Banks face a deluge of law suits over credit crunch once turmoil subsides

The former Lord Chancellor, now senior counsel at Gibson, Dunn & Crutcher, explained this month that his forecast deluge would not begin while the markets were still in turmoil.

And that view is shared by Ian Gray, head of litigation at Eversheds. He says lawyers are still trying to provide quick fixes, unravelling transactions left in limbo by the downfall of Lehman and the troubles of the Icelandic banks.

"As we get through the next four to six months and the economy goes further into recession," Gray adds, "the financial markets will stabilise and some of the problems that arose in September and October will mature into major cases."

Other lawyers put the absence of claims down to the natural reluctance of financial institutions to sue each other. "Banks - at least in this country - prefer to preserve relationships in the expectation that they are likely to do business with one another in the future," one City solicitor said.

And litigation is costly. Richard Blann, a commercial litigator at Norton Rose, says that cash-strapped claimants are looking for innovative ways of funding cases. His firm acts for the liquidators of a company called Stone & Rolls in an £88 million negligence claim against the company's auditors, the chartered accountants Moore Stephens. The liquidators' case - supported by specialist firm, IM Litigation Funding - was firmly dismissed by three appeal judges in June.

But some lawyers thought the Court of Appeal had got it wrong and, much to the relief of litigation funders, the liquidators were recently granted permission to appeal to the House of Lords.

The funding market has developed further over the past year, adds Blann. Although the Stone & Rolls case was financed on a bespoke basis, there are now "serious professional funders with funds available to build a portfolio of claims". Claimants - though not defendants - will also welcome new arrangements for paying for the insurance that a claimant may take out against the risk of losing the case and being ordered to pay the defendant's legal costs. This is called "after-the-event" insurance because it is purchased after the event that gave rise to the litigation.

Typically, claimants had to pay a premium of between 30% and 40% of the sum insured. Now, says Blann, policies are available on a wholly deferred basis. "If the claimant loses, no premium is payable; if the claimant wins, the premium is recoverable from the other side."

But Hilary Heilbron QC, an international arbitrator and barrister at Brick Court Chambers, wants to go further. "The avalanche of claims likely to arise worldwide as a result of the sheer scale of the current financial crisis presents a unique opportunity for lawyers and their clients to look at innovative ways of resolving their disputes," she believes.

Otherwise we can expect a "decade of costly and dilatory trans-global litigation in competing jurisdictions and the unseemly washing of corporate dirty linen in public".

Heilbron suggests combining the best elements of litigation and arbitration, with nominated courts resolving points of principle and groups of claims then being settled through international arbitration or other forms of alternative dispute resolution.

"This lends itself to mass claims against particular institutions, to chain disputes where the outcome of one case affects others and, above all, to cross-border disputes which can be resolved in one place," she says.

Though lawyers would stand to lose huge sums in legal fees, I suspect that most would welcome such arrangements. But how do you persuade the clients?