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.