Time to address the elephant in the room: AI’s impact on legal fees
Eyes on the Law is a weekly column by Maria Ward-Brennan, focused on the legal sector.
Over 2024, London’s legal sector experienced a year of record-level junior salaries, large mergers and mammoth trials, all while rolling out every AI policy under the sun. So what might be in store this year?
Unsurprisingly, AI will remain at the top of the agenda for law firms.
Law firms’ AI boom
AI was the buzz word that defined 2024. The majority of the top City law firms have either issued a firm-wide AI policy, partnered with a tech provider, or launched their own AI-programme.
Lawyers – both young and old – will be “upskilling and reskilling this year”, Julian Taylor, senior partner at Simmons & Simmons added. He said there will also be “a gradual but tangible shift in hiring practices.”
He explained that “digital proficiency and AI literacy is emerging as a prerequisite for legal professionals – and not just apprentices or those early in their careers.”
“This evolution has the potential to bring fresh impetus to the legal sector, drawing talent from non-traditional backgrounds and fostering a more innovative, inclusive and diverse legal landscape,” he said.
However, it is likely the elephant in the room for the legal sector will have to be addressed this year on what effect AI will have on pricing, a topic law firms have been a lot quieter on.
According to a LexisNexis report last September, the majority (71 per cent) of in-house legal teams expected their external lawyers to use AI, with the shift expected to change pricing structures.
The survey found that 39 per cent of private practice lawyers are now expected to adjust their billing practices due to AI, up from 18 per cent recorded only nine months earlier than this report.
As Taylor stated: “AI could serve as a catalyst for change in one area that has remained a constant: the legal sector’s pricing model.”
As Andrew Lloyd, managing director of Search Acumen explains, 2025 will be the tipping point for the technology as AI use by legal professionals becomes the industry standard.
However, with AI driving efficiency in volume tasks, law firms will be required to do some introspection around their fee models, Lloyd said.
“I don’t think we’ll suddenly see the industry shift en-masse from hourly rates, but I do think the pace of technological change will mean we start to see firms trialling new pricing models at the margins to understand how they can best capture client demand and balance that with improved profitability,” he explained.
Class actions here to stay
Another popular topic that won’t be going away anytime soon is class actions.
Paul Lewis, joint managing partner of Herbert Smith Freehills (HSF), highlighted that “class actions continue to be front and centre in the disputes arena, driven by litigation funding and claimant law firm activity.”
A report last year by law firm CMS revealed that as of 31 December 2023, the total claimed value of so-called opt-out claims in the UK – in which a party to bring a claim on behalf of a class without the express mandate or even knowledge of each member – was €66.29bn (£56.32bn), which was up 48 per cent on 2022 figures.
The same report stated that new claims filed by the end of 2023 encompassing over 540 million members, which is eight times greater than the population of the UK.
However, despite this, there is uncertainty in the litigation finance world after the Labour government pushed back the litigation funding bill until at least this Summer. The bill is designed to enable individuals and smaller firms to access funding to bring claims against bigger corporations and wealthier individuals, which they could not otherwise afford.
Speaking to CityAM in December, Burford Capital CEO Chris Bogart said the government’s delays to the bill have started to raise questions about the “suitability of London as a destination of choice for legal issues”.
Despite that, Lewis said “we expect this upward trajectory for class actions to continue unabated – even if there are still significant question marks hanging over funding and elements of procedure as we head into 2025.”