Editorial

Author: | Published: 1 Apr 2009
Email a friend

Please enter a maximum of 5 recipients. Use ; to separate more than one email address.

Just as there has been a delay in the flood of insolvencies and restructurings that must come this year, so there has been some delay in the expected deluge of litigation.

Insolvencies have been largely put back by nervous banks. If a borrower has any chance of keeping up with interest payments, the terms of the loan can be negotiated. There's no point pushing a company into bankruptcy, and being forced into a fire sale of the company's assets, when the asset prices in the market as so extraordinarily low. But litigation started a little earlier and is accelerating now. When insolvencies kick in, it will only get worse.

Or better, for litigation lawyers at least. As the author comments in the Romanian chapter of this guide: "Although the legal profession will be not be spared the financial troubles of the world economy, some practice areas, such as litigation, are likely to benefit. As far as litigators are concerned, this may help bring back at least partially the glory they lost in the past decade to business lawyers."

Another parallel with the world economy is that a decent chunk of the coming litigation will have the same source as the financial crisis's biggest trigger: structured finance. The best example of this was the jurisdiction fight between UBS and HSH Nordbank last year. In that case the lack of clarity over jurisdiction for disputes in a CDO contract led to claim and counter-claim in New York and London. The banks were desperate to find the most favourable court for what will be a precedent-setting case in this kind of litigation.

UBS lost that fight in October, with HSH succeeding in having its claim addressed in New York. But there are also similar trends to be seen here for English courts, with the tendency being to reject appeals for jurisdiction. On January 28 the Court of Appeal strengthened the enforcement actions of the United States Securities and Exchange Commission (SEC) in the UK. It approved the High Court's decision to grant the SEC an order freezing the UK assets of a UK citizen.

The verdict sees the SEC move, hand-in-hand with the UK authorities, further down the road of international cooperation in regulating financial activity. It will encourage further injunction applications by the SEC over UK assets, particularly for regulation with an international flavour, such as violations of the US Foreign Corrupt Practices Act and regulation of international investment schemes.