Preparing For The Rising Litigation Risk
Covid-19, along with Brexit (which seems a long time ago now), have combined to create one of the most challenging economic periods for businesses in the UK. It should come as no surprise that a surge in commercial litigation is expected in the coming months.
It is not just the pandemic period that is unprecedented – business conditions have also been unprecedented. Most businesses are continuing to navigate incredibly difficult trading conditions as they continue to await the lifting of all covid-19 restrictions.
Research predictions
Research from risk management and insurance brokers Gallagher recently revealed that two in three businesses expect litigation claims to increase this year, with businesses in IT and construction at a greater risk of being sued.
The study also revealed 56 per cent have already faced allegations of unlawful behaviour in the last five years; and an overall 40 per cent increase in litigation claims was expected in the coming year (driven by covid-19 related incidents).
Claims are, unsurprisingly, expected to be employment-related, though the Gallagher report suggests 60 per cent of businesses were involved in disputes around outstanding debts, contract breaches and IP infringement.
Separately, a research report published in Spring by EY also predicted a post-pandemic rise in litigation following a YouGov survey in which corporate respondents (including 100-plus FTSE350 companies) were asked about their approach to disputes.
While there was a strong tendency for mediation and other forms of alternative dispute resolution (ADR), almost 60 per cent of the respondents said they expect claims to be higher than pre-pandemic levels in 2021 as economic restrictions lift.
A survey from EY itself, of 100-plus commercial litigation and international arbitration lawyers revealed similar results, with two thirds of respondents also predicting an increase in claims.
Almost half (47 per cent) of corporate respondents said they have raised a claim or anticipate doing so because of the pandemic.
What should firms do?
It is concerning that the EY research suggests companies feel unprepared to deal with an expected rise in litigation. Given that more than half (56 per cent) believed that claims and disputes would have a material financial impact on their business, it is important for all business organisations to be prepared rather than blindsided.
Wise steps may include keeping on top of supply chain and contract risk assessments, understanding the rights and obligations of each party in the event of a breach, facilitating open communication when problems arise and keeping contemporaneous documentation and records.
Covid-19 specific risk assessments should also be regularly reviewed and updated as necessary to reflect the latest guidance and regulations.
Where disputes and claims arise, it is important that businesses consider mediation, ADR and early settlements where possible. Where attempts to diffuse or settle disputes are unsuccessful, specialist legal advice should be taken as early as possible.
If you would like us to cover an issue in the next NGM Tax Law Newsletter, we would be pleased to hear from you