London- LAWFUEL – The Law News Network – A major survey of European companies, published today by global legal services organisation DLA Piper Rudnick Gray Cary (‘DLA Piper’), shows there is a huge disparity in companies’ attitudes to avoiding and handling disputes across Europe.
The survey looks at risk management, contract drafting and methods of dispute resolution amongst leading UK, German, French, Spanish and Italian companies operating internationally, and shows the majority of businesses surveyed adopt a fragmented and often contradictory approach to these issues.
There is much dissatisfaction when it comes to dispute resolution, only 28% of respondents said they had managed disputes very effectively in the last two years, and less than a third said they had been successful at avoiding disputes altogether.
However, even though most businesses appreciate the best way to resolve disputes is to ensure contracts are well drafted, there are clear variations across Europe in the approach to contract drafting. Ironically, most companies channel more legal resources into dispute resolution than dispute avoidance.
In Germany, 97% of respondents said their legal departments influenced the content and drafting of the contract. In stark contrast, only 23% of French respondents said their legal departments were involved. Unsurprisingly, 43% of German respondents rated their organisation’s success in avoiding disputes as very high, whereas in France only 17 % did. When asked how respondents would like to see their organisations improve their approach to dispute resolution, the most frequent response was an improvement in contract drafting.
David Gray, head of litigation at DLA Piper in the UK comments: “There are wide variations in European companies’ approach to handling disputes with varying degrees of success. However, the overwhelming majority of respondents acknowledge that better contract drafting would improve their companies’ control of dispute resolution. Businessesrealise prevention is better than cure and contracts can be drafted so as to introduce a greater degree of certainty into dispute resolution.
“Senior management, with the support of its legal advisers, should have a more consistent involvement in the drafting of contracts to ensure that an informed risk assessment is undertaken before a contract is entered into, regardless of the value of the contract. The issue is even more acute when the contracting parties are based in different jurisdictions with different governing laws,” he adds.
When it comes to applicable law and the location for resolving disputes, over 70% of respondents said their contracts with parties in other countries, contain a clause specifying this. 73% of respondents preferred to resolve disputes in their own countries, but almost a quarter of respondents’ choice of jurisdiction is governed by the circumstances relating to the contract and the governing law of the contract.
In France, Italy and Spain 87% of respondents’ contracts contain a clause governing the method of dispute resolution, whereas in Germany the figure is only 60%.
Although litigation remains the most commonly used form of dispute resolution, over 40% of companies did not consider it a successful method of dispute resolution and yet its use is still predicted to rise by a significant proportion of respondents.
Alternative dispute resolution (ADR) including mediation, is growing in popularity, with over half of all European businesses surveyed having used it in the last two years. Despite this, over half of European organisations still do not include ADR clauses in their contracts.
Less than a third of respondents had used arbitration. Almost half of those who had engaged in arbitration in the last two years rated it as unsuccessful, whereas, in contrast, only a quarter of organisations that participated in ADR rated it as unsuccessful. In spite of its waning popularity as a method of resolving disputes, over half of businesses surveyed in the UK, Italy and Spain include arbitration clauses in a contract. Only 15% of the German respondents use them, because the courts in Germany are seen as being more cost-efficient, and litigation isfavoured over arbitration.
David Gray concludes: “Companies need to learn from negative experiences and realise they can influence the way their contractual disputes are handled. The fact is that by channeling more resources into careful contract drafting, companies can have much more control in the event that things go wrong. It’s a simple message that companies seem to appreciate, but one that they all too often overlook, as the survey suggests.”