Not all plain sailing – charting the ups and downs of the UK’s dispute resolution market

The In-House Lawyer (IHL): Given that the Brexit transition timeframe has closed, and the UK’s accession to the Lugano Convention was blocked by the EU, what’s the future of post-Brexit cross-border disputes looking like?

Mark Molyneux (MM): The short answer is that it is more complicated. In-house counsel need to give careful thought when they are drafting contracts as to how they’re going to set up dispute resolution clauses. If their preference is to use the court system, thought at the outset is required to ensure that they end with a suitable mechanism that they can use if things go wrong later down the line. The usual considerations still apply. Who is the counterparty – is it a consumer or a business? What’s the size of the contract? What’s the size of the potential dispute? What type of dispute is it? Where are the assets and where are they going to want to enforce any judgment?

The answers to all these questions feed into how they might want to set up the jurisdiction clause. Is it exclusive jurisdiction in favour of the English court? This should still be respected and enforced under the Hague Convention, but companies should still seek local advice in the country of the counterparty, especially if they’ve got asymmetrical or non-exclusive jurisdiction clauses or a consumer on the other side. It certainly requires more thought, but it’s not the end of the world.

IHL: Will corporates increasingly look at arbitration as an alternative to litigation? What are the benefits to companies of doing this?

MM: I’m not sure the dial has moved significantly. Most companies will still think about the pros and cons and decide what’s the best solution for them. The upside of arbitration remains the same in terms of enforceability and flexibility, and particularly if you’re dealing with lots of different counterparties in different places around the world or the assets that you want to enforce against are in different jurisdictions. But arbitration has its obvious downsides. It can be expensive; there isn’t as much certainty; you can have big delays; and there isn’t the appeal process which you have access to through the courts.

IHL: Is Brexit undermining London’s position as the global capital for international dispute resolution?

MM: I think my first question is – was it the global capital before Brexit? It certainly was and is a preeminent centre, there’s no question about that, but have we seen it undermined significantly already from where it was? No, I don’t think so. The benefits of using London are largely the same as they were before Brexit. There is immense expertise and experience in the City, large law firms, and very capable lawyers who understand how to resolve major commercial disputes. The degree of certainty of outcome from the courts and our approach to disclosure are some of the key factors that make the English courts so appealing to overseas clients. It’s not the lottery that other dispute resolution centres can be. Corporates respect English law and English judges and believe that they can have a fair amount of confidence over the outcome. The question as to whether London is the most relevant dispute resolution hub for cross-border disputes will become a bigger issue as the centres for global trade continue to change over time.

IHL: What has been keeping you busy in commercial litigation over the last 12 months?

MM: We’ve seen a considerable increase in tech-related disputes – claims arising out of the profound shift in how we work, how we shop, how we operate. This has led to huge changes in the way companies have set up their businesses and invested in their IT estates. We’ve seen a rise in disputes resulting from cyber attacks and data breaches, and an increase in the use of crypto and different forms of currency. If all of these are put under one umbrella, this change in behaviour by consumers and businesses has inevitably resulted in a large number of disputes, particularly cross-border disputes, in this area.

The number of competition/antitrust claims has also increased over the last 12 months. As a firm that acts on both defendant and claimant sides, we have a unique perspective on this. Two years ago, most of the cases in this area were related to follow-on damages from cartel claims. Now we are seeing a real increase in free standing claims, particularly against tech companies, where people are challenging alleged abuses of the way those businesses have operated over the last number of years. Underpinning quite a lot of that is the growth in litigation finance.

Companies should be looking at risk areas in their business, and areas that are potentially causing harm to consumers or large groups of people.
Mark Molyneux, Addleshaw Goddard

The last area worth flagging is the compliance agenda – the increased focus and scrutiny on the boards, the way they operate, the decisions they make and the disputes that follow on from that. The wider compliance agenda of ESG, health and safety laws, public inquiries, and pure corporate crime, particularly in financial services, have been real growth areas for us over the last 12 to 24 months.

As a result, we have strengthened our partner team in all these areas in the last 12 months.

IHL: Following Lloyd v Google, what do companies need to be aware of and how can they mitigate risks? What should in-house legal teams be doing to help?

MM: This case is quite interesting. Rather than opening the flood barriers – in terms of claims on behalf of large groups of consumers for damages as a result of large data breaches – it put a pin in that, and said to the claimant law firms that they need to think again about how to assess the loss that’s been suffered as a result of those data incidents. However, and stating the obvious, corporates should bear in mind that the impact of data breaches or cyber attacks can be enormous. And more generally, claimant law firms are looking for the right cases to bring large consumer claims. Our advice to in-house teams is to be doing risk assessment across their business and thinking about weak points and the areas that could be susceptible to claims from consumers or large groups of customers – the things they have done wrong or could do better.

IHL: Besides competition, are you seeing an increase of group actions in other areas and what are the ramifications for companies?

MM: Firstly, we are seeing that competition claims are ever more inventive and innovative because law firms want to use the competition collective proceedings order (class actions) regime to bring claims. It is the only real class action regime that we have in England. Otherwise, large group claims have to be brought under a GLO (Group Litigation Order) or just as a multiparty claim; claims which can be difficult to bring and just as difficult to manage. As a result, you have something like the train tickets claims being brought in the CAT, when 15 years ago they would have been brought as a consumer claim in the High Court under a GLO.

But as to whether these types of claims are on the increase more generally, I think it is a tentative yes. There’s a lot of talk about ESG right now. Things like the emissions claims are coming through, as well as the BHP Brazilian dam claim. Claimant law firms are looking for other areas to attack businesses and the decisions businesses have made, for the impact these companies have allegedly had on the environment. But these remain difficult claims to bring, in part due to the present state of the court machinery, as it were. We are likely still in the foothills; people are working out what works, what doesn’t, and how you can bring these types of claims. The other key difference between here and the US is that the UK does not have punitive damages. Therefore, claimant firms have got to be able to demonstrate that the loss has been suffered by a large enough group of people to make the economics of bringing this sort of claim work.

IHL: Which aspect of ESG seems likely to generate the most successful cases? How concerned should businesses be?

MM: Looking at it from a London perspective, for those claims to be successful and to get up and running, they’ve got to be driven by large consumer groups who have suffered major loss. Several of my colleagues are convinced that 10 years from now, the environmental agenda will dominate litigation; that some of the decisions that businesses have made, and the impact that they’ve had on the environment will be challenged. Whether that does prove to be correct, we will see!

IHL: ESG litigation has the potential to profoundly impact a company and its ongoing viability. What do companies need to be aware of and how can they mitigate risks? How can they prepare and respond?

MM: Companies should be looking at risk areas in their business, and areas that are potentially causing harm to consumers or large groups of people. They should also think about it through the prism of major shareholders, pension funds and others who suffer loss as a result of the decisions that the board has taken. They’ve got to accept that there will be increased scrutiny on those decisions and how the boards are operating. 20 years ago, there was a view that GCs in the UK were treated differently to GCs in the US. The US
GCs were seen as trusted counsel to the board, steering them away from making bad decisions and keeping them out of potential litigation. I think that there has rightly been a real shift in that direction in the UK over the last decade and we’ll see more of that as boards understand that managing risk and keeping the business out of litigation and out of areas of potential trouble – or doing it and accepting it, but understanding the risk – is increasingly important.

IHL: How much interest from clients are you seeing for litigation funding? Do you think this will increase?

MM: The litigation funding landscape has changed enormously in the last decade. 10 years ago, we’d be talking about cases where people looked for external funding because they couldn’t finance the claims themselves. Now we have a specialist team dedicated to all aspects of litigation financing: advising clients, funders, and other law firms. We’re seeing much more large-scale and thematic claims being originated by claimant law firms and funders. The interested parties have changed too. Nowadays, major UK PLCs sign up to group claims to pursue losses that they have suffered. If companies identify a potential claim which they could recover money from – and it is financed via means other than through their own funds – they’re increasingly accepting that as a normal part of the business.

IHL: What are the things companies need to be aware of? Potential downsides?

MM: It’s not all plain sailing. When you sign up to a claim and somebody’s going to finance it for you, you are going to relinquish some elements of control over that if you’re part of a group. That might be control over some of the decisions about how the claim is managed, when you can settle and how you can get out of it. We’re advising companies when they’ve gone into litigation and signed up to those group claims, but they haven’t necessarily understood the full ramifications, the length of time it might take, the potential cost exposure and risks, the control or lack of it, and how that links into their reputation.

IHL: How can companies best make use of the opportunities that litigation finance presents and how should their litigation strategies evolve to keep pace?

MM: I think it’s the same as any other litigation strategy. It’s about seeing what the potential upsides and downsides look like and managing all those different components. Companies should be clear about what their commitment is, what’s the length of time the claim will take, what control they get, what they are going to be asked to do, how much time they are going to be asked to commit to contributing, if they are going to have to be witnesses, if they’ll have to provide disclosure, etcetera. There is a whole range of what that looks like depending on the type of claim, who’s managing it, and who the claimant law firm is. Then they should decide if the potential upside is worthwhile. If so, then they should go ahead.

IHL: What should the role of the in-house legal team be in this?

MM: In-house legal teams should be providing custodianship and steering the business through all those different elements. They should be spotting the opportunities, helping to deliver profit back into the business and enabling the company to access damages for loss that it’s suffered. But they must of course understand litigation – all the downsides and risks that come with it. They should ensure that the business is properly briefed and clearly understands what it’s getting itself into.

IHL: Looking forward, what do you expect to be the biggest issues to watch over the next 12 to 24 months? How can in-house legal teams prepare?

MM: In London, we expect to see more funded litigation, particularly in the competition, tech, corporate compliance and the ESG spaces. We’ve been talking to clients about doing mapping exercises to work out what their risks and opportunities look like across that environment. The macroeconomic environment is challenging, and a lot of people have been predicting a downturn for 12 months or so. As the flow of money tightens up, people increasingly litigate, and businesses need to be prepared for that.

At a basic level, to prepare for litigation, we are helping clients with more contract life-cycle work, to help ensure they manage their contracts and minimise exposure to risks. The in-house team has an important role to play in understanding how the company retains data and information. At the more strategic level, it’s about ensuring that the board is properly briefed on the upsides and downsides of all these different issues – get to the heart of the ways that our world has changed over the last five years and ensure that all of this is part of the board agenda as things change in the years ahead.