our subscription options and join our community Stay at the forefront of thought leadership with news and analysis from award-winning journalists. Enjoy company features, CEO interviews, architectural reviews, technical project know-how and the latest innovations.Limited access to building.co.ukBreaking industry news as it happensBreaking, daily and weekly e-newsletters