Brexit was a headache for lawyers keen to maintain London’s pre-eminence as a centre for dispute resolution. But the capital has defied the doomsayers. Business is booming on the back of a surge in class actions, reports Joanna Goodman
The low down
Post-Brexit, clients have still been able to enforce English court judgments in the European Union. But ‘it has just been more complex, taken longer and been more costly’. Business is still booming, nevertheless, for London’s internationally focused dispute resolution lawyers. Class actions are on the rise, as are disputes at the intersection of ‘tech and consumers’. Litigation funding continues to facilitate claims where claimants would otherwise lack the necessary backing. Meanwhile, the UK’s accession to the Hague 2019 Convention will improve enforcement. So who is bearing the cost of all this? Answer: the litigating parties.
Accession to the EU’s Lugano Convention was central to UK aspirations to limit damage to the City’s professional economy. Lugano provides a reciprocal enforcement regime. So when the European Commission rejected the UK’s application in May 2021, it was a blow to London’s pre-eminence as a dispute resolution centre.
There are still questions around whether the UK ratifying the Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters (Hague 2019) will adequately fill the gap the Lugano rebuff left in UK strategy. But it is generally seen as a move in the right direction.
And even before Hague 2019, UK litigators are as busy as ever, partly because UK legislation and European directives are driving an exponential and dramatic rise in US-style class actions. These enable individuals affected by the actions of big corporates to seek redress while fuelling the rapidly growing and highly profitable litigation funding investment market.
New convention for enforcement
‘Brexit made the recognition and enforcement of civil and commercial UK judgments in the EU significantly more complex and cumbersome than it was before,’ observes Jacques Sivignon, a commercial litigation partner in Dechert’s Paris office. In the absence of treaties (with the exception of the 2005 Hague Convention on Choice of Court Agreements), Sivignon says, ‘recognition and enforcement of UK judgments in the EU are governed by the national rules of the member state where the enforcement is sought, which can impose more restrictive conditions than when a reciprocal arrangement for the enforcement of judgments exists’.
Hague 2019 will certainly help. Sivignon says: ‘The recent ratification by the UK of the Hague 2019 Convention in matters to which the EU is a party will certainly facilitate the international circulation of UK civil and commercial judgments which are in the scope of the convention within the EU.’ This, he adds, ‘should speed up the proceedings, simplify the process by providing a unique framework applicable in all EU member states and thereby increase predictability’.
The House of Lords International Agreements Committee explains in its latest report, Scrutiny of international agreements: 2019 Hague Convention: ‘Hague 2019 is a Private International Law Agreement. Such agreements provide a legal framework for resolving cross-border disputes… by ensuring businesses have the confidence to enter into cross-border contracts knowing there are effective mechanisms to obtain redress.’
This is particularly important since the UK was excluded from the reciprocal arrangements for enforcing cross-border judgments under Lugano.
'Hague 2019 provides reciprocity in relation to the recognition and enforcement of all judgments that fall within its scope'
Louise Lanzkron, Bird & Bird
‘This is a welcome development for businesses seeking to enforce foreign court judgments in the English courts and for litigants seeking to enforce judgments in countries that are already signatories, including those in the EU,’ confirms Bird & Bird dispute resolution knowledge and development lawyer Louise Lanzkron. ‘Although it will not replace the reciprocity the UK enjoyed pre-Brexit, it will go some way to ensure greater legal certainty, help streamline the legal process and reduce complexity and costs, as it will provide for recognition and enforcement in a contracting state without a review of the merits.’
Lanzkron explains that Hague 2019 is an improvement on the arrangements immediately post-Brexit when the UK acceded to the 2005 Hague Choice of Courts Convention (HCCC). The latter provides for the recognition and enforcement of judgments in signatory states (including the EU), but is limited to judgments emanating from exclusive jurisdiction clauses.
Hague 2019, she stresses, ‘is broader in its application as it provides reciprocity in relation to the recognition and enforcement of all judgments that fall within its scope (see below) including those which result from non-exclusive or asymmetric jurisdiction clauses. This will mean that parties will be less hamstrung by the type of jurisdiction clause they negotiate’.
However, Hague 2019 still has more limitations than Lugano. First, says Lanzkron, it only applies to the courts of England and Wales, and not Scotland and Northern Ireland. Second, while it applies to judgments on the merits in civil and commercial cases, it does not apply to interim measures or insolvency, intellectual property, defamation and privacy, and administrative law matters. Third, unlike Lugano and HCCC it does not regulate the allocation of jurisdiction between the courts of different states – meaning it will not address the increased risks of disputes about jurisdiction such as the problem of parallel proceedings. And finally, when it comes into force for the UK on 1 July 2025 it will only apply to proceedings started after that date.
Overall, though, the benefits of stability and certainty far outweigh any foreseeable problems, restoring the UK to close to its pre-Brexit position without rejoining the Single Market.
London is the place for me
There were concerns that Brexit and the UK’s exclusion from the Lugano Convention would damage London’s position as a global hub for dispute resolution. But global firm Baker McKenzie has not seen multi-jurisdictional litigation desert the UK courts.
‘When we first left the EU, there was a feeling that maybe companies wouldn’t see England and Wales as a good place to be litigating,’ says dispute resolution partner Francesca Richmond. ‘But while we have had some clients consider their dispute resolution clauses, we haven’t seen any big shifts, and Hague 2019 will help alleviate the uncertainty of enforcing disputes.’
She adds: ‘On balance, Brexit hasn’t caused a mass exodus of litigation and although it might help that we now have a government with a mindset that shows re-engagement, there has been no suggestion that England and Wales isn’t a centre of excellence that can be trusted for enforcement.’
Her colleague, solicitor-advocate Ben Ko, agrees: ‘The enforceability of English judgments was always a factor when negotiating the jurisdiction clause of a contract – where disputes would be heard. But there are also other considerations like where assets are located, and the huge amount of capital flowing through London means that it is still first choice for lots of international companies. The quality of judges, the speed at which you get a judgment, routes to appeal, and conducting cases in English are all reasons why London was not affected by Brexit in the way that some may have expected.’
Bird & Bird dispute resolution knowledge and development lawyer Louise Lanzkron adds: ‘Post-Brexit, clients have still been able to enforce English court judgments in the EU, it has just been more complex, taken longer and been more costly. This has obviously been frustrating for them and so the ratification of the Hague Judgments Convention is very welcome.’
Ben Roe, lead knowledge lawyer for Baker McKenzie’s global disputes and compliance group, adds: ‘Sometimes people forget that the Lugano Convention was a reciprocal arrangement that allowed EU companies to enforce in London as well, and because of the amount of international capital that flows through the City, London has always been an important enforcement centre, so perhaps there has been a tendency to focus a bit too much on the perceived disadvantages for the London market, when actually [enforcement] flows in both directions.’
Competing courts
While London is still a global disputes destination post-Brexit, it has seen more competition from courts in Europe and beyond which have focused on replicating some of London’s key advantages.
Baker McKenzie dispute resolution partner Francesca Richmond says: ‘The Dutch courts introduced an English-speaking support network and a commercial court, and other jurisdictions have introduced procedural reforms to make it easier to bring class actions or get disclosure, which is something that English courts used to have over everyone else. So while enforcement was one of many factors, we are seeing competition across the full range, and it is important for English courts to keep that in mind. And courts interact with each other to see what they should be improving in order to claim that they are a litigation-friendly jurisdiction.’
And EU commercial courts are not London’s only competition. The past few years have seen the rapid globalisation of international dispute resolution, which has reshaped the EU and global litigation landscape, and increased opportunities for UK judges and litigators.
Baker McKenzie solicitor-advocate Ben Ko points out that the international commercial courts in Dubai, Abu Dhabi and Singapore are modelled on the English legal system: ‘They model their rules on the English procedural rules. They import English law. And the judges are all former senior English or Commonwealth judges.’
The fact that the US is a global influencer in litigation is no more apparent than in the exponential increase in class actions in the UK and Europe in the past five years. The UK is leading some EU jurisdictions towards a US-style system, where redress is both accessible and a profitable investment.
Class actions
Kenny Henderson, disputes partner at CMS, specialises in multi-jurisdictional high-stakes disputes, acting on both the claimant and defendant side. CMS recently published its European Class Action Report 2024, a data-driven research study on the growth of class actions and their concentration across European jurisdictions.
Class actions in the EU and the UK have increased enormously, particularly competition class actions, since 2015 when the UK introduced a US-style opt-out mechanism, which is when litigation funders appoint a class representative who acts for everyone affected, unless they choose to opt out.
The traditional European mechanism is opt-in, where claimants choose to join group proceedings. ‘The flip from opt-in to opt-out is a paradigm shift that has enormous consequences. For example, while data breach claims are still opt-in, even massive breaches have relatively few claimants because people don’t sign up,’ says Henderson. ‘Opt-out reverses that, which is why there are more than 500m people involved in competition class actions when the UK has a population of 67m – because we might be involved in multiple class actions without having been asked.’
'There’s been reform across the EU to require all member states to introduce class actions, but most states have preferred an opt-in regime. But opt-out is a gateway to getting class actions moving'
Kenny Henderson, CMS
Class actions will benefit from Hague 2019. Richmond explains: ‘US-style class actions started in the competition space and claimant firms are keen to see that expanded into consumer cases, especially consumer tech. The tendency is to bring large consumer cases seeking small damages you wouldn’t otherwise litigate. There are also supply chain, ESG [environmental, social and governance] cases, around things like greenwashing.’
The opt-out regime is spreading across Europe, Henderson notes: ‘There’s been reform across the EU to require all member states to introduce class actions, but most states have preferred an opt-in regime. But opt-out is a gateway to getting class actions moving, and we are likely to see more of it.’
He continues: ‘The shift from opt-in to opt-out is enormous. It’s not just in the UK – the Netherlands and Portugal have moved too. The litigation environment in Europe is becoming more like the US.’
The changing regulatory environment in Europe supports this. ‘Other things happening in Europe are increasing litigation risk,’ he adds. ‘If I was looking at current legislation from a claimant lawyer perspective, I would think I can now bring loads of claims as a result of the changing regulatory environment. The Product Liability Directive is shifting the burden of proof to the defendant. The Representative Actions Directive requires member states to have minimum procedural standards for class action.
‘So every country in Europe is supposed to have a workable system of collective redress. It hasn’t been implemented everywhere, but it’s a decision by European legislators to facilitate litigation. They call it access to justice, which sounds like a good thing, but the question is whether this really gives access to justice or just enriches funders. Nobody argues against access to justice; the question is whether the changes are really delivering access to justice. It is a nuanced and difficult area to grapple with.’
Henderson says class action regimes are a reflection of the broader legal systems: ‘The wider dilemma for governments is between a US-style class action system where it’s very easy to bring a class action and consumers are automatically signed up, which has some advantages, or do you want a system that is slightly more difficult but more business-friendly? Jurisdictions around the world but particularly within Europe are trying to decide where they want to be on that spectrum. The UK is creeping towards a US-style regime, whereas other EU jurisdictions have been more cautious.’
Richmond highlights another key trend in EU disputes: the increase in litigation at the intersection between consumer and technology law. It is driven by legislative changes, and decisions by competition and consumer authorities which have encouraged claimant firms to facilitate class actions.
‘At least a third of class actions filed at the Competition Appeal Tribunal (CAT) last year were abuse of dominance cases against the big tech platforms, rather than classic cartels and consumer issues,’ observes Richmond. ‘Instead, they are focusing on behaviours a regulator might look at. For example, that Facebook misused users’ data, and they are going through the courts at the moment, and we shall see if that gives rise to a class action, and what it’s worth.’ (Meta, owner of Facebook, was fined in Ireland for data breaches. It has called the fine ‘unjustified’ and said it intends to appeal the regulator’s decision.)
AI drives collaboration
Ko at Baker McKenzie identifies a positive development that is driven by the shared challenge of rapidly advancing technology. ‘A clear trend is increasing cooperation to meet a 21st-century challenge,’ he says. ‘The English courts, and those who set the rules are considering whether the procedural rules are sufficient to take into account the rise in the use of AI in the litigation process, which is a question for every court in every jurisdiction.’
Ko continues: ‘The Standing International Forum of Commercial Courts [SIFoCC], which is a meeting of the heads of commercial courts, recently met in Qatar, and put out a lot of helpful material on enforcement and the use of technology in court processes.’
Just last week, the government signed the Council of Europe Framework Convention on Artificial Intelligence, the first legally binding treaty covering the use of AI systems.
Geopolitical tensions
Wars in Ukraine and the Middle East are fuelling geopolitical tension and disrupting supply chains. This means clients are struggling to deliver on their contractual obligations.
‘We are seeing an uptick in sanctions litigation which is challenging for our clients, who have to make sure they don’t breach sanctions, impositions or money laundering rules,’ Ko says. And sometimes the lawyer is left in an unenviable position between the client and the regulator.
This can create difficulties with counterparties, Ko notes: ‘In one dispute I’m working for a major bank, and they have to get a licence to keep the person’s account open, at the same time as dealing with a legitimate complaint. It’s a big part of our practice and there’s a lot to deal with for our clients who want to maintain commercial relationships – they don’t want to break contracts if they can avoid it.’
Geopolitical factors are also affecting the litigation process. ‘I’ve acted in cases where an expert witness has had to resign because their firm had decided not to do business with Russia,’ Ko adds. ‘This had nothing to do with the case. It’s external political factors disrupting the process, and courts regularly have to grapple with [legal] questions where a party can’t get justice because of their inability to take part in a dispute on a fair and equal basis.’
Extra-territorial legislation
Beyond collective redress, extra-territorial legislation coming out of the EU is also increasing the risk of litigation for businesses. Henderson observes: ‘The Corporate Sustainability Due Diligence Directive requires companies to ensure they and their supply chains minimise human rights and environmental harms. That means if companies don’t comply they can be fined. It means that workers in the supply chains for companies doing business in Europe, not just European companies, can sue in Europe… This is about ESG and transnational torts, and the most acute of those two is human rights impact.’
Litigation funding
Third-party funders are also reshaping the market, in the EU and beyond. ‘The litigation funding market has really opened up in the last few years,’ Richmond says. ‘It’s a fantastic resource for claimants who need to get together and need that support, but at the same time, it’s an investment by those funders, and they need to see a return, which is usually a multiple of what they’ve invested, and it increases when the case continues for longer.’
She notes that tribunals and courts are starting to look at how settlements are distributed: whether the funder/class representative is taking out more than the class members; or the settlement is structured in a way that does not motivate them to distribute the funds to class members; and ultimately if decisions around settlement and the conduct of the case might be influenced by its funding structure.
A recent CAT ruling required amendments to the proposed settlement in a case about train tickets to ensure that enough money was distributed to class members. ‘It’s good that the courts are on it, because we need to get the balance right,’ Richmond explains. ‘It’s a good thing that people have access to justice in the market, and so long as it’s properly regulated and supervised, there’s a good case for funding.’
More recently, the High Court threw out a class action for flight delay compensation against British Airways and EasyJet because of doubts over the financial motivation of the group representative.
Richmond explains that it is important that decisions on class actions focus on motivation – either strategic or financial: ‘For example, a case can’t be structured in a way that it is impossible to settle because of funders’ expectations, or because the funder is launching a speculative claim because it knows the defendant would be worried about setting a precedent if they lost.’
Optimistic outlook
While the incoming Labour government has ruled out reversing Brexit or rejoining the Single Market or the Customs Union, which means the UK is unlikely to accede to Lugano, Hague 2019 and other EU legislation is facilitating the ability to enforce judgments across jurisdictions.
Dr Totis Kotsonis, partner and head of state aid and public procurement at Pinsent Masons, observes: ‘Right after Brexit, the UK lost the Brussels regulation, so we relied on Hague 2005, which is clunky, and put us at risk of people not wanting to choose English law as the governing law of a contract, because it would be difficult to enforce should a dispute arise. Hague 2019 is bringing us closer to Lugano, so it will solve a lot of problems. It is a step up from the current interim arrangements and is as close as we can be to the arrangements we had as members of the EU. It assuages the concerns expressed after we left the EU and should secure our role as jurisdiction of choice for private commercial disputes.’
Furthermore, the continued growth in class actions, facilitated by regulation and fuelled by a burgeoning litigation funding market, has replaced cross-border cases that have moved abroad post-Brexit. This and the growth of UK-style international courts and dispute resolution centres are providing additional work for English lawyers.
Joanna Goodman is a freelance journalist
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