Lloyd's and RAND have just released a report titled 'Litigation and business - transatlantic trends'.
Faced with a raft of emerging liability risks and the threat of claims from a widening group of stakeholders, boards everywhere view litigation as a growing challenge. Meanwhile, the nature of litigation itself is changing.
To help business leaders understand the changing environment and how it could impact them, Lloyd’s 360 risk project has teamed up with RAND Institute of Civil Justice (ICJ) and RAND Europe and in a new report they examine three fast moving trends which are becoming influential on both sides of the Atlantic: third party funding, class actions and forum shopping.
Third party litigation funding, where a third party covers litigation costs in return for a fraction of the damages recovered, has attracted controversy but now looks set to increase in popularity in both Europe and the US. By reducing the costs of making a claim, it increases the risk of a firm becoming involved in litigation, but it also means smaller firms have greater access to legal services. In the current financial climate, RAND argues that it may also become an attractive option for organisations seeking investment opportunities because the prospects of winning a case depend on its merit, and are not tied to economic and financial market conditions.
Class actions, where an action is taken to court on behalf of a wider group of people or businesses, are common in the US but could soon be coming to Europe too. The US has seen a substantial growth rate in class actions (a 23.5% increase between 1992 and 2002), although this rate now seems to be slowing. However, in spite of organisations like the European Civil Justice Forum lobbying against them, leading US class action firms are establishing a presence in the UK, and 59% of UK litigators now believe class actions will take root in the UK within three years.
Forum shopping is the practice whereby claimants make strategic decisions about where to pursue their claim. Some states in the US have long been perceived to be more likely to award bigger payouts, so a claimant may prefer to have a case heard in those states. While EU legislation in Europe goes some way towards limiting the opportunity for forum shopping, it does not eliminate it and RAND suggests that some EU states could soon become ‘hot spots’ because different European jurisdictions use different rules when defining what they are prepared to accept as evidence, take different approaches to the preservation of that evidence and how it can be obtained, or adopt different systems of enforcing judgements and allocating costs.
Financial market turmoil and the spectre of recession will doubtless bring with it new liability challenges for boards. As they confront these, business leaders should keep themselves informed of developments in the legal environment, and use the information to enhance their risk management plans. By being flexible enough to respond to changing patterns of litigation, RAND contends, boards on both sides of the Atlantic will be better prepared to manage tomorrow’s liability risk.