On Monday 12 November, we held our first annual Herbert Smith Freehills disputes conference “Trends in international dispute resolution”. Following introductory remarks by global head of dispute resolution Sonya Leydecker, a series of presentations and panel discussions took place on the following topics:
- Crisis management – preparing for the worst
- Trends in international arbitration/jurisdiction
- The class action threat to corporates in England, the EU and USA
- Changing funding models for litigation and arbitration
- Regulatory issues and challenges
The panel comprised London partners Simon Bushell, Ted Greeno, Paula Hodges, Andrew Lidbetter, Nicholas Peacock and Jenny Stainsby, Australia disputes head and global deputy head of disputes Damian Grave, and New York partner Thomas Riley. Some highlights are below, or click here for a full report of the seminar.
In her opening remarks, Sonya discussed some of the key issues which are causing concern for disputes clients and formed the backdrop to the presentations. These can be summed up as:
- How to manage the many forms of risk which confront their business, including the risk of regulatory intervention, which often leads to litigation, and reputational risk which can lead to parties settling cases on unfavourable terms in order to protect their reputation.
- How to deal with the consequences of operating in ever more difficult places as the world continues to globalise, including health and safety risks, natural disasters, political risks such as the expropriation of assets, and risks associated with corruption.
- How to control costs, both internal and external, including both reducing costs and making them more predictable, which will become increasingly important for English litigation with the roll-out of judicial “costs management” from April next year.
Crisis management – preparing for the worst
Simon Bushell presented a ten minute version of an interactive crisis management seminar which we have offered to clients in various locations, and which normally runs over several hours.
Simon emphasised that every organisation needs to take crisis management seriously, in order to minimise loss of reputation and maintain credibility and trust. Good crisis management begins with anticipating crisis, and organisations should think carefully about their organisational risk and consider running crisis simulations. The interaction between the legal function and the corporate communications team is critical in dealing with a crisis.
The most common mistakes people make when dealing with a crisis include underestimating the power of the media, including social media, and as a consequence thinking that it’s possible to conceal something that ought to be disclosed. This inevitably leads to huge difficulties.
Trends in international arbitration / jurisdiction
Paula Hodges said that we have seen a huge rise in international arbitration over the last 10 years in particular, as so many clients and multi-national companies have extended their business globally. There are many reasons why companies turn to arbitration, including enforcement of any award and to find a neutral venue.
Paula outlined the top 10 influences on the choice of arbitral institution, based on a 2010 international arbitration survey. Neutrality, reputation and effectiveness of the arbitral rules are at the forefront. Cost is number six in the list, but it is an ever important topic among clients. Paula outlined some steps parties can take to try and control costs, including having the arbitrators identify at the beginning what issues are really at the core of the dispute, which can save huge amounts of time.
Paula briefly outlined proposals to reform the Brussels Regulation which governs the mutual recognition and enforcement of judgments across Europe. In particular, Paula discussed the proposals to enshrine the arbitration exception to the Regulation, and reverse the trend of cases in recent years which have undermined the arbitration exception.
Class action threat to corporates
Nick Peacock explained the background to the current proposals for a new “opt-out” collective action for competition law claims, which would allow consumers and businesses to bring class actions on both a stand-alone and a follow-on basis in the Competition Appeal Tribunal.
The government’s response to its consultation on the proposals is due out any time now. Nick said that the proposals need to be taken seriously, as it seems the government is committed to having an opt-out class action for competition claims.
On the question of whether the new procedure is likely to be expanded to other areas, Nick commented that at the moment the political will to introduce class actions seems to be limited to competition cases. It is however very difficult to see the policy justification for restricting the new procedures to competition claims, if they are successfully introduced in that context, and so it is possible that they may creep into other sectors.
Thomas Riley gave an overview of US developments relating to class actions and some recent trends, especially at Supreme Court level where recent decisions have arguably raised the threshold for class actions and made them narrower in scope or more difficult to maintain. These include:
- The Walmart v Dukes case, which arguably raises the threshold for commonality, i.e. the requirement for questions of law or fact that are common to the class, which is one of the four threshold requirements for bringing a class action in US federal courts.
- The AT&T v Concepcion case, where the Supreme Court upheld a mandatory arbitration clause in a consumer agreement which provided that arbitrations could only be brought individually and not on a class basis (though the decision was distinguished in an antitrust context in the American Express case).
- The Morrison v National Australia Bank case (a “foreign-cubed” securities lawsuit against a foreign company by foreign investors who bought shares on a foreign exchange), in which the Supreme Court narrowed the application of US securities law, finding that it would only apply to transactions in securities listed on a US exchange or domestic transactions in other securities.
In the panel discussion, Damian Grave added some observations on the position in Australia, which has had quite a developed class action procedure since 1992. The procedure is “opt-out” rather than “opt-in”, but there are a number of differences from US class actions. For example, in Australia there is no certification process, which is a major feature of US class actions, and it is very rare to have jury trials or punitive damages, which are common in US class actions.
Changing funding models for litigation and arbitration
Ted Greeno outlined key developments including the increasing use of third party litigation funding here and elsewhere, the introduction of contingency fees for English litigation from April next year, and the end to the recoverability of conditional fee agreement (CFA) success fees and after-the-event (ATE) insurance premiums from the same date.
Looking to the future, Ted commented that the recently introduced rules allowing non-lawyers to own and invest in law firms as “alternative business structures” could mean that litigation funders may start setting up boutique litigation firms to do contingency fee work, rather than putting in funding as a third party.
Funders may also enter arrangements whereby they take a share of a law firm’s portfolio of contingency fee cases, which would allow the firm to spread its risk and would give the funder access to a broader portfolio of cases so that it also could spread its risk.
The end to recoverability of CFA success fees / ATE premiums may well mean that small to medium size claims will no longer be runnable on a CFA basis, as there will simply not be sufficient damages to pay the lawyer’s uplift and still make the claim worthwhile. But we may see more large claims being pursued which couldn’t get funding under the old regime, because the possibility of conducting the case on a contingency fee might incentivise lawyers to bring those cases.
Thomas Riley commented on the extent to which contingency fees are used by commercial claimants in US litigation. Commercial parties will not normally agree a “traditional” contingency fee where the lawyer gets 30% or 40% of the recovery. What is more usual is a modified fee agreement, which may for example combine a discounted hourly rate with an uplift in the event of success.
The future financial services regulatory landscape
Jenny Stainsby gave a brief explanation of the key changes to UK financial services regulatory structures which are due to take effect next spring, and what we expect them to mean in practice. Under the new system of “twin peaks” regulation the FSA will be split into two distinct organisations:
- The Financial Conduct Authority (FCA) which will be responsible for regulating the conduct of firms.
- The Prudential Regulation Authority (PRA) which will be responsible for regulating the financial soundness of systemically important firms.
The FCA has been trumpeted as being “tougher, bolder and more engaged with consumers”. It is inevitable that this will be seen in the enforcement arena where we can expect even more eye-watering fines levied on financial institutions and more criminal prosecutions for insider dealing.
Jenny also outlined proposals for banking reform, in particular to separate investment banking from traditional business or personal banking, and proposals to enhance LIBOR, including making the setting of LIBOR a regulated activity.
Challenging regulators – a ten point guide to judicial review
Andrew Lidbetter pointed out that normally the starting point for any corporate is that it wants to have good relations with its regulator, and does not want to end up in judicial review proceedings if it can possibly avoid it. But there will be times where bargaining with the public authority in the language of judicial review can be helpful to improve a company’s negotiating position. There may also be occasions when pressing the button on judicial review proceedings will be in the interests of the company concerned.
Andrew therefore ran through a brief “ten point guide” to judicial review, including considerations of whether there is an alternative remedy, the short time limits for bringing proceedings, the various grounds of challenge, and the available remedies.