Managing risk: A disputes perspective (2020)

Our annual disputes client conference exploring key legal and compliance risks facing major corporates was held as an online event on 1 and 2 December.

After opening remarks by Damien Byrne Hill, managing partner for dispute resolution, there were presentations on the Covid-19 pandemic and its legacy, the growing risk of UK class actions, responding to a ransomware attack, data informed decision-making in disputes, and dispute-resolution post-Brexit.

A summary of the conference is below – if reading the full version of this post, you can jump down to read more detail on any of the sessions by clicking on the relevant heading.

The Covid-19 pandemic and its legacy: Natasha Johnson, Sarah McNally and John Whiteoak considered the legacy of disputes the pandemic is likely to give rise to, focusing on contractual disputes, insurance and disputes relating to insolvency.

The growing risk of UK class actions: Alan Watts chaired a panel comprising Julian Copeman, Kim Dietzel, Neil Blake and Sarah Penfold, which looked at the themes emerging in the class actions space, including data breach claims, competition class actions, so-called “class action tourism” and shareholder class actions.

Responding to a ransomware attack: Andrew Moir, Greig Anderson and Kate Macmillan explored how businesses should respond to such incidents through consideration of a case study, covering issues such as dealing with publicity, whether to pay a ransom, data issues and the role of insurance.

Data informed decision-making in disputes: Alexander Oddy and Emma Deas discussed new tools for analysing risk in a contentious setting and the opportunities they present for in-house counsel to communicate with and advise the C-suite, as well as the challenges they pose in adapting thinking and analysis.

Dispute resolution post-Brexit – risks and opportunities: Paula Hodges QC, Nick Peacock and Andrew Cannon considered the risk outlook for English jurisdiction clauses and judgments as we come to the end of the Brexit transition period, and the pros and cons of using arbitration to manage risks in relation to cross-border disputes.

The Covid-19 pandemic and its legacy

Contractual disputes

• In addition to numerous other challenges, the Covid-19 pandemic resulted in many businesses struggling to perform contractual obligations. There was a great deal of focus on whether parties could delay or suspend performance without liability, or perhaps terminate the contract, and on issues of frustration where was no force majeure clause in a contract.
• In an audience poll, 43% said their organisation had notified or received notification of a force majeure event relating to the Covid-19 pandemic.
• As yet, we have not seen many of these issues escalate to full-blown litigation, most likely because businesses have taken a pragmatic view. It is likely, however, that some businesses are simply waiting for a more convenient time to pursue claims. In some cases, parties may have lost the ability to terminate for repudiatory breach or rely on a force majeure clause, but they may still have damages claims.
• Even where parties did not seek to rely on force majeure in the “first wave” of Covid-19, that may change as a result of the “second wave” that is now gripping the UK and Europe. The resilience of many businesses was damaged by the first round of restrictions, and some may find that they are now unable to perform and need to seek force majeure relief.
• The ability to rely on force majeure depends on the wording of the clause itself. Many clauses have a non-exhaustive list of events that will amount to force majeure, together with a general "sweep-up" provision for other events which are not within a party's reasonable control. Where that’s the case, Covid-19 and the related restrictions are generally likely to fall within the clause.
• But there is still a need to show that the event has had the relevant effect on a party’s performance. A force majeure clause will sometimes require performance to be prevented, or sometimes it is also sufficient if performance is hindered or delayed. For many the key impact of the pandemic has been financial, but just because a contract has become unprofitable to perform is unlikely to amount to a force majeure.
• We have seen lots of arguments emerge around causation, for example that a party would not have been able to perform even if Covid-19 had not come along, for example due to the financial position of the business at the time. Other arguments include that there was not a sufficiently direct chain of causation between the force majeure event and the impact on the business.
• We have also seen a lot of questions around notifying force majeure. Generally speaking any notification obligations should be strictly complied with, as otherwise you may lose the ability to rely on the clause. It can be particularly challenging to make the decision at pace about whether and when a force majeure notice should be given, particularly taking into account the dynamic situation and the potential long term commercial implications.
• There have also been interesting questions as to precisely which obligations are suspended by a force majeure clause, if the wording doesn’t make that clear. For example we’ve seen questions as to whether confidentiality obligations might be affected – though that seems unlikely in most cases, particularly where such obligations are stated to survive termination.
• Another area that has received a lot of attention, separate from force majeure, is “material adverse change” (or MAC) clauses. These are commonly used in M&A transactions, so that the buyer can walk away if there is a MAC before the deal closes, or in loan agreements, so that the lender can call a default or prevent further draw down if there is a MAC affecting the borrower. In some cases, the view may have been taken that there was not a MAC in the “first wave”, but the second wave may have tipped things over the edge, so it is worth revisiting some of these assessments.
• There are a number of steps parties should consider to mitigate their risks in relation to contractual disputes, particularly with force majeure in mind:
  • If any businesses have not yet reviewed their contracts to consider the impact of Covid-19 and any force majeure relief available, it would be sensible to do that now.
  • Discussion and collaboration with counterparties will be important, though businesses should consider carefully before waiving any contractual rights.
  • Businesses should make sure to keep a paper trail of steps taken or explored to mitigate the impact of Covid-19, and (if relevant) why particular steps have not been taken.
  • For new contracts, it is generally preferable to agree expressly what effect Covid-19 and any related restrictions will have on the contract, rather than relying on a general force majeure clause for protection.

Insurance

• Shortly after the UK went into lockdown in March, there was significant publicity as to whether business interruption insurance policies would respond. Business interruption cover is usually only responsive to property damage, but in recent years there have been extensions for various non-damage matters, including denial of access and notifiable disease. These extensions came under the spotlight when the lockdown was imposed. Insurers generally took the position that only local effects were covered, and in effect the widespread effects of the pandemic overpowered any cover.
• In April the FCA stepped in to try to resolve matters. Herbert Smith Freehills represented the FCA and negotiated with various key insurers to agree how this coverage issue could be resolved in a test case to an expedited timetable. Agreed facts documents were negotiated to allow the case to proceed without evidence, with the FCA advancing the claim for policyholders.
• The High Court considered 21 lead sample wordings from eight insurers in a trial held in July. Judgment was handed down in September and, while different conclusions were reached in respect of each wording, the court found in favour of the FCA on the majority of the key issues, in particular in respect of coverage triggers under most disease and “hybrid” clauses, certain denial of access/public authority clauses, as well as causation and “trends” clauses.
• A leap-frog appeal to the Supreme Court was heard in November and judgment is awaited. In the meantime policyholders with relevant cover should make sure they know what is in their policy and that any required notifications have been made.
• The Supreme Court’s decision could have implications beyond the Covid-19 context. In particular, insurers relied on the decision in Orient-Express Hotels Ltd v Assicurazioni Generali SpA [2010] EWHC 1186 (Comm), in which the court found that a hotel which suffered damage due to Hurricane Katrina could not recover under its policy because the devastation to the wider area meant the hotel would have had no customers anyway, seeking to draw parallels with the effect of the pandemic. The High Court in the business interruption test case distinguished that decision, but if necessary would have declined to follow it. The Supreme Court’s decision may shed light on the correct approach to this issue.
• Considering insurance issues more broadly, the Covid-19 pandemic has forced businesses to adapt very quickly to changes to work practices. As a result they may face unusual risks for which they may not have fully prepared. Businesses should consider the key types of cover in their portfolios and how they may respond, or whether additional cover is needed.
• The current hard market for insurance cover means that underwriting gets tougher and more stringent. Insurers are likely to take a tough line on renewals and it is essential for businesses to prepare in order to maximise cover/capacity/wording, for example by being alert to covid-related exclusions. It is also important to be careful with notification requirements and presentation of the risk.

Insolvency

• Covid-19 has had a very significant impact on revenue and asset values. Government actions (such as the employee furlough scheme and restrictions on winding up) have allowed many companies to survive when they might otherwise have failed, but in some cases with unsustainable balance sheets.
• The consequence is that, while the timing will depend on when the relevant government programmes come to an end, we expect to see many companies entering into wholesale restructurings or insolvency processes early next year – and we have of course already started to see high profile collapses.
• As well as introducing short term measures to stave off insolvency, such as a temporary ban on statutory demands and winding up, the Corporate Insolvency and Governance Act 2020 (CIGA) introduced a fundamental shift from the UK being a “creditor friendly” jurisdiction to a “debtor friendly” one.
• CIGA has introduced a new “debtor in possession” company moratorium (essentially a light-touch version of the US Chapter 11 procedure) which allows a stay of creditor action to enable the company to pursue a rescue plan. It does not, however, stop finance debt (including inter-company debt) being due. If the company is not then rescued this debt is granted super-priority status when the moratorium ends, with a consequent increase in the risks to other creditors.
• There has not to date been much take-up of the new moratorium, but we may see a major uptick in the new year particularly if landlords start to issue statutory demands to all tenants with rent arrears as soon as the ban on such action is lifted.
• There is also a new Restructuring Plan which is similar to a Scheme of Arrangement except it offers more ways to compromise creditors' debt when there are “hold out” creditors. This is a court process and is likely to be used to restructure complex financial debt. With the new ability to “cram down” dissenting creditors, it can be expected that this will lead to significant court challenges as companies seek to restructure their balance sheets in more innovative ways.
• The trend in recent years has been for high profile corporate failures to be followed by intense scrutiny of directors’ conduct. The recent changes put more emphasis on directors’ efforts to try to save the company, rather than formal administration or liquidation processes. While CIGA has suspended liability for wrongful trading, directors remain subject to all of the normal directors’ duties, and may face a heightened risk of claims.
• CIGA has also introduced a radical, permanent change to contract law which means that where a company enters an insolvency process, its suppliers of goods and services are not permitted to: enforce a termination right which would have arisen due to insolvency; rely on any pre-existing termination right (whether related to insolvency or not); or make ongoing supply conditional on payment of past debts.
• In an audience poll, 20% said their organisation had experienced customers entering into insolvency procedures with a resultant impact on their ability to terminate supply contracts due to CIGA. The expectation is that if a similar poll were to be conducted in 12 months’ time, the number would be far higher.

The growing risk of UK class actions

• In recent years, class actions have become an increasingly important part of the litigation landscape in the UK, and we expect the number of claims to continue to rise in a number of areas.
• There is a growing trend for cases to be brought in the English courts against multinational companies relating to activities of their subsidiary companies abroad, often in respect of environmental or human rights issues – a phenomenon we have referred to as “class action tourism”. Claimant firms and funders are beginning to expand their horizons for such claims, seeking to bring claims not only in a parent/subsidiary context but also potentially arguing that a company has assumed responsibility for others in its supply chain. That will be an area to watch.
• Shareholder class actions are also seeing growth, with an active third party funding market driving the continued rise in cases. There are, however, a number of factors helping to keep a lid on growth, in contrast to jurisdictions such as Australia and the US, including the “opt-in” procedure for claims (discussed further below) and the English court’s reluctance to depart from a requirement to show express reliance on the statement or omission which forms the basis for the claim (particularly in claims brought under section 90A of the Financial Services and Markets Act 2000).
• Competition class actions in the Competition Appeal Tribunal (CAT) are also expected to grow, once the Supreme Court’s decision in the Merricks v Mastercard case has been handed down (originally expected for Friday 4 December, but now postponed due to the death of Lord Kerr), as that will provide greater clarity on the test for certification and thus make the outcome of applications more predictable (see our briefing on the Court of Appeal decision here). Such claims are brought under a standalone class action procedure called a Collective Proceedings Order (CPO). There are currently seven CPO applications pending, many of which have been delayed to await the Merricks decision, which is expected to clarify a number of aspects of the certification procedure. We understand there are a number of draft CPO applications waiting in the wings, so we expect a further wave of such cases to be issued next year.
• Data related class actions are also on an upward trajectory. Already we are seeing group claims issued where there is a large or high profile data breach, and increasingly we expect such claims to focus on the harvesting and use of data, in addition to data breaches.
• The Covid-19 pandemic is also expected to contribute to a rise in class actions in a number of areas, including securities class actions and data-related claims.
• The risk of securities actions tend to increase where there are volatile markets, as we saw with the 2008 financial crisis. The pandemic has led to many companies seeking to raise capital, for example through rights issues – or, conversely, capitalising on strategic opportunities that have arisen, for example through M&A activity. This means companies will be making statements to the market, including forward-looking guidance, at a time of huge uncertainty. Inevitably, with the benefit of hindsight, some forecasts will be wrong and some companies will end up facing claims, particularly if there is a share price impact when the information is corrected.
• In the data space, the pandemic is likely to accelerate existing trends. With lots of people working from home, from potentially less secure home networks, the risk of cyber and data security incidents rises, including as a result of the notable increase in hacking activity during the pandemic. There has also been a massive increase in government involvement in data, with for example Covid-related track and trace systems, which could potentially give rise to claims down the line.
• There is an important distinction to be drawn between “opt-out” claims, which are brought on behalf of all claimants falling within the relevant class unless they specifically opt out, and “opt-in” claims which require claimants to take positive action to join the class. Opt-out claims have obvious advantages to claimants, as there is no need to “book build” the class and the economics are more attractive. Equally, they pose greater risks for defendants, as damages are awarded for every class member.
• The CPO procedure for competition claims allows for applications to be brought on either an opt-in or opt-out basis, subject to the CAT’s approval through an initial certification process. Opt-out claims are seen as more complex, riskier and more costly and so are subject to additional safeguards, including increased case management and a ban on lawyers acting under damages-based agreements (DBAs). Most of the pending CPO applications are brought on an opt-out basis.
• Outside the competition space, most UK class actions are brought using the “group litigation order” (GLO) procedure, which is essentially a tool for the case management of claims with common or related issues – ie an opt-in procedure. There is also a procedure for bringing a “representative action” on an opt-out basis on behalf of all those with the “same interest” in a claim, but this has not been widely used due to the strictly interpreted same interest requirement.
• In Lloyd v Google (considered here), the Court of Appeal has allowed a claim to be brought as a representative action on behalf of 4.4 million iPhone users, where the representative seeks damages as a uniform per capita amount for the loss of control of data, and disavows any claims which rely on individual circumstances. If that decision is upheld on appeal to the Supreme Court, it is likely to open the path to a large number of similar claims for the loss of control of data, brought as representative actions on an opt-out basis.
• It is unlikely that the use of the representative action procedure will spread widely to other types of claim, however. Data claims are relatively unique in that they can be pared back to a claim for the loss of use of data, on what is effectively a tariff basis – though the likely per capita award for such loss remains uncertain.
• In Jalla v Shell (considered here) the claimants sought to bring a representative action for alleged environmental damage by abandoning their individual damages claims and focusing on claims for remediation. The court found there were nevertheless differing interests, including because the claimants would need to show causation and loss on an individual basis. Given this hurdle, it seems unlikely that the representative action procedure will ever be appropriate in these sorts of claims.
• Claimant law firms and litigation funders are a key forcing driving class actions in many areas. In the securities class action context we are seeing more and more collaborations between claimant firms and funders, as well as claimant firms moving into the UK from more established class action jurisdictions. All of this is likely to fuel an increase in claims.
• In environmental and human rights based claims, it is common for claimant firms to self-fund an action, typically under a conditional fee agreement, without the involvement of a litigation funder. This can increase the defendant’s risk, particularly where the claimants are impecunious, as is often the case with such claims. The claimant law firm (in contrast to a funder) will not ordinarily be liable for adverse costs if the claim fails, and therefore defendants may be unable to recover their costs even if they successfully defend the claim.
• Funding is very important in the competition context, as the CAT must consider whether the class representative would be able to pay the defendant's recoverable costs if ordered to do so. This requires an analysis of the terms of funding and fee arrangements before the claim gets off the ground – though our experience to date suggests that funding alone is unlikely to result in certification being refused. The CAT has tended to identify any aspects of the funding arrangements it considers unsuitable and give the claimants a chance to put things right.
• Businesses should think carefully about the steps they can take to mitigate the risks of getting embroiled in a class action.
• In the shareholder action context, for example, that will involve ensuring that appropriate advisers are appointed and proper processes followed for transactions the business undertakes, and ensuring records are kept of key deliberations, including for example if information is to be excluded from a circular or other market statement on grounds of materiality. Care is also needed in explaining the basis on which forward-looking guidance is given, outlining key assumptions and limitations, and in ensuring that risk factors are sufficiently specific.
• In the context of class action tourism cases, careful attention should be paid to the formulation of corporate policies, and the degree of control imputed to parent company in those policies with respect to group-wide operations. Consideration should be given to whether the involvement of a parent company in group policy making should limited to strategic direction only, with the adoption, adaptation and implementation of policies done at the operating subsidiary level.

Responding to a ransomware attack

• Ransomware attacks are a particularly significant threat at the moment, though they are only one of a number of different types of threat which exist in the cyber arena and against which businesses need to protect themselves.
• The onset of a ransomware attack is often very sudden and timed to cause maximum disruption. A business will simply find that its systems are not working and there is a message left by the ransomware inviting the business to get in touch with the hackers, often via a link to a website on the dark web. That site will typically set out the ransom demand, and the relevant deadline, to have the systems restored.
• In some cases the hackers will take sensitive personal data or other confidential information as collateral, so that if the ransom is not paid the data will be released. In such cases, businesses will need to be concerned even if they are able to restore their systems quickly.
• Businesses should ensure they have alternative communication channels in place to deal with incident response, if email is down and other systems are not available. If an incident occurs, it will be important to mobilise the right teams quickly, both internal and external, including technical incident response, PR and legal support.
• There are a number of factors to consider in deciding whether to pay the ransom, including the impact on the systems and the restoration timeline. A lot of organisations tend to assume that backups can instantly be restored, but in fact it can often take weeks to restore the system from backups throughout which the business will be incurring losses due to the disruption.
• The legality of paying a ransom also needs to be considered. In most jurisdictions there is no express prohibition on paying a ransom. However, if the threat group behind the attack is on a sanctions list, then it will be difficult to pay a ransom without committing a criminal offence. There may also be anti-money laundering issues, though in most cases those can be managed by making notifications to the relevant bodies, such as the National Crime Agency in the UK.
• Another factor will be whether you can be confident the hackers will come good on their promise to restore the systems. Where the hack has come from a recognised threat group, particularly organised crime, there tends to be a good correlation between paying and having the systems restored, as their business model depends on businesses knowing they will keep their word. If it’s a smaller group, or a one-off attack, it is less predictable.
• Where the hackers have taken personal data, it will be important to establish what sort of information has been taken, including for example whether it includes special category data, such as data concerning health, ethnicity or political opinions. Misuse of such data has the potential to cause more harm to individuals than the use of ordinary data. If the data includes third party client information, it may cause damage to business relationships.
• An important consideration will be whether the incident has to be notified to the Information Commissioner’s Office (ICO), or whether it can be contained so that it remains below the notification threshold – whether by paying the ransom or by other means.
• The requirement to notify depends in part on whether the incident falls within the definition of a personal data breach under GDPR. This is widely defined as “a breach of security leading to the accidental or unlawful destruction, loss, alteration, unauthorised disclosure of, or access to, personal data”. The definition is likely to be met if, for example, the personal data cannot be restored quickly as this will amount to a loss of access to the data.
• The test for notification is two-stage, so a personal data breach only has to be notified to the data protection regulator if it is likely to result in a risk to the rights and freedoms of individuals and to individuals themselves if it is likely to result in a high risk. The potential harms you have to consider are not only economic harm but also for example whether the incident might cause distress or lead to discrimination.
• Another factor in deciding whether to pay the ransom is the potential litigation that might arise if the incident is not contained, including legal costs and management time, as well as reputational risk.
• From an insurance perspective there are two key questions that arise: first, whether there is cover; and second, how that cover can be accessed and realised. In principle, depending on the types of cover a business has in place, insurance can cover a significant part of the loss that may arise from a ransomware event.
• The relevant cover can exist in a number of different policies, and it is important to understand the cover available and how it fits together, ideally before an incident occurs. So for example extortion payments could potentially be covered by a cyber insurance policy, a kidnap and ransom policy, or a crime policy. The cyber policy may also provide cover for related losses, such as data breach claims, business interruption or incident response costs, though there may be designated suppliers under the policy so it’s important to be aware of that straight away. If the incident results in customer claims, these may be covered under a professional indemnity policy; and claims or investigations in relation to directors or officers, including securities claims, could be covered by the D&O policy.
• While there may be cover in principle for the ransom payment itself, the cover is unlikely to respond if the payment would be in breach of sanctions or anti-money laundering requirements. It is also important to have regard to the policy terms. For example, a policy will often require the insured to obtain insurer’s prior consent to any ransom payment, or to engage with law enforcement agencies, or at least only to take steps if they are aligned with mitigating the company’s loss – for example, by paying early to get the business back up and running. Care must also be taken not to prejudice insurers’ subrogation rights by waiving or prejudicing recovery against third parties, as that may jeopardise cover.

Data informed decision-making in disputes

• The growth of data analytics presents opportunities for businesses involved in complex disputes, particularly where the available data is combined with the experience and judgment of legal professionals.
• The traditional approach to giving advice often results in an assessment of the prospects of success described in narrative terms, such as “good prospects of success”, “strong case” or “weak case. However, these terms can mean different things to different people. Analytical tools now available allow a more precise approach.
• Herbert Smith Freehills has partnered with Solomonic, which collects data from decided cases in the English High Court and makes it available via an online platform. This enables parties to compare their case against base case data, such as how often certain types of claim succeed, and how that breaks down depending on for example which court or judge is deciding the case, the sector in question, or a combination of factors.
• The platform also contains data about the general behaviours of parties, showing for example how frequently have they been in court, and how often they have settled. This allows for a better understanding of the opponent’s behaviour. It is also the type of data that litigation funders look at, and so it may give some insight into the decisions they might take based on that data.
• In determining whether the case at hand is similar to, or different from, the base case data, it is necessary to analyse the issues and prospects and seek to quantify the legal risk involved in the case.
• At Herbert Smith Freehills we have a decision analysis team of statistically and mathematically literate disputes lawyers who work with matter teams to help develop bespoke decision tree models to assist with that process.
• The outcomes from the decision tree models are presented using visualisations to enable management to understand where the risks lie and how they should be quantified, and how different variables affect the overall assessment. All of this helps achieve better informed decision-making.
• Decision analysis models can be used for disputes irrespective of governing law, subject matter or industry, form of dispute resolution (whether litigation or arbitration), and the size and complexity of the case. They can be very effectively deployed in support of mediation to challenge an opponent’s position – for example by showing that, even on its own merits analysis, the value of the claim is not as an opponent might expect. This can help manage expectations and facilitate settlement.

Dispute resolution post-Brexit – risks and opportunities

• The Brexit transition period will come to an end on 31 December. There is still much uncertainty as to what will happen after that, including the impact on dispute resolution choices and enforcement of judgments between the UK and the EU.
• EU law currently provides for uniform rules on jurisdiction and the straightforward enforcement of judgments between EU member states, in particular under the recast Brussels Regulation. These rules have continued to apply to the UK during the transition period, under the UK/EU withdrawal agreement, but they will cease to apply on 31 December unless proceedings were commenced in the UK or the EU before that date.
• The Lugano Convention applies between EU member states and three of the EFTA countries, Iceland, Norway, and Switzerland (not Liechtenstein). That Convention has also continued to apply to the UK during the Brexit transition period.
• The UK has applied to re-accede to Lugano in its own right after the transition period ends. However, accession needs the unanimous agreement of the existing contracting parties and the EU has not yet given its agreement.
• If the EU gives its consent, there will be a short delay in implementation, because Lugano only comes into force three months after the instrument of accession has been lodged. But from that point Lugano would apply between the UK and the EU as well as the EFTA countries and there would be little change from the current regime in relation to jurisdiction and enforcement. (Lugano has some disadvantages compared to the recast Brussels Regulation, but generally these are minor compared to the similarities.)
• If the UK is not able to re-accede to Lugano, the 2005 Hague Convention on Choice of Court Agreements will attract much greater significance than at present. This Convention was designed to create a worldwide framework of rules relating to jurisdiction and the recognition and enforcement judgements, akin to the very successful 1958 New York Convention on the recognition and enforcement of arbitral awards. But so far it's had very limited take-up: apart from the EU, only Mexico, Singapore, and Montenegro.
• Hague 2005 continues to apply to the UK by virtue of the withdrawal agreement, as the UK continues to be treated as an EU member state for these purposes. That will cease on 31 December, but the UK has rejoined Hague 2005 from 1 January 2021, so there will be a seamless transition to the UK becoming a party in its own right.
• Hague 2005 does, however, have some significant limitations compared to the Brussels and Lugano regimes. First, it will not assist with enforcement of judgments as between the UK and the EFTA countries as they are not party to it. And, importantly, Hague 2005 only applies where there is an exclusive jurisdiction clause in favour of one of the contracting states. Exclusive, for these purposes, does not include a unilateral, or a one-way, jurisdiction clause, ie one which binds one party to the exclusive jurisdiction of a court but gives the other party the option to commence proceedings elsewhere.
• Further, Hague 2005 only applies where the exclusive jurisdiction clause was entered into after the Convention entered into force for the country of the chosen court. There is some uncertainty as to whether EU member states will treat the date of entry into force for the UK as 1 October 2015, when it became party to Hague 2005 by virtue of EU membership, or 1 January 2021, when it accedes in its own right. The European commission has taken the view that it’s the latter, but that view will not be binding on the courts that will decide this question in future, and arguably the better view is that Hague 2005 should apply to contracts entered into from 1 October 2015 as it unquestionably entered into force for the UK on that date. Still, this gives rise to obvious uncertainty.
• Arbitration as a form of dispute resolution is not affected by any of the uncertainty surrounding Brexit. Arbitration awards can be easily enforced under the New York Convention, which now has 166 signatory states – over 80% of the countries in the world. And there are only limited grounds on which to challenge an arbitral award.
• Arbitration has a number of other advantages, including that: it is a confidential process; it takes place in a neutral forum; parties can select the arbitrators who determine the dispute and can choose those who have special expertise in an area of law or industry sector; and there are limited grounds of appeal (though that can be double-edged).
• In the past 10 years or so, there have been significant changes to the rules of arbitration institutions in response to user feedback, so that a lot of the leading institutions have now embraced summary dismissal of unmeritorious claims, as well as rules to facilitate the resolution of disputes under related contracts and the joinder of parties for that purpose.
• In terms of managing Brexit risk, it is important to remember that this is a UK/EU issue: it has not changed dispute resolution vis-a-vis the rest of the world. So for example if you're a UK company, with a counterparty in the US, who has assets in the UK or the US, Brexit should not affect your choices.
• If you will need to enforce in the EU, you may want to choose an exclusive English jurisdiction clause (if the contract is entered into after 1 January) to ensure easy enforcement under Hague 2005. But if you will also need to enforce outside the EU, you also need to think about whether that country will enforce English judgments. If you may need to enforce in multiple jurisdictions around the world, including within the EU, then arbitration may be the best option because you can fall back on the broad enforcement regime under the New York Convention.
• Brexit has introduced a lot of complexity for dispute resolution in the English courts, but there may be a number of opportunities, including for example the increased availability of anti-suit injunctions, and a potential increase in the attraction of London as an international disputes hub without the complexities of EU law.