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09 November 2010
The number of new claims launched in the High Court rose by 16% to nearly 50,000 in 2009,(1) up from around 42,700 in 2008. The statistics suggest that the increase in substantial, complex litigation following the credit crunch is continuing.
The High Court is the main venue for cases involving the financial services sector. A financial institution is involved in nearly half of all cases involving a large UK company, which suggests that the increase is being driven by disputes in the financial markets.
Increasingly, claims are being launched against investment banks by institutional investors and other banks that were sold 'toxic' financial products before the credit crunch. In the United States, Goldman Sachs recently agreed to pay $550 million as part of an agreement with the Securities and Exchange Commission to settle an investigation into the sale of a particular financial product. Many investors in the United Kingdom are hoping for a favourable court judgment against investment banks for the mis-selling of similarly complex products. Sophisticated investors have been testing the waters by taking investment banks to court, alleging mis-selling, mismanagement or both. There are also a significant number of disputes over the valuation of illiquid assets, with more similar claims likely to come to light in future.
A major feature of litigation following the credit crunch has been the number of claims - most notably in the wake of the collapse of Lehman Brothers - that have been brought by creditors of insolvent businesses as a result of priority disputes. Her Majesty's Revenue and Customs (HMRC) has launched a number of High Court claims in an attempt to assert greater control over the assets of insolvent businesses, including a high-profile claim against Portsmouth Football Club in administration.
However, the government's response to the credit crunch has probably limited the amount of civil litigation that might otherwise have come before the courts. By encouraging banks not to repossess properties in mortgage default, the government has sought to prevent foreclosure disputes and the legal claims that might be expected to follow a big fall in the housing market. Moreover, it has allowed businesses to negotiate their tax payments under HMRC's business payment support service, thereby reining in the number of commercial insolvencies and subsequent litigation. Nevertheless, more cases could be brought once these schemes are phased out, as companies usually have six years in which to lodge a legal claim.
Overall, the rise in litigation as a result of the economic downturn has already proved substantial and expensive for UK businesses. However, the devastating upsurge in claims that was widely predicted in the darkest days of the credit crunch has yet to materialise.
For further information on this topic please contact Tom Hibbert or Geraldine Elliott at Reynolds Porter Chamberlain LLP by telephone (+44 20 3060 6000), fax (+44 20 3060 7000) or email (firstname.lastname@example.org or email@example.com).
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