The GC’s dilemma: Litigation spend spiralling out of control and no one is listening

The GC’s dilemma: Litigation spend spiralling out of control and no one is listening
Thomas Warren, partner Sutherland Asbill & Brennan LLP, Suzanne Hathaway, vice president, general counsel Keyera Corp., and Charmaine Toms, general counsel, MNP LLP.
How do you get an audience of in-house counsel involved in a discussion? Bring up the management of spiralling litigation spending.

At an Association of Corporate Counsel event in Calgary last week, the topic came up during a panel on the general counsel as a trusted business adviser. The question of how best to handle big litigation that can turn into big bucks was tackled by Suzanne Hathaway, vice president, general counsel with Keyera Corp., Charmaine Toms, general counsel of MNP LLP, and Thomas Warren, a partner with Sutherland Asbill & Brennan LLP.

For GCs, when legal costs go sideways, they lose face with their executive team. Despite their best efforts at communicating with external counsel, often they discover days before going to trial that things are “horribly off budget” and no one raised a red flag.

It can be embarrassing for the GC who then has to tell his or her executives the budget is blown. While some large departments have embraced a phased approach to budgeting for litigation — or using alternative fee arrangements where possible such as capped fees, success fees (incentive bonuses), and holdbacks — many are still grappling with how best to communicate the need for a budget.

“I think most of our litigators are very disciplined on the phased approach with litigation,” said Bindu Cudjoe, deputy general counsel and chief administrative officer with Bank of Montreal.

“I think sometimes external counsel don’t realize that we’re being held to a budget and when I blow my budget I have to go tell the business people I didn’t manage the legal risk effectively. I don’t think they realize there isn’t a pool of money,” she said.

“As if you’re going to tell someone on the eve of trial that you’re not going to pay them, but yet you’re probably going to be mad and embarrassed because you’ve blown the budget.”

Some suggested taking a disciplined approach using project management — a mapped-out, step-by-step approach of what the litigation is going to look like, and stopping to pause throughout to make decisions about whether it is time to settle, or what the tolerance level is to go forward.

While it may not save a lot of money, it can make the process more predictable.

Warren said outside counsel who are good at what they do know to ask what the scope, deadline, and budget of a matter will be.

“Things happen quickly and there are some outside counsel who, either because it’s their way, or they’re just moving too fast, think that if the scope isn’t defined the scope is unlimited, and if the deadline isn’t defined there is no deadline, and if the budget isn’t defined there is no budget. Of course, that’s not true, but generally if you ask us to do it usually we will do it,” he said.

Communication is critical, he said, and to be proactive.

“Say upfront ‘I need a budget for this matter and I need a carefully defined scope with what your assumptions are, what it includes and doesn’t include to help manage the budget better.’”

Hathaway noted that it’s easier to have accountability and expectations discussions up front about the “critical path” rather than after the bill has been received.

“As much as we try to do a staged approach, and try to agree on evaluating things along the way and setting expectations about talking to me about overruns and how we will manage it, I really think it’s about having outside counsel as part of your team to have conversations upfront,” she said.

“I have adopted the view that I don’t hire firms, I hire lawyers — those super-talented lawyers who get it and if you ‘get it’ you will get lots of work from me. We are going to do part of the drafting and you have to trust that. There will be a hand-off back and forth with us and that can be uncomfortable for some outside counsel, but when it works it’s really effective.”

On a separate panel about strategic planning for the legal department, Susan Jones, senior vice president and chief legal officer with Agrium Inc., said this year she presented external law firms with clear billing guidelines.

“We will pay for research, but we won’t pay to train your articling students for the entire year,” she said. “We expect to have equal balance of partners, junior, and senior associates on file. This is what we pay for travel, etc. It’s to set the stage and make sure we’re a happy client.”

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