Litigate or let live?
This week, Citywealth takes a deep dive into the complex world of litigation. We speak to litigators across multiple jurisdictions, ranging from trusts to family to commercial specialisms, to uncover the reasons behind the rise in litigation levels.
Uncertainty abound?
By now we’ve all heard the new adage, ‘uncertainty is the new certainty.’ How is this uncertainty – political, financial, etc. – impacting litigation levels? Amidst financial and geopolitical chaos, one may expect clients to avoid any additional uncertainties where possible. Are we still seeing a rise, as has been reported over the last few years, or are clients more willing to settle for certainty?
Providing a general overview on the question, Joshua Rubenstein, Partner and National Chair of Trusts & Estates at Katten Muchin Rosenman in New York said: “Interestingly, both. On the one hand, we are seeing a rise in litigation, as matriarchs and patriarchs are living longer than ever, and their expectant heirs are older than ever when their ships come in – not to mention the uncertainty over what their ships will look like. On the other hand, the courts are hopefully backlogged and fully adjudicated results are less predictable and more potentially aberrational than ever, encouraging litigants to settle.”
Guillame Staal, Partner at Dickinson Gleeson based in Jersey, had similarly balanced take: “Jersey has long been a thriving financial centre which HNW and UHNW individuals use to manage their assets with longer term aims in mind. Uncertainty at any given time should not, of itself, impact litigation levels although it will affect how those individuals deal with their wealth and where they might invest it. As that wealth is transferred to subsequent generations however, dispute do seem to arise with some regularity as between family members dissatisfied with their fiduciaries or the value of their interests or both. Generally speaking well advised clients will remain willing to settle claims to achieve certainty of outcome but it can remain challenging to take all parties to the point where settlement is possible.”
Graham Small, Partner at JMW Solicitors, noted an “uptick” in clients wishing to explore their litigation options and thus increasing activity levels overall. On the uncertainty piece, he expanded: “The uncertainty manifests itself in the difficulty in clients being able to confidently budget for litigation costs and also the uncertainty of whether the opposing party will be able to meet any future judgment. Indeed, even financially stable businesses are being investigated as to whether they will be able to meet any judgment for significant damages. This is compounded by litigation in certain business sectors, so for example, the retail industry is an area where there is always concern over the financial viability of the opponent even if the opponent is, on the face of it, a large business. Also, consideration needs to be taken of the fact that some litigation may take a couple of years to conclude and so a business that looks stable today may not be in two years’ time. For these reasons, most businesses recognise these uncertainties and are willing to discount its claim for an early successful settlement.”
Commercial litigation is also seeing a rise; Partner and Co-Head of Commercial Litigation at Stewarts Lucy Ward explains why: “The unstable macro-economic, political and social climate that we are currently experiencing, bringing inflation, high interest rates and supply chain disruption, continues to put pressure on businesses. As a result, we are seeing an increase in insolvency related litigation, disputes resulting from commercial contracts put under strain and an increase in loan defaults and distressed debt claims. When businesses start to struggle fraud claims also inevitably emerge and whilst settlement might be preferable in theory, fraud disputes can be the hardest to settle.”
Lawyers from Stewarts’ other departments also report a rise in litigation levels. Partner & Head of Insolvency and Asset Recovery Alex Jay cites the record levels of corporate insolvencies over the past couple of years as a driver of disputes arising from “distressed and insolvent situations”. He adds: “[M]ost likely we have not seen many of the biggest disputes which will lag a year or two behind and tend to emerge when the market improves. This is precisely what happened in 2007/8, and the economic headwinds we see today are arguably more fundamental and less transient than those that triggered the credit crunch.” Aaron Le Marquer, Partner & Head of Policyholder Disputes, notes: “Insurance coverage litigation has surged in the past couple of years. That is partly due to a hard insurance market in which capacity is limited and insurers more likely to decline claims, and partly due to systemic market loss events such as the COVID-19 pandemic and the Russia Ukraine conflict, which have each given rise to a wave of test case litigation which is intended to resolve key legal issues affecting the wider policyholder community.”
Stewarts Tax Litigation and Resolution Partner Matt Greene comments on the role the UK government has to play. He said: “There has been sustained activity from HMRC in the field of Research & Development tax credits and this is now feeding through into litigation levels. Perhaps wary of an unmanageable deluge of litigation in this area, HMRC have been trying to resolve as many cases as they can through mediation, with some encouraging results so far. Elsewhere, HMRC’s approach to settlement tends to be ‘all or nothing’ so there hasn’t been any great rush to settle cases by taxpayers or HMRC.”
From a family law perspective, Partner at Expatriate Law Byron James said: “The current climate has undeniably impacted how clients approach litigation. With uncertainty in almost every aspect of life, many are gravitating towards seeking amicable resolution and stability rather than prolonging disputes. This inclination towards certainty makes alternative dispute resolution methods like private negotiation appointments and arbitration more appealing than ever. However, it’s also true that for some, litigation remains the only path they see to achieving a just and satisfactory outcome. This dichotomy presents a complex landscape, where the desire for swift, definitive resolutions competes with the need to fight for one’s rights and interests.”
Interested in learning more about the above? On 14 May, Citywealth will hold its 4th annual Forum which will see the panel: Disputes, litigation and the silver lining – an update on global developments for intermediaries and the UHNW client. The Forum is designed for optimal interaction between panellists and audience members and will see insightful discussion from experienced litigators and industry professionals. Secure your front-row seat to this panel and many more here.
Demand and supply
With the general consensus that litigation levels are on the up, albeit often influenced by external factors rather than an individual’s actions, Citywealth enquired about the particular areas of our professionals’ practices that are seeing the highest levels of litigation.
Guillame Staal said: “Jersey is known for its robust trust law, and disputes relating to trusts, including issues such as trustee duties, beneficiaries’ rights, and trust administration, remain common. As HNW individuals and families use Jersey for wealth management and asset protection, we continue to see both disputes over trusts and estates and applications relating to the administration of valuable trusts including in particular where trustees seek the Court’s approval for a particular course of conduct. The significant values involved create a high level of motivation from beneficiaries for a particular outcome to be achieved which translates into a high degree of risk for their officeholders.”
Joshua Rubenstein highlighted that the industry is seeing more lifetime contests than ever before, citing the potent cocktail of longer-living matriarchs and patriarchs, diminishing levels of capacity, and increasing susceptibility to undue influence as the reason.
Familial conflict has always been the bread and butter of litigation practices, and 2024 is no different. Byron James said in his response: “In my practice, the areas that see the most litigation are typically those involving complex financial disputes and challenging child custody issues, especially with an international twist. High net worth divorces, with their complicated global assets and jurisdictional questions, often require the clarity and finality that only a court can provide. Similarly, international child arrangement and relocation cases are fraught with emotional and legal complexities, demanding nuanced understanding and robust tactical litigation strategies.”
Graham Small also highlighted on interpersonal disputes as a key area, but from a corporate perspective. He said: “One impact of difficult trading conditions is that it often creates tension between the owners of the business. We are seeing more shareholder disputes where the directors no longer share a common purpose, or one director has taken the view that the other director is not carrying their weight. This is not sector driven but tends to be in the family / SME space. We are also seeing more cases that involve wrongdoing / fraud which perhaps again reflects the difficult trading conditions and the fact that some businesses are ‘cutting corners’ or are looking more deeply into their own business and identifying the wrongdoing. This can extend to offices / employees receiving bribes or false accounting to inflate invoices. We’re also seeing considerable litigation following the insolvency of businesses.”
Aaron Le Marquer said: “Four years on from the pandemic, COVID-19 Business interruption litigation continues to be a hotbed of activity, with thousands of businesses still seeking compensation for losses flowing from the UK lockdowns and other government restrictions. In its original test case, the FCA estimated that around 370,000 potential claimants were affected, while the most recent data indicates that only around 43,000 claims have been paid, suggesting that there is a long way still to go.”
New trends
With its connection to the court system, litigation is a prime area to examine for new trends or potential legislative changes. We asked those most in-the-know what topics are gaining traction in the litigation space.
James Pirrie, Director at Family Law in Partnership, drew our attention to the newly updated and republished guide Sorting out Finances on Divorce by The Family Justice Council (FJC). The guide is aimed at assisting litigants in person negotiate a financial agreement on divorce and complements guidance for the judiciary on financial needs on divorce.
Lucy Ward mentioned ESG litigation, saying that “with increased regulation and undeterred shareholder activism it feels inevitable that we will start seeing more ESG disputes reaching the Courts.” She also touched on a topic that is trending everywhere you turn in the financial services industry: “Generative AI with its increasing integration into our lives and the resultant regulation is another area to watch closely. Its breakneck development speed and potential for application in a broad range of sectors, from healthcare to manufacturing, gives it the power to create seismic changes. Following its explosion into the public consciousness in 2023 (a JP Morgan analysis paper notes that 40% of S&P 500 companies mentioned AI in their Q2 2023 earnings calls), might 2024 be the year the apocalyptic fear of malevolent robots taking over comes true? Unlikely, but there must be potential for generative AI to have a dramatic impact on how we operate as lawyers or the litigation issues arising for our clients.”
Guillame Staal returned to the theme of uncertainty in his response. He said: “Whilst the numbers may be insufficient to qualify as a trend, the political uncertainty in the UK together with tax changes has prompted some to rearrange their affairs and indeed their lives to limit or remove exposure to HMRC. Even before the most recent announcements in relation to non-doms, other jurisdictions (not all that far away) have attracted former UK residents through generous tax schemes. Such reorganisations can require Court intervention such as for example where the interests of minors or unborn beneficiaries are engaged but looking a little further ahead it is likely that some will be dissatisfied with the steps which were or were not taken by their fiduciaries or other advisers in response to the ever-changing political landscape. Such dissatisfaction could result in litigation.”
Julian Chamberlayne, Risk and Funding Partner at Stewarts provided an update on the future of litigation funding: “The hot topic in funding at the moment is the Ministry of Justice’s (MOJ) decision to legislate in order to restore the enforceability of litigation funding agreements (LFAs). Last summer, the Supreme Court decision in the case of PACCAR caused significant disruption and controversy in the litigation funding world. The fact that the government has moved so quickly on this shows the importance to the UK legal sector, which the MOJ estimates contributes over £34 billion to the UK economy, several billion of which is thought to relate to litigation funding. The Litigation Funding Agreements (Enforceability) Bill restores certainty to the market by clarifying that LFAs are not Damages Based Agreements (DBA), and hence not subject to the DBA Regulations. The Bill expressly covers existing LFAs by stating that these amendments are to be treated as always having had effect. That will also likely bring to an abrupt end some of the opportunistic challenges to existing LFAs that funders have faced post-PACCAR. At the time of writing, it is awaiting its second reading in the House of Lords. Looking a little further down the road the MOJ have also asked the CJC to consult on whether the time has come for some form of regulation of the Litigation Funding industry.”
Graham Small said: “Clients are looking for impactful litigation whereby they wish to strike an immediate heavy blow on their opponent resulting in an early commercial settlement. Clients are seeking a wider commercial approach to their litigation claims. For example, we have seen an increase in clients wishing to explore private prosecutions, injunctions or bringing in third parties into the litigation to create commercial pressure for a settlement.”
Final words
From the above, we can at least come to the firm conclusion that even the decision of whether or not to litigate is a complex one, let alone the resulting process. As a result, we concluded by asking the experts what their top-line advice would be for those choosing the litigation option in the current climate.
Joshua Rubenstein, Katten: “My advice would be to litigate long enough so that each side can learn the respective strengths and weakness of the other, then craft a win-win settlement that appropriately reflects those strengths and weakness, and in particular what little might be left at the end of the day after a fully litigated victory (assuming you had one) after all appeals and all resulting taxes and costs.”
Alex Lerner, Stewarts: “Of course businesses will be worried about incurring legal fees in this uncertain economic environment, but against that there are a range of increasingly sophisticated options for paying and managing legal fees. Sitting on potential claims might ultimately intensify balance sheet uncertainty. In fact, it could even lead to missed opportunities to realise value, and no director or in-house counsel will want that. Speak to your advisors sooner rather than later and explore your options.”
Byron James, Expatriate Law: “If you’re contemplating litigation in these uncertain times, my advice is to weigh your options carefully. Consider the emotional and financial toll against your desired outcomes. Communication with your legal team is paramount—ensure they fully understand your priorities and that you’re informed about the potential pathways and their outcomes. Don’t overlook alternative dispute resolution as a viable and often preferable option. Above all, keep sight of the long-term wellbeing of yourself and your loved ones. The decisions made in the heat of litigation can have lasting effects, and it’s crucial to approach these with a clear head and a focus on the future.”
Guillame Staal, Dickinson Gleeson: “Obtain comprehensive legal advice at the earliest opportunity to understand the merits of the prospective claim, its value, potential funding and insurance options, its likely costs and the risk of adverse costs. This should allow clients to start thinking very early about what they would be satisfied with as an outcome, beyond the headline claim figure, which in turn provides a solid basis to understand the cost benefit of pursuing litigation whilst ensuring that informed settlement discussions can be commenced at the earliest opportunity.”
Graham Small, JMW Solicitors:
- Have a strategy that meets your financial budget;
- Invest heavily in the initial assessment of the merits of your case so you can make better decisions on how to pursue your claim;
- Think deeply about your opponent and gameplay how they will react to the proposed course of proceedings;
- Develop a strategy that gives your best prospects of a good early commercial settlement;
- Ensure the litigation does not adversely affect or derail your own business;
- Consider non-litigation means, particularly when dealing with bigger businesses such as the impact of reputation management and PR.
Thank you to all of the experts who contributed to this article.
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