There will be blood

Regulatory matters have long dominated the agenda for businesses, a trend that is not expected to abate any time soon given the impact of an uncertain economic climate.

The number of UK businesses facing regulatory investigations continues to rise, according to the latest report from global law firm Fulbright & Jaworski, which shows that one third of companies in the UK faced a regulatory proceeding in the last year, up from just nine per cent in 2009. Globally, that figure sits at 40%.

Dealing with these matters is increasingly disruptive to businesses; one quarter of UK respondents reported an increase in regulatory inquiries or investigations against their company. As a result, businesses are continuing to turn to outside counsel for assistance in handling government and regulatory investigations.

In 2011, almost half reported that they had retained outside counsel in connection with regulatory proceedings, another increase on the year before.

Businesses have also been required to follow up internal investigations by reporting issues to regulators, with one in five UK companies and a quarter of US respondents going on to report the matter to a regulatory agency. One quarter of the largest companies, with gross revenues in excess of US$1bn, reported issues arising out of internal investigations to a regulator.

Whistleblowing allegations have continued to have a significant impact on businesses. One fifth of UK respondents have been subject to such claims in the last three years. The consequences of these allegations are serious; 40% of UK respondents stated that whistleblower allegations led to an internal investigation, 20% reported a regulatory investigation and 33% reported that third party proceedings followed. Over half of all respondents were subject to third party proceedings as a result of whistleblower allegations – up somewhat on the previous year.

Nearly three quarters of all respondents to this survey were sued in the last year, with 23% reporting that they had been on the receiving end of a claim valued in excess of US$20m. Almost half of UK respondents brought claims over the last year, compared to 36% in 2010, and one in five of those claims were valued at more than US$20m.

Enhanced regulation is expected to have a significant impact on businesses over the next year. More than one quarter of all respondents expect their legal disputes to increase as a result of heightened regulatory scrutiny and enforcement – a sharp rise since 2010 when seven per cent of UK respondents raised concerns about stricter regulation leading to legal disputes.

While identifying the most numerous types of litigation matters that were pending against their companies in the last year, half of UK respondents mentioned disputes arising out of contractual arrangements, a marked rise from 32% in 2010. More than one in five identified employment cases, continuing a steady rise since 2009 and a similar proportion cited product liability matters.

The exposure of UK respondents to collective action litigation in the UK continues to rise. This year, 13% of UK respondents reported having to deal with class actions in the UK in the last year. Interestingly, no US respondents reported having experienced class action litigation in the UK.

The cost of litigation

The overall litigation spend of businesses is increasing with around a half of all respondents recording an annual litigation spend (excluding the cost of settlement and judgments) in excess of US$1m. Last year, 38% of UK respondents had spent more than US$1m on litigation, down from 50% in 2009.

The median litigation spend of UK respondents was US$880,000 up from US$500,000 in 2010 but below 2009 (US$1m) and 2008 (US$980,000). The median litigation spend of US respondents was higher: US$1.4m, compared to US$1m in 2010, US$1.6m in 2009 and US$900,000 in 2009. Almost one in five in the energy and insurance sectors recorded an annual litigation spend in excess of US$10m.

Emerging risks

Over a quarter of UK companies have been required to produce electronically stored information from a social media site for e-disclosure purposes during the past 12 months. Similarly, 36% of UK respondents have had to preserve and collect data from an employee mobile device, such as a BlackBerry or other smartphone, for litigation or as part of an investigation. Businesses may also face further issues in connection with new forms of data storage including cloud computing.

The Litigation Trends Survey was published by Fulbright & Jaworski International LLP

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