International In-house Counsel Journal Vol. 6, No. 21, Autumn 2012, 1 In-house v. Outside Counsel: Best of both worlds LISETTE LEUFTINK Corporate Legal Counsel, Transavia Airlines C.V., Netherlands Gone are the days when in-house counsels send out all relevant cases to just one outside counsel, with whom it had a good and solid relationship built over years and years of cooperation. These days, in-house counsels have become more efficient and systematic when it comes to hiring outside counsels. ‘All bills will be paid without hesitation’ isn’t standard practice anymore. On the contrary, the costs for the services rendered have become one of the criteria for selecting outside counsels. Times have changed and so has the role of both the in-house counsel and the outside counsel. After years of experience as an outside counsel at a law firm in Amsterdam, with a specialization in corporate and insolvency law, I changed jobs and joined Transavia Airlines1 (“Transavia”) at Schiphol Airport as corporate legal counsel. Even though the basis of both jobs consists of being a legal consultant for a company, the role of an in- house counsel is very different from the role of an outside counsel. In this paper I will set out how I experienced these differences and in general the recent developments in both roles. And what are the consequences for the cooperation between the outside and in- house counsels and their teams? Furthermore I will discuss a recent development in EU legislation on air passenger rights, how this affects the EU aviation industry and why in this case a solid cooperation with an outstanding outside counsel is of paramount value. Power shift A power shift has taken place between in-house and outside counsels. The in-house counsel has become more self reliant and therefore more important for the company it is employed by. More legal work is being done by the in-house legal department. As a consequence in-house counsels should have all-round legal business knowledge on a high level. He (or she) should actively guard and represent the interests of the company on a legal level taking into account al other aspects of the business. The advantage is that for the business itself it becomes easier to obtain legal advice in an early stage from an in- house counsel, even just for a small legal check. You wouldn’t be bothered to call your outside counsel for these small questions. Also most employees won’t know who their outside counsel is and how to reach him. Seeking legal advice at an early stage of a project could avoid legal problems in the future. 1 Transavia Airlines C.V. (with brand name transavia.com) operates as a low cost carrier (with care) from different airports in the Netherlands on mainly destinations around the Mediterranean Sea. Transavia was founded in 1965 as Transavia Holland. Since 2003 Transavia is a 100% subsidiary of KLM, member of the Air France KLM Group. Within the Air France KLM Group, Transavia operates as an independent member. Transavia holds a 40% interest in the French airline company Transavia France S.A.S. (the remaining 60% are owned by Air France S.A.), which operates in the French market. Transavia France operates under the brand name of transavia.com, with an identical business model, website and image. International In-house Counsel Journal ISSN 1754-0607 print/ISSN 1754-0607 online 2 Lisette Leuftink In my experience, especially since the financial crisis, companies without a legal department were not likely to contact an outside counsel to advise on a project in an early stage of the project. They were focused on saving money and asking for legal advise, in their opinion, only costs money. The problem however was that when problems started to arise during the project itself, the outside counsel was only capable of damage control. In the end it would have been wiser (and cheaper) to ask the outside counsel for legal advice at the beginning of the project. For an outside counsel this remains a difficult issue to explain to its clients. “If you come to me now, it will save you money later”; who believes those kind words these days?! This is why an in-house counsel can be of value to a company. One of its tasks is to know what’s going on in other departments of its company and provide them with legal advice when necessary. I’m not saying outside counsels are redundant (on the contrary!), but they are managed in a different way. Nowadays, outside counsels are mainly called in for their specialized skills and won’t be asked for routine legal matters. This is different from the old days, where a company with a small or no legal department would have only one outside counsel who would advise the company on any legal matter it required. No specialized skills, but an all-round legal knowledge. A company almost never changed firms, due to the fact that the existing relationship and the trust build during the years valued most. A good relationship and an honest outside counsel still remain of great value, but are not the only requirements nowadays. What to expect? Now we established that in-house and outside counsels have a different role and different skills. But what do they expect from each other? And more importantly, what can they expect from each other? In my opinion it all starts with communication. Communication is key! The perspectives and motivations of in-house and outside counsels frequently diverge. The in-house counsel is driven by long/short term business objectives, while the outside counsel seeks to provide its client with subjective expertise. The in-house counsel also has budgetary concerns, while the outside counsel prefers to make money out of the deal. Also the outside counsel doesn’t have to report back to the shareholders or the board of directors. The outside counsel has a commercial perspective, which the in-house counsel does not have. The outside counsel is under pressure to make the client happy and to live up to his expectations to keep him on board. But what exactly is expected and what can be expected? The three C’s2 The minimum requirement is of course the competence of the outside counsel. The outside counsel must be able to competently perform the work its client asks (and pays) for. The in-house counsel calls in the outside counsel for having specialized skills on a certain legal subject; specialized skills the in-house counsel or his legal department lacks. Secondly, clients expect the outside counsel to be committed to their business, to have thorough knowledge of their industry and the recent developments. A client does not want to have to explain every new development (legal or strategic) and appreciates an up- to-date outside counsel. In practice however, that’s easier said than done. If an outside counsel is specialized in mergers and acquisitions, it is almost impossible to know all industries its clients operate in. His specialized skills are not oriented towards a certain industry, but to a certain legal practice. In this case an in-house counsel can’t expect the outside counsel to have full knowledge of the recent developments in the industry at the moment you call him in for the job. However, that doesn’t mean the outside counsel is not committed. 2 Competence, commitment and communication In-House V. Outside Counsel 3 It is clear that both parties have different expectations of each other. It is therefore of great importance that they communicate in an effective way and understand both their values in their differing roles. From both sides it must be expected that the communication is fast and clear. They should both express what they expect from each other. As a client you don’t want to have any doubts on whether your outside counsel understands your concerns or not. The fact that an outside counsel is dealing with an in- house counsel should make this easier, since an in-house counsel speaks the same the legal language, so they won’t get lost in translation. Being an in-house counsel for Transavia, I recently experienced the importance of a good cooperation between in-house and outside counsel. Recent developments in EU Legislation on air passenger rights have affected the EU aviation industry and therefore Transavia. Regulation (EC) 261/20043 (‘the Regulation’) established minimum rights to protect passengers who are faced with denied boarding, cancellation of flights and delay. It established common rules on compensation and assistance to passengers in case of the occurrence of foresaid events. Objectives Regulation The Regulation has a double objective. Firstly, it seeks to ensure that passengers are adequately taken care of during flight disruptions. To that end, the Regulation provides that they are entitled to refreshments and meals during the disruption, but also to free hotel accommodation if they are stranded overnight. Secondly, the Regulation provides for compensation in case of cancellation and/or denied boarding as a result of overbooking. The compensation creates an ‘economic incentive’ by penalizing airlines for their decisions to cancel a flight for commercial reasons or deny boarding as a result of overbooking. The intention was to minimize the amount of overbooking and cancellations. In line with this second objective, an airline shall not be obliged to pay compensation to its passengers of a cancelled flight if it can prove that the cancellation is caused by ‘extraordinary circumstances’ which could not have been avoided even if all reasonable measures had been taken4.