Managing Risk: A Disputes Perspective (2022)

• Published date: 01 December 2022
• Subject Matter: Finance and Banking, Corporate/Commercial Law, Environment, Litigation, Mediation & Arbitration, Financial Services, Corporate and Company Law, Environmental Law, Arbitration & Dispute Resolution, Trials & Appeals & Compensation, Climate Change
• Law Firm: Herbert Smith Freehills
• Author: Mr Paul Lewis, Susannah Cogman, Chris Bushell, Andrew Cannon, Ajay Malhotra, Rachel Lidgate, Neil Blake, Hannah Ambrose, Heather Newton, Louise Barber, Alan Watts, Charlie Morgan, Risteard de Paor, Kim Dietzel, Philip Lis, Rebekah Dixon and Andrew Taggart

Introduction

This annual conference, held on 22 November, was chaired by partner and global head of our insurance disputes practice, Paul Lewis, and explored some key legal and compliance risks facing major corporates in the current global environment, and how those risks can be mitigated.

Sessions looked in particular at risks relating to climate change in commercial relationships, the disputes implications of the war in Ukraine, the current landscape for class actions in the UK, and how to deal with the risks arising from emerging tech and IT disputes.

Climate change risk in commercial relationships

Climate change considerations and the move to decarbonisation have added complexity to how businesses operate and given rise to a significant potential for claims to arise between commercial counterparties.

M&A and finance

In the M&A context, companies considering potential acquisitions will wish to consider the environmental impact of the target business and what that might mean for any climate-change related objectives they have set or public commitments they have made. Increasingly buyers are looking to spell out their expectations about emission levels and environmental impact in warranties and indemnities, and sellers will want to be cautious about what they are promising and how any impacts may be measured.

Banks are increasingly inserting covenants into finance documents relating to climate change mitigation and adaptation. This reflects a concretization of more general ESG-related covenants included in concessional finance documents involving multilateral development banks in what was originally development finance. As public and private sector finance come together in relation to climate-related projects (say, a renewable energy project in a low to middle income country), we are seeing more climate-specific covenants being introduced. This trend is likely to continue as this blended finance becomes more established, especially where accredited implementing entities and institutions, and multilateral climate funds, are involved and introduce emissions-related undertakings and oversight.

The relevant agreements may provide for audits of the underlying projects, and if the project fails to meet its targets (eg because the energy is not as green as it was meant to be) it could give rise to claims between project participants and/or stakeholders.

Construction and planning

Another major area is construction and planning, as market players are under...