Your morning starts with you fielding a number of questions about your bank’s on-going investigations into benchmark manipulation, following probes by US and Canadian regulators. Later, you attend a board meeting to give an update on fraud proceedings in the English courts against a former Russian broker.
Sound at all familiar? This is the type of challenge that now faces senior management and in-house counsel in multinational institutions.
Complex cross-border disputes are an increasingly common issue for firms, and the challenges they present to those responsible for managing them – most importantly, in terms of reputation, time and money – show no signs of abating. The survey examines the experience of 148 senior executives and lawyers across 18 industries, including investment banks, in dealing with these disputes, and highlights a number of key trends:
- 30% of respondents’ case loads consist of cross-border disputes, and over half expect the volume to increase further over the next two years;
- Annual legal spend on cross-border disputes averages US$6.6m, and in many cases is significantly more;
- 90% of cross-border disputes involve at least two jurisdictions, with some involving as many as 50 jurisdictions, highlighting the importance of instructing local counsel with familiarity with the laws and rules of different legal systems; and
- China, India and Brazil are seen to be amongst the most challenging jurisdictions to navigate for disputes, which are conversely the markets that are offering some of the most exciting business opportunities. Yet, perhaps surprisingly, the US is seen as the most difficult place to litigate.
In short – these disputes are expensive, difficult to navigate and look set to increase in number. Unsurprisingly, the road ahead for those tasked with managing cross-border disputes can seem daunting. However, the survey highlights that, notwithstanding these obvious challenges, senior executives and in-house counsel are increasingly employing a number of different strategies to effectively manage these disputes in order to mitigate their impact and ultimate cost to the company.
Forward planning
Experience suggests that companies under fire from litigants and regulators can be inclined to manage disputes reactively, tending towards the adoption of the “ostrich” mentality. However, the survey suggests that many corporates – particularly in the investment and finance world – are seeking to grapple with potentially expensive cross-border disputes through early assessment.
One way that companies are doing this is to identify possible sources of dispute before they escalate by thinking more proactively about the lessons that have been learned from past disputes – and then initiating their own reviews of processes and contracts to identify risks before they then arise. This is particularly so following the raft of recent regulatory investigations, where there is a risk of “cross-fertilisation” from parts of a business already under inquiry to those who might be next in line.
Respondents to the survey also suggest that there is an increasing willingness to come to disputes “better prepared”. In many cases, companies are looking to invest in their compliance and legal functions, in order to build their internal expertise so that they are more able to deal with complex disputes when they inevitably come through the door. The evidence also suggests that institutions are looking to minimise the risk of finding themselves in front of the courts in a “challenging” jurisdiction by the judicious use of arbitration and/or governing law clauses in their contracts, particularly those used in emerging and unstable markets. This, in time, may lead to an even greater reliance on the courts of jurisdictions which are seen as “safe” to litigate in by multinationals, such as the English courts.
Settlement strategy
When a dispute kicks off, there is little that can be done to halt the wheels of justice from turning – however slowly and in whatever jurisdiction.
However, the survey suggests that many companies are looking to take greater control of disputes before they escalate by pursuing a deliberate strategy of identifying and – if necessary - settling problem cases early. The idea of front-loading the work on a dispute, through gathering information and interviewing key personnel, can seem unattractive because of the inherent cost in doing so, but clearly this strategy can pay dividends in the long run if it means that only those cases worth fighting are fought and that management time is freed up to devote to building the business, rather than dispute management.
Co-ordinating legal counsel
It is revealing that a third of respondents to the survey say that finding experienced local counsel to handle cross-border disputes is their greatest concern. The increasingly global way in which business is done has not, as yet, led to increasing legal and regulatory harmonisation – and so there is no avoiding the need for country-specific expertise and advice.
To tackle this, the survey suggests that companies are turning to their legal counsel to provide them with a more holistic service – with over two-thirds of respondents opting to instruct a single global legal counsel to manage cross-border disputes. This makes commercial sense; funnelling instructions through a single point of contact minimises management time, and using a single firm facilitates a coordinated strategy and – it would be hoped – ensures better cost and quality control.
Board scrutiny
Cross-border disputes are a particularly tricky beast for boards. These disputes, particularly those arising in the regulatory sphere, lend themselves to intense public and media scrutiny, meaning that boards can find themselves under increasing pressure to hold themselves more accountable for the past actions of their companies – which hasn’t necessarily always been the case.
To deal with this issue, experience suggests that companies are increasingly using a range of board sub-committees to provide a line of direct communication between board members and those managing the disputes on the ground. Through these sub-committees, board members have real oversight over a business’ operations – thus minimising the risk of any executive casualty arising from the actions of a board that could be perceived by the public as being “out of touch”.
The message, then, is clear: when carefully managed, the impact of cross-border disputes may be containable and, in the right circumstances, may even provide a company with the opportunity to protect or promote its market position with decisive legal action. The survey highlights that many senior executives and in-house counsel are well aware of this – and are consciously and proactively looking to develop their dispute management strategies to suit the ever-increasingly global business landscape.
The Global Currents: Trends in Complex Cross-Border Disputes survey can be found here.
Alex Sciannaca is a Partner in the Financial Services litigation team at Hogan Lovells’ London office.
