Partner Simon Bushell examines global trends and impacts on the disputes market in Getting The Deal Through.
Simon’s article was first published in Getting The Deal Through’s Dispute Resolution Market Intelligence Report, and can be found here.
The summer referendum in which the United Kingdom voted for Brexit has sent political and economic shockwaves around the world. In the immediate aftermath of the vote, the media speculated on what the future would hold and whether the business landscape would be forever changed. Today, over five months later, that same speculation still persists. Political and economic uncertainty is generally a fertile environment for disputes lawyers, but time will tell. That there will be more disputes arising from Brexit seems inevitable, but how those disputes will be resolved, as between litigation and arbitration, becomes increasingly relevant to practitioners and their clients.
The specific impact of Brexit on the disputes market in the United Kingdom, and the EU, will take time to unfold. Litigation and arbitration may be affected in different ways. Arguably, the defining feature of arbitration is the streamlined and far-reaching process of enforcement afforded to arbitral awards pursuant to the New York Convention. Moreover, arbitration sits largely outside the EU regime. If Brexit threatens to remove UK court judgments from the EU enforcement regime, then arbitration could become even more attractive to some. London can and should continue to be a popular choice of arbitration seat. Brexit provides the opportunity for London to distinguish itself from the rest of the EU and highlights its independence and impartiality from, for example, Paris as a seat in a dispute between an EU party and a non‑EU party.
The post-Brexit prospects for the litigation market may depend on what becomes of the current framework that is enshrined in the Recast Brussels Regulation – an EU law with direct effect in the United Kingdom. The Recast Brussels Regulation regulates the ways in which the English courts determine their authority to exercise jurisdiction over EU parties by considering certain factors; for example, domicile, the courts of the place of performance of the contractual obligation in question or, in tort, the courts of the place where the tortious act occurred. The Recast Brussels Regulation also harmonises how courts treat exclusive and non-exclusive jurisdiction clauses and it regulates the recognition or enforcement of EU member state judgments. At the Conservative Party conference, the British prime minister, Theresa May, introduced the ‘Great Repeal Bill’, a new piece of legislation that will transpose all existing EU law into British law. For the time being, it is still a case of business as usual, although the pace and extent of Brexit are still as yet undetermined. All, or some, of these rules could be abandoned as part of Brexit with the consequence that the English courts could once again become a free-standing jurisdiction – a place where claims could be brought between parties with an EU nexus regardless of the EU domicile of a defendant, but equally where any eventual judgment might not be so easily enforced in the EU. (Ideally, treaties would be negotiated containing similar enforcement provisions to those contained in the Brussels Regulation but in any event, the practicalities of enforcement in the United Kingdom without the Recast Brussels Regulation are somewhat exaggerated.) Litigation lawyers in London in the meantime anxiously await the unfolding Brexit process to see how far London’s financial and legal prominence is affected.
The rise of specialist dispute resolution forums
While the changes to the global dispute resolution market resulting from Brexit may be witnessed tomorrow, the changes that can already be seen today include the proliferation of specialist dispute resolution forums throughout the world. PRIME Finance (PRIME), JAMS Financial Markets Group, the financial services sector of the American Arbitration Association (AAA), the Banking and Financial Services Committee of the International Institute for Conflict Prevention and Resolution and the Singapore International Commercial Court (SICC), are established forums challenging the primacy of the English and New York courts.
The rationale for the creation of specialist courts can be attributed to the growing demand from commercial parties for adjudicators who are sufficiently fluent in the mechanics of the financial markets as to be able to make decisions that do not jar with market expectations. Moreover, the development of these specialist courts also highlights the increased competition between jurisdictions to provide high-quality dispute resolution forums for commercial parties and, ultimately, to attract business.
In an endorsement of the trend, the International Swaps and Derivatives Association has created a model arbitration clause conferring upon parties the choice to opt for both PRIME and AAA among the available forums, along with more traditional English and New York litigation options.
In Singapore, efforts have included reinforcing the status and reputation of the SICC to attract the region’s companies and those from farther afield. One of Singapore’s key strategies was to entice some of the pre-eminent judicial talent from the courts of other countries, including France, Australia, Japan, Hong Kong and the state of Delaware in the United States. Leading members of the English judiciary have been sitting as judges in Singapore; for example, the Honourable Justice Bernard Rix, the former Lord Justice of the Court of Appeal and head of the Commercial Court in London.
Somewhat late in the day, and reacting to the competitive pressures exerted by the rise and success of specialist dispute resolution forums around the world, the English courts finally reacted by introducing the Financial List. Claims worth at least £50 million, that require expertise in the financial markets or raise issues of general importance to the financial markets will be placed onto the Financial List with one judge hearing the dispute from pretrial stages through to enforcement. Whether the expertise of the English judiciary and the transparency of the High Court will convince potential financial markets litigants to continue to have their disputes heard in London instead of choosing from the numerous other options available in the global market remains to be seen.
While the transparency of the English High Court may be a significant factor in determining where parties choose to have their disputes heard, the perceived lack of transparency in the offshore world has been heavily scrutinised this past year. The release of the Panama Papers led to public outcry over the secrecy of current offshore regimes. In May 2016, David Cameron hosted the Anti-Corruption Summit in London, the first of its kind, which called for greater cooperation between jurisdictions to tackle the use of offshore structures to perpetrate fraud and misconduct. The key proposal put forward was to create and maintain a register of ultimate beneficial ownership in each jurisdiction, either to be made publicly available or made available on demand to other governments who maintain similar registers. However, the summit was largely undermined by the United Kingdom’s failure to impose any mandatory reforms on its own crown dependencies and overseas territories. Notably, the British Virgin Islands failed to sign up to the proposal.
Political failure to crackdown on widespread corruption enabled by offshore tax havens leaves the door open to the courts to adopt an elevated role in policing the misuse of offshore structures. The courts of those jurisdictions with legal systems based on English law are arguably equipped with an adequate arsenal of measures to make a substantial contribution in this regard.
In cases of large-scale international fraud, the courts are increasingly inclined to come to the assistance of the victims of fraud by looking behind trust structures and other vehicles that enable ultimate beneficial ownership to be concealed.
With the public demanding greater transparency and a crackdown on the use of offshore structures following the Panama Papers, it will be interesting to see whether the courts in those jurisdictions will be prepared to make decisions that might undermine their reputation for secrecy, and whether or not they will be step up to the challenge.
Transparency and media engagement go hand in hand. While courts are meant to be impervious to the media, parties increasingly seek to use the media in a strategic manner, often in the hope of inducing settlement.
For a dispute to be played out in the media, the choice of forum can be material. No doubt Boris Berezovsky’s decision to sue Roman Abramovich in London (rather than elsewhere) will in part have been driven by his desire to expose his adversary to media scrutiny. Claims in offshore jurisdictions such as the British Virgin Islands or the Seychelles are usually perceived as of marginal interest. However, given the media’s preoccupation with ‘sunny places for shady people’, particularly in the aftermath of the Panama Papers, there could potentially be greater press coverage for disputes played out in the courts of offshore jurisdictions between opaque structures with colourful backgrounds.
Arbitration, of course, is an inherently confidential process and often parties opt to arbitrate specifically for this reason. Material information regarding commercial parties is less likely to be widely known by the public as media scrutiny can be particularly damaging to the parties involved. But that has not stopped parties engaging with the media, with some having been known to drip feed commercially sensitive information to the media to aggravate the settlement process.
The tension between the role of the media and privacy and confidentiality is evident in the varied rules governing confidentiality in the various arbitration institutions. The London Court of International Arbitration is renowned for its rigorous confidentiality provisions, whereas the International Chamber of Commerce and UNCITRAL rules are silent on the issue.
In recent times, arbitrations with a strong public interest element are subject to increasing media attention. The media has long-established a critical viewpoint on the secrecy surrounding investor state arbitrations, which are proliferating increasingly. In the United Kingdom, there is regular debate about whether there should be greater transparency in arbitration; even more so following Fujitsu’s sizeable claim against the NHS concerning a £6.2 billion scheme to create transferable electronic patient records – the concern being that a dispute over a somewhat controversial and sizeable government contract is cloaked with secrecy.
While it is almost impossible to quantify the extent to which the media influences the outcome of disputes, litigators need to be increasingly familiar with the relevant rules of engagement, which can vary from jurisdiction to jurisdiction.
Overall, the dispute resolution market is in a state of flux and pushing itself to become more competitive and responsive to the needs of parties. A period of transition may yet follow once the terms of Brexit are established and given the potential delays involved, in UK terms, a long shadow will be cast in the meantime.