What’s in store for London’s Commercial Court?

 MARKET VIEW – LITIGATION 

White & Case’s head of litigation, John Reynolds, looks at what impact the development of other countries’ specialist commercial courts will have on the future of London as a centre for international dispute resolution

Despite relentless competition, most notably from New York, the choice of English governing law dominates the international contracts market. So says a recent article from the July/August issue of Legal Business with the benefit of opinion from partners at a number of large international firms (including White & Case’s own David Goldberg).

A separate article in the same edition also commented upon London’s rise as an arbitral hub, increasingly competing with Paris. Certainly, the choice of English law continues to prevail, and the London arbitration market benefits from this, as well as the growing number of arbitration disputes generally. However, in spite of the growth in arbitration here, as well as the development of specialist commercial courts in various regions of the world, litigation in London’s Commercial Court continues to grow. In fact, and notwithstanding the perceived threats posed by competitors, and by actual or potential reform, the future looks bright for the specialist, high-value litigation market in London.

‘Nowadays the influence of London as a legal centre of excellence depends not on the chains of empire but on the quality of the product we produce. This influence and respect, hard won, are very easily lost.’

These were the words of Lord Pannick QC in a debate in the House of Lords on 10 July 2014, moved by the architect of England’s Civil Procedure Rules, Lord Woolf. A central concern of that debate was that proposed reform to human rights and judicial review legislation could erode the international standing of the legal systems of this country. But while certain sections of the English judiciary rue the consequences of public law reform, the effectiveness and reputation of the financial services dispute sector remain intact; for now, at least.

‘Just over 48% of Commercial Court claims involve only parties based outside of England and Wales.’

It is well-trodden territory that English law and legal tradition comprise perhaps the most important legacy of the British Empire, and that the English legal system is a major contributor to this country’s economic health. Commentators have tended, however, to conflate these two truisms. After all, and while the international attractiveness of English (and French) law owes a debt to the fact that many countries around the world have laws modelled on its own, it takes two parties to agree a choice of law, and of jurisdiction. Former British colonies comprise a proportion of consumers of the English (and London) legal market, but the significance of this can be overstated. The Commercial Court developed as a consequence of what might be regarded as the ‘first age of globalisation’, reflecting Britain’s position in international commerce, shipping and insurance. As Lord Denning put it: ‘No-one who comes to these courts asking for justice should come in vain. This right to come here is not confined to Englishmen. It extends to any friendly foreigner. He can seek the aid of our courts if he desires to do so. You may call this “forum shopping” if you please, but if the forum is England, it is a good place to shop in, both for the quality of the goods and the speed of service’ (The Atlantic Star [1973]).

Statistics provided by the Commercial Court up until August of this year show that just over 48% of Commercial Court claims involve only parties based outside of England and Wales. While, as a percentage, this is equivalent to statistics from (the financial year) 2012/13, it looks like the sheer number of claims is on the rise (1,190 claims in total last year, compared with 1,102 this year to date). The reasons for those parties ‘shopping’ here are well rehearsed. Of course, there are the well-respected virtues of the law itself: a longstanding tradition of certainty, and of freedom of contract, based upon a system of binding precedent. But ultimately the appeal of the Commercial Court, as with any jurisdiction, lies in its procedural effectiveness, fairness and incorruptibility. The courts have continued to benefit in the last 15 years from reform to ensure the sound management of dispute resolution, in particular as regards time and cost efficiency, and expertise. In this latest phase of globalisation, distinguished by the commercial muscle of parties based in jurisdictions with less developed court systems, the English Commercial Court is an obvious choice. After Americans, the most significant ‘friendly foreigners’ (to use Lord Denning’s phrase) are now Russian and Kazakh, together with parties from the most popular jurisdiction for joint venture special purpose vehicles, the British Virgin Islands.

It is London’s good fortune, and rightly aspirational, that the boom of these cases has coincided with the opening of the specialist £300m Rolls Building, over 11 storeys in Fetter Lane and including three ‘super-courts’ designed to accommodate big multi-party disputes, with imperfect, but comparatively cutting-edge technology.

The first blockbuster dispute that the Rolls Building hosted, Berezovsky v Abramovich, underlined the attraction of the system to foreign litigants: Russian parties fighting over Russian agreements (in part) but happy to have the matter determined by an English judge. In the face of comprehensive defeat, Berezovsky himself acknowledged that the English courts were ‘the best we have’ and that he believed in them. That ‘belief’ in the English courts continues and, in turn, directly benefits the London legal market, and our export of English legal services worldwide. The UK accounts for 7% of the global legal market, and in 2012 the legal services sector in this country contributed £3.2bn in exports, nearly three times more than a decade ago.

Many have said that we will not see another case like Berezovsky. While this is almost certainly correct, that case dated from the start of the new globalisation age (more than 15 years before the final hearing) and what we will see are Russian, Ukrainian and Kazakh cases which reflect the evolution in business in that part of the world, as well as a growth in cases from elsewhere. On that analysis, we have a decade’s worth of disputes from across the globe yet to mature into litigation here. The dominant choice of governing law for outward Chinese investment is increasingly perceived to be English law; English law is commonly used in transactions in the Gulf states. All the signs are that the Commercial Court will continue to prosper, but this coveted position is ours to lose.

Certain potential obstacles are self-inflicted: there is, for example, the spectre of the recognition of an implied duty of good faith (following Yam Seng PTE v International Trade Corporation), something which, if further developed, might begin to turn off foreign consumers, a mark against the (admittedly self-certified) record of English legal certainty.

In addition, and following the interpretation of certain of Lord Justice Jackson’s reforms as a result of the Mitchell case, there is a growing concern that the court’s approach to adherence with its rules may be so inflexible as to verge on unfair. The courts must ensure that a balance is reached, providing for the efficient management of cases, without developing a reputation that dissuades litigants from commencing proceedings here. It is with some relief, therefore, that the Court of Appeal has recently replaced the Mitchell guidance with a less drastic ‘three-stage test’ which places a greater emphasis on ‘all of the circumstances of the case’ when deciding whether to grant relief from sanctions imposed by the court for breach of court orders or deadlines, as well as penalising parties who unreasonably seek to take advantage of their opponent’s mistakes.

Litigation costs are also a factor. Much has been written already (and will continue to be written) about the need to control litigation costs and this may prove to be the area in which competitor jurisdictions are most easily able to attack London, and to market their own, newer, commercial courts.

‘Notwithstanding the perceived threats posed by competitors, the future looks bright for the specialist, high-value litigation market in London.’

Last but not least of the home-grown obstacles is the IT capability of the Rolls Building and the English courts in general, which needs to operate at the very highest level. At the minimum, therefore, the court needs urgently to provide, as standard, that court papers can be electronically filed and managed by the court staff. Without this functionality, it will soon fall behind. This issue is already acknowledged: a new contractor, Thomson Reuters, has recently been announced, with an electronic filing system planned for late 2015.

Perhaps the most significant threat to the continued growth of the Commercial Court, though, is that posed by the various international courts which are being created in its image: why go to London if the dispute can be resolved in the same way and to the same standard somewhere closer to home? All present signs are that the serious competitors are ready to adapt:

• Commercial courts have been established in Dubai and Qatar, which are virtual clones of the London court and which include former English appellate judges on their benches.
• The Chief Justice of Singapore announced last December that it would by the end of this year open an international court to handle commercial disputes with little or no connection to Singapore (and thus to compete with Hong Kong and London). Further, the present suggestion is this Singaporean court will be more prepared than its English counterpart to treat proceedings as confidential, even following a unilateral application – another potential selling point for many would-be litigants, both in the Far East and worldwide.
• Following an abortive initial offering, in 2011, of an English-speaking Commercial Court in Germany intent on marketing itself as a ‘reasonably priced’ alternative, the proposal has recently been re-introduced to debate before the German legislature. It is too early to tell whether the proposals will materialise, let alone succeed, but the possibility of a major alternative European commercial court is increasingly real.

It would be a mistake to think that, because other commercial courts have yet to convince litigants to fight major cases there to the same extent, the possibility of rival courts presents no threat. All it takes is one success, and attitudes could shift very quickly.

And what of the United States? In the Gulf, a client recently asked me ‘why would I choose US [state] law?’. However, it seems that he, like a lot of non-US parties, is reluctant to use the US courts, not on account of the substantive laws of its states, but in trepidation of the most infamous aspects of its procedure: extensive deposition procedures, wide-reaching document discovery, punitive damages, civil jury trials, and less ability to recover fees from the opposing party. These are most famously cited as factors in the US which weigh more heavily on the mind of a would-be litigant. These issues, and the enthusiasm of US courts to exercise jurisdiction over disputes with minimal US contact, have undoubtedly damaged US interests.

But the US is on the case. In the context of one of the recent appeals to the US Supreme Court in cases concerning the exercise of jurisdiction over ‘foreign’ disputes (Daimler AG v Bauman), the solicitor general has remarked upon the danger to US business of court rulings that drive potential contract counterparties away from

the US (the same concern was recently echoed by the British government in another amicus brief in relation to the controversial In re Deepwater Horizon decision against BP). Separately, late last year, the New York State Bar designated a specific judge, Charles Ramos, to deal with cases involving international arbitration issues, to reflect a practice already in effect in Switzerland, Sweden, and of course, London’s Commercial Court.

It was after all an American, Herbert Hoover, who said that competition is not only the basis of protection to the consumer, but it is the incentive to progress. It is too early to tell whether the international commercial courts will achieve their aim of diverting their coveted consumer, the ‘friendly foreigner’, from the revolving doors of 100 Fetter Lane, but that competition should provide London litigators with the incentive to ensure that the enviable and dominant position of the Commercial Court is maintained.