The overwhelming majority of leading City lawyers believe bank-on-bank litigation is set to increase as the impact of the credit crunch kicks in.
In the latest Legal Week Big Question survey, conducted in association with EJ Legal, 88% of respondents said the market downturn would increase disputes between financial institutions.
The survey, which drew responses from 169 partners, comes as a number of firms, including Herbert Smith and Bingham McCutchen, review their stance on banking litigation in light of the credit crunch.
Significantly, more than half of respondents said major firms will have to change their stance on the issue. Fifty-six percent said law firms will have to soften their stance and assess the merits of each dispute on a case-by-case basis. A further 2% of respondents thought firms would entirely abandon their current policy of not litigating against banks.
Commenting on the predicted rise in cases, Gibson Dunn London dispute resolution head Philip Rocher said: “When times are good there is less litigation. As soon as there is an economic downturn this type of action becomes almost inevitable.”
He added: “It will manifest itself in a number of different ways. The complexity, size and sheer number of transactions all mean banks will be forced to pursue any rights that they think they have.”
Herbert Smith litigation chief Sonya Leydecker commented: “Banking litigation is likely to increase. This will not principally be in terms of claims by banks against banks, which are likely to be resolved at an early stage. An area of growth, however, could see more actions by customers against banks.”
Even if law firms do not formally change their position on the subject, almost three-quarters of respondents (72%) said transactional firms will come under pressure to do so.
Rocher commented: “There will be pressure on firms to change their stance, and more and more firms will be reviewing the situation on a case-by-case basis.”
Ashurst dispute resolution partner Edward Sparrow said: “Where you have a panel engagement it is not a choice that you make. In the case of prospective clients, the balance will usually be with a stream of finance work rather than a one-off piece of litigation. What could happen, though, is that some firms will be more realistic about who they think their clients really are, as opposed to their targets or ambitions.”
Speaking for the 28% of respondents who thought firms would not come under pressure to change their stance, Leydecker argued: “I do not see pressures on firms to change their stance, as any increase in litigation against banks will mean there will be more work for firms on bank panels.”
A majority of respondents (79%) said banks will continue to punish firms that sue them, with just under 21% believing banks will adopt a more flexible approach. The findings also revealed that almost 79% of lawyers thought law firms’ policy of shying away from litigating against banks was not in the public interest.
What the respondents said:
Stand-out quotes:
"For those of us who are very happy to sue banks, the present position is a great opportunity, but in terms of access to justice for potential claimants, it is a disgrace."
"Banks should grow up and law firms should be less scared."
"It is about time the big firms and banks accept that it is ok to sue a bank. The supermarkets are criticised for thier dominance: The banks are not."
"This is a massively overstated issue. The issue is mainly about fluctuating general market values not documentation or specific issues and my experience is that banks accept market risk. I think those firms gearing up for potential litigation will be disappointed... "
On-the-record
"All firms should be entitled to decide whether to act against any party; equally every firm needs to respect a client's right to decide where to direct its business and on what terms. It is not credible that a serious claimant would not be able to obtain adequate and capable representation for a claim against a major bank even if that required him to go outside the larger City practices."
Michael Greville, managing partner, Watson, Farley & Williams
"I have litigated for and against banks. The main clearing banks have a generally good attitude to litigation because their reputations are important to them. Nevertheless, the clearers spread their work amongst law firms which results in conflicts of interest arising frequently and denies the man in the street of his first choice law firm on a surprisingly high number of occasions."
"Until the banks finish pulling up the floorboards to find out just how big their problems are and who might be to blame, the extent of any subsequent warfare is difficult to gauge precisely."
Ed Hood, commercial litigation partner, Berwin Leighton Paisner
"The major firms do a vast amount of work for the banks so therefore why is it somehow seen as wrong for them not to sue their main clients. It would be seen as perfectly reasonanble for other firms to decline to sue their major clients."
Big brother banks
"Most firms shy away from litigation against UK banks, not just the big boys. Nevertheless, banks will remain right at the top of the list of people prepared to sue solicitors!"
"There is too much transactional work and too little litigation to make anyone but the litigation specialists - or transactional no-hopers - take on the Banks."
"It makes no sense for the banks to have to litigate against each other using second tier firms, but they are not about to change their policies."
"Although the credit crunch is producing substantial disputes among banks and funds, those parties will not want to engage in public litigation if they can avoid it. Some cases will certainly be fought out. The biggest law firms who receive very lucrative deal work will still hesitate before suing the large banks. There are a limited number of mid-tier law firms with the experience to handle major banking disputes."
More work for us
"There are plenty of firms who are more than capable of taking on this work. You do not need to use a 'big firm' to do it."
"There are sufficient 'non-major' firms who are perfectly able to mount effective litigation against banks. The major firms are not that good at litigation anyway (with a few honourable exceptions). "
"There are plenty of good specialist firms who can litigate against the banks - it is a good niche market ."
Storm in a teacup
"Banks won't sue each other but will resolve differences by negotiation. "
"Banks themselves may be unwilling to set precedents, so the litigation may only be limited to major players against minor players or where the sums involved are so large the banks in question have no credible alternative to litigation."
"It is a temporary blip and litigation is awfully unpleasant."
"It is, in my view, inappropriate to sue an existing regular client of your firm even in an unrelated matter. For the larger law firms virtually all banks are regular clients in one capacity or another."
Talkback: Big brother banks - or storm in a tea cup? What's your take on bank-on-bank litigation Post your comments here