Legal developments and regulatory trends for 2015
Capacity continues to be a recurrent theme in finance disputes. 2015 will see further cases involving Italian municipalities before the English court (Provincia di Crotine). Two cases which at first instance in 2014 involved (among other issues) the question of the capacity of parties entering into complex financial transactions are likely to come before the Appellant courts in 2015.
Both cases involve non-English counterparties: a Dutch social housing authority (Credit Suisse International v Stichting Vestia Groep) and a German municipal water authority (UBS AG (London Branch) & anr v Kommunale Wasserwerke Leipzig GMBH) where the application for permission to appeal is pending) to be heard in the next two months). Echoing themes debated 20 years ago in the House of Lords’ decision in Hazell v Hammersmith & Fulham (which famously held interest rate swap deals entered into by the local authority were ultra vires) it is interesting to note that capacity issues in complex finance deals continue to be litigated in London, albeit under different laws.
Clients will also be interested to note that the Supreme Court will review of the English law in relation to penalty clauses (in the context of a share purchase agreement) when it considers the appeal in Cavendish Square Holdings BV & anr v Makdessi later this year.
Trends in forum selection
From 10 January 2015 all 28 Member State courts are to apply the new (Recast) Brussels Regulation in respect of proceedings issued on or after that date. The Recast introduces some important amendments to this instrument on jurisdiction and the enforcement of Member State judgments. However, much remains the same.
For finance parties, key changes of note include a revised rule in respect of jurisdiction clauses in favour of Member State courts (eg English jurisdiction clauses). The scope of jurisdiction clauses caught by the Regulation is significantly expanded under the Recast, as the domicile requirement for parties has fallen away. For litigators in England, this change will mean there are fewer occasions where it is necessary to obtain court permission to serve proceedings out of the jurisdiction.
A second key change is that the Recast seeks to reform the existing lis pendens rules in an attempt to address tactical litigation and the spectre of the ‘Italian torpedo’. Under the Recast, a Member State court designated in an exclusive jurisdiction clause can continue to hear a claim even if proceedings between the same parties in respect of the same cause of action were commenced in another Member State first. There is no need for the designated court to wait for the court ‘first seised’ to stay its proceedings.
A third key change is the introduction of a new international lis pendens rule. This change is likely to be controversial. The new rule provides Member State courts with a limited discretion to stay proceedings brought before them in circumstances where proceedings between the same parties and involving the same or a related cause of action have been commenced first in a third state (ie not a Member State). There is a fear this new statutory discretion may encourage pre-emptive litigation in Member States. Further, there is a related concern that where there are no proceedings on foot in the third state, the new regime may be interpreted in a way that results in proceedings which would more appropriately be determined in a third state in fact being resolved in Europe.
There are also amendments concerning arbitration, with an ‘enhanced’ exclusion of arbitration from the Regulation. Please contact us if you would like to receive our guide to changes under the Recast.
Overall, there is likely to be continuing client debate over forum selection clauses. In part, this process will be affected by changes introduced by the Recast (referenced above) but other developments may also have a bearing on this choice.
For example, it will be interesting to see whether the UK Government’s plans to increase the court fees paid on the issue of proceedings worth over GBP 10,000 (to 5% of amount claimed, up to a cap of GBP 10,000) will discourage international litigants from selecting the English courts as the venue to resolve their disputes. The UK Government has clearly bargained that it will not act as a deterrent, asserting that it is the quality of English judges, legal services and the legal certainty associated with English law that influence that selection and draw international disputes to London.
Further, the EU is at the final stages of ratification of the Hague Choice Court Convention and it is thought that this Convention could be in force (part of EU law) by September 2015. In summary, under this Convention Contracting States agree to recognise exclusive jurisdiction clauses in favour of other Contracting State courts and to enforce (subject to limited exceptions) judgments issued by a chosen court pursuant to such choice of court agreements.Currently only Mexico has ratified the Convention but it is understood that several jurisdictions are in discussions about signing up. EU ratification may act as a catalyst, encouraging more widespread ratification including in certain key commercial markets. If a critical mass of jurisdictions sign up to this regime, then, perhaps in the longer term, whether a proposed court is in a Contracting State will become a key determinant in forum selection as parties will have greater confidence in the enforceability of a judgment from a Contracting State court under the Convention.
We are also likely to see further scrutiny by Member State courts of hybrid or asymmetric jurisdiction clauses and in particular civil law jurisdictions giving further consideration to whether such clauses are enforceable (considering, in essence, whether the French Supreme Court was correct in Mme X v Rothschild).
Finally, we have seen the launch of the new Singapore International Commercial Court this year. Chief Justice Menon has stated that this new court will, together with the Singapore International Arbitration Centre and the Singapore International Mediation Centre, firmly establish Singapore as a leading dispute resolution centre. Eleven foreign judges (including three former English judges, Sir Bernard Rix, Sir Vivian Ramsey and IP specialist, Simon Thorley QC) have been appointed to the court’s panel. This new court will allow registered foreign lawyers to appear in certain cases, eg those governed by foreign law. It will be interesting to see whether commercial parties (especially those with links to the Asian region) select this court as the forum for resolving their disputes.
Regulatory enforcement trends
The regulatory enforcement sector will continue to be very active in 2015. The FCA is not the only UK regulator for banks of course, but it was certainly the most controversial in 2014. It is very likely that 2015 will see a lower total level of fines than the GBP 1.4 billion levied on companies by the FCA alone in 2014 given that almost all of last year’s total is attributed to the GBP 1.1 billion paid by five banks paid to settle forex-related allegations. However, the FCA continues to be vocal in key documents about taking “tough and meaningful action” against firms and individuals who fail to follow the FCA rules. It will no doubt continue to use its discretion to add a deterrent component to fines. Market misconduct will remain a key focus and is high on the political agenda too, so expect ongoing scrutiny of how firms identify and manage conflicts of interest and how they handle price sensitive information. Financial crime enforcement is also likely to have a higher profile than previously. A further key enforcement area to watch will be action against individuals. We expect the FCA to be keen to redeploy some of its enforcement resources back to targeting senior managers in the run up to the implementation of the new Senior Managers Regime.