When litigants with modest means enter litigation, the cost of legal representation is often their greatest financial hurdle. Inevitably, these parties are placed at a disadvantage by the high cost of litigation in foreign currency. Furthermore, fluctuations in exchange rates can force a party to either over-reserve for future expenses or risk insolvency from short-term volatility. All of this has a direct impact on both the cost and availability of litigation services for litigants with modest means injunction with small law firm billing software and business management software law firms. [1]

Economic fluctuation is a constant challenge for businesses operating in multiple currencies. These fluctuations affect almost every industry, but few are as directly impacted by them as the legal profession. Financial pressures on law firms have made cost management a top concern for many companies and left them with a few questions about the long-term impact of these fluctuations. How will currency volatility affect litigation costs? Which firm should bear the brunt of this risk? Can risk be mitigated in some way to ease financial strain?

What is Currency Volatility and How Does it Impact Litigation Costs?

Currency volatility is the degree of fluctuation in the value of a currency over time. [2] The more volatile a currency, the more the value can fluctuate over time. This can be caused by a wide variety of factors. For example, economic uncertainty can cause people to invest in different currencies to diversify their holdings. This can cause the value of a currency to go up, thus impacting the use of legal timekeeping and billing software. Currency fluctuations can significantly impact litigation costs, and legal cases, particularly in cross-border disputes that occur when different currencies are involved. In these cases, parties to the litigation may be exposed to a higher degree of currency fluctuation risk than if the litigation was conducted in a single currency environment. [3] Companies should therefore be aware of the potential effect of these fluctuations on the cost of litigation and the potential need to manage these fluctuations when forecasting the cost of litigation.

What is the impact of currency fluctuations on litigation costs?

Currency fluctuations can have a significant impact on litigation costs, particularly in cross-border disputes. This is predominantly due to the fact that the parties to the litigation may be exposed to a higher degree of currency fluctuation risk than if the litigation was conducted in a single currency environment. In a global business environment, parties to a dispute may be operating in different countries with different currencies. [4] This can have a significant impact on the legal costs of the litigation, particularly if a party to the litigation has operations in a country whose currency is expected to depreciate significantly against the other currencies involved in the dispute. If a company initiates legal proceedings in a different currency than the defendant, it may be exposed to a risk of increased costs as a result of expected currency fluctuations. This risk is particularly acute for companies operating in countries whose currencies are expected to depreciate significantly against the currencies of their litigation opponents. [5]

Forecasting Litigation Costs With Exchange Rates

While companies are likely to be exposed to greater fluctuations in the cost of litigation as a result of cross-border proceedings, they can also take advantage of exchange rates. If a company initiates litigation against a party whose currency is expected to appreciate significantly against the company’s own, it may be able to take advantage of the expected fluctuation by locking in the exchange rate. [6] If a company’s litigation costs are forecasted in a currency that is expected to appreciate against the currency of its opponent, it can lock in the exchange rate today at a lower rate. This can help to mitigate the expected increase in litigation costs due to the expected appreciation in the other currency.

Defence From Currency Fluctuations

Companies initiating litigation in a different currency than their opponents may be able to avoid the negative impact of currency fluctuations if they can defend themselves from the expected decrease in their own currency. If a company has operations in a country whose currency is expected to appreciate significantly against the currencies of its litigation opponents, it may be able to defend itself from the expected increase in the cost of litigation. [7] If the company is able to forecast the increase in its own currency and negotiate the litigation costs in the expected stronger currency, it may be able to avoid the negative impact of expected currency fluctuations.

Litigation in a single currency environment

Litigation conducted in a single currency environment will be less affected by the risk of exchange rate fluctuations. Even if the parties to the litigation have operations in different countries, the litigation will most likely be conducted in a single currency environment , utilising the necessary legal business software. [8] This is particularly true for multinational companies that have a presence in different countries. However, certain cross-border disputes, such as those involving the EU, may be governed by the laws of England and Wales and thus be conducted in the currency of the UK, which is currently the pound sterling. Unless the parties to the litigation agree to use another currency, the adverse effects of exchange rate fluctuations will not apply in a single currency environment.

When multiple currencies are part of your strategy

If a company has operations in different countries with different currencies, it may want to include multiple currencies in its litigation strategy. [9] If a company has operations in the United States and the UK, for example, and the dispute is expected to be significant enough to warrant litigation, it may want to consider initiating the litigation in both the US dollar and the pound sterling via legal software tools and legal billing software comparison. If the company initiates the litigation in both currencies, it will be exposed to the inherent risks associated with litigation in different currencies. The parties to the litigation will be exposed to fluctuations in the value of the currencies, which may have a significant impact on the expected litigation costs and the overall financial risks of the litigation. [10]

Conclusion

Currency fluctuations can have a significant impact on litigation costs, particularly in cross-border disputes. Companies initiating or defending a dispute in a different currency may be exposed to significant financial risk as a result of the fluctuations, particularly if they are conducting the litigation in the currency of their litigation opponents. If a company has operations in different countries with different currencies, it is crucial to understand how these fluctuations could affect the legal strategy.

References

[1] The impact of currency fluctuations on the costs of litigation, July 2017 https://www.nortonrosefulbright.com/en/knowledge/publications/9bf13f3d/the-impact-of-currency-fluctuations-on-the-costs-of-litigation

[2] Issues Law Firms Are Facing Today, Fatima Freifer https://goodlawsoftware.co.uk/technology/issues-law-firms-are-facing-today/

[3] Grappling with severe exchange rate fluctuations in assessing the costs of litigation, March 2017 https://www.allenovery.com/en-gb/global/news-and-insights/publications/grappling-with-severe-exchange-rate-fluctuations-in-assessing-the-costs-of-litigation

[4] How Law Firms Are Developing And Maintaining Prospective Long Term Client Relations, Fatima Freifer https://goodlawsoftware.co.uk/business-management/how-law-firms-are-developing-and-maintaining-prospective-long-term-client-relations/

[5] Currency Fluctuations: How they Affect the Economy, June 2021 https://www.investopedia.com/articles/forex/080613/effects-currency-fluctuations-economy.asp

[6] Legal Update: contractual disputes, foreign currencies, and the plummeting pound, 20 JANUARY 2017 https://www.kingsleynapley.co.uk/insights/blogs/dispute-resolution-law-blog/legal-update-contractual-disputes-foreign-currencies-and-the-plummeting-pound

[7] Why Legal Firms Are Focusing Their Outsourcing Efforts, Fatima Freifer https://goodlawsoftware.co.uk/business-management/why-legal-firms-are-focusing-their-outsourcing-efforts/

[8] The future of currencies across five key industry sectors https://www.moneycorp.com/en-gb/news-hub/future-of-currencies-across-key-industries

[9] Why Do Currencies Fluctuate? https://www.xe.com/moneytransfertips/why-do-currencies-fluctuate.php

[10] Foreign currency and exchange rate risks https://www.nibusinessinfo.co.uk/content/foreign-currency-issues-when-importing-or-exportinga