The Silk Road

Vizzini: You fell victim to one of the classic blunders — the most famous of which is, “Never start a land war in Asia”.

-William Goldman, The Princess Bride

The Silk Roads were the principal arteries of trade which connected Asia to Europe through the centre of the world, in the centuries before the primacy of maritime trade. But in recent years the phrase “Silk Road” has taken on a new and more sinister connotation, as I learnt when reading the engrossing book over Christmas: American Kingpin: Catching the Billion Dollar Baron of the Dark Web.

One of the more interesting true crime tales of recent years, it concerns the creation and destruction of  the Silk Road, the black market in the dark web, for drugs, guns and other illicit materials. This $1.2 billion dollar marketplace, was effectively created by one young man, who adopted the name “Dread Pirate Roberts” and ran it from his laptop in a public library, before being apprehended by the Feds. Far from being a modern day Robin Hood, he was apprehended trying to arrange a murder over the internet.

Whilst I don’t advocate that solicitors adopt the methods of “Dread Pirate Roberts”, as I read the book, I thought it was an astonishing tale and an excellent example of how very quickly a huge enterprise can be constructed and launched, from a very small scale, through imagination, ambition and the  use of technology which enables collaborative working and the secure exchange of information by one man: organised crime on a huge scale essentially reduced to an exercise in project management and the use of information technology.

If such things are possible in the criminal field, the techniques of collaborative working, information exchange, assembly of of interests and the making of connections can be used in other fields too, to create other worthier enterprises, which promote the public weal, rather than destroy it. And so I consider in this article, how these skills might be brought to bear in litigation, obtaining justice for the wronged and creating a business for solicitors. 

In the last article, I sounded the “Last Post” for low value personal injury claims, which are now “meant” to be undertaken either by litigants in person, or, if lawyers are used at the cost of the claimant.

What do personal injury lawyers do when a sector of work is taken away from them? Well, assuming that they wish to remain in practice, they must turn to other, possibly more interesting and more lucrative areas of work. A school of thought, would hold that there are in essence two models.

The first model involves acting for individuals in respect of their individual claims. Areas of work which have been promoted heavily by some actors, include housing disrepair claims or cavity wall claims, or in years gone by, travel sickness claims.

This model suffers from the heavy unit costs of obtaining work, whether by way of referral or advertising, the costs of servicing the client and undertaking bespoke work or “touches on the file” in respect of the prosecution of the claim, but is relatively low in systemic risk to the firm and assuming a fair assessment is made of the merits of the case, offers the prospect of recovering costs within a predictable time frame.

The second model is to focus on an event, which generates multiple claims, ranging from the dozens to the tens of thousands.  This is the paradigm of group litigation. The costs of referral or advertising may be substantial in aggregate but low in unit costs, due to economies of scale.

There may be a need for many “touches on the file” per individual client, but these may be uniform in nature and standardised, with bespoke work focused on generic issues.

It may be more difficult to form an overall assessment of the merits of the case, as the dynamics of group litigation are very different, and the prospect of recovering costs more uncertain, with an expanded timeframe. 

Yet the potential profits are immense: buried in the profession’s recent memory is the Trafigura litigation, which was undertaken by Leigh Day, in respect of Motto_and_others_v_Trafigura_Ltd_2011_EWCA_Civ_1150 where nearly 30,000 claimants in the Ivory Coast brought proceedings against Trafigura for personal injury as a result of the dumping of toxic waste in Abidjan in 2006. 

The action had been commenced in November 2006, with Leigh Day acting for the claimants. The claims were all settled in September 2009 on the basis that Trafigura would pay £30 million and the Claimants’ costs on the standard basis, to be assessed if not agreed. As the Court of Appeal judgment notes  the bill of costs put forward by the claimant’s solicitors claimed just under £105 million. 

I therefore turn to consider what opportunities will arise in the near and medium future for solicitors wishing to undertake group litigation work, perhaps for the first time.

The starting point for group litigation will inevitably be “an event”, causing harm to large numbers of people.  It will become apparent that there has been a disaster, a large scale data breach, a well publicised breach of competition law, a product liability scandal, a chemical leak or some other event giving rise to a large number of claims.

A solicitor needs to have the infrastructure in place to obtain clients, undertake their regulatory obligations, source funding usually on a contingency third party basis, place ATE insurance, find and expand the team of solicitors and counsel with the necessary skills and experience, and run the litigation, dealing with the opposing party and their lawyers and the court.

I believe that technology is key to these efforts.  I would suggest that even a small well run firm, provided it can access the necessary expertise, technology and capital, can rapidly step up to handle the challenge of group litigation. In this respect, a team might be built very quickly and on ad hoc basis, of solicitors and counsel, deployed for the purpose of the particular project.

A solicitor who realises that there is a business opportunity and wishes to act for the victims must then carefully set about constructing what I would term, a litigation scheme, which satisfies regulatory requirements, is properly funded, fair to the clients and which will likely be profitable at the end of the day.

Many of these considerations are grounded in the practice of costs and litigation funding, which I have taken much interest in, over the years. I would suggest that some of the key considerations are as follows.

Underpinning every consideration are the regulatory requirements. Many solicitors will not have read their professional rules since law school, but they contains short and clear directions on how clients must be treated fairly, provided with the best possible costs advice, and restrictions on advertising and the payment of referral fees.

Solicitors must also consider the requirements they are subject to, when undertaking insurance distribution activities and now the role of the FCA, which is an issue when funding litigation, if clients are being provided with credit, for e.g the funding of disbursements.

Client relationships have a new dimension, when undertaking group litigation. How do you take instructions from 10,000 clients? The usual way is to structure a management committee of representative clients, who have authority to act on behalf of all the clients, effectively being the body which gives instructions to the solicitors in a manageable way.

This in turn means that an agreement to provide authority to act must be made between each client and the committee, and then between the committee and the solicitors. Both agreements are usually contained in one document. This is often described as a litigation management agreement.

The drafting of a litigation management agreement poses further challenges. A solicitor will be conscious that it should contain provisions which deal with the usual incidences of litigation, a procedure for settling the case, or a formula for distributing the proceeds to clients who may have different degrees of interest.

In a group action, the need for funding will be evident and the funding requirements will run into millions. How can this money be obtained, as few firms will have a “war chest” which they could or would wish to use to fund the litigation?

Litigation funding is often used as a synonymous term for third party funding, but it is wider than that. Third party funding is on the rise due to the enormous thirst litigants have for capital. The drafting of a funding agreement is an intricate business as it must lock in, with the litigation management, and also the terms of the ATE insurance policy, it will invariably be used in part to purchase. 

But overlaying all these considerations, is the merit of the proposed group action. First, last and always, is the case one that, properly prepared and argued, likely to be won? In the next few posts I shall consider what lessons can be learnt from a number of high profile group actions which have featured on the legal landscape.

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