Litigation to rise in 2009
Article Date: Jan 27 2009
Chris Warren-Smith, Fulbright & Jaworski
Businesses expect commercial disputes and regulatory investigations to rise in 2009. Chris Warren-Smith, a partner at law firm Fulbright & Jaworski, looks at why that’s likely to happen.
Fulbright & Jaworski’s fifth annual litigation trends survey confirms that businesses expect their litigation exposure to rise over the next year. The survey, which canvassed the views of over 300 senior corporate lawyers across a range of sectors, including 100 from the UK, revealed that nearly one in three businesses anticipate an increase in the number of legal disputes (including 43% of large businesses), while only one in 12 expect a decrease.
The findings suggest that UK business is at a tipping point. Last year's results signalled a downward trend thanks to more stable economic conditions in early 2007, while in-house counsel are now bracing themselves for the worst.
Litigation
All sectors seem apprehensive, with significant numbers in the financial services, healthcare, retail/wholesale and insurance industries expressing concerns. However, the expected litigation may arise from a number of sources.
Contractual disputes
Two-thirds of UK respondents expect greater numbers of disputes arising out of contractual agreements. Six months ago these disputes may have been resolved by negotiations, to maintain commercial relations between parties or to allow each party to move on to the next contract. The absence of options to move on to may now mean that businesses are dealing with disputes in a more intransigent fashion. Businesses should consider carefully whether litigation really is the best solution, when there are less costly options available such as commercial negotiation or mediation.
Employment claims
Employment cases are likely to increase as businesses prepare to restructure staffing levels or make redundancies. Businesses should take specialist advice prior to proposing any changes to employment rights or before announcing a redundancy programme.
Consumer claims
While the survey confirms that “class actions” in the UK remain rare, businesses should note that recent proposals from the Civil Justice Council to reform the class actions system in England and Wales may lead to fundamental change in the class action landscape, particularly where consumer rights are at issue. The EU and UK authorities are looking in particular at anti-competitive behaviour and businesses in the retail/consumer sector should take particular care to ensure that they do not fall foul of legislation in this area.
Investigations
Regulatory investigations
UK businesses also have significant concerns over the increasing numbers and costs of regulatory investigations. Public companies are at risk, in particular. Interestingly, large numbers of UK companies reported being subject to investigations by the US authorities (Department of Justice/SEC) and the European Commission. These investigations can lead to disciplinary and financial penalties by the regulator, civil proceedings and in certain cases criminal proceedings, and can be extremely damaging to the reputation of a business if not handled correctly. Businesses need to be prepared and to know how they will respond to investigations and requests, including unexpected “dawn raids”.
Internal investigations
Businesses are also carrying out increased numbers of internal investigations. Two in five respondents (both UK and US) sought assistance from outside counsel with internal investigations in the past year. As the need for these investigations inevitably increases in line with the current downturn in the economy, businesses should prepare strategic policies for carrying out this type of investigation, including having in place the appropriate financial and management resources to limit the impact on their day-to-day business.
The relatively benign economic conditions of 2007 have meant that sharp increases in litigation are yet to be seen. However, UK plc clearly expects that to change over the next 12 months. Businesses should review their business risk and crisis procedures to ensure their exposure to both litigation and investigations is limited as much as possible.
