Litigation – 3 Keys to Success
Helen Mallovy Hicks
Robert Martin, a partner in PwC’s Advisory Services practice, and Gerry Ranking, the chair of Fasken Martineau’s litigation department in Ontario, discuss the top three things you should always do when faced with litigation issues.
Dean: Welcome to Strategy Talks with Dean and Helen, part of the PricewaterhouseCoopers Managing in a Downturn podcast series. I'm Dean Mullett, co-head of our Restructuring and Distress Strategy Group, and a member of our Credit Crisis Task Force.
Helen: And I'm Helen Mallovy Hicks, a Partner in the Advisory Practice of PricewaterhouseCoopers in the Dispute Analysis & Valuations group.
Helen: Joining us today are Gerry Ranking and Robert Martin, a partner in PwC’s Advisory Services practice, and Gerry Ranking, the chair of Fasken Martineau’s litigation department in Ontario. They are going to be discussing the top three things you should always do when faced with litigation issues. Welcome Gerry and welcome Bob.
Dean: Gerry and Bob your collective view, what trends are you seeing in litigation in this economy.
Gerry: I think that it’s fair to say Dean, with the liquidity crisis; we’re getting consulted more early. With respects of faults and potential defaults. I don’t know if there are anymore trends yet but certainly a lot more consultations. Clients are concerned about legal remedies and their rights and as a consequence a lot more consultations on the front end.
Dean: And is that because you’re saying defaults or potential defaults just on the counter parties ability to deliver on what the expectations are. There is just more concern on not having the ability to do so.
Gerry: That’s exactly right. I think you’re seeing it really in two areas, first of all under contracts where parties because of the liquidity crisis may not be able to fund or honour their obligations. So they’re becoming concerned and saying if in fact we’re not going to be able to meet our obligations coming to seek legal council in terms of what their options might be, if they are in fact going to go into default. Secondly on projects that are currently ongoing, similar to contracts, the same kinds of issues.
Dean: Would the inquiries you’re receiving, would the volume of them be higher on the side of defaulters or potential defaulters? Or on the opposite side thinking that my counter party is going to default and I want to be prepared.
Gerry: Dean that’s a very good question and I can say that it’s about equal. On the one hand you have parties who are very concerned that they are going to go into default and hence they are seeking legal advice. On the other hand you have clients that are more proactive who obviously sense the fact that their counter party may well be in financial difficulty and are seeking advice to see what are the options if in fact the shoe falls and the party goes into default.
Helen: And Gerry if they are consulting you early, how does your advice differ? What sort of advice are you giving them?
Gerry: I think it falls into two categories Helen. The first is what I would call solicitors advice which is really when I was answering Dean’s questions is more looking at the contract and seeing what your options are. The second falls into litigation advice and the first is more easily done by reviewing the contract and providing a fairly simplistic answer to the extent that you look at the contract and identify the client’s options. With respect to the second one when you’re getting into more heavy duty litigations and serious claims you get into what I call early case assessments. Which is seeking the key documents, the material facts and trying to come up in short order with a legal opinion as the rights and remedies of what might in fact turn out if in fact significant claim that you have to defend.
Helen: Because you’re getting involved in these matters earlier are you finding that they’re resolved differently or settled differently?
Gerry: Not necessarily. Certainly what we’re finding is that the early case assessment is really the protocol which allows the lawyers to provide a considered opinion. It’s also the protocol which will allow the client to come up with a decision making process. That may not necessarily mean settlement or what the American’s call early case resolution. Early case assessment is really a process to permit the client to come up with a lexicon both of liability and damages and what they are facing. That does not necessarily mean that they’re going to settle. It may mean that they then want to assess the liability, their options and then they can decide whether they’ll litigate or arbitrate or use an alternative method of dispute resolution.
Helen: Does it change their cost associated with the process or the outcome, or the value associated with the process?
Gerry: The early case assessment certainly will allow clients to look at the spectrum and to decide on what they want to do. One of the things that we are strongly recommending in case of smaller claims is an ADR protocol which would see disputes mediated with the hopeful result of being a successful settlement. So the cost in that case would clearly be less. If on the other hand the early case assessment really pushes to client to say that litigation is the desired option for that particular set of facts given those particular parties, then the cost would be the same as they would otherwise be.
Dean: Bob, Gerry mentions a lot of deep financial default, cost damages of things of that nature. What role doe a financial expert play in a mediation?
Bob: Well in a mediation Dean you’re really there to provide an object advice to council. You’re essentially backroom support. You want the lawyer and their client to make an informed decision, informed decision about how to react to financial information that is put forth by the other side, an informed decision on how to proceed. What you’re not there to do is to be a hired gun. You’re not there also to be a negotiator, you need to be objective, and you need to appear objective. Because in fact what’s going to happen is somewhere down the road is that you’re going to have to be testifying on the very same matter. There are also some circumstances where you could be called on by council to provide some support to the mediator themselves, as far as understanding the area of expertise. Again here you have to be independent and provide objective advice. What you have to be careful about is that you can’t allow the mediation process to do this, is to have any opportunity is to have any early cross examination of you on the points.
Dean: And when you say early cross examination and to be careful of not having that happen to you, what do you mean by that?
Bob: Well what I mean is that you are expressing independent views to assist the mediator in coming to a resolution and that may be in the contexts of the other side being present. And you can’t allow the other side, the process, to allow the other side to then start putting questions to you that they are pre testing you on cross examination points for a trial down the road.
Dean: That seems like a very fine line you have to walk in that respect.
Bob: It is and you have to go in as a team and make sure that council is on the same track and working with you to prevent that from happening.
Helen: Bob what we’re hearing in this economic downturn, that clients, companies are very cost conscious. Are there any other alternative roles that you can play in the context of cost efficiency?
Bob: Well one that comes to mind is the jointly appointed expert. In this case both sides agree on a single expert and it’s through a fair and open process. The expert gets the information that he or she needs in order to quantify the loss or value the business or whatever needs to be done. The parties usually agree upfront to be bound by the expert’s determination on the issue of damages. Splitting the expert and the expert’s costs obviously saves money to be both sides but the cost impact may be even greater than that because you don’t have the exchange of reports between experts and you don’t have the responding submissions from both sides. In addition to that if you have agreement that they will be bound by the expert’s determination then you don’t have the trial costs associated with that side of that case.
Dean: How common would that be?
Bob: It’s becoming a little bit more common. We’ve been asked a number of times to act in that capacity and we seem to see it increasing. They obviously have to be comfortable; both sides have to be comfortable that they’re going to get an independent…
Dean: It’s a little bit of a leap of faith. You’re basically leaving it in the hands of that independent expert for both parties.
Bob: You say it’s a leap of faith but they have to have confidence in the individual who is being engaged to do that and the firm that’s being engaged to do that.
Dean: It’s a joint selection process I would suspect.
Bob: That’s exactly right; they both have to agree up front.
Gerry: One of the other things to follow up on Bob’s point with respects to experts and the point that I was making on early case assessments. I think it’s important for listeners to understand that retaining early is critical. Certainly from our perspective as council that we will provide opinions on liability but it’s also very important to retain experts who can help with lost quantification. Often times Dean is what you will see is that clients will come in and have the benefits of internal accountants and they may have some views of damage theories, but those damage theories might as well be flawed. One of the helpful services that experts provide is really an objective view point in terms of here is the raw data and here is what we think of what we can prove in trial and that’s very helpful in the early case assessment. My point is simply when doing an early case assessment is not just to seek legal advice but also to seek the advice of experts to provide an objective view of loss quantification.
Helen: And Gerry how would that affect your strategy as in next step of a case knowing from the outset of where the loss is, the issues and the magnitude associated with the losses.
Helen: I think you can appreciate it’s critical. If I know that I’m fighting a 50 million dollar problem the resources and the team that we will put on to that case is significantly different than if we’re fighting a 5 million dollar or a 50 thousand dollar case. So one of the reasons why we like to do early case assessment is to really to provide a reality check so that the client knows really from the get go what the size of the knot is, if I can put it that way, that we’re dealing with and can then allocate resources and come up with a proper strategy. So it’s pretty important.
Helen: Gerry, you’ve spoken about early consultation and mediation process, where do you go from there?
Gerry: Well it depends, if in fact the parties are able to engage a third party neutral and they’re able to effect a settlement then a settlement is effective, it’s documented and it’s carried out. If in fact the settlement cannot be achieved, then there again is a whole range of different options some of which maybe negotiation and settled before you can start the mediation and some you cannot. By way of example you can agree upon a mediation arbitration process, where if the mediation is not successful you’ll move straight into arbitration with live witnesses and that hearing will in fact take place in front of the mediator who’ll then become an arbitrator. The change there is the mediator rather than being a neutral third party who is merely facilitating the discussions of the parties will then become a decision maker and impose a decision. If that is not agreed upon at the outset, what will normally happen the mediation will fail, the parties will go back to their respective advisors and whether or not arbitrate or litigate and that will depend on the fact of the case.
Helen: Bob, you’ve mentioned using jointly appointing a single expert. Gerry you’ve mentioned mediation, arbitration, litigation there all sorts of choices. Are clients making different choices as to which route they take now?
Gerry: I think they are, from this perspective they definitely want a more cost effective remedy. And I think it’s really being driven by two points. The first issues are that clients today want to know more up front more than they have in the past. What their options are to what most people think of in terms of a long trial court room process. Clients, unless it’s a really insignificant matter will try and resolve matters more quickly and more cost effectively. There’s an old saying that we like to say is that litigation is not like wine it doesn’t get better with age. As a consequence we’re seeing clients that would like to get matters resolved more quickly, so that’s the first issue. Linked to with the liquidity crisis is the fact that a good settlement today, where your client may in fact recover less than it might otherwise legally be entitled to, is much better than a more significant award through years from now that it can’t collect. So I think that clients are being very sensitive to both the cost of litigation on one hand and the reality that clients who may well be flushed with cash today may not have cash tomorrow, so it’s better to resolve the dispute quickly, secure the payment and move on with their business.
Helen: There is definitely a recurring theme here where cash is king here.
Dean: There’s also a recurring theme around early preparedness. Gerry you mentioned about bringing financial experts, your getting consulted earlier and often when you’re talking about the financial aspects the precedent is set with some internal analysis that could be flawed, how do you undo damage that could be caused with inaccurate materials at an early stage?
Gerry: Are you speaking now of clients coming to their council with inaccurate information or…?
Dean: Just so they have a financial estimate of the damages and they’ve done it with their internal accountants and it’s really not a very thorough analysis and it’s not comprehensive or it just totally misses.
Gerry: I guess contrary to what you see on television, our jobs as council is providing our clients with accurate and objective advice to clients. That means that sometimes we have to tell them what they don’t want to hear and it’s much easier for us to do that when we secure the materials documents and the relevant facts through a series of interviews with key players, who likely are not directly involved in the particular dispute so there is not shading of the evidence which is being provided. We then assess that and then we then sit down with out experts in a very candid, no nonsense meeting and try to come to the most sensible and pragmatic and legally defensible position. And Dean as I pointed out earlier and as you’re pointing out, the result may be quite different from what the client initially had and that’s our job making sure that our client’s expectations are realistic. Because if we aren’t making sure that is the case I don’t think we’re doing our job as council.
Bob: And Dean as I might add to that, because that is a lot of what we do and we are finding that we’re being asked to that more and more. That is to step in early, really kick the tires on what is being put forth. Ask the tough questions right up front, make sure that the client is on side and understands exactly what is going to be asked not only then but also at trial, cross examination and all the way down the road. Once they realize that and they understand what really has to be done, what they’re entitled to and what they should be entitled to, the number becomes a lot more realistic in their minds. Part of that is shaping their expectations into a realistic expectation, just what Gerry’s talking about here. So when you look at that and you come up with what is a fair number, then you have a good solid footing for going forward and you also have a good footing for trying to decide should I settle? What number should I settle? Should I make an offer? etc., because you’re working from a realistic base.
Dean: So that financial foundation really becomes critical to your whole litigation strategy because if that foundation is shaky then it’s tough for you to guide the whole process for your client.
Gerry: That’s correct and the other point that you have to appreciate here is again all the information that we’re getting in order for Bob to come up with his loss quantification or for us as an outside council for one party to come up with a legal theory is based on the information provided by our client. The next stage if you then move to mediation is when you then start getting the material facts from the other side and the information from the other side’s expert. That’s where you then will have; I think you have a second set of adjusting expectations because it then may well be your client may not have the full picture; through no fault of its own. As a consequence go into mediation and a reason why mediation can be successful is because it does afford a confidential setting where information is exchanged and any flaws in what otherwise from our client’s perspective would have been seen to be an accurate version of the facts can then be reassessed having regard to the additional facts provided by the other side.
Bob: And one thing that I would add to that, because of the whole context of this is being cost conscious going forward from a client’s perspective; if you are really looking at the early assessment that’s when you get the biggest bang for the buck for the client. Because essentially what you’re doing is getting experienced high level thinking without the cost of a detailed report. It’s good value for the client.
Helen: And conversely if you’re late in the game trying to put together a quantification report can be very costly. If there is only a short process or information is not available or lots of other issues I’m sure.
Bob: At the end of the day like all professionals your time is based on hours and rates. So when you’re putting together a detailed report that goes into backing up all of the reasonable assumptions that they are you still have to back them up and detail them in a report and that’s where some of the cost comes in. So get that early assessments and see what you can do with it.
Gerry: I think that one other point that I want to share with your listeners, is that you don’t always have to document everything. Bob’s quite accurately identified the fact that you can save a considerable cost by not having a detailed quantification report, so too from a legal perspective I think we can and often do provide opinions orally by saying that this is our assessment. I know that Bob having worked with them does the same. Clients can get a very candid assessment, relatively inexpensively, there isn’t a lot of papers that passes and clients make an overall assessment and can do it very cost effectively.
Dean: Gerry, just to wrap it up, what do you see as a three key success points for litigation in this economy?
Gerry: I think that the three keys to litigating in the downturn, first and foremost is the early case assessment. Securing the information from the client and having the lawyer provide a very candid view with respect to liability and having the expert provide a very candid view to loss quantification and doing that in a quick and cost effective manner. In that fashion the client in this economic downturn knows exactly how much the case is worth and the legal strengths of that case. The second and related issue is after that information is in hand is determining the correct process to follow to try and resolve the dispute.
And as we were speaking with Helen, is that going to be litigation? Or is it going to be a method of alternative dispute resolution, whether mediation or arbitration, or something else in terms of ADR protocol. The third issue is having those two, the early case assessment and the process determined of the outset. The third point is then to implement your strategy but to do it in a flexible fashion so that as more information becomes available what you’re doing is feeding that new information into your strategy and being light on your feet so you can react and respond again with the ultimate goal to achieve a cost effective settlement at the earliest possible opportunity.
Helen: How about you Bob on the loss quantification side, what would you say in this environment would you say the three keys to success?
Bob: Obviously the strategy is linked with council strategy and I agree with what Gerry said as far as those key three issues and those three key points. From our perspective and from the financial perspective it’s the early assessment that we see the greatest benefits for the client. The client should really benefit from that, should take that and run with it. That is the most important point that a client can take away from a financial perspective.
Helen: Planning up front saves costs down the line?
Helen: Maximizes return.
Dean: We’ve often hear that our friends from south of the border are a much more litigious culture than we are here in Canada. Given that we are smack dab in the middle of a downturn, do we think that perhaps shades of Americanism will find kind of find its way up here and litigation will increase as the economy continues to struggle along?
Bob: I think it’s a definite possibility Dean, I think that it’s fair to say that although the economic downturn has been with us for a number of months I can’t say fairly say that there have been clear trends in terms of a great deal more of litigation which has followed the US lead. What we are seeing in fact, as I said earlier, is more consultation and indeed more work around. Indeed if liquidity crisis continues that may well change and we’ll see more litigation ensuring fairly quickly.
Dean: Well Gerry and Bob thank you for joining us here today. For more information please see the article “Leveraging the Power of a Financial Expert in Litigation” on our dispute analysis and insurance page on PwC.com/ca/dai.
Dean: This concludes this episode of Strategy Talks, part of the PricewaterhouseCoopers Managing in a Downturn podcast series. I'm Dean Mullett, thank you for listening.
Helen: And I'm Helen Mallovy Hicks. We hope you'll join us again soon for another episode. To download or to subscribe to this podcast series or to find more information on this topic, please visit our Managing in a Downturn website at pwc.com/ca/managinginadownturn.
The information in this podcast is provided with the understanding that the authors and publishes are not herein engaged in rendering legal accounting, tax or other professional advice or services. The audience should discuss with professional advisors how the information may apply to their specific situation. Copyright 2009, PricewaterhouseCoopers LLP. All rights reserved. PricewaterhouseCoopers refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership, or as the context requires, the PricewaterhouseCoopers global network or other member firms of the network. Each of which is a separate and independent legal entity.