Finance

Legal claims set to spike in 2021 after pandemic lull, says EY

Legal claims are expected to increase in 2021 compared to normal volumes following a lull in 2020 as corporates grappled with the pandemic, according to Big Four accountants EY.

A survey of corporates found 59% expected claim volumes to increase over 2021, while a separate EY survey of over 100 litigation and arbitration lawyers found 66% expected an increase in claims.

Almost half (47%) of corporate respondents have raised or anticipate raising a claim as a result of Covid-19, and 31% anticipate receiving or have received a claim.

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Over half of the companies surveyed (56%) anticipate legal claims and disputes will have a “material financial impact” on their business, including one-in-seven companies (14%) who believe the pandemic-related claims they may face are a risk to their going concern status.

The expected spike in disputes follows a pronounced lull over the last 12 months, with UK businesses turning to mediation and negotiation during the pandemic, rather than litigation, the research showed.

The Cabinet Office called in May for companies to steer clear of litigation during the pandemic.

The survey found that companies had heeded the call from the government, with 63% of the more than 100 FTSE 350 and private companies surveyed by YouGov for EY saying they had adopted a more conciliatory approach to disputes since the start of the pandemic.

Four-fifths (81%) of respondents said they had applied reliefs to contract terms since the pandemic’s onset, with 69% receiving or granting time extensions, 59% renegotiating contract terms, and 25% receiving or granting payments for additional costs.

Of those surveyed, 77% had used alternative dispute resolution procedures to resolve an issue during the pandemic.

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Matt Fritzsche, a claims and disputes partner at EY, said: “We think some of this is driven by a genuine desire to ‘do the right thing’ during the pandemic, a further and perhaps more important factor is that businesses with claims to bring have spent the last 12 months focused on simply navigating the operational impact of Covid-19.

“Many businesses haven’t had the time or resources to bring potential claims. As vaccine rollouts continue, government support ends and attention turns to recovery, that balance is shifting, and a need to protect shareholder value will prompt businesses to become more active in pursuing claims as a potential avenue for recovery in the near future,” he added.

To contact the author of this story with feedback or news, email James Booth

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