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The Biggest Challenges Facing the Legal Profession in 2018

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About The Author

Keir Baker (Consulting Editor)

Keir is a Trainee Solicitor currently sitting in the Finance department at a major US law firm. A law graduate from Selwyn College, Cambridge University, his main areas of interest are Employment, Discrimination and Competition law. Outside the law, Keir is an accomplished goalkeeper in both football and hockey, as well as a keen actor and pianist. He is a long-suffering supporter of Middlesbrough FC.

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Change is the law of life. And those who look only to the past or present are certain to miss the future.

John F. Kennedy

A fundamental skill that any aspiring lawyer needs to demonstrate is commercial awareness, an elusive concept upon which Chris Bridges has attempted to shed some light for Keep Calm Talk Law. A key element of this skill is showing a sound understanding of the market in which law firms operate.

After all, a law firm is a business just like any other. It must react to changing conditions in their industry, capitalising upon new opportunities and overcoming emerging obstacles in order to stay ahead of its competitors. And, as this article examines, 2018 looks set to introduce a set of new tests that law firms must negotiate if they want to thrive in one of the global economy's most competitive sectors.

The Unavoidable Challenge – Brexit

It is trite to say that Brexit will affect the legal industry in a number of ways. Impacts will be wide-ranging, hitting not only the substantive content of the law, but also the ability of British solicitors to work abroad and  as the economic implications of Brexit hits  the extent to which clients will want to engage British firms.

As far as changes to the substantive law is concerned, Brexit arguably creates a vast swathe of short-term opportunities for law firms. Firms will likely be tasked with explaining the effect of Brexit on huge numbers of existing contracts and transactions across many areas of law, including Competition, Employment and Intellectual Property.

However, in the future, such opportunities may fade. If the negotiations conclude without the UK retaining its access to the Single Market or some other Free-Trade Agreement, the application of tariffs and duties to goods and services will raise costs for many clients and they may choose to relocate elsewhere. Equally, the potential for increased administrative burdens is likely to encourage clients to withdraw from the UK: there is already evidence of banks doing so.

The extent to which this will impact upon the business of law firms may depend on where else they have offices in Europe. As The Economist points out, should clients follow the EU’s main banking regulator to Paris, or move to other cities like Frankfurt or Luxembourg, some of Britain’s bigger law firms who are already established there may feel confident that they can continue to provide services to their clients. However, there are some other cities – such as Dublin – which firms may be unable to cover, resulting in their clients having to look elsewhere for legal advice.

Another challenge not often discussed is the limits that Brexit may put on the ability of British-qualified lawyers to work in the EU. Currently, British lawyers can represent clients at the European Court of Justice (ECJ) and advise on areas of EU law like Competition. But if lawyers qualified only in Britain were to lose legal privilege in EU cases, or rights of audience at the ECJ, their business may take a sizeable hit.

Cyber Security

Cyber hacks are increasingly threatening a vast number of institutions. A ransomware hack in May 2017 threatened organisations in over 150 countries, including the Russian Interior Ministry, Vodafone, Nissan and the NHS. Law firms are no exception to this: the notorious leaks of the so-called Panama Papers and Paradise Papers, in April 2016 and November 2017 respectively, occurred after the hacks of Mossack Fonseca and Appleby, two of the world’s biggest offshore law firms. Meanwhile, in June 2017, the multinational firm DLA Piper was reportedly the victim of a ransomware attack that left all its offices completely without access to its own data.

Law firms are prime targets for hackers because they hold incredibly valuable and confidential information that can be easily monetised. This includes trade secrets, bank information, patents and even government secrets. Ensuring all this data is protected is a key task for law firms. But with the number of threats and the sophistication of attacks increasing, that represents a formidable challenge.

Failure to ensure proper safeguards are in place creates two problems for law firms. Firstly, it is likely to open them up to claims of professional negligence. Claimants might argue that the law firm has been negligent in not taking care of the data, or breached the contractual term to carry out the service with reasonable care and skill implied by Section 13 of the Supply of Goods and Services Act 1982.

Secondly, from a business and economic perspective, it is likely to undermine the law firm’s reputation. As Gus Sellitto, the Managing Director of the legal PR firm Byfield Consultancy has written, law firms:

[N]eed a clear strategy in place to plan for and manage reputational risks to their business. If firms fail to do this, they run the very real risk of an immediate adverse impact to their bottom line, as well as long-term damage to their brand.

Fixed Costs in Civil Litigation

Rule 44.2(2)(a) of the Civil Procedure Rules holds that the successful party in a litigation is entitled to seek an order that the unsuccessful party pay the costs that they reasonably incurred during the litigation process. Currently, in the vast majority of cases, the amount of costs that can be recovered is determined by the courts based on a number of factors, including the conduct of the parties, the importance and complexity of the matter, and the time and effort that was required for the case.

However, a review published by Jackson LJ in July 2017 recommended, among others things, that a new scheme of fixed recoverable costs should be applied to cases worth up to £100,000 and a further new scheme of capped costs for business and property cases worth up to £250,000. The implementation of Jackson LJ’s proposals would therefore subject a huge number of different case types to fixed recoverable and capped costs. Winning parties could therefore not recover costs in excess of the imposed limits.

Whether these proposals will be adopted is as yet unclear, but the vast majority of Jackson LJ’s past proposals concerning costs from 2010 – about which Jonathon Wright has written for Keep Calm Talk Law – were taken forward through both policy changes and the Legal Aid, Sentencing and Punishment of Offenders Act 2012.

Fixed and capped costs bring certainty and predictability to litigation. They have the potential to revolutionise access to justice, allowing claimants to bring cases without fear of racking up endless costs. And, by removing the need for costs budgeting, costs assessments and costs management hearing, it reduces the demands upon the resources of courts.

However, the expansion proposed by Jackson LJ does create challenges for the legal profession. As Law Society President Jonathon Smithers has pointed out:

A single approach for all cases, regardless of complexity, will lead to many cases being economically unviable to pursue which undermines the principle of justice delivering fairness for all. [This] could curtail the ability for important cases to be brought, where the severity of the issue is not reflected in monetary terms but the purpose of the case is to reduce incidents of harm in the future by ensuring lessons are learned.

Indeed, there are a category of cases which typically fall below the value thresholds but require a significant amount of time to be spent on them because they are complex. This includes cases concerning Intellectual Property, Commercial Law and Employer’s Liability. Firms will need to find a way to streamline their work processes to ensure they can still take on such cases for clients that will not lead to them incur expenses that they will be unable to recover. As Daniel Frieze, a barrister at St John’s Buildings, has said:  

There is the prospect of specialist solicitors in complex cases leaving the market due to the fixed fees, leaving those with lower incomes unable to access the best legal help.

Online Dispute Resolution

In July 2017, a 28-month long pilot of an Online Court began to handle monetary claims for under £10,000. This was recommended in 2016 in a report written by Briggs LJ – as he then was to resolve such cases with a three-stage process: an automated programme that examines whether a case has merit; conciliation and case management involving a trained case officer; and resolution before a judge if necessary. The court uses documents on screen, telephone, video or face-to-face meetings.

Though this project is only in the pilot stage, it is considered by many to be the future for dispute resolution. The Master of the Rolls, Sir Terence Etherton, has argued that the court should be considered:

[A] template for securing now and over time in the future the critical object of greater access to justice.

However, there are concerns about the extent to which this Online Court – particularly one with an expanded remit – could impact upon younger members of the legal profession. Indeed, the Bar Council has expressed concern that, if the valuable opportunities for developing knowledge and experience in the early stage of a young lawyer’s careers that comes from handling smaller cases are minimised by many of the related tasks being expunged, this could ultimately affect:

[The] pool of advocates available to become leading advocates in 10 or 20 years’ time, and decrease the pool of potential candidates for the judiciary.

New Competition on the Legal Market

The legal industry has been heavily saturated for decades, with hundreds of law firms fighting over a finite number of clients. Fortunately, the requirements for a license to practice law has meant the legal industry is largely a protected market; lawyers have been able to develop and maintain a monopoly on the law.

However, this is increasingly under threat and 2018 could be the year when the law firms’ bubble is burst. For one thing, as Chris Bridges documented for Keep Calm Talk Law in a similar article two years ago, the powerful ‘Big Four’ accountancy firms have entered – and are now consolidating their increasingly influential position in – the legal market.

But away from the dizzying heights of the City and international corporate law, smaller firms are also under threat from an influx of new and innovative players into the legal marketplace. The Internet is now awash with ‘self-help’ sites and virtual assistants who allow potential clients to resolve their own legal matters without relying on traditional (and expensive) lawyers. These new models are gaining momentum that has sparked inspiration across the legal world: in one notable example reported by Varsity, an AI software program called ‘Lawbot’ that was created by a group of Cambridge University students that helps clients understand whether they have been a victim of a crime.

Furthermore, there remains the risk that the door opened by the Legal Services Act 2007 (LSA 2007) – which has only recently come into force in its entirety – may see another set of rivals flood the market. The LSA 2007, which was introduced with the aim of liberalising the legal services market to encourage more competition, allows for the granting of licenses for so-called Alternative Business Structures (ABSs), whereby lawyers team up with professionals from other sectors to offer their services.  

These new business structures carry a number of potential benefits: it allows investment and equity to be secured from a wider pool of potential partners, who can also bring valuable knowledge and experience in commercial operations to the table that may not otherwise have been possessed in a traditional law firm. A number of high-profile companies and individuals have utilised ABSs: companies like the Co-op, Eddie Stobart and Direct Line now offer their customers legal services, while James Caan – a former ‘Dragon’ from the BBC programme Dragon’s Den – has invested in Knight Solicitors. It also permits the creation of entities like Fried Frank that combine the typically-separate solicitors and barrister under one organisation. 

Though uptake of ABS licenses had been slow in the first few years of the LSA 2007’s operation, it is arguable that interested companies have not had enough time to take advantage of the opportunity it presents. Indeed, this hypothesis is supported by the fact that the number of ABS licenses is on an upward trend; a total of over 300 have now been granted. Thus, with major players like supermarkets touted to potentially apply for a licence in the near future, there still remains some untapped potential for a major upheaval in the way in which clients can source legal advice.

Technology in the Workplace

Another potential player in town that will affect how the employees of law firms are working is technology. New technological developments appear to herald a new era of efficiency that reduces the time lawyers spend on some tasks, particularly those that have traditionally been carried out by trainees. For example, as Chi Nguyen has examined for Keep Calm Talk Law, the development of smart contracts and block-chain is likely to revolutionise a number of legal areas and see the automation of various stages of the legal process. Indeed, October 2017 saw the first ever property deal digitally exchanged in block-chain.

It is vital for law firms that they have both the lawyers (and other employees) and the resources to deliver legal services in an efficient and profitable way. Seizing upon these opportunities might therefore be tempting, but there are risks. After all, relying on technology to provide and compile data and analytics overlooks the need for such figures to be examined critically. Data is not valuable or meaningful unless it can be validated, interpreted and applied. Such critical thinking skills are only possessed by human lawyers.

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Tagged: Alternative Dispute Resolution (ADR), Banking & Finance, Brexit, Commercial Awareness, European Union, IP, Legal Business, Legal Careers, Litigation, Technology, Trade

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