Cross-Border legal disputes on the Rise; Many Corporations Identify Legal Systems in the U.S. and China as The Most Challenging
Complex and costly cross-border legal disputes are projected to grow significantly in the years ahead, according to a new survey of multinational corporations. At the top of many companies’ list of most challenging legal systems: China, India, Brazil, and the United States.
Many of the respondents in the survey, which was conducted by global law firm Hogan Lovells, acknowledge that the disputes aren’t always wise to avoid. Findings indicate that suits can be used in furtherance of business strategy. When skilfully handled, cross-border disputes can be powerful strategic tools. The survey also revealed the importance of using effective project management techniques to deliver tasks on time and to budget.
The survey, which was part of a report titled 2013/14 Global Currents: Trends in Complex Cross-Border Disputes and is the first of a series of upcoming research pieces on global disputes, included 146 senior lawyers and executives from some of the largest global companies across 18 industries. With its unique focus on the growth of cross-border disputes, the report sheds light on the current hotbeds for litigation and the careful preparation that lawyers and boards are taking to address the complexity and potential reputational risk accompanying complex litigation involving multiple international jurisdictions.
China, England, France, Germany, and the U.S. were the most common markets for cross-border disputes of those surveyed, but respondents found the U.S., China, Brazil, and India to be the most challenging environments. Executives said the most difficult factors include complying with unfamiliar overseas rules; managing differences in legal systems and often unexplored interfaces between them; overcoming issues involving long distances; and adapting to differences in time zones, cultures and languages. The greatest challenge, respondents say, is locating quality local counsel in these difficult regions.
These concerns are now inevitable for global companies given that cross-border litigation is intensifying significantly. Thirty percent of respondents’ caseloads now consist of cross-border disputes, while half of general counsel expected an increase in these disputes over the next two years. The existing cases are expansive, with 90 percent involving two or three countries and some crossing into as many as 50 jurisdictions.
Despite the prevalence of this litigation and the difficulties that often accompany it, cross-border disputes can provide extraordinary opportunities to protect or promote a company’s market position. Boards have cited concern for its impact on company reputation, costs and resources, and legal departments are responding by increasing due diligence and working to anticipate legal hurdles in advance. Sixty percent of respondents said they have used a targeted strategy – including an early assessment of pros and cons of pursuing the dispute – and 85 percent reported a positive impact.
Dennis Tracey, partner in Hogan Lovells’ litigation and arbitration practice based in New York, said:
“Given the significant costs and challenges associated with cross-border litigation, it is critical for companies to anticipate and implement a strategy to address these disputes before they occur. The approach must be global, coordinated, and consistent, and it needs to be implemented as soon as possible.”
Detlef Hass, partner in the firm’s Munich office and co-head of the Litigation Practice Area , added:
“The survey highlights challenging geographies that require companies to implement project management tools including a single point of contact to translate and coordinate between local experts close to the dispute venue, the legal department, relevant business units and party experts or witnesses.”
Other highlights of research included:
- Cross-border disputes often involve significant cost budgets. Respondents said they have spent anywhere from $2.3 million to $6.5 million on disputes involving between two and five different countries.
- Customers and suppliers were the main sources of cross-border disputes, most often over commercial, contractual or intellectual property issues. Respondents indicated that disputes with regulators (25 percent) and antitrust disputes (10 percent) were also common.
- On average, respondents said only 29 percent of their cross-border disputes involved arbitration. However, 73 percent of international contracts included an arbitration provision.
- Globally, 28 percent of respondents preferred U.S. law and 23 percent preferred English law, with American organizations favoring the former and international companies favoring the latter. Not surprisingly, most respondents preferred the law of their own jurisdictions.
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