2023 has been a challenging year for the UK legal industry with rising inflation, increased overheads and decreased billable hours impacting law firms across the country. There were several landmark news stories throughout the year with far-reaching implications. These included A&O’s merger with Shearman & Sterling, the Supreme Court’s ruling on the PACCAR case and widespread debate about the application of AI and legal technology across the sector. And not to forget, we also observed continued debate around hybrid working and the future of the office…
While 2024 will present its own unique set of challenges, the sector seems keen to rise to these as well as capitalising on the opportunities that this evolving landscape will present. In this article we analyse the legal trends set to impact the industry in the new year.
The rise of ESG and climate litigation
If companies make misleading statements on ESG issues that lead to material shareholder losses, they leave themselves open to ESG and climate related litigation. This trend has exploded in recent years with the LSE’s Grantham Institute on Climate Change reporting that climate-related lawsuits have more than doubled since 2015. In just the last year several corporations including BT, Glencore and Standard Chartered have all been sued for alleged governance or social-related shortcomings.
With heightened government pressure on ESG reporting and responsibilities, institutional investors have their sights trained on this sector. Bloomberg and several other tier one media outlets have been reporting increasingly on this trend, so as awareness increases it is likely that we will see further activism in this space and increased ESG and Climate Litigation.
While cases of this nature are notoriously difficult to pursue, as more and more cases are brought precedents are sure to be set. This is sure to increase the risk of ESG and climate litigation for corporations as law firms and clients increasingly seek out environmental justice. This is likely to be one of the key legal trends of 2024.
Increased scrutiny on law firms ESG and client decision making
While law firms will increasingly be asked to act on behalf of clients regarding their ESG challenges, they are also facing heightened scrutiny around their own ESG credentials. Firms are increasingly promoting their ESG strategies, a trend which was criticised recently by several commentators who have pointed towards the hypocrisy of firms doing this while also representing oil clients and other major polluters.
Heightened scrutiny on client decision making more broadly is another trend expected to continue in to 2024. This has been exacerbated by the ongoing Russia/Ukraine conflict with many firms having to answer difficult questions around their ties to Russian clients. Lawyers can no longer simply dismiss and excuse their relationships with contentious clientele. This is becoming increasingly important when it comes to attracting the next generation of lawyers for whom moral and ethical alignment is a key driver of where they choose to work. Reputation management has never been more important.
A new landscape for litigation funding
2023 has been a turbulent year for the litigation finance industry. In July, the UK Supreme Court issued its ruling in the PACCAR Inc and others v Competition Appeal Tribunal, asserting that an agreement to finance the lawsuit was unenforceable. This decision sent shockwaves throughout the industry with Spear’s magazine questioning if this could this be the end for litigation funding. The government have issued proposals for dealing with the fall-out of this ruling but these have been widely criticised by sector leaders. It is unlikely that we’ve heard the last of this story.
Fast forward a couple of months and in another landmark announcement, Pogust Goodhead received £450m from Gramercy in the world’s largest ever litigation finance deal. The announcement secured widespread media coverage and praise, but questions still remain regarding the long-term future of the industry.
The early months of 2024 will be critical for litigation funders who will need to reassure law firms, government and wider stakeholders about their continued importance. Litigation remains to be an expensive business so time will tell whether litigation funding still has a role to play and if so; in what guise. A recent survey from Bloomberg Law revealed that single-case financing garnered the majority of all litigation funding but there are multiple applications for this model.
Is the billable hour dead?
Alternative means of funding litigation have come to the fore throughout 2023 but there has also been an evolution in how many firms bill clients. The Law Society Gazette recently reported that nearly half of all external legal spend in 2023 took place through alternative fee arrangements such as flat or fixed fees.
With corporations increasingly looking to manage costs, client demand for alternative fee structures is likely to increase in 2024. Law firms must respond to this; balancing the need to protect revenue and partner time with shifting client expectations and excellent service.
The continued expansion of legal tech
2023 saw the ChatGPT boom and with it people asking ‘Will AI replace lawyers?’ While that is unlikely to be the case, this trend has inarguably accelerated conversations around technology adoption across the sector. Earlier this year Allen & Overy launched ‘Harvey’, an AI-based chatbot to help its lawyers draft contracts. This move was met with much applause, with widespread praise across the national and legal trade media.
Firms are now facing growing pressure from clients to adopt technology in order to drive efficiencies. Law firm leaders will seek to balance this demand with the clear reputational risks associated with any missteps, as well as questions regarding how tech adoption may impact job security for staff.
Gartner expects legal departments to triple their spend on legal tech by 2025 so now is the time for legal tech providers to invest in building trust from law firms and educating on where their platforms can add value.
Ongoing regional expansion and heightened competition for work
According to PwC, billable hours for full equity partners at the UK’s biggest firms fell by 8.3% throughout 2023. With profits being squeezed, many London firms are also facing heightened competition for business from aggressively expanding US outfits, as well as competitors from around the UK.
2024 presents a significant growth opportunity for regional firms to capture a larger share of the market. We will be keeping a close eye on some of the leading firms in Manchester and Leeds in particular who have exhibited impressive growth throughout 2023. Since 2020, the annual output of the Leeds legal sector has increased by 19% to £1.3bn.