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Leading lawyers are united in the belief that the market downturn will lead to an increase in cases between financial institutions, as firms face up to the prospect of taking on the big banks. Claire Ruckin reports on the results of the latest Big Question survey

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.”

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