Changing suits

The Lawyer asks four leading practitioners how they envisage the global litigation market shaping up over the next five years.

Chris Pugh believes that establishing a truly international litigation practice is a goal only a handful of firms are likely to achieve.

The market for global litigation is at a turning point. Only a handful of firms will emerge over the next five years as pre-eminent in their international practices.

As clients’ businesses have become more global, so the threats they face from increasingly coordinated and aggressive regulators, as well as pervasive challenges to global brands, investments and teams, have grown. The development of those businesses, and the regulatory exposures and threats they need to cope with on a regular basis, are irreversibly international.

One indication of this trend can be seen in the increase in volume of investigations and fines: investigations involving the SEC and Department of Justice have doubled, and Foreign Corrupt Practices Act (FCPA) fines have risen 10-fold in the past five years. The FSA has seen a 25 per cent rise in requests for assistance from foreign agencies, and its investigations into foreign firms have risen six-fold in the past three years.

Likewise, you can see the internationalisation of disputes through in­creased ­caseloads at the ­London Court of International Arbitration, International Chamber of Commerce, Singapore International Arbitration Centre and International Centre for Settlement of Investment Disputes, all of which are at their highest ­levels ever. Similarly, the scope for consumer-led class actions is expanding in Europe and Asia.

Chris Pugh, <a class=Freshfields Bruckhaus Deringer” src=”Pictures/web/d/p/a/Christopher_Pugh_150.jpg” />

Chris Pugh, Freshfields Bruckhaus Deringer

Client strategies for protecting key elements of international businesses, particularly in challenging markets, have become more integrated. While specialist practices at external firms are critical, the need to integrate the delivery of a service across those areas and across a growing number of jurisdictions has also increased. Litigation practices that match their clients’ functional structures will put themselves in a position to offer a more relevant service.

Litigation practices have responded at different paces to these market changes, and have faced different challenges depending on their starting point. Some have started with London practices but no continental European competition or litigation capability; others have local but no regional or international arbitration practices; some have domestic investigation or litigation capability but no quality US teams.

The barriers to the development of an international litigation practice are not to be underestimated. Some firms are reluctant to make the investment necessary; some compromise on quality through an impatience to grow quickly; others underestimate the importance of local knowledge and cultural sensitivity.

The other major challenge for firms is to provide competitive value. The old model of flying large teams of lawyers around the world has become outmoded, being far too expensive and failing to understand local businesses. The same could be said for unfocused and all-embracing document reviews and other approaches to evidence-gathering. Successful practices will marry local expertise with experienced international practices able to deliver value where it counts.

The global litigation sector is shifting. The few firms that claim the top of the ­market in five years’ time will have the brightest and most experienced people with the leading teams integrated into a coordinated practice. Firms with strong London, European and US practices will lead the way, building their Asia, Middle East and North Africa, and South America teams. Those with strong domestic US practices will respond but find it more challenging as they are forced to invest in a more international market.

My prediction is that in five years’ time a small group of fewer than five litigation practices will have set themselves apart. Those firms will be able to help protect clients’ businesses across the regulatory landscape, in international arbitration, litigation and global investigations. They will be the firms that clients turn to wherever their problems arise.

Chris Pugh is head of dispute resolution at Freshfields Bruckhaus Deringer

Staying strong in a changing world

As the litigation market becomes more international, firms will be able to capitalise on increased activity by playing to their strengths. By James Levy and Michael Madden.

There is every reason to believe that the English law litigation market will be materially bigger in five years’ time. The enduring quality of the English legal system and its practitioners is undoubtedly one significant factor that will drive this.

Alongside New York law, English law remains the favoured governing law of international agreements. We have an excellent legal system that is rightly regarded as fair and thorough. That system is served by some first-rate practitioners operating in a highly competitive market.

An increasingly global market will also play a key role in the growth of the market. The world’s commercial centre of gravity is moving away from Europe; in
particular, it is moving East. The Middle Eastern and Asian markets hold some significant business opportunities for clients.

A number of those clients are likely to be doing deals that include dispute resolution clauses stipulating ­English law as the governing law.

Inevitably, disputes will arise and a number of them will settle, but different business practices and cultures may make early settlement difficult to achieve.

Therefore, some will need to be resolved by means of litigation or arbitration.

The size and significance of  the Brazilian, Russian and Indian economies is also likely to generate a number of major ­disputes in the next few years, most particularly in ­sectors such as  transport and infrastructure, energy, antitrust and financial services.

The English courts are already dealing with a number of high-profile disputes among Russian corporate entities and the oligarchs who own them, or once did.
Meanwhile, litigation arising as a consequence of the credit crunch and the collapse of Lehman Brothers will continue for the foreseeable future.

Lord Faulkner’s predicted tsunami of ­litigation has not materialised, nor do we now expect it to, but we are seeing a steady stream of problems derived from events that took place in 2007-08, and it may be several years before we can confidently say those events are well and truly behind us.

Perhaps in a similar vein, claims are ­likely to emerge as a consequence of the financial crises in Greece and Ireland and, if economists are to be be­lieved, Portugal and Spain as well as elsewhere in Europe.

Michael Madden
Michael Madden

Costs and fund­ing will re-main an important preoccupation both for clients and their lawyers.

By 2015 we expect hourly rates still to be charged, particularly on big-ticket litigation.

In our experience, clients prefer to self-fund ’bet the company’-type work.

That said, there will be significant opportunities offered by innovative insurance and conditional fee-type arrangements for those firms with an appetite for risk.

Private equity in­vestment in small litigation firms willing to take the risk is a distinct possibility.

If ­contingent fee arrangements for ­contentious work become lawful, as has been proposed recently by Lord Justice Jackson, there is little doubt that more claims will be made, and a more readily identifiable claimant bar will emerge in this jurisdiction.

The regulatory scrutiny of business will also con­tinue to be a preoccupation of clients and their legal ad­visers. Banking,competition and industry sec­tor regulators are now well established, and experienced in pursuing their objectives.

Litigators are likely to continue to spend a great deal of time managing client risk and undertaking advisory work with a view to pre-empting adverse regulatory findings.

All in all, in five years’ time we anticipate that litigation will be an even greater source of activity for law firms able to capitalise on their strength in this area.

James Levy is partner and Michael ­Madden is head of litigation at Ashurst

World watchdogs get it together

The fallout from the financial crisis has seen greater collaboration between regulators around the world – and the number of their investigations increase. By Tim House

The financial crisis and ensuing recession has spawned an increase in disputes in the financial services sector and more widely. There has not, however, been the usual increase in post-M&A commercial or corporate insolvency litigation that has accompanied previous economic boom and bust cycles.

A sluggish or faltering recovery in the rich economies along with tight credit ­conditions may still create problems for debt-laden deals from the height of the last cycle. In the meantime, some distinct ­patterns have emerged in the two years since Lehmans collapsed.

Most conspicuous has been the rise in regulatory investigations and enforcement work. Regulatory enforcement in Asia, Europe and the US is becoming more intrusive. Regulators are collaborating more, ­culminating in an increase in international requests for assistance. Meanwhile, penalties are becoming harsher.

Uncertainty hangs over the final shape of the UK’s financial regulator, but there is no reason to assume the approach to enforcement will soften.

The UK Bribery Act has been high on the agenda this year and will remain so as businesses digest the Ministry of Justice’s guidelines on best practice, due to be published in January. All businesses need to take note; in particular, an increased appetite has emerged among authorities for prosecuting corruption in financial institutions, and in both the US and the UK there has been an escalation in the severity of penalties being handed down.

This is part of a trend – the World ­Economic Forum has focused on anti-­corruption measures, the US Department of Justice is frustrated at perceived inactivity by foreign counterparts and the Dodd-Frank Act actively encourages whistle-blowing to flush out unacceptable practices.

But what about the much anticipated escalation in the number of class actions? The credit crisis surge in US securities class actions has passed its peak but, overall, the level of securities class actions is still well above 2005-06.

There appears to be a greater appetite on the part of other national governments to implement mechanisms for collective redress, especially in the consumer sector. The US Supreme Court’s hostility towards private federal securities litigation is leading to the greater use of the US Financial Industry Regulatory Authority to bring more complex claims, but could also serve to drive EU claimants to Europe – notably the Netherlands – for collective redress.

There has been an almost 60 per cent rise in international arbitration disputes brought in London in the past two years. This reflects a trend that is particularly evident in Asia – arbitration is being deployed more frequently when financial disputes arise, especially in emerging ­markets.

The need to protect IP assets will become more important and litigation more likely, especially in the high-tech, pharma and communications sectors. IP actions in the US and the UK are rising, while China has seen a 25 per cent surge in cases in the past year. Antitrust authorities are responding to cartel activity aggressively and private enforcement ­follow-on actions have increased.

I do not see these trends abating.

The market conditions that traditionally cause a turn away from litigation are not yet present – the political environment will not permit a return to lighter regulation while the pressure on investors and companies to pursue yields and profit in higher risk emerging markets will increase.

Tim House is global head of litigation at Allen & Overy

Delivering consistency

In a future characterised by intense regulatory scrutiny clients will choose firms with strong cross-border contentious practices and global standards of product delivery, says Jeremy Sandelson.

The most important and headline-grabbing financial and ­corp­orate transactions of today – unlike those of yesteryear – tend to require lawyers to give cross-border advice while dealing with the laws and regulations of more than one ­jurisdiction.

I believe the global litigation market is likely to move in a similar direction, whereby the firms that can provide global ­dispute resolution advice will be in demand as clients find themselves more and more engaged in cross-border litigation.

Take the various anti-corruption and bribery regimes in place around the world, for example.

The firms that succeed in the future will be the ones that take differing ideas and techniques from across the globe and use them in a way that enhances their offering.

Leading firms will be required to have deep relationships with their clients in a number of jurisdictions if they are to be instructed in relation to global litigation and arbitration. Such firms will need to have a coordinated approach when it comes to how they handle disputes for those clients.

There can be little doubt that the world is set for a tougher regulatory approach, and a future with an increasing number of domestic and international regulators. I believe there will be much greater coordination between these regulators as they each seek to protect their ’own’ markets while at the same time attempting to get to grips with global issues.

Jeremy Sandelson
Jeremy Sandelson

In all likelihood, the changes to the world of regulation that we have experienced since the credit crunch will encourage a more aggressive approach to regulation, more intense supervision and a greater willingness to use regulatory tools, along with more enforcement cases.

The firms that will prosper in this growing area will be those that can see across ­borders and are also prepared to invest deeply in building a joined-up contentious regulatory practice.

At Clifford Chance we envisage an increasing amount of the sort of work whereby the same set of issues gives rise to regulatory actions in two, three, four or even more jurisdictions.

Clients understandably require a global approach to their problems and the first challenge for lawyers is to demonstrate an innovative response to these issues rather than adopt the more traditional ’one jurisdiction at a time’ approach.

In the same vein, clients will demand global standards so the product they receive feels the same, whether it emanates from the UK,  Europe, Asia or the Americas. So the ­second challenge for leading law firms is to innovate and deliver this product in a cost-efficient fashion.

Jeremy Sandelson is global head of litigation at Clifford Chance