AI: A double-edged sword for legaltech? | Asia

In the second instalment of a two-part series on the adoption of legal technology, Brian Yap looks at how AI is generating new gains – and fresh doubts

As private practice and in-house lawyers in Asia increasingly leverage artificial intelligence (AI) technology, divergent views about disclosure are taking place along with gradual changes in the ways corporate legal teams work with their external counsel under the billable-hour system.

In Singapore, where both the legal industry and the government have been investing in AI adoption, some in-house lawyers have made it clear that they expect their external counsel to disclose AI use in producing clients’ work. They also want law firms to give assurances that they have verified whatever they have found in AI.

“Data security, transparency, and disclosure and verification are what companies expect their external counsel to perform, at the very least,” says Jasmine Karimi, general counsel for APAC based in the Singapore office of US-headquartered agricultural chemical manufacturing company FMC Corporation.

Karimi’s views are echoed by in-house lawyers in India, where law firms are not actively using AI but have realised the need to catch up with technology since the Bar Council of India’s (BCI) market-opening announcement in March last year, which stated that foreign lawyers and law firms can open offices in the country and engage as well as procure legal expertise from Indian advocates.

Karan Kalia, founder and CEO of LegitQuest in New Delhi who previously practised at Ram Jethmalani Law Chambers, told Asia Business Law Journal that the active use of AI by many foreign law firms was giving their Indian counterparts the pressure that they needed to embrace the technology.

Vardaan Ahluwalia, general counsel of billionaire Azim Premji-owned private equity firm Premji Invest in Bangalore, stresses the importance of ensuring that his company’s documents or data are not accessible to anyone else. He points out that, if a business client or external legal adviser is using a common piece of technology involving the handling of his company’s information, such data could show up somewhere else in a different way.

“I would very much like to understand the safety standards and safeguards that they have put in to ensure that our data remains private and secure,” says Ahluwalia, who is a former partner at Cyril Amarchand Mangaldas. He adds that his company would want to ideally understand which AI model is being used so that his data science team could clear it based on safety and accuracy standards.

By contrast, some in-house lawyers in Japan, which has seen multiple partnerships between law firms and legal technology companies in recent years, don’t consider it necessary for law firms to disclose any leveraging of AI technology in executing clients’ work.

“I am not aware of the ethical requirement for law firms to disclose their use of such [AI] technology to clients in Japan,” notes Hideyuki Sakamoto, chief legal officer and executive director of Gibraltar Life Insurance in Tokyo.

Sakamoto, who is also president of the Japan In-House Lawyers Association, points to the fact that law firms in Japan have been utilising technology like legal research tools for many years without any disclosure. He expects law firms, which are ultimately responsible for their legal advice to clients, to verify the results generated by legal technology.

Law firm representatives who spoke to Asia Business Law Journal emphasised the absolute necessity to verify AI-generated output and to limit AI use to legal work involving no confidential information, or to use secured, strictly internal technology platforms when handling client data.

Many did not see the need – from a regulatory standpoint – to disclose the use of AI or any forms of technology to their clients, citing the fact that they were already bound by a duty of confidentiality to their clients.

Rajesh Sreenivasan, partner and head of technology, media and telecoms law practice at Rajah & Tann Asia in Singapore, says: “The appropriate approach is to inform clients that a firm uses AI solutions and to share how their data is protected from being assimilated by the AI vendors’ platform.

“When we started using AI, our firm did a significant amount of due diligence on tools such as Microsoft Copilot and Harvey.”

Sreenivasan says that his firm had, among other things, obtained specific contractual remedies, such as indemnities and warranties, from AI technology service providers that they would ensure that client data would not be used for training their large language models.

South Korea currently does not have any explicit regulations requiring law firms or lawyers to disclose AI use to clients – a situation similar to that of many other Asian countries including Japan. But Hee Woong Yoon, co-managing partner at Yulchon in Seoul, sees being transparent about the use of AI technology as an “important matter of ethical consideration”, considering the crucial nature of trust from clients.

“If [law] firms decide to implement AI technology more broadly, it would be advisable to properly inform clients about its use,” says Yoon.

Hiroo Atsumi, managing partner of Atsumi & Sakai in Tokyo, tells Asia Business Law Journal that his firm has been asked by clients to provide reassurance in the form of written agreements that full confidentiality is maintained when using AI legal technology for due diligence work.

Atsumi explains that these clients asking for confidentiality reassurance have required the firm to have AI legaltech, especially for due diligence work for M&A, and that they are mainly big foreign companies looking to acquire other businesses and having to conduct due diligence.

AI impact on billable hours

Whereas disclosure of AI use has not yet become a main subject discussed in public and industry debates, the potential impact of the growing adoption of AI technology on the traditional billable-hour system used by law firms has been widely covered by the media in recent years.

FMC Corporation’s Karimi says that although in-house lawyers in Singapore are at the early stages of talking to external counsel about a review or change of the existing hourly-based billing arrangements, there has been an increasing amount of frustration among in-house lawyers concerning time-based billing.

“If I am asking a law firm to work on an NDA [non-disclosure agreement] and they end up taking 10 hours to negotiate that with the other transaction party, do I pay them 10 hours of time to negotiate the NDA? I don’t think so,” says Karimi, who also currently serves as a director and secretary at the Association of Corporate Counsel Singapore.

Rajah & Tann’s Sreenivasan agrees that, in light of the increasing use of AI legal technology, law firms need to shift away from the hourly model to the value-based pricing model. “If we continue to focus on hourly billing, we are shooting ourselves in the foot, because the metrics will then start to work against us,” he says.

As an example of value-based billing, he illustrates how a lawyer could benchmark a metric – such as a due diligence matter with a deal size of USD500 million involving three different parties, five different jurisdictions and the transfer of two lines of business – against all types of corporate matters of similar size and scale done in the past to produce a value-based fee.

“We will then say, ‘Look, we have done this USD500 million deal in the past and in the last five cases that we did our billing was in the range of X to Y’. That gives the client an objective measure of legal fees,” says Sreenivasan.

Doing more in-house

Senior in-house lawyers in countries including South Korea and India say that companies are handling more work in-house using AI technology, with Premji Invest’s Ahluwalia saying that his company no longer goes to law firms for NDA work to achieve greater time efficiency.

“We are charged by our external counsel on an hourly billing basis. With us doing our NDA work in-house using AI technology, this means that our external counsel will spend less time and therefore less is paid,” says Ahluwalia.

But he adds that, for high-value or high-stakes transactions, his company still prefers to engage an external counsel.

In South Korea, there is a clear trend emerging in which many in-house lawyers are paying law firms less for legal work, and the types of work they seek advice on from external counsel are also changing, according to Jaehwan Lee, general counsel at MUSINSA in Seoul.

“Nowadays, there is more tendency for in-house legal counsel to first check their documents within the corporate legal team by using AI technology before asking law firms to double-check, or carry out some simple examination or proofreading,” says Lee, who also currently serves as the president of the Korea In-house Counsel Association. “So that requires less work for law firms and can lead to a reduction of billable hours.”

Atsumi, at Tokyo-based Atsumi & Sakai, says that some of his firm’s clients now do basic contract agreement-related work internally utilising AI software and don’t outsource it to law firms anymore. “This is a good thing because, as a law firm, we can now receive more complicated or value-added work from our clients,” he says.

In the Philippines, however, investing in and using technology tools has proved to be helpful in responding to demands from clients for lower fees.

With the advent of ChatGPT, Filipino lawyers in general are slow in adopting it in their legal practice due to concerns over inaccuracy and danger of violation of intellectual property, according to Marlon Valderama, founder and CEO of LexMeet in Metro Manila.

But Miguel Mendoza, partner at Puyat Jacinto and Santos Law and co-leader of the firm’s intellectual property team in Metro Manila, says that although his firm doesn’t formally endorse AI products such as ChatGPT it has recently started using contract-review software from Litera for NDAs, shorter memorandums of agreement, full-blown share-purchase agreements and more complex contracts.

He says clients were already asking for discounts before the firm started using the contract-review software, and they might have needed to take a hit to their revenue in the past in order to meet the fee levels their clients demanded.

“Now, the licences for the contract review software have sort of become our cost of business, but the trade-off for that is it makes us more efficient, and it allows us to hit our bottom line,” says Mendoza.

“It is somewhat less painful now for us to say yes to those things [discounts].”

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