A wave of financial scandals involving global banks has kept London’s civil courts busy with cases of complex cross-border litigation. But it is notable that the global nature of business is giving rise to disputes in areas such as insolvency law and capital markets that are being dealt with in ways never seen before, and with the assistance of new technology.
This is no better illustrated than in the outcome of a five-year global court battle involving 33,000 British pensioners from collapsed telecoms provider Nortel. They achieved a fair share of a $7.3bn fund held in an escrow account, representing the remains of Nortel, whose European, US and Canadian entities had made separate insolvency filings in London, Delaware and Toronto. There was no agreement on how the $7.3bn would be distributed.
Fights between creditors of a huge global insolvency are not new — strands of litigation relating to the 2008 collapse of US bank Lehman Brothers are still going on in courts around the world. But Nortel became the first case in which global assets were legally entitled to be distributed in accordance with creditors’ claims.
The case was also unusual because two courts in Canada and the US sat simultaneously and the trial unfolded in two locations linked by a private live internet stream. The level of co-operation between judicial authorities was unprecedented, but the judges had to decide the legal issues in the case according to the laws of their own country.
Hogan Lovells, the law firm that represented the UK pensioners, had to convince courts in Canada and the US to accept the legal principle that creditor liabilities could be paid out on a pro rata basis — ignoring claims to ownership based on individual corporate identities and geographical boundaries. The ruling put an end to five years of battles, with three failed attempts at mediation, in a case described as featuring “scorched earth litigation”.
John Tillman, a partner at Hogan Lovells, says the case was unusual because of the courts sitting jointly: “There is a strong tradition of different courts co-operating on certain aspects of large, cross-border insolvency cases, but this took it to a new level.”
The scale was also daunting: it involved 120 witnesses being deposed worldwide and 3m documents being disclosed. The case has far-reaching implications for future cross-border insolvencies and could pave the way for further judicial co-operation across frontiers.
In more conventional bank litigation cases heard in London’s High Court, law firms have had to contend with cross-border jurisdictional issues, often where cases have parallel civil or criminal proceedings elsewhere.
One colourful case was fought by Addleshaw Goddard on behalf of a German water utility against Swiss bank UBS over the alleged mis-selling of complex derivative transactions that triggered large payment obligations. The litigation was one of the first instances when a bank was successfully sued by a public authority and involved close co-operation with the utility’s German lawyers.
The bank had claimed it was owed about $140m from contracts with Kommunale Wasserwerke Leipzig in a trial that featured lurid allegations of corruption, a luxury African safari and the hiring of strippers in New York.
The German company had claimed, however, that the deal was invalid because a former UBS banker had an “improper” relationship with a Swiss consultancy advising the utility. KWL won the case and in a hard-hitting ruling, Mr Justice Males said of UBS’s conduct: “It has been a case study in how not to conduct investment banking in an honest and fair way.”
Other law firms have sought to use innovative ways to test parts of European law that need to be clarified following bailouts relating to the financial crisis. Allen & Overy, for example, was instructed by the European Central Bank following claims brought against it by investors in Cypriot banks who had lost out under the terms of Cyprus’s bailout.
Lawyers at the firm successfully argued the ECB was not acting as a European institution in relation to its work with the European Stability Mechanism and therefore the General Court of the European Union lacked jurisdiction to hear the case. The ruling helped clarify the capacity in which the ECB and European Commission were acting in the European Stability Mechanism and the action helped prevent EU tax partners from being on the hook for liabilities.
Despite the amount of litigation reaching London’s courts, however, many lawyers say many complex cross-border cases are being settled behind closed doors using arbitration.
Arbitration is often thought to be faster, cheaper and private. In the past year, big arbitration cases have included the one brought by Paul Hastings, the London-based litigation group, that achieved a victory for the Rwandan government. There are signs, however, that the English courts will exercise their discretion to intervene on arbitral awards if necessary.
Law firm Pinsent Masons advised the UK home secretary on a successful application to the High Court to set aside a £200m arbitral award made by an international arbitral tribunal in relation to an information technology dispute case. The ruling is now the lead test case on issues in which the English courts will intervene in such awards.