As an in-house counsel navigating disputes, managing litigation risk and having to communicate those to the board, it’s critical to understand the key trends shaping the legal landscape. It is intended that this insight will allow for GCs to prepare for emerging challenges, leverage new technologies, and adopt strategies that lead to the best outcomes for their business. Based on our experience advising clients across sectors, data Shoosmiths has gathered from surveying GCs (which will be released fully in a forthcoming report), and analysis of insights from intuitive litigation analytics platform, Solomonic, it is clear that not all perception is rooted in reality when it comes to trends, and we must be led by the data. With all this considered, here are the major litigation themes general counsel need to be aware of:
Lower claim volumes, but larger disputes
According to Shoosmiths research of more than 360 GCs and in-house counsel, in the next one-three years most are making provisions for extra spending and resource internally and externally in anticipation of more claims. However, data tells us that the volume of High Court claims has actually decreased over the last year.
However, it appears for many, the average claim value has grown, indicating fewer but higher-value disputes. For GCs, this signals the need to maintain vigilance around significant one-off cases and making adequate provision in preparation, while keeping an eye on broader portfolio risk. As ever, early resolution may be prudent for smaller claims to avoid disproportionate legal spend.
Surges in specific sectors
We will explore this in more detail in the sectors section – but as an overview, while most industries saw dips, some sectors like insurance and aviation noticed a dramatic uptick in litigation this year – 114% and 127% in January to September 2023 respectively compared to the same period previously. This traces back to pandemic impacts, geopolitical turmoil, and other external shocks hitting firms. GCs in sectors more vulnerable to the impacts of geopolitical factors, should stress-test dispute resolution budgets and systems for increased caseloads as a matter of course.
Evolving court preferences
In-house counsel and the law firms supporting them, should closely track where claims related to their business and respective sector are arising, and ensure to allocate resources accordingly. According to Shoosmiths’ survey data, England and Wales is the jurisdiction of choice for most sectors apart from financial services where most claims were settled in courts in Europe but outside the EU.
Close collaboration with law firms
To control costs and risks amid uncertain conditions, it is crucial for legal departments and law firms to work very closely together. Strategic collaboration, open communication, and convergence on platforms facilitating real-time case insights are essential. With better integration, GCs can guide litigation in line with overarching business goals. Research Shoosmiths has undertaken suggests that in the next one-three years, the financial services sector in particular, intends to invest more resource both in-house and externally.
Focus on contract risk mitigation
As breach of contract remains the dominant claim category, assessing contractual vulnerabilities before disputes emerge is paramount, particularly in this geopolitical climate. Does your business have robust force majeure clauses? Have provisions been made for common risks, like supply chain disruption? Clarifying contract obligations and remedies reduces litigation down the line. In comparison to some Shoosmiths findings in a soon-to-be released report, major areas of concern arise specifically around employment, supply chain logistics and environmental-related disputes, with slight sector variation. Shoosmiths findings also suggest that in-house teams could increase litigation preparedness training.
Sustainability scrutiny expands
We predict that claims related to environmental, social and governance could rise. As stakeholders demand sustainability, inadequate action exposes companies to legal liability, reputational damage and investor action. GCs should partner with boards to address ESG obligations and meet disclosure requirements. Our thoughts particularly ring true with GCs and in-house lawyers we have surveyed in the automotive sector, who anticipate ‘environmental’ disputes as an area of risk that is of the highest concern among boards in that sector.
Cyber risk as a major concern
While threats of data breaches, privacy violations and hacks continue escalating – interestingly there have been a reduction in cyber-related lawsuits. Developing robust cybersecurity governance and comprehensive incident response plans still remains crucial. However, GCs must also ensure D&O insurance and other policies cover emerging digital risks. Yet, according to Shoosmiths’ research, GCs and in-house lawyers across the majority of sectors do not perceive that tech-related threats should be as high as others on the board agenda. However, this is not a view shared by lawyers in the tech sector, who believe boards should place tech-related disputes firmly in their top three litigation risks.
Data and legal tech take centre stage
Aside from trends in litigation, there are trends we should recognise in how dispute resolution and litigation is managed by in-house teams and by firms. With cases becoming more complex and document-heavy, sophisticated legal tech for e-discovery and analytics is now vital – AI contract review, risk analysis, dispute prediction, e-billing, document automation and other innovations are transforming legal departments’ capabilities. Investing in these tools – and the lawyers who utilise them effectively with know-how – can yield dramatic efficiency gains, strategic advantage, and cost savings.
GCs able to harness legal technology gain strategic advantage and minimise costs, through firms and as departments. This is a quickly evolving area and with the right technologies harnessed quickly, firms and departments can streamline reporting to boards, assess likely outcomes and gain other new data which could be key to securing advantageous outcomes.
Shoosmiths has been using AI to support cases for some years and has partnered with Solomonic to use its data to support how cases are approached and managed.
GCs must navigate lower volumes but higher-value disputes, sector surges, jurisdiction shifts, tech disruption and risk management. Awareness of these particular litigation trends allows general counsel to enhance legal function strategy, operations and budgeting. With insight and preparation, GCs can adeptly guide their companies through turbulent times.
Now we’ll move on to sector specific trends.
Financial services
As per Solomonic data, financial services is the sector with the highest number of disputes, though it appears numbers of claims are slightly down on last year for the year to date. Most cases relate to mis-selling claims against banks and insurers.
Regulatory actions remain elevated as the FCA continues its assertive approach to consumer protection, and following the introduction of the Consumer Duty, there is likely to be an increase in regulatory activity in this area for breaches to take place and therefore more claims to take hold.
Given that the financial services sector is very susceptible to global and national economic factors, the cost of living crisis may mean that banks will see an uptick in cases. Financial institutions should ensure dispute resolution budgets account for increasing caseloads.
According to Shoosmiths’ research, GCs and in-house lawyers in the financial services sector are more likely than those in other sectors to have improved/developed their document retention policies, which can help to mitigate claims.
Technology
While tech (TMT) disputes dipped by 48% this year, the sector remains prone to IP infringement claims and contractual conflicts given its complex ecosystems.
As digital services gain dominance across the economy, big-ticket technology disputes will persist. Maintaining access to specialised legal counsel is critical given the highly technical nature of these cases.
Shoosmiths’ research suggests that boards don’t see tech as one of the major litigation risks, whereas more GC respondents in the tech sector believe the risk of tech disputes will increase than any other area.
Real estate
The property sector reflects the macro-economic climate – it continues to grapple with significant commercial lease restructurings and development disputes as those markets in particular face challenges. It is likely that we will see more consolidation in the retail sector and this may lead to more and harder fought claims. We also often see significant conflicts over development agreements originally negotiated in different economic times which then ultimately end up in court.
In terms of claim volume, construction and infrastructure, in particular, come second only to financial services.
With substantive sums at stake, real estate players must proactively manage counterparty relationships to seek to avoid escalations.
Automotive
The claims data for the automotive sector has changed somewhat in the last few years. Group claims issued for the automotive sector have reduced in the last year after a spike.
According to Shoosmiths’ data, GCs and in-house lawyers in the automotive sector think they are more likely to see claims increase in the next three years in areas of supply chain logistics, environmental and cross-border disputes.
Insurance and aviation
Insurance disputes jumped 114% this year according to Solomonic data, driven primarily by multiple proceedings commenced by aircraft lessors seeking coverage for the alleged loss of aircraft under the war risks or all risks sections of (re)insurance policies following the Russian invasion of Ukraine. The amounts claimed are very substantial with many London market insurers and Lloyd’s syndicates defending the proceedings.
Lingering pandemic impacts and covid-related business interruption claims have also affected the level of activity with respect to insurance disputes.
Planning for all eventualities
Shoosmiths asked what measures respondents intend to adopt in order to mitigate areas of risk, and the most common answer was ‘set aside time and resources for litigation analysis’, followed by ‘investing in litigation risk analysis technology’. The automotive sector is an outlier, in that it is more likely to adopt horizon scanning, and less likely to study trend analysis.
Ways in which in-house teams can mitigate against the risk of claims include: implementing document retention policies, making provision for compliance experts, providing internal training on specific litigation risks, conducting a litigation/compliance preparedness review, carrying out a contract review and reviewing the risks of using specific communications tools, such as WhatsApp. Law firms can assist with these frameworks.
Summary
To summarise, it is important GCs have crucial insights into litigation trends they are able to share with boards as the rationale behind mitigation strategies, so boards can effectively govern through uncertainty. Briefing directors on key developments, risks and mitigation strategies allows alignment between legal and business leaders. Proactive planning for disputes enables resilience whatever challenges arise on the horizon. What the research tells us also, is that GCs perception of trends can be different to the reality, evidenced by data on cases. Perceptions can vary significantly depending upon which sector in-house departments operate in. As such it is important for discussions with the board to be led by the data and to plan accordingly.