Lexology GTDT Market Intelligence provides a unique perspective on evolving legal and regulatory landscapes. This interview is taken from the Dispute Resolution volume discussing topics including Brexit’s impact on choice of law and jurisdiction, market competition and the popularity of ADR within key jurisdictions worldwide.
1 What are the most popular dispute resolution methods for clients in your jurisdiction? Is there a clear preference for a particular method in commercial disputes? What is the balance between litigation and arbitration? What are the advantages and disadvantages of the most popular dispute resolution methods?
Where a commercial dispute cannot otherwise be resolved, litigation and arbitration continue to be the main forms of dispute resolution in England and Wales. Alternative forms of dispute resolution such as mediation continue to be popular as well, and are often utilised before formal proceedings have begun or in parallel with ongoing litigation or arbitration.
English litigation and arbitration are both very effective methods of resolving complex, high-value domestic and international disputes. Both offer slightly different advantages and disadvantages. Importantly, the benefits of one are often reflected in the drawbacks of the other, meaning there can be an obvious choice as to which mechanism is best suited to resolving a particular dispute. Similarly, particular industries may have a preference for one method over another. For example, energy and construction disputes often utilise arbitration, given its confidential nature and the ability to engage decision-makers with relevant industry experience, whereas financial services disputes are often resolved through litigation, given that it can allow for relatively swift summary judgments in straightforward disputes, such as claims for outstanding debts.
In terms of perceived advantages and disadvantages, litigation enables a claimant to bring proceedings simultaneously against a number of defendants, even where some of those defendants are not party to any underlying contract (and the corresponding jurisdiction clause). It also allows a claimant to access a highly skilled judiciary through a transparent and public process, which will result in a decisive outcome (subject to any appeal). The court fees associated with litigation are also relatively modest.
Conversely, arbitration may offer a more suitable avenue for parties who are concerned about the enforceability of an award, require confidentiality or are involved in a dispute that would benefit from specialist decision-makers. Arbitration gives the parties a high degree of autonomy as to how the dispute is approached, which allows for flexibility in respect of the location and timing of any hearings. This autonomy (and the need to pay the tribunal’s fees) will typically mean that arbitration proceedings are more expensive to conduct, although they may be resolved quicker than litigation (assuming summary judgment is not an option). The potential for swift finality is particularly notable in arbitration given that the right to appeal is generally very limited.
While English arbitration awards are generally straightforward to enforce, it is typically very difficult to join non-contractual parties. Where non-contractual parties are involved, litigation is likely to be the better option as there is otherwise a risk of a claimant being required to begin separate processes against different defendants.
Given these different advantages and disadvantages, litigation and arbitration coexist comfortably in England and parties therefore have a significant degree of choice as to how to resolve any particular dispute. This said, litigation continues to the more popular option. In 2020, the London Court of International Arbitration (LCIA) received 444 separate referrals for arbitration, while in 2019 (the last year for which figures are available) the primary commercial courts in London (the Business List of the Chancery Division and the Commercial Court of the Queen’s Bench Division) received approximately 3,500 separate filings.
2 Are there any recent trends in the formulation of applicable law clauses and dispute resolution clauses in your jurisdiction? What is contributing to those trends? How is the legal profession in your jurisdiction keeping up with these trends and clients’ preferences? What effect has Brexit had on choice of law and jurisdiction clauses?
Given their well-established pedigree, English courts and English law continue to be very popular and sound choices for parties engaging in international contracts. The principles that English law has developed in respect of commercial dealings and dispute resolution are widely-known and respected. This is unlikely to be affected by Brexit.
While contractual dispute resolution provisions continue to favour English law and the English courts, these clauses are becoming increasingly complex. They may, for example, set out a ‘tiered’ escalation process for resolving disputes (eg, requiring the parties try mediation before proceedings are initiated) or be ‘asymmetric’ in that one party has different rights from the other (eg, the right to arbitration over litigation may be at the discretion of only one of the parties). Ultimately, the complexity of these clauses and what they substantively provide will be a matter of negotiation for the relevant parties. In this respect, each party should take great care (and legal advice) when negotiating dispute resolution provisions to ensure that it is not disadvantaged if a conflict arises.
Separately (and as a response to Brexit), the United Kingdom has ratified the Hague Choice of Court Convention (the HCCC), which has also been ratified by the European Union and a number of other countries. In broad terms, countries that have ratified the HCCC will respect exclusive jurisdiction clauses in favour of one another and will typically recognise and enforce judgments obtained across the relevant jurisdictions.
Importantly, the HCCC only applies to exclusive jurisdiction clauses and it is therefore likely to be difficult where clauses allow for more than one jurisdiction. Further, it only applies to contracts agreed after the HCCC came into force in the relevant state, which has created some unresolved confusion for the United Kingdom given that is has effectively agreed to the HCCC twice – once as a member to the European Union in October 2015 and then separately on its own (due to Brexit) in December 2018. While it remains to be seen how this will be resolved, the United Kingdom believes that it is the earlier of these dates that should be applied. In any event, the HCCC offers helpful clarity for a large of number of exclusive jurisdiction provisions.
Where the HCCC does not apply, the position following Brexit for the time being, and pending a final decision as to whether the United Kingdom will be permitted to accede to the Lugano Convention, will be that English common law applies and the English courts will accordingly have notable discretion as to whether or not they have jurisdiction over a particular defendant. More specifically, a claimant will need to obtain the court’s permission to serve out of the jurisdiction by showing that there is a serious issue to be tried, one or more of the ‘jurisdictional gateways’ is satisfied and England is the proper and appropriate forum for the claim. Jurisdictional gateways grant the English courts jurisdiction over foreign defendants where the subject matter of the dispute is sufficiently connected to England or Wales. The most common gateways are that the claim relates partly or wholly to property within the jurisdiction, it involves a contract governed by English law or a jurisdiction clause in favour of England, the harmful act or the harm suffered occurred in England or Wales, or that an international co-defendant is a ‘necessary and proper party’ to proceedings in England against other defendants over whom there is jurisdiction (eg, due to a jurisdiction clause or due to their domicile). Any defendant may challenge jurisdiction, normally on the basis of ‘forum non conveniens’ (ie, that England is not the appropriate venue for a particular claim, and a more convenient forum exists elsewhere).
Jurisdiction and governing law provisions often give rise to complex issues. Accordingly, where a dispute has an international aspect, it is sensible to obtain legal advice at the earliest opportunity.
3 How competitive is the legal market in commercial contentious matters in your jurisdiction? Have there been recent changes affecting disputes lawyers in your jurisdiction? How is the trend towards ‘niche’ or specialist litigation firms reflected in your jurisdiction?
The London legal market continues to be very competitive. In addition to the traditional English firms and the London offices of various US firms, recent years have seen the development of specialist dispute boutiques started by high-profile lawyers who have broken away from other elite firms. Despite being smaller than full-scale outfits, these boutique firms are regularly instructed in complex, high-profile litigation and arbitration, often in place of more established names. The have proved popular with clients given they offer the expertise of prominent dispute lawyers, but with a greater degree of flexibility in terms of the service they are able to provide, with increased involvement by senior lawyers and without the typical conflict of interest concerns that arise at full-service firms.
4 What have been the most significant recent court cases and litigation topics in your jurisdiction?
Notwithstanding the challenges posed by covid-19, the English courts have released a number of important decisions over the past year.
- PCP Capital Partners LLP v Barclays Bank plc, in which the High Court considered whether a bank had waived legal privilege in relation to communications it had undertaken with its lawyers about a series of allegedly fraudulent transactions. The court held that, by providing its lawyers’ advice on the lawfulness of the transactions, it had in fact waived privilege in relation to all contemporaneous communications it had undertaken with them. The decision shows the risk of a party trying to ‘cherry-pick’ precisely what privileged information it will share in order to support its case.
- The Financial Conduct Authority v Arch Insurance (UK) Ltd and others, a Supreme Court case brought by the Financial Conduct Authority to test a series of issues regarding how non-damage business interruption insurance policies respond to covid-19. The judgment has meant that the cover provided is broader than what had been argued by various insurance companies. It is likely to have significant consequences for insurers, reinsurers and policyholders. Furthermore, the use of a test case procedure (which all parties agreed to) was an innovative solution to the need to obtain clarity quickly on issues that were of great importance to the insurance industry (and wider economy). It is likely that this procedure will be used more frequently in the future.
- Okpabi v Royal Dutch Shell Plc, in which the Supreme Court held that English courts can have jurisdiction over claims relating to foreign subsidiaries of UK-based companies. Whether the UK-based parent owes duties to those affected by its foreign subsidiary will depend on the extent to which the parent managed the relevant activity (either directly or through group-wide policies).
- Mastercard Inc and others v Merricks, in which the Supreme Court opted for a more flexible approach to class action litigation. It did so by holding that class actions, even on an opt-out basis, should be permitted where doing so is preferable to expecting a large number of individual claimants to bring their own separate proceedings (particularly where their separate losses are relatively minor).
- WM Morrisons Supermarkets Plc v Various Claimants, in which the Supreme Court held that Morrisons was not vicariously liable for a data leak carried out by a rogue employee. The decision is significant in that it was the first major data protection class action decision since the introduction of EU General Data Protection Regulation and the Data Protection Act 2018. While data protection continues to be an area of significant change, the decision will provide some comfort for entities that hold large amounts of personal data.
5 What are clients’ attitudes towards litigation in your national courts? How do clients perceive the cost, duration and the certainty of the legal process? How does this compare with attitudes to arbitral proceedings in your jurisdiction?
English courts and English law continue to be very well respected internationally as providing fair, transparent and certain outcomes. The English judiciary remain among the most highly regarded in the world. As a corollary to this, English barristers and solicitors have a strong reputation in providing quality advice and advocacy in both domestic and international disputes.
There is a perception that English litigation can be expensive and time-consuming. However, in recent years, the courts have sought to address this by implementing various processes to control parties’ budgets, the scope of disclosure exercises, and, recently, narrowing witness evidence.
As noted, while arbitration proceedings can sometimes be less time-consuming and more cost-effective, this is not always the case.
6 Discuss any notable recent or upcoming reforms or initiatives affecting court proceedings in your jurisdiction.
The restrictions around the covid-19 pandemic have acted as a catalyst for modernising England’s court processes and an increase in the use of remote hearings. This modernisation was already underway, but was accelerated dramatically from March 2020 onwards. The experience has been largely successful and parts of it are likely to be embraced even once restrictions lift, particularly where they provide for potential cost savings. Having noted this, traditional in-person hearings are always likely to be the default given the emphasis the English courts place on principles of open justice.
On 6 April 2021, a series of new rules regarding the preparation and content of witness statements in High Court proceedings came into effect. The changes limit the content of witness statements to disputed matters that the witness can recall and are likely to significantly alter the process by which statements are typically prepared by requiring witnesses to play a much more active role. The changes reflect the courts’ increasingly vigilant approach to witness evidence. In the recent decision of PJSC Tatneft v Bogolyubov and others, a party’s claim was dismissed in its entirety on the basis that the witness statements appeared to have been drafted by its lawyers and the witnesses themselves frequently contradicted the statements during cross-examination. These changes are significant and failure to comply with them may have serious repercussions.
Finally, the Disclosure Pilot that has operated in the Business and Property Courts since January 2019 has been extended to the end of 2021 and looks as though it is here to stay. The Pilot is intended to provide the courts with greater control over the disclosure process by requiring the parties to fulfil various procedural requirements. While in some instances this has been successful, it can lead to increased costs in complex cases with multiple parties.
7 What have been the most significant recent trends in arbitral proceedings in your jurisdiction?
Annual reports issued by the LCIA indicate that it is seeing record numbers of new cases, even given the challenges of the covid-19 pandemic. It has seen a continuiously diverse profile of parties electing to refer their disputes to the LCIA (most notably with an increase of parties from Russia, Switzerland and elsewhere in Europe). The LCIA has also reported an increase in gender diversity, with the number of female arbitrator appointments increasing from 23 per cent in 2018 to 29 per cent in 2019. It has also seen an increase in the number of non-British arbitrators.
8 What are the most significant recent developments in arbitration in your jurisdiction?
Arbitration is typically seen as providing finality to a dispute (due to the limited avenues for appeal) and control to the parties in that the courts are generally unwilling to encroach on disputes that are referred to arbitration. However, there are limits to both of these points. One of Seladore Legal’s partners, Kevin Kilgour, was recently involved in a successful (and unusual) application to overturn an arbitral award. English law (under sections 67 to 69 of the Arbitration Act 1996) allows an award to be challenged on the basis of a lack of jurisdiction or serious procedural irregularities such as fraud or bias. While this jurisdiction is exercised very rarely, the High Court in Doglemor Trade Ltd v Caledor Consulting Ltd intervened to correct a significant mistake that the relevant arbitral tribunal had made in applying tax liabilities when calculating its final award. The tribunal acknowledged this mistake but refused to use its own powers to correct it. The decision shows that, in some circumstances, the courts will exercise their power to supervise arbitration proceedings.
9 How popular is ADR as an alternative to litigation and arbitration in your jurisdiction? What are the current ADR trends? Do particular commercial sectors prefer or avoid ADR? Why?
Alternative forms of dispute resolution continue to be very popular with parties and their use is strongly encouraged by the English courts.
In the recent decision of Wales (t/a Selective Investment Services) v CBRE Managed Services Ltd and another, the High Court prevented a successful defendant from claiming a substantial portion of their costs due to a failure to engage in mediation. Similarly, the courts in DSN v Blackpool Football Club Ltd and BXB v Watch Tower and Bible Tract Society of Pennsylvania both ordered the respective defendants to pay the claimants’ costs on a higher indemnity basis due to the defendants declining to participate in mediation given a misplaced belief as to the strength of their case.
Given the current strain on judicial resources, a party who refuses to engage in alternative dispute resolution prior to (or during) formal proceedings is at risk of having notable sanctions imposed on them by the court.
10 What is the position in relation to litigation funding in your jurisdiction? Is funding available? Have there been any significant developments in this area in your jurisdiction?
Litigation funders continue to play a significant and increasing role in the English court system.
The courts continue to supervise funders’ involvement, as evidenced by the recent decision of Chapelgate Master Fund Opportunity Ltd v Money, where the Court of Appeal confirmed that, where a funded claim fails, the funder may be liable for all of the other party’s costs from the date the funding agreement was entered into onwards. This dispelled thoughts of the ‘Arkin cap’, which suggested that a funder’s liability was limited to the amount of funding it had actually provided.
The Inside Track
What is the most interesting dispute you have worked on recently and why?
We have recently been working on a cross-border insolvency matter in which we sought (and obtained) recognition of a Russian bankruptcy in England and the Isle of Man. The dispute has had many facets, including a worldwide freezing order and obtaining a travel ban and passport surrender order to prevent the bankrupt from fleeing the jurisdiction. This action resulted in over US$20 million of previously undisclosed assets being revealed. We anticipate that there will be an increase in insolvency disputes due to the economic impact of the pandemic and therefore expect to see many more of these types of cases.
What do you consider to have been the most significant legal development or change in your jurisdiction of the past 10 years?
The dual effect of a huge increase in litigation funding (and changes to the regulatory regime in relation to litigation funding and legal fee agreements) and the nascent class action regime in England (including an ‘opt-out’ class action in relation to data breaches) is one of the most significant developments. We believe these two changes will lead to greater access to justice for individual clients, as well as an increase in major corporates being held to account in relation to, for example, data breaches and privacy violations.
What key changes do you foresee in relation to dispute resolution in the near future arising out of technological changes?
Technology has already had a profound impact on dispute resolution over the past 12 months. The switch to remote hearings for litigation and arbitration happened almost seamlessly and given the success of this, it seems very likely that many hearings will continue to take place remotely. There are real advantages, both in efficiency, due to reduced time waiting in courtrooms, and also an ability for clients overseas to attend hearings without traveling, which either saves them costs or means they (or colleagues) can attend hearings they would otherwise not have been able to.