Show Me the Money: Companies failing to enforce judgment debts after successful legal actions

July 10, 2019

2 min read

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What's going on here?

Companies across the UK, USA and Canada are failing to cash in on unenforced judgments to the tune of tens of millions of dollars. Short-term liquidity is instead being prioritised due to the uncertainty and expense of the process that follows a successful action.

What does this mean?

When a company is successful in a dispute, (be it litigation, arbitration or mediation), money ought to follow. However, this research brings that presumption into question having found that 78% of respondent companies are still owed over $10 million by judgment debtors

It seems that companies are simply leaving money on the table. The monetary award of these judgements, if claimed, would increase the capital available to a company, which may in turn increase shareholder value, improve employees’ benefits and/or indirectly benefit customers with new products or lower prices.

What's the big picture effect?

The UK is a renowned global dispute resolution hub. However, this status is already under threat due to the uncertainty that Brexit continues to cast on international judicial cooperation. Lately, European litigation rivals Frankfurt, Paris and Amsterdam have been eager to take the UK’s crown. This research compounds concerns about the efficacy of the UK’s judicial system at present.

If companies are unable to successfully enforce favourable judgments, they may think twice about entering disputes in the first place. This is an urgent problem which could lead to flagrant breaches of contract going unpunished, or commercially sensitive information being inadequately protected. The difficulty of enforcing judgments may also raise competition concerns, with larger companies standing to benefit. In relative terms, it is riskier for a company with a smaller turnover to make a financial commitment to a dispute and as such, small firms may be disproportionately prejudiced.

However, it is not all bad news for the legal industry and associated commerce. The expense of legal actions pre- and post-judgment has warranted a role for litigation financing companies. Litigation finance firms recognise that legal claims have value and agree to bankroll the costs of litigation in return for a share of the proceeds. However, such “legal corporate finance” arrangements may in turn cause problems, like an increased caseload for the courts. For now at least, they represent a welcome injection of capital for law firms who are otherwise pushed to justify their value at every stage.

Report written by Sam Denison

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