Litigation risk in cross-border disputes is the probability that international proceedings will not yield the intended commercial or legal result. At Musch Legal, we see entrepreneurs initiating proceedings without any insight into the actual outcome, costs, and feasibility. Many proceedings are technically won but commercially lost. A structured risk assessment beforehand determines whether proceedings are advisable and which route yields the highest return.
What is at stake legally? (What dimensions do litigation risks have?)
Litigation risk encompasses legal, financial, operational, and reputational dimensions. Legal: probability of success, evidentiary position, mandatory law, primacy of international treaties. Financial: costs, damages, remediation costs, cash flow impact, currency risk. Operational: management time, loss of customers, supplier reputation. Reputational: publicity, signals to the market and shareholders. For cross-border disputes, this is compounded by enforcement risk, language barriers, cultural differences, and political risk in unstable jurisdictions.
What steps do you take? (How do you conduct a good risk analysis?)
Prepare a Litigation Risk Memorandum for every significant case. Inventory the risks per dimension and quantify where possible. Assess the forum (court versus arbitration), seat (neutral or not), enforceability of the judgment, and the assets of the opposing party. Investigate whether the opposing party is solvent. For cross-border disputes: check treaty areas (Brussels I-bis, Hague Convention on Judgments 2019, New York Convention 1958). Assess whether mediation or settlement yields a better ROI.
What risks and costs do you face? (Where do international proceedings go wrong?)
Insufficient evidence can cause a technically strong case to lose. Proceedings for an unexpected forum can entail 3 to 5 times higher costs. Unenforceable judgments against a debtor in a jurisdiction without treaty space. Political changes can halt proceedings (Russia, Iran sanctions). Negative precedents affect other ongoing relationships. In the event of a loss, cost awards against the opposing party are incurred. Management distraction can make operational damage greater than the original dispute.
How did a client handle this? (What did we do for a Russian dispute?)
Musch Legal was consulted by a client who was considering proceedings against a Russian client for 4 million euros. Our Litigation Risk analysis showed: arbitration in Stockholm in accordance with the old clause, estimated costs of 600,000 euros, duration of 18 months, enforceability in Russia uncertain due to sanctions (Regulation 833/2014). We advised negotiation with the engagement of a specialist in Russian insolvency law. Result: settlement for 2.7 million euros within four months, total costs 80,000 euros, net 2.62 million euros versus estimated 1.8 million euros net after proceedings.
What is your first action? (What do you do with every new claim?)
For every claim above 250,000 euros: request a Litigation Risk Memorandum before issuing a summons. Inventory the opposing party's assets. Research applicable treaties. Assess cost-benefit and operational impact. Ask your lawyer for two scenarios: proceedings versus settlement. Document the choice regarding administration. For recurring large claims: build an internal litigation policy at the portfolio level. See also our article on What does international proceedings cost?