Mary Shields and James Wagner illustrate the potential conflict of laws in cross-border disputes.

The City UK’s Legal Services 2014 report in partnership with UK Trade and Investment (the report), published on 30 January 2014, ranked the UK as the world’s most international law centre, accounting for approximately 7% of global legal revenue and accounting for over a fifth of the total European legal services market.

English law has long established itself as a cornerstone for transaction structuring, dispute resolution and a forum for international business and it seems that this is a trend that is set to continue – not only in corporate and commercial work but also in the forum of international litigation and dispute resolution.

According to the report, 40% of governing law in all global corporate arbitrations is English law and London is viewed internationally as the leading preferred centre of arbitration.  

Some of the trends include rises in industry-specific litigation such as intellectual property, product liability and competition. In our experience, we have noted a marked increase in cross-border disputes relating to intellectual property and product liability. Two of the key factors that have led to this are: (1) the proliferation of technology, which has led to an increased threat of infringement to intellectual property rights, or advancement in manufacture, distribution and testing products; and (2) the evolution of regulatory bodies and regulations which monitor companies in a globalising economy.

Dispute resolution clauses

Dispute resolution clauses in contracts have often been strategically negotiated and agreed between parties as a commercial tool to ensure an agreed mechanism will apply to resolve any future dispute. The rationale for drafting a dispute resolution clause includes choosing where a dispute should be heard and whether the dispute should be resolved through mediation, arbitration, adjudication (alternative dispute resolution) or litigation (or a combined procedure).

The report shows that in 2012, the number of international disputes submitted to alternative dispute resolution sits at around 4,700 cases, whilst the number of claims submitted to litigation in the Commercial, Admiralty and Technology and Construction Courts sits at around 1,900. Alternative dispute resolution remains popular with international businesses because of the flexibility of the procedure and enforceability of judgments. However, care needs to be taken when drafting and negotiating these clauses to ensure the parties understand the implications of their choice of forum.

If care is not taken when drafting dispute resolution clauses, this can lead to cultural complexities. In Russian Telephone Company (RTC) v Sony Ericsson Mobile Communication RUS v А40-49223/2011 the Russian Supreme Commercial Court considered the validity of a hybrid dispute resolution clause agreed between the parties and governed by English law.

The clause provided for the possibility that both parties resolve their disputes in London under the International Chamber of Commerce Rules of Conciliation and Arbitration. Sony Ericsson also had the unilateral right to apply to the ‘court of the competent jurisdiction’ to recover certain monies. Whilst hybrid dispute resolution clauses are commonplace in many agreements, the Russian Supreme Commercial Court actually found here that the unilateral clause in question was invalid because it only gave the right to choose the forum to Sony Ericsson, whereas RTC only had the right to arbitrate.

The decision is nonetheless important for English law contracts dealing with Russian counterparties or Russian investments as it underlines the importance of contractually allowing both parties to arbitrate and litigate in order to reduce the risk of a procedural invalidation and the importance of considering exclusive arbitration provisions at the drafting stage.

Cross-border disclosure

Even with the best care, cross-border issues may still arise in international disputes where there can be a disconnect between governing laws in contracts and local laws that may apply to local assets, including documentation in situe. When dealing with complex cross-border issues, it is essential to secure joined-up counsel who understand the laws, culture and procedure in the jurisdictions involved and to have that advice coordinated under a central project manager who understands the key issues and who can distil and apply the advice to the overarching strategy. One area that consistently causes issues is that of cross-border disclosure.

In Secretary of State for Health & others v Servier Laboratories Ltd & others [2013] EWCA Civ 1234 the Court of Appeal recently considered three appeals against orders relating to disclosure and the production of further information from French defendants.

The French defendants argued that the English court orders for disclosure would put result in their breach of what is commonly known as the French Blocking Statute (French Statute No. 68-678 (26 July 1968) as amended in 1980) which provides broadly that an: ‘…individual is prohibited from requesting, seeking or disclosing, in writing, orally, or in any other form documents or information of an economic, commercial, industrial, financial or technical nature, with a view to establishing evidence in foreign judicial or administrative proceedings’.

The statute applies criminal sanctions (including fines and imprisonment) and aims to protect French nationals whether or not the crime complained of occurs within or outside of France, so potentially it would capture the disclosure of documents in England.

Unsurprisingly, the Court of Appeal dismissed the appeals on the basis that the English court had jurisdiction to make the orders as part of the ordinary process of disclosure in civil proceedings in this jurisdiction as governed by English law. This was notwithstanding the potential breaches and sanctions for the defendants under French law, which the court also noted were rarely applied.

Whilst perhaps unsatisfactory for the defendants concerned, this case illustrates the potential conflict of laws in cross-border disputes, particularly as regards disclosure. Such conflicts need to be borne in mind at the planning and case management stages in order to properly advise clients and apply a strategic approach to international cases.

Such recent case law reinforces the need for an international approach and understanding when drafting contractual documentation, in particular in relation to dispute resolution clauses and indeed when looking at cross-border litigation strategy.

Despite the growth of cross-border litigation, the UK still remains at the heart of international dispute resolution. Global law firms are fully aware of this and the report counts more than 200 foreign law firms with a physical presence now in the UK, many of which have a base in London. This gives London a unique and growing international perspective in the legal sector, which looks set to continue.

Mary Shields is an associate in the London corporate group and James Wagner an associate in the litigation and advocacy group at Faegre Baker Daniels LLP