ISSUE FIVE 2017 FUNDING IN FOCUS Third-party funding – The French perspective Winning by design: An outsider’s view of third-party funding at Vannin Capital Who wins, where and why? Paris, France 60 seconds Q&A with Kenny Henderson “Stand by Your Man”: A reminder of the need to choose your funder wisely Third-party funding in investor-state arbitrations: “A common practice” that is “relatively widespread” JUSTICE at 60 Litigation funding in offshore jurisdictions – Funding in Jersey and Guernsey
CONTENTS Contributors ................................................................................................. 4 Welcome ....................................................................................................... 7 by Yasmin Mohammad, Senior Counsel, Vannin Capital Third-party funding – The French perspective .......................................... 8 by Quinn Emanuel Urquhart & Sullivan and Teynier Pic, with introductory remarks from Vannin Capital Winning by design: An outsider’s view of third-party funding at Vannin Capital ...................................................... 14 by Freshfields Bruckhaus Deringer Who wins, where and why? Paris, France ............................................... 18 by Vannin Capital 60 seconds Q&A ......................................................................................... 30 with Stewarts Law and Vannin Capital “Stand by Your Man”: A reminder of the need to choose your funder wisely ................................................................... 34 by Vannin Capital with commentary from Jones Day and Brick Court Chambers Third-party funding in investor-state arbitrations: “A common practice’ that is “relatively widespread”............................. 42 by Vannin Capital and with commentary from ICSID at the World Bank, Freshfields Bruckhaus Deringer, Torys and Borden Ladner Gervais JUSTICE at 60 ............................................................................................ 48 by JUSTICE with introductory remarks from Vannin Capital Litigation funding in offshore jurisdictions – Funding in Jersey and Guernsey ������������������������������������������������������������� 54 by Mourant Ozannes VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 | 3 JEFFERY COMMISSION SENIOR COUNSEL, VANNIN CAPITAL +1 202 320 3646 firstname.lastname@example.org Jeffery Commission is a member of the global Vannin team advising clients based in the U.S., Canada and across South America on the benefits of third-party dispute funding. He has 15 years of experience as counsel, specialising in investment treaty arbitration and international commercial arbitration advising on multi-million and multi-billion dollar bilateral investment treaty arbitrations under ICSID, ICSID Additional Facility and UNCITRAL arbitration rules, and international commercial arbitration proceedings under ICC, LCIA, and NAI arbitration rules. Previously, Jeffery was a senior associate in the International Arbitration Group at Freshfields Bruckhaus, has practiced litigation and arbitration with Shearman & Sterling and Linklaters, and worked as a research assistant for Philippe Sands QC in London. He is admitted to the New York Bar. ANDREA COOMBER DIRECTOR, JUSTICE +44 (0)20 7329 5100 email@example.com Andrea Coomber has been Director of JUSTICE since February 2013. Between 2002 and 2013 she was Equality Lawyer and then Legal Director at INTERIGHTS (the International Centre for the Legal Protection of Human Rights) where she litigated key cases before the European Court of Human Rights and the African Commission on Human and Peoples’ Rights. In Strasbourg, Andrea has advised applicants in landmark cases and has intervened as a third-party in numerous cases. For a decade, Andrea trained lawyers and judges on international law and equality law in Africa, Europe, Asia and the Pacific. Before joining INTERIGHTS, she worked at the International Service for Human Rights in Geneva and at the South Asia Documentation Centre in New Delhi. She is qualified as a barrister and solicitor in Australia. GORDON DAWES PARTNER, MOURANT OZANNES +44 (0)1481 731 474 gordon.dawes@ mourantozannes.com Gordon Dawes is a partner in the Guernsey Litigation and Dispute Resolution practice. He practised from London Chambers for eight years before moving to Guernsey in 1998, and has been a partner since 2003. Gordon has extensive experience before the English and Guernsey Courts at all levels and a special interest in Guernsey and English common law. He has a substantial commercial law, professional negligence and insured risk practice and is Guernsey’s most renowned public lawyer, taking cases to the Supreme Court and Privy Council. He has appeared in some of Guernsey’s most substantial cases. He also wrote Guernsey’s leading legal textbook. JUSTIN HARVEY-HILLS PARTNER, MOURANT OZANNES +44 (0)1534 676 105 justin.harveyhills@ mourantozannes.com Justin Harvey-Hills is a partner based in Jersey who specialises in banking, financial services, corporate and trusts litigation. He has particular experience of investment and employee fraud, asset recovery, antimoney laundering legislation, regulatory investigations and trust disputes. Justin spent six years with Simmons & Simmons in London before joining Mourant Ozannes, and is also an accredited mediator. KENNY HENDERSON PARTNER, STEWARTS LAW +44 (0)20 7936 8108 khenderson@ stewartslaw.com Kenny Henderson is a commercial litigator with particular expertise in competition litigation, having represented clients on some of the highest profile claims filed in Europe to date. Kenny also has broad experience in general commercial litigation, in particular in regulated sectors including pharma and tech. Unusually, Kenny has experience acting for both claimants and defendants, giving him useful insights on strategy and approach. He has represented multi-national clients on competition claims, including in global and European cartels damages claims, and has successfully litigated bet-the-company claims, including on expedited timetables to trial. CONTRIBUTORS 4 | VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 ROSEMARY IOANNOU SENIOR COUNSEL, VANNIN CAPITAL +44 (0)7808 254 800 firstname.lastname@example.org Rosemary Ioannou is a member of the global Vannin team advising clients based in Europe, CEE/CIS region and across MENA on the benefits of third-party dispute funding. Rosemary has experience both in private practice and as funder in a wide range of disputes both in the UK and internationally. She has particular expertise in funding large complex matters, including insolvency and competition related disputes. A solicitor of the Courts of England and Wales, Rosemary was a senior associate in the litigation department at Allen & Overy in London, where she trained and qualified before joining Vannin. Rosemary has spent time on secondment at the Court of Appeal as judicial assistant to Lord Justice Dyson (now Lord Dyson) and at TUI Travel Plc. TOM MCDONALD COUNSEL, VANNIN CAPITAL +61 (0) 438 071 656 email@example.com Tom McDonald is a member of the global Vannin team advising clients based in Australia and Asia on the benefits of third-party dispute funding. Previously a senior associate in the insolvency team at Ashurst, Tom has been involved in litigation at all levels of the Australian court system including the High Court of Australia. He has particular experience advising on matters involving contractual disputes and complex financial instruments and securities. Tom is a solicitor of the Supreme Courts of New South Wales and Queensland and the High Court of Australia. IAIN MCKENNY GENERAL COUNSEL OF DISPUTES, VANNIN CAPITAL +44 (0)7432 553 482 firstname.lastname@example.org Iain McKenny is a member of the global Vannin team advising clients based in Europe, Canada and across MENA on the benefits of third-party dispute funding. His formative years were spent with Freshfields Bruckhaus Deringer in London before he moved to Paris to join Latham & Watkins as a senior associate in International Arbitration. He specialises in cross-border disputes in both litigation and arbitration. He is also experienced in investor/ state disputes in a variety of jurisdictions across various sectors and industries. Iain is a solicitor of the Courts of England and Wales and a registered foreign lawyer at the Paris Bar. ISABELLE MICHOU PARTNER, QUINN EMANUEL URQUHART & SULLIVAN +33 1 73 44 60 00 isabellemichou@ quinnemanuel.com Isabelle Michou is a partner at Quinn Emanuel Urquhart & Sullivan, based in Paris. Her practice focuses on international arbitration and international law. She acts for both large corporations and States, and has developed substantial expertise in a range of industries, including in the energy sector, aerospace, large-scale infrastructure projects and hospitality sector. She has appeared before numerous high-profile arbitral tribunals, under the auspices of the major institutional rules including ICC, ICSID, LCIA, Stockholm Chamber of Commerce, as well as ad hoc arbitrations under the UNCITRAL Rules. Isabelle also appears in arbitration-related proceedings before the French courts, in cases involving issues of sovereign immunities, interlocutory, interim or conservatory relief, enforcement and challenges of arbitral awards. She is regularly appointed arbitrator under the ICC Rules or other rules. Isabelle teaches international arbitration at Sciences Po Law School in Paris and is a visiting lecturer at the School of International Arbitration of the London Queen Mary University. She is French and Canadian, and is dual qualified as a Paris avocat and a solicitor of England and Wales. YASMIN MOHAMMAD SENIOR COUNSEL, VANNIN CAPITAL +33 (0)6 18 35 42 90 email@example.com Yasmin Mohammad is a member of the global Vannin team advising clients based in Europe, Asia and across MENA on the benefits and options that third-party dispute resolution funding can provide to their practice or business. Prior to joining Vannin, she advised private, institutional and sovereign clients in Paris and Dubai at international law firm Freshfields Bruckhaus Deringer in the context of international arbitration proceedings. Yasmin is a Franco-Iranian lawyer admitted to the New York Bar who is specialised in public international law, private international law and international arbitration. PIP MURPHY DIRECTOR OF INVESTMENTS, VANNIN CAPITAL +61 (0) 438 260 712 firstname.lastname@example.org Pip Murphy is a member of the global Vannin team advising clients based in Australia and Asia on the benefits of third-party dispute funding. Previously a partner in the dispute resolution team and head of the firm’s Asia Pacific Risk and Crisis Management Practice Group at Baker & McKenzie, Pip has extensive experience in corporate and commercial disputes both in Australia and internationally. She has advised on investigations, mediation, litigation (including class actions) and arbitration. Pip is a solicitor entitled to practice in all Australian jurisdictions (Commonwealth, State and Territory). MAXIM OSADCHIY ASSOCIATE, FRESHFIELDS BRUCKHAUS DERINGER AND SECONDEE TO VANNIN CAPITAL +44 (0) 7715 854 177 email@example.com Maxim Osadchiy is currently on secondment at Vannin Capital from Freshfields Bruckhaus Deringer. He has worked as an associate at Freshfields in Paris and London, having started his career in the Moscow office of the firm. Maxim represents clients in complex international disputes under the LCIA, ICC, SCC, and VIAC Rules and has experience in investment treaty arbitrations under lCSID and UNCITRAL Rules involving parties from CIS and Eastern Europe. He has also spent time at Wilmer Cutler Pickering Hale and Dorr in London and the LCIA. He is admitted to the New York Bar and is qualified to practise law in Russia. PIERRE PIC FOUNDING PARTNER, TEYNIER PIC +33 1 53 45 97 02 firstname.lastname@example.org Co-founder of Teynier Pic, Pierre Pic practices business litigation as well as international commercial and investment arbitration in numerous sectors, such as telecommunications, space, arms, construction (including ship building), and chemicals. He regularly intervenes in arbitration cases concerning international commercial contracts, industrial litigation, equity finance litigation in mergers and acquisitions and matters of corporate law. Pierre Pic is also regularly called upon as an arbitrator in international matters. VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 | 5 CLAUDIA ANNACKER PARTNER, CLEARY GOTTLIEB STEEN & HAMILTON LLP +33 1 40 74 68 00 email@example.com STÉPHANE BRABANT PARTNER, HERBERT SMITH FREEHILLS PARIS LLP +33 1 53 57 78 32 firstname.lastname@example.org CAPUCINE DU PAC DE MARSOULIES SENIOR ASSOCIATE, JEANTET +33 1 45 05 80 48 email@example.com LAURENCE FRANC-MENGET OF COUNSEL, HERBERT SMITH FREEHILLS PARIS LLP +33 1 53 57 73 70 firstname.lastname@example.org JEAN YVES GARAUD PARTNER, CLEARY GOTTLIEB STEEN & HAMILTON LLP +33 1 40 74 68 00 email@example.com JACQUES-ALEXANDRE GENET FOUNDING PARTNER, ARCHIPEL +33 (0)1 40 54 51 00 firstname.lastname@example.org HAMID GHARAVI FOUNDING PARTNER, CABINET DERAINS & GHARAVI +33 1 40 55 51 00 email@example.com ZANE KENNEDY PARTNER, MINTER ELLISON RUDD WATTS +64 9 353 9893 firstname.lastname@example.org EMMANUEL KASPEREIT COUNSEL, ARCHIPEL +33 (0)1 40 54 51 00 email@example.com MEG KINNEAR SECRETARY-GENERAL OF THE INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES (ICSID) AT THE WORLD BANK +1 202 458 1534 firstname.lastname@example.org ELIE KLEIMAN PARTNER, FRESHFIELDS BRUCKHAUS DERINGER LLP +33 1 44 56 44 56 email@example.com THIERRY LAURIOL PARTNER, JEANTET +33 1 45 05 80 48 firstname.lastname@example.org HARRY MATOVU QC BRICK COURT CHAMBERS +44 (0) 20 7379 3550 email@example.com HUGH MEIGHEN SENIOR ASSOCIATE, BORDEN LADNER GERVAIS LLP +1 416 367 6614 firstname.lastname@example.org CHARLES NAIRAC PARTNER, WHITE & CASE LLP +33 1 55 04 15 41 email@example.com THÉOBALD NAUD COUNSEL, DLA PIPER PARIS LLP +33 1 40 15 24 18 firstname.lastname@example.org XAVIER NYSSEN PARTNER, DECHERT (PARIS) LLP +33 1 57 57 80 01 email@example.com MICHAEL OSTROVE PARTNER, DLA PIPER PARIS LLP +33 1 40 15 24 94 firstname.lastname@example.org ERWAN POISSON PARTNER, ALLEN & OVERY LLP +33 1 40 06 55 18 email@example.com JOSÉ MANUEL GARCÍA REPRESA PARTNER, DECHERT (PARIS) LLP +33 1 57 57 80 40 firstname.lastname@example.org CAROLINE RICHARD PARTNER, FRESHFIELDS BRUCKHAUS DERINGER +1 202 777 4561 email@example.com SHAPARAK SALEH COUNSEL, FRESHFIELDS BRUCKHAUS DERINGER LLP +33 1 44 56 44 56 firstname.lastname@example.org MYRIAM SEERS SENIOR ASSOCIATE, TORYS LLP +1 416 865 7535 email@example.com MARIE STOYANOV PARTNER, ALLEN & OVERY LLP +33 1 40 06 55 18 firstname.lastname@example.org MELANIE VAN LEEUWEN PARTNER, CABINET DERAINS & GHARAVI +33 1 40 55 51 00 email@example.com CHRISTOPHE VON KRAUSE PARTNER, WHITE & CASE LLP +33 1 55 04 15 70 firstname.lastname@example.org LUCAS WILK PARTNER, JONES DAY +61 8 6214 5737 email@example.com CONTRIBUTORS WITH COMMENTARY FROM: 6 | VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 From DC to Sydney, from investor-state arbitration to offshore litigation. Funding in Focus aims to advise our readers across the globe on the salient innovations with in-depth analyses of third-party dispute resolution funding drawing from Vannin Capital’s breadth of experiences and the expertise of our esteemed contributors. A particular emphasis on Paris will be obvious to all. In light of Vannin Capital’s resolute support of the first Paris Arbitration Week, the recent announcement of the Paris Bar Resolution confirming the legality of third‑party funding, the continued influence of the Parisian legal community across continents and naturally, the strong ties that link our team to the City of Light, it was ineluctable. Unmistakably, we are most honoured to share the expert perspectives of our contributors from all fields of dispute resolution. As the industry grows, the diversity of dispute funding mechanisms increases and Funding in Focus will continue to highlight the various options with illustrations, analyses, and explanations. Do not hesitate to bring to our attention a topic you would like to read about or to write about. YASMIN MOHAMMAD SENIOR COUNSEL, VANNIN CAPITAL WELCOME Funding in Focus is published twice a year. Subscribe to receive this publication in advance of its general release by emailing: VanninMarketing@vannin.com VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 | 7 1 Paris launches arbitration week, GAR, 27 February 2017: http://vannin.com/press/pdfs/27-2-17-Paris-Launches-Arbitration-Week.pdf BY ISABELLE MICHOU PARTNER, QUINN EMANUEL URQUHART & SULLIVAN AND PIERRE PIC FOUNDING PARTNER, TEYNIER PIC WITH INTRODUCTORY REMARKS FROM YASMIN MOHAMMAD SENIOR COUNSEL, VANNIN CAPITAL THIRD-PARTY FUNDING – THE FRENCH PERSPECTIVE IS PARIS THE NEW HUB FOR THIRD-PARTY FUNDING? The popularity of international arbitration in Paris has been established for decades. This is largely due and thanks to the International Chamber of Commerce based in Paris, which was created in the aftermath of World War I. The ICC created the ICC International Court of Arbitration, its arbitral institution tasked with administering arbitration disputes, shortly thereafter in 1923. Since the 1920s, the strength of the ICC International Court of Arbitration has grown considerably year after year. In 2016, a total of 966 new cases administered by the ICC were filed involving 3,099 parties from 137 countries. Although not all ICC arbitrations are seated in Paris, clearly this represents the tip of the iceberg as the number of ad hoc and other institutional arbitrations taking place in Paris are difficult to account for. Furthermore, the very large arbitration community based in Paris is a testament to its continuing attractiveness. Notwithstanding, the turnout and the enthusiasm surrounding the first Paris Arbitration Week1 (“PAW”) was remarkable. As the founding member of the PAW Organisation Committee, I was taken by surprise by the unexpected but thoroughly desrved success of the week and of each and every event. 8 | VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 | 9 Given the growing importance of thirdparty funding in international arbitration, the topic received much attention during the week. Vannin Capital co-organised and co-hosted with August Debouzy and the Sorbonne Law School an afternoon of debates and round tables on the ethical and financial considerations of third-party funding with a much applauded keynote speech by Charles Nairac, partner at White & Case’s Paris arbitration team. In particular, the Paris Bar took advantage of PAW to release its recommendations to lawyers working on funded cases making sure to clarify that third-party funding was legal in France and a positive step towards access to justice. I had the honour to be invited to speak at the inaugural event held in the prestigious Paris Bar Library to share the views of the funding industry. With Paris having reclaimed its title of the most popular arbitration seat thanks to Brexit and this significant step taken by the Paris Bar, Paris must be the next natural hub for third-party funding, must it not? The members of the Paris Bar’s Working Committee on third-party funding, Isabelle Michou, partner at Quinn Emanuel Urquhart & Sullivan and Pierre Pic, founding partner of Teynier Pic, follow this introduction with a summary and commentary of the Working Committee’s Report and the resulting Resolution. THIRD-PARTY FUNDING – THE FRENCH PERSPECTIVE On 21 February 2017, the Paris Bar Council adopted a Resolution on the practice of third-party funding in international arbitration, which was presented for the first time to the public in April, during Paris Arbitration Week. This development has been in the pipeline for a while: it was set into motion in September 2015, when three different sub-committees under the aegis of the Paris Bar recognised the need for lawyers of the Paris Bar to examine the interplay between their professional ethics obligations in legal proceedings involving a funder. This may be attributed to a multitude of factors: a steady rise in the practice of thirdparty funding in international arbitration; the lack of regulation within the thirdparty funding industry apart from certain codes of conduct; and possible implications on the ethical obligations of lawyers, especially as members of the Paris Bar. To fill in the gaps therefore, the Paris Bar created a Working Committee to conduct a review of the practice and impact of third-party funding on arbitration and to make proposals in regard to the rules of professional ethics of French lawyers. This Working Committee was chaired by Isabelle Michou of Quinn Emanuel Urquhart & Sullivan and Pierre Pic of Teynier Pic, and included Louis Degos of K&L Gates, Jean-Yves Garaud of Cleary Gottlieb Steen & Hamilton, Carine Dupeyron of Darrois Villey Maillot Brochier and Jalal El Ahdab of Ginestié Magellan Paley-Vincent. The Working Committee convened on several occasions in 2016; the result of their work is presented in a Report dated 23 November 2016 titled “Le financement de l’arbitrage par les tiers (“Third-party Funding”)” and the Resolution adopted therein (http://bit.ly/2rQG3SY). PARIS, SINGAPORE AND HONG KONG – MOVEMENTS IN TANDEM The Resolution of the Paris Bar has come to light at a time when third-party funding related regulations are unfurling halfway across the world: in Singapore and Hong Kong. In Singapore, the Civil Law (Amendment) Act 2017 was passed on 1 March 2017. It abolished the common-law torts of champerty and maintenance and confirms that third-party funding is not contrary to public policy or illegal for ‘prescribed dispute resolution proceedings’ including international arbitrations and related court and mediation proceedings. Concurrently, it also made amendments to the Legal Professional Act and the professional conduct rules for lawyers in Singapore on points of disclosure and financial interest. Practitioners are now required to disclose to the court or tribunal and to every other party to The Resolution of the Paris Bar has come to light at a time when third-party funding related regulations are unfurling halfway across the world: in Singapore and Hong Kong. THIRD-PARTY FUNDING – THE FRENCH PERSPECTIVE 10 | VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 the proceedings, the existence of any third-party funding contract and the identity of any funder involved at the start of the proceedings or as soon as practicable after the funding contract is entered into. Further, lawyers themselves are prohibited from holding financial or other interest in funders or receiving any referral, commission or share of the proceeds from them. In Hong Kong, it is anticipated that the government will soon introduce legislative amendments to clarify that third-party funding in arbitration is not prohibited by the same doctrines of champerty and maintenance. It remains to be seen if these amendments will introduce added obligations on lawyers; what is known at this stage is that the proposed amendments will set out standards and practices that funders must follow, including financial and ethical obligations. Further, on disclosure, a funded party in Hong Kong must notify the tribunal and every party of the existence of a funding agreement and the identity of the funder. A GLANCE AT THE WORKING COMMITTEE REPORT The Report of the Working Committee which contains the Resolution, is a far-reaching body of work. It provides a comprehensive understanding of the practice itself, its history and its benefits – whether to parties seeking justice via arbitration or to the legal profession on the whole; it looks at the existing regulation in the field or the lack thereof; examines its interplay with the ethical obligations of lawyers, in particular vis-à-vis the duties imposed on members of the Paris Bar; and provides recommendations to lawyers to navigate the many fine lines that third-party funding brings into a legal proceeding. This thorough exercise provides a foundation for the Resolution and acts as the prism through which the Resolution is to be viewed. Benefits of the increasing prevalence of third-party funding After a look at the gradual development of third-party funding, the Working Committee affirmed that an increase in the use of this mechanism is undoubtedly a positive development in international arbitration. Evidently, it has resulted in greater access to justice for those clients who are financially incapable of bearing the costs of an arbitration proceeding. It also benefits non-impecunious parties, in essence, small or medium enterprises that may be faced with the need to initiate arbitration without comprising their ability to manage their cashflow. And speaking in terms of the legal profession in general, the arbitral system stands to gain from the involvement of a wide network of skilled professionals interested in making international arbitration as sound and efficient as possible. Lack of a legal framework The Working Committee looked at the legal framework surrounding third-party funding – or the lack thereof. As it stands, the practice is not illegal under French law: in fact, third-party funding has been qualified as a ‘contract sui generis’ by one French court. Apart from this however, there is a noticeable dearth in regulation surrounding thirdparty funding despite Paris being an international arbitration hub and the prevalence of third-party funding within this circle. VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 | 11 Constructing the legal framework However, before developing the required framework however, it is crucial to identify the potential frictions that thirdparty funding may give rise to vis-à-vis the ethical obligations of a lawyer. As a member of the Paris Bar, a lawyer is required to, at all times respect certain fundamental duties towards the client. As is recognised in the Report, some of these may be jeopardised by the presence of a funder: • First, the duty of loyalty of a lawyer towards his/her client. Is there a modification in the nature of this duty even if, as a result of the funding, the lawyer no longer receives his/her fee from the client? • Second, the obligation of independence of a lawyer. How does the lawyer remain independent in a situation where he/she receives legal fees from the funder? • Third, how to address the heightened risk in conflicts of interest that may arise in case the funder and the party receiving funding, i.e. the client, disagree on the strategy that is to be adopted: to whom is the lawyer answerable? • Fourth, the duty of confidentiality or attorney-client privilege: How to uphold the obligation in the presence of the funder that requires knowledge and insight of the case and its chances of success? The Report highlighted these four aspects as potentially problematic and sought to address these by way of recommendations to lawyers before incorporating them in its Resolution. Recommendations and the Resolution The Working Committee set out recommendations to overcome each of the challenges they identified and subsequently incorporated them into its Resolution. Conflicts of interest: The Working Committee sought to delineate two distinct legal relations that come into play when an arbitration is funded: first between the client (the funded party) and the lawyer, and second between the funder and the funded party. It reiterates that the mere presence of the funder – regardless of whether the funding is directed towards the client or directly towards the lawyer – must not result in blurred lines between these distinct ties. In theory, French law does not prohibit a lawyer receiving his/her fee from someone apart from the client, and so this element in and of itself does not allow for the funder to metamorphose into the client. The client therefore, remains primordial and it is in respect of the client alone that the lawyer must uphold his duties of loyalty, counsel and representation. Any steps that endanger these duties will likely result in the lawyer finding himself in the most predictable and yet drastic situation that is brought about by thirdparty funding i.e., a conflict of interest between the funder and the financed party. Notably, if the lawyer has not taken care to maintain a perfect seal in communication, exchanges or dialogue between his relationship with the client and the relationship between the client and the funder, he may then be required to withdraw himself from the case. In a similar vein, the Working Committee also advised a lawyer not to intervene on behalf of the funded party or the funder, in particular while these two are involved in negotiations in relation to the funding contract. Confidentiality and privilege issues: Breach of confidentiality and attorney- 12 | VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 Committee suggests that this unique feature of the Paris Bar can be used to increase transparency in the relations between the funder, the client and the lawyer, thereby allaying fears attached to such arrangements. Through the recommendations in the Report and in the Resolution, lawyers are encouraged to assist the client in grasping the modalities of funding and using the tools made available – such as the CARPA – in order to maintain transparency. PRESENTATION OF THE RESOLUTION The Resolution was introduced at an event organised by the international arbitration committee of the Paris Bar on 27 April. The event also featured a debate between Jean-Yves Garaud, member of the Working Committee and Yasmin Mohammad, senior counsel at Vannin Capital on the disclosure of funding arrangements and the issues of confidentiality and privilege that arise. As the funder, Vannin Capital extolled the merits of disclosure of funding arrangements stating that it helped guard against procedural incidents, late arbitrator challenges or potential annulment of awards, all of which are likely to negatively impact the investment made by the funder. At the same time, disclosure may not always be in the best interest of a claimant – or simply, certain claimants may not wish to make any such disclosures, because the disclosure of funding almost automatically leads to a security for costs request which, whether granted or not, increases the cost of the arbitration for the claimant. Speaking on behalf of lawyers, Garaud conceded that a respondent would use all tools at its disposal to derail proceedings. And so, disclosure of funding at the outset therefore was preferable to avoid the late discovery of a conflict of interest with potentially dire consequences. The conference saw some divergence in points of view regarding the duty of confidentiality and attorneyclient privilege. As noted above, to uphold the duty of confidentiality and attorney-client privilege, the Resolution recommends that the client constantly be kept in the loop in correspondence with funders and that the client be present at all relevant discussion. From the point of view of Mohammad, this recommendation was impracticable and sought the French Bar to include a legislative exception to the rule – even if solely for arbitration – like the exception granted to the strict French rule that lawyers should not discuss testimony with witnesses before they take the stand. Garaud disagreed, arguing that simple, practical rules would enable smooth communications. He suggested that this rule could be complied with by requiring the funders themselves to be legally represented and that their communications with funded parties should be through lawyers. Naturally, the test of practice will be the most relevant to determine what are the most appropriate solutions. In any event, the Resolution has made some needed clarification for the community of Parisian lawyers and has significantly welcomed third-party funding in the Parisian landscape. The authors wish to thank Asha Rajan, associate at Teynier Pic for her contribution to this article. In theory, French law does not prohibit a lawyer receiving his/her fee from someone apart from the client, and so this element in and of itself does not allow for the funder to metamorphose into the client. THIRD-PARTY FUNDING – THE FRENCH PERSPECTIVE client privilege not only expose a French lawyer to disciplinary action by the Bar Council, but also to potential criminal proceedings under French law. To avoid this panoply of problems, a lawyer must take care to maintain a tight seal on the channels of communication – in that, he/she must avoid communicating directly with the funder in the absence of the client. Duty of independence and disclosure: The Working Committee calls for lawyers to encourage their clients – from early in the game – to inform the tribunal that they are receiving funding. This is to pre-empt issues that may arise later, such as a subsequent discovery of the lack of independence of an arbitrator due to previous ties that he/she may have had with the funder, which might lead to eventual annulment proceedings. Hence, per the Working Committee, a little transparency from the get-go will go a long way in ensuring smooth conduct of the proceedings. CARPA: This is an advantage inherent in the Paris Bar – the presence of escrow accounts (the CARPA) managed by the Bar to handle funds exchanged between lawyers and clients, and other parties involved. The Working VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 | 13 WINNING BY DESIGN: AN OUTSIDER’S VIEW OF THIRD-PARTY FUNDING AT VANNIN CAPITAL MAXIM OSADCHIY ASSOCIATE, FRESHFIELDS BRUCKHAUS DERINGER (ON SECONDMENT AT VANNIN CAPITAL) 14 | VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 In a contest for the most widely discussed topic in international arbitration, third-party funding would do very well, if not win first prize. But, while much has been said about legal issues surrounding third-party funding, little is known about its actual workings. Joining Vannin Capital for a six-month secondment has presented a unique opportunity to discover the uncharted territory of the inner workings of disputes funding, bridging the gap between perceptions and reality. To be the first arbitration associate to gain that insight, to become part of the ever-expanding business of a leading disputes funder, and rather uniquely, look at the dispute resolution world through the disputes funder’s eyes – the secondment promised to be worthwhile; and so it is. A full account of my time at Vannin would be long and far exceed the limits of editors’ indulgence. Not trying to squeeze a gallon into a pint pot here, I will discuss what I found most interesting about my time at Vannin, namely: • The dismantling of some common misconceptions about professional disputes funding, • The process of claim assessment (its salient features), and • A few tips I have for those considering applying for third-party funding. COMMON MISCONCEPTIONS One that persists is that disputes funding is akin to gambling. However, I did not detect a roulette wheel, dice, cards or other attributes of a gambling at Vannin’s offices (surprising as it may seem). In all seriousness, the professional standards that Vannin holds itself to as a responsible funder means that it undertakes a careful deep dive due diligence before it decides to commit any funds to a claim, eliminating the idea of random betting. While the risk that a funded claim may perform worse than expected, or indeed fail, is always there – such are the vagaries of litigation – winning is by design, i.e. careful selection of meritorious claims, not by accident or luck (unlike in gambling). It is hard to imagine a gambler who succeeds more than 80% of its bets; yet this is the success rate achieved by Vannin. VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 | 15 WINNING BY DESIGN: AN OUTSIDER’S VIEW OF THIRD-PARTY FUNDING AT VANNIN CAPITAL The perception that disputes funding is a prerogative of financially distressed claimants and is used out of necessity fares no better. In fact, most claimants that seek support from Vannin have made the decision to transfer the financial risks associated with mounting a claim on the basis of capital resource management. Often sophisticated and well-capitalised, they resort to disputes funding to make better use of their corporate coffers such that relevant funds are committed to achieving their core business objectives and not to costly multijurisdictional proceedings. An example of a joint venture between two very well capitalised organisations where only one of the joint venture parties was prepared to risk their own funds to pursue a very large and complex claim1 illustrates the point well. Lastly, some continue to believe that litigation funding is used primarily in high profile commercial litigations, class actions and large investment treaty cases, and less so in other cases. This too finds no support in my experience at Vannin. Part of my role at Vannin is to support the team during the due diligence claim assessment phase, and I was surprised by the breadth and variety of cases that the Vannin team is involved in all over the world: from commercial, bankruptcy, antitrust and construction disputes to a wide range of investment treaty claims, bad debt recovery, IP and property disputes, and even on one occasion a request to fund proceedings to restore previously unrecognised inheritance rights to certain pieces of fine art of a member of a royal family. Non-commercial cases remain unfundable of course; and so they should be. With common myths about professional disputes funding dismantled, we can further lift the proverbial veil and look at what often appears to be the most enigmatic part of the funding world: claim assessment. CLAIM ASSESSMENT Reviewing a claim at Vannin is potentially a two-stage process. It starts with a high level due diligence review of the funding opportunity. This serves two goals. The first is to determine that the claim has at least 60% chance of succeeding. The second is to ensure that the claim meets minimum funding criteria: has a value of at least £5 million and can pass the one to ten threshold, i.e. the amount of potential recovery should be at least ten times more than the amount of funding sought. Counsel at Vannin, formerly top tier dispute resolution lawyers, rely on their own skills and knowledge to conduct the first assessment of a claim. The nature of the assessment is not dissimilar to the standard merits review in private practice, but it is broader as the funder’s ultimate objective is to ensure that both they and the claimant benefit from the investment, not necessarily to win the case at a hearing (Vannin appear particularly attuned to the fact that the claimant must be commercially incentivised to commit time and energy to the claim for the best possible outcome). Therefore, the due diligence includes criteria other than jurisdiction and liability such as claimant’s legal counsel, potential enforcement difficulties, quantum to cost ratio and financial standing of the defendants.2 This might sound like a lot of work for the initial review to be performed in short order (and there are multiple cases being assessed in parallel). In reality, however, it is “meatball surgery3” that is being performed at this preliminary stage: akin to providing an essential temporary surgical fix performed at high speed (at battlefield), focus is on identifying foundational aspects of the claim which may prevent it from surviving. If the initial due diligence concludes positively, Vannin offers preliminary funding terms, which, if accepted, are memorialised in a term sheet. The claim proceeds to “level two review” and is subjected to further, in-depth scrutiny. The assessment at this stage is external: Vannin procures a targeted independent opinion on the merits of the claim (usually from a QC or equivalent) as well as an opinion on key issues which may have surfaced during the preliminary due diligence, such as quantum assessment or enforcement risk. The advanced due diligence typically lasts four to six weeks during which time the client may not seek funding of the claim from any person other than Vannin (the “exclusivity period”). If this last stage of due diligence concludes positively – the solidity of the claim is confirmed and Vannin is comfortable with its other aspects – it will seek to agree a formal funding agreement with the client that incorporates the terms agreed with the client in the term sheet prior to 1 In Conversation Series, No. 2: May 2017 (Baker McKenzie & Vannin Capital): http://www.vannin.com/downloads/in-conversation/Vannin-In-Conversation-Series-No2.pdf 2 For a more detailed discussion of the funding criteria, see Litigation Funding Process, 28 February 2017 by Rosemary Ioannou, published by Lexis®PSL. It is worthy of note that all of these criteria are important. Thus, even if the claim is potentially strong on its merits, Vannin may nonetheless decline to fund it if the commercial arrangement would not suitably incentivise the claimant to invest time and energy into the dispute or if the proposed legal team lack the requisite skills and experience to ensure that the claimant is getting the best possible representation or if chances of successful recovery are low – though the advent of award default insurance is significantly reducing recovery risk. 3 Credit to Iain McKenny, Vannin’s General Counsel of Disputes, and American TV Series M*A*S*H. 16 | VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 the exclusivity period. If the client does not accept the agreed funding terms at this late stage it will typically have to bear the costs of this due diligence stage as stipulated in the term sheet. After the detailed terms are finalised, the funding opportunity is submitted to Vannin’s investment committee for its final approval. Once approved, the parties will sign the litigation funding agreement; the claim is now funded. Finalising and signing the litigation funding agreement is typically the least burdensome part of the process and takes about a week to accomplish. TIPS FOR APPLYING FOR THIRD-PARTY FUNDING I am often asked how many claims make it that far. The answer is “a handful”: approximately 5% of cases referred to Vannin obtain funding (while there are around 50 funding requests received monthly). Why is the number so low? In most cases, so significant is the disparity between the claimant’s perception of the claim or its quantum and its actual merits (as assessed by Vannin) that most funding requests do not withstand preliminary scrutiny, and fail. On other occasions, while a claim may appear to be potentially strong, the claimant may simply be reluctant to properly engage in its analysis – by not providing sufficient information about the dispute or the proposed budget, by refusing to invest in any additional fact finding (as may be needed for the initial review) or otherwise being unprepared to fully engage in the assessment. In such circumstances as well, the prospects of obtaining funding are slim. One must appreciate that disputes funding, like any serious investment activity, is about confidence: unless Vannin is confident that the investment is worthwhile, i.e. that the potential reward exceeds the risk of taking the matter, it will not fund the claim. The better the claim is established and understood, the more likely that there will be a positive funding decision from Vannin and the better the terms it would likely be able to offer. This may sound like common sense. Yet, after having seen more than a dozen funding requests declined for lack of foundation, including due to claimant’s unwillingness to fully assist Vannin in reviewing the claim, it is probably the single most valuable tip I have to share. One would also benefit from a better understanding of the strategic advantages of engaging a professional disputes funder like Vannin. Far from being a mere supplier of critically needed cash, Vannin’s assessment helps verify the strength of the claim; moreover, its experience in funding successful claims is in excess of 80%. In addition, its commitment of a nine-figure sum to funded cases over the last three years can offer valuable insight into the world of dispute resolution thus maximising the claimant’s chances of success. This is an important consideration and should not be overlooked when considering which professional disputes funder to engage. My Vannin days will soon be over. But, litigation funding is “here to stay, and not just for small or cash-strapped claimants.4” While the inside workings of disputes funders are often kept behind closed doors, there is nothing to fear or be sceptical about based on what I have seen at Vannin. 4 Freshfields Bruckhaus Deringer, International Arbitration: 10 Trends in 2016 (No. 4): https://www.freshfields.com/globalassets/campaign-landing/ international-arbitration/arbitration-insights-2016.pdf?_t_id=1B2M2Y8AsgTpgAmY7PhCfg%3d%3d&_t_q=trends&_t_tags=language%3aen%2csiteid% 3aba2121b4-3779-4fa6-8e49-49e502a9987c&_t_ip=184.108.40.206&_t_hit.id=FreshFieldsWebsite_Models_Media_GenericMedia/_9c5bfefd-34fc-4351- b7d0-800ca14fdf78&_t_hit.pos=2 In fact, most claimants that seek support from Vannin have made the decision to transfer the financial risks associated with mounting a claim on the basis of capital resource management. VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 | 17 18 | VANNIN CAPITAL | Funding in Focus | Issue One, 2017 BY IAIN MCKENNY GENERAL COUNSEL OF DISPUTES, VANNIN CAPITAL WHO WINS, WHERE AND WHY? PARIS, FRANCE In this edition of Who Wins, Where and Why?, I have the privilege to write about my adoptive home – Paris, France. I have had the benefit of living in this wonderful city for nearly 10 years, having arrived in 2008 from my other adoptive home of over 10 years – London, England. Living and working as a disputes lawyer in these incredible cities has allowed me to be part of two extremely close and ever so different disputes markets. Having focused on the London disputes market in an earlier edition of Funding in Focus1 and having recently looked at the disputes market in Stockholm, Sweden2, it is about time that we turned our focus to Paris, France and ask the questions; Who wins, where and why? 1 Funding in Focus, Issue 3, July 2016: http://vannin.com/downloads/funding-in-focus-three.pdf 2 Funding in Focus, Issue 4, January 2017: http://vannin.com/funding-in-focus/ VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 | 19 During Paris Arbitration Week (PAW) in April, I was invited to speak on a panel discussion entitled “A tale of two cities” hosted and organised by Freshfields’ Noah Rubins and Gisele Stephens. The purpose of the panel was to consider the trials and tribulations, the strengths and weaknesses and myths and truths surrounding these two exceptional legal jurisdictions. Representing Paris was Freshfields’ own Elie Kleiman, a long standing partner in Freshfields’ Paris office, revered in the legal community as a fierce advocate and for developing and leading a premiere practice in both litigation and international arbitration. Representing London was George Spalton, a barrister from 20 Essex Street chambers, an excellent, seasoned advocate, highly respected at the Bar, with a diverse practice and enviable reputation both at home and abroad. My contribution was to draw on disputes experiences in both cities and to explain from my five years of working with Vannin, the third-party funders perspective of these two markets. It was an engaging debate and although I took no convincing about the strengths of London’s disputes market from a thirdparty funding perspective, a market with which I am intimately familiar, I confess that Mr Kleiman opened my eyes to the strength and depth of the French legal system explaining why the legal community in Paris has embraced thirdparty funding. This is a development underscored by Vannin’s own Yasmin Mohammad (in collaboration with August Debouzy and Paris I Panthéon Sorbonne) who demonstrated in a debate and soiree during PAW held at the Sorbonne, that the appetite for third-party funding in Paris is plentiful. Furthermore, the Barreau de Paris also during PAW gave its unconditional support for third-party funding3. All in all this is good news for lawyers, claimants and professional third-party funders alike. But let us dig a bit deeper into the disputes market in Paris. What changes, if any, have been made to make this civil law jurisdiction a flourishing disputes market so attractive to third-party funders? Who are the firms?, and peeling back the brand, who are the practitioners making the difference? Above all, what is the fundamental difference between the Paris disputes market and the London disputes market and what does that WHO WINS, WHERE AND WHY? PARIS, FRANCE 3 Paris Bar approves third-party funding, 4 May 2017, GAR: http://vannin.com/press/ article/219/2017-05-04/paris-bar-approvesthird- party-funding Vannin’s main involvement in France has been in respect of supporting meritorious claimants in international arbitration, and for that Paris is and remains a power house. tell us about the sectors, industries and types of commercial disputes available for funding in Paris today? LITIGATION There are three standard dispute resolution mechanisms available for commercial disputes in France, as you would expect to find in most sophisticated legal markets: • Court proceedings; • Arbitration proceedings; and • Mediation. In respect of court proceedings, most business disputes are handled by experienced commercial courts. However, commercial court judges are elected by the local business community that from a common-law perspective is a noticeable difference from the UK. This may very well explain why foreign companies typically turn to arbitration to avoid the perceived ‘partiality’ of those judges. A perception that is perhaps unwarranted but clearly felt. The Civil Procedure Code provides that before a dispute is started in court, the claimant must demonstrate that attempts were made to resolve the dispute amicably. This is not too dissimilar to the pre-action protocol in the courts of England & Wales and is seemingly the codification of a long history of encouraging negotiated settlement in France. Indeed, both international and domestic arbitration is a dispute resolution mechanism that French law and French courts have for a long time systematically favoured and supported. A concept that has made France one of the most arbitration friendly jurisdictions 20 | VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 in the world as encapsulated in the French Arbitration decree of January 2011 (more on that below). In order to make its legal system more competitive, France has after long and arduous debate decided last year to reform its contract law in the French Civil Code. Ordinance no. 2016-131 on contract law reform was adopted on 10 February 2016. The reform’s stated aim is to adjust “the law to the needs of individuals and businesses” – to engage more with the commercial realities of the modern business environment. Among civil law jurisdictions this places France at the forefront of leading reform, a reform that many civil law jurisdictions are yet to make and is a long awaited and welcome change. French contract law comes from the French Civil Code of 1804. Over the last two hundred and more years, the needs and interactions of modern businesses have changed dramatically which has given rise to a need for a modern contract law. In 2015, the French government started a public consultation yielding over 300 contributions from practitioners and academics a like, all for the stated purpose of modernising French contract law. The result of which is not unlike that of the Woolf Reforms in England in the late 1990s except instead of grappling with justice and proportionality as the overriding objective, the focus in France has been on: • Legal security; • Efficiency; and • Protection. Indeed, both international and domestic arbitration is a dispute resolution mechanism that French law and French courts have for a long time systematically favoured and supported. A concept that has made France one of the most arbitration friendly jurisdictions in the world as encapsulated in the French Arbitration decree of January 2011. The point of legal security is to allow companies to have a better, clearer understanding and thus greater accessibility to contract law. This is similar to the emphasis on transparency of the Woolf Reforms, though admittedly that is procedural where as the reforms in France go to substantive law. Athough in that too there has undoubtedly been a recognition that certain procedural mechanisms needed to be made more efficient and modified to this end, but without losing sight of the fact that in France the court’s systems and procedures are designed to protect the weaker party to a contract – an attractive attribute for third-party funders assisting David and Goliath claims. An easily identifiable modification that seeks to aid transparency and efficiency is that the articles laid out in the French Civil Code have been restructured making them more accessible and transparent by bringing them more in line with the life cycle of a typical commercial agreement: the conclusion of the agreement, the performance of the obligations and the termination of a contract. These are all positive developments that not only allow greater clarity for claimants, but also allow professional third-party funders to develop risk profiles on a case by case basis with greater certainty, making available to claimants of French litigation the ability to transfer the risk of the cost of running and enforcing their claim on to a third-party. Vannin’s experience in respect of French litigation has for the most part been about supporting asset tracing and enforcement of judgment debts and awards rendered outside of France. To this end, France has proven to be a most advantageous jurisdiction to the successful claimant. There are a raft of tools available from extensive powers of bailiffs (huissiers) that allow claimants to identify specific assets including bank accounts to ex parte applications for freezing injunctions that effectively prevent assets from being moved without the respondent being notified in advance. The French courts have proven to be swift and effective. France is an excellent jurisdiction for enforcement action. CHART 1 DISPUTE RESOLUTION: TOP RANKED LAW FIRMS FOR COMMERCIAL LITIGATION 1 Brendin Prat Cleary Gottlieb Steen & Hamilton LLP Clifford Chance Darrois Villey Maillot Brochier Orrick Rambaud Martel Weil, Gotshal & Manges LLP 2 Allen & Overy LLP Carbonnier Lamaze Rasle Davis Polk & Wardwell LLP De Pardieu Brocas Maffel Dethomas Peltier Juvigny & Associés Freshfields Bruckhaus Deringer LLP Gide Loyrette Nouel A.A.R.P.I. Hogan Lovells (Paris) LLP Hughes Hubbard & Reed LLP Lantoume & Associés Linklaters Veil Jourde Source: The Legal 500 EMEA 2017, France, Dispute Resolution, Litigation VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 | 21 MEDIATION AND SETTLEMENT There is an undeniable focus in France on the value of reaching either negotiated or mediated settlement. It necessarily compels a claimant to settle for less than what they want and a defendant to give more than what they feel they should but in so doing recognises the inherent risks and costs of progressing to formal dispute resolution proceedings. It is such a defining feature of the French legal system that judges often invite the parties to a commercial dispute to engage in conciliatory efforts and often appoint a “conciliator” to assist the parties. Under such circumstances, if an agreement is reached it becomes the basis of a binding and confidential agreement between the parties, and the judge merely issues a judgement stipulating that the dispute was resolved. If no agreement is reached, then the judicial proceedings are resumed. Achieving settlement through mediation is a very popular method of dispute resolution in France. It is a flexible mechanism to which no specific legal regime is applicable. Around this dispute resolution mechanism has sprouted various institutions with the raison d’être of organising and facilitating mediation proceedings, such as the Centre de Médiation et d’Arbitrage de Paris (CMAP). Most of the lawyers we have spoken to in Paris place a premium on the value of mediated or negotiated settlement as a means to facilitate resolution though no one would call it non-adversarial. It is less formally adversarial obviously but settlement agreements are hard fought and won. Experienced and professional counsel with an in-depth knowledge of the consequences of not reaching settlement and the ability to convey this message sternly but diplomatically is essential. Settlement agreements may take place at any time before, during and even after a court action. Although the scope for settlement in London is often significantly shaped by the legal fees incurred and thus the longer the dispute rages the harder it becomes to settle, in France, owing to lower legal fees for litigation, this is arguably less of a decisive factor and so the scope for settlement discussions to run in parallel to a more formal dispute resolution process is perhaps a more common practice. A settlement agreement has the same effect as a court decision in France and when a settlement is approved by a court decision, it is automatically enforceable under French law. INTERNATIONAL ARBITRATION Vannin’s main involvement in France has been in respect of supporting meritorious claimants in international arbitration, and for that Paris is and remains a power house. Paris is home to a huge array of top arbitration practices which has long been the case. The court of arbitration of the International Chamber of Commerce (ICC) was founded in Paris in 1923. It has played a major role in the promulgation of the Geneva treaties and of the New York Convention and has been at the forefront of developments in international arbitration ever since. According to the Queen Mary University of London report in conjunction with White & Case4, international arbitration is still the number one preference for dispute resolution for companies doing business in France. CHART 2 DISPUTE RESOLUTION: TOP RANKED LAW FIRMS FOR INTERNATIONAL ARBITRATIONN 1 Dechert LLP Freshfields Bruckhaus Deringer LLP Shearman & Sterling LLP White & Case LLP 2 Brendin Prat Cleary Gottlieb Steen & Hamilton LLP Curtis, Mallet-Prevost, Colt & Mosle LLP Dentons Derains & Gharavi King & Spalding LLP Quinn Emanuel Urquhart & Sullivan, LLP 3 Allen & Overy LLP Betto Seraglini Brown Rudnick LLP Clifford Chance DLA Piper Gide Loyrette Nouel A.A.R.P.I. Herbert Smith Freehills LLP Hogan Lovells (Paris) LLP Hughes Hubbard & Reed LLP Jones Day Latham Watkins Orrick Rambaud Martel Three Crowns LLP Source: The Legal 500 EMEA 2017, France, Dispute Resolution, International Arbitration WHO WINS, WHERE AND WHY? PARIS, FRANCE 4 2015 International Arbitration Survey: Improvements and Innovations in International Arbitration: http://www.arbitration.qmul.ac.uk/ 22 | VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 docs/164761.pdf International arbitration 56% International arbitration together with other ADR 34% Mediation 5% Cross-boder litigation together with ADR 2% Cross-boder litigation 2% Source: 2015 International Arbitration Survey: Improvements and Innovations in International Arbitration, School of International Arbitration, Centre for Commercial Law Studies, Queen Mary University (sponsored by White & Case) CHART 3: WHAT IS YOUR PREFERRED METHOD FOR RESOLVING CROSS-BORDER DISPUTES? Most of the lawyers we have spoken to in Paris place a premium on the value of mediated or negotiated settlement as a means to facilitate resolution though no one would call it non-adversarial. Enforceability of awards Avoiding specific legal systems/national courts Flexibility Selection of arbitrators Confidentiality and privacy Neutrality Finality Speed Cost Other Percenage of respondents 65% 64% 38% 38% 33% 25% 18% 10% 2% 2% CHART 4: WHAT ARE THE THREE MOST VALUABLE CHARACTERISTICS OF INTERNATIONAL ARBITRATION? Source: 2015 International Arbitration Survey: Improvements and Innovations in International Arbitration, School of International Arbitration, Centre for Commercial Law Studies, Queen Mary University (sponsored by White & Case) VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 | 23 France, too, is a popular seat and is one of Paris’ newest arbitration centres recognised “safe seats”5. The reasons for this are simple. Paris is a seat: • That is a signatory of the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. • Whose laws favour arbitration and whose courts actively support, rather than interfere with, the arbitral process. • That respects the parties’ intentions regarding their choice of procedure and applicable law. • That has the required professional and structural resources for a rapid, legally secure and efficient process. Choosing Paris as the seat of the arbitration means French arbitration law will apply, which offers an arbitration friendly environment if problems arise. Judges in the jurisdiction of the seat may be called upon to intervene in the arbitration proceedings either at the stage of the constitution of the arbitral tribunal, or later to decide certain matters or to order interim and provisional measures before the arbitral tribunal is constituted and after the award is rendered. Furthermore, it is as we all know the law of the seat that will determine what legal means are available to challenge the arbitral award. France doesn’t just agree to stay out of the way of arbitral proceedings it actively seeks to promote and protect it. The Paris civil court (Tribunal de Grande Instance) has a specialised judge who, on the rare occasion that it is required, will hear all applications relating to the appointment of arbitrators and the implementation of the arbitral proceedings. This specialised judge’s mandate is to actively support the arbitral process. SO WHAT? Although France arguably became the friendliest arbitration jurisdiction in the world on January 13, 2011, when the new decree amending the provisions of the French Code of Civil Procedure pertaining to arbitration came into being, what is the value in doing so? It is clear to anyone who has considered the changes, as cited to briefly above, that a fundamental purpose of the Decree was to introduce progressive provisions in order to attract even more arbitrations to French seats even if the case has no connection with France. Has it worked? According to the statistics from the ICC, it has worked extremely well with a notable long-time source of disputes that continue to pour into the Paris disputes’ market. Last year, the ICC in Paris announced record figures for new cases filed for administration under the ICC rules – 966, involving 3,099 parties from 137 countries. This was the highest number of disputes ever recorded in a single year for the ICC. Interestingly, the majority of new claims appear to be coming from Francophone Africa and the dispute teams at international and local law firms have been and continue to reap the rewards owing to a shared language and common or compatible legal systems. 5 Delos Dispute Resolution: The Delos Fixed Model Clause: http://delosdr.org/delos. aspx?mid=4&id=19 CHART 5: FRANCOPHONE AFRICA Countries usually considered Francophone Africa Countries sometimes considered Francophone WHO WINS, WHERE AND WHY? PARIS, FRANCE 24 | VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 CHART 7: ICSID HEAT MAP Source: An established ADI provider based on a sample of current/recent resolved ICSID matters Yes No Dependent on the underlying issue According to the ICC, both North and Sub-Saharan Africa (mostly Francophone Africa) saw a 50% increase in the number of parties participating in ICC administered arbitrations. Francophone Africa is not only amongst the largest disputes markets in Africa, it is also among the fastest growing disputes markets in the world based on the number of new arbitrations registered from this region with the ICC just last year. These disputes predominantly come from industries and sectors around mining, energy and infrastructure. Big ticket arbitrations and smaller satellite litigations provide work across the entire spectrum of firms in the Paris legal market. Every dispute team we spoke to in the Paris market from the top international teams to the boutique law firms in some form or another were active in the African disputes market (primarily focused on energy, mining and infrastructure) and it was apparent that forming alliances with key local firms was essential. Of those Paris teams canvassed the following local firms were consistently rated amongst the best (see Chart 6). But if the Paris disputes market is being fed by disputes in Africa, how many of these are funded or rather, considered to be fundable? In reality, not that many. This is largely due to a perceived risk of enforcement. But how real is that perception? A simple way of testing this is to determine whether award default insurance is available against the country in question. Interestingly, the vast majority of African countries are on the ‘green’ list, meaning that award default insurance is available against those countries. Although ADI is in respect primarily of investment treaty arbitration this may very well suggest that the perception of enforcement risk in Africa may not be quite as dire as many of us in Europe believe it to be. Indeed, like any specialist area, it appears that local knowledge is the key and it is the relationship with key local African law firms that appear to make the difference. A difference that Paris disputes practices have been careful to cultivate and seem set to continue to dominate this lucrative disputes market. But for more, let us turn to those practitioners in the Paris market who are making the difference… CHART 6: AFRICAN FIRMS CONSISTENTLY RATED AMONGST THE BEST FDKA Bennani & Associés LLP Ghellal & Mekerba Bourabiat Associés in Bennani & Associés Brahma Hajji & Associés Francois Sarr & Associates Mame Adama Gueye & Associés Source: Paris-based law firm teams canvassed by Vannin Capital The majority of new claims appear to be coming from Francophone Africa, and the dispute teams at international and local law firms reap the rewards owing to a shared language and common or compatible legal systems. VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 | 25 ARC THE EXPERTS WHO WINS, WHERE AND WHY? PARIS, FRANCE 10. ERWAN POISSON, PARTNER AND MARIE STOYANOV, PARTNER, ALLEN & OVERY LLP: 52 AVENUE HOCH, 75008 PARIS, FRANCE 8. THIERRY LAURIOL, PARTNER AND CAPUCINE DU PAC DE MARSOULIES, SENIOR ASSOCIATE, JEANTET: 87 AVENUE KLÉBER, 75784 PARIS, FRANCE 9. JACQUES-ALEXANDRE GENET, FOUNDING PARTNER AND EMMANUEL KASPEREIT, COUNSEL, ARCHIPEL: 92, RUE JOUFFROY D’ABBANS, 75017 PARIS, FRANCE 26 | VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 ARC DE TRIOMPHE EIFFEL TOWER PLACE DE LA CONCORDE LOUVRE MUSEUM SACRÉ COEUR BASILICA NOTRE DAME PANTHEON LA CONCIERGERIE CATACOMBS 10 4 8 7 6 9 5 3 1 2 1. ELIE KLEIMAN, PARTNER AND SHAPARAK SALEH, COUNSEL, FRESHFIELDS BRUCKHAUS DERINGER LLP: 2 RUE PAUL CÉZANNE, 75008 PARIS, FRANCE 5. STÉPHANE BRABANT, PARTNER AND LAURENCE FRANC-MENGET, OF COUNSEL, HERBERT SMITH FREEHILLS PARIS LLP: 66 AVENUE MARCEAU, 75008 PARIS, FRANCE 2. CHARLES NAIRAC, PARTNER AND CHRISTOPHE VON KRAUSE, PARTNER, WHITE & CASE LLP: 19, PLACE VENDÔME, 75001 PARIS, FRANCE 3. JOSÉ MANUEL GARCÍA REPRESA, PARTNER AND XAVIER NYSSEN, PARTNER, DECHERT (PARIS) LLP: 32 RUE DE MONCEAU, 75008 PARIS, FRANCE 7. HAMID GHARAVI, FOUNDING PARTNER AND MELANIE VAN LEEUWEN, PARTNER, CABINET DERAINS & GHARAVI: 21 RUE BALZAC, 75008 PARIS, FRANCE 4. CLAUDIA ANNACKER, PARTNER AND JEAN YVES GARAUD, PARTNER, CLEARY GOTTLIEB STEEN & HAMILTON LLP: 12 RUE DE TILSITT, 75008 PARIS, FRANCE 6. MICHAEL OSTROVE, PARTNER AND THÉOBALD NAUD, COUNSEL, DLA PIPER PARIS LLP: 27 RUE LAFFITTE, 75009 PARIS, FRANCE VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 | 27 WHAT THE EXPERTS SAY 1. ELIE KLEIMAN, PARTNER AND SHAPARAK SALEH, COUNSEL, FRESHFIELDS BRUCKHAUS DERINGER LLP “Over the last 15 years we (and some other large international law firms) have never ceased to be active in the African market, whether it is oil and gas, mining, infrastructure or telecoms. Our approach is to work hand in hand with our “stronger together” firms in the region. Our view is that no one understands the judges and the culture better than the strongest local firms.” 2. CHARLES NAIRAC, PARTNER AND CHRISTOPHE VON KRAUSE, PARTNER, WHITE & CASE LLP “With the combined effect of the post-Arab spring and decrease of oil prices in North Africa, coupled with the increasing number of investments and commercial transactions in sub-Saharan Africa, we have seen an increase of complex international arbitration disputes in francophone Africa. There is also a strong push towards developing international arbitration in the region as a means to settle disputes and further stimulate economic growth.” 3. JOSÉ MANUEL GARCÍA REPRESA, PARTNER AND XAVIER NYSSEN, PARTNER, DECHERT (PARIS) LLP “It is well known that Africa's economy is growing at a pace well beyond developed economies and driven mostly by its natural resources and infrastructure needs (transport, telecoms, airports, ports…). So is the number of international arbitrations involving one or more African parties, not only before the major institutions administering arbitral proceedings (notably the ICC and LCIA), but also before limited but rapidly expanding local African arbitration institutions. In Frenchspeaking and parts of Lusophone Africa, the OHADA (with 17 member states) plays a key role thanks to its common commercial code, its arbitration rules and its supranational court: the Common Court of Justice and Arbitration. There are also local arbitration centres such as the Kigali International Arbitration Centre in Rwanda or the LCIA-MIAC centre in Mauritius. In addition, many African states have taken or are taking steps to align themselves with the international approach by ratifying the New York Convention, which is now ratified in 35 out of Africa’s 54 jurisdictions. These are encouraging trends and the Paris Bar is seeing a steady flow of arbitrations involving African interests, including with States or State instrumentalities as claimants. There remain, however, significant challenges, notably the limited number of African arbitrators appointed in international arbitration and the interference of local courts in the arbitration process.” 4. CLAUDIA ANNACKER, PARTNER AND JEAN YVES GARAUD, PARTNER, CLEARY GOTTLIEB STEEN & HAMILTON LLP “The real challenge in the arbitration market in Africa will be how tribunals manage to deal with corruption issues. Corruption issues are coming up as central arguments in more and more cases. Tribunals are ill equipped to investigate those issues and Judicial courts reviewing an award in annulment or enforcement proceedings are exercising deeper and deeper control over these issues.” 5. STÉPHANE BRABANT, PARTNER AND LAURENCE FRANC-MENGET, OF COUNSEL, HERBERT SMITH FREEHILLS PARIS LLP “States in Africa, and especially in Sub- Saharan French-speaking countries, can take unpredictable decisions which may have an impact either on contracts performed in the State or on foreign investors' activities on the ground. This can give rise to crisis that may degenerate into a dispute. In view of the significant economic and/or social interests at stake for both States and private parties, settlement negotiations to resolve those disputes are often preferable. Starting arbitration, when available, is obviously a strong incentive for seeking a settlement if no amicable solution can be reached immediately or in case of lack of trust in first instance. Although not necessarily the first option to be considered, arbitration proceedings is, should the dispute continue, the most appropriate forum to settle as it allows the selection of practitioners for their strong knowledge both of legal issues but also of the business peculiarities and the political and geographical African context. Globally, to find out the most efficient and appropriate manner to settle disputes in French-speaking Africa, strong contextual knowledge is essential, as is local law firm involvement – especially when international legal teams have no strong or clear experience on the ground in Africa. Our Paris team has international lawyers experienced in disputes in Africa; practitioners with special expertise with the continent, working hand-in-hand with local lawyers, which is one key to successful outcomes in management of crisis and disputes settlement in French-speaking Africa.” 28 | VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 WHO WINS, WHERE AND WHY? PARIS, FRANCE 6. MICHAEL OSTROVE, PARTNER AND THÉOBALD NAUD, COUNSEL, DLA PIPER PARIS LLP “Over the past years, leading arbitral institutions have reported a significant rise in the number of international arbitration cases involving African parties. Mining, energy and infrastructure have been key sectors in this development. Foreign direct investment in Africa continues to grow, including with respect to major energy and infrastructure projects, so we expect this trend to continue. One of the most striking developments in this sense has been the increase of investment in francophone West Africa – and the rise of the disputes that inevitably follow. The Paris legal market is ideally placed to service all stakeholders in these projects, and not only when disputes arise. Many West African countries have adopted civil law systems modelled on France's own legal system. In this respect, as well as linguistically, French-qualified lawyers hold a competitive advantage on their counterparts elsewhere. The key challenge, however, lies in increasing the involvement of African-based colleagues in all aspects of projects (transactional and contentious). The development of the legal market locally will help ensure the stability of the local markets and will reinforce working partnerships between European and African law firms.” 7. HAMID GHARAVI, FOUNDING PARTNER AND MELANIE VAN LEEUWEN, PARTNER, CABINET DERAINS & GHARAVI “The growing number of investment arbitrations against Francophone African States is attributable to large investments made in these States, but also and more importantly, to the increased awareness among investors of the existence of the many national investment laws, as well as bilateral and multilateral treaties containing arbitration clauses signed by African States. This includes the Agreement on Promotion, Protection and Guarantee of Investments among Member States of the Organisation of the Islamic Conference signed by a number of Francophone African States but which has until recently been largely ignored. It is on the basis of that treaty that we recently secured an award against Gabon. Similarly, the Foreign Investment Law of the Democratic Republic of Congo is widely ignored but contains an ICSID arbitration clause that has allowed us to secure an award against the country.” 8. THIERRY LAURIOL, PARTNER AND CAPUCINE DU PAC DE MARSOULIES, SENIOR ASSOCIATE, JEANTET “In the thirty years that I have been involved in international arbitration cases in Africa, both as a lawyer and as an in-house counsel, I observed a clear development of arbitration throughout the continent. Today, this alternative dispute resolution method is widely admitted by all economic agents and, most notably, by governments. Even if consent on a general basis (i.e. law, community law or BITs) is not widespread, governments are much less reluctant than in the past to grant it on an individual basis. French law firms benefit from a privileged position when intervening in French-speaking African countries in arbitration or enforcement proceedings. This can be explained first by the historic ties with the continent and the long-standing practice that a handful of French firms, including Jeantet, developed in the last decades. Also, the cultural heritage – and proximity—and the shared legal system and language undeniably play an important role to the advantage of firms based in France. I believe that local knowledge represents an important differentiating factor.” 9. JACQUESALEXANDRE GENET, FOUNDING PARTNER AND EMMANUEL KASPEREIT, COUNSEL, ARCHIPEL “Many French firms have in-house knowledge of the African market and its key players, and they have had that for years. Even those firms that do not have a dedicated Africa desk or equivalent will have had exposure to commercial disputes in Africa. That gives them (us) a head start in African dispute resolution, but firms from other countries might quickly come into the market, possibly by buying the specialist knowledge they still lack.” 10. ERWAN POISSON, PARTNER AND MARIE STOYANOV, PARTNER, ALLEN & OVERY LLP “There has been a huge push towards a more arbitration-friendly stance across the African continent, with arbitration law reforms, the creation of local and regional arbitration centres and increased sophistication in the courts’ approach towards arbitration. In parallel, investment treaties are also in the process of being modernised. This does not, however, entirely shield our clients from surprise interlocutory or criminal proceedings – this leads us to become increasingly involved in African Court proceedings and even argue before local francophone African Courts.” VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 | 29 60 SECONDS WITH KENNY HENDERSON STEWARTS LAW LLP 30 | VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 Kenny Henderson, partner at Stewarts Law talks to Rosemary Ioannou, Senior Counsel at Vannin Capital about competition litigation, follow-on damages actions, and the potential impact of Brexit. Rosemary Ioannou (RI): Have perceptions of competition litigation changed amongst your clients in recent years? Kenny Henderson (KH): Yes, the main changes in perception are twofold. First, clients increasingly understand that competition litigation is different to other forms of commercial litigation. The most important difference is that once the Commission or the CMA has investigated and found a competition law infringement, such finding is binding on UK courts (or, as appropriate, the national courts of other EU states). Where their claim is within the scope of such finding, claimants do not need to prove the infringement thereby sidestepping a significant burden. The only issue for the court should be quantum. Second, large corporates increasingly view these potential claims as assets to be recovered. The numbers involved can be very significant, running into hundreds of millions of pounds; particularly where the client purchased large volumes of the cartelised product or service. Whilst each claim must be considered very carefully, the features of competition claims give in-house legal increased opportunity to be a profit centre for their business. That said, competition litigation is a specialist area and there are numerous elephant traps to avoid and strategic issues to consider. Even where defendants cannot win on liability, they will take every opportunity to delay progress. Accordingly, failing to structure a claim properly can delay recovery by several years, or even prejudice recovery. VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 | 31 RI: How can funding benefit claimants in bringing follow-on damages actions and, indeed, more broadly? KH: We are seeing increasing interest from clients in both flexible billing arrangements and also in external funding. For high value claims in particular it is possible to present numerous options which can be tailored according to the client’s needs. Some clients prefer their advisers and funders to invest in the claim, while others prefer the traditional hourly billing model. Still others seek arrangements that allow the value of the claim to be recognised on their balance sheet prior to settlement or trial. RI: Are clients concerned about suing their suppliers? KH: This can be a concern, but it is usually manageable, primarily because cartelists are joint and severally liable and therefore claimants frequently have a choice of whom to target. Sometimes there can be tensions between different business units within a client. Procurement will typically have the relationships with the would-be defendants, and so they may find it awkward to make a demand. On the other hand, finance will understandably be keen on asset recovery. We sometimes see claims settled on commercial terms, e.g. reduced prices for an agreed period rather than cash payments, and this can assist with relationship issues. However, clients will also frequently take an entirely dispassionate balancesheet view. Making a claim is simply an assertion of their legal rights, and, it can be incongruous for defendants – who are cartelists – to take offence when presented with a legitimate claim. RI: What are the other significant developments in competition litigation? KH: In March of this year, the government implemented the EU directive on antitrust damages actions. The implementing statutory instrument1 changes English law in a number of areas, including to introduce a presumption that cartels cause harm and to clarify when the limitation period begins. However, most of these changes only apply to claims where the harm was suffered after March 2017, and so will take many years to impact on claims filed in England. The antitrust damages directive could have greater impact on claims filed in other European jurisdictions, in particular by confirming that disclosure should be available in antitrust damages claims. It remains to be seen how these changes will work in practise, in particular in countries that have traditionally taken a narrow approach to disclosure. The other hot topic is the new class action law introduced by the Consumer Rights Act 2015. It is particularly interesting as it has a U.S.-style opt out mechanism, that may be suitable BY ROSEMARY IOANNOU SENIOR COUNSEL, VANNIN CAPITAL AND KENNY HENDERSON PARTNER, STEWARTS LAW 60 SECONDS WITH KENNY HENDERSON STEWARTS LAW LLP 1 The Claims in respect of Loss or Damage arising from Competition Infringements (Competition Act 1998 and Other Enactments 32 | VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 (Amendment)) Regulations 2017. for bringing claims that are individually low value, but can be high value where aggregated. There have been two certification applications filed to date: MasterCard; and mobility scooters. The Competition Appeals Tribunal provided very helpful guidance as to the structuring and approach to these actions, in its recent judgement on the mobility scooters application. Tellingly, although the tribunal had concerns as to how the applicant had defined the class, the application was adjourned and the applicant was invited to re-characterise the classes. The fact that the tribunal did not dismiss the application, but rather permitted a second attempt, suggests a real appetite on behalf of the tribunal to make this new mechanism work. If certification is achieved demonstrating that the mechanism is viable, we could see many more claims that were previously uneconomical to bring. RI: How will Brexit impact competition litigation? KH: As with many aspects of Brexit, it is simply too early to say. Much will depend, of course, on the type of Brexit that we eventually face. There are many unanswered questions. As to the cause of action, the Brexit Competition Law Working Group recently recommended2 that Articles 101 and 102 TFEU should be retained within English law for the purpose of competition damages claims. However, the Government may decide differently in due course. It is unclear whether infringement findings of the European Commission will continue to be binding on UK courts. Even if findings are no longer binding, and thus claimants are formally faced with the burden of proving liability, this may have little impact on the course of litigation. In particular, infringers who settled with the Commission or who were whistle blowers will likely have difficulties in credibly disputing liability. Notably, in the U.S., infringement findings of the Department of Justice (DoJ) are not formally binding on courts, yet addressees of DoJ rulings rarely dispute liability in subsequent damages claims. Even if Brexit brings changes, it may take many years for those changes to take effect. It is very unlikely that any changes that assisted cartelists would be retrospective: this would be unacceptable from a policy perspective. Given the long tail of concealed cartel behaviour, we could have many claims filed under a system that closely resembles the pre-Brexit regime. In summary therefore, even in a hard Brexit scenario, there are strong indicators that very significant competition litigation claims will continue to be filed in the UK. RI: What is the main advice you would give to corporates who are at the early stages of considering a claim? KH: Continue to investigate these claims thoroughly. Expert advice is key. In particular, it is very important to perform a proportionate economic analysis before entering into any negotiations (even assuming that the would-be defendant is willing to come to the table). Without this analysis, claimants cannot know whether or not the terms on offer are good value. Taking litigation advice helps with exploring and gaming the avenues for seeking recovery. Finally, it is important to consider the secondary effects of the options for bringing or structuring a claim. For example, while funding is primarily a financial arrangement between the client and funder, it can also increase settlement pressure. If the defendant is made aware of the funding, it signals first that a sophisticated third-party has invested their own capital after carefully investigating the merits and quantum, and second that the claimant is willing to go to trial if necessary. The antitrust damages directive could have greater impact on claims filed in other European jurisdictions, in particular by confirming that disclosure should be available in antitrust damages claims. 2 http://www.bclwg.org/wp-content/ uploads/2017/04/BCLWG-Provisional- Conclusions-and-Recommendations-FINAL.pdf VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 | 33 34 | VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 BY PIP MURPHY DIRECTOR OF INVESTMENTS, VANNIN CAPITAL AND TOM MCDONALD COUNSEL, VANNIN CAPITAL WITH COMMENTARY FROM LUCAS WILK, PARTNER, JONES DAY, ZANE KENNEDY, PARTNER, MINTER ELLISON RUDD WATTS, AND HARRY MATOVU QC, BRICK COURT CHAMBERS “STAND BY YOUR MAN”: A REMINDER OF THE NEED TO CHOOSE YOUR FUNDER WISELY VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 | 35 Professional third-party funding is a high-risk investment activity. Unlike other investments where a bad investment results only in a loss of principal, unsuccessful third-party funders suffer a heightened blow in that they will lose the principal amount invested and they will usually have to pay the successful defendant’s costs up to an agreed amount. The impact of this is felt by the funder but, in some situations, it is also felt by the plaintiff who may be left to “carry the can” if the funder cannot meet its financial obligations. In this article we discuss the importance of a plaintiff selecting a professional and reputable third-party funder, with an unblemished track record of meeting all its financial obligations in respect to adverse costs. We examine a recent case in Australia and one in the United Kingdom where Courts have considered applications by successful defendants to make costs orders against funders, their shareholders and their directors. What is abundantly clear from these cases is that it is critically important that plaintiffs only access funding from professional funders, with sufficient capital, who can “stand by their man” and meet their contractual obligations in respect to security for costs and adverse costs orders. What is abundantly clear from these cases is that it is critically important that plaintiffs only access funding from professional funders with sufficient capital who can “stand by their man” and meet their contractual obligations in respect to security for costs and adverse costs orders. AREN’T THERE REGULATIONS ABOUT THIS? Third-party funding is subject to various “light touch” regulatory frameworks in Australia and the United Kingdom. In Australia, the only formal requirement of third-party funders is that they have a policy for managing conflicts of interest if they do not hold an Australian Financial Services Licence. In the United Kingdom, third-party funding is self-regulated by the Association of Litigation Funders (ALF). Vannin is a member of the association, which currently has eight members, and is an independent body charged by the Ministry of Justice (through the Civil Justice Council) with delivering self-regulation of third-party funding in England and Wales. The ALF’s Code of Conduct sets out the standards by which members have agreed to abide. Amongst other “STAND BY YOUR MAN”: A REMINDER OF THE NEED TO CHOOSE YOUR FUNDER WISELY 36 | VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 things, it sets the standards for the capital adequacy of funders, which are designed to ensure that those entities which provide the funding can meet their commitments. In particular, the Code of Conduct provides that the third-party funder will: • Maintain access to adequate financial resources to meet their obligations to fund all the disputes that they have agreed to fund; • Cover aggregate funding liabilities under all their funding agreements for a minimum period of 36 months; and • Maintain access to a minimum of £5m of capital or such other amount as stipulated by the ALF. In addition, there are strict continuous disclosure and annual audit obligations that members must agree to abide by as part of their voluntary membership of the ALF. All these provisions are designed to protect the client, an approach to the business of third-party funding which Vannin fully supports. In fact, Vannin conducts itself as if the Code of Conduct capital adequacy requirements apply not only to its UK business, but to its operations globally. SO WHY SHOULD I BE CONCERNED? Unfortunately, in Australia and globally, this self-regulated approach to capital adequacy hasn’t always provided funded plaintiffs with absolute security. There have been circumstances in Australia and in the UK where inexperienced third-party funders have failed to make good on their obligations, resulting in the funded plaintiff being left exposed. In addition, in Australia, Vannin is aware of notionally experienced funders that lack the financial resources to meet all their commitments. Two recent cases deal with the consequences of third-party funders failing to honour basic capital adequacy requirements. They are: • Ryan Carter and Esplanade Holdings Pty Ltd v Caason Investments Pty Ltd & Ors  VSCA 236; and • Excalibur Ventures LLC v Texas Keystone Inc & Ors  EWCA Viv 1144 In reviewing these cases, we have spoken with Lucas Wilk, Partner at Jones Day in Perth; Zane Kennedy, Partner at Minter Ellison Rudd Watts in New Zealand, and Harry Matovu QC at Brick Court Chambers in London who will shed some light on what these developments mean for parties interested in funding their disputes. VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 | 37 RYAN CARTER AND ESPLANADE HOLDINGS PTY LTD V CAASON INVESTMENTS PTY LTD & ORS This case arose out of an earlier claim by Bakers Investment Group (Australia) Pty Ltd (Bakers) (with the support of a litigation funder) against Caason Investments Pty Ltd (Caason), concerning allegations of breach of contract regarding the exploration and development of a coal mine in Tasmania. Caason was ultimately successful in defending the claims made by Bakers. Security for costs orders had been made but these fell short of the total amounts claimed by Caason for their costs. Caason then applied for non-party costs to be awarded against the litigation funder, the funder’s sole shareholder, Esplanade Holdings Pty Ltd (Esplanade) and Ryan Carter (Carter), the sole director of Esplanade. The court of first instance held that, as the funder had only $100 of paid up capital, the court should pierce the corporate veil to hold Esplanade and Carter liable for Caason’s costs. The funder, Carter and Esplanade all sought to appeal this decision. On 7 October 2016, the Victorian Court of Appeal upheld the decision to pierce the corporate veil, and to award costs against two non-parties to a dispute. The Court indicated that each case would depend on its own facts but, that there were several factors that should be considered when deciding whether to order costs against a non-party: “The financial position of any party against whom a costs order would be made; whether there have been orders made for security for costs; whether the nonparty has a ‘real interest’ in the litigation, and if so, its extent; the amount of funding contributed by the non-party; and whether the non-party has agreed to provide an indemnity if an adverse costs order is made against a funded party.” The Court agreed that it was appropriate to award costs against the funder, and go after the parties that stood behind it, and it made the following observations: • The funder only had $100 of paid-up capital so it was “a person of straw”; • While the plaintiff retained ultimate control over the litigation, the funder had a significant role, involvement and financial interest in the proceedings and any settlement discussions. Importantly, it was held not to be a passive funder; and • The defendants’ solicitors had written to the funder putting them on notice that the defendant reserved its rights to make an application for non-party costs against them, and they received no response to that letter. Given the factors above, the Court held that costs were appropriately awarded against the funder, its shareholder, and director. It was ultimately decided in such a way that was favourable to Caason. It could recover its costs against two non-parties to the dispute, but the path to this conclusion was not an easy one. The need for Caason to pursue its application for costs all the way to the Court of Appeal added significant time and costs to its recovery efforts. All of this could have been avoided if the funder had the appropriate capital support, as Vannin does, for its investment. Lucas Wilk, Partner at Jones Day in Perth makes the following observations arising from this case: “This judgment is a reminder of the need for potential plaintiffs considering funding options to be very careful in their selection process. There are now many funding options in the Australian legal market at present. However, there are few funders who have the 38 | VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 ability and expertise to guide plaintiffs in funded matters. More importantly, there are few who have the financial capacity and track record for making good on payment obligations (whether as a result of costs orders or otherwise). These considerations will be especially acute for insolvency practitioners. There are many examples of insolvency practitioners standing behind insolvent plaintiffs having to personally pay adverse costs orders. These practitioners should ensure that they are adequately protected from personal liability by having adequate security for costs in place and ensuring that their funder is not a ‘person of straw’.” EXCALIBUR VENTURES LLC V TEXAS KEYSTONE INC & ORS  EWCA VIV 1144 The recent decision by the Court of Appeal of England and Wales in Excalibur Ventures LLC v Texas Keystone Inc and Others  EWCA CIV 1144 (Excalibur) highlights the extent of the Court’s jurisdiction to make non-party costs orders against third-party funders if the interest of justice require it. With the benefit of third-party funding, Excalibur Ventures LLC had brought a large claim against various defendants, seeking an interest in oil fields located in Kurdistan. The claim failed on every point and the Court made orders that the plaintiff pay the defendants’ costs on an indemnity basis. Whilst the plaintiff (with the funders’ help) had provided some £17.5 million in security for the defendants’ costs, there was a shortfall of about £4.8 million. The High Court made orders that each of the funders (including parent companies of certain funders) were jointly and severally liable to pay the defendants’ costs on an indemnity basis. In doing so, the Court: • Confirmed its broad and plenary jurisdiction to make costs orders against non-parties if the interests of justice require it. Given that the funders’ assistance was critical to bringing the claims and that they stood to benefit from any recovery, the Court did not have any difficulty in making them subject to non-party costs orders; • Rejected the funders’ arguments that indemnity costs orders were inappropriate. Even though there was no finding that the funders’ had acted inappropriately, the case had still failed spectacularly – both in terms of factual findings and the claim’s basis in law. The interests of justice required the funders to wear these consequences; and • Applied the “Arkin Cap” (see Arkin v Borchard  1 WLR 3055), such that the funders were only liable up to the amount of funding they had provided (including amounts for security for costs) and only for costs incurred by the defendant after the date from which the funder first provided funding. Whilst the findings of the High Court were upheld by the Court of Appeal, aspects of the Court of Appeal’s judgment are worthy of note. In particular, the Court appeared to leave open the possibility that the “Arkin Cap” might be revisited later, particularly in circumstances where the funder’s control of the action overstepped judicially accepted limits. On 7 October 2016, the Victorian Court of Appeal upheld the decision to pierce the corporate veil, and to award costs against two non-parties to a dispute. “STAND BY YOUR MAN”: A REMINDER OF THE NEED TO CHOOSE YOUR FUNDER WISELY VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 | 39 Harry Matovu QC at Brick Court Chambers makes the following observations arising from this case: “Two important points emerge from the judgment of the Court of Appeal. First, the Court of Appeal confirmed that third-party litigation funding is an important aspect of civil justice delivery in the UK. As Tomlinson LJ put it in the leading judgment, ‘Litigation funding is an accepted and judicially sanctioned activity perceived to be in the public interest.’ Second, the judgment provides a crystal-clear and salutary warning to all funders investing in cases in the English courts, notwithstanding the extreme facts of this particular case (from funding of £31.75 million, some of the funders expected returns of up to £320 million out of the value of an interest in the oil exploration block if the claim succeeded). The Court confirmed that litigation funders should ordinarily be required to meet their client’s obligation to pay the winning party’s costs on whatever basis such costs were to be assessed, even if they themselves were not guilty of any discreditable conduct. As Tomlinson LJ observed, ‘I can see no principled basis upon which the funder can dissociate himself from the conduct of those whom he has enabled to conduct the litigation and upon whom he relies to make a return on his investment.’ So, if a funder decides to back a claim which is so devoid of merit or so improperly conducted as to result in an adverse costs order on an indemnity basis, it cannot expect to escape liability for those adverse costs on the basis that it did not know what was going on or that it wasn’t the funder’s fault. The Court emphasised the importance of an ongoing review of the progress of litigation by lawyers independent of those conducting the litigation in order to minimise the funder’s liability for adverse costs. ‘[R]igorous analysis of law, facts and witnesses, consideration of proportionality and review at appropriate intervals is what is to be expected of a responsible funder ... and cannot of itself be champertous.’” THE TAKE AWAY Whilst regulation of third-party funders is appropriate and to be welcomed, it alone is not enough to ensure that plaintiffs who enter funding arrangements are adequately protected. Zane Kennedy, Partner at Minter Ellison Rudd Watts in New Zealand, echoes these sentiments in the context of the New Zealand market: “Recent authority has established that there are no significant common law or statutory obstacles to litigation funding in New Zealand (see Waterhouse v Contractors Bonding Ltd  NZSC 89). This has been reflected in a tangible increase in both the awareness of the availability of litigation funding and the market appetite to fund qualifying claims. Although the incentives for litigation funding are now firmly established, the costs decision of the NZ High Court in Houghton v Saunders  NZHC 548 emphasised that there is an associated downside in the event the claim does not succeed. In that case, the Court awarded costs of around $5 million against the funder in favour of the successful defendants. The costs award exhausted the funder’s adverse costs insurance policy which was capped at $5 million. In pursuing an appeal to the Court of Appeal, the plaintiff was forced to rely upon an indemnity provided by the funder in respect of security for costs. This case illustrates the importance to prospective plaintiffs of due diligence in evaluating the available funding options. To protect themselves from personal exposure1, plaintiffs must ensure that their proposed funder has sufficient access to capital and/or insurance cover to satisfy any adverse cost awards as well as the resources necessary to prosecute the claim through to completion. Recent case law in the UK, New Zealand and Australia show that superior Courts of Equity are prepared to take an expansive view of their power to make non-party costs orders, but two clear messages for plaintiffs emerge from a review of these judgements: • Extreme caution needs to be exercised if a proposed funder does not have staff with significant legal and third-party funding experience. Excalibur makes clear the important role that appropriate due diligence must play in any third-party funding transaction; and • Plaintiffs need to be satisfied that their funder has access to sufficient resources to make good on their end of the bargain to indemnify the plaintiff for adverse costs. If plaintiffs have any doubt about this, they should think carefully about whether to enter a funding arrangement. “STAND BY YOUR MAN”: A REMINDER OF THE NEED TO CHOOSE YOUR FUNDER WISELY Extreme caution needs to be exercised if a proposed funder does not have staff with significant legal and third-party funding experience. Excalibur makes clear the important role that appropriate due diligence must play in any third‑party funding transaction. 1 Plaintiffs may be personally liable for costs if an award is made on a “jointly and several” basis and the funder cannot meet its 40 | VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 obligations in full. VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 | 41 42 | VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 THIRD-PARTY FUNDING IN INVESTOR-STATE ARBITRATIONS: “A COMMON PRACTICE” THAT IS “RELATIVELY WIDESPREAD” BY JEFFERY COMMISSION SENIOR COUNSEL, VANNIN CAPITAL WITH COMMENTARY FROM MEG KINNEAR, SECRETARY-GENERAL OF THE INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES (ICSID) AT THE WORLD BANK, CAROLINE RICHARD, PARTNER, FRESHFIELDS BRUCKHAUS DERINGER, MYRIAM SEERS, SENIOR ASSOCIATE, TORYS AND HUGH MEIGHEN, SENIOR ASSOCIATE, BORDEN LADNER GERVAIS VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 | 43 Third-party funding has become “a common practice” in investor-state arbitration. That is how the ICSID tribunal in EuroGas Inc. and Belmont Resources Inc. v. Slovak Republic – comprised of Pierre Mayer, Emmanuel Gaillard and Brigitte Stern – described the frequency of third-party financing in ICSID arbitrations in June 2015. Users of investor-state arbitration confirm as much. The use of third-party funding was reported as “relatively widespread” by 39% of respondents in the 2015 Queen Mary University in London and White & Case survey saying they encountered third-party funding in practice. An even higher percentage of respondents (49%) reported having used a particular form of third-party funding – conditional fee agreements in the form of discounted hourly rates with either a success fee calculated as a percentage of damages or by reference to counsel’s hourly fees – in the 2013 Queen Mary and PwC survey. The numbers of funded cases bear this out. A close review of publicly available information about ICSID and UNCITRAL arbitrations in recent years reveals that third-party funding has been used by claimants in at least 19 investor-state arbitrations. Over that same period, contingent or conditional fee agreements have been used by claimants (and at least one respondent) in at least 10 investor-state arbitrations. The actual number of funded cases (taking into account those that remain confidential) is undoubtedly even higher. It is against this background that States and arbitral institutions involved in investor-state arbitration are – for the first time – considering whether or not to introduce provisions regulating thirdparty funding as part of their respective treaty-making and rule amendment processes. Although such provisions are not yet in force, a consideration of the scope and content of any potential rules merit consideration. To that end, in this article, we consider the third-party funding provisions in the Comprehensive Economic and Trade Agreement between Canada and the European Union and its Member States (CETA) and the potential for amendments to the ICSID Arbitration Rules on the same issue. THE RATIONALE FOR THIRD-PARTY FUNDING IN INVESTOR-STATE DISPUTES The rationale, at least historically, for third-party funding in international arbitration is clear: access to justice. In the words of Myriam Seers, senior associate at Torys, third-party funding is “absolutely essential to allowing international investment treaty claims” to proceed to investor-state arbitration. According to Seers: “The most common type of Canadian company affected by unfavourable measures taken by foreign governments are junior mining companies traded on the TSX Venture Exchange. That type of claimant typically has very little opportunity for financing beyond the equities market, which typically does not fund litigation. Third-party funding allows that type of claimant to pursue a claim it would otherwise have no means to pursue.” Seers is not alone in her views on thirdparty funding. As explained by Hugh Meighen, senior associate at Borden Ladner Gervais, third-party funding has already enabled a successful claim for a Canadian investor – Crystallex International Corporation – that it may otherwise not have been possible to pursue. The result: one of the largest ICSID (Additional Facility) awards ever, US$1.4bn in compensation for the Venezuela government’s expropriation of one of the world’s largest untapped gold mines. THIRD-PARTY FUNDING IN INVESTOR-STATE ARBITRATIONS: “A COMMON PRACTICE” THAT IS “RELATIVELY WIDESPREAD” 44 | VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 As Meighen explains, however, although “third-party funding has demonstrated its role in providing access to justice to claimants that would otherwise be unable to pursue worthwhile claims”, it “also expands the commercial options for all would-be claimants.” Indeed, although historically third-party funding has enabled access to justice for only impecunious claimants, that is no longer the case. Caroline Richard, partner at Freshfields Bruckhaus Deringer, who specialises in investor-state arbitration and acted as counsel in the Crystallex arbitration, explains: “Third-party funding is not just about access to justice for impecunious companies. More and more, it is about sound financial management for companies who have cash available to fund their claims, but who want to de‑risk their litigation and take the costs off their balance sheet.” THIRD-PARTY FUNDING PROVISIONS IN CETA In May 2017, the Canadian Parliament approved Bill C-30, thereby enacting the Comprehensive Economic and Trade Agreement between Canada and the European Union and its Member States, concluded in Brussels in October 2016. Although Canada’s ratification of Bill C-30 is one of the last stages before the provisional application of CETA can begin, complete ratification still requires approval from national and provincial legislatures. Third-party funding features in two provisions in Chapter 8, Investment, of CETA: Articles 8.1 and 8.26. Article 8.1 states that third-party funding: “means any funding provided by a natural or legal person who is not a party to the dispute but who enters into an agreement with a disputing party in order to finance part or all of the cost of the proceedings either through a donation or grant, or in return for remuneration dependent on the outcome of the dispute.” It is against this background that States and arbitral institutions involved in investorstate arbitration are – for the first time – considering whether or not to introduce provisions regulating third-party funding as part of their respective treaty-making and rule amendment processes. VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 | 45 Two observations bear note. First, as drafted, Article 8.1 covers third-party funded claims, as well as claims funded by counsel on a contingent fee basis. Second, the definition of “disputing party” in CETA Article 8.1 also includes both investors and respondents, leaving open the possibility for the funding of respondent legal and arbitration costs , such as the not-for-profit funding by the Anti-Tobacco Trade Litigation Fund created by Bloomberg Philanthropies and the Bill and Melinda Gates Foundation in the Philip Morris v. Uruguay ICSID arbitration. Richard agrees, adding that “there is no reason why States should not avail themselves of funding options where they are available”. As she explained in more detail, “having non-profit groups fund a State’s defense against investment treaty claims has the advantage of putting the State in control of the defense of its interests as opposed to having those groups submit amici briefs.” Article 8.26 addresses the question of disclosure of the name and address of the third-party funder, and the timing of that disclosure: 1. Where there is third-party funding, the disputing party benefiting from it shall disclose to the other disputing party and to the Tribunal the name and address of the third-party funder. 2. The disclosure shall be made at the time of the submission of a claim, or, if the financing agreement is concluded or the donation or grant is made after the submission of a claim, without delay as soon as the agreement is concluded or the donation or grant is made. The requirements of Article 8.26 are consistent with the practice of investment tribunals, which have tended to require the disclosure of the identity of a funder but not the terms of any funding agreement. According to Richard, the article “strikes the right balance” and “reflects the prevailing practice of investment tribunals”. In her view, “the key reason for disclosing the identity of the funder is to enable arbitrators to assess possible conflicts of interest”, and as a result, “the terms of a funding agreement are not relevant”. Seers concurs, finding that the “provision as drafted strikes a fair balance”, and that “disclosure of the terms of funding would be far more problematic, as it would give the adverse party an unfair advantage”. Meighen rightly observes, however, that although Article 8.26 excludes disclosure of the terms of the funding agreement itself, “the provisions may nevertheless invite specific disclosure requests by parties regarding funding arrangements”. CETA is one of only two known trade agreements or investment treaties to include provisions on third-party funding. The only other agreement 46 | VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 Asked about the timing for the introduction of any new rule on thirdparty funding, Meg Kinnear, Secretary- General of the ICSID at The World Bank explained that “no date has yet been established” since “the effective date of any amendments will depend on when they are adopted by the Administrative Council, which would also specify an inforce date”. In practice, that means the earliest they would be presented to the ICSID Administrative Council is October 2018, but that necessarily depends on the scope of consultations and feedback received, so the process may end up taking longer. A review of current ICSID practice does not demonstrate that a rule promulgated at the institutional level is necessary for the purposes of “conflict checking” and/or “security for costs”. First, like claimants, funders are interested in the same final result, an enforceable arbitration award, and any potential conflict of interest that could form the basis of a subsequent challenge jeopardises that interest. For that reason, claimants are increasingly publicly disclosing that they have secured funding to pursue arbitration, thereby obviating the need for any specific rule. Second, tribunals have confirmed time and again that the existence of a funder does not evidence the impossibility of payment or insolvency, and is therefore not determinative in deciding security for costs applications. In the words of the UNCITRAL tribunal in South American Silver v. Bolivia: “It is possible to obtain financing for other reasons. The fact of having financing alone does not imply risk of non-payment.” Indeed, despite the increased frequency of third-party funding in investor-state arbitrations in recent years, not one unpaid costs order has been reported in a funded arbitration. Third, the introduction of a rule for purposes of security for costs is questionable when a number of tribunals have expressed doubt as to whether or not there is even a “right” entitled to protection. As explained by the ICSID tribunal in Eskosol v. Italy, “there is something analytically curious about the notion that an ICSID tribunal, while not empowered to protect a claimant’s ability to collect on a possible merits award, nonetheless should intervene to protect a State’s asserted ‘right’ to collect on a possible costs award.” Finally, the introduction of a rule that focuses solely on third-party funding would ignore other types of financing in ICSID arbitration, such as by shareholders, significant lenders, or insurers. As explained by Richard, there is “no need for arbitral institutions to regulate party disclosures relating to litigation funding in any greater detail than they regulate other types of party disclosures.” The reason, according to Richard, is straightforward: “the nature and scope of disclosures relevant to the assessment of conflicts of interest have generally not been the subject of arbitration rules” and there is no reason “why this would be different with respect to third-party funding.” THIRD-PARTY FUNDING IN INVESTOR-STATE ARBITRATIONS: “A COMMON PRACTICE” THAT IS “RELATIVELY WIDESPREAD” is the EU‑Vietnam FTA, which includes similar provisions, albeit with a few variations. As for arbitral institutional rules, the Singapore Investment Arbitration Centre introduced rules addressing third-party funding in January 2017, although they have yet to be tested as few treaties contemplate arbitration under the SIAC Investment Arbitration Rules. POTENTIAL SCOPE FOR ICSID RULE AMENDMENTS In October 2016, ICSID launched an amendment process – the fourth of its kind – by inviting suggestions for rule amendments. One of the 16 topics identified for potential ICSID Rule amendment is “possible provisions on third-party funding”, namely “whether there should be disclosure of third-party funding for the purposes of conflict checking and/or for the purposes of security for costs”. The definition of “disputing party” in CETA Article 8.1 also includes both investors and respondents, leaving open the possibility for the funding of respondent legal and arbitration costs. VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 | 47 BY ANDREA COOMBER DIRECTOR, JUSTICE WITH INTRODUCTORY REMARKS FROM ROSEMARY IOANNOU SENIOR COUNSEL, VANNIN CAPITAL JUSTICE AT 60 As a dispute resolution funding company, Vannin Capital works with leading lawyers and experts across the globe funding complex, high value disputes. The cases we fund are often at the forefront of legal developments. While Vannin is a commercial organisation, often an important byproduct of our work is access to justice for claimants who have strong valuable claims but do not have the resources to pursue them. However, by the very nature of the claims we fund – normally large commercial disputes – there are a very significant number of claims for which our funding is not suitable. In a thriving democratic society, now more than ever, the importance of access to justice and preservation of the rule of law is something that needs to be cherished and preserved. JUSTICE strives to achieve just that, for the benefit of those it represents directly and inevitably, indirectly through its work, the whole legal community. This should be something that is applauded, and encouraged by all of us. Andrea Coomber, director at JUSTICE, talks about its important work and how it has evolved as it approaches its diamond anniversary. MAKING IT TO 60 In June, JUSTICE celebrated its 60th anniversary. Set up in 1957 by a group of eminent British jurists – as headed by former Nuremberg prosecutor Hartley Shawcross – JUSTICE was founded to ‘uphold and strengthen the principles of the rule of law… to assist in the administration of justice and in the preservation of the fundamental liberties of the individual’. I became the Director of JUSTICE four years ago and it is this mission that frames our work still. Very few charities make it to 60, or even fewer have anywhere near the impact of JUSTICE. While the organisation has a very modest public profile, we are well known among policy makers and senior judges, with our work having shaped the legal landscape of this country. So much of what we all take for granted in the legal system – the Ombudsman, the Crown Prosecution Service, the Ministry of Justice itself – were borne of JUSTICE’s recommendations over the years. JUSTICE campaigned for many years for the incorporation into UK law of the European Convention on Human Rights, was a driver of the Human Rights Act 1998 and was charged with training our judges on 48 | VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 human rights upon its adoption. JUSTICE is a lead intervener in the UK Supreme Court and in the European Court of Human Rights, where our third-party interventions provide independent, expert material to assist the court in deciding cases. For many people, JUSTICE will always be associated with the BBC television series Rough Justice. For our first 25 years, much of our work focussed on securing the release of prisoners who had suffered miscarriages of justice. Partnering with Rough Justice, JUSTICE’s work led to the release from prison of eighteen people who’d been wrongly convicted. At the same time, we were at the forefront of urging the creation of the Criminal Cases Review Commission, which itself took over the mantel of challenging wrongful convictions twenty years ago. Much of this impact is borne of the way we work. JUSTICE has a membership of around 1,300 – mostly individual lawyers but also corporates and nonlawyers concerned about a fairer justice system. Our membership is drawn from across the professions, from retired senior judges and public law barristers, to tax partners and law students. Our JUSTICE is a lead intervener in the UK Supreme Court and in the European Court of Human Rights, where our third-party interventions provide independent, expert material to assist the court in deciding cases. members, and the Council that advises our work, is cross-party, allowing us to influence political agendas behind the scenes. While our members may vote or represent different political parties, they are brought together by and share a strong commitment to the principles of the rule of law and the fair administration of justice. We work with justice leads from all parties, to ensure that these principles trump party politics when it comes to how ordinary people interact with the police and the courts. While we have a very small staff – only four lawyers at present – we draw on our membership to identify areas of the system which are antiquated, unfair or inefficient and to reimagine how things might work differently. And there are many things that could and should work differently, with our recent work giving a taste of the possibilities. VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 | 49 CHALLENGING TIMES It is well known that the last five years have seen significant State retrenchment; funding for the justice system has been slashed, for example with legal aid cut significantly and the introduction of ‘enhanced’ court and tribunal fees. In the civil courts, this has meant that many people who previously would have qualified for legal aid, for legal advice or representation, are faced with either representing themselves or being excluded from the system. At the same time, for the vast majority of the population – ineligible for legal aid even before the cuts, and unable to afford a lawyer, or expose themselves to the costs risks – is already effectively excluded from the civil courts. While JUSTICE has briefed against cutbacks to legal aid over the last twenty years, we also recognise that an adversarial justice system – built on the assumption that all parties would be represented – is in trouble when very many people before it are not represented. The new reality is that for many people who present at a Country Court for their civil matter, the first lawyer they speak to is the judge. This is obviously not how the system was meant to operate, and it results in an unedifying and confusing experience for the unrepresented party and a time consuming and sometimes frustrating process for the judge, who has to guide someone through the system. And then there are the majority of people who research shows us will just stay at home, and not take their good claims or make their good defences in court, because they have to fend for themselves. In 2013, shortly after I began as director of JUSTICE, we set up a working party to consider whether the adversarial process in the civil courts and tribunals was still fit for purpose, and whether system change might be desirable. A group of eminent members, chaired by a former Lord Justice of Appeal, Sir Stanley Burnton, looked at the reality of unmet legal need in the civil courts, considered how the processes currently work and what was happening in other jurisdictions and in other parts of our own system that might usefully shape a new approach. 50 | VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 JUSTICE AT 60 RADICAL CHANGE The resulting report of April 2015, proposed radical change. We recommended that rather than directly involving judges in the first instance, parties should be directed to a person – we called them a ‘Registrar’ – who works under the judge, who could engage in a dialogue with the parties to assess their needs, their evidence, their expected outcomes etc., and who would be empowered to mediate, engage in ‘early neutral evaluation’ (‘you’re just not going to win this case’) or to refer the case onto a judge where cases were factually or legally complicated. Most cases are not. All the research shows that parties to civil disputes most often just want to know ‘whether there is anything in it’ – and a judge is an expensive person to be dispensing this advice. Our report also recommended that much, much more should be done online, dragging the outdated court system into the 21 century and moving us away from a system based entirely on people turning up to old buildings with bags full of bundles of papers. While at the start of the work I was told that it was pie-in-the-sky stuff, there was no way the civil courts would be open to changing their procedures, by the time we reported 18 months later, the environment had become more enabling. With a reforming senior judiciary and a Ministry of Justice open to exploring how the system might be reformed, our report was embraced. Lord Justice Brigg’s review of the civil courts adopted our ‘Registrar’ model as did Her Majesty’s Courts and Tribunal Service (HMCTS) Reform Programme, which has renamed them ‘Case Officers’. The call for more to be done online, made around the same time by Richard Susskind’s Online Dispute Resolution Report for the Civil Justice Council, has also been picked up. With an investment of almost £1 billion from Treasury in modernising our courts, the JUSTICE work is now underlining a new approach to dispute resolution in the civil courts. We are now following up with a new working party looking at how to ensure that all people, including the ‘digitally deprived’ can access justice in an online era. Critical to our success has been that we consult and advise policy makers across all parties as our recommendations developed, allows us to take the partypolitical sting out of justice system reform. Most of what we are working on deserves bi-partisan support and JUSTICE’s membership and network enhances our influence in this respect. Our report also recommended that much, much more should be done online, dragging the outdated court system into the 21 century and moving us away from a system based entirely on people turning up to old buildings with bags full of bundles of papers. VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 | 51 The civil justice work is but one example. Our recent work on court reconfiguration and on reforming complex and lengthy criminal proceedings have similarly borne fruit. We await to see whether our Increasing Judicial Diversity report1 of April this year will have an impact on increasing the number of women – currently only one – on the UK Supreme Court during the upcoming round of appointments. ACCESSIBLE AND FAIR SYSTEM FOR ORDINARY PEOPLE There is a lot more for us to do. We currently have working parties of our members looking at: reforming immigration and asylum processes (given that the bulk of the Court of Appeal’s workload is on immigration and asylum, creating significant delays in listings of cases); on the treatment of defendants with mental health problems in the criminal justice system, given the very high numbers of cases and concern about how appropriate our processes are to deal with them, and we will soon begin work on handling of sexual offences cases. With more resources we could do even more. And that’s the downside of directing a charity like JUSTICE, and frankly the reason that so few charities make it to 60 years. Securing funding is a constant struggle. We receive some support from trusts and foundations, but most of our funding comes from members and supporters who – individually and corporately – sign up to support to JUSTICE. Three years ago we launched a successful appeal, which has allowed us to more than double our legal staff and to increase our impact. We are also lucky enough to own our own building, which provides valuable rental income and saves us from the vagaries of the London property market, but we still need to raise around £700,000 a year to keep the charity ticking over. As we move beyond 60 years, the need for a robust, insightful and independent voice from the legal professions has never been so important. There is so much of the system that is antiquated and other parts that need a fundamental rethink to become truly accessible and fair. The justice system is a bedrock of the rule of law. The high quality of our judiciary and our courts is the reason that so many businesses are based in the UK and choose to have disputes settled here. For many it is a first class service. But this is the same system that needs to be accessible and fair for ordinary people. With ever diminishing funding for social services and cut backs to government services, more and more vulnerable people are finding themselves needing to challenge the decisions of government authorities, and will inevitably end up before a court or tribunal. With chaotic lives, many of the same people will find themselves before the Family Court and in our criminal courts. For these people, the justice system is the ultimate safety net. And that safety net needs JUSTICE. JUSTICE AT 60 As we move beyond 60 years, the need for a robust, insightful and independent voice from the legal professions has never been so important. There is so much of the system that is antiquated and other parts that need a fundamental rethink to become truly accessible and fair. 1 Increasing judicial diversity, A Report by JUSTICE, Chair of the Working 52 | VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 Party Nathalie Lieven QC, April 2017 VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 | 53 54 | VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 | 55 BY GORDON DAWES PARTNER, MOURANT OZANNES AND JUSTIN HARVEY PARTNER, MOURANT OZANNES LITIGATION FUNDING IN OFFSHORE JURISDICTIONS – FUNDING IN JERSEY AND GUERNSEY LITIGATION FUNDING IN OFFSHORE JURISDICTIONS – FUNDING IN JERSEY AND GUERNSEY 56 | VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 Channel Island law has its roots in the customary law of Normandy, itself overtaken by the Code civil (or Code Napoléon) of 1804. Channel Island courts still look to ancient Norman law and modern French law, when appropriate. However, much of Channel Island law has become anglicised, albeit without Channel Island courts ever being bound to follow English cases, let alone statutes. The relationship is much more subtle. The more established and less controversial a principle of English common law, the more likely it is, in those areas where we look to the common law, that the same principles will be applied in Channel Island courts, The starting point in both jurisdictions is that we would very likely adopt the English common law principles governing maintenance and champerty, the former occurring where a person supports litigation in which he has no legitimate concern without just cause or excuse, and the latter where the person maintaining another contract for a share of the proceeds of the action or suit. The Channel Islands, comprising the "Bailiwicks" of Guernsey and Jersey, are ancient jurisdictions with their own laws and customs, separate from each other and separate from the United Kingdom. Historically they formed a part of the Duchy of Normandy, and a quick glance at any map will show you that, geographically, they are much more obviously a part of France than the British Isles. When, in 1066, William the Conqueror (also known in France as Guillaume le Bâtard) conquered England he became both King of England whilst also Duke of Normandy. William's great-great-grandson was King John, of Magna Carta fame, but, in a somewhat chequered career he also lost continental Normandy to the French King of the day, but held on to the Channel Islands. Their anomalous position as near-independent dependencies of the English Crown dates back to that year, 1204. VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 | 57 and vice versa. It is not at all uncommon either to look to authorities from other leading common law jurisdictions such as Australia and New Zealand. We are rather behind the times, rightly or wrongly, when it comes to such things as conditional or contingency fees; they are not permitted. But it is a different story when it comes to commercial litigation funding. The starting point in both jurisdictions is that we would very likely adopt the English common law principles governing maintenance and champerty, the former occurring where a person supports litigation in which he has no legitimate concern without just cause or excuse, and the latter where the person maintaining another contract for a share of the proceeds of the action or suit1. Historically, maintenance and champerty were criminal offences in the UK, until abolished as such in 1967; however, they remained contrary to public policy and illegal in civil law. That position has changed out of all recognition in English law to the point that third-party funding of litigation is, of course, permitted; although English courts retain the right to regulate, outlaw and sanction funding arrangements if, on the facts, they are regarded as contrary to public policy. The change in attitude was heralded by the report of the Civil Justice Council on access to justice and Lord Justice Jackson's final report reviewing civil litigation costs where third-party funding was stated to be beneficial in that it promoted access to justice. A working party was established by the Council which produced a code of conduct for litigation funders to be administered by the Association of Litigation Funders, a body also established by the Council, and charged with the self-regulation of litigation funders. Mourant Ozannes is an associate member of the ALF and Vannin Capital is a member. 1 See the judgment of Lord Phillips MR in R (Factortame Limited and others) v Secretary of State for Transport, Local Government and the Regions (no. 8)  3 WLR 1104 at para 32. 58 | VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 Litigation funding, or at least litigation funding by members of the ALF, was given a considerable boost by the English Court of Appeal in the recent case of Excalibur Ventures LLC v Texas Keystone Inc. and others2 where Tomlinson LJ commented as follows: "… champerty involves behaviour likely to interfere with the due administration of justice. Litigation funding is an accepted and judicially sanctioned activity perceived to be in the public interest. What the judge characterised as 'rigorous analysis of law, facts and witnesses, consideration of proportionality and review at appropriate intervals' is what is to be expected of a responsible funder … and cannot of itself be champertous. I agree … that, rather than interfering with the due administration of justice, if anything such activities promote the due administration of justice." There is Jersey case law which clearly shows that, in principle, commercial litigation funding is permitted. The cases are at Royal Court level only 2  EWCA Civ. 1144. 3 In the matter of the Valetta Trust  JRC 227. LITIGATION FUNDING IN OFFSHORE JURISDICTIONS – FUNDING IN JERSEY AND GUERNSEY VANNIN CAPITAL | Funding in Focus | Issue 5: 2017 | 59 There is Jersey case law that clearly shows that, in principle, commercial litigation funding is permitted. (the equivalent of the English High Court) but both judgments were given by the former Bailiff, Sir Michael Birt, a highly respected judge. Our Courts of Appeal are drawn from eminent United Kingdom silks, themselves immersed in English case law, but again without being bound by it when sitting in Channel Island cases. This again makes it unlikely that they would reach a different conclusion to the Royal Court. In a 2011 judgment3 the Bailiff said this: "… we have no doubt that Jersey law is to like effect as English law and an agreement which provides for a share of the proceeds of litigation may be held to be unenforceable on the ground of champerty if it is contrary to public policy. However, the reasons for the sea change in the approach of the English and Australian courts as to the requirements of public policy are equally applicable in Jersey." That judgment was affirmed by the Bailiff in the later case of Barclays Wealth Trustees (Jersey) Ltd v Equity Trust (Jersey) Ltd4 in which one of the co-authors appeared for the successful Plaintiffs. There is no Guernsey case law on the subject, but it is highly likely that a Guernsey court would follow both the Jersey and English case law in this context. Indeed there have been litigation funded cases before Guernsey courts and the point has not been taken by the opposing parties, which suggests that they accept it would fail. There are subtle wrinkles though. It would, for example, be open to an opposing party to argue that the so-called "Arkin cap"5 does not apply in Channel Island cases, something which any prospective commercial funder should take into account when assessing whether to fund a Guernsey or Jersey case. However, in principle it can be said with confidence that commercial litigation funding is an accepted part of Channel Island litigation and does not, of itself, offend against such of the rules against maintenance and champerty as it survives. A Channel Island court could be expected to reach the same conclusions as the English Court of Appeal in this context and also to retain the same powers to regulate all such arrangements in terms, inter alia, of disclosing the fact of funding, the identification of the funder and liability in costs. Gordon Dawes and Justin Harvey-Hills are advocates and partners at the Guernsey and Jersey offices respectively of Mourant Ozannes, international offshore law firm with offices in BVI, Cayman, Guernsey, Hong Kong, Jersey and London. This article is the first of two produced by litigation partners at Mourant Ozannes. The second article, which will appear in the next edition of Funding in Focus, will consider litigation funding in Cayman and the BVI. 4  JRC 094. Justin Harvey-Hills appeared. 5 The principle that the liability of a litigation funder for adverse costs will be limited to an amount the equivalent of the amount of funding provided by it; the name derives from the decision in Arkin v Borchard Lines Ltd  1 WLR 3055. vannin.com LONDON +44 (0)20 7139 8401 firstname.lastname@example.org REGISTERED OFFICE Vannin Capital PCC 13-14 Esplanade, St Helier, Jersey, JE1 1EE +44 (0)1624 615 111 email@example.com MELBOURNE +61 (0)3 8375 6845 firstname.lastname@example.org PARIS +33 (0)9 75 12 95 80 email@example.com SYDNEY +62 (0)2 8310 5583 firstname.lastname@example.org WASHINGTON, D.C. +1 202 350 9206 email@example.com ABOUT VANNIN CAPITAL Vannin Capital is one of the world’s largest and most experienced professional dispute resolution funders with quantum under management consistently in the billions. We provide bespoke funding solutions in high value commercial litigation and international arbitration disputes which can eliminate the inherent cost risks of legal proceedings. We are flexible, innovative and responsive, able to make quick funding decisions, not constrained by a rigid investment mandate, and have an excellent success rate. Our experienced, multi-disciplinary team comprises successful UK, Australian and US-admitted lawyers, judges, QCs, barristers, advocates, arbitrators, financial experts, entrepreneurs and technology professionals who work seamlessly together to originate, evaluate, fund and monitor a diverse portfolio of complex international claims. Vannin Capital is a member of The Association of Litigation Funders of England & Wales (“ALF”), the UK regulatory body responsible for litigation funding and strictly adheres to the ALF Code of Conduct. ©2017 Vannin Capital PCC The information contained in this publication is intended solely for general information purposes and does not constitute legal, financial or other professional advice. Neither Vannin Capital PCC nor its subsidiary companies accept liability to any party for any loss, damage or disruption which may arise from information contained in this publication. All rights reserved. No part of this publication may be reproduced in any manner without the prior written permission of Vannin Capital PCC. Vannin Capital PCC is registered in Jersey with registration number 119327 and having its registered office at 13-14 Esplanade, St. Helier, Jersey, JE1 1EE.