A new study published by law firm Eversheds finds that while companies work hard to avoid litigation and arbitration, general counsel are seeing the majority of cases go all the way to court rather than being resolved by alternative methods. In this article, Stuart Dutson, Head of International Arbitration at Eversheds, examines how commercial disputes are won and why most roads lead to court.

Conflict is on the rise for large corporates according to the Eversheds’ study Companies in Conflict: How Commercial Disputes are Won. On average, businesses with a turnover of more than £1bn* typically engaged in between two and five large disputes during that period, with 16 per cent involved in more than 10.

Despite a time of comparative financial recovery, many large organisations are still feeling the effects of the 2008 crisis. The recession – particularly for financial services –left a legacy of complex and disruptive regulatory reform and continued volatility. Military unrest, a shift in global powerbase and a historic spike in natural catastrophes are all factors which may sustain the high level of disputes between companies.

Risk-averse approach

In light of this uncertain environment, today’s general counsel appear to be adopting a risk-averse approach and focusing efforts on resolving the issue as quickly as possible. The majority of respondents to the study highlighted the costs of running a dispute and the financial risk of losing at trial as the main deterrent for pursuing what appears to be a strong case.

So, with general counsel working hard to stay out of court it is perhaps surprising that over one third (37%) of all large cases are still being resolved through litigation and 18 per cent through arbitration. What is more, in the majority of cases (90%) businesses are able to predict the outcome of a case in its early stages. So, why do they go all the way if they know the outcome before they even get there? After all, if both sides sense they know what is coming, and both sides state that adjudicative methods are best avoided, why can’t they resolve their issues rather than resorting to litigation?

In order to understand why this apparent paradox occurs we need to understand why companies pursue disputes. The study shows the main reason companies engage in commercial disputes are to recover financial loss. However a significant number of interviewees view protection of the company’s reputation is even more important. One of the general counsel involved in the study commented: “Our name and reputation mean a lot to us...we will fight to maintain our brand name and reputation, no matter what.” 

A day in court

With such business-critical issues at stake, it is perhaps not surprising that so many businesses still go for their day in court.  However, if reputation is fuelling such a significant proportion of disputes, would we not expect to see more businesses embracing alternative dispute resolution ADR as a means of conflict resolution?

Finding an alternative method to resolve in civil cases is actively encouraged – not just by law firms – but by law makers also. In England and Wales, for example, the Civil Procedure Rules (CPR) have, since their inception, required the courts to deal with cases ‘justly’ and this includes encouraging parties to cooperate and to use an alternative dispute resolution procedure if the court considers it appropriate and at proportionate cost.

In ADR, it is usual for parties to agree that confidentiality should be maintained throughout the process. The apparent failure of ADR is perhaps explained by one of its perceived shortcomings. Many would argue that ADR can only succeed with the menace of court looming.

Furthermore, regardless of the many benefits of ADR, it does not necessarily make for better value than litigation. In particular, if the attempts at ADR fail and a court case is still required, the length of the process will have been added to and the total cost increased.

While a contractual obligation would certainly engage businesses more seriously in ADR, some might be swayed by one of the most interesting findings in the study. When cases do end up going to court, the study found that businesses need an ‘A’ team of professionals to secure the right outcome, but while this includes representing counsel it also extends to the judge and the quality of the expert witnesses. Businesses are well advised to consider this in the early stages of formulating their strategic response to a dispute before relinquishing control and heading straight to court. 

With sizeable commercial conflicts on the increase, it is important that businesses have a good strategic overview of a dispute from the beginning. This enables them to make sound commercial decisions about how to secure the best result. It would appear that a significant proportion of commercial disputes will certainly end up in litigation or arbitration – no matter how hard general counsel tries to avoid these processes. What is important is you must plan the journey before hitting the road.