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World Economic Crisis: the US legal system is a target for reform

August 8, 2011

The Economist recently calculated that the US legal system is costing the average US consumer at least 8% on prices. IACCM’s survey on ‘ease of doing business internationally’ showed that the biggest concern that companies have in doing business with the US is the fear of litigation. UK economist John Kay argues that the legally-driven, risk averse nature of US contracting has damaged corporate profitability.

So will the current economic crisis and the threat to US influence lead to fundamental reform of legal behavior and the influence of lawyers in commerce? Many would welcome such a trend – and certainly, the diminishing power of the US economy seems likely to impact the way that business contracts are structured and negotiated. Many – including quite a few US attorneys – will welcome  a shift to more relational forms of agreement.

But it is not really the in-house counsel who are the problem. The negative image and the cost burden is imposed more by the tendency to litigate and an article in Inside Counsel offers cause for hope.  “Americans’ litigiousness and thirst for massive damages has been a boon to the legal profession. But some researchers and litigation experts warn that the abundance of lawsuits—many of them frivolous—flooding U.S. courts is severely weakening the economy”, explains the article. It goes on to briefly discuss the ‘Lawsuit Abuse Reduction Act’, which aims to eliminate ‘frivolous’ lawsuits that clog up the courts and damage the reputation of US commerce.

As one witness to the House Judiciary Committee observed: ‘Other countries discourage litigation; we nuture it”. Such behavior carries a heavy cost . In addition to those outlined in the article, members of IACCM are all too familiar with the way that international contracting has been skewed towards the ‘risk allocation’ terms in contracting – the games that are played over blame allocation, at the expense of the terms that would increase the probability of success.

Good lawyers and contract negotiators should now, more than ever, be examining the cost, value and effectiveness of their work. It is surely time for us to push back on the types of contract and negotiating behavior that undermine economic value and successful outcomes.  This is just one more factor that will be assessed in IACCM’s current research into ‘The Future of Contracting’ – the results of which will be shared and discussed at October’s Global Forum for Collaborative Commerce.

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