Who’s Who Legal brings together three of the world’s top litigators to discuss the rise of alternative dispute resolution, third party funding regulation and cost issues.
Nater Dallafior Rechtsanwälte
Amarchand & Mangaldas & Suresh A Shroff & Co Ross Perrett
Who’s Who Legal: How has the rise of arbitration and alternative methods of dispute resolution affected litigation practices in your jurisdiction? Will this trend make it more difficult for lawyers to gain trial experience and does this matter?
Ross Perrett: There is no doubt that arbitration and alternative methods of dispute resolution continue to grow in popularity in Australia, greatly encouraged by recent major legislative changes in respect of both international and domestic arbitration.
For example, it has historically been common for the possibility of mediating a dispute to be raised following the commencement of proceedings, or at the conclusion of discovery between the parties, or following the exchange of witness statements. By this time, the parties have often incurred significant legal costs and have established a “position” from which they viewed the dispute; each of which are factors that impede a consensual resolution of the dispute. From a litigation practice perspective, this timing was driven by the perceived need to have as much information about the dispute as possible prior to engaging in mediation.
In contrast, the Civil Dispute Resolution Bill 2010 (Cth), which was introduced into Federal Parliament on 16 July 2010, will, if passed, require disputing parties to take “genuine steps” in an attempt to resolve a dispute prior to the commencement of proceedings in the Federal Court. The aim of the Bill is to encourage parties to consider alternative methods of dispute resolution before resorting to litigation. The Bill also imposes duties on lawyers to file a statement with the court certifying that their client took “genuine steps“ to resolve the dispute before litigating and to assist their client to prepare this statement. This approach will undoubtedly facilitate a shift in practitioners’ perceptions as to the optimal time at which to first engage in alternative forms of dispute resolution.
However, there will always be disputes which are incapable of resolution other than by trial. The Civil Dispute Resolution Bill 2010 recognises this and includes a list of exceptions to the “genuine steps” requirement. It is these disputes which will continue to provide opportunities for commercial litigators to gain trial experience.
Notwithstanding the shift in the time at which ADR processes are likely to be invoked, it is anticipated that approximately 5 per cent of commenced proceedings will continue through to trial. There will also continue to be a broad range of interlocutory disputes and hearings from which lawyers will gain advocacy and related trial experience. For these reasons, we do not consider that the trend towards alternative methods of dispute resolution will make it more difficult for lawyers to gain trial experience. We consider that the trend will result in matters which should be settled being settled more expeditiously and less expensively.
In June 2010 the Commonwealth Parliament amended the International Arbitration Act 1974 to increase the effectiveness, efficiency and affordability of international commercial arbitration. Shortly afterwards the New South Wales Parliament passed the Commercial Arbitration Act 2010 which harmonises Australia’s domestic and international arbitration regimes under the UNCITRAL Model Law.
As a result of these developments in arbitration related legislation, it is anticipated that Australia will see continued growth in the conduct of arbitration as a means of dispute resolution in the coming years. However, it is not expected that this trend will make it more difficult for lawyers to gain trial experience, albeit that traditional court-based experience may diminish over time, replaced by an increase in arbitration experience.
Hans Nater: In the Swiss Jurisdiction, I noticed that lawyers familiar with arbitration, be it as arbitrator or counsel, tend to have a positive impact on the quality of litigation before state courts. The preparation of hearings is better, the technique of interviewing witnesses has improved, etc. In other words, I noticed a reversed trend: the rise of arbitration helps lawyers to gain trial experience.
Pallavi Shroff: A rise in arbitration and alternative methods of dispute resolution has led to a reduction in cases pending resolution. However, this is only pertinent for disputes that arise out of a contract. Arbitration is also primarily regarded as an effective dispute resolution mechanism only in matters having high monetary stakes and those that involve corporate entities.
For individual litigants, dispute resolution continues through the courts. Most lawyers and law firms in India have gained considerable expertise in handling arbitration.
Under the Indian Arbitration and Conciliation Act, 1996 and its interpretation in a succession of cases, courts have assumed oversight powers on every stage of the arbitration process. Not only can Courts in India issue various kinds of interim orders but can also hear appeals against final awards. The scope of the jurisdiction of the Court has been broadened greatly in the past few years under the garb of “public policy”. This leads to arbitrations becoming more time-consuming in India than in other jurisdictions since an appeal can, on average, take about four to five years to be disposed of.
Execution of an award is also lengthy and time consuming in India. This ensures that lawyers in India who specialise in arbitration tend to wear dual hats and also actually litigate in court.
A rise in arbitration has led to a reduction in trial experience for young lawyers in court. But conversely, since arbitrations are speedier and do have cross examinations etc. there is considerable exposure to the experience of a trial as well. In Indian courts, original proceedings can take five to ten years to reach trial stage. It is much faster in arbitration.
Other dispute resolution mechanisms like conciliation and mediation are generally court directed and supervised, if parties agree. An increasing awareness and preference of these mechanisms has led to a number of lawyers seeking and getting training as conciliators/mediators. However these mechanisms are yet to take root in India and are at a nascent stage.
Who’s Who Legal: Which form of dispute resolution do you consider to be the most efficient and cost-effective? How does this tally with the perceptions of clients?
Ross Perrett: Forms of dispute resolution which are informal, collaborative and encourage problem-solving are more likely to be successful and, therefore, more likely to be the most efficient. These forms of dispute resolution also typically require less lawyer hours than the preparation of a matter for litigation or arbitration, which results in greater cost-effectiveness. The most common of these forms of dispute resolution are negotiation and mediation.
Negotiation may be a suitable process if the issues in dispute are sufficiently clear and the respective parties have made their views and interests sufficiently known. However, one of the obstacles to successful resolution of disputes is inequality of information and, in the absence of a structured process for the exchange of relevant information and documents, the negotiation may take on the characteristics of a horse-trade where the parties are simply offering and counter-offering sums of money by way of settlement, without any real regard to the merits of the dispute. In such a process the party who can least “afford” to litigate is sometimes at a disadvantage.
Mediation is often preferable in the context of large commercial disputes because it has the advantage of being structured without being overly formal or prescriptive. The parties usually agree a timetable for the exchange of statements of their views and interests (position papers) and for the compilation of key information and documents (mediation bundle). The mediator, a neutral third party with no decision-making authority, adds gravity to the process and can steer the parties towards a consideration of interests and solutions if an impasse is reached. There are additional costs to the client in engaging in this process, including the mediator’s fee which is usually divided equally between the mediating parties.
The primacy of negotiation and mediation as alternative methods of dispute resolution is in line with client perception. Clients know that the most cost-effective way to resolve a dispute is to negotiate a “deal” with the other side. It is when this is not feasible that the client seeks to explore other forms of dispute resolution, with litigation usually being the form of last resort.
Hans Nater: Arbitration with a view to reaching a settlement.
Pallavi Shroff: For commercial disputes arising out of a contract, arbitration would still be the most efficient and cost-effective choice as a dispute resolution mechanism.
It affords, in terms of governing law, seat, venue, choice of arbitrators, procedural laws, rules of evidence, etc, a measure of considerable party autonomy and there are a number of institutional arbitration choices available. Parties can also get the concentrated and focused attention of the arbitrators in the allotted time, as opposed to the courts. It is more cost-effective since it is speedier and more focused.
Clients such as corporates prefer putting an arbitration clause in their contracts. Arbitration awards are also perceived as a precursor to being able to enforce or negotiate a settlement.
Who’s Who Legal: Increased regulatory measures – such as the FCPA – are coming into force in many jurisdictions. Has this had an impact on your practice?
Ross Perrett: Yes. A key area of reform in Australia has been recent amendments to the Trade Practices Act 1974 (Cth). In 2009, a new criminal offence was introduced for serious cartel conduct, with heavy penalties. This year, the first tranche of the Australian Consumer Law amendments came into effect. These amendments included new provisions prohibiting unfair terms in standard form consumer contracts; new enforcement powers for the Australian Competition and Consumer Commision (ACCC); and additional powers for Courts to impose civil penalties for breaches of certain provisions of the Act. Apart from the advice work generated by these changes, we expect to see an increase in work as the ACCC starts exercising its new powers to issue substantiation and infringement notices.
This year has also seen the reform of Australia’s consumer credit laws, in particular the introduction of a new national consumer credit regulatory regime. That regime established national licensing of credit participants and also introduced the National Credit Code. The Code not only replaced, from 1 July, the State-based Uniform Consumer Credit Code but also extended its reach in certain important respects.
In the anti-bribery and corruption space, while Australia has had legislation in place for about 10 years prohibiting the bribery of foreign public officials, the penalties were dramatically increased early this year. This change, coupled with some recent high profile investigations and the potential application of the FCPA and the UK Bribery Act to the growing number of Australian companies operating off-shore in high-risk jurisdictions, has led to increased advisory and regulatory defence work. Together with the criminalisation of cartel conduct, these developments have also required commercial litigators to become more conversant with criminal law principles.
Finally, in the corporate law and financial services arena, while there have been no major recent reforms, the Australian Securities and Investments Commission (ASIC) has started to exercise its powers to issue infringement notices under part 9.4AA of the Corporations Act for alleged breaches of the continuous disclosure laws relating to listed entities. This has affected our practice both in assisting ASIC investigations and in advising generally on these provisions. More broadly, while ASIC is currently investigating a number of the larger corporate collapses coming out of the global financial crisis, we expect to see them commencing some major pieces of litigation once those investigations are complete. This anticipated litigation is likely to keep the law firms who are engaged in representing either the interests of the regulator, or the interests of the companies or company officers who are the target of proceedings commenced by the regulator, very busy over the next five or so years.
Pallavi Shroff: Akin to the FCPA, in India we have legislation such as the Prevention of Corruption Act, 1988. The FPCA and other similar statutes in Europe have had a huge impact on how corporates do business in India since most Indian corporate entities either have a parent or an affiliate that is incorporated abroad. There is, thus, a huge level of awareness of these statues and regulations in India. Lawyers or law firms advising Indian corporates are always asked to ensure that the proposed deal or practice is FCPA compliant. It has led to the mushrooming of a new field for the Indian legal fraternity which is now aiming to specialise in this area of practice.
Who’s Who Legal: Many of our interviewees have noted that third party funding is becoming an increasing factor in commercial litigation. How do you think this will affect the work of lawyers in this practice area?
Ross Perrett: It is true that commercial litigation funding is becoming an increasingly important part of the Australian litigation landscape.
The Australian litigation funding market began with companies who funded actions by liquidators to recover the debts of insolvent companies. This type of funding has long been a well-recognised exception to the general prohibition on maintenance and champerty. However, in the early 2000s litigation funders began to expand their business into other forms of litigation. In doing so they were exploiting a gap in the market created by the prohibition on lawyers charging true contingency fees (ie taking a percentage of any judgment).
Until 2006 it was controversial whether litigation funding arrangements outside of the insolvency context were enforceable and whether proceedings which were maintained by them were vulnerable to challenge on public policy grounds. In 2006 a majority of the High Court of Australia held in Campbells Cash & Carry v Fostif (2006) 229 CLR 386, that there was no warrant for the “formulation of an overarching rule of public policy that either would, in effect, bar the prosecution of an action where any agreement has been made to provide money to a party to institute or prosecute the litigation in return for a share of the proceeds of the litigation, or would bar the prosecution of some actions according to whether the funding agreement met some standards fixing the nature or degree of control or reward the funder may have under the agreement”.
Because this decision removed much of the legal and commercial uncertainty which attended litigation funding, it was followed by an expansion in the scope of activities by litigation funders. They are now an accepted part of the legal landscape. However, it would be an overstatement to say that the culture of litigation in Australia has been changed dramatically as a result, yet.
To date, there are still a limited number of litigation funders who are active in the Australian market. The principal focus of those funders has been class actions, in particular shareholder and similar class actions, a form of litigation that is both potentially lucrative, but also risky for individuals and lawyers to undertake because of its high cost. A survey of class action litigation in Australia over the 17 years from 1992 to 2009 identified just five litigation funders who had been involved in the funding of such actions. Therefore the principal effect of the growth of litigation funding in Australia has been the increased risk that a publicly listed company will be exposed to litigation by its shareholders.
At least some of the litigation funders do not restrict their activities to class actions. It is therefore possible for a company which is considering commencing commercial litigation to approach a litigation funder as a means of hedging the risk of the litigation. However, to date this practice is not at all widespread.
Hans Nater: I noticed such a trend, but have never been involved in third party funding.
Pallavi Shroff: Third party funding is generally used as a business tactic where parties do not want to initiate the litigation themselves. It has been seen that such third party funded litigations are also used as a tool to target competitors to initiate motivated litigations. In India, there is also a concept of public interest litigation, which was initially introduced to give ordinary citizens of the country a voice. It involves the invocation of a writ process, to bring to the fore issues that affect larger public interest. However, this is frequently abused by business or corporate interests to fund litigations that are ostensibly initiated in the name of an individual or citizen body, but are meant to serve vested interests. There is a whole crop of lawyers in India that in fact, exclusively, file public interest litigations.