Herbert Smith Freehills: Are UK disputes heading for the Brexit?

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Alan Watts

Partner, Herbert Smith Freehills

alan.watts@hsf.com

Well, we are where we are. ‘Brexit means Brexit’. The legal profession, in the very near term, stands to benefit. Clients, whether internal or external, will need comprehensive advice on how Brexit may affect their operations. From due diligence reviews aimed at uncovering Brexit sensitivities, to help formulating arguments for lobbying purposes and devising alternative structures, business for advisory and compliance practitioners will be increasingly brisk. Clients conducting Brexit due diligence may also require assistance in reviewing existing contracts for any terms that may be affected by Brexit, and seeking to agree amendments before a dispute arises. Courts may start to see an influx of litigation as parties seek to clarify the impact of Brexit on their contractual obligations, though it may be some time before Brexit-related litigation really gets going. Lawyers will be among the most influential advisers to government over the withdrawal from the EU and the policy agenda going forward. Our profession will have a real opportunity to influence and shape the legal landscape and future reciprocal arrangements not only in post-Brexit Britain but in other member states of the EU and further afield.

But what will Brexit mean for lawyers, and disputes practitioners specifically, over the longer term?

Pessimists are well catered for. A report commissioned by the Law Society, published prior to the referendum, predicted gloom for the legal sector in the event of Brexit. It found that even in the best-case scenario the sector would suffer losses to output and employment, and in the worst case could see a £1.7bn fall in annual output. It also found that the most negative effects on the legal services sector would be due to the sector’s reliance on intermediate demand from sectors that are likely to be adversely affected by Brexit, particularly the financial services sector and other professional services, and from the subsequent lower levels of business investment.

While that environment may adversely affect some UK-facing transactional activity in the short term, countervailing factors such as currency fluctuations may, however, have a rebalancing effect to some degree. And although, of course, in time there is the possibility of some clients seeing the need to relocate parts of their operations outside of the UK altogether, the overwhelming attitude remains one of wait and see, at least for the time being.

Firms operating within the UK seem less able to adjust to the effects of Brexit than those with an international network.

That there will be challenges for our industry to overcome is inevitable. It does seem likely that the effect on clients will be among the chief driving factors of the health of the legal sector and should clients relocate their businesses to Ireland or the continent, they will take with them some demand for legal services from the UK. Companies taking a wait-and-see approach may avoid big-ticket transactions or taking risks in the UK. In-house legal budgets and resources may be diverted away from litigation and toward tackling the business-wide implications of Brexit. Firms operating largely within the UK seem likely to be less able to adjust to the effects of Brexit than those with an international network. Any removal of freedom of movement will hinder the ability to move lawyers freely around a firm to meet business demands.

Further, there will be those who seek to suggest that a choice of English jurisdiction is no longer wise because of the risks that the recast Brussels Regulation will no longer apply between the UK and EU countries. None of this will be lost on London’s competitors in elite international dispute resolution, and we can expect the likes of Dubai, Singapore and New York to try to take advantage of any uncertainty around such issues and Brexit more generally and position themselves as a safer choice for sophisticated disputes.

Nevertheless, there is cause for optimism. The core principles of English contract law, such as interpretation of contracts and remedies for breach, remain unaffected by Brexit. The respect of English law for parties’ freedom of contract will make it a perennial favourite for commercial entities, and perhaps more so in light of the flexibility parties may choose to build into their agreements due to Brexit. The integrity and specialised expertise of the judiciary is unchanged, and parties will continue to enjoy access to high-quality legal advisers, litigation support services and first-class facilities. There is much to recommend London as a centre for dispute resolution and there are alternatives to the Brussels Regulation as discussed below. Statistics repeatedly show that London is an entrenched choice of parties for both arbitration and litigation. We in the profession have an important role in ensuring it remains so.

As disputes lawyers we can educate our clients and colleagues about the potential impact of Brexit upon dispute resolution in London. Parties should also be mindful of the dispute resolution clauses they wish to include in contracts should they be seeking enforcement in an EU member state. Although it is not clear at this stage what arrangements will replace the current regime, it seems inevitable that some arrangements will be put in place to safeguard mutual enforcement for the benefit of the UK and the remaining EU member states, particularly as enforcement is a two-way street. Nonetheless, where it may be necessary to enforce in an EU member state and there is any uncertainty as to that member state’s approach in the absence of specific arrangements, parties may wish to consider alternative arrangements, such as arbitration in London. Enforcement of an arbitral award will be governed by the familiar and well-established New York convention, upon which Brexit will have no impact. Disputes lawyers can also ensure clients are aware of the benefits of litigating in London, and keep the risks regarding the enforceability of judgments in perspective. Ultimately it is a question of balancing what are likely to be modest risks against the benefits of English law and London as a premier centre of excellence for dispute resolution.

We in the profession also have an important role to play as advocates of the English legal system. Industry regulators and professional bodies should work together to ensure that in the negotiations around Brexit the position and importance of the legal sector is not forgotten, not only because of the contribution the sector makes to the economy in its own right but because of the supporting role it plays to businesses and commercial parties across all sectors (and in particular financial services).

Of immediate concern should be a sensible solution to the issue of enforcement so as to preserve England’s attractiveness as a jurisdiction and competitive advantage as a dispute resolution centre. The UK could, for example, negotiate to join the Lugano Convention 2007. This applies currently to Norway, Switzerland and Iceland, and includes broadly the same terms as the Brussels I Regulation. While this would mean that parties would be unable to benefit from certain improvements introduced by the recast Brussels Regulation, it would nevertheless provide commercial certainty for parties and lawyers under a familiar regime. Failing this, the UK could seek to join the Hague Convention on Choice of Court Agreements, a multilateral treaty which currently applies only to the EU, Mexico, and soon, Singapore. This applies only to those disputes subject to an exclusive jurisdiction clause, so is necessarily restrictive.

While Brexit may offer opportunities for disputes lawyers in the short term, its longer-term effects are more unpredictable. While issues over enforcement, etc, will no doubt be dealt with in negotiations, the uncertainty that Brexit brings with it and the extended period over which that uncertainty will last could present real challenges. Businesses may not only be less willing to invest in litigation but also less willing to invest and do deals in the UK while that uncertainty remains. The fewer domestic transactions that are done today means the fewer UK-focused disputes there are likely to be in the future. It is therefore important that we and our transactional colleagues continue to advocate the advantages of English law and the English courts in international transactions.

Alan Watts is experienced in all forms of dispute resolution, including High Court litigation, arbitration and mediation proceedings. He was appointed in December 2015 as the firm’s new head of commercial litigation in London.

 

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Commercial Dispute Resolution Survey: Fighting strong

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As Legal Business publishes its third annual Disputes Yearbook, and the second annual survey sponsored by Cornerstone Research, we scope the views of in-house counsel and private practitioners to shine a light on trends within the international disputes market

Results from the annual trends report from Cornerstone Research indicate firstly that the appetite for large-scale commercial litigation has yet to abate in London and, furthermore, that London’s lawyers continue to be lauded as the dominant players of international disputes.

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Travers Smith: The rise and rise of competition litigation in England – what might the future hold in a brave new post-Brexit world?

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Caroline Edwards

Partner, Travers Smith

caroline.edwards@traverssmith.com

The reputation of London as a jurisdiction of choice for private competition damages claims is well documented. Recent developments had looked like cementing London’s status even further. These include:

  • Substantial reforms of the competition private actions regime in the UK introduced by the new Consumer Rights Act with effect from 1 October 2015, which has materially expanded the jurisdiction of the Competition Appeal Tribunal to hear private action damages claims and introduced both opt-in and (for UK-domiciled claimants) opt-out class actions, as well as the possibility of collective settlements for collective damages actions.
  • The implementation of the new EU Damages Directive* which is supposed to be implemented by the end of this year. The intention of the Directive is to make it easier for claimants to bring competition damages claims and to harmonise the minimum standard for such claims which are required to be met across the EU. Those standards include certain rebuttable presumptions (for example, as to pass-on) and the requirement to introduce a disclosure regime. In theory, the introduction of a minimum standard might mean that other EU jurisdictions become more attractive destinations to bring a claim than they may previously have been. However, the fact that many aspects of the EU Damages Directive have long formed part of English law (much of the Directive was modelled on the English system) such that England already has an experienced judiciary (and experienced body of legal practitioners), well versed in matters such as disclosure, means that England could expect to retain its status as a go-to jurisdiction following implementation.
  • Recent significant judgments from the English courts, including on issues such as disclosure, limitation and the territorial limits of claims, which have served to develop further English law jurisprudence and to clarify the law in this field, providing greater certainty to litigants.

In 2016 alone, Commission fines for cartel infringements have already exceeded €3bn. On these figures, plus the well-publicised £14bn claim which it is understood will be brought by way of class action against MasterCard on the horizon, the future of cartel damages disputes in England had looked to be well settled. However, following the referendum on 23 June 2016, the question now, naturally, is what the future holds for England as a destination for these claims.

While Brexit may mean Brexit, it is still far too early to tell what the impact will be on London’s status as a premier destination to bring competition damages claims.

While Brexit may mean Brexit, it is still far too early to tell what the impact will be on London’s current status as a premier destination to bring private action competition damages claims. Everything will, of course, depend on the Brexit terms which the UK is ultimately able to negotiate (and, importantly, whether the UK remains part of the EEA or not). Key issues will include:

  • the status of Commission decisions as evidence of infringement in private damages claims;
  • jurisdiction (and the risk of parallel proceedings, inconsistent decisions and possible anti-suit injunctions issued by other courts); and
  • the enforceability of English court judgments in Europe.

However, while there will be a risk of jurisdiction challenges, multiplicity of proceedings and inevitable uncertainty, English and EU competition law are closely intertwined after 43 years of the UK’s membership of the EU and a post-Brexit deal could still preserve much of what underpins England’s status as a go-to destination for these claims (particularly if a post-Brexit deal sees the UK as a member of the EEA). Moreover, with the existing well-established competition disputes infrastructure in London, England still has much to offer as a jurisdiction in which competition disputes should be determined. This includes:

  • the specialist legal and economic expertise of the Competition Appeal Tribunal, and a number of High Court judges with significant competition law expertise;
  • favourable procedural rules (including as to disclosure and limitation), combined with well-established judicial experience in applying those rules and a reputation for efficient and effective case management;
  • ever-increasing depth in the legal and expert economist market; and
  • the well-established presence of litigation funders with substantial familiarity with English law and the bringing of competition damages claims in the English courts, as well as a continuing strong appetite to fund competition damages claims.

If the terms of the Brexit deal enable England to retain jurisdiction of claims for EU-wide losses, we should certainly expect there still to be much for English competition litigators to do. Moreover, with the latest indications being that article 50 will not be triggered until the start of 2017, at the earliest, there is potentially a long tail of claims which may still be brought in the English courts regardless of what the Brexit deal ultimately is and (depending on the transitional arrangements) even the possibility of a sharp spike in cases as claimants look to bring pre-existing claims prior to the actual exit date to ensure that they benefit from the pre-Brexit regime.

*Directive 2014/104/EU of the European Parliament and of the Council of 26 November 2014 on certain rules governing actions for damages under national law for infringements of the competition law provisions of the member states and of the European Union.

Caroline Edwards is a partner in the dispute resolution department at Travers Smith and a member of the firm’s regulatory investigations group.  Her practice covers a broad range of high-value complex commercial disputes, including competition disputes. She has acted in a number of high-profile cartel damages cases brought in the English courts, including acting for members of the Schott group in their successful strike-out of the claim brought against them by members of the iiyama group of companies following the European Commission’s CRT glass cartel decision.

 

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Stewarts Law: The green shoots of English securities litigation

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Clive Zietman

Head of commercial litigation, Stewarts Law

czietman@stewartslaw.com

Unbeknown to many English lawyers there is an area of the law that has matured and developed in the US over the past 80 years but which, until recently, has hardly been recognised as a separate practice area. There are flickers of light that suggest that the situation may be on the verge of changing.

In the 19th century, when English company law was, in many ways, still in its genesis, a few leading cases established the building blocks for what survived thereafter and still exists today. One of those cases, frequently referred to on day one at most law schools is Foss v Harbottle (1843), a ruling that essentially established that if a wrong is done to a company, the company itself and only the company can sue, as opposed to any individual shareholder or group of shareholders. Over the years, that harsh rule was tempered such that shareholders were not left completely without protection and gained the ability to sue in what is now a raft of different circumstances. Case law developed to create exceptions to the rule in Foss and, with the added assistance of statute, derivative actions and minority shareholder petitions became just two examples of how matters moved on from first principles. What we have never had in this country, however, is anything akin to the well-developed structures that took root in the US in the 1930s and gave rise to wide-ranging statutory shareholder rights that enabled shareholders to sue with a direct cause of action against the company in a raft of circumstances where wrongdoing has been committed by the company itself, its directors or others. In the US there is a long history of securities litigation – cases in which aggrieved shareholders have sued the company when the company’s fortunes deteriorated and the value of its shares dropped as a result. No such regime exists here and there is no clamour for us to adopt an American approach any time soon.

This said, the sands have shifted over the past few years or so and investors who once saw the US as the only jurisdiction to assert claims have turned their attention elsewhere. The reason for this has been twofold. First, as a result of the well-publicised decision in Morrison v National Australia Bank, the US decided that it would no longer play host to cases involving foreign securities that have little or no connection with their home patch. Second, other countries such as Australia, the Netherlands and England have come to the attention of investors, keen to find a credible and palatable alternative.

‘In the US there is a long history of securities litigation. No such regime exists here and there is no clamour for us to adopt an American approach any time soon.’

In England two avenues for investor protection litigation were forged by sections 90 and 90A of the Financial Services and Markets Act 2000, which created statutory causes of action that go well beyond the ambit of the rather constrained common law options that had existed for centuries beforehand. In essence, section 90 makes a company that is responsible for listing particulars and prospectuses liable to compensate a person who has acquired shares to which the listing particulars or prospectus apply; and has suffered loss as a result of either: any untrue or misleading statement or omission. No reliance by the claimant needs to be proven, as it would in, for example, a common law misrepresentation case. Section 90A creates a cause of action for persons who have suffered loss as a result of a dishonest misleading statement or omission in a wide range of published information relating to shares, or a dishonest delay in publishing such information but in this instance the claimant must prove reliance. Statutory defences exist, including a ‘reasonable belief’ defence.

Apart from the well-publicised current case brought against The Royal Bank of Scotland (RBS) by its shareholders under section 90, there have been precious few cases commenced at all (and no reported case law) that can properly be described as English securities litigation. The reasons for this are manifold but they include the following:

  • Prospectuses and other published material are generally accurate and reputable companies go to great lengths employing expensive corporate lawyers to ensure that this is the case.
  • There is nothing in England akin to an opt-out American-style class action system, which makes the framework of a shareholder action very difficult if there are disparate claimant shareholders.
  • Bringing a shareholder claim against a substantial company is not for the faint-hearted – it is time-consuming and very expensive and requires considerable resource and expertise.
  • The risk of adverse costs liability puts off many prospective claimants although there are avenues for insuring against this, nowadays these are often built into a third-party funding package.
  • Whereas the US system actively encourages ‘roll-of-the-dice’ litigation with jury trials, limited adverse costs and mega-damages, ours does the very opposite.

Notwithstanding the above, there are some who believe that we are witnessing a new dawn for investor protection litigation in England and there are strong signs of new cases being developed. There would appear to be a number of reasons for this. First, there seems to be a growing mood among sophisticated institutional investors (such as pension funds and asset managers) that on one level, they have a duty at least to consider possible claims. Second, new funding and after-the-event insurance models and the permissibility of contingent fee arrangements have made feasible claims that perhaps once would not have been. Third, there is a growing awareness of investor protection generally. The Morrison case has forced institutions who historically limited their horizons to the US to look elsewhere. England has the advantage of being a well-respected and stable forum for dispute dissolution coupled with a disclosure regime which, although not as extensive and probative as that administered in the American courts, does make England a more attractive place than continental Europe where reliance discovery tends to be the order of the day. There is much talk in the media about shareholder ‘class actions’ often discussed in the context of a growing compensation culture. In reality there is little reason to believe that in the short term we are likely to see a full-blooded US-style class action system here that would make cases of this kind much easier to run and administer. That said, the mood music suggests that the times they are a changing.

Clive Zietman is a well-known commercial litigator who has been involved in a wide range of complex high-value claims, including a number of very high-profile fraud, professional negligence and banking disputes. His work regularly involves an international dimension. He has acted in several well-publicised cases, including the bankers’ bonus case against Commerzbank and the RBS shareholder litigation.

He leads the commercial litigation team at Stewarts Law and over the past few years he has been involved in several actions against banks, a task which most central London law firms are unable to undertake as a result of conflicts of interest.

 

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Signature Litigation: Contractual interpretation – eyes on the Financial List

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Abdulali Jiwaji

Partner, Signature Litigation

abdulali.jiwaji@signaturelitigation.com

Sarah Kelly

Associate, Signature Litigation

sarah.kelly@signaturelitigation.com

Disputes over contractual interpretation find their way to the courts relatively frequently, leaving judges to unpick the wording of complex commercial agreements which will often have been negotiated in detail over many months. The courts will have to weigh up the natural meaning of the words in the contract after hearing arguments driven by the commercial implications of different interpretations for the parties involved, and what one might conclude after applying business common sense. The establishment of the Financial List is itself testament to the complexities encountered by the court in resolving financial markets disputes, and in these types of cases the exercise of contractual interpretation can involve more complexities than most.

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Hardwicke: International commercial arbitration: security for costs and third-party funding

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Nigel Jones QC

Hardwicke

nigel.jones@hardwicke.co.uk

Frederico Singarajah

Hardwicke

frederico.singarajah@hardwicke.co.uk

‘As arbitration clauses are widespread in some sectors of economic activity, there has been a serious impediment to the development of the common law by the courts in the UK [though] the UK has not reached the stark example… in the United States, where mandatory arbitration clauses in contracts are removing whole classes of claim from the jurisdiction of the courts and undermining aspects of the law’s development,’ noted Lord Chief Justice Thomas in his 2016 Bailii lecture. As he tries to reverse the arbitration tide so the common law can continue to develop public precedents, others are still promoting arbitration as the best way forward.

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Niederer Kraft & Frey: Does transparency make arbitration more efficient?

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Daniel Eisele

Partner, Niederer Kraft & Frey

daniel.eisele@nkf.ch

Tamir Livschitz

Partner, Niederer Kraft & Frey

tamir.livschitz@nkf.ch

In recent times, a lot has been said and written in favour of, or against, transparency in international commercial arbitration. The transparency discussion has thus far culminated in the promulgation of the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration and the new policy adopted by the International Chamber of Commerce (ICC) International Court of Arbitration to publish certain information on arbitrators also in commercial arbitration. According to the ICC Court website, the new policy is ‘aimed at enhancing the efficiency and transparency of arbitration proceedings’. Parties can opt out of this limited disclosure and can request the ICC Court publish additional information about their case. The new rules and policies promoting transparency in arbitration seem to be an attempt by the ICC Court and others to address the increased criticism launched against arbitration in recent times as being an inefficient means to resolve disputes.

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The Commercial Litigation Summit 2016: Marked to market

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In a centrepiece debate, a group of heavyweight disputes veterans came together to discuss London’s much-lauded new finance court. Can it live up to expectations?

Even amid a packed programme at Legal Business‘s second annual Commercial Litigation Summit, the discussion on the newly-launched Financial List, the dedicated court backed by specialist judges and an innovative appeals track, was a highlight of the day.

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The Commercial Litigation Summit 2016: Dangerous territory

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In an unusual session, Legal Business united top M&A lawyers and litigators to forecast the next wave of disputes to come when the deal cycle turns

It is a received wisdom of the legal industry that the economic cycle inevitably turns from market excesses and greed of the boom to the recrimination and disputes in the following recession. Yet in detail, the pattern – and corresponding risks – never play out the same way.

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Duelling dragons – the Asia disputes outlook

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Hong Kong remains Asia’s disputes capital but Singapore continues to close the gap with sustained investment attracting more litigation and arbitration work

For so long the epicentre of dispute resolution in Asia, events have conspired in recent history to undermine Hong Kong’s status. Two years ago, hundreds of members of the judiciary led a silent march in response to a diktat from Beijing challenging the judicial independence of Hong Kong from the mainland. It was the start of what became known as the ‘umbrella movement’ protests.

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