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Law firms to lose international disputes work to in-house counsel

Companies plan to hire specialist in-house lawyers to cut costs  

16 April 2013

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By Manju Manglani, Editor (@ManjuManglani)

Corporate counsel are planning to reduce their reliance on law firms for international disputes work, according to a survey.

It found that an increasing number of companies are instead looking to hire specialist in-house lawyers, in response to rising costs and disputes.

The report is based on a survey of more than 100 businesses around the world, with a focus on the financial services, energy and construction sectors. The majority of respondents were in-house counsel at global organisations with turnover of more than US$500m.

“One of the key findings of the research is this trend in specialist counsel being brought in-house,” said Gerry Lagerberg, head of international arbitration (IA) at PwC, which conducted the research in partnership with Queen Mary, University of London and its School of International Arbitration.

“In part, this is down to a cost-control measure but it will also serve as a real vote of confidence in IA as these firms recognise the value in having arbitration specialists embedded more within their multinational businesses.

“It was interesting to see that the majority of businesses use specialist arbitration counsel they have worked with before and they are blending external expertise with in-house capability.”

The survey found that while 90 per cent of respondents have a dedicated legal department, just under half said they currently have a dedicated in-house disputes team.

While respondents said they currently tend to depend on law firms to handle their international disputes, many are likely to start recruiting in-house as a result of the constraints of the economic climate and the rising cost of proceedings. A third of respondents also noted that their companies had experienced an increase in the number of international disputes.

When asked which method they would choose to resolve their disputes, twice as many opted for arbitration than other forms, such as litigation.

Overall, 73 per cent said arbitration was well suited to resolving transnational disputes, with preferences strongest in the construction and energy sectors.

When asked to rank various dispute methods in order of preference, 68 per cent of respondents in the construction industry said arbitration was their preferred method, compared to 56 per cent in the energy sector.

Interestingly, 82 per cent of respondents in the financial services sector ranked litigation as their number one method of dispute resolution. Despite this, 69 per cent said they felt international arbitration was becoming more suited to resolving their disputes.

Of the respondents who said arbitration was not their preferred method for settling disputes, 22 per cent said this was down to it being less cost effective than other methods such as litigation.

“The role that third-party funding plays will be another area to watch in the future as smaller firms may well need to secure financial back-up before commencing proceedings or at the enforcement stage,” noted Lagerberg.

Many businesses opt for arbitration for international disputes due to its speedier process and private nature. There is usually no appeal process and the final decision is binding, unlike litigation.

 

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