Lawtech and the Transformation of Legal

 

Thoughts on a Round Table Discussion by Richard Susskind and Mark Cohen

by Adam Manning

The acceleration in computing power is unrelentingly accelerating and recent striking examples of artificial intelligence in action have revealed to many the new possibilities that are opening before us. What implications are there for the law and lawyers, and especially the role that law plays in society? These were the focus of a fascinating round table discussion by Richard Susskind, President of the Society for Computers and Law, and Mark Cohen, Executive Chairman of Digital Legal Exchange, moderated by Anusia Gillespie of UnitedLex.

In considering the future of legal services, a key question is, what is the role of law in society? It cannot be just for the benefit of lawyers! Impressively for such a forward-looking arena of thought, mention was made of the jurisprudence of ancient Rome and Mesopotamia, and Mark concluded that law is for societal cohesion, that is the regular and easy functioning of the community. Richard put it in terms of justice, but then wondered how justice applied, for example, in the context of corporate law. One answer might be that, as an example, drawing up and executing a substantial commercial agreement is an exercise in “anticipatory justice”, in the sense of the parties seeking to clarify their relationship and spell out what they expect of each other, in the knowledge that the law will provide remedies if it is breached. Corporate law is justice in a sophisticated, preventative mode, to avoid injustice (that is the breach of contract or law) ever occurring. In this sense, justice and the cohesion of society are not dissimilar.

Yet we live in, the speakers suggested, an age when access to justice is becoming more restricted for so many. Most people, Richard told us, cannot afford access to lawyers and the Courts. How can there be the much-touted rule of law, one of the founding concepts of a modern, democratic society, if in practice many of its citizens cannot easily and effectively have recourse to the Courts or legal advice?

On this point, Mark called for a more customer-centric functioning of legal systems as a way of reversing such a trend. Richard picked the point up by suggesting it was a question of legal design thinking.  Legal systems, including the Courts, must meet the needs of legal users. In my jurisdiction, the legal system has gone through rapid change in recent decades, sweeping away much of the historical legacy of previous centuries. One pertinent example is the rationalisation and clearing up of many of the Court forms needed for legal proceedings.

The 21st Century has seen an ongoing shift to interfacing with the Court system in England and Wales via electronic means, with an online Court system replacing a paper based one. A key theme in legal adaptation must be considering the possibility of entirely or substantially redesigning legal systems, including the Courts, as a result. Simply paralleling an online Court system on the previous paper-based system is not always going to result in an efficient or easy to understand process for the Court user.  Ultimately such profound reform may lead to redrafting the rules of Court and even the law itself. An online Court system, aimed at maximising access to justice for all citizens, could be very different from what we have at present. I know that many people at present find the Court’s implantation of an online system to be difficult and opaque.

When the Courts and the legal system are primarily an online arena, the legal profession must change as well. The great volumes of data required and the enormous advances in artificial intelligence, and our exposure to it, play a role here. As a striking example of what might happen, mention was made of ChatGPT, a recently launched chatbot designed to mimic a human conversationalist. Using ChatGPT, it becomes clear very quickly that it can do so much more than mimic conversation. My first forays were just for fun, and I asked it to rewrite Lord Byron’s poem “She Walks in Beauty” as if the subject were someone walking in the daylight instead of night. Within twenty seconds ChatGPT had done just that, in modern, clear English with an interesting rhyming structure. I was astonished. 

A further humorous suggestion was to write Hamlet’s famous soliloquy in the style of one of Ronnie Corbett’s monologues. Again, within thirty seconds it had done just that, and rather delightfully spun the Bard’s timeless portrayal of existential angst in a laughably stereotypical British manner, suggesting the answer was a good cup of tea and putting your feet up for a bit. “I'm sure everything will look better in the morning.” 

ChatGPT has been a phenomenon as it such a striking example of the new power of artificial intelligence to manipulate words and language. Perhaps somewhat overlooked in comparison to its creative power is the way it is used, which if anything is even more astonishing. To ask it to create these works, the user writes in perfectly normal English. No special training is needed, no understanding of programming a computer is required. “Please rewrite Hamlet's famous soliloquy that begins To be or not to be in the style of a Ronnie Corbett funny story”, and the magic happens.

As amusing as such examples are, to the lawyer there is an immediate analogy with drafting legal documents. Take a precedent and apply new data to it. A ChatGPT of the, perhaps not so far, future could have access to all appropriate statutes, statutory instruments, common law precedents, the whole body of law of the jurisdiction, along with a bank of precedents for legal correspondence, contracts, and Court documents, all for a particular area of law. All you might need to do is ask it, in normal English, to accomplish a task for you and it would draft the document. “Draft the appropriate Court proceedings needed to apply for an order for possession against my client’s commercial tenants currently occupying its premises in Oxford” might be one example. Another might be, “draw up a contract for the supply of my client’s latest range of scientific equipment to the Ministry of Defence’s research establishment.” This doesn’t seem hugely far-fetched for a system that can already creatively combine Shakespeare and Corbett.

To make such powerful lawtech a reality, a great deal of data will be required, and Richard suggested that lawyers of the future will be orientated towards that aspect of the profession, rather than simply knowing how the law and Courts work. To be able to draft such documents or advise on a case, an AI legal system will need data, and so the role of legal data scientists will be important. The professions will have to change and the haunting question of wether the profession of Solicitors will still exist in 2070 hung in the air at one point. Instead of doing the drafting and advising themselves, Richard suggested that lawyers of the future will licence their legal systems to clients for them to use.

Surveying the legal profession of 2023, rather than roughly fifty years in the future, suggests that even law firms that are seeking to embrace these profound changes are only at the foothills. Widescale, innovative disruption will have to take place rather than the more incremental process improvement that is taking place.  We’re still firmly stuck in the first generation of change, a mostly marketing exercise, rather than the more profound revolution of the second generation that Richard described. I couldn’t help imagining Richard setting up his own law firm based on the principles of his second generation, but then it isn’t necessarily the case that the traditional law firm is going to be the source of such substantial change. “The competition that kills you doesn’t look like you”, we were left with. Richard also suggested lawyers and clients could liaise in virtual reality, although he studiously avoided using the M word.

Every other profession must deal with constant change, and it is odd that we as lawyers often think, hope, or pretend that it might be otherwise for us. It had been a rewarding discussion, and I am looking forward to reading Richard Susskind’s book, “Tomorrow’s Lawyers”.

Caselaw summary

Ball (PV Solar Solutions Ltd) v Hughes [2017]

Directors of a company who sought to avoid tax could be found to have breached their duty under section 172 to promote the success of the company.  They could not have reasonably concluded this would have been benefited the company's creditors.

Bushell v Faith [1970]

A clause in the Articles stating that on a vote to dismiss a director, any shares held by that director on a poll were to be counted as three votes per share was held to be valid.  Section 168 requires an ordinary resolution and so in this case, a director with 30% of the shares could block a resolution to dismiss him.

Foss v Harbottle [1957]

This case sets out the doctrine that if a company is in a position to bring a claim in the civil Courts, the company itself is the proper Claimant for that action and not the shareholders.

Ebrahimi v Westbourne Galleries Ltd [1973]

This case involved a "quasi-partnership" company. The three directors were also the three equal shareholders. Two of the directors (a father and son) had the other director removed under an ordinary resolution and the Court held this breached the third director's legitimate expectations and so the it was just and equitable to wind up the company.

Pender v Lushington [1877]

This case made it clear that a shareholder's right to vote was part of that member's property and any interference in it could lead to a derivative action or even a personal claim.  Lord Jessel MR was keen to stress a member could vote anyway they saw fit, even in a conflict of interest.

Re Duomatic [1969]

Here the Court decided that a company could take a decision in a way without necessarily suing all the requisite formalities of a general meeting. If all the members attended and voted at a general meeting, the decision they took at the meeting would be held to have the same binding effect as a formal resolution. There have been exceptions since then.

Salomon v A Salomon Co Ltd [1896]

In the House of Lords it was held that a company was entirely independent from the shareholders with a totally different legal personality.  This was the concept of limited liability.

O'Neill v Philips [1999]

Here the House of Lords held there was no unfair prejudice because the company had not breached any formal arrangements with the shareholder in question.  The concept of legitimate expectations was based on an expectation that the company's affairs would be conducted in the manner agreed by all the members.

Cook v Deeks [1916]

This case involves setting aside a fraud on a minority shareholder. The majority of shareholders had entered into a contract that competed with the company's business and the fourth shareholder applied to the Court in this regard. The Court held the majority had to account for this to the company.

Henry George Dickinson v NAL Realisations (Staffordshire) Limited [2017]

This case shows that the Courts do not have to wait for a company to be insolvent before they find that a transaction was aimed at defrauding creditors.

W T Ramsey v IRC [1982]

A Court can look over a whole series of transactions and form a view that they are being entered into with the aim of avoiding tax.  Here, the Court noted that the activities involved had no commercial significance apart from lowering the tax liability.

Eclairs Group Ltd and Glengary Overseas Ltd v JKX Oil & Gas plc [2015]

This case involved the "proper purpose" duty under section 171. The Court held that the company had only behaved in the way it did to prevent shareholders from taking the action they wanted, which breached the proper purpose test.

Hosking v Marathon Asset Management LLP [2016]

Here the Court held that a partner who breaches his fiduciary duties can be required to forfeit partnership profits.

Khan and Another v Miah and Another [2000]

This case looked at when a partnership can be said to have commenced; here it was held that it didn't necessarily when the business started trading as preparatory activities carried out with a common view to an eventual profit could be said to be the start of the partnership.

Dickenson v Gross (HM Inspector of Taxes) [1926]

A partnership deed had been entered into but it was ruled that in truth no such partnership existed as none of the terms of the deed had been put into practice.

Trego v Hunt [1896]

The Court looked at the meaning of goodwill in a business.  What goodwill meant would depend on the character and nature of the business. It was the "very sap and life of the business".

Greenhalgh v Arderne Cinema Ltd [1951]

This case was concerned with the concept of a fraud on the minority and the possibility of this being an exception to the rule in Foss v Harbottle. Here it was held there was no such fraud as the alteration to the Articles did not discriminate against minority shareholders.

Greenhalgh v Arderne Cinema Ltd [1951] CH 286

This case was concerned with the issue of shares and the concept of a "fraud on the minority" being an exception to the rule in the case of Foss v Harbottle. This rule states that in a potential claim for a loss incurred by a company, only that company should be the claimant, and not the shareholders.

Originally the Articles of the company stated that if a shareholder wanted to sell their shares, they had to be offered to existing shareholders first - that is there was a right of pre-emption.

Then this was changed at a general meeting by special resolution so that the right of pre-emption no longer existed.

One of the shareholders wanted to sell their shares and Mr Greenhalgh objected, saying the special resolution discriminated against him as a minority shareholder.

Lord Evershed MR held that there was no fraud on the minority shareholder.  None of the majority voters had voted for a private gain and so the alteration of the articles was perfectly legitimate because it was done properly.

As such, Mr Greenhalgh's action failed.

Trego v Hunt (1896) HL

In this case, the Court looked at the meaning of the goodwill of a business. What goodwill meant would depend on the character and nature of the business.  Goodwill is often the "very sap and life of the business, without which the business would yield little or no fruit.  It is the whole advantage, whatever it may be, of the reputation and connection of the firm, which may have been built up by years of honest work or gained by lavish expenditure of money."

Dickenson v Gross (H.M. Inspector of Taxes).(1) (1926-27) 11 TC 614

In this case, it was said that a partnership deed had been entered into, but it was ruled that in fact no such partnership had existed.

The partnership deed, it was found, was entered into for tax purposes and whilst it was "perfectly good according to its tenor", it had really governed the relationship of the parties, none of its terms or requirements had been put into practice. 

It was found that the partnership deed was set on one side and disregarded.  As a result, there was no partnership as a matter of fact and so the business could not be dealt with as a partnership for income tax purposes.

Khan and Another v Miah and Another [2000]

This case relates to partnership law and the starting point from which a partnership can be said to have commenced.

It was held that a partnership could be said to have arisen before a business started trading. In this case, the purported partners had committed capital and spent time and money acquiring business premises and obtaining planning consent for carrying on business as restaurateurs.  These and other activities were part of the joint venture of the business, which was carried on with a view to a (admittedly eventual) profit.

Here the House of Lords reversed a decision by the Court of Appeal. The Court of Appeal believed there was a rule that a partnership could only exist once trading had commenced and had focused on the distinction between contemplating or agreeing to become partners and actually becoming partners.  The House of Lords held there was no such rule in law. Instead the question is when do they embark on the activity required by the joint venture of the business with a view to making a profit.

An interesting additional point in the judgement of Lord Millet concerns the implied terms of a partnership under the Partnership Act 1890 if no other terms, written or implied, apply.  The Judge noted that these were default provisions only and were not statutory presumptions. It would only need slight evidence to rule out the default provisions found in the Act.  The House of Lords allowed the appeal and restored the orders of the trial Judge.

Hosking v Marathon Asset Management LLP [2016] EWHC 2418 (Ch)

In this case, the Court held that a partner who breaches his fiduciary duties can be required to forfeit partnership profits. 

Mr Hosking was a partner in Marathon.  Their limited liability partnership deed provided that a retiring partner was entitled to receive half the profits to which he would have been entitled as a working partner.  An arbitration took place between the LLP and Mr Hosking and the arbitrator decided that Mr Hosking had committed breaches of fiduciary duty in the period before he left the asset management company.

As a result, the arbitrator applied the forfeiture rule and ordered that the half share of the profits which Mr Hosking had been paid were to be forfeit.

Mr Hosking appealed against this ruling but this was dismissed, holding that if it was properly defined as remuneration, a partner's profits could be forfeited.