Lovells

• Regulatory disputes emerging area of significant concern
• Lack of experience the biggest challenge in managing multinational disputes
• US, China and Russia are the countries that cause in-house lawyers the greatest concerns
• Damage to reputations is top consideration in deciding to contest or settle

A new report launched today by international law firm Lovells – "The Shrinking World" – highlights major issues around dispute management among European in-house counsel.  The report is based on research among 180 in-house counsel in Europe's largest companies in France, Germany, Italy, the Netherlands and the UK.

Regulatory disputes emerging area of significant concernAlmost half of in-house counsel in five major European economies view disputes with regulators as one of the top risks over the next three years.

Although the number of regulatory or compliance type disputes is small (3% over the past three years), these are viewed as the second highest area of concern with 45% of respondents rating them as medium to high risk.  Commercial and contractual disputes, mainly involving relationships with customers and suppliers, are seen as the top risk with three quarters of in-house lawyers (75%) rating them as medium to high risk.  Employment (44%) and product liability (39%) also feature as perceived areas of risk.

One survey participant said: "The challenge is to have a management strategy to avoid disputes."

Lawson Caisley, Lovells' dispute resolution partner with responsibility for the report, said:

"The significant financial and reputational risks associated with major regulatory- or compliance-related disputes mean that they have to be handled extremely carefully.  The concern is that due to their infrequent nature, many in-house lawyers may have limited prior experience of managing them. "

Regulatory disputes can create significant cross-border risks for international businesses as regulators in other countries see what is happening and may launch their own investigations.  In addition, regulatory disputes can pave the way for private law suits from affected customers or investors. 

Lack of experience and knowledge are major barriers to managing multinational disputes.

A third (32%) of respondents cited lack of experience of managing multinational disputes as the biggest challenge of such disputes, with a lack of knowledge of the relevant law and procedures as the second most significant factor (26%).

One in-house counsel commented: "It is a challenge to take into account the different legal systems – the challenge is to know them in both a theoretical and pragmatic way."

Lawson Caisley added:

"While in-house lawyers are relatively comfortable with managing disputes in their own countries, there is great concern regarding the unknowns that they may encounter when faced with disputes in different markets, especially where the legal system is radically different from that of the home country. These differences most often appear when lawyers from civil code countries, which make up the overwhelming majority of European jurisdictions (and all of continental Europe), find themselves embroiled in disputes in common law countries and vice versa."

US, China and Russia cause concerns.

In terms of managing multinational disputes, the US (29%), China and Russia (both 16%) are the top three markets in which in-house lawyers would be the most concerned about becoming involved in a major dispute.  Nearly a third of respondents (31%) felt that there has been a trend towards more multinational disputes in the past three years.

According to Lovells' US managing partner, Marc Gottridge:

"There are a number of factors that can make the management of US litigation particularly difficult for those outside the US - not least the complexity of the US federal system with its multiplicity of courts, prosecutors and regulators at state and federal levels as well as a tradition of targeting corporations as well as individuals in criminal cases - effectively using criminal investigation and prosecution as a form of regulation."

Douglas Clark, local managing partner of Lovells' Shanghai office, said:

"More and more foreign companies are resorting to litigation to resolve disputes in China, often successfully. The court leaders and government acknowledge that there remain problems with corruption and the lack of qualified judges, particularly away from the larger cities.  The courts have nevertheless over the past five to seven years become more neutral and professional. A party with a strong case can expect relatively favourable outcomes, particularly if they bring their case in a larger city such as Shanghai or Beijing where political influence is less likely to be brought to bear except for large cases and there are large panels of well trained professional judges."

Dominic Pellew, a litigation partner in Lovells' Moscow office, added:

"Outside investors are concerned about the quality of the courts and the independence of the judiciary in Russia.  There is a feeling that litigation is best avoided, and enforcement of arbitral awards is also problematic - hence there are no reliable options.  But successful litigation strategies can be devised.  These may involve proceedings or enforcement outside Russia."

Reputation (just) beats cost when determining whether to contest or settle a case.

Potential damage to reputation was identified as the top consideration when deciding whether to contest or settle a dispute, closely followed by the financial cost of losing and the impact upon relationships and customers.  The issue identified as being of least concern was having to justify losing to shareholders.

Other research findings:

• The top trend in dispute resolution over the past three years is the increased use of alternatives to litigation such as arbitration and mediation (31%).  Taking steps to avoid conflicts (22%) and the impact of increased consumer rights and related disputes (14%) are the next two highest.
• Just under a quarter (22%) of respondents have been either threatened with or on the receiving end of a class action.  In-house lawyers in France have been most exposed to class actions (33%), while in Italy barely one in 16 (6%) have seen them.
• More companies have seen an increase in disputes than a decrease over the past three years.  Around a third (38%) of respondents say that the number of disputes has increased compared to less than a sixth (14%) saying that the number of disputes has decreased in the same period.
• In-house lawyers spend more time on managing litigation and disputes than any other area of their responsibility.  Litigation and dispute management accounts for over a quarter of in-house lawyers' time (28%) compared to general commercial advice (22%) and strategic advice to the company's management (13%).

For further information, please contact:

Nuala Higgins
nuala.higgins@lovells.com
Tel: 020 7296 2539

Karen Snell
karen.snell@lovells.com
Tel: 020 7296 2076

Chris Hinze
chris.hinze@lovells.com
Tel: 020 7296 2745

Lovells - European Disputes Survey 

Interviews were conducted with 180 in-house lawyers, General Counsel, Heads of Legal  and equivalent from large companies (FTSE 350 or foreign equivalents, on average  approximately 50% had annual turnovers of above €4bn). The research was conducted  by Lighthouse in September-October 2007. A full copy of the research findings is available to journalists on request.

Lovells' International Dispute Resolution Practice

Lovells has an outstanding international dispute resolution practice covering all forms of  dispute resolution, including litigation, arbitration and alternative dispute resolution. The  practice is represented in all major jurisdictions and includes over 100 partners and some  300 qualified legal staff globally.

About Lovells

With over 3,000 people operating from 26 offices in Asia, Europe and the United States, Lovells is one of the world's leading international law firms. We advise many of the world's largest corporations, financial institutions and governmental organisations.  We regularly act on complex, multi jurisdictional transactions as well as some of the most high profile commercial disputes. Lovells (the "firm") is an international legal practice comprising Lovells LLP and its affiliated businesses.  Lovells LLP is a limited liability partnership registered in England and Wales with registered number OC323639.  Registered office and principal place of business: Atlantic House, Holborn Viaduct, London EC1A 2FG. The word "partner" is used to refer to a member of Lovells LLP, or an employee or consultant with equivalent standing and qualifications, and to a partner, member, employee or consultant in any of its affiliated businesses who has equivalent standing.