News

LONDON, UK – Four in five UK businesses (78%) say they faced court action over the past 12 months according to a report (1) published today by international law firm and litigation heavyweight Fulbright & Jaworski. This figure is up from 66% on last year, and the percentage of UK respondents who faced more than 50 court actions in the past year also tripled, from just 5% in 2005 to 15% in 2006.

Findings from the 2006 Litigation Trends Survey, which interviewed 422 companies worldwide reveal that corporates are operating in an increasingly litigious environment and expect this situation to continue for the foreseeable future. One in five UK businesses (17%) expects to see an increase in legal disputes over the next year, and across the globe the overall percentage of companies who say they had no court actions filed against them in the past year fell to just 11%, compared with 25% in 2005.

The report reveals that UK corporates are spending more time and money on dealing with regulatory enforcement issues. Almost three out of five (58%) per cent of UK respondents stated they had faced a regulatory proceeding over the past 12 months, compared with 51% of US respondents. Regulatory issues were also cited by 40% of UK companies as a primary litigation concern, compared with 21% in the US. This may be explained by the fact 44% of the UK respondents claim to have faced at least one regulatory proceeding where $20 million or more was at stake.

Lista Cannon, head of European disputes at Fulbright & Jaworski, commented: “Despite the general consensus that the UK is not thought to be as tightly regulated as the US, UK businesses are experiencing more exposure to regulatory matters and indeed many have faced a regulatory proceeding over the past year. All companies, regardless of their size, have to face up to the challenge of working in a complex regulatory environment, and must ensure they are prepared to address current regulatory issues and anticipate future regulatory changes.”

Litigation is an expensive business, and this year’s survey indicates that corporates continue to show a great deal of concern over the prices they are charged by their law firms, with one in five citing “high cost” over “lack of competence” as the one issue that would make them consider changing outside counsel. This disquiet is unsurprising in light of the $10.8 million that is incurred in litigation fees each year by the average large corporate surveyed. This figure (which excludes case settlement or judgment payments) represents a 25% increase on last year’s $8 million.

By industry, survey respondents in the engineering and construction sector have the highest litigation costs with a $39 million average spend on litigation – 59% higher than the average US company spends on all its legal work each year. The insurance industry is a close second, averaging $36 million for litigation, which reflects its average industry case load of 1,700 matters. Manufacturing and energy sector are next with litigation costs of $14.3 million and $13.5 million respectively. The sectors taking the smallest economic hit from disputes are nonprofit organisations ($265,000) and the traditionally passive trade associations ($253,000).

In terms of other litigation matters that most concern all respondents regardless of location, 48% cite labour and employment disputes (up from 26% last year), which are followed by contract disputes (40%). Personal injury cases, which made their first showing in the top three in the 2005 report as most frequently pending case types, have dropped out of the top tier in this year’s
report.

More companies are facing class or group actions, according to the survey. Although not yet at the level of the US, the UK respondents report an increased exposure to class actions with one in four UK companies having class actions pending against it in the US – a significant increase from the 6% who reported class/group actions last year.

The ability to handle difficult e-discovery matters remains a source of concern for most organisations surveyed. Over a third (35%) of UK respondents feel “not at all” or “poorly” prepared for e-discovery issues. This percentage is higher than the 23% of US respondents who fall into this category. Even the largest corporates demonstrate a surprising lack of confidence in their preparedness with just 19% feeling well-prepared. No one feels completely prepared.

Graham Simkin, partner at Fulbright & Jaworski, commented: “Companies face increasing problems in establishing e-filing, electronic record and retention policies. In a litigation or dispute scenario if the e-filing policy is not well-established and complied with, disclosure in a dispute will be very expensive and potentially a high risk for the company.”

The use of litigation hold policies (these evoke the immediate suspension of any scheduled destruction of records in the event of anticipated legislation) has increased significantly amongst UK companies from 62% in the 2005 survey to 86% in 2006. This significant increase is most likely explained by the fact that regulatory issues are becoming a primary concern for UK businesses.

The survey also reveals an overall increase in the number of businesses who plan to adopt or revise their litigation hold policy in the coming year. Unsurprisingly, the largest increase by industry is the US banking/financial services sector (21% in 2005, 57% in 2006), reflecting the ongoing effects of Sarbanes-Oxley Act and other regulatory requirements.

The use of multi-step dispute resolution processes that involve direct negotiations between senior executives, mediation and then litigation or arbitration, have increased over the last 12 months. This is particularly true of certain industries, such as the retail/wholesale sector, which saw a dramatic increase from 62% in 2005 to 87% this year.

Graham Simkin added: “Multistep dispute resolution processes are now well-established and companies are quickly learning that a new skill set is required within companies and in their external legal advisers in order to secure the best use of such processes, particularly when a dispute is multi-jurisdictional. The use of mediation in the early stages of a dispute is increasingly common.”

On the whole, respondents see little cost difference between international arbitration and litigation with half or more in the US and UK saying the two approaches cost about the same. However, of those who believe there is a difference in costs, the UK group of participants are more likely to believe that arbitration “costs more” than litigation (30%), versus the 20% that believe it “costs less” (20%). The overall consensus is that international arbitration is faster than litigation.

About the Report

¹Fulbright & Jaworski 2006 Litigation Trends Survey is an independent survey of senior corporate counsel. Now in its third year, the report surveyed 422 companies (the largest number to date) from a wide range of industry sectors. There were 311 US participants and 111 from countries across the globe, including 45 in the UK. UK responses are included in the international figures cited, but in some cases, they are also broken out separately. For further information or to request additional analysis on specific topics please contact Graham Simkin at Fulbright & Jaworski LLP.

FOR PRESS ENQUIRIES:
Sarah Rowan, Citigate Dewe Rogerson
+44 20 7282 1049 or sarah.rowan@citigatedr.co.uk