For most U.S. trained attorneys, it probably doesn’t come as a surprise that even the mere possibility of litigation should be disclosed somewhere in a company’s annual report. But for attorneys preparing an annual report for a foreign filer from a less litigious country – basically every other country – take note this 20F/40F season: Companies are erring on the side of conservatism when it comes to litigation risk. Companies from camera manufacturer Canon to mobile phone manufacturer Ericsson to Norwegian oil company Statoil are disclosing risks ranging from IP litigation to uncertainty in certain target markets, to dealing with wrongful termination allegations. While litigation disclosures are certainly not one-size fits all, below are a few of the themes rising up through this 20F/40F filing season.
General litigation risk disclosures come in every shape and size, but a pretty standard example comes from Italian oil and natural gas company Eni SpA. In their recent 20F, however, they stated that lawsuits are an ordinary occurrence in their line of business. A similar disclosure appears in the recent annual report from Newfoundland-based Canadian mineral royalty company Terra Nova Royalty Corp.
And although materiality should play a factor in determining whether to disclose, every lawsuit should be reviewed to determine the potential impact. A prime example is British Columbia, Canada-based Chai Na Ta’s recent admission that the company became involved in a lawsuit related to an automobile accident. Although the company believes that insurance will fully indemnify the company, the disclosure serves as an example that no rock should remain unturned in the quest for transparency. Likewise, Norwegian Statoil discusses in detail two lawsuits, one of which explicitly states the financial impact is immaterial.
via Global Disclosures: Litigation Risk.
