The boutique alternative

The boutique alternative
Whether it’s to get specialized advice or solve a conflicts issue, in-house counsel are finding boutique law firms often provide the solution when they have a matter requiring external expertise in a range of practice areas and jurisdictions. In fact, our annual Canadian Lawyer Corporate Counsel Survey indicates 72.6 per cent of those who responded said they use the services of boutique law firms.

“The most common reason for us to go to a boutique is due to conflicts with the bigger firms,” says Paula Kargas, supervisor of specialty claims with Chubb Insurance Co. of Canada. “Typically, we are using boutiques on policies where we have the right and duty to defend the insured. If we run a conflicts check and we have some of the larger, more national firms on our panel and there are conflicts, we do have boutique firms to avoid that conflict but still give our insured strong representation.”

At York University in Toronto, the legal department uses boutique firms in a range of areas including insurance defence, but also for advising internal administrative tribunals and for U.S. tax issues. While the institution has continued to retain the services of the same national firm for many decades, it began using boutiques in 2008 to address specific skillsets. “The reason we’re still using boutiques remains valid — they have the specialty services we require,” says Christine Silversides, director of legal services, office of the counsel at York. “There is the added bonus of lower billing rates sometimes, but I haven’t found that to be consistent across the board with the specialty boutique firms.” For insurance matters, the university uses a specialty insurance defence boutique firm used by many Canadian universities.

Like York, Chubb also uses boutiques in Canada and the United States. “As a U.S.-based company, we in Canada don’t have as much control over the panel list in the U.S.,” says Kargas. “In certain jurisdictions, we have smaller firms — in Ontario we use the boutique firms more than in other provinces. If you’re in Saskatchewan and there’s a conflict, who do you go to?
You end up going with the smaller boutique firm. The boutique firms are also very niche. You could have an employment claim and use a boutique firm that solely specializes in human rights tribunals. Not that the larger firms don’t have that, but it’s not a one size fits all.”

Some insured also feel more comfortable with a smaller firm versus a larger firm. “Where the insured has the ability to choose who they want to defend them, they often come to us with the smaller firms because they have long-term relationships that they’ve built. They feel comfortable with them that they will get that one-to-one attention,” she says.

Cost and responsiveness are two of the reasons Benjamin Lee, vice president, legal and general counsel at TimberWest Forest Corp., has increased the company’s use of boutique firms since he arrived in the role more than a year ago. He uses them for litigation, forestry, corporate commercial, and aboriginal law. “We transact with First Nations through our log-purchasing program and we have projects that require their support. It is included as part of the fixed retainer I have with one of the firms — it’s part of their general work.”

Lee prefers boutiques because of the investment they are willing to make in understanding TimberWest’s business. “I equate that as value in the sense that with the boutique firm you’re often dealing with the principal and that person will do the work and invest the time in your company,” he says. “It’s also easier to have creative billing arrangements with that person than it is with a big firm that has compensation committees. There is just more flexibility dealing with boutique firms.”

TimberWest has a number of fee arrangements with boutiques including fixed fees per project and monthly retainers, but no hourly billing. “It’s based on historical billings and how much work I expect to send out to the firm. You will have a deviation of between 10 and 20 per cent and it usually works out in the client’s favour. If, as general counsel, I have to decide to send work out, it becomes an easy decision because they get a flow of work and they prefer I call them and get them involved rather than be afraid to,” he says.

While Lee says the company still does work with its primary national firm for one-off deals, he has been increasingly hiving off work to boutiques. “With big M&A and bet-the-company litigation, there is value in having the bench strength in a national firm. If any of that crossed my desk today, I would use a big firm for that,” he says. “At the end of the day, I won’t sacrifice service delivery to save costs, but it’s identifying which boutique firms can offer you that service and deliver value.”

Manitoba Public Insurance has worked diligently over many years to develop a roster of trusted defence counsel in the jurisdictions in which it finds itself  regularly, and gravitates toward smaller firms, says Dave Stewart, manager of the organization’s bodily injury out-of-province department. “We seem to get more attentive and cost-effective service, as we are not a large client in any one jurisdiction. The business relationships we develop are also easier to manage because the players don’t change as regularly as they seem to in the mega firms.”

Manitoba Public Insurance has been able to negotiate “favourable rates with the smaller firms because the overhead is not that of the large firms, and any service issues we have are dealt with quickly by the boutiques,” says Stewart. “They understand that we are controlling the case, and that they are to provide the advice and handle the legal aspects. Some of the large firms have had trouble with this concept.”

Boutiques are also an option the Alberta Investment Management Corp. looks to when dealing outside Canada on tax issues, says Rod Girard, senior legal counsel with the organization based in Edmonton. “I would say for some niche assets like venture capital or things on the tertiary of what we do, we use boutiques and in niche geographies as well,” says Girard. “Let’s say there are international transactions and you need to bring the money home and can’t get it there in one step. Inevitably, that ends up being taxed to some degree.”

Girard says while a big firm may be “international” it doesn’t mean they are everywhere, noting there is a movement afoot among some big international firms to get out of certain jurisdictions in the U.S.

While boutiques may be lower cost, many in-house counsel say it is not the primary reason they seek out the services of a specialized firm. Silversides says some fees can be equivalent to those at the top Canadian national firms because of the often high-profile counsel involved. Kargas agrees, saying if it’s typically specialty work they are looking for, the price is not the first consideration. “We’re lucky that we have great rates with our panel firms so, in terms of cost sometimes, it does end up being the same,” says Kargas.

“The smaller firms sometimes don’t have the three partners and three associates who have the ability to work on the one file — they have different capacity issues. The cost sometimes really depends on the case you have,” he says. “If you’re at the human rights tribunal, for example, at that level, the cost will be the same because if you’re going through a hearing at the tribunal it will essentially cost you the same whether with a larger or smaller firm — it’s just the specialized nature of it.”

At AIMCO, Girard says if specialty service is what you’re seeking from a boutique,  the first consideration is not necessarily cost. “It would be a mistake to say cost doesn’t always play into it, but the reality is if you need something done, you need it done well, and if the cost is 10 or 15 per cent higher and it’s mission critical, then you will pay. When you’re talking about core principles of commercial deals, those are strategic pieces of legal work — we’re not talking about commoditized work — so it has to be done right and we’re somewhat insensitive to cost when that happens.”

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