Uneasy lies the crown

A traditional strength of taking a case to a UK court is that rulings are respected abroad. However, following Brexit, commercial parties engaging in UK-EU litigation have to navigate the requirements of different national re gimes on cross-border enforcement issues. On 1 January 2021 the UK rejoined the 2005 Hague Convention. This provides some protection to exclusive jurisdiction clauses and will be expanded by the Hague Judgments Convention which comes into force on 1 September 2023. It has the potential to provide a more straightforward mechanism for enforcing English judgments than the current, more complicated post-Brexit arrangements.

According to strategic communications consultancy Portland’s Commercial Courts Report 2022, London’s Commercial Court experienced a significant fall in activity between April 2021 and March 2022, with 20% fewer judgments and 34% fewer litigants than the previous year. This was attributed to ‘a combination of Brexit, Covid-19 and increased competition from other international courts’. Portland identified two further notable developments: the end of Russian dominance in the courts; and the UK public’s opinion that the courts have an important impact on the country’s reputation. Covid-19 also highlighted opportunities arising from the use and general acceptance of technology, notably remote hearings and technology-assisted review.

Notwithstanding this, the ratio between UK and non-UK litigants shifted towards international litigants, rather than in the other direction as might have been expected post-Brexit. And as businesses emerge from the pandemic, the caseload is again increasing. The Commercial Court Users Group reported in May: ‘The court continues to be about as busy as can be. In addition to its usual business, the court is seeing Covid-related business and complications arising from the sanctions imposed as a result of the war in Ukraine.’

Complexity and competition

Nicholas Heaton is a partner at Hogan Lovells and the president of the London Solicitors Litigation Association (LSLA), which has more than 3,700 members. The LSLA conducts an annual litigation trends survey. This year, two years after Brexit, 70% of respondents thought the litigation market in London was growing and 67% did not expect a material loss of litigation work because of Brexit. The survey highlighted two concerns: whether the court has jurisdiction in the first place; and whether its judgments are enforceable in European countries.

On enforcement, Simmons & Simmons partner Ed Crosse explains that although Brexit has complicated the enforcement landscape, English courts’ judgments are still enforceable in some EU member states. And the loss of reciprocity applies in both directions. To enforce a foreign judgment, a party can issue a fresh claim in the UK, but only judgments for a final and definite sum of money can be enforced in this way, potentially leaving a gap in relation to non-monetary remedies.

Simmons & Simmons litigation partner Elizabeth Williams notes that the easy reciprocity between English courts and their European counterparts in recognising and upholding jurisdiction clauses and enforcing judgments has been replaced by a more complex process involving making separate applications in each jurisdiction. But she adds that ‘this is unlikely to impact on the work of the Commercial Courts or the High Court in London in a substantive way in terms of the volume of cases or the reasons why people choose London for complex financial disputes’.

Heaton agrees. ‘What has always made London a popular venue – the independence and quality of the judiciary and the lawyers – hasn’t changed,’ he says. ‘What has changed is the hygiene factor around enforcing judgments where the assets are, but this doesn’t mean you can’t enforce elsewhere. It’s just harder. There are also significant procedural advantages to litigating in London. In Europe, you don’t have access to the other parties’ documents. This can be an important factor in deciding where to bring a claim.’

Heaton specialises in competition litigation, which involves clients and parties from all over the world. Many of the cases he handles are based on European Court decisions. Brexit means taking into account whether UK judgments will be enforceable where the assets are – which was a consideration in any case outside the EU – and making sure procedures make cases efficient, prompt and not too expensive compared with alternative jurisdictions. LSLA members felt that competition was more likely from arbitration rather than another court system, with Paris and Amsterdam most likely to benefit from claims moving to Europe. ‘However, some European courts are less specialised than London’s Commercial Court and bringing a commercial case before an expert judge is definitely an advantage,’ he adds.

Heaton flags up the cost of litigation as an important consideration: ‘You cannot lose sight of the fact that London is an expensive place to litigate, but in some jurisdictions – for example Germany – litigation funding isn’t allowed. Litigation funders have large war chests and look for claims to support in the London market. Even in jurisdictions where it might be permitted, there isn’t the same market for third-party funding for commercial cases.’

Williams predicts increased activity in European courts, particularly in the growing number of class actions in Europe which will require every European country to have a process for hearing collective actions. And litigation funders may be attracted by forums that are less expensive than English courts. She believes that the growing competition to hear large-scale disputes in European courts will lead to more opportunities – and an ever-increasing need – for more cooperation between UK and European lawyers.

Kingsley Napley partner Michael Mulligan highlights the cost of delays in terms of asset tracing: ‘The key is to act quickly so if you have another layer of hassle – going to other EU states like Germany – this incurs extra costs and takes extra time. This could allow the debtor to put assets beyond the reach of the creditor. If you’re using insolvency as an enforcement tool against a company with assets in Germany you have to look at German insolvency procedure. Losing automatic recognition could allow unscrupulous people to escape to Europe.’

New opportunities

However, Brexit has also opened up opportunities, notably the return of anti-suit injunctions being issued by English courts in support of arbitration. Mulligan says: ‘Since Brexit, we’ve already seen several anti-suit injunctions preventing parties from breaching agreements to arbitrate [rather than litigate].’ These were previously prevented in the EU by the Brussels Convention and the Brussels Regulation, and in European Free Trade Association countries by the Lugano Convention. ‘This is a line of business that has come out of Brexit,’ he explains, adding that cross-border disputes are booming, particularly arbitration. ‘Brexit hasn’t changed commercial parties’ willingness to choose England as an arbitration forum. A key advantage of arbitration is that the EU and the UK are bound by the New York Convention which provides certainty to enforce decisions anywhere.’

Mulligan believes that the UK should keep trying to accede to Lugano. ‘The key to winning the battle [with the] competition is likely to be reciprocity, and the quicker we can get automatic reciprocity in place with lots of countries the better,’ he says.

Litigation is a global market and Mulligan highlights developments in reciprocity with other jurisdictions too, pointing to a recent case where the High Court allowed a Dubai court judgment to be enforced.

'The key to winning the battle [with the] competition is likely to be reciprocity, and the quicker we can get automatic reciprocity in place with lots of countries the better'

Michael Mulligan, Kingsley Napley

Another emerging trend is the rise of crypto disputes, which can be brought in any jurisdiction. But there is a lack of regulation so enforcement is an important consideration. At Simmons & Simmons, managing associate Douglas Robinson highlights the Law Commission’s detailed guidance on cryptoassets and smart contracts as forward-thinking in an area where there is limited case law. However, the UK is slipping behind in the race for regulation.

While English courts accept that cryptoassets can be treated as property, the European Commission’s proposed Markets in Crypto-Assets Regulation promises legal certainty relating to most cryptoassets not already governed by other regulations, with a key objective of ‘protecting consumers, investors and market integrity’. This is likely to appeal as adding certainty to crypto business is likely to increase its appeal to a broader market. Smart contracts are also likely to produce disputes – just because they are transparent and self-executing does not mean things will not go wrong.

End of Russian domination

Brexit is not the only factor affecting cross-border disputes in UK courts. The conflict in Ukraine has changed the litigation landscape because of sanctions against Russia and barriers to the representation of Russian parties in UK courts.

Previously, cases involving the Commonwealth of Independent States, in particular Russia, dominated the London Commercial Court – the number of Russian litigants appearing in London courts doubled between 2017 and 2022. But these have been stalled by the conflict in Ukraine. This is partly because lawyers in England have been unable to get licences permitting them to act for sanctioned entities. And in many instances they cannot get professional liability insurance for claims involving Russian parties. Consequently, more cases involving Russian parties have moved to international arbitration centres which are allowing cases to proceed. The EU has issued some licences permitting arbitral centres and lawyers to accept payment from sanctioned entities if it concerns the administration of justice. ‘The UK is behind on that, having taken a policy decision not to process licences,’ explains Crosse, who is concerned about the access to justice implications of that decision.

Portland’s research highlights the dilemma for London law firms: the UK public has an overwhelmingly adverse view of Russian litigants using the Commercial Court and law firms who provide legal services to Russian individuals and/or companies.

Market volatility fuels disputes

In the broader economic sphere, Crosse envisages an uptick in litigation arising out of financial markets turmoil. ‘Price fluctuations can cause a counterparty to default if they have margin calls made on trades and are unable to put in additional collateral,’ he explains. ‘I am sure we will start to see market-related disputes arising out of market volatility.’ Real estate is another potential source of litigation. ‘If commercial property prices fall, there will be further demands for additional collateral. If that’s not met, the bank has the right to take enforcement steps and acquire the property. More widely, the strain on residential property could lead to mortgage repossessions if prices go down, but that’s not happening yet.’

England still attractive to EU litigants

Although London remains a centre for international and cross-border disputes, it faces growing competition from Dubai and Singapore, and commercial courts in France, Germany and The Netherlands are conducting proceedings in English. However, the last year saw a slight rise in the representation of EU-27 countries in the London Commercial Court, representing 12% of litigants in 2021/22 compared with 11.5% the previous year. And for the first time, there are more non-UK litigants than UK litigants in the London Commercial Court, compared with a 50:50 split the previous year.

English law remains a massive differentiator. Helen Dodds, global head of legal, dispute resolution at Standard Chartered Bank, has observed: ‘Contracting under English law provides clarity, certainty, predictability, and flexibility for all parties,’ highlighting the UK courts’ rapid digitisation during the pandemic.

Dame Elizabeth Gloster, chair of LegalUK, also cited the enduring appeal to foreign litigants of the clarity of English law and the strength and adaptability (including digitisation) of the English court system.

While EU reciprocity remains desirable in disputes, so far it has not proved a dealbreaker. However, London has to keep up with its international counterparts in terms of new technology and emerging opportunities to maintain its position as a world leader.

 

Joanna Goodman is a freelance journalist