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For the past three years, our law firm, Fulbright & Jaworski LLP, has conducted its Litigation Trends Survey, based on responses from senior-level in-house lawyers at companies in a variety of industries and at various revenue levels. In the first year, we surveyed only United States companies. Last year, we expanded our survey to encompass companies in the United Kingdom as well. This year's edition of the Litigation Trends Survey ' in recognition of the increasing globalization of the world economy and our own firm's rapid international expansion ' drew on responses from companies around the world. The survey results generally confirmed what prompted us to expand the scope of the Survey to begin with ' that companies are increasingly operating more globally and therefore face greater and more frequent challenges in protecting their interests in areas far from home.
The Survey
Our survey results this year showed that companies face increasing numbers of business disputes in jurisdictions on an international scale. Although U.S. companies report far fewer instances than their international counterparts of litigation arising out of events occurring abroad, more than a third of U.S. companies in the Survey have up to 20% of the matters on their litigation dockets pending in venues outside the United States. Over half of U.S. companies with revenues over a billion dollars reached that 20% threshold. U.S. respondents have told us that they face the largest number of lawsuits in North Asia (Japan and Korea), followed by South Asia, Western Europe, Eastern Europe, the UK and Canada. Those companies predict that East Asia (China, Hong Kong, Taiwan and Macau) will be the foreign locale likely to generate the largest increases in litigation over the next three years. This anticipated increase likely is a reflection of that region's rapid economic growth and reputed laxity in certain areas of legal compliance (i.e., in the areas of intellectual property and financial services).
All companies surveyed ' U.S and non-U.S. ' were asked to estimate the number of litigations (excluding arbitrations) that they face in various areas of the world. Respondents named South America as the jurisdiction in which they had the most cases pending, at an average of 456 cases per respondent. This number was driven, in large part, by the international group of companies we surveyed, which reported that 90% of their litigations are pending in South America, for an average of 1597 cases. This surprising statistic may be due, at least in part, to that region's reputation as a highly active jurisdiction for labor and employment matters. Companies of $1 billion or more in revenue average the most cases in South America (529), followed by the United States (389).
International Litigation Statistics
The Survey collected international litigation statistics on an industry-by-industry basis. It found that 40% of energy companies face significant matters in South America and 20% in Canada. Insurance respondents find themselves usually in the UK (43%), followed by Canada (21%). Technol-ogy/communications companies listed Western Europe (48%) and the UK (40%) as the foreign jurisdictions in which they find themselves most often.
The Survey seemed to reinforce the idea that litigating in foreign jurisdictions gives rise to concern over issues often different from those that exist when litigating in one's home court. The greatest concerns to our foreign respondents about bringing or defending an action in the United States were: legal costs (51%); punitive damages (32%); lack of familiarity with the legal system (25%); juries (18%); and liberal discovery rules (17%). The top worries of U.S. companies when bringing or defending legal disputes abroad are: lack of familiarity with the legal system (58%); bias against U.S. companies (35%); lack of relationship with foreign counsel (21%); language or cultural differences (15%); and legal costs (15%).
Perhaps in light of the concerns listed above, companies are turning to arbitration to resolve international disputes to an increasing extent. Survey respondents in the U.S. identified the types of cross-border disputes that they believed were best suited for international arbitration, including contract disputes (56%), insurance disputes (33%), intellectual property (24%), antitrust (20%), labor and employment (16%) and banking (14%).
Traditional thinking was that arbitration would lead to both cost savings and a quicker result. Survey responses this year, however, showed that such thinking may be changing. At least half of respondents in the U.S. and the UK report their belief that international arbitration and litigation cost about the same. More than a third of international respondents agree. A significant percentage (21%) of all three groups actually believe arbitration is more costly. And while 43% of all respondents believe that the time to resolution in international arbitrations is less than that for litigation, the same number think it is about the same. Notwithstanding these views, respondents' use of ar-bitration continues to grow. The reason for this may well be that using arbitration is an effective way to counter the unpredictability of litigating in foreign jurisdictions and impose some measure of control over how international disputes will be handled.
Sophisticated companies doing business and/or investing in foreign countries may propose including arbitration agreements in their contracts, which provisions often set forth terms such as the arbitral forum, governing procedural rules and substantive law, the location of and language to be used in the arbitration. They also may address issues such as the number of arbitrators, their qualifications and nationalities and the manner in which they will be appointed. There are a number of benefits to including arbitration provisions in international contracts, the most important of which is to ensure that disputes will be resolved in a neutral forum without having to take the risk of litigation in foreign courts that are perceived to be hostile to outside interests.
We questioned respondents about compliance with and enforceability of international arbitration awards to determine the extent to which concerns over those issues might influence the use of international arbitration. A 75% majority felt that the enforceability of an arbitral award was at least comparable to that of a court decision. Respondents chose the United States (61%) and the United Kingdom (52%) as the countries where arbitration awards are most easily enforced. Forty-seven percent of respondents worried less about enforcement of arbitration awards, believing that the losing party in international arbitrations frequently complies with an award voluntarily. Of the 47% total, 63% of energy companies, 75% of engineering/construction companies and 50% of manufacturing companies hold that belief.
Arbital Forums
We also questioned respondents about their preferences as to arbitral forums. Among arbitration institutions, a significant majority of U.S. companies surveyed preferred the American Arbitration Association's International Center for Dispute Resolution ('AAA/ICDR') (60%). This is likely because the AAA is based in the United States, and U.S. companies have long been familiar with the AAA and therefore feel more comfortable in that forum. The second choice among U.S. companies surveyed was the International Chamber of Commerce ('ICC'), based in Paris, followed by the London Court of Arbitration ('LCIA'), based in London. U.S. Companies were significantly less enamored of other major international forums or rules. Less than 20% of U.S. respondents preferred arbitration under the rules of the CPR Institute for Dispute Resolution ('CPR'), the World Intellectual Property Organi-zation ('WIPO'), the United Nations Commission on International Trade Law ('UNCITRAL') or the Internation-al Center for the Settlement of Investment Disputes ('ICSID').
Not surprisingly, UK respondents overwhelmingly expressed a preference to arbitrate before the LCIA (91%). This reflected almost a 70% increase over our 2005 Survey. The ICC lost favor among United Kingdom respondents, going from 67% in the 2005 survey to 27% this year. The international group of companies surveyed, however, expressed the ICC as their preferred arbitration forum.
Rankings of the four most preferred arbitral institutions remained consistent with our 2005 Survey, although the preferences were spread more evenly among the four. The AAA/ICDR received virtually the same rating as last year's Survey. The ICC, LCIA and CPR all saw significant increases in their approval ratings. The next three arbitration forums/rules ' WIPO, UNCITRAL, and ICSID ' also saw increases in their approval ratings this year, for a variety of reasons. The ICSID boost likely reflects the increasing number of investors in foreign countries, especially in Asia, and increasing protection for foreign investors under bilateral investment treaties. It may also be attributable to certain economic and political developments in Latin America that have affected foreign investors. The increase in ad hoc UNCITRAL arbitrations may be due to parties seeking to avoid the cost of institutional arbitration. The WIPO increase may be explainable by its increasing ability to convince more intellectual property owners to refer disputes to arbitration, especially in light of WIPO's stream-lined procedures in domain name cases and its accreditation by the Internet Corporation for Assigned Names and Numbers.
Preferences among respondents for certain arbitration institutions also diverged widely by industry. Nearly two-thirds of respondents in the energy industry named the LCIA as their preferred arbitration institution. Seventy-two percent of manufacturing companies and 67% of insurance companies favored the AAA/ICDR. Three-quarters of respondents in the engineering/construction industry and 56% of technology/communications companies name the ICC as the best institution for international arbitration.
Our survey also queried respondents about the factors that influence them in their choice of outside counsel to handle international arbitration matters. The most important factors named were: international arbitration experience (77%); subject matter expertise (63%), knowledge of the relevant industry (43%), knowledge of the particular case (29%), and foreign language capability (23%). This clearly reflects our respondents' views that it is as important to have counsel who know their way around the various international arbitration institutions in international disputes as it is to have counsel who know their way around their local courthouse in domestic ones.
Conclusion
As the global business world becomes smaller and more business is done internationally, the potential for disputes will inevitably increase. It is and will become even more important for companies to be mindful of the risks of international proceedings and to take those risks into account as part of their international business plans and overall strategy.
Judith A. Archer is a partner in the New York office of Fulbright & Jaworski L.L.P., specializing in complex commercial litigation and arbitration in a variety of substantive areas. Prior to joining Fulbright, Archer spent six years in AT&T's Department of Law and Government Affairs, where her practice had a similar focus, with an emphasis on telecommunications and regulatory matters. She may be reached at [email protected].
For the past three years, our law firm,
The Survey
Our survey results this year showed that companies face increasing numbers of business disputes in jurisdictions on an international scale. Although U.S. companies report far fewer instances than their international counterparts of litigation arising out of events occurring abroad, more than a third of U.S. companies in the Survey have up to 20% of the matters on their litigation dockets pending in venues outside the United States. Over half of U.S. companies with revenues over a billion dollars reached that 20% threshold. U.S. respondents have told us that they face the largest number of lawsuits in North Asia (Japan and Korea), followed by South Asia, Western Europe, Eastern Europe, the UK and Canada. Those companies predict that East Asia (China, Hong Kong, Taiwan and Macau) will be the foreign locale likely to generate the largest increases in litigation over the next three years. This anticipated increase likely is a reflection of that region's rapid economic growth and reputed laxity in certain areas of legal compliance (i.e., in the areas of intellectual property and financial services).
All companies surveyed ' U.S and non-U.S. ' were asked to estimate the number of litigations (excluding arbitrations) that they face in various areas of the world. Respondents named South America as the jurisdiction in which they had the most cases pending, at an average of 456 cases per respondent. This number was driven, in large part, by the international group of companies we surveyed, which reported that 90% of their litigations are pending in South America, for an average of 1597 cases. This surprising statistic may be due, at least in part, to that region's reputation as a highly active jurisdiction for labor and employment matters. Companies of $1 billion or more in revenue average the most cases in South America (529), followed by the United States (389).
International Litigation Statistics
The Survey collected international litigation statistics on an industry-by-industry basis. It found that 40% of energy companies face significant matters in South America and 20% in Canada. Insurance respondents find themselves usually in the UK (43%), followed by Canada (21%). Technol-ogy/communications companies listed Western Europe (48%) and the UK (40%) as the foreign jurisdictions in which they find themselves most often.
The Survey seemed to reinforce the idea that litigating in foreign jurisdictions gives rise to concern over issues often different from those that exist when litigating in one's home court. The greatest concerns to our foreign respondents about bringing or defending an action in the United States were: legal costs (51%); punitive damages (32%); lack of familiarity with the legal system (25%); juries (18%); and liberal discovery rules (17%). The top worries of U.S. companies when bringing or defending legal disputes abroad are: lack of familiarity with the legal system (58%); bias against U.S. companies (35%); lack of relationship with foreign counsel (21%); language or cultural differences (15%); and legal costs (15%).
Perhaps in light of the concerns listed above, companies are turning to arbitration to resolve international disputes to an increasing extent. Survey respondents in the U.S. identified the types of cross-border disputes that they believed were best suited for international arbitration, including contract disputes (56%), insurance disputes (33%), intellectual property (24%), antitrust (20%), labor and employment (16%) and banking (14%).
Traditional thinking was that arbitration would lead to both cost savings and a quicker result. Survey responses this year, however, showed that such thinking may be changing. At least half of respondents in the U.S. and the UK report their belief that international arbitration and litigation cost about the same. More than a third of international respondents agree. A significant percentage (21%) of all three groups actually believe arbitration is more costly. And while 43% of all respondents believe that the time to resolution in international arbitrations is less than that for litigation, the same number think it is about the same. Notwithstanding these views, respondents' use of ar-bitration continues to grow. The reason for this may well be that using arbitration is an effective way to counter the unpredictability of litigating in foreign jurisdictions and impose some measure of control over how international disputes will be handled.
Sophisticated companies doing business and/or investing in foreign countries may propose including arbitration agreements in their contracts, which provisions often set forth terms such as the arbitral forum, governing procedural rules and substantive law, the location of and language to be used in the arbitration. They also may address issues such as the number of arbitrators, their qualifications and nationalities and the manner in which they will be appointed. There are a number of benefits to including arbitration provisions in international contracts, the most important of which is to ensure that disputes will be resolved in a neutral forum without having to take the risk of litigation in foreign courts that are perceived to be hostile to outside interests.
We questioned respondents about compliance with and enforceability of international arbitration awards to determine the extent to which concerns over those issues might influence the use of international arbitration. A 75% majority felt that the enforceability of an arbitral award was at least comparable to that of a court decision. Respondents chose the United States (61%) and the United Kingdom (52%) as the countries where arbitration awards are most easily enforced. Forty-seven percent of respondents worried less about enforcement of arbitration awards, believing that the losing party in international arbitrations frequently complies with an award voluntarily. Of the 47% total, 63% of energy companies, 75% of engineering/construction companies and 50% of manufacturing companies hold that belief.
Arbital Forums
We also questioned respondents about their preferences as to arbitral forums. Among arbitration institutions, a significant majority of U.S. companies surveyed preferred the American Arbitration Association's International Center for Dispute Resolution ('AAA/ICDR') (60%). This is likely because the AAA is based in the United States, and U.S. companies have long been familiar with the AAA and therefore feel more comfortable in that forum. The second choice among U.S. companies surveyed was the International Chamber of Commerce ('ICC'), based in Paris, followed by the London Court of Arbitration ('LCIA'), based in London. U.S. Companies were significantly less enamored of other major international forums or rules. Less than 20% of U.S. respondents preferred arbitration under the rules of the CPR Institute for Dispute Resolution ('CPR'), the World Intellectual Property Organi-zation ('WIPO'), the United Nations Commission on International Trade Law ('UNCITRAL') or the Internation-al Center for the Settlement of Investment Disputes ('ICSID').
Not surprisingly, UK respondents overwhelmingly expressed a preference to arbitrate before the LCIA (91%). This reflected almost a 70% increase over our 2005 Survey. The ICC lost favor among United Kingdom respondents, going from 67% in the 2005 survey to 27% this year. The international group of companies surveyed, however, expressed the ICC as their preferred arbitration forum.
Rankings of the four most preferred arbitral institutions remained consistent with our 2005 Survey, although the preferences were spread more evenly among the four. The AAA/ICDR received virtually the same rating as last year's Survey. The ICC, LCIA and CPR all saw significant increases in their approval ratings. The next three arbitration forums/rules ' WIPO, UNCITRAL, and ICSID ' also saw increases in their approval ratings this year, for a variety of reasons. The ICSID boost likely reflects the increasing number of investors in foreign countries, especially in Asia, and increasing protection for foreign investors under bilateral investment treaties. It may also be attributable to certain economic and political developments in Latin America that have affected foreign investors. The increase in ad hoc UNCITRAL arbitrations may be due to parties seeking to avoid the cost of institutional arbitration. The WIPO increase may be explainable by its increasing ability to convince more intellectual property owners to refer disputes to arbitration, especially in light of WIPO's stream-lined procedures in domain name cases and its accreditation by the Internet Corporation for Assigned Names and Numbers.
Preferences among respondents for certain arbitration institutions also diverged widely by industry. Nearly two-thirds of respondents in the energy industry named the LCIA as their preferred arbitration institution. Seventy-two percent of manufacturing companies and 67% of insurance companies favored the AAA/ICDR. Three-quarters of respondents in the engineering/construction industry and 56% of technology/communications companies name the ICC as the best institution for international arbitration.
Our survey also queried respondents about the factors that influence them in their choice of outside counsel to handle international arbitration matters. The most important factors named were: international arbitration experience (77%); subject matter expertise (63%), knowledge of the relevant industry (43%), knowledge of the particular case (29%), and foreign language capability (23%). This clearly reflects our respondents' views that it is as important to have counsel who know their way around the various international arbitration institutions in international disputes as it is to have counsel who know their way around their local courthouse in domestic ones.
Conclusion
As the global business world becomes smaller and more business is done internationally, the potential for disputes will inevitably increase. It is and will become even more important for companies to be mindful of the risks of international proceedings and to take those risks into account as part of their international business plans and overall strategy.
Judith A. Archer is a partner in the
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