|
Features
|
 The relationship between falling profits and rising litigation is widely accepted, though not necessarily believed to be causal. The facts, however, are stark: figures released in January show that the number of US securities class actions filed in 2007, as compared to 2006, jumped 43%, ending several successive years of decline. The principal cause of the surge in filings was, of course, the credit crunch which hit not only those involved in subprime lending, but had a wider choking affect on the market in general.
One-off catastrophes that fuel a litigation binge can occur at any point in the economic cycle. Enron, for example, struck while the markets were strong and rising. Other factors are also at work which a downturn merely exacerbates. Businesses everywhere, it seems, dance subconsciously to the same rhythm. ‘When the markets are up businesses are just concerned about doing the next deal,’ says Patrick Sherrington, Lovells’ global head of dispute resolution. ‘They sometimes put together bad deals and often don’t document properly,’ he says.
Bad deals will always unwind, and where documentation is poor, disputes will follow. Murmurs of discontent, according to Sherrington, are already audible: ‘We’re already seeing more issues being raised,’ he says.
Mediators, however, are cautious about predicting an upsurge in work. Former SJ Berwin consultant David Shapiro is noncommittal: ‘Some people say – and it’s not true necessarily – that more litigation will lead to more cases mediated. I don’t believe that’s necessarily so,’ he says, ‘there could be, but there’s no physical or empirical evidence to support that view. It’s just a hunch; it’s more logical than the alternatives, but that doesn’t make it so.’
For more disputes not to drive more mediation, the approach of parties and their advisers would have to veer away from current patterns. Mediator David Cornes finds this an unlikely proposition: ‘If it’s a professional indemnity case concerning an architect or an accountant, for example, I suspect the ups and downs of the economy make little difference,’ he says. ‘The insurers and their advisers will adopt the same position they always adopt.’
Not all industries are as well funded as insurers, companies with bad balance sheets might be motivated to pursue claims more fiercely than those in a more comfortable position. The idea that these companies might be more inclined to pursue matters before the courts seeking a 100% victory, must be mitigated against the appetite of such companies for taking risks. Sherrington believes that some companies will always fight shy of the courts, not least because they are reluctant to commit the necessary funds to get there: ‘I think it depends on … their appetite for risk,’ he says. ‘One of the biggest incentives to mediate is the saving of costs, and at times when money is short, they’ll be looking for shortcuts.’
Whether mediation receives the anticipated bump in the coming months will to a large extent depend on whether bi-lateral negotiations can make the desired headway. Mediation might find that it is a victim of its own success: mediator Beverly Ann Rogers has observed that, ‘Experience of mediation may have informed and improved bilateral negotiations to make them more effective in achieving resolution.’
One factor which favours the introduction of a third-party, as opposed to settling matters bilaterally, is the idea that disputes will be harder fought in a downturn for some of the reasons outlined above. ‘Additional pressure might force parties to push harder to get more money,’ says David Cornes. ‘I don’t think it’ll affect the use of mediation, but it may make it harder to get settlements.’
How, even if, these theories will translate into a flow of work for mediators is anyone’s guess. Mediation has a madness all of its own. Stephen Ruttle QC has noted a significant upsurge in shipping claims over recent months following a prolonged period of colossal growth in the industry. Why now? ‘I honestly don’t know,’ he says. One possible factor influencing sudden surges in work is that ‘there are too many mediations being done by too few mediators’ according to Ruttle. ‘There is a bottleneck’ he says, ‘and I think it’s unfortunate.’
Until and unless these issues are addressed, mediation will continue to defy every certainty. ‘Traditionally, August is always very poor,’ says Cornes. ‘Then last year had my busiest month in August. It’s plain unpredictable,’ he concludes.
|
|
|
|
Must-reads 
