Companies face rising tide of litigation

Oct 10 2005 by Brian Amble Print This Article

Almost a half (48 per cent) of UK companies expect to face more litigation during 2006 than they did over the last year, according to a new report by international law firm Fulbright & Jaworski.

The 2005 Litigation Trends Survey reveals that UK corporates are working in an increasingly litigious environment.

Two-thirds of UK businesses stated that they had faced court actions in the last 12 months and were particularly concerned about the increasing frequency of product liability cases.

The firm surveyed 354 companies from a wide range of industry sectors, including 50 from the UK. Publicly held companies made up 40 per cent of the total sample, and of those 59 per cent are listed on the NYSE, 22 per cent on NASDAQ and 11 per cent on the LSE.

The findings showed that UK companies are still under less pressure than those based in the US, where three-quarters of respondents have faced at least one court action filed against them over the last year.

The rise in litigation has led to severe concerns about the costs of fighting court action and arbitration. The major message from businesses to external lawyers was "help us control costs," while nearly one in five businesses surveyed said that cost was their major concern when dealing with disputes that involve litigation.

The average large corporate surveyed incurred $8 million per year in litigation costs, with the median average allotted to litigation from US and UK companies' overall legal budget reaching 29 per cent.

"The concern over litigation costs is certainly one point where there is trans-continental agreement," said Lista Cannon, head of European disputes at Fulbright & Jaworski.

"Although the UK system of requiring the losing litigant to pay the winner's costs can help prevent frivolous litigation out of fear of bearing the other side's legal bill, our report indicates real concerns over spiralling fees still exist among UK businesses.

"This anxiety can only be compounded by the increasing number of court actions they anticipate facing."

Larger organisations and businesses in the property, insurance and healthcare sectors are the most likely to face court actions, according to the report. Companies with $1 billion or more in annual revenues face more than 20 times the number of court actions brought against the smallest companies and almost four times the number faced by medium-sized companies.

The average company with $1 billion in gross revenues faces more than 147 cases at any one time.

The most costly type of litigation for companies in the manufacturing, energy and technology/communications sectors relates to intellectual property (IP), while personal injury litigation and regulatory matters were rated second and third by the energy industry. IP and personal injury litigation took the most time to resolve.

In the UK, personal injury claims take an average of 284 days to resolve compared to IP (151 days) and regulatory matters (124 days).

Technology and communication companies in the UK see their biggest risks coming from IP and employment cases, while UK manufacturing and insurance companies were more concerned about the rising trend in group and class actions.

Personal injury cases are also on the rise and in the US this category made its first showing at position number three in the report's ranking of most frequently pending case types.

The trend towards greater mediation in UK legal cases following the Woolf Reforms may explain the fact that UK companies (23 per cent of companies surveyed) are much more likely than US companies (13 per cent) to settle matters before court proceedings begin.

Approximately 60 per cent of UK companies (compared with 51 per cent in the US) have resolved disputes in a multi-step process that entails direct negotiations between senior executives, mediation and arbitration. Larger companies in particular (94 per cent of companies surveyed) believe that cost savings can be made through dispute escalation.