A rise in disputes work following the recession has highlighted the increasingly global nature of modern commercial litigation. Stephen Immelt and Patrick Sherrington examine this new landscape

In spring 2008, legacy Lovells published a survey called The Shrinking World, which revealed some of the thoughts and concerns of in-house counsel across Europe about the litigation threats they foresaw. The results were striking. Thirty-eight percent of those polled expected an increase in disputes over the coming three years, and it was clear that concern over the threat of multijurisdictional disputes was growing.

Most believed that customers and suppliers would continue to constitute the main source of disputes, although disputes with regulators were cited among the biggest risks facing multinationals. And how right they were, even if at that time nearly 60% rated the risk of litigation relating to banking and financial instruments as 'low' and only 6% cited issues of bankruptcy and distressed clients as a source of concern.

Hindsight, of course, is a wonderful thing. The global economic environment is vastly different in 2010, but the fact remains that while the environment for litigation has changed as a result of economic and political factors, the general counsel were prescient in predicting an increase of disputes – and the evidence points to this continuing to be the case for some time.

The long-term trend towards an increase in disputes has perhaps been highlighted – rather than caused – by the recession. However, what the economic turmoil has exposed is the overwhelming interdependence of one jurisdiction on another when it comes to financial markets.

Some of the biggest business stories of the past two years have demonstrated this interdependence. Take the travails of AIG. At one point the global insurance group had operations spread across approximately 130 countries in North America, Latin America, Asia, the Middle East and Europe. Its collapse has given rise to litigation and regulatory investigations across the globe.

Or look at the insider trading allegedly carried out by Galleon and other hedge fund groups: Sri Lankan national Raj Rajaratnam, working from New York, has been accused of operating a criminal ring touching upon the US, Asia and the Middle East. And then there is the infamous Ponzi scheme perpetrated by Bernard Madoff, which has spawned proceedings across several continents and in numerous jurisdictions.

Many of the recession-related disputes to have caught the public eye over the past 24 months have been in addition to, rather than instead of, the general increase anticipated by in-house counsel. Product liability claims still remain a serious cause for commercial concern, as the recent recall of products by Toyota in the US, UK and Japan has shown. Similarly, there are likely to be disputes arising from the volcanic ash cloud that continues to engulf Europe.

Some continents have not been affected by the credit crunch to the same extent as others, but disputes still occur in some of the emerging economies, for instance Latin America, that have weathered the storm better than most.

Whether driven by the recession or not, the handful of examples outlined here demonstrate graphically that very few businesses are limited by national boundaries. Nowadays even the most unsophisticated commercial organisation nowadays has customers, operational bases, supply chains, investors or other stakeholders overseas.

Add to this that many of the world's most sophisticated businesses may find themselves regulated by one or more national bodies and a vast array of (sometimes conflicting) legislation, and the risks are obvious – no wonder proper dispute avoidance and management technique are essential.

The knock-on effect for in-house counsel is a world of new worries and considerations (see box, left) but as with every cloud, there is a silver lining: globalisation also brings great opportunities for cost-savings and efficiency, not least in the provision of legal services.

One thing is clear. It is often said that recessions tend to highlight and exacerbate systemic failings and this principle could be applied to those law firms servicing global clients. Without a sufficient focus on meeting client needs effectively across borders, no matter where on the globe the adversaries preside, modern law firms cannot hope to meet the challenges of the post-recession landscape.

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Top trends in litigation

The risks associated with overseas operations are substantial and not limited by geography. While it is not typically within a lawyer's remit to make predictions, we are occasionally asked to help clients make informed decisions by advising them on potential legal trends that might impact their businesses. In the context of managing conflicts, we believe the following are significant:

1) Multijurisdictional regulatory investigations
The Security and Exchange Commission's (SEC) public grilling of executives at the centre of the alleged Goldman Sachs fraud has demonstrated that regulators are growing increasingly assertive following the economic turmoil. In the UK the Financial Services Authority will be increasingly keen to bare its teeth as it seeks legitimacy under the new Government. The same is likely to be true across Europe, and anywhere there is public anger about apparent mismanagement brought to light by the global recession. In Hong Kong, the backlash against distributors of Lehman Brothers products is another example of this trend.

A further key development over the past two years has been the increasing willingness of regulatory authorities to work together across different jurisdictions. Record fines levied on the likes of Siemens and Daimler for alleged bribery offences came as a result of investigations by the SEC working in conjunction with German authorities. The US Department of Justice has signalled its intention to work on multijurisdictional matters and is likely to have been encouraged by the UK's renewed attempts to reform its own record on combating corporate wrongdoing (which ultimately resulted in the new Bribery Act).

But the days when businesses were willing to fly legal professionals around the world to solve these problems are long gone. Lawyers are required to be in-country in order to provide swift advice with local knowledge.

2) E-disclosure
E-disclosure is one of those rare instances in which the dire predictions of legal commentators are actually being exceeded by the experiences of both outside counsel and the in-house legal departments having to live with these issues. In addition to being a burdensome and expensive exercise, businesses need to consider how they collate and provide information for disclosure without violating local data protection and privacy laws or regulated obligations. This picture is made even more complex when the differing specifications and tolerances of numerous countries are considered. The French authorities, for instance, take a very different view to the Chinese when it comes to personal data and the requirements for disclosure. This debate is not new, but continues to cause headaches and some spectacular legal results. In May the UK Office of Fair Trading case against four British Airways leaders for price-fixing appeared to collapse after the emergence of 70,000 documents from the computer database of Virgin Atlantic. These apparently showed that a key pricing decision was made ahead of any conversations with the defendants.

3) Legal process outsourcing
As readers will be well aware, globalisation can be a double-edged sword that creates both problems and solutions. As Legal Week's interview with Neil Withington of British American Tobacco (25 March) demonstrated, offshoring is already at the forefront of thinking when substantial document disclosure exercises are necessary. Legal process outsourcing can give businesses round-the-clock service in different costs bases, resulting in savings and efficiencies – and this need not only be applied to issues of disclosure.

4) Forum shopping
General counsel and their advisers are likely to become increasingly adept at assessing the pros and cons of litigating in different legal jurisdictions. Often, because disputes might involve several parties from across several jurisdictions, claimant and defendant will have an opportunity to choose where to contest matters.

Historically this may have been seen as an academic legal consideration but it has now become a commercial one. Research carried out last year by Lovells entitled At What Cost: A Multijurisdictional Guide to Litigation Costs showed that the costs principles familiar in the UK (where the loser pays the opposing side's legal costs) prevailed in most of the 56 countries surveyed, but the actual level of recovery ranged hugely. Further, in one-third of jurisdictions, costs can only be recovered when proceedings reach an end. Findings such as these are no small consideration in the current economic climate where cashflow management is king.

Further, as the economic power shifts east, established Western centres for dispute resolution will need to work hard to remain competitive as the services themselves become tools in the economic wellbeing of nations. The Singaporean authorities have recently launched, with some fanfare, a facility intended to act as a centre for international arbitration in the region, attracting disputes not just from Singapore's immediate neighbours but also from the Indian subcontinent and the Middle East.

5) The rise of international arbitration
Legal Week recently reported findings that the value of disputes before the Deutsche Institution fuer Schiedsgerichtsbarkeit, the German institution for arbitration, has exceeded the €1bn (£850m) mark for the first time in 2009. This increase is something that we have seen across most of the main centres for international arbitration globally – not least in Miami, which is fast establishing itself as a major centre for the resolution of contentious matters arising in Latin America. There will always be a place for the courts system, but counsel and their professional advisers have an increasing amount of choice in selecting a forum most appropriate to their dispute.

Stephen Immelt and Patrick Sherrington (pictured above) are co-heads of the litigation, arbitration and employment practice at Hogan Lovells.