Class Actions Still Top Concerns of Businesses Globally
Class action lawsuits were listed as the top litigation issue by respondents in the U.S., Canada and Australia, according to the latest 2015 Litigation Trends Annual Survey. The UK ranked an overall increase in litigation – including frivolous lawsuits – as the top issue, the report issued by global legal practice Norton Rose Fulbright noted.
This year’s survey is the 11th overall and the most extensive in its history, polling more than 800 corporate counsel representing companies across 26 countries on disputes-related issues and concerns. Survey respondents – primarily general counsel – indicated that the increasing number of class action lawsuits and a more litigious business environment were the most important issues impacting their companies.
The survey was conducted by Acritas, a global legal services market business research firm.
“What we are seeing is a direct response to the ever-broadening array of legal and regulatory challenges that companies face today. As the business environment becomes more complex, companies are spending more out of necessity to protect their interests and ensure that they are represented properly,” said Gerry Pecht, global head of Dispute Resolution and Litigation at Norton Rose Fulbright.
A quarter of all respondents reported at least one class or group action against their companies in the preceding 12 months, with survey participants from the U.S. comprising 80 percent of that number. And 71 percent of those who reported a class action had more than one filed against their companies in the previous 12 months.
U.S. based respondents also reported a more litigious business environment than their peers, with 55 percent facing more than five lawsuits filed against their companies in the previous 12 months, compared with 23 percent in the UK and 22 percent in Australia. Just 18 percent of US companies reported no lawsuits, compared with 42 percent in the UK and 36 percent in Australia.
Regulatory and investigations matters are a focus for in-house counsel, with 39 percent of respondents citing those issues as their top concern.
Among companies with revenues of $1 billion or more, 51 percent indicate they have one or more regulatory proceeding pending against them. Half of respondents indicate their company has retained outside counsel for assistance in a government or regulatory investigation. Across the entire sample, 44 percent of respondents indicate they have had at least one internal investigation requiring assistance of outside counsel in the previous 12 months.
In general, respondents expect the legal environment to continue to grow in complexity. Overall, 25 percent of respondents anticipate litigation against their companies increasing in the next 12 months, compared with just 14 percent who predict it will decrease. Twenty-two (22) percent increased the number of outside firms on their rosters in the past year. And half of all respondents have spent more time during the last three years addressing regulatory requests or enforcement proceedings.
Respondents were given a list of more than 20 categories of pending litigation their companies faced over the past 12 months, and asked to select the top three to five. Contracts, labor/employment and regulatory/investigations received the most selections from respondents, followed by personal injury and IP/patents.
Regional Highlights
Just over 50 percent of the survey’s respondents are from companies with headquarters in the United States. The average U.S. company polled has 20 in-house lawyers to handle disputes.
The number of US companies with an annual litigation spend of $1 million or more rose significantly between 2012 and 2014. The share of companies with legal budgets of more than $1 million increased to 69 percent from 52 percent in 2012. A total of 34 percent reported budgets of $1 million to $5 million, up from 26 percent two years ago.
Respondents also reported an increase in the percentage of companies with litigation budgets of $10 million or more (25 percent, compared with 17 percent in 2012). Respondents with budgets of less than $500,000 fell to 21 percent of the total, down from 31 percent in 2012.
Respondents identified a number of significant differences in the types of litigation that U.S. companies face compared with their peers worldwide. For example, personal injury litigation is significantly more prevalent in the U.S. than in other countries, with 21 percent of respondents selecting it as one of the most numerous types of cases they faced in the previous 12 months. That compares to just 15 percent in the survey overall.
In addition, intellectual property/patents (18 percent) and product liability (17 percent) cases were more common in the U.S. than worldwide (13 percent and 11 percent, respectively).
Going forward, more U.S. respondents say regulatory/investigations are a top concern compared with the broader sample (48 percent to 39 percent). The percentage of U.S. respondents most concerned with contracts disputes declined to 29 percent, from 36 percent in the previous survey.
IP/patents disputes are of greater concern in the U.S. (30 percent) compared with all respondents (21 percent). Only about one in 10 respondents in Australia, Canada and the UK listed IP/Patents among their top dispute concerns.
In addition, more U.S. respondents list class actions (25 percent) and product liability (18 percent) as top concerns compared with the total sample (18 percent and 14 percent, respectively).
Forty-two percent of U.S. companies reported being a party in one or more arbitrations over the past 12 months, slightly more than the 35 percent reported among all respondents. Arbitrations commenced by U.S. respondents have remained steady since 2011, with no statistically significant change.
The U.S. reported the greatest incidence of one or more regulatory proceedings commenced against respondent companies (43 percent). This proportion has remained steady during the past three years.
, Norton Rose Fulbright, commented:
“Our survey clearly demonstrates that the litigation and regulatory environment in the United States continues to pose some of the greatest risks which businesses from around the world face. This is reflected in rising litigation budgets and the size of disputes-focused staff compared to peer companies around the globally,” said Richard Krumholz, head of Dispute Resolution and Litigation for the U.S.
Sixty-two (62) percent of U.S. companies used alternative fee arrangements (AFAs) in the previous 12 months, consistent with 2013 findings and slightly higher than the 56 percent worldwide using AFAs.
Overall, the most common type of AFA used was fixed fee (66 percent). In the U.S., use of performance/rewards-based fees (25 percent) fell compared with last year (35 percent). And capped fees were less common in the US (51 percent) compared with the total sample (59 percent).
Across the survey, more than 97 percent of respondents who have experience with AFAs are satisfied with the work performed.
Respondents from the UK reported increased regulatory pressures and a rise in banking and financial litigation. At 67 percent, respondents from the UK are the most likely to have spent more time over the past three years compared with global counterparts (50 percent) addressing regulatory investigative requests or regulatory enforcement proceedings, either as a party or non-party. Forty-eight (48) percent of UK respondents have cited that cross-border regulatory enquiries or investigations have increased. Sixteen (16) percent of UK respondents faced one or more regulatory proceedings worth in excess of $20 million over the past 12 months.
Banking and financial disputes were much more common in the UK (16 percent) than other regions globally (7 percent). The uptick in actual banking/finance disputes has led to an increase in concerns over future cases, with 21 percent of UK respondents citing them as a top issue, compared with the overall survey (9 percent).
The proportion of UK respondents reporting litigation budgets of less than $500,000 has increased (41 percent versus 21 percent in 2012). The bulk of this increase comes from companies that previously reported budgets ranging from $500,000 to $1 million, which slipped to 10 percent from 21 percent in 2012.
It is therefore significant that UK companies continue to report a preference for alternative fee arrangements (AFAs), with 53 percent claiming to have used AFAs. UK respondents reported preferring capped fees (76 percent) and fixed fees (56 percent) followed by blended rates (34 percent). Interestingly, there has been a hike in conditional fee arrangements, with UK respondents (22 percent compared with 9 percent in 2012) preferring this method. Over a third (38 percent) of respondents agreed that the use of AFAs by their organization is likely to increase over the next 12 months.
Over a third (35 percent) of UK respondents listed contractual disputes as a top area of concern in the future, a significant drop from 2012 (53 percent).
When given a choice in disputes that are international in nature, 42 percent of UK respondents chose arbitration, compared with 34 percent choosing litigation. The number of international arbitrations involving UK companies has remained consistent over the past two years with 40 percent of UK companies not party to any international arbitrations (compared to 38 percent in 2012).
Cross-border disputes, particularly those of a regulatory nature, are on the upswing, according to 48 percent of UK respondents, the highest figure of any region.
“Regulatory matters and banking and financial litigation are primary concerns for UK in-house counsel,” said Deirdre Walker, head of Dispute Resolution and Litigation in Europe, Middle East and Asia “Respondents are spending more time on investigations and enforcement proceedings. However, this comes at a time when litigation budgets in the UK are being squeezed and companies are not dramatically increasing their outside counsel rosters. Companies are demanding innovation and expect real value for money with alternative fee arrangements identified as of prime importance.”
Canadian companies average about four disputes-focused lawyers, well below the total survey average of 16.3. Those small staff sizes are mirrored in Canada’s average litigation spend: 62 percent spend less than $500,000 per year, among the smallest average budgets reported.
Respondents from Canada reported far more labor/employment matters in the previous 12 months than the survey as a whole (49 percent to 37 percent), as well as higher numbers of company/commercial construction litigation (15 percent to 5 percent for the overall survey). But the number of product liability cases was much lower than the average (4 percent to 11 percent).
“Although the litigation climate is less aggressive in Canada than in some other regions we surveyed, there are still a number of issues that are important for general counsel. For example, labor and employment law is complex and wide-ranging in Canada, and that is clearly reflected in the responses we received. And contract disputes are still a major issue for companies in Canada, as they are in many regions,” said Roger Smith, head of Dispute Resolution and Litigation in Canada.
Canadian companies are also less concerned about regulatory/investigations and IP/patents than their peers in other countries (24 percent to 39 percent and 10 percent to 21 percent). A total of 33 percent of Canadian respondents said regulatory proceedings had been initiated against their companies in the previous 12 months, which is similar to the overall survey at 34 percent.
In Canada, 41 percent of companies used AFAs in the previous 12 months, below the survey average.
Australian companies highlighted increasing class actions and the growing threat of government or regulatory investigations as being among their biggest concerns. And while 73 percent of global respondents preferred to use one firm for cross-border disputes or investigations, in Australia that figure leapt to 90 percent.
Australian companies also rely more on outside counsel than in-house lawyers to advise on a government or regulatory investigation. In the last 12 months, 64 percent had used outside counsel for these matters, compared with the US (56 percent), Canada (53 percent) and all global respondents (50 percent). One reason for these responses was the relative size of Australian in-house legal teams, averaging 8.8 lawyers compared with 19.8 in the US, 14.0 in the UK and 16.3 globally.
Source: Norton Rose Fulbright