A new era for high value, complex financial markets disputes in the English courts

September 2015 | SPOTLIGHT | LITIGATION & DISPUTE RESOLUTION

Financier Worldwide Magazine

A significant proportion of cases that come before the English courts concern disputes relating to the financial markets. This is unsurprising; London is an important financial centre and home to the world’s largest business court. Moreover, English law and courts are frequently selected in financial markets contracts as the governing law or jurisdiction for the resolution of disputes, regardless of whether the subject matter or parties have any connection with England.

This is partly due to the fact that for many years English law was one of only a few default options in the standard dispute resolution clauses of many widely used financial contracts (such as those produced by industry associations, such as International Swaps and Derivatives Association (ISDA) or the Loan Market Association (LMA)). It is also partly reflective of industry confidence in the English system; it is generally believed to be reliable, fair, efficient and effective.

From October 2015, a new Financial List will be in operation in the English High Court (the ‘Financial List’). This will provide a specialist forum for dealing with the more complex and important or high-value financial markets disputes. Cases allocated to the Financial List will be dealt with by a select group of judges with experience of financial markets disputes.

Cases eligible to be allocated to the list include claims for more than £50m relating to derivatives and complex financial products, private equity deals, hedge fund disputes and sovereign debt, as well as cases which require particular financial expertise, or raise issues of importance for the financial markets. New procedural rules for the list which will be implemented largely follow the existing Commercial Court rules.

There are a number of reasons behind the introduction of the new Financial List. It is partly a pragmatic response to ensuring litigants’ needs. Currently, although there is a well-reputed body of judicial expertise in financial markets within the Commercial Court and the Chancery Division, those specialist judges are not always allocated to financial markets disputes. The new list will collate that body of experience, and ensure the allocation of the right judicial resources and expertise to the most complex and important cases that require specialist knowledge of financial markets.

The changes are also intended to streamline and harmonise the procedure for dealing with financial markets cases. Part of this will be the introduction of common procedural rules for such disputes where allocated to the new list. Another key change will be the introduction of ‘docketed judges’. From inception, each case will be allocated to a single specialist judge who will manage the case through to trial and to enforcement. That should ensure more efficient case management, with a resulting benefit to both litigants and the courts.

It seems that the new Financial List must also partly be a reaction to perceived competition to the English courts. While some English court judges are at pains to stress that they do not see themselves as being in competition with overseas commercial courts, it cannot have gone unnoticed that there has been a flurry of new international dispute resolution centres opened in recent years (Dubai, Singapore and Qatar, to name a few).

Alternative dispute resolution mechanisms, particularly arbitration, are also challenging the traditional role of litigation in financial markets disputes. Recent changes to the ISDA Master Agreements are one example of this development. The ISDA Master Agreements are a suite of standard agreements produced by ISDA and used in over-the-counter derivatives transactions. These are some of the most common agreements used in the financial markets globally, with billions of dollars transacted annually under their terms. Traditionally, the default options for choice of law and jurisdiction specified in the templates were either English law and courts or New York law and courts. However, in 2013, ISDA published guidance and model clauses for the use of arbitration instead of litigation, with a wide choice of arbitral seats and institutions. According to ISDA, these were introduced because of expressions of interest from members and stakeholders in financial centres around the world.

It is not clear yet whether, in practice, these perceived challenges would have any impact on the level of use of English courts. However, they will no doubt have encouraged a close review of what the English system is offering when compared to other alternatives. And such comparative reviews should be welcomed; as an important financial centre and jurisdiction for resolving financial disputes it is only right that English courts assess their procedures and ensure they are adequately meeting the needs of stakeholders.

In addition to the introduction of the new Financial List, a new pilot scheme for financial markets ‘test cases’ is to be introduced in October and trialled for a period of two years. The pilot scheme is designed to resolve issues that are important to the financial markets in respect of which there is no prior authoritative English law guidance.

The pilot scheme will allow early determination of issues of general importance to the financial markets, even where there is no live dispute. Such issues may be brought to trial by market participants with opposing interests in relation to the relevant issues, and in appropriate cases, interested parties (including relevant trade, professional or regulatory bodies) may be joined as parties to the claim, or otherwise be represented. Each party would bear its own costs rather than costs following the event (i.e., a large proportion of the successful party’s costs being borne by the unsuccessful party) as is the norm in other English commercial disputes.

This pilot scheme could potentially prove very important to the industry. There are various issues, including under LMA documentation and ISDA Master Agreements, which have remained latent whilst waiting for a case to be brought to trial to allow judicial determination of the issues. Further, many financial market cases settle prior to trial, or some are dealt with confidentially, such as by arbitration. This means there is often an absence of English law guidance on important issues in the market, which can cause uncertainty. The pilot scheme will be a way for industry participants to resolve these issues, thus helping to avoid costly and time-consuming litigation in the future.

It will be interesting to see how the pilot scheme works in practice – in particular, how the courts deal with hypothetical cases, where there is no extant cause of action. It will also be interesting to see whether market participants take up this opportunity, or whether they instead prefer the ambiguity of the status quo.

By and large, both the Financial List and pilot scheme have been welcomed by industry and legal commentators, and it is hoped that in practice these changes will further improve the existing English court system for dealing with complex and important financial markets disputes, and ultimately be of real benefit to users in the financial markets sector and the wider industry.

Cara Dowling is a solicitor-advocate at Bryan Cave LLP. She can be contacted on +44 (0)20 3207 1208 or by email: cara.dowling@bryancave.com.

Cara Dowling

Bryan Cave LLP