SFO in the spotlight once again after stuttering investigations
Now a few years into the Lisa Osofsky era of the Serious Fraud Office (SFO), the jury is still out on the agency’s performance.
There have been successes: white-collar crime lawyers agree that the SFO’s near-€1bn deferred prosecution agreement (DPA) with Airbus in January 2020 was a solid achievement, with Stewarts’ fraud partner David Savage praising the international co-operation involved in securing the plea deal.
As of March 2021, the SFO had also successfully prosecuted four former oil executives as part of the wide-ranging Unaoil investigation, which uncovered over $17m worth of bribes paid to secure $1.7bn worth of contracts for Unaoil and its clients.
However these successes are increasingly fading in the rear-view mirror, with recent wins few and far between. The agency’s reputation was not helped by the unceremonious closing of its three-year bribery probe into British American Tobacco (BAT) in January, which drew ire from commentators. Founding partner of Stokoe Partnership Solicitors, Bambos Tsiattalou, says: ‘Yet another Serious Fraud Office investigation has collapsed. Its investigation into British American Tobacco began over three years ago and it has not been able to build a case strong enough to secure a result in that time. Better judgement should be exercised before such huge investigations
are embarked upon.’
But perhaps an even more damaging reverse was the February Supreme Court ruling that the SFO’s ‘Section 2’ powers, which compel companies to produce documents to assist investigations, can not be exerted over foreign companies that have no UK-based office. US engineering and construction company KBR successfully appealed to the Supreme Court on the basis that the SFO’s Section 2 powers were not extraterritorial in nature.
Savage comments: ‘The SFO tried to do something that pretty clearly did not have an extraterritorial effect. The Supreme Court said that you can’t just interpret a statute in any way that suits your needs.’
In future, the SFO will still be able to request such documentation, but will have to go via the mutual legal assistance route, which is recognised as being much slower. As Savage dryly notes: ‘More than the logistical issue, this is now a reputational issue for the SFO.’
So what does the SFO need? Savage speculates that a leadership shakeup or a refreshed approach to investigations is in order: ‘They have taken a general view that they will stop investigations if they feel they do not have enough evidence, which perhaps isn’t bullish enough.’
But one Magic Circle white-collar partner claims that ‘reports of the SFO’s death have been greatly exaggerated’ before identifying what they consider to be the key issue: ‘They’re dealing with legacy cases, but what they’re not doing is opening new investigations. I’m not quite sure what they are doing. When this crop comes to an end I don’t know what’s next for them.’
However if there is a lifeline for the agency, it may come oddly from the Covid-19 pandemic, which is sure to produce a healthy wave of fraud work in the next couple of years.
Masterclass in virtual justice as FCA wins Supreme Court Covid-19 test case
A ruling with profound implications for businesses struggling to survive during the Covid-19 pandemic, the Financial Conduct Authority’s (FCA) coronavirus business interruption insurance test case was also a fine example of virtual justice.
The cause sought to determine whether companies have valid business disruption insurance claims as a result of the Covid-19 pandemic. In just seven months, right in the heart of the first wave of the pandemic in the UK, the case went from issuance to a detailed 112-page Supreme Court judgment thanks largely to video and other technology enabling remote hearings.
Allen & Overy partner Lawson Caisley represented insurer Hiscox on the case, and describes the slick virtual procedure as a ‘great advert for the English courts.’ Stewarts partner Mo Bhaskran hails the ‘astonishing’ process and notes how vital it was that a critical matter effecting hundreds of thousands of policy holders was resolved so expediently.
In fact, despite the case being a major loss for insurers, who will now inevitably have to pay out large sums, the swift decision was appreciated. Says Caisley: ‘There’s no real narrative of insurers being dragged kicking and screaming to court. In fact it was a good exercise in co-operation. This was considered an issue of general importance for insurers and they appreciate the court’s clarity.’
Simmons & Simmons partner Felix Zimmermann represented insurer Argenta Holdings on the case, which he describes as a ‘record breaking-quick procedure.’ He also praises the good-natured collaboration shown by both the claimant and defendant legal teams throughout, and notes that everyone ‘worked around the clock, from 6am to midnight most days.’
Despite this, Bhaskran emphasises the importance of the decision, which will affect 370,000 policyholders: ‘Insurance policies are not easy to write. Hiscox prides itself on clear policies in plain English, but they will have to take this one on the chin. From the policyholders’ point of view, they will say “we have got a business interruption policy related to disease.” But Hiscox would never have expected this to have impacted on Covid. It was only every intended to cover businesses from a small-scale event close to the local premises.’
And in further bad news for the insurers, Zimmermann notes that the decision will inevitably lead to follow-on professional negligence claims against insurers. Claimant firms will of course welcome such news however, with Quinn Emanuel Urquhart & Sullivan partner Boris Bronfentrinker observing: ‘This FCA judgement will definitely trigger more litigation.’
Practical implications of post-Brexit disputes
It has been a topic looming over the disputes market since the seminal Brexit vote in 2016 – to what extent will the UK’s withdrawal from the European Union affect its desirability as a disputes forum? For a few years this has been largely a predictive exercise, but since officially leaving the bloc, there are real-world experiences to assess.
‘The reality is that commercial contracts still plump for English law on much more of a regular basis than anywhere else. All the advantages London had, it pretty much still has.’
Tom Hibbert, RPC
Outside of the worries around the practical implications of being outside of the EU, some counsel had feared that Brexit would leave clients concerned (rightly or wrongly) and therefore the UK would decrease in desirability as a disputes hub. However RPC head of commercial disputes Tom Hibbert robustly dispels such a suggestion:
‘People choose London for a variety of reasons and being in the EU has always been one, although not a very substantial one. Are you going to prefer London or Frankfurt? Well, it’s London obviously, because we’ve got a much better infrastructure for big litigation. The reality is that commercial contracts still plump for English law on much more of a regular basis than anywhere else. All the advantages London had, it pretty much still has. London has had the pre-eminent commercial court in the world for the last 300 years. The idea that was driven by our membership of the EU is a bit silly.’
This is a widely-shared view in the market, and therefore most concerns are in relation to the practical implications. A potentially significant issue in this regard stems from the UK’s absence from both the Lugano Convention and the Brussels (Recast) Regulation, both of which ensure that parties’ contractual choice of jurisdiction is enforced and that judgments are recognisable and enforceable across the EU.
‘Brexit is not a cause for uncertainty or complication but if it results in international companies deciding to agree in their contracts to arbitrate in another jurisdiction just in case, then that will affect the flow of international arbitrations into London.’ William Cecil, Haynes and Boone
Therefore in April 2020 the UK applied to join the Lugano Convention, but this relies on the approval of every member of the Convention, which includes the EU itself. Some in the market were relaxed about this, whereas others were more cautious. Simmons & Simmons litigation partner Elizabeth Williams said: ‘This poses a real risk to the procedural aspects of commencing litigation in this jurisdiction. People think that us joining Lugano will be a rubber-stamping exercise, but that’s not the case.’ She added that the EU taking a long time to reveal its position on the UK’s application was a worrying sign.
Sure enough, as the Disputes Yearbook went to press, the pessimists’ worst fears were realised when the EU opted to veto the UK’s ascension to the Lugano Convention. While this is sure to be bad news for the City’s litigators, this new lack of wide enforceability is likely to be quietly welcomed by London’s arbitrators who are largely immune to such concerns and therefore predict a potential large-scale client shift from litigation to arbitration. Head of Haynes and Boone’s London dispute resolution team, William Cecil, notes that arbitration awards are enforced internationally under the New York Convention (which has over 150 signatory countries), which is not impacted by the UK’s EU membership.
He asserts that London is and will remain ‘the leading seat for arbitration’, but he recognises the danger in clients not receiving this message: ‘Brexit is not a cause for uncertainty or complication but if it results in international companies deciding to agree in their contracts to arbitrate in another jurisdiction just in case, then that will affect the flow of international arbitrations into London.’ LB