The International Who’s Who of Commercial Litigators has brought together three of the leading practitioners in the world to discuss key issues facing litigators today, including the extent to which the financial crisis created mis-management litigation and arbitration, and the prevalence of settlements and ADR.
SETTLEMENT & ADR
Who’s Who Legal: Are you seeing as many cases being taken to the courtroom door as had been in the past? What factors affect the stage of settlement of disputes and how has this changed over recent times?
Colin Ong: There does not appear to be any real decrease in terms of the number of cases going to courts (Brunei, England and Singapore) in general. However, there seems to be a decrease in the number of high-end commercial cases going to court and a corresponding increase in such cases being referred to international arbitration. This trend will probably continue for the foreseeable future as commercial parties increase cross-border trade and business.
Court cases in common law jurisdictions tend to settle at different stages prior to trial. Experience shows that, at which stage a case is settled in court is largely dependent on the efforts of the judiciary in each jurisdiction. Some of the more well-developed common law jurisdictions such as England, Hong Kong and Singapore have developed very proactive measures to try to facilitate settlements between litigants. In these jurisdictions, mediation prior to trial tends to both increase the chances of settlements as well as encourage settlements to take place at much earlier stages prior to the hearing dates.
Marco Niedermann: In general, we have not experienced a downturn in the dispute resolution market as a whole in Switzerland over the past few years. Clients’ demands for litigation and arbitration services have remained unchanged, if not increased. While we do not recognise a trend towards clients choosing arbitration instead of state court litigation, arbitration clearly remains the most common form of dispute resolution in cross-border commercial disputes between medium-sized and larger entities.
In Switzerland, a large number of disputes are settled after respective claims have been lodged with the courts. This is due to a broadly established practice of the Swiss judiciary. In particular, the Swiss Code of Civil Procedure provides for so-called “conciliation hearings”, which aim at bartering settlements between the litigants. Swiss courts usually arrange one or even several such hearings during the proceedings and proactively try to facilitate settlements as to the dispute at hand. In addition, under the Swiss Code of Civil Procedure courts may suggest to the parties mediation in lieu of litigation. Yet, unless all litigants agree to such proposal, mediation cannot take place.
Thomas Rouhette: I have not noticed a decrease in the number of cases taken to the courtroom door in France recently. The latest statistics released by the French Ministry of Justice show that the number of judgments given on the merits and of new cases filed remains stable in France, whether before the civil or the commercial courts.
The two key factors that in my view affect the settlement of disputes and the recourse to ADR are confidentiality and costs. Very confidential international disputes tend to be referred to arbitration anyway. As for costs, because of the absence of discovery or disclosure under a civil law system such as France, they may sometimes not represent a deterrent to bring the case all the way to trial as can be the case in a common law system. One would also expect that the current uncertain economic times would trigger a fair amount of litigation activity. Lastly, the focus on access to justice, which is driven by the European Union and relayed by member states, and the absence of “the loser pays rule” in French civil procedure are unlikely to lead to a decrease in the number of cases brought to court.
Having said that, although not as common as in other jurisdictions, ADR is clearly on the rise in France, with many more cases referred, for instance, to mediation than in the past.
Who’s Who Legal: Lawyers we have spoken to describe a still-steady flow of work resulting from the 2008 crisis. To what extent have these cases been litigated and how much of your practice do they now consume?
Colin Ong: Many of the cases that are directly connected to the 2008 crisis have already gone into the litigation process. Sometimes parties try to pin non-payment or non-performance of contracts on to the 2008 crisis, when the facts show otherwise. Some of the 2008-crisis related cases have been absorbed into the arbitration process. There will likely be litigation surrounding the enforcement of such arbitral awards. Similarly, there will be a likelihood of more cases that are indirectly linked to the 2008 crisis. There will be knock-on effects and competing claims in the construction industry, particularly in larger projects that may involve several tiers of contractors, suppliers, subcontractors and financiers.
Marco Niedermann: The 2008 crisis has indeed triggered a considerable number of court cases in Switzerland. The vast majority of these cases pertain to claims raised by clients against their banks for damages incurred on their assets under the bank’s management. In particular, the bankruptcy of the Lehman Brothers left many clients who had invested in structured financial products with huge losses, for which they sought compensation from their banks on the grounds of breach of duty of care.
Our firm also represents a fair number of bank clients in disputes as mentioned above. The majority of these claims have been settled, as banks are willing to offer adequate settlements in order to keep the clients. However, in some cases, the banks take on a very strict stance and defend themselves fiercely against the lawsuits lodged by their clients.
Thomas Rouhette: I do not personally deal with financial services disputes but the team that specialises in this area within our Paris litigation group has been, and continues to be, very busy with their work on litigation matters deriving from the 2008 financial crisis.
Most of the activity of our financial services disputes team is devoted to crisis-related work. Currently, new cases continue to surface related to, for instance, the so-called toxic loan scandal. Broadly summarised, this issue concerns structured loans and structured swaps that were entered into between French local public authorities and various banks. Many French towns, including the glamorous Saint-Tropez, are struggling with loans indexed to the Swiss franc, whose “safe haven” status has caused its value to soar as a result of the eurozone economic crisis. Some cases have already been litigated with several awards handed down against financial institutions. Many others have been settled out of court to avoid any publicity.
In addition, it is undisputable that the French financial authority (the AMF) has increased the level of its investigations regarding market abuses and the duty of compliance for banks. As a direct consequence of the crisis, and lack of liquidity in the financial markets, most of the funds were wrongly valuated by the asset managers. It is our understanding that in many situations the banks and asset managers were not sufficiently transparent with regards to the fair valuation of these funds, in the hope that they can hold out for the market to recover.
A QUESTION OF PRINCIPLES
Who’s Who Legal: In your experience, does it often happen that parties defend an action to the bitter end on points of principle rather than pragmatism?
Colin Ong: Parties who are advised by experienced counsel tend not to fight to the bitter end on grounds of principles for a number of practical reasons. Unless the quantum of the case is very large, the costs of protracted litigation will deter many parties from defending an action to the bitter end simply on points of principle. Commercial parties tend to be both astute and pragmatic and would not wish to spend too much time, effort and resources on litigation when they are better off focusing their energies on to new income-generating ventures. Those cases that do go to the bitter end generally involve intangible considerations such as emotional issues, reputations, or personal or family relationships that have been transposed into a business context that obscures or reduces the considerations of business pragmatism.
Marco Niedermann: Parties to a commercial dispute usually do not fight to the bitter end solely on points of principle. Particularly due to cost considerations, they rather tend to take a pragmatic approach and try to solve the dispute by settlement, if possible.
However, our experience shows that disputes are quite often defended to the bitter end if the amount of claim is very large or if emotional issues are at stake. This is particularly true with regard to claims arising out of criminal acts, such as fraud or embezzlement. In the latter cases, the claimants usually also press criminal charges against the defendants. In any case, if emotional issues or criminal acts are involved, the parties often feel compelled to take the matter to the very end.
Thomas Rouhette: Based on my experience, there is no straightforward answer to such a question. The French litigation system is not specific in this respect. Sophisticated parties often favour a pragmatic approach and look for an amicable resolution of their dispute in order to avoid the costs and uncertainties of litigation or to preserve future business opportunities. Litigation is, however, frequently a component of an overall strategy and a means to achieve a business objective. As a result, it may be in a party’s interest to fight to the end on points of principle. Such party may for instance be reluctant to set a precedent and will fight on the issue of liability (as in product-related disputes or in securities cases) to send a signal to other potential plaintiffs. The role of the litigation counsel is to suggest the best tactics to match the business goal of his or her client, which may, depending on circumstances, involve keeping options open between a defence to the bitter end or seeking a settlement.
Who’s Who Legal: Assuming that an action makes it all the way to court, is there any particular juncture in proceedings that you consider crucial and how does this affect your trial plan?
Colin Ong: In every case, once trial is contemplated, obviously case preparation including the gathering of evidence (both oral and documentary and associated material) and research into the governing legal principles to the collated facts will be crucial. Thereafter, there will be two other junctures that may be critical turning points. The selection of appropriate witnesses (lay and expert) who are credible and knowledgeable in the subject area that is being litigated is extremely important. In addition to witness preparation, the overarching concerns of a sound litigation strategy are paramount. It is important to go carefully through opposing witness statements and new evidence that may surface when one is considering the examination and cross-examination of witnesses on both sides.
Marco Niedermann: Obviously, a sound litigation strategy is of key importance. Such strategy must be defined in the pretrial phase. In order to do so, it is absolutely crucial to establish the facts and to assess the merits of the case at hand.
In this regard, one should take into account several peculiarities of Swiss procedural law. In particular, the Swiss Code of Civil Procedure does not provide for broad US-style pretrial discovery. Access to documents in the possession of the counterparty is only granted in exceptional cases. For this reason, parties often have to solely rely on the documents and information already in their possession.
Another important factor to consider is the available means of evidence. Under the Swiss Code of Civil Procedure, a party to a claim or – if the party is a corporation – its directors do not qualify as witnesses and, hence, may not give oral testimonies in court. This of course severely limits the available witnesses in a court case. Moreover, Swiss courts enjoy vast discretion in weighing the evidence presented by the parties and one should keep in mind that, as a general rule, oral testimonies bear less weight than documentary evidence in court proceedings.
Thomas Rouhette: From a French/civil law perspective, the question should probably be given a different answer from the answer given by a common law litigator. There is no phase of discovery or disclosure of documents and, as a general principle, the parties select the evidence they want to file in support of their case. Witnesses are not questioned in court and there are no juries in civil and commercial cases. The courts generally rely on written submissions while the oral phase is very limited (the oral argument itself frequently lasts for no more than one hour) and is not as decisive as in common law systems. Having said that, there are key junctures in French court proceedings, which may vary depending on whether you act for the plaintiff or the defendant.
As a plaintiff, the key juncture relates to the gathering of evidence. Unless the plaintiff already has a complete file of evidence, some pretrial steps may have to be taken such as applying for the appointment of a court-appointed expert who will look at the facts (technical or financial, but not legal) of the dispute and provide the court with conclusions regarding the root cause of a damage or the reliability of financial accounts, for instance. In some cases, French civil procedure can even allow for a sort of private dawn raid to be conducted subject to an ex parte request made to the court, to search for documents, the case arising using key words in the other party’s computers. This can be a very useful, although sensitive, step to take in unfair competition matters, for instance.
As a defendant, the filing of the first defence submissions is a key moment. Indeed, under French civil procedure, procedural pleas such as motions raising the lack of jurisdiction of the court or challenging the validity of the summons may only be filed in limine litis, that is, in the very first submissions and before any defence on the merits, failing which the plea would not be admissible.