According to Allens Arthur Robinson Partner Paul Nicols, a crucial part of an in-house counsel's role is knowing when it's time to seek external advice. While advising an external law firm about a seemingly minor dispute might be viewed by others within the organisation as an unnecessary expense, spending a relatively small amount now could potentially save the organisation from significant costs down the track.

"In my experience, the best in-house recognises the benefits of involving external counsel to an appropriate degree at an early stage in any dispute," Nicols says. "It is often the case that things are said or written in the early phase of a dispute which come back to haunt the company when the matter turns litigious."

In particular, Nicols says, inappropriate admissions of culpability or incorrect assertions about the legal or factual position made early on in the dispute can prove particularly damaging when the matter hits the courts.

Seeking the advice of external lawyers early on can help mitigate these risks, especially for in-house counsel who aren't experienced with contentious matters, potentially saving the organisation some serious financial and reputational damage later on.

COMMUNICATE, COMMUNICATE, COMMUNICATE

There appears to be general agreement that regular communication between the external legal team and in-house counsel is crucial to effectively managing a litigious, or potentially litigious, matter.

Mallesons Stephen Jaques partner Justin McDonnell suggests that the law firm and in-house counsel should have regular meetings to discuss the status of the dispute. Deacons partner Ron Nathans concurs, emphasising that in-house counsel must be kept thoroughly in the loop.

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"External counsel ... should ensure that their degree of communication with the in-house counsel is such that it will enable the in-house lawyer - at any point in time and without any further consultation with the external legal advisor - to be in a position to prepare a litigation report to his/her management team," Nathans says.

McDonnell believes that in-house counsel play a particularly important role in the process of discovery, because they have the advantage of having both the necessary legal expertise and inside knowledge of the organisation which will help make the process run as cost and time effectively as possible.

"We need in-house counsel to marshal the client in terms of obtaining the documents and helping to explain to commercial people what the obligations of discovery of relevant documents are," he says.

Freehills partner Rebecca Davies also pinpointed discovery as an area where the involvement in in-house counsel is significant.

"Someone who knows how the client organisation works from the inside will be best placed to ensure that all the right questions are asked and they will be able to assist us to look in all the right places for the information we need," Davies says.

Davies also suggests that a communication protocol be agreed between the external law firm and the organisation at the outset of the matter so that both parties are on the same page in terms of their expectations.

"What kind of reports does the client need? What do they want to be closely involved with and what will they leave to our judgement? There are no hard and fast rules here, so getting this set out at the beginning is really helpful," she says.

BALANCING THE BOOKS

Litigious matters can be particularly perilous for in-house lawyers when it comes to managing costs, because they often involve many unknowns.

McDonnell advises that in-house counsel always request cost estimates be given in stages - "because often we don't know what's going to happen down the track, in terms of how complicated it's going to be and how big it's going to be."

In addition, McDonnell says, clarifying clearly from the get go what the client's objective is for the dispute can be very significant in terms of managing expenses.

"If it's a matter that's going to cost a lot of money and in the scheme of things the costs outweigh the benefit, then an early recognition of that can dictate what strategy to adopt," he explains. That strategy, he says, might be to attempt mediation or a settlement rather than going to court.

Nathans emphasises that the better the initial instructions to the external lawyers, the more accurate the cost estimate is likely to be.

"The more information he or she has in relation to the number of documents, the number of witnesses, the different factual issues and so on - the more accurate any cost estimates will be," he says.

Nathans also believes, however, that the traditional time billing system used by most law firms is counter-productive to effective cost management in litigious matters, and he suggests in-house counsel try negotiating alternative, innovative billing arrangements which could involve combinations of methods such as hourly billing, fixed fee, uplifts and permitted contingencies.

"We are already seeing pressure from clients, particularly in-house counsel, looking for lawyers to ... charge their value in ways that are more aligned to the client's businesses and in ways that make sense in terms of how they measure their own profitability and expenses," he says.

- Zoe Lyon

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