The Commercial Litigation Summit 2016: Dangerous territory

In an unusual session, Legal Business united top M&A lawyers and litigators to forecast the next wave of disputes to come when the deal cycle turns

It is a received wisdom of the legal industry that the economic cycle inevitably turns from market excesses and greed of the boom to the recrimination and disputes in the following recession. Yet in detail, the pattern – and corresponding risks – never play out the same way.

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Duelling dragons – the Asia disputes outlook

Hong Kong remains Asia’s disputes capital but Singapore continues to close the gap with sustained investment attracting more litigation and arbitration work

For so long the epicentre of dispute resolution in Asia, events have conspired in recent history to undermine Hong Kong’s status. Two years ago, hundreds of members of the judiciary led a silent march in response to a diktat from Beijing challenging the judicial independence of Hong Kong from the mainland. It was the start of what became known as the ‘umbrella movement’ protests.

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Everything must go – the London arbitration price war

There is a price war raging in the London arbitration market that has led law firm leaders to question their commitment to the practice. Is the bubble bursting?

Arbitration was a practice area until recently seen by many managing partners as reliably high margin and partner-driven but for how much longer? According to a growing number of industry veterans, a softening arbitration market has resulted in a spate of lowballing, particularly in London. While the average legal cost of arbitration at the International Centre for Settlement of Investment Disputes (ICSID) stands at $4.5m, according to a 2014 report by Allen & Overy, some advisers are winning work by promising to run the entire case for less than a tenth of that sum. While such claims are anecdotal, the Lebanese government recently released pitch information that showed 11 international law firms had pitched between $350,000 and $1m to defend it against an ICSID claim. The lowest bidder, Paris-based Bredin Prat, won the instruction.

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Perspectives: Toby Landau QC

I have been incredibly fortunate in my career. I feel that very strongly.

I come from a long line of doctors. It wasn’t my calling. Around 14, I got interested in law. I’ve always been argumentative and difficult. I grew up in North West London. There’s German on both sides of my family. All refugees. Striving and ambitious.

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Perspectives: Robert Khuzami

My parents were professional ballroom dancers. My father managed the Arthur Murray studios on 5th Avenue. They met in the office and had a secret relationship. One day they got on the subway down to City Hall and got married on their lunch hour. Have you heard the saying: ‘The cobbler’s son goes shoeless?’ Well, the dancing instructor’s son went without dancing ability!

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Judging the judges – identifying the stand-outs among the judiciary

The good, the bad and the ugly – we asked litigators to identify the judges that – for better or worse – stand out among the judiciary

The 2016 Legal Business judicial survey was not just focused on the overall strengths and weaknesses of the judiciary, it also asked respondents for their views on individual judges they have appeared before. There were some obvious favourites, and one outright villain (no prizes for guessing), and somewhere in between were several judges who impressed and disappointed in equal measure.

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Rack and ruin – the 2016 judicial survey

Funding cuts are putting the judiciary’s status as a world leader under pressure. Canvassing the profession, we find deep concern over prospects for the English courts

Who wants to be a High Court judge? Fewer than ever it seems. This, unsurprisingly, is a major concern for the UK’s top litigators.

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Herbert Smith Freehills: Are UK disputes heading for the Brexit?

Alan Watts

Partner, Herbert Smith Freehills

alan.watts@hsf.com

Well, we are where we are. ‘Brexit means Brexit’. The legal profession, in the very near term, stands to benefit. Clients, whether internal or external, will need comprehensive advice on how Brexit may affect their operations. From due diligence reviews aimed at uncovering Brexit sensitivities, to help formulating arguments for lobbying purposes and devising alternative structures, business for advisory and compliance practitioners will be increasingly brisk. Clients conducting Brexit due diligence may also require assistance in reviewing existing contracts for any terms that may be affected by Brexit, and seeking to agree amendments before a dispute arises. Courts may start to see an influx of litigation as parties seek to clarify the impact of Brexit on their contractual obligations, though it may be some time before Brexit-related litigation really gets going. Lawyers will be among the most influential advisers to government over the withdrawal from the EU and the policy agenda going forward. Our profession will have a real opportunity to influence and shape the legal landscape and future reciprocal arrangements not only in post-Brexit Britain but in other member states of the EU and further afield.

But what will Brexit mean for lawyers, and disputes practitioners specifically, over the longer term?

Pessimists are well catered for. A report commissioned by the Law Society, published prior to the referendum, predicted gloom for the legal sector in the event of Brexit. It found that even in the best-case scenario the sector would suffer losses to output and employment, and in the worst case could see a £1.7bn fall in annual output. It also found that the most negative effects on the legal services sector would be due to the sector’s reliance on intermediate demand from sectors that are likely to be adversely affected by Brexit, particularly the financial services sector and other professional services, and from the subsequent lower levels of business investment.

While that environment may adversely affect some UK-facing transactional activity in the short term, countervailing factors such as currency fluctuations may, however, have a rebalancing effect to some degree. And although, of course, in time there is the possibility of some clients seeing the need to relocate parts of their operations outside of the UK altogether, the overwhelming attitude remains one of wait and see, at least for the time being.

Firms operating within the UK seem less able to adjust to the effects of Brexit than those with an international network.

That there will be challenges for our industry to overcome is inevitable. It does seem likely that the effect on clients will be among the chief driving factors of the health of the legal sector and should clients relocate their businesses to Ireland or the continent, they will take with them some demand for legal services from the UK. Companies taking a wait-and-see approach may avoid big-ticket transactions or taking risks in the UK. In-house legal budgets and resources may be diverted away from litigation and toward tackling the business-wide implications of Brexit. Firms operating largely within the UK seem likely to be less able to adjust to the effects of Brexit than those with an international network. Any removal of freedom of movement will hinder the ability to move lawyers freely around a firm to meet business demands.

Further, there will be those who seek to suggest that a choice of English jurisdiction is no longer wise because of the risks that the recast Brussels Regulation will no longer apply between the UK and EU countries. None of this will be lost on London’s competitors in elite international dispute resolution, and we can expect the likes of Dubai, Singapore and New York to try to take advantage of any uncertainty around such issues and Brexit more generally and position themselves as a safer choice for sophisticated disputes.

Nevertheless, there is cause for optimism. The core principles of English contract law, such as interpretation of contracts and remedies for breach, remain unaffected by Brexit. The respect of English law for parties’ freedom of contract will make it a perennial favourite for commercial entities, and perhaps more so in light of the flexibility parties may choose to build into their agreements due to Brexit. The integrity and specialised expertise of the judiciary is unchanged, and parties will continue to enjoy access to high-quality legal advisers, litigation support services and first-class facilities. There is much to recommend London as a centre for dispute resolution and there are alternatives to the Brussels Regulation as discussed below. Statistics repeatedly show that London is an entrenched choice of parties for both arbitration and litigation. We in the profession have an important role in ensuring it remains so.

As disputes lawyers we can educate our clients and colleagues about the potential impact of Brexit upon dispute resolution in London. Parties should also be mindful of the dispute resolution clauses they wish to include in contracts should they be seeking enforcement in an EU member state. Although it is not clear at this stage what arrangements will replace the current regime, it seems inevitable that some arrangements will be put in place to safeguard mutual enforcement for the benefit of the UK and the remaining EU member states, particularly as enforcement is a two-way street. Nonetheless, where it may be necessary to enforce in an EU member state and there is any uncertainty as to that member state’s approach in the absence of specific arrangements, parties may wish to consider alternative arrangements, such as arbitration in London. Enforcement of an arbitral award will be governed by the familiar and well-established New York convention, upon which Brexit will have no impact. Disputes lawyers can also ensure clients are aware of the benefits of litigating in London, and keep the risks regarding the enforceability of judgments in perspective. Ultimately it is a question of balancing what are likely to be modest risks against the benefits of English law and London as a premier centre of excellence for dispute resolution.

We in the profession also have an important role to play as advocates of the English legal system. Industry regulators and professional bodies should work together to ensure that in the negotiations around Brexit the position and importance of the legal sector is not forgotten, not only because of the contribution the sector makes to the economy in its own right but because of the supporting role it plays to businesses and commercial parties across all sectors (and in particular financial services).

Of immediate concern should be a sensible solution to the issue of enforcement so as to preserve England’s attractiveness as a jurisdiction and competitive advantage as a dispute resolution centre. The UK could, for example, negotiate to join the Lugano Convention 2007. This applies currently to Norway, Switzerland and Iceland, and includes broadly the same terms as the Brussels I Regulation. While this would mean that parties would be unable to benefit from certain improvements introduced by the recast Brussels Regulation, it would nevertheless provide commercial certainty for parties and lawyers under a familiar regime. Failing this, the UK could seek to join the Hague Convention on Choice of Court Agreements, a multilateral treaty which currently applies only to the EU, Mexico, and soon, Singapore. This applies only to those disputes subject to an exclusive jurisdiction clause, so is necessarily restrictive.

While Brexit may offer opportunities for disputes lawyers in the short term, its longer-term effects are more unpredictable. While issues over enforcement, etc, will no doubt be dealt with in negotiations, the uncertainty that Brexit brings with it and the extended period over which that uncertainty will last could present real challenges. Businesses may not only be less willing to invest in litigation but also less willing to invest and do deals in the UK while that uncertainty remains. The fewer domestic transactions that are done today means the fewer UK-focused disputes there are likely to be in the future. It is therefore important that we and our transactional colleagues continue to advocate the advantages of English law and the English courts in international transactions.

Alan Watts is experienced in all forms of dispute resolution, including High Court litigation, arbitration and mediation proceedings. He was appointed in December 2015 as the firm’s new head of commercial litigation in London.

 

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