Is there anything that epitomizes the current economic situation quite like the Twitter versus Elon Musk litigation?
What had started as a giant piece of M&A has hit the rocks and ended up in the courts. It is exactly what the text books say should happen. Once the deals slow, the disputes pick up.
There is no doubt the deals are slowing. Global deal volumes in the first of the year fell 17%, while value fell 21%, according to data from Refinitiv. The second half of the year could be even quieter, and large law firms are noticing the change.
Always a forward-looking indicator of corporate activity, they have started slowing their hiring activity in preparation. I recently heard of a U.S. firm pulling out of a London private equity-related hire because the sector had cooled in America.
The next question is whether other practice areas can effectively fill the transactional void.
A rise in disputes will be welcomed by law firm leaders, given these mandates can be so lucrative. Wachtell, Lipton, Rosen & Katz and Wilson Sonsini Goodrich & Rosati are advising Twitter, which arguing that Musk has no good reason to back out of his $44 billion acquisition. Hourly billing rates are likely to be more than $1,000 and, should the case go the distance, the total legal bill is estimated to easily reach eight figures.
True, not all disputes are so large, and there are not always enough great mandates to go around. Some even question the notion that litigation really is counter-cyclical. One partner told me he believes litigation is more non-cyclical, in that it is not really affected by market cycles. Another said there is a rise in disputes during economic downturns but it does not make up for the drop in law firms’ corporate revenue.
But let’s not forget that corporate collapses in recent decades have happened in low interest, low inflationary environments, allowing companies to restructure debt more easily and helping shareholders and investors to cope with losses. Factor in the current rising interest rates and high inflationary environment and the added stress may mean more parties feel it necessary to litigate. And those cases could well be bigger and carry on for longer, leading to higher fees.
What everyone agrees on is that there is always a short-term spike in disputes at the point companies collapse and things start to worsen. Perhaps that is the stage we are entering now.
In the last week alone a variety of large disputes have progressed, each of which indicate wider trends.
The latest development in group actions came in a U.K. appeals court where more than 200,000 claimants were given the green light to pursue compensation for damages caused by a devastating dam collapse at a mine co-operated by BHP Group in Brazil. There are so many developments in the class action space that it is difficult to keep up. Here’s a helpful round-up piece in case you missed it.
In Canada, local reporter Gail J. Cohen last week reported on how a Toronto law firm is seeking judicial review of the Canadian government’s decision to grant a special export permit which it argues is contrary to Canada’s sanctions regime imposed after Russia invaded Ukraine. There could be many more similar disputes.
In Europe, Brussels correspondent Linda A. Thompson wrote a fascinating article about how three non-governmental organizations have sued a Dutch subsidiary of Air France KLM over the airline’s environmental claims. The case is significant because accusations of greenwashing are on the rise and lawyers say the claim against KLM should be seen as part of a broader trend.
The same lawyers add that enforcers are expected to start cracking down on misleading environmental claims in advertising. And that is not the only regulatory change that could lead to more legal battles.
One of Europe’s highest courts has given its blessing to a new merger control approach adopted by the European Commission with the aim of curbing certain acquisitions, particularly in the pharma and tech industries. And Canada’s government has amended its Competition Act, giving its authorities more teeth to tackle big tech companies such as Amazon and Facebook. It is probably safe to assume the corporate giants will find ways to fight back.
In addition to all this, there is another area that could fuel a rise in litigation. In the world of crypto, which appears ripe for a series of fraud disputes, there is a possible glut of cases on the way.
China is the latest country to offer a key regulatory framework in its first-ever case dealing with nonfungible tokens (NFTs)—and the copyright violations they are sometimes saddled with. Legaltech News reporter Isha Marathe wrote that in its decision, the Chinese court held NFT marketplaces liable for poor vetting of copyright violations on its database, imposing stricter burdens on them than on e-commerce platforms.
Meanwhile, in the U.K., a court has permitted a claimant to serve court proceedings via an NFT in a ruling with potentially far-reaching implications. Crypto exchanges will be following the ruling ‘very closely’, according to one lawyer, and it paves the way for further litigation in the space. And that isn’t limited to the U.K. Some now believe that other countries are likely to follow suit and allow blockchain-based legal proceedings.
And if that becomes common, what else might we start to see?
Here’s one possible answer. Germany’s Gleiss Lutz has become one of the first major law firms to set up shop in the ‘metaverse’—a 3D world billed as a game-changing development in online social networking.
The firm even provided pictures of its office in the virtual world, which you can see in the story by Germany reporter James Carstensen. Advice by Gleiss Lutz lawyer avatars is a possibility the firm intends to activate once it becomes a pervasive client need, a spokesperson said.
What’s next, litigation in the metaverse? It’s probably on its way.