Baker McKenzie presented its annual report The Year Ahead, in which 600 senior legal and risk managers from large organizations on four continents were surveyed. The study groups the forecasts for the world of litigation and arbitration for the next twelve months and identified that 82% of respondents expect the volume of litigation to remain the same or increase in 2023 while only 17% believe that there will be a decrease.
Conflicting external factors Threats
The business cycle poses a major threat to organizations. 45% of respondents believe it causes greater exposure to traffic, while 38% see stock market volatility as a key factor.
Claudia Benavides, the president of the global dispute resolution practice at Baker McKenzie, said: “As we have explored the challenges of COVID-19 with lockdowns, war in Europe and high inflation, it seems that uncertainty is the new certainty. In 2023, we expect companies to experience an increased amount of litigation, mainly in the areas of cybersecurity and data, ESG, and subsequent mergers and acquisitions, and taxation. Faced with this, our research shows that, despite the risks, organizations do not feel prepared for litigation and should engage dispute professionals as soon as possible.”
Key issues in litigation
1. Cybersecurity and data litigation
For the second year in a row, cybersecurity and data (62%) top the list of types of litigation that pose a risk. In the information, communication and telecommunications (ICT) sector, 73% of respondents were concerned about such lawsuits.
Ransomware attacks increased by 13% last year and there is a trend towards attacks targeting non-personal data, such as trade secrets or critical infrastructure systems. Similarly, there are more and more lawsuits against business models that use data, such as cases related to third-party cookies used for ad tracking.
2. Environmental, social and governance conflicts
58% of respondents said that environmental, social and governance (ESG) conflicts posed a risk to their organization by 2023. The IMT industry perceives ESG conflicts as the biggest threat, followed closely by the EMI (Enterprise Manufacturing Intelligence) sector.
“Greenwash” litigation is on the rise, as are consumer protection lawsuits and securities litigation. In addition, industry trackers show that around three new major cases are emerging per month. Many of them are presented by activists who seek to divulge key information or question climate policies.
3. Post-merger and acquisition litigation
With record volume of mergers and acquisitions globally in 2021, driven due to low borrowing costs and high post-COVID-19 valuations, many transactions were completed quickly and with limited due diligence. The most likely consequence is an increase in subsequent litigation, especially as buyers try to recover valuation gaps when transactions fall short in a tough market. Similarly, an increase in non-compliance lawsuits is expected, around representations and guarantees against guarantee and indemnity insurers.
4. Tax litigation
Every year the number of tax litigation and audits increases, which represents a significant challenge for organizations as it tests tax resources to respond to far-reaching policy changes. For this reason, one in five respondents expect tax litigation to pose a risk to their organization. While the expected risk is lower for relatively small organizations, it peaks in medium and large companies with a turnover of between $2 billion and $10 billion. In addition, the perceived risk is particularly high in the EMI sector (28%).
5. Labor disputes
Increased mobility of workers and the rigidity of the labor market making it difficult for employers to fill vacancies, are the main factors explaining the increase in claims for non-compliance, with restrictive agreements filed by employers. In North America and Europe, trade unions are increasingly active and the increase in trade union actions, prompted by the current economic situation and the cost-of-living crisis, suggests an increase in disputes between unions and employers, as well as against governments.