An interview with Seladore Legal discussing dispute resolution in United Kingdom | Lexology

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?

Litigation and arbitration remain the key methods for dispute resolution in England and Wales. Mediation is also a popular mechanism and continues to receive support from the English court for its use in resolving disputes at an early stage and where the issue has escalated into formal proceedings.

There remains a competitive tension between litigation and arbitration in England. Both methods are extremely effective at resolving disputes and both have individual virtues as well as some perceived shortcomings. Traditionally, litigation before the English court has attracted parties looking for a process that will reach a decisive and reasoned decision (subject to appeal) supported by a high-quality, publicly accessible and transparent judicial process, whereas those concerned about the enforceability of an award, or with a reason to require confidentiality, are more likely to opt for arbitration. Additionally, arbitration continues to remain a popular choice because of the high degree of party autonomy, which affords flexibility over how disputes are conducted.

Despite this competition, and in view of English law’s emphasis on contractual choice, the English courts remain fully supportive of the arbitral process. Court interference is rare as evidenced by the small number of successful applications to set aside arbitral awards. Furthermore, the enforcement of an arbitral award (whether made in this jurisdiction or abroad) is a straightforward process, which cannot be said in respect of some other jurisdictions.

In broad terms, therefore, litigation and arbitration continue to coexist in England, affording parties a large degree of choice when determining how to resolve a dispute, although it is notable that different industries do tend to show a preference towards one method over the other. For example, the financial services sector typically favours litigation, particularly because of the ability to seek a summary determination of simple claims (such as the enforcement of loans), whereas the energy and construction industries typically favour arbitration because of the ability to choose a decision maker with relevant industrial experience, coupled with the confidential nature of the process.

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? Does Brexit continue to affect choice of law and jurisdiction?

The English courts continue to uphold contractual choices of law and methods of dispute resolution and, without doubt, English law remains a favoured substantive law choice by parties all across the globe. Contractual principles developed under English law are widely known and respected. As these principles will be unaffected by Brexit, it is expected that English law will continue to be the most popular choice of law used in international contracts.

That said, Brexit has undoubtedly caused parties, at the very least, to think about the choice of law and dispute resolution mechanisms used in their commercial contracts.

On 8 April 2020, the UK submitted its application to accede to the 2007 Lugano Convention on jurisdiction and the recognition and enforcement of judgments (Lugano). Lugano currently applies between the EU (including the UK until the Brexit transition period expires, most likely on 31 December 2020) and the EFTA countries Iceland, Norway and Switzerland. The likely practical effect is that Lugano would then apply as between the UK and the EU (as well as between the UK and the other Lugano signatories).

The UK would not lose out on the benefit of the EU’s harmonised approach to jurisdiction and enforcement of judgments throughout EU member states. There would be little change to the current regime. Parties to commercial agreements can be comforted that English court judgments will continue to be readily enforceable throughout Europe, and jurisdiction clauses in favour of the English courts would be respected by the courts of European countries and vice versa. One issue with Lugano is that it has not incorporated the modifications made in the ‘recast’ Brussels Regulation, which came into effect in January 2015.

The UK’s accession to the Lugano Convention is not, however, a done deal, with there being the potential for the EU to veto such a move as part of a political bargaining strategy. In this scenario, the UK is most likely to accede to the 2005 Hague Convention on Choice of Court Agreements, which it is free to do without any consent from the EU (which is a signatory to the Hague Convention) or any other contracting state. While this would retain a relatively high degree of harmonisation, there would be a number of areas of significant uncertainty.

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?

As a pre-eminent global dispute resolution jurisdiction, the legal market in England, and London in particular, is highly competitive. Numerous international law firms, especially those emanating from the United States, have sought to establish a litigation presence in London in recent years. This is a reflection of the global popularity of English law and the prominence of the UK’s mature legal and financial markets.

Brexit has, however, led to several jurisdictions trying to establish themselves as alternatives to London. For example, Paris hopes to compete directly with London post-Brexit by introducing an English-speaking court handling English-law cases relating to financial contracts. This innovation is similar to those proposed by courts in other EU cities (including Amsterdam, Brussels and Frankfurt), which hope that the current uncertainty around enforcement of English court judgments across Europe post-Brexit may help them to rob London of some of its competitive edge. In our view, however, it is likely that parties will proceed with some caution when considering these novel, faux English institutions given the inevitable uncertainty that will arise when a foreign court, unfamiliar with English law let alone common law principles, is asked to determine English law disputes.

London has also faced competition in recent years from other jurisdictions, such as Singapore, Hong Kong, Dubai and, more recently, the Abu Dhabi Global Market, which have successfully established themselves as viable alternatives. One of the English court’s responses was to seek to emphasise its pre-eminence in resolving complex financial matters. In 2015, it created the Financial List, a specialist finance and banking court, situated in the Rolls Building in London. While there are some restrictions on the use of the Financial List, it has garnered significant praise by its users for its ability to deal with complex legal issues that underpin the financial sector as a whole.

In line with the rise of the Financial List, it is England’s financial sector that is arguably responsible for the emergence of specialist litigation firms. Some 10 years ago, the financial crisis kicked off the boom in niche litigation practices. At the time, dispute lawyers working out of the larger, corporate-focused firms found they were typically conflicted, preventing them from suing banks, other financial institutions and corporate giants. This led to an exodus of dispute lawyers seeking a conflict-free platform from which to operate. Clients also quickly supported these practices as they were able to obtain the same high quality of service but from a more focused and flexible practice without the distractions that can come with large firms. The subsequent growth of these specialist litigation firms attracted lawyers and clients from beyond the confines of financial services disputes such that many of these firms now handle the full range of commercial disputes, including both international commercial and investment treaty arbitration, and compete frequently with the larger more traditional law firms in London. Another area in which boutique firms are thriving is collective redress – primarily in the context of securitised litigation (ie, essentially claims under the Financial Services and Markets Act) and large-scale data breach, which is an area poised to take off in the UK and elsewhere. The disputes market in London is such that there is room for quality and properly run specialist firms not only to emerge but also to thrive alongside the more traditional full-service law firm.

4 What have been the most significant recent court cases and litigation topics in your jurisdiction?

There have been several notable decisions in the past year or so, although there is not enough scope to mention all of them. One such case is the Supreme Court case Vedanta Resources PLC v Lungowe (2019) UKSC 20. The case is important for a variety of reasons. First, it is a good example of collective redress (personal injury on a large scale arising from mining activity) being permitted for claimants who suffered their loss abroad. This is a welcome brand of ‘forum shopping’ where justice may be difficult to achieve in the more natural forum (in this case, Zambia), most notably because of the lack of a collective redress regime or a lack of funding with which to pursue the claims.

The second important and central feature to the Vedanta case arose in consideration of a jurisdiction challenge on the grounds of forum non conveniens. The Zambian operating company (a subsidiary of the UK-listed Vedanta) was joined to the English proceedings under the ‘necessary or proper party’ gateway. Vedanta was an ‘anchor defendant’ for these purposes, it being alleged that the parent company had exercised control over its subsidiary to the extent that it gave rise to liability under normal principles of negligence. The traditional approach in those cases is for the English court to look to avoid the possibility of irreconcilable judgments issues by different courts. In this case, if the Zambian defendant was not joined, then, in principle, the claimants would need to pursue it in Zambia (the natural forum) while being entitled to pursue the parent company separately in England. The English courts weigh heavily in favour of allowing claims to continue here and be rolled into those proceedings against the anchor defendant even though the foreign courts are perhaps the natural forum.

What made Vedanta a curious case was the fact that the parent company had agreed to submit to the jurisdiction of the Zambian courts. For reasons previously explained, the claimants did not want to or could not bring their claims in Zambia. The court found that as a matter of principle, where the anchor defendant has submitted to the jurisdiction of the foreign court, the risk of irreconcilable judgments is no longer a ‘trump card’ in the context of a forum challenge, and even though the claimant has the right to pursue the anchor defendant separately in the English courts, the right to join foreign defendants as ‘necessary or proper’ parties is no longer guaranteed.

There have also been some important legal developments in relation to cryptocurrency, such as bitcoin. Given the increasing use of cryptocurrency both for legitimate purposes and by fraudsters, this is a welcome development and demonstrates the flexible approach of the English judiciary to new technologies.

The nature of cryptocurrency had created some potential legal issues for those seeking to deal with them or to recover them. Essentially, the issue was whether cryptocurrency is property. This is because cryptocurrency (unlike currency issued by a state) is pure information (a string of code) and does not fit within the traditional classifications of property under English law: chose in possession (tangible objects) and chose in action (legal rights, such as debts). Under English law, information is not usually regarded as property, and if cryptocurrency were not property, then the legal basis for dealing with it (such as creating trusts or security interests) or recovering it was uncertain.

Two developments appear to have resolved this issue. First, late last year, a statement was issued by the UK Jurisdiction Taskforce (UKJT) of the LawTech Delivery Panel (chaired by the Chancellor of the High Court, Sir Geoffrey Vos), which, following a consultation, noted that the novel or distinctive features possessed by some crypto-assets – intangibility, cryptographic authentication, use of a distributed transaction ledger, decentralisation and rule by consensus – do not disqualify them from being property. The UKJT also concluded that crypto-assets are not disqualified from being property as pure information or because they might not be classifiable either as things in possession or as things in action. The UKJT expressed the view that crypto-assets are, therefore, to be treated, in principle, as property.

Second, while this statement was not binding, it was likely to be highly persuasive to the courts. And so it proved to be. Although there had been some decisions predating the UKJT statement in which cryptocurrencies had been treated as property, they had not considered the issue in detail. However, in AA v Persons Unknown who demanded Bitcoin on 10th and 11th October 2019 and others (2019) EWHC 3556 (Comm), the High Court, having regard to the UKJT statement, found that cryptocurrencies are a form of property capable of being the subject of a proprietary injunction (in this case, to freeze a ransom payment that had been paid following a ransomware attack on an insurer).

It seems likely that these developments now resolve the issue, and parties can now have comfort that the English court will regard cryptocurrency as property, which, given the potential value of cryptocurrency, seems a sensible and correct decision.

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?

Parties that litigate in London are typically highly sophisticated companies and individuals who have a good understanding of what is involved when litigating before the English courts. They are also well versed in the various other dispute resolution processes, including arbitration.

The English courts remain committed to ensuring that cases are dealt with justly, expeditiously and at proportionate cost. For clients seeking a resolution before the courts, they appreciate the degree of control that the courts retain over the procedural timetable and costs. For example, the timetable (which flows from the engrained Civil Procedure Rules) is set early on in proceedings and, given the potential adverse cost consequences and other possible sanctions, deadlines tend to be respected by parties.

The control on costs in litigation is also appreciated as it allows clients to have a good feel for the financial outlay of litigating a particular dispute. Most parties to commercial claims must file a costs budget with the court, which sets out what they expect their costs to be for each stage of the litigation up to and including trial. These costs budgets are scrutinised by the presiding judge to ensure that the costs of the litigation are proportionate to the dispute in hand.

It is this tight control over time frames and costs that clients value in litigation, it and has led some to question whether a fresh look at the costs in arbitral proceedings is also needed. The most notable proponent of such action is Sir Rupert Jackson, who, as a Lord Justice of the Court of Appeal, was responsible for the reforms that introduced costs budgeting to English litigation. Sir Rupert (who now sits as an arbitrator) has once again called for the use of costs budgets but this time to tackle the high costs now associated with arbitration. However, the lack of a rigid costs budgeting regime is an attractive quality of arbitration. Its introduction would likely undermine the much-touted flexibility enjoyed by users and practitioners alike, and so, for now, it seems unlikely that we will see the introduction of a budgeting regime by any of the key arbitral institutions.

6 Discuss any notable recent or upcoming reforms or initiatives affecting court proceedings in your jurisdiction.

Perhaps one benefit of the covid-19 pandemic is the manner in which it has acted as a catalyst for the modernisation of court processes and the increased use of remote hearings.

This modernisation was already well under way – steps towards greater use of technology and virtual hearings began in 2016. However, the effect of the covid-19 pandemic is that reforms that would normally take months or (more likely) years to implement have instead come into effect in a matter of days. Indeed, the Protocol regarding Remote Hearings, which encourages the use of such hearings ‘wherever possible’ and provides practical guidance in respect of how those hearings should take place, was issued by a collection of senior judges on 20 March 2020 – the same day that the government required the closure of pubs, restaurants and cafes.

The shift to remote hearings appears to have been reasonably successful; a range of hearings have taken place across various levels of the judiciary. While the willingness to embrace technology and the potential cost savings should be celebrated, care should be taken to ensure that core constitutional values have not been lost in the rush. The Protocol regarding Remote Hearings is right to note that ‘remote hearings should, so far as possible, still be public hearings’ and that ‘the principles of open justice remain paramount’. It is essential that these principles, along with due process, the rule of law and so on, accompany any modernisation exercise – no matter how extreme the circumstances that initiate it.

7 What have been the most significant recent trends in arbitral proceedings in your jurisdiction?

The past 12 months have seen a continuation of the growth in the number of disputes being resolved through arbitration: both the London Court of International Arbitration (LCIA) and the International Chamber of Commerce (ICC) reported record high numbers of new cases in their annual reports. The LCIA reported a significant increase in lower-value cases (43 per cent of cases in which monetary relief was sought claimed damages of less than US$1 million).

There has also been a growth in gender diversity in arbitrator appointments: according to the LCIA, 29 per cent of all appointments were of female arbitrators. Furthermore, there is an increasing internationalisation of arbitration, with parties to LCIA arbitrations coming from 138 different countries, and the proportion of British arbitrators dropping from 65 per cent to 51 per cent.

One area that does not yet seem to have consistently taken hold is the use of emergency arbitrators. Since 2014, it has been possible under the LCIA rules to appoint an emergency arbitrator. However, in 2019, only one application was made to the LCIA for an emergency arbitrator. Although the ICC had a higher number of applications (23), these still make up a very small proportion of the arbitration referrals. It, therefore, appears that this is a tool that is not yet getting widespread take-up from disputing parties.

8 What are the most significant recent developments in arbitration in your jurisdiction?

The Court of Appeal’s recent decision in A and B v C, D and E (2020) EWCA Civ 409 has held that section 44 of the Arbitration Act 1996 allows the English courts to grant orders compelling non-parties to give evidence as part of arbitration proceedings, including proceedings located outside England and Wales. While the Court actively sought to frame its decision narrowly, it represents a change from previous cases in which the courts have held that their powers to support arbitrations under section 44 do not extend to making orders against non-parties.

By way of background, at first blush, section 44 appears to provide the English courts with broad powers of interim relief, including the ability to order the taking of witness evidence, the preservation of evidence, the granting of interim injunctions and so on. Notwithstanding the fact that the courts’ powers seem to be extensive, there are a number of decisions that have taken a narrow approach to section 44 and effectively prevent the courts from issuing orders against non-parties to the relevant arbitration (see, in particular, Cruz City I Mauritius Holdings v Unitech Limited (2014) EWHC 3704 (Comm) and DTEK Trading SA v Morozov (2017) EWHC 1704 (Comm)).

The Court of Appeal in A and B v C, D and E focused on section 44(2)(a), which relates to the taking of witness evidence. In reaching its decision that an order could be made against a non-party, the Court focused on the precise wording of section 44(2)(a) and the manner in which it mirrors similar powers that the courts possess in civil litigation.

While the Court of Appeal emphasised that its decision related solely to the taking of witness evidence and did not impact previous decisions in relation to other powers under section 44, it may be a notable step towards the courts being willing to play a more active role in assisting parties to arbitration.

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?

ADR in England and Wales is widely regarded as offering a flexible, user-friendly and cost-effective forum for dispute resolution. This is reflected by its increasing popularity as evidenced in the 2018 CEDR Eighth Mediation Audit, which recorded a 20 per cent increase in the number of cases being referred to mediation. Most notably, this growth can be attributed to scheme-related activity; that is, organised mediation schemes, such as those supported by NHS Resolution, by leading employers and by the Court of Appeal and other courts. The activity in this area alone increased by 45 per cent in just two years. It reflects the fact that mediation has established itself as part of the dispute resolution landscape in England and Wales.

That said, in 2018, the Civil Justice Council’s ADR working group published its final report. The working group stopped short of recommending any form of compulsory ADR, but it did conclude that the civil justice system should do more to properly facilitate and encourage the use of ADR. The working group did, however, recognise the increasing importance of mediation and its ability to achieve settlements where parties appear implacably opposed.

Expert determinations and adjudications also remain popular for certain disputes, such as earn-out provisions in a post-merger and acquisition contract.

The Inside Track

What is the most interesting dispute you have worked on recently and why?

One case concerns a complex, cross-border fraud involving the purchase of high-end contemporary art. The primary defendant is an art dealer who was based in London. He purchased art in fifty-fifty partnership with my client, lied to him about the purchase price, and then secretly pledged the entire work to an art finance house in New York. From a legal perspective, the case is interesting as it involves several systems of law and parallel proceedings in London and New York. The art dealer disappeared but was eventually tracked down and is now in custody in New York.

Describe the approach adopted by the courts in your jurisdiction towards contractual interpretation: are the courts faithful to the actual words used, or do they seek to attribute a meaning that they believe the parties actually intended?

Significant weight is attached to the actual words used and their natural and ordinary meanings. A more contextual approach may be considered when necessary. The covid-19 pandemic has given rise to significant contractual interpretation issues in the context of insurance coverage for business loss and interruption. Policy wording can vary greatly. Interpretation issues arising from certain policies are being resolved in a test case brought by the Financial Conduct Authority. This is a welcome step in seeking to streamline these disputes by scrutinising numerous similar policies in the same proceedings to achieve consistency and timely clarification for policyholders.

What piece of practical advice would you give to a potential claimant or defendant when a dispute is pending?

It is important to take advice early – at the first sign of a potential dispute. It is also important to preserve and collate documents, not only so that they are available to be disclosed in any dispute that may arise, but also because there is an enormous advantage to be gained by an early forensic analysis of all the relevant documents. Clients will urge their lawyers to ‘keep costs down’ and not to get ‘bogged down in the weeds’. These are false economies. ‘Weeds’ are details, and it is only by sifting through them that a clear picture emerges of what happened and why. The economic benefits of getting to that point at an early juncture are likely to far outweigh the costs of doing the digging.