cdr (commercial dispute resolution) - q3 2010 - issue 1

Toarms!

Akzo Nobel and thebattle for privilege

GOODBYE

CAUTION

Has Jackson

introduced risk-free

litigation? p10

INVEST IN

UNREST

Third-party

litigation funders

eye up Europe p14

SOCIAL

SCIENCE

Get the best out of

Twitter and

LinkedIn p26

TOUGH

ACT

The Bribery Bill

puts the FCPA in

the shade p16

Q3 2010 Issue 1

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Spain & Portugal p38

CDR_front and back covers (& ads)_CDR_cover 6/3/2010 12:44 PM

We are a global law firm that emphasizes cross-border, cross-practice collaboration across 14 offices and over 85 practices.

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Editor: Ben Lewis

Contributors: Chiara AlbaneseElizabeth BaileyNick BenwellGreg BousfieldPhilip CliffordAlan CoxSarah GarveyJoanna GoodmanAlex HamiltonAnastasia HancockGregory LeonardIrina MaisakJulian MatteucciDouglas PedenBen RigbyAlexander Vaneev

Production: Jodie Mablin

Advertising & sales: Mathew Hance

Managing editor: Alan Falach

Publisher:Richard Firth

Cover image:Don Troianiwww.historicalimagebank.com

Published by:Global Legal Group Ltd59 Tanner StreetLondon SE1 3PL, UKTel: +44 20 7367 0720Fax: +44 20 7407 5255www.glgroup.co.uk

Printed by The Magazine PrintingCompany Plc, June 2010

Copyright © 2010Global Legal Group LtdAll rights reservedNo photocopying

ISSN: 2044-5121

When is alawyer not alawyer?The impact of advocate-general Kokott’s opinion on the Commission’s disputewith Akzo Nobel - that in-house lawyers are not entitled to protection under legalprivilege - will be limited. After all, most corporate counsel avoid writing downanything that could come back to bite them.

But that’s hardly the point. The esteemed AG has delivered a deft slap in theface for a profession whose members often struggle for recognition in their owncompanies, as legal diligence often finds itself at loggerheads with quick business.

At a time when companies depend on their in-house teams more than ever, wecan ill afford to undermine them for the sake of scoring points in litigation.

In the first printed quarterly edition of CDR, we hear from an Osborne Clarkelawyer who calls the opinion an “insult” (page 32). We also speak to in-houselawyers and those at the forefront of the case, including those representing theAssociation of Corporate Counsel and Dutch competition lawyers (page 28).

Also in this edition we take a detailed look at the state of dispute resolution inSpain and Portugal (page 38). With Iberian courts buckling under a mountain ofinsolvencies, will judicial reforms and an arbitration revolution be enough torelieve the pressure? Perhaps the key is technology: as Portugal has found, anefficient computer system can make all the difference.

Speaking of technology, we investigate the social networking phenomenon andgive five ways lawyers can use websites such as Twitter and LinkedIn to boosttheir business (page 26). CDR interviewed the European managing director ofLinkedIn for his insights.

Other highlights include the implications of Jackson LJ’s civil costs review bothfor commercial disputes (page 10) and e-discovery (page 24); and a comparison ofAsia’s arbitration rivals in China, Hong Kong, India and Singapore (page 20).

Finally, we have a host of regular features, including all the latest partnermoves, expert briefings, legal events and jobs.

But it doesn’t stop there: don’t forget to keep checking back on our website(www.cdr-news.com) for all the latest articles, and to sign up for our free weeklynewsletter.

We hope you’ll become a loyal reader and we welcome your ideas and feedback.

Ben Lewis, [email protected]+44 20 7367 0728

This publication is for general information purposes only. It does not purport to provide comprehensive full legal or other advice.Global Legal Group Ltd. and the contributors accept no responsibility for losses that may arise from reliance upon information contained in thispublication. This publication is intended to give an indication of legal issues upon which you may need advice. Full legal advice should be takenfrom a qualified professional when dealing with specific situations.

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Editorial

This is a unique opportunity to explore the best theory and

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28 Cover Feature

Akzo NobelBattle for privilegeWith Akzo Nobel, the Commissionis stirring up an in-house revolt.Ben Rigby surveys the battle lines– and meets some of the key com-batants

38 Region Focus

Spain & PortugalRivals in crisisIberian courts are swamped withinsolvency. Will a growing ap-petite for arbitration be enoughto drag them out of the mire? BenLewis reports from Madrid andLisbon

Litigation Funding

10 Jackson’s reactionsWhat the funding reformsmean for commercial cases

Financial Litigation

14 New frontierThird-party funders arefinding opportunities inEurope

16 Stand aside, FCPA?The UK’s Bribery Bill maybe tougher than its UScousin18Vulture clashThe murky world ofvulture fund litigation

20 Stars of the EastInside Asia’s arbitrationhotspots

Arbitration & ADR

Strategy & Technology

24 Jackson on e-disclosureTackling one of the thorniestissues in legal costs

26 Social networking:five tips for lawyersThink “Twitter feed” is abag of seeds? Here’s help

Competition & EU

32 Kokott’s unwelcomeopinionOne lawyer’s take on thelatest from Akzo Nobel

Collective Redress

34Turning American?UK business turns againstthe Financial Services Act

Contents

5 Jobs

7 Comment

8 People & Firms

58 Country Reports

62 Conference Diary

64 Profile

50 Expert Views

BSkyB v EDSHow to avoid a liability cap

The Jackson ReviewA commercial lawyer’s perspective

RussiaSevmash case shows growingacceptance of foreign awards

EconomistsThree cases reshaping patent licensingpractice

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Recruiter: Turner MarkeVacancy: Head of Dispute Resolution Salary: To $1m+Location: Moscow

Requirements for the role are as follows:- Significant experience as an advocate in Russia, representing clients in the Russian courts and domestic arbitration tribunals. - Extensive prior consultancy experience at counsel or partner level in the litigation field at a major international or Russian law firm. - Additional international arbitration experience preferred. - A degree of portable client business, to assist with the continued development of the Russian dispute resolution practice.

To apply please email [email protected] or call +44 (0)7971 486 014.

www.turnermarke.com

Recruiter: Hudson LegalVacancy: Contentious Financial Services Regulatory AssociateSalary: Competitive Location: London

This Silver Circle law firm is looking to recruit a financial services regulatory associate into their team. The role will focus on providing advice and assistance to the firm’s financial services clients, both nationally and internationally.There may be an element of civil disputes and criminal investigations in relation to the financial services sector.The successful candidate will ideally have 2-5+ years’ PQE gained within a top City firm, predominantly within the financial servicessector. A solid understanding of the UK financial services regulatory regime is essential.

To apply please email your CV to [email protected] or call Baqer on +44 (0)207 187 6205.

www.hudson.com / www.jobs.hudson.com

Recruiter: Cogence Search LtdVacancy: Partner International ArbitrationSalary: £200,000 to Full Equity Circa SGD $4-900,000Location: Singapore

Lateral Opportunity: Our clients have a long standing and highly regarded presence in South East Asia and Mainland China and a clearstrategic aim of growing their arbitration practice in the region. There is an expectation that a Partner making a lateral move into the prac-tice will have developed a profile in the jurisdiction and be able to bring on board reliable client relationships. This practice is in a positionto competitively compensate its Partnership and is happy to consider hires into the equity partnership where the business case exists.

To apply for this opportunity in complete confidence please contact Mark Husband, Director at Cogence Search Ltd on +44 (0)207397 1592 or email: [email protected]. Reference: Cogen43878.

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Featured Jobs

For Europe’s top disputeresolution professionals

www.cdr-news.com/jobs

The term “alternative dis-pute resolution” is part ofthe parlance of law. Butwhat exactly is alternative

about it?Perhaps we should take a leaf from

the book of John Sturrock QC, a barris-ter who recently told delegates at aScottish conference that the termshould be "consigned to the waste binof terminology".

One can see his point. Here arethree reasons why we might want toconsider the term to be past its sell-bydate.

Reason one: it’s gone mainstreamAccording to Fulbright & Jaworski’slast litigation survey, more than halfof UK companies prefer to arbitratethan litigate – and that leaves outthe growing core of mediation, adju-dication and other out-of-courtmethods.

Even if arbitration is on the wane, asFulbright concludes, that’s a heftychunk of the market that hardly justi-fies “alternative”.

What’s more, arbitration haschanged. While once it was fast andcheap, the modern process has becomeever more similar to litigation, makingfurther nonsense of its “alternative”status.

Reason two: nobody can agreewhat it meansBecause of the jumble of concepts em-bodied by the term, it never seems tomean the same thing twice. For some(particularly in the US), “alternative dis-pute resolution” is synonymous withmediation; for others, arbitration.

That’s just those in the know. Manyclients in Europe and beyond are stillgetting to grips with the concepts, letalone the labels.

Legal practice hinges on definitions.If the term “alternative dispute resolu-tion” is to be retained, it should at leasthave a global definition, particularly asthe practice of commercial arbitration isinherently international.

The idea of“alternativedispute resolution”is hopelesslyparochial. In manycountries, litigationis the foreignconcept

Reason three: it’s insularThe idea of “alternative dispute resolu-tion” is hopelessly parochial. In manycountries, litigation is the foreign con-cept.

Japanese parties must find it jarringto hear chotei (conciliation), wakai (com-promise) and chusai (settlement-focusedarbitration) referred to as alternatives tolitigation – not that they would ever beso confrontational as to tell you so.

In the Middle East there is a similarattitude. With legal systems builtaround amicable settlement, litigation isnot a default option but a last resort.

It’s tough selling a concept. Just askthe Spanish Arbitration Club and thePortuguese Arbitration Association: astheir members make clear in our featureon page 38, some litigators are dyed inthe wool.

But it’s even tougher when the con-cept itself is unclear.

So where do we go from here? Stur-rock suggests replacing “alternative”with “complementary”, “supplemental”or “early”.

Nevertheless, it’s hard to avoid thethought that if lawyers and lawmakersare serious about promoting arbitrationand mediation, they should stop charac-terising them as something different al-together. With that in mind, how aboutjust… “dispute resolution”? CDR

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No alternative?

People & Firms

UK and Ireland

Herbert Smith’s management shake-up saw insurance litigator MartinBakes take up the new role of generalcounsel. Michael Scott, a competition partner,has succeeded David Gold as thefirm’s senior partner.

The firm’s annual promotionsround focused heavily on dispute reso-lution, with a number of the new part-ners based in London. They includeKaren Anderson and Nik Kiri (finan-cial-services litigation); Susannah Cog-man (white-collar crime); JohnWhiteoak (insolvency); Chris Parker(arbitration); Kim Dietzel (competi-tion); and Jeremy Garson (commerciallitigation).

There was a boost in London forWhite & Case’s insolvency team,which poached bankruptcy partnerChristian Pilkington from its US rivalSkadden Arps Slate Meagher &Flom.

Rachel Couter, a banking disputespartner, joined SJ Berwin from GibsonDunn & Crutcher.

Meanwhile Howrey took a blowwith the departure of the firm’s UK arbi-tration head Melanie WIllems to Chad-bourne & Parke, soon followed by asecond loss in Belgium (see Benelux,below).

The moves are a setback for the USdisputes boutique, which has enjoyedrecent successes including the hire ofcompetition litigator Shaun Goodmanfrom Cleary Gottlieb Steen & Hamil-ton, and a six-lawyer raid on CliffordChance’s Paris office.

Watson Farley & Williams sought totake advantage of London’s shippingdisputes market, as Robert Platt joinedthe firm from Curtis Davis Garrard, anenergy and transport boutique. Themove reflects the thriving market forshipping litigation: Ince & Co, a firmspecialising in that area, promoted fourdispute resolution lawyers to its part-nership.

Other promotions in London in-clude Mark Clarke of Ashurst, Tom

Snelling of Freshfields Bruckhaus De-ringer and Kelwin Nicholls of CliffordChance.

Austria and CEE

It’s been a quiet market for lateral hiresin Eastern Europe’s dispute resolutionmarket. Wolf Theiss did, however,make a double promotion – litigatorsHolger Bielesz and Clemens Trautten-berg joined the firm’s partnership inVienna. The appointments cameshortly after the firm hired a seniorcompetition litigator in Brussels (seeBenelux, below).

Linklaters rewarded its competitionhead for Poland and CEE, MalgorzataSzwaj, with a promotion to partner.

Benelux

Having just lost its London arbitrationhead (see UK and Ireland, above),Howrey suffered a second walkout asBrussels-based competition litigatorPeter Camesasca left for Covington &Burling. Howrey had only recentlylaunched a competition practice inFrance, hiring six lawyers from Clif-ford Chance.

The Austrian firm Wolf Theisshired cartels specialist Jochen Anweilerfrom O’Melveny & Myers in Brussels.

In Luxembourg Allen & Overy pro-moted Katia Manhaeve, an IP technol-ogy specialist with experience indispute resolution, to the firm’s part-nership.

Paul Kuipers, an insolvency lawyerwho has advised PricewaterhouseC-oopers on the collapse of the Europeanarm of Lehman Brothers, has beenelected partner in the Amsterdam of-fice of Linklaters. Also in Amsterdam,Clifford Chance made litigator AlvinKhodabaks a partner.

France

The recent trend in Paris for boutique-bound defections continued this quar-

ter as Sophie Havard Duclos, an IP andtechnology specialist, left FreshfieldsBruckhaus Deringer to join Laude Es-quier Champey as the litigation firm’sfourth partner.

Baker & McKenzie reversed thetrend with a lateral hire from a boutique– namely Courtois Lebel. Eric Bory-sewicz, a specialist in industrial litiga-tion and arbitration, made the movealong with a team of three lawyers.

Meanwhile Ashurst promotedChristophe Lemaire, an antitrustlawyer with experience in the Frenchcompetition authority, to the firm’sParis partnership.

US-qualified arbitrator and publiclaw specialist Noah Rubins became anew partner in Freshfields BruckhausDeringer’s Paris office.

Germany

Allen & Overy stepped up the rhetoricas it announced a “swift repositioning”in the German market. The firm raidedLovells (now Hogan Lovells) for part-ner Daniel Busse, who will bebased in Frankfurt and lead the firm’sGerman disputes practice. The move isone of several concurrent hires in Ger-many by Allen & Overy , whichalso took on a corporate partnerand a finance partner in Düsseldorfand Frankfurt respectively. Thatshould more than make up for the lossof Marcus Grosch, the Mannheim-based patent litigator who left Allen &Overy for Quinn Emmanuel earlierthis year.

Lovells made some promotions inadvance of its merger with Hogan &Hartson. Three of the new dispute reso-lution partners are in Germany – theyare Kim Mehrbrey (Düsseldorf), and Se-bastian Lach and Christian Herweg(Munich).

Freshfields Bruckhaus Deringeralso sought to strengthen its Germanoffering with the promotion of Frank-furt arbitrator Boris Kasolowsky andDüsseldorf competition lawyer UtaItzen to the partnership.

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Michael Kremer of Clifford Chancewas promoted to the firm’s partner-ship in Düsseldorf.

Russia and CIS

Russia and CIS

Moscow’s litigation market welcomeda new face in April – that of NicholasMunday, formerly the UK dispute res-olution head of Clifford Chance. Thefirm relocated Munday to cope with asurge in local demand. He has priorexperience of handling Russian dis-putes, having already been based inMoscow for three months.

But the celebration was short-lived.A month later Clifford Chance’s headof dispute resolution in Russia, IvanMarisin, defected to Dechert’s year-oldMoscow office – which must be a relieffor Dechert following the firm’sabortive attempt to hire Chadbourne& Parke’s Russian senior partnerMikhail Rozenberg last year.

Spain and Portugal

The annual promotions round at Cua-trecasas Gonçalves Pereira sawseven litigation lawyers promotedto the partnership – a heftychunk of the Spanish firm’s 18appointments. Cuatrecasas alsotook the opportunity to makechanges among its existing partners:litigators Ferrán Cerdà, Pedro Claros,

Alberto Fortún and Manuel Monzówere appointed as equity partners.

In Portugal Morais Leitão GalvãoTeles Soares da Silva & Associa-dos announced its annual promo-tions, which included disputeslawyer Miguel de Almada. Thefirm also hired litigator Carla Os-ório de Castro in Oporto.

Switzerland

A rare mass defection in Geneva ledto a lift for Akin Gump StraussHauer & Feld. The firm’s hire ofseven lawyers from a merger-readyHogan & Hartson (now HoganLovells), including veteran arbitratorCharles Adams as well as arbitrationpartner Michael Stepek, gives thefirm’s nascent Geneva office a strongstart in ADR.

Middle East and Asia-Pacific

Seems like everyone’s heading for Sin-gapore these days. Among the latestarrivals is David Llewelyn, White &Case’s IP and technology specialist.Llewelyn will join the firm’s newSingapore arbitration practice, whichwas established with the relocationof energy disputes lawyer Aloke Rayearlier in the year.

Norton Rose made a more modestadvance by promoting arbitrator KCLye to the partnership.

There were also promotions in Her-bert Smith’s Asia offices. The firmelected May Tai as an arbitration part-ner in Shanghai and Gavin Margetsonas a general dispute resolution partnerin Tokyo.

Fai Hung Cheung, a specialist incomplex financial disputes at Allen &Overy, became a partner in the firm’sHong Kong office.

Clifford Chance promoted disputeresolution lawyers James Abbott andCameron Hassall to the partnership,in Dubai and Hong Kong respec-tively. CDR

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Please send details of partnermoves to Ben Lewis [email protected]

Expanding?

At the Law Society’s disputeresolution conference a CliffordChance partner shared his insightson what Jackson’s reforms mean forcommercial cases. Ben Rigby wasthere.

Jackson’sreactionsDebate rages on

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Litigation Funding

Litigation Funding

Lord Justice Jackson’s magis-terial review on costs opensdoors for private individualsto seek justice they are cur-

rently denied.But they are not the only ones it will

affect. Though less trumpeted, the re-port also has implications for high-value commercial litigation.

These implications are big enoughthat the Law Society’s dispute resolu-tion section costs conference wasawash with lawyers from Slaughterand May, Linklaters and other high-profile commercial law firms.

Among them was Clifford Chancelitigation partner Simon Davis, whospoke in a personal capacity at the con-ference.

He took a proportionate approachto his subject, acknowledging thatcommercial litigation is a fragment ofthe dispute resolution market.

But to Davis, Jackson LJ’s proposalsmust genuinely enhance commercialjustice just as it aims to do for individ-ual justice.

He cited a comment made by LordNeuberger, the Master of the Rolls, inJanuary. “The time for discussion anddebate is over,” said Neuberger. “It isnow time for action.”

Action, he argued, that should beswift but not hurried: in many placesJackson’s review prescribes a frame-work, leaving the detail to be workedout. As every lawyer knows, small de-tails can later turn out to be critical.

Success fees and ATE insuranceJackson’s report proposed that success-ful claimants should be denied the

ability to recover success fees and ATEinsurance premiums from unsuccess-ful defendants.

However, the higher fees and there-fore risk associated with commercialcases makes conditional fee arrange-ments (CFAs) less attractive to com-mercial lawyers. One report by insurerFirst Assist puts the uptake of CFAs atjust 7% of commercial cases.

When they do use CFAs, commer-cial litigators also tend to structurethem differently, he said. Often thisinvolves being paid about 75% ofnormal fees with an uplift to 125% ifsuccessful.

But financial pressures resultingfrom the credit crunch mean even com-mercial parties with ample resourcesare beginning to use CFAs to reducetheir legal bills.

One concern about CFAs shared bycommercial claimants and defendantsis that they give the assisted party theability to pressure the opposition -much like the legal aid of old.

Davis called this “no-risk litiga-tion”. Parties that are insured againstloss could avoid paying onerous legalfees while also avoiding any seriousrisk of having to pay costs if they lose

the case.This concept of risk-free litigation is

problematic and outside the spirit ofaccess to justice, said Davis.

He pointed out that the Jackson re-forms are likely to be good for compa-nies, more often sued by CFA-backedclaimants than using such arrange-ments themselves.

Companies will not have to takeinto account the risk of paying up todouble normal costs if the case provessuccessful, thus the risk of fighting liti-gation is reduced.

Davis also supported making suc-cess fees payable by the assisted party.

He acknowledged that whether ornot this was a good thing depended onwhether one took a claimant or defen-dant standpoint.

Looking at damages and cost shift-ing, given that most commercial litiga-tion is about money, having less coststo factor in was a benefit, he said.

Commercial defendants will there-fore benefit from not being obliged topay the opponent’s success fees if theylose a case, while avoiding increaseddamages.

He suggested the cap on successfees was unlikely to be of concern tocommercial defendants, and may actu-ally prove a benefit if it meansclaimant lawyers ponder cases morecarefully.

Inducing settlement: Part 36 offersDavis suggested that Lord Justice Jack-son’s suggestions on offers to settlemight open up defendants to black-mail.

He drew similarities with using the

The concept ofrisk-free litigationis problematic andoutside the spiritof access to justice

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obligation to pay success fees as aweapon in litigation.

Davis outlined the existing situationregarding Part 36 offers - when a de-fendant makes a formal offer to settle acase - and their cost consequences.

If this offer is not accepted and theunsuccessful defendant is ordered topay less than the offer made, theclaimant pays the defendant’s costsfrom the time of the offer.

Lord Justice Jackson proposes that

this leaves claimants “insufficiently re-warded” for making Part 36 offers anddefendants “insufficiently penalised”for rejecting them.

But Davis believes Jackson misses

the point of settlement. “The languageof rewards and penalties is inappropri-ate,” he said.

In his eyes it would be acceptablefor a claimant to benefit from a bonusonly if the defendant had required anactual adjudication on the dispute.This, he said, “is what courts are for”.

Contingency fees Davis also commented on contin-gency fees. He noted the recommen-dation that the losing party shouldnot be obliged to pay the contingencyfee.

But he did raise an eyebrow at thepossible need for independent legaladvice when entering into such agree-ments.

This was despite Jackson’s claimthat contingency fees will not lead tolawyers taking advantage of theirclients.

Commercial clients are sophisti-cated ones. The review was ambigu-ous about whether this will onlyapply to private litigants or to compa-nies. CDR

“The language ofrewards and penalties [used byJackson] isinappropriate”

Simon Davis

Litigation Funding

ExpertpartnersCDR is partnering withleading law firms andservice providers to bring you incisive analysis ofdispute resolution topics.

www.cdr-news.com/experts

Despite another round ofmedia rumours triggeredby the Jackson Review,Europe still seems to offer

investors little compared with the USfor third-party litigation funding(TPF).

But Europe, and particularly theUK, is gaining credibility as a TPFmarket. Juridica Capital Managementannounced in January it is getting seri-ous about the UK and earmarked $50million for local projects.

Juridica, which has more than $200million under management, was thefirst litigation fund to list in London(on the LSE’s Aim board) in December2007 and has funded three UK cases.

Juridica chairman and chief execu-tive Richard Fields says that “severalopportunities a week” are now comingJuridica’s way in the UK.

He says multinational law firm clients

have made the company aware of UKpossibilities: “We need to have morepresence in London and a more robustbusiness there. Although the opportuni-ties in the US seem to be larger, we arethinking about how to adjust ourprocesses to fit the UK market.”

Support from JacksonThat is as concrete as it get at thisstage, but funded cases will continueto fall into Juridica’s strictly commer-cial litigation framework, which in-cludes international arbitration.

Competition law damages cases areof particular interest, Fields adds,stressing that Juridica does not fundretail areas like class actions arisingfrom personal injury (which are ex-cluded from consideration by the So-licitors’ Code of Conduct), productliability or mass tort claims.

In the US, Juridica targets caseswith potential recovery between $15million and $25 million. This thresholdwould have to be substantially lowerin the UK, where cases generally in-volve smaller sums, says Fields. “Rightnow we are interested in who the lawyersand barristers are we can deploy, asopposed to the size of the case.”

Investors may be piling money into London-listedlitigation funds, but their eyes have been firmly fixedon lucrative American disputes. Now third-partyfunders are seeing increasing potential in Europe,writes Greg Bousfield.

NewfrontierThird-party funders eyeup Europe

“Although theopportunities inthe US seem to belarger, we arethinking abouthow to adjust ourprocesses to fitthe UK market”

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Lord Justice Jackson’s review ofcivil litigation costs was “most en-couraging” for the TPF industry, hesays, as are the future possibilities ofalternative business plans under theLegal Services Act.

Jackson concluded that the cur-rent low volume of TPF does not jus-tify regulation, which would likelyfocus on capital adequacy require-ments.

Although abuse-of-process rules(champerty and maintenance) wouldnot be scrapped, nor would they auto-matically exclude TPF under the pro-posals laid out in the report.

Jackson’s view that TPF is most

readily obtained for high-value caseswith good prospects of success alsocorresponds with the commercialfocus of funders like Juridica.

Less appealing for them was hisrecommendation that third-party fun-ders should potentially be liable for

the full amount of adverse costs, sub-ject to the discretion of the judge,which would likely add the major costof after-the-event (ATE) insurance towhatever part of the claim that wasfunded.

“We have done two deals withoutinsurance but most cases would in-volve some element of ATE,” Fieldssays.

Market potential in EuropeBurford Capital has a similar busi-ness model to Juridica. Like its com-petitor, the company successfullyfloated on Aim last October, attract-ing £35 million from UK institutional

investors.One difference is that Burford has

no immediate plans to fund domesticUK cases. For now, the US is simply afar more dynamic and lucrative mar-ket, says chairman Selvyn Seidel.

The UK and Europe are very fo-

cused on trying to resolve things out-side the courts whereas the US is avery court-orientated country with farmore litigation than any country in theworld, with cases that are much vasterand complex than anywhere else withmuch larger damages,” he says.

“Billions of dollars are needed tofund US litigation; there is a hugegap between need and available capi-tal.”

Contrary to the clichés, acceptanceof TPF is weak among the Americanpublic and lacks legislative support.Third-party funding of US class ac-tions, which are already notorious, islikely to be regarded as abusive.

“TPF really started in Australia in2003 then moved to the UK and thento the US at the end of 2007,” Seidelsays. “Public acceptance of litigationfunding is good in the UK. It’s amaz-ing in the US how little law firmsknow about TPF; it’s really just arriv-ing there.”

This relative maturity keeps Europeattractive for Burford Capital. “Keepin mind that the UK is a very impor-tant market where we will be operat-ing in the future,” Seidel says.

He seems certain that future is onits way. The only question is when. CDR

“Right now we areinterested in who thelawyers and barristers arewe can deploy [in the UK],as opposed to the size ofthe case”Richard Fields,Juridica

Burford has no immediate plans to fundUK cases - the US is more dynamic andlucrative. But change is on its way

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When the Bribery Bill be-comes law as expectedin 2010, it will be thetoughest anti-bribery

law in the world. Unlike the US For-eign Corrupt Practices Act 1977(FCPA), it will apply both to publicand private sector corruption, andthere will be no exception for facilita-tion payments.

In both these respects, it will be nodifferent from existing UK laws. Themain change (and it is a fundamentalone) will be the introduction of a newcorporate offence.

The Bill is set to impose criminal lia-bility on organisations in the event thatemployees, subsidiaries, agents or con-sultants pay bribes in relation to theorganisation’s business anywhere inthe world.

There will only be one defence - if theorganisation can prove it has adequateanti-corruption systems and controls inplace. More on that point below.

Long-arm jurisdictionA remarkable aspect of the new corpo-rate offence, however, is its long-armjurisdiction. In a move the US wouldhave been proud of, the offence appliesnot only to companies incorporated inthe UK, but to any organisations whichcarry on any part of their business inthe UK.

To take a couple of examples - if aUS bank or a Chinese industrial con-glomerate operates a small branch inLondon, the bank or conglomerate willbe criminally liable in the UK if an em-ployee, agent or subsidiary were topay a bribe, whether in the public orprivate sector, anywhere in the world.

There is no requirement that thebribe be approved by or paid throughthe UK branch - the mere fact of hav-ing a UK branch will give the UK pros-ecutors and courts jurisdiction. And, asindicated above, the only statutory de-fence will be to prove the existence ofadequate systems and controls.

Systems and controlsIt is therefore clear that the key for anyorganisation which has a UK presencewill be to ensure it has adequate sys-tems and controls in place. This begsthe question, what systems and con-trols will be considered as adequate?

Following a report by a joint parlia-mentary committee on the Bill, theGovernment appears to have acceptedthat guidance on this issue must bepublished before the Bill comes intoforce, in order to allow businesses timeto ensure they have adequate systemsand controls in place.

It is probably too much to hope thatthe guidance will provide a completecode - it is more likely that principleswill be published.

The systems that may reasonably beexpected of a multinational will clearlydiffer from those that may reasonablybe expected of a small engineeringcompany which trades overseas ononly a few occasions each year.

Stand aside,FCPA?The UK’s Bribery Bill received royal assentin April. Writing as the Bill reached itssecond reading, Nick Benwell of Simmons &Simmons explains its implications forcompanies in the UK - and abroad.

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The guidance is unlikely to be sur-prising - there has developed a broadconsensus on what constitutes interna-tional best practice in this area.

Having said that, it is importantto ensure that any organisation witha UK presence will be compliantwith UK laws - not just FCPA com-pliant, given the broader scope ofUK laws.

Other developmentsThere are several other aspects of theBill that it is important to note:

• it contains a specific offence of brib-ing a foreign public official. It will be adefence to prove that the payment waspermitted by local written laws - butnot (as had been hoped by many) if thepayment was based on a reasonablebelief that it was permitted under locallaws;• unlike under the FCPA, there will beno marketing and promotional ex-

penses defence; and• as mentioned above, there will be noexception for facilitation payments.This is a difficult area. The SeriousFraud Office has made it clear thatprosecutions are highly unlikely ifcompanies are trying to “do the rightthing” by reducing facilitation pay-ments. The making of such paymentsis, however, a criminal offence underthe Bribery Bill (as indeed, it is underexisting laws).

This leaves organisations with thechoice of insisting on zero tolerance(and facing the accusation within thebusiness that such an approach is

plainly unrealistic) or permitting crim-inal acts, on the basis they are unlikelyto be prosecuted.

Cross-party supportWhile there are aspects of the Bill thatmay change as it proceeds through theParliamentary process, there seems tobe cross-party support for the Bill. Anddespite electoral uncertainty, the Billlooks set to come into force this year -probably in the autumn.

Through the Bribery Bill, the Gov-ernment is trying hard to restore theUK’s reputation as a country which istough on corruption. The Bill will bethe toughest anti-corruption law in theworld, with the ability to catch organi-sations which have any presence in theUK.

If the UK Serious Fraud Office issufficiently funded to rise to the chal-lenge, the UK’s Bribery Act may soonbe discussed around the world in thesame tones as the FCPA. CDR

The Act may soonbe discussed in thesame tones as theFCPA

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Greece and several otherEurozone countries areunlikely to default ontheir debts any time soon.

But if they did, could private holdersof sovereign debt litigate to get theirmoney back?

In theory they could, says IoannisAlexopoulos, head of litigation at DLAPiper in London. But given the circum-stances they would more than likelyfind themselves unable to stand asidefrom a debt restructuring programme.

In any case the days of vulturefunds buying up discounted sovereigndebt from creditor banks, typically ofheavily indebted poor countries(HIPCs), and often successfully relyingon litigation or the threat of litigationto get back the original debt plus largeinterest payments are in the past, hesays.

“The political climate has nowchanged. And courts are also rejectingonerous default provisions imposedby creditors in the secondary debtmarket.”

No barriers for vulture fundsTraded sovereign debt came into exis-tence in 1989, as part of a failed at-tempt by US treasury secretaryNicholas Brady to address nationaldebt in South America. So-calledBrady bonds allowed syndicated bankdebt to be exchanged for traded sover-eign bonds.

But during the last decade, in thecontext of various African debt reliefinitiatives and NGO campaigns, theG8, the World Bank and IMF, and theParis Club have expressed concernover vulture fund practices.

In 2007 the Paris Club resolved toavoid the sale of its claims on HIPCs toother creditors who do not intend toprovide debt relief under a Paris ClubHIPC initiative.

But this concern hasn’t yet yieldedany major international agreement ondebt restructuring which might hinderbanks from selling distressed debt tovulture funds.

Nor does anything stop funds tak-ing holding out of restructuring

arrangements, prefacing litigation.The IMF has been criticised for re-

peatedly failing to get agreement on asovereign debt restructuring mecha-nism which would tie all creditors to acommon restructuring programme.

“I never believed that they wouldcome up with a single mechanism be-cause that would involve a buy-in of allthe major economies and that is un-likely for political reasons, especially inthe case of the US,” says Alexopolous.

What happens whenthe credit rot spreadsfrom companies tocountries? GregBousfield assesses thechance of vulture fundlitigation.

Vultureclash

Nothing stopsfunds takingholding out ofrestructuringarrangements,prefacinglitigation

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Interest or penalties?But courts can deem onerous interestrates as penalties and thereforeunenforceable.

The pivotal UK case was an attemptin 2007 by fund Donegal Investmentsto enforce a government bond debtclaim in the English courts againstZambia for $55 million.

Donegal had purchased the dis-counted Zambian debt from Roma-nia, a creditor of Zambia. The UK’sHigh Court objected to how Donegalhad calculated interest and costs onthe debt, re-calculating it at $15.5 mil-lion.

“Although the court upheld thenew agreement they stuck out the newdefault provisions which would havebeen very generous to the new debtowners by finding they had the natureof penalties,” says Alexopoulos. “Ithink it’s safe to say English courts willcontinue to strike out onerous defaultprovisions.”

The original vulture fund, Elliot As-sociates, has coincidentally lost outearlier this year in the Court of Appeal

in an attempt to freeze $284 million of$1 billion Argentinean distressed debtit holds.

The UK’s Court of Appeal ruled ona technical issue: the bond contract hadnot submitted Argentina to the juris-diction of the English courts as re-quired under the State Immunity Act.

Yet despite a tough environment fordistressed sovereign debt litigation, thefundamentals remain in place.

The doctrine of pari passu, which

gives funds first bite of the (litigation) cherry over debt restructuring arrange-ments, has not been judicially ques-tioned.

And the trade in distressed sovereigndebt continues. “Not much of this willstop vulture funds buying and banksselling, if the price is right,” Alex-opolous says.

If these vultures find their way intothe courts, they may yet get their tasteof meat. CDR

“It’s safe to sayEnglish courts willcontinue to strikeout onerous defaultprovisions”IoannisAlexopoulos,DLA Piper


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Asia has become the scene of anarbitration gold rush.

The shift in global economics andmounting expenses are increasinglydriving investors away from tradi-tional arbitration centres such as NewYork, London, Paris and Geneva.

Now Singapore, Hong Kong, Indiaand China are gaining reputation asplaces where an arbitration case can besuccessfully settled.

Between 2005 and 2008, the numberof arbitrations seated at the HongKong International Arbitration Centremore than doubled from 281 to 602.

The growth has been mirrored on asmaller scale in Singapore, whose mainarbitral institution, Siac, saw a sharpincrease from 45 to 71 cases in the

same period.Meanwhile Cietac (China Interna-

tional Economic and Trade Commis-sion) managed 1,230 cases compared to979 in 2005.

Law firms relocate resourcesInternational law firms are relocatingkey people and resources to respond tothe growing demand for commercialarbitration services in the region.

White & Case has recently launchedan international arbitration practice inSingapore with partner Aloke Ray,who has left the firm’s London officeto head a four-lawyer team.

Other international firms have im-plemented similar strategies.

Herbert Smith has moved JustinD’Agostino, an arbitration partner, to

Hong Kong. May Tai, a senior associ-ate of the firm’s arbitration team, hasleft London to Shanghai and PatrickZheng, an arbitrator with experience atCietac, has joined Herbert Smith’s Bei-jing office as a disputes consultant.

Similarly, Allen & Overy has relo-cated dispute resolution lawyers toSingapore and Hong Kong.

Following trade flows“The growing interest of internationalfirms for East Asia is similar to whathappened for Japan in the 1980s,” saysShourav Lahiri, a partner at PinsentMasons. The firm has been in HongKong for 25 years and has had a pres-ence in Singapore for more than adecade.

“The UK market is shrinking and

Asia’s ADR centrescompared

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the trade flows are likely to be directedtowards and between China and Indiaand Southeast Asia,” says Lahiri. “Ar-bitration lawyers want to follow thattrade because it will naturally lead toan increase in the ADR and disputesworkload.”

He points to arbitration costs as acatalyst for the shift. These range fromthe fees charged by the institution, thefee for the arbitrators and the cost ofthe lawyers.

“Most major arbitral institutionscharge similar fees, but a cost advan-tage can be achieved for the legal ad-vice and for maintaining the teamnecessary to support the arbitration.The associated cost is likely to be lowerin Singapore and Hong Kong [than inestablished non-Asian forums].”

Dominant seatsIt is these two jurisdictions - HongKong and Singapore - that haveemerged as the strongest contenders inthe region.

“Hong Kong is perceived by mostclients as a neutral venue with a stableand reliable legal system,” says Her-bert Smith Hong Kong dispute resolu-tion partner Justin D’Agostino.

He adds: “It is a happy middleground for disputes between a Chineseparty and a non-Chinese party. HongKong is acceptable to Chinese partiesbecause it is ultimately part of Chinaand has the added convenience ofbeing close to home and therefore lesscostly.”

Singapore has a similar promise ofimpartiality, but for disputes with an-

other origin.“It is especially prominent for India-

related disputes. Indian and Indonesian-related matters have a natural gravitytowards Singapore because Hong Kongis not a viable choice for internationalinvestors to seat India-related arbitra-tions due to enforcement issues,” saysNicholas Peacock, a partner at HerbertSmith’s Singapore practice.

Frances van Eupen, an Allen &Overy senior associate who movedtwo years ago from London to HongKong, says the competition betweenHong Kong and Singapore is palpable.

“Seat decisions should be basedmore on legal factors rather thanpurely geography,” says Van Eupen.“Two criteria for a good seat are thatthe local laws and courts should be

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The ADR community is looking east. Widespreadrelocations of lawyers and a boom in cases havemade Hong Kong, Singapore and their neighboursa battleground for arbitration supremacy. ChiaraAlbanese compares their offerings.

pro-arbitration and the state shouldhave ratified the New York Conven-tion.”

Both are true for Singapore andHong Kong.

Other regional contendersBut the two jurisdictions’ appeal for par-ties in mainland China and India isslowly eroding, according to Lahiri - agrowing number of disputes are simplystaying at home.

“India and China are still not cho-sen by foreign parties as a seat for anarbitration where the parties are nototherwise connected with the country,but if you have a project there and youare required to arbitrate locally, this isbecoming less and less of a problem.”

Last November, London’s Char-tered Institute of Arbitrators (CIArb)set up a chapter in New Delhi, fol-lowing the launch of a dedicated arbi-tration centre by the Delhi HighCourt in November.

For the Chinese arbitration body,Cietac, the future is online. The organi-sation is investing in online arbitration,

and has published a set of rules tomake it cheaper and more effective.

Korea and Japan see a relativelysmall number of international arbitra-tions, but the will is there: Seoulhosted a major regional conference lastyear and is keen to promote itself as aninternational venue.

The Korean Commercial ArbitrationBoard has been actively promoting itsservices. It is a possible area of growthin the future.

International bodies reactThey had better move quickly.

Like the global law firms, internationalarbitration institutions have respondedwith an aggressive push into Asia.

The ICC International Court of Arbi-tration has invested in the region and itnow has an office in Hong Kong and onein Singapore, launched last January.

During the inauguration ceremonyJason Fry, the ICC court secretary gen-eral, stressed the importance of theAsia-Pacific region, pointing to a 13%increase in ICC arbitration numbersduring 2009.

Asian governments are also seeingthe economic benefits of arbitrationand are trying to promote their coun-tries’ credentials as attractive seatsfor arbitration.

Most notable among these is Sin-gapore, whose government is nostranger to economic opportunism.The city state has recently introduceda 50% tax break for law firms’ incomefrom arbitration.

Meanwhile Hong Kong has re-formed its court rules and engagedin a programme to promote media-tion.

In January 2010 the jurisdiction in-troduced Practice Direction 31, follow-ing reforms to the civil justice system,implemented in April last year.

Parties are now obliged to considerwhether mediation is an appropriateway to settle their dispute.

Those who fail to mediate withoutgood reason, or fail to give proper con-sideration to mediation early on in theproceedings and on an ongoing basis,risk having adverse costs orders madeagainst them. CDR

“Hong Kong isacceptable toChinese partiesbecause it isultimately part ofChina and is closeto home”Justin D’Agostino, Herbert Smith

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Singapore International ArbitrationCentre: India’s go-to

Characteristics - Siac was established in1991 to respond to the growing demandfor dispute resolution by the internationalcommunity. It is a not-for-profit organisa-tion overseen by a board of directors.Trump card - It has recently moved toMaxwell Chambers, a specially developedcomplex.

It is considered a neutral and arbi-tration-friendly location and localcourts actively support ADR. Singa-pore’s International Arbitration Act isbased on the Uncitral Model Law. It isespecially prominent for India-relateddisputes.

Hong Kong International ArbitrationCentre: independent, common-law

Characteristics - Established in 1985 by a

group of business people to focus onAsian dispute resolution. It is independ-ent and financially self-sufficient.Trump card - Being simultaneously acommon-law jurisdiction and since 1997 apart of the People’s Republic of China,whose law is based on German civil lawHong Kong is perceived as a group com-promise for different parties.

The Uncitral Model Law is applied asthe statutory regime for internationalcommercial arbitration. It is especiallyprominent for China-related disputes.

Delhi High Court Arbitration Centre:strong start

Characteristics - Launched on 25November 2009 to provide institutionalarbitration under the framework and pro-cedures laid down by a committee set upby the chief justice of the court.Trump card - It will operate under the su-

pervision of the Delhi High Court. In thefirst weeks of operation it has already re-ceived a number of cases. As India at-tracts international investment thecaseload is likely to increase.

Cietac: vast market potential

Characteristics - Formerly known as theForeign Trade Arbitration Commission,Cietac was set up in 1956 under the ChinaCouncil for the Promotion of InternationalTrade. It is headquartered in Beijing andhas three sub-commissions in Shanghai,Shenzhen, and Tianjin, respectively.Trump card - The level of internationalinvestment in mainland China is in-creasing. Last May the organisationpublished a set of rules for online arbi-tration and local courts are becomingmore supportive of ADR. The potentialmarket is vast and the scope for growthis extremely high.

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M E D I A T I O N • A R B I T R A T I O N • A D J U D I C A T I O N • I N T E R N A T I O N A L A R B I T R A T I O N

E-disclosure is a significant el-ement of litigation costs.Lord Justice Jackson’s finalReport on Litigation Costs

acknowledges this with proposals fora clearer, more efficient and cost-ef-fective system of managing electroni-cally-stored information (ESI)supported by training for solicitors,barristers and judges.

The Jackson report endorses thedraft practice direction and ESI ques-tionnaire prepared by a working party,chaired by Stephen Whitaker, the Sen-ior Master of the Supreme Court, andsubmitted to the Civil Procedure RuleCommittee which in February ap-pointed a sub-committee to considerthem further.

Notwithstanding the fact that theyhave not yet received approval, theproposed changes put e-disclosure atthe top of the agenda for litigators andjudges.

Earlier this year, CDR attendedWomen in eDiscovery, a meeting spon-sored by e-disclosure support providerTrilantic at the offices of Clyde & Co.The purpose of the meeting was to out-line what the proposed new systemwould mean in practice. The speakerswere Judge Simon Brown QC, who inEarles v Barclays Bank imposed costssanctions on the successful defendantfor failing to conduct disclosure satis-

factorily; Alison Potter, a commercialbarrister at 4 Pump Court, who re-searched the chapter on e-disclosure inthe preliminary Jackson report; andChris Dale, an e-disclosure expert anda member of Whitaker’s draftinggroup.

The timing of events over the pastyear has produced a cohesive packageof proposals. The drafting group wasalready working on the draft practicedirection and questionnaire when Jack-son LJ started his review.

Simon Brown has been involved inthe pilot scheme at Birmingham CivilJustice Centre. The scheme sought tocontrol costs before they were spent byapplying costs management at the ini-tial case management conference(CMC) and encouraging cooperationbetween the parties in relation to han-dling ESI.

Disclosure: a judge’s viewIn a speech in 2008, Brown hit at thecrux of the issue: “The judge is the enduser of all this disclosure activity.What I want to know is this: what isthe case about? Which of the pleadedissues really matter in getting to theheart of the dispute? Can we split thecase up and limit disclosure to the sub-jects which matter or which mattermost?”

Brown believes the proposed

changes will save time and money.When he presides over a case, he looksthrough all the documentation andputs a yellow sticker on the small per-centage of files that he considers themost relevant and pertinent. “Underthe new system, I am hoping to reviewonly the files with a yellow sticker,” heexplained.

The idea is to reduce the volume ofpaper documentation and the relatedwork it creates by applying relevantprocesses and technology at an earlystage with a view to reducing costsand increasing access to justice.

Because courts and judges have beenslow to move from paper to ESI andjudges are not necessarily IT-savvy, heacknowledged that judges, barristersand solicitors would benefit signifi-cantly from the proposed training.

Three themesAlison Potter, who worked on the e-disclosure chapter of the report, high-lighted the sections that recognise theinevitability of e-disclosure – due tothe fact that most documents arestored electronically – and endorse thedraft practice direction and ESI ques-tionnaire.

Taken together, these focus on threekey themes:

1. early and informed costs assess-ment;

The Jackson Review made toughproposals on e-disclosure, to therelief of many a lawyer. JoannaGoodman finds out what theymean in practice.

Jackson one-disclosure

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2. a less combative approach; and3. more rigorous case management.The proposed new rules would re-

quire solicitors to be familiar with therelevant terminology and technologyto discuss the options for managingthe e-disclosure process.

Jackson refers to the value of ademonstration by three specialist

providers of how their software “couldsearch, sample, categorise and organ-ise the data to whittle down as far aspossible the potentially relevant docu-ments”.

For large commercial claims andother actions where costs are poten-tially disproportionate, Jackson recom-mends a pick-and-mix approach tonarrow the scope of e-disclosure at theoutset of a case.

There would be no default option –the courts would have the ability to de-cide between six possible options andapply the best approach to e-disclosurefor each particular case. Althoughjudges already have the discretion todo this, the draft practice directionclearly sets the parameters of e-disclo-sure.

Potter then moved on to other pro-posals including reducing and simpli-fying protocols, clarifying thresholds

and rebalancing the costs burden be-tween claimants and defendants.

Strengthening existing rulesFinally, Chris Dale focused on the e-disclosure process itself, emphasisingthat costs management was at theheart of the draft practice direction andquestionnaire.

He summarised the existing rulesrelating to disclosure, which would bestrengthened by the draft practice di-rection. The rules proposes additionalobligations relating to communicationbetween the parties, who would be re-quired to discuss sources before thefirst CMC and co-operate to decide theformat for exchange.

The draft practice direction is acomplete code for e-disclosure, whilethe questionnaire provides a formalcontext for the investigations into aparty’s sources, including an early ob-ligation to list sources before case man-agement, rather than simply to discuss.

According to Dale: “The existingpractice direction is meaningless if theparties have not investigated whattheir sources are, evaluated their po-tential weight as evidence and thecosts involved in handling them.”

It gives parties a way of stating they

have had the relevant discussions andjudges a way of checking this has hap-pened, fortifying Jackson’s recommen-dations for active case management.

A valuable toolAnother focal point of the meeting wasproportionality. “The rules do not re-quire that no stone should be left un-turned,” said Dale. “For example, aparty can state that they have particu-lar information without actually dis-closing it.”

Following the presentations, somesolicitors who had struggled throughthe disclosure process highlighted theproblem of complexity. The logistics ofreproducing large amounts of docu-mentation and getting them to courtimpedes efficiency and increasescosts, they said. For them, Jackson’sproposals on e-disclosure are a wel-come element of effective costs man-agement.

Nigel Murray, CEO of Trilantic, sug-gested Jackson’s proposals should applyto the disclosure of all documents, andnot be confined to ESI. His point wasthat although nearly all documents arestored electronically, the term e-disclo-sure might discourage lawyers andjudges who are less tech-savvy.

Regardless of what happens withJackson’s proposals in general, Dalehighlights the important message thatthe questionnaire is still a valuablestandalone tool. It can be used and rec-ommended by judges to fulfil and doc-ument the existing obligation to discusssources, thereby moving towards theobjective of more efficient and cost-ef-fective litigation. CDR

“The judge is the end-user of all thisdisclosure activity. Can we limitdisclosure to the subjects whichmatter most?”Judge Simon Brown QC

Lord Justice Jackson

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Social networking Five tips for lawyers

1. Find the professionalcommunity within thecommunityThe largest social networks have mil-lions of users and it is important tofocus your interaction on membersthat share the same professional in-terests.

LinkedIn, the most popular pro-fessional network, boasts more than60 million members in over 200countries, but users can narrow thisdown by joining special-interestgroups.

The “ADR, Conflict Resolution

and Mediation Exchange”, “Legal ITNetwork”, “Legal Marketing” and“Leadership for Lawyers” groups allhave memberships in the thousands.

Each offers a forum for discus-sion, and sharing of relevant expert-ise and articles. Beyond that, theyare a useful tool for building con-tacts - and for keeping an eye onyour peers.

The profile of each user has detailsof professional history, education, andaffiliations.

“It is possible to add the othermembers to the personal network of

contacts mentioning the group as acommon interest,” says Kevin Eyres,the European managing director ofLinkedIn.

In order to develop their network,Eyres advises users to pay heed toLinkedIn’s suggestions.

“The website automatically sug-gests potential contacts with whomthe user shares interests and back-ground,” Eyres says.

“It is also possible to search forpeople or companies using name, ed-ucation, geographic area or key-words as filters.”

2. Let Twitter do your workConceived as an “informationnetwork” by its CEO Evan Williams,Twitter has increased in size by2,800% in one year according to arecent study by Opera, a searchengine company. Users send shortdispatches of 140 characters knownas tweets, often containing a link to awebsite or article.

Updates are public - they can beviewed by any internet users, not

just those with a Twitter account -and can be tagged using “hashtags”(such as #adr or #litigation), makingthem easier to find.

The service is of particular interestfor lawyers because it allows themnot only to reach a larger audience,but also to stay up to date with mar-ket trends and news by reading otherusers’ tweets.

“Twitter can also provide freepublicity, because it drives people to

your website,” says Alan Sharland,director of Hillingdon CommunityMediation.

He manages two different Twitteraccounts: @hcmediation, which islinked to the Hillington website andhas almost 3,000 followers, and@alan_sharland, a personal accountwhich shows up as the second-highestresult when searching for his nameon Google.

“The aim is to get as many fol-

For enterprising legalprofessionals, social networks holda wealth of information andcontacts. Chiara Albanese meetsthose in the know, including adirector of LinkedIn, to create afive-step plan.

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3. Join profession-specificnetworksEach profession has its own onlineplatforms, but relatively few socialnetworks have so far targeted thelegal community.

Disputes Loop is a social net-work for ADR professionals, butalso allows external users to searchthe profile they need for a specificcase.

After joining the community,

members can post their CVs and re-ceive job opportunities by email.

The website also offers accessdata, marketing and networkingfeatures, and research tools. Thebasic features are free but the mostadvanced require a premium sub-scription.

A similar idea underpinslawyrs.net, which allows lawyers topost their profile, make connec-tions, and join groups. The website

boasts more than 4,800 members in163 countries.

LawLink, founded in 2007 byUS lawyer Steven Choi, is anothersocial network developed for thelegal community. It consists offour separate but interconnectedsocial networks (attorneys, expertwitnesses, law students and lawprofessionals). It claims to receiveover 50,000 unique visitors amonth.

4. Target your audience anddon’t leave it aloneThe audience is an asset and itshould be consistent with yourprofessional identity. The first stepis to try to replicate your offlinenetwork.

Connect with actual or potentialclients and follow their Twitter pro-files. By reading clients’ tweets or

checking their professional status, itis possible to understand their needsand come up with timely sugges-tions and proposals. Journalists arealso good contacts. The media useTwitter as a source and beingquoted in a publication can immedi-ately increase visibility and webtraffic.

Once the right connections are

made, invest in interacting withthem. New followers appreciate di-rect messages thanking them for theinterest, and like to be followedback.

Finally, all social networks pro-vide a direct messaging service thatcan be used to engage in a privateconversation that can lead to a busi-ness opportunity.

5. Link it all togetherManaging your social network iden-tity can be difficult and time-con-suming. There are ways to alleviatethis, however.LinkedIn, Twitter and Facebook allallow users to connect their pro-files together. This means an up-date or a link can be sent

simultaneously across all the plat-forms.Several third parties have also de-veloped applications - such asTweetDeck and FriendFeed - thatperform a similar function. Theycan be downloaded for free andthey allow users to manage multi-ple accounts at the same time. CDR

lowers as possible that are inter-ested in your area of expertise,”he explains.

“To do so, the first step is to

identify the keywords you are inter-ested in and then set the account toautomatically send a stream ofposts related to the selected tags.”

These continuous updates willincrease the number of followers ofthe profile without the need to man-ually send the updates. As a result,Sharland says he doesn’t spendmore than an hour a week manag-ing the professional account.

The downside to this strategy isthat there is no control over others’tweets: it is therefore important tochoose the keywords very carefully.

Twitter allows lawyers to reach alarger audience, but also to stay upto date with market trends and news

Already networking?Follow CDR on Twitter for regu-lar litigation and arbitration up-dates: twitter.com/cdrnews

You can also join the discussionon our LinkedIn group. Just log inand search for “Commercial Dis-pute Resolution”.

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The 13 judges of the Euro-pean Court of Justice haveseen many momentous casesargued before them.

Yet no subject has gathered as muchattention for in-house lawyers as thecase they heard this February.

Akzo Nobel Chemicals Limited & Ors vCommission of the European Communitieshas become a key battleground onlegal professional privilege.

Background of the caseThe origins of the case go to the heartof the relationship between a companyand its in-house legal advisers.

The dispute arose from an investi-gation by the European Commissioninto alleged anti-competitive practices.

During the investigation, legal pro-fessional privilege (LPP) was claimedover emails between the company’smanagement and a Dutch in-houselawyer, a competition law adviser.

The Commission’s investigatingteam and the company contested theirdisclosure, and Akzo Nobel took thematter to court, supported by in-houselegal organisations.

Highly respected bodies intervened.Among them were the InternationalBar Association, the Association ofCorporate Counsel and the European

Company Lawyers Association.After a long series of hearings, the

(then) Court of First Instance foundagainst the against the applicants, up-holding an ECJ decision dating back to1982, in AM&S v Commission.

The court held that the advice of in-house counsel was not covered byLPP, since in-house counsel lacked asufficient level of independence.

On LPP, it said the protection onlyapplied to the extent that the lawyer isindependent - and “structurally, hier-archically and functionally... is a thirdparty”.

This meant that in-house lawyersshould not be bound to their clients bya relationship of employment and ex-pressly excluded communications within-house lawyers.

The road back from AM&SHowever, many disagree with theAM&S ruling that privileged commu-nications must be made for the pur-pose and the interest of the client’srights of defence - and that they mustemanate from external lawyers.

The ECJ also differed from the opin-ion of its own advocate-general, thelate Gordon Slynn QC.

Slynn held that if an employedlawyer is a member of a legal profes-

sion, and therefore subject to its disci-plines and ethics, then he should betreated in the same way as a private-practice lawyer.

The key test of Slynn’s opinion wasthat professional responsibilitiesshould take precedence over employ-ment status.

The court held differently. An in-house lawyer’s status as an employee,it maintained, erodes his independ-ence, and therefore distorts “thelawyer’s role as collaborating in theoverriding interests of justice”.

Many lawyers now believe thatSlynn’s interpretation was the rightone. As one senior in-house lawyersays: “The role [of in-house lawyers]has changed since the time of AM&S.”

He adds: “The in-house lawyer can-not aid that process and keep hisclient’s nose clean if he can’t write any-thing down.”

Another in-house lawyer says:“Companies often need responsibilitiesto be discharged with legal help, whichnow has to come exclusively from out-side lawyers.”

Nor are such views limited toECLA, ACC and the IBA; the Law So-ciety made its opposition clear, as didthe governments of the UK, theNetherlands and Ireland.

Battle forprivilegeThe Commission’s assault on in-house legalprivilege in its prosecution of Akzo Nobel hasrocked an entire profession. Ben Rigby meets thecorporate and private-practice lawyers on thefront line.

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As Maurits Dolmans of Cleary Got-tlieb Steen & Hamilton’s Brussels officemakes clear: “Their intervention wasparticularly appropriate since Dutch in-house counsel privilege is at stake, andthe documents were seised in the UK.”

Many interested parties soughtleave to intervene, although the ECJlimited the number of interveners inthe interests of managing the court’stime and resources.

Principled objectionsUnsurprisingly, the Commission dis-agrees. As a recent report in the LawSociety’s Brussels Agenda newslettermakes clear, the Commission repeatedits AM&S arguments before the ECJ.

The Commission also argued thatany extension of LPP should be downto the European Parliament as a mat-ter of public policy.

Debate in opposition focused firston arguments made by national gov-ernments. The Dutch governmentwent first.

It argued that the employment ofDutch in-house counsel had been ex-amined and legislated for subsequentto AM&S.

Legal independence and regulatorycompliance with Dutch Bar rules werean express part of such advisory con-tracts, it said. That trumps companyloyalty, it claims.

There is a system in Dutch law of

acknowledgement by a lawyer and hisemployer that the lawyer is employedto give independent legal advice.

If that is so, then there is no differ-ence between corporate lawyers andin-house lawyers as to their profes-sional standing and obedience, rea-soned the Dutch government. So therules for LPP should be the same forboth.

Given that more than 25 years haspassed since the decision in AM&S, itis fitting also that the constitutionalposition be brought up to date.

The Irish government argued thatthe impact of the Lisbon Treaty broughtthe Charter of Fundamental Rights intoplay - making it fully justifiable.

This meant that the difference intreatment between in-house lawyersand private practice was potentiallydiscriminatory, it said.

The in-house viewDolmans, together with his colleagueJohn Temple Lang, has been advisingECLA on a pro bono basis since thebeginning of the dispute.

He argues that changes since theLisbon Treaty emphasise one ofECLA’s key arguments. “The ECJcannot prescribe a one-size-fits-all ruleto determine who is a lawyer entitledto privilege,” he says.

Member states are competent to de-fine who is or who is not a lawyer,says Dolman. He points to the diverseposition within the EU on recognisingLPP.

“The Akzo judgment should not de-prive certain lawyers of their nationallaw rights and their clients of the pro-tection provided in their nationallaws,” argues Dolman.

Others have taken a more nuancedview. Submissions by the IBA, ACC,and CCBE effectively focus on the

strict ethical codes that lawyers agreeto abide by.

The CCBE has suggested that theconcept of a lawyer must be appliedconsistently across the member states.

It cites the Lawyers’ EstablishmentDirective, since it applies to in-houseas well as private-practice lawyers.

Hugh Mercer QC is the leader ofthe UK’s delegation to the CCBE. Hesays: “The argument in favour ofwidening privilege beyond AM&S isstrongest when the lawyer in questionis a member of a Bar.”

Mercer says this is particularly thecase for in-house lawyers who aremembers of the Dutch Bar as their po-sition arguably provides stronger safe-guards than is usual.

He also argues that all of those EUlawyers bearing the label of lawyershould remain members of their re-spective Bars and law societies.

Win or lose, he feels the issue needsto be addressed, because a commonposition would have strengthened theapplicant’s arguments.

Commercial realitiesThere are also business reasons whythe ECJ should consider reversing thedecision, say other advocates who ap-peared before the court.

Georg Berrisch and David Hull,partners in Covington & Burling’sBrussels office, represented ACC inthe Akzo case.

Hull comments: “The striking ironyin the European Commission’s posi-tion is that it emphasises the para-mount importance of compliance, andis imposing increasingly draconianfines on companies that fail to do so.”

He adds: “At the same time, theCommission severely handicaps acompany’s ability to comply with thelaw by denying legal privilege to the

“An in-houselawyer cannotkeep his client’snose clean if hecan’t writeanything down”

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very lawyer best placed to advise thecompany in the first instance - the in-house lawyer.”

Dolmans agrees, adding that thepractice contradicts the Commission’sexpectation that European companiesshould self-regulate.

Companies no longer have the op-tion of asking the Commission for aruling on whether business practicesand agreements are compatible with

competition rules. Referring such questions to outside

lawyers, he argues, will often be lessconvenient, less timely, and more ex-pensive than seeking compliance ad-vice in-house.

Yet the Commission’s track recordon recognising such difficulties ispoor.

So all eyes were on advocate-gen-eral Kokott in late April, when she de-

livered her opinion, repeating the ar-guments of the past.

As the court considers her verdict,in-house lawyers will continue towatch, and so will we. CDR

“The Akzo judgment should notdeprive certain lawyers of theirnational law rights and their clients ofprotection”Maurits Dolmans, Cleary Gottlieb Steen & Hamilton

Competition & EU

FaultlessproductOut now: The International Comparative Legal Guide toProduct Liability 2010

www.iclg.co.uk

On 29 April 2010, advocate-general Kokott [pictured]gave her opinion in thelong-running litigation of

Akzo Nobel Chemicals Ltd & Ors v Eu-ropean Commission. She recom-mended that communications byin-house counsel with their businesscontinue to be disclosable, and notprotected by legal professional privi-lege, in competition investigations.

If the Court of Justice follows heropinion and dismisses the appeal thiswould be a disappointing result. Manyin-house counsel will consider that theAG’s opinion is an insult to their pro-fessional independence.

The current positionThe Akzo decision being appealed wasgiven in the European Court of First In-stance in September 2007 and is wellknown. The court confirmed that adviceon competition matters given by in-house counsel to their business is notprotected by legal professional privilege(LPP) in relation to competition raidsand investigations by the EU. Competi-tion advice given by external counsel re-

mained protected by LPP in relation tothose investigations.

The advocate-general’s opinionAdvocate-general Kokott’s opinion isthat LPP applies only to communica-tions between a client and an inde-pendent, external lawyer in the exerciseof a client’s rights of defence. Despitestrong submissions from the appellantsand from the intervening governmentsand professional bodies, in her opinionsalaried in-house counsel are not inde-pendent. In her view, in-house counselare both “economically dependent on”and “usually exhibit a considerably

stronger personal identification with”their employers than external lawyers.

The appellants and interveners hadargued that the position in the EU hadchanged since the case of AM&S v Com-mission, which had laid down the prin-ciple that in-house lawyers were notsufficiently independent. The AG re-jected the argument and consideredthat there is “no discernible generaltrend towards treating enrolled in-house lawyers in the same way aslawyers in private practice”.

Moreover, there are still a significantnumber of EU states that prohibit in-house lawyers from becoming mem-bers of a Bar or Law Society.

The AG also rejected the argumentthat LPP should be a matter for the lawsof each member state. In competition in-vestigations, LPP has to apply in a uni-form manner across the EU. The AG’sview is that to decide to the contrarywould not be compatible with the princi-ple of the internal market.

The general tone of the opiniongives the impression that AG Kokotthad no doubt whatsoever that the ap-peal should be dismissed.

In-house privilege: Kokott’s Akzo opinion is unwelcome

The latest advocate-general’sopinion insults in-housecounsel independence,writes Douglas Peden ofOsborne Clarke. He alsocomments on the practicalfallout from the case.

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“Many in-housecounsel willconsider that theAG’s opinion is aninsult to theirprofessionalindependence”

Competition & EU

Advocate-general Kokott

The Court of Justice usually, but notinvariably, follows the AG’s opinion.

CommentA major thrust of the AG’s opinion isthat there is a distinction between theindependence of in-house lawyers andexternal lawyers. At least as far as theUK is concerned, we have to query thatposition. Are external lawyers reallymuch less dependent on income fromtheir clients than lawyers employed in-house by the client?

Given the commercial imperative forexternal lawyers to understand and getclose to the business of their client, thereis an ever increasing tendency for exter-nal lawyers to forge “a stronger personalidentification” with the client. Any dif-ference between in-house and externallawyers can only be a matter of degree.

It is harder to criticise the AG’s argu-

ments which are based on the inconsis-tency of LPP rules across the EU statesand the need for a consistent applica-tion of EU competition rules. It wasprobably inevitable that the machineryof the EU legal system would comedown in favour of retaining the currentposition.

Practical pointsIf the Court of Justice follows the AG’sopinion, the position will obviously re-main as it is. If the Court of Justice takesa different view and allows the appeal,what is the likely practical outcome ofall of this?

If the appeal ultimately succeeds,companies are unlikely to change howthey communicate, internally, aboutpossible breaches of competition law.Over the years, in-house counsel bestpractice has been to avoid written inter-

nal communications on actual or poten-tial competition law infringements -where there is nothing in writing, thereis nothing to be disclosed.

The approach of avoiding written,competition-sensitive internal commu-nications is heavily ingrained intomajor corporates. There are standingprocedures, from CEO down, that po-tentially damaging competition con-cerns should first be raised verbally.The policy for dealing with any writtencommunications is then managed care-fully in conjunction with in-housecounsel.

If the appeal succeeds, in-housecounsel will have another weapon intheir armoury if something damaging issent to them, in writing, for the purposeof obtaining competition advice. Theywould be able, legitimately, to protecttheir client by withholding that docu-ment from the Commission. In-housecounsel would welcome that addedprotection.

The Court of Justice is expected togive its judgment later this year. CDR

“Where there is nothing in writing,there is nothing to be disclosed”

Competition & EU

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No rest for the wicked? Months after the Supreme Courtissued its emphatic judgment on the long-running banklitigation over UK bank charges, the threat of financialservices litigation may be even greater than it was then.

Business groups say the Financial Services Bill would encouragelawyers to create costly class action lawsuits, in the first major step to-wards implementing such proceedings in the UK.

They also warn that in the current political climate the pace ofchange could do more harm than good.

British business concernsAlthough the Bill is aimed at the financial services sector, the Confed-eration of British Industry (CBI) has warned of a risk of contagion toother sectors of the economy.

Matthew Fell, the CBI’s director for corporate affairs, says: “[TheBill] risks importing a US-style litigation culture to Britain. Thiswould burden the economy, and encourage ill-advised class actionlawsuits.”

He cites evidence from the European Justice Forum, a non-profitgroup opposed to such claims.

The organisation claims tort litigation in the US costs about $825per citizen per year - about 2% of the country’s GDP. This is muchhigher than European countries, where it accounts for about 1% ofGDP.

Maggie Craig, acting director-general of the Association of BritishInsurers, also foresees a shift to American-style litigation, one she la-bels as “worrying”. For Craig, the Bill threatens to add unacceptablecosts for consumers and businesses.C

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What lies beneathFell and Craig are not the only indus-try commentators to push backagainst what they see as a compensa-tion culture. A 2008 event hosted byLloyd’s of London saw two peers,

also likely to take the floor in theLords, speak out on the issue.

One was Lord Falconer, the for-mer Lord Chancellor. Falconer hassignificant backbench presence in theLords, and is now a consultant toGibson Dunn & Crutcher.

Citing the collapse of BCCI, andthe Equitable Life cases, Falconersaid: “There is a perception that forevery injury there must be someonewho will be liable to pay the losers.For every business risk which goeswrong there is someone to sue.”

He acknowledged the courts’ re-buttal of this perception, but said itdoesn’t matter: society acts on the

basis that the perception is accurate. He referred to the blackmail effect

of lawsuits. In cases like class ac-tions, businesses feel pressure to set-tle rather than expend the “hugecosts and emotional resources” re-quired to win.

For Falconer - commenting on theNorthern Rock litigation, defeated inthe Court of Appeal in June 2009 -“talk of litigation involved taking thecompensation culture to its limits,and way beyond”.

His argument was that businessestreat the risk of litigation as a strategicgamble rather than a matter of justice.

“It’s the nature of business that ifthe risk does not occur you makemoney, and if it does you lose,” saidFalconer. “There is not some thirdcourse called litigation.”

The consequences, Falconer said,were that “regulators become defen-sive in what they do, and unwillingto allow the financial sector to takethe very risks on which our coun-try’s commercial success depends”.

He underlined the importance ofcourts being willing to strike outcases and for risk to be viewed “in itsproper context” by defendants andcourts alike.

Surveying riskThe other peer to speak in 2008 wasLord Levene, the chairman ofLloyd’s of London. The insurance in-dustry body had published a study,commissioned jointly with the Econ-omist Intelligence Unit, on corporateliability risk.

The study showed that globalbusiness leaders were worried - and

that litigation and liability risk wereimpacting company operations andstrategy.

European businesses were increas-ingly under threat of litigation,whether from US courts extendingtheir extra-territorial reach or fromwithin Europe.

The Lloyd’s study showed morethan one in three companies had in-creased the prices of products in thepast three years as a direct result ofincreased litigation risk and associ-ated costs.

A third of companies reported theyhad become more bureaucratic andmore risk-averse, as a direct result ofliability issues.

As Levene said then: “Put simply,fear of future litigation appears to putconstraints on the ambitions andgrowth prospects of many businessesaround the world.”

This, he said, could have a devas-tating economic impact.

“The FinancialOmbudsmanService is aninformal serviceheavily stacked infavour ofcomplainants”Nathan Willmott,Berwin LeightonPaisner

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Lord Falconer

In the Financial Services Act, Ben Rigby finds

growing fears of a US-style litigation culture -and the business lobby pushing back.

Defendants strike backLaw firms have been active too in push-ing back against class actions. HerbertSmith, through the firm’s influential dis-putes head Sonya Leydecker, last yearcommissioned research on class actionsin both their EU and UK contexts along-side those on costs. Leydecker feltclaimants had succeeded in marginal-ising the legitimate concerns of largebusinesses.

The survey suggested that in-housecounsel felt that there was no “unmetneed” for new procedures. One in-house counsel said: “Certain compa-nies would be likely to becomeperpetual defendants.”

They also pointed out that financialservices were already heavily regu-lated, with the Financial OmbudsmanService (FOS) providing a free servicefor claims up to £100,000 for consumerretail banking customers, on the basisof what itsees as fair and reasonable.

Nathan Willmott, a financial serv-ices litigator at Berwin Leighton Pais-

ner, describes the FOS as “an informalservice heavily stacked in favour ofcomplainants”, a point agreed by Fell.

The BillOf course, collective redress is notnew. The Civil Justice Council (CJC)published a report in 2008 which rec-ommended that the UK should estab-lish its own collective action system,distinct from the US model.

It said claims should be undertakenunder an opt-out as opposed to opt-inmodel, and encouraged representativebodies to be given the power to bringactions.

The Ministry of Justice’s response,over a year later, suggested that indi-vidual sectors should consider whethercollective redress would close any gapson access to justice, or if such gaps ex-isted at all.

Financial services, thanks to the bankcharges litigation, is the first sector to re-ally put these principles to the test.

The sector receives a large volume

of consumer complaints with commoncharacteristics, making them appropri-ate for collective actions.

Lawyers in the UK have also saidthe FOS has struggled to handlemass complaints. The pressure tomanage spikes in complaints, saycritics, has damaged the quality ofadjudication.

The Bill attempts to fix the com-plaints system and proposes a combi-nation of opt-in and opt-outproceedings. It also allows for repre-sentative actions, possibly by the Of-fice of Fair Trading or FSA (buildingon the experience of the OFT’s bankcharges litigation), and defines finan-cial services tightly.

Regulators can argue for or againsta particular class action. The Bill ismodelled more closely on the CJC re-port than the Treasury’s own whitepaper.

The CJC report suggested class ac-tions would only be available in excep-tional circumstances, and would remove

The two-way costs-shifting rule protects defendants againstspeculative litigation. But Jackson suggests giving courtsdiscretion to limit or discard the rule in collective actions

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FSA oversight of such actions. As such, itis more liberal.

It allows for a new regime on dam-ages, and retains the English tradition oftwo-way costs-shifting - the loser paysrule - in such cases. The rule acts as a dis-incentive to group actions, protecting de-fendants against speculative litigation.

But the Jackson Review suggests giv-ing courts discretion to limit or discardthe rule in collective actions and replaceit with one-way costs-shifting, meaningonly successful claimants are guaran-teed the recovery of reasonable costs.

If courts were granted this power de-fendants, such as banks in collectivedamages claims, would have no suchguarantee.

And there is still a lot of room forpractical interpretation: the devil re-

mains cloaked in the detail.

Star-spangled banner?Willmott points out three reasons whythe UK has a more restrained litigationenvironment than the US: the absenceof contingency fees, the lack of an opt-out model, and the loser pays costsmodel.

As far as retail banks are concerned,he says, these restraints will no longerapply. “All three of these core princi-ples are to be shelved, or eroded, by theJackson Review proposals and the Fi-nancial Services Bill,” says Willmott.

Like Fell and Craig, his position is in nodoubt: UK litigation is turning American.

With a general election looming theBill will need to be passed beforepolling day. This is expected to be in

May, which effectively gives less thanthree months.

Craig has criticised the hurried natureof the legislation. “We are alarmed this isbeing rushed through without properconsultation with industry,” she said.

Well managed change balances theneeds of business and consumers.However, the Financial Services Billcomes in a time of unprecedentedpublic resentment of banks andbankers.

As such there is a danger that legiti-mate objections will go unheard amidthe angry cries for justice. If this hap-pens, it will damage the economy.

Financial institutions and theirlawyers are already counting the poten-tial cost of collective actions - con-sumers might ultimately pay it. CDR

Collective Redress

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Region Focus: Spain & Portugal

Rivals in crisisAs the weight of insolvency becomes unbearable,the courts in Spain and Portugal are experiencinga crisis within a crisis. Their responses show theold imperial rivals share plenty of common ground– and not just physically. Ben Lewis reports fromMadrid and Lisbon.

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Iberia. It’s not a word to be ut-tered lightly. Even after 350years, the spectre of the “captiv-ity” – a sixty-year period of

Spanish rule – still lingers over Portu-gal.

As recently as the First World War,the fear of reintegration was a centralpart of Portuguese politics and culture.

This threat is gone for now at least,but the rivalry between Spain and Por-tugal is undiminished. The two coun-tries have bitterly competed over thecenturies to assert their dominance,each amassing a sprawling empire.

Nowadays the empire-building iseconomic: both countries have fiercelyindependent business communitieswith legal markets to match.

Nevertheless, through a cautious se-ries of associations, mergers and newoffices, the Spanish law firms havecrept west.

The integration of Spain’s Cuatre-casas with Portugal’s GonçalvesPereira Castelo Branco is a case inpoint. Tabled in 1996, the merger wassigned four years later and became re-ality in 2003. Last year the two firms fi-nally came to share a name,Cuatrecasas Gonçalves Pereira.

This February, Uría Menéndez con-solidated its presence in Lisbon bymerging with Proença de Carvalho, aprestigious Portuguese firm – a dra-matic vote of local confidence after lastyear’s loss of office head Francisco SáCarneiro.

Garrigues and Gómez-Acebo &Pombo are thriving in Portugal too. Allof them are determined to transforminto that most elusive thing: the Iberianlaw firm.

For those without such ambitions,of course, this is nonsense. How canyou have an Iberian law firm, they ask,

when the countries in question are sodefiantly separate?

It is true that Spain and Portugalhave very different legal systems, notto mention culture, language and poli-tics.

But even the most establishedlawyers admit that the global age hasbrought with it some blurring of theborders. After all, the divisions meanlittle to foreign clients, as long as theydon’t obstruct good business, and thisis having a local effect.

“What I see in the future is the inte-gration of the two economies. Not theintegration of the two jurisdictions, butthe integration of the economies is agiven,” says António Pinto Leite ofMorais Leitão Galvão Teles Soares daSilva & Associados.

The extent of this integration – andhow it affects law firms – will becomeevident over time. As it does, the twolegal communities must grapple with acommon crisis: a rising tide of insol-vency, which threatens to engulf theircourts.

How each country is meeting thischallenge is a window into their funda-mental similarities – and differences.

SpainSpanish lawyers will tell you theircourts are colapsados. That is not to saythey have collapsed – the wordroughly translates as “congested” – butthe reality isn’t far off.

In a typical year around 1,000 Span-ish companies declare themselvesbankrupt. But in 2008 somethingsnapped.

“I remember the month of August2008,” says Vicente Sierra of Fresh-

fields Bruckhaus Deringer.“In places like Barcelona everyone

was planning their insolvencies. In thefirst days of September everyone wasqueuing outside the filing office to askfor suspension of payments.”

Last year the number of insolvencydeclarations soared to nearly 6,000,and this year has so far been similar.The nature of the insolvent companiesis also changing, as the fallout spreadsaway from property, the once-rigidbackbone of Spain’s economy.

“Last year was the real-estate sec-tor,” says Juan Ignacio Fernández, apartner at CMS Albiñana & Suárez deLezo. “This year there are other sectorsthat have increased in insolvencies,such as the automotive sector and re-tail.”

As a result the courts are creakingunder the pressure.

It’s not a problem of quality. AsDavid Arias of Pérez-Llorca says: “Al-though the Spanish courts aren’t bad,they are terribly, terribly slow.”

But according to some, the ineffi-ciency undermines the quality of thejudgments. Sierra is among them.

“This produces delays and preventsdefendants from having their caseproperly explored, and preventsjudges from properly considering themerits of the case,” he says.

For him, the creation of specialisedcommercial courts (juzgados de lo mercan-til) in 2004 has failed to alleviate the glutof cases in the country’s court system.

“It’s a patchwork,” he says. “It’s try-ing to have a quick and fast solutionfor a very big problem.”

Other reform efforts have includedan update to Spain’s Insolvency Act.The legislation, in effect since 2003 andfurther amended last year, is quite pro-gressive.

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Its most distinguishing feature isthat it combines the previously sepa-rate procedures for suspension of pay-ments (suspensión de pagos) andinsolvency (quiebra) into a singleprocess (concurso).

Nevertheless there is still ampleroom for improvement.

Luis Divar of Diaz-Bastien & Truanidentifies three problem areas the Lawhas failed to properly address in com-mercial insolvency:• high costs arising from receiver andlawyer fees;• slowness (due to the volume ofcases, as well as delaying tactics); and• logical inconsistencies (in particularthe lack of incentive for a creditor toreach an agreement where the insol-vent company has more assets than lia-bilities, but lacks liquidity).

Divar hopes a further round of re-forms, under discussion and due earlynext year, will take these issues into ac-count.

Sierra’s partner at Freshfields

Bruckhaus Deringer, Rafael Murillo,has further advice for the committee.

“Try to reinforce the number ofjudges and amend the law in a waythat really makes an impact on the waythese cases are handled,” says Murillo.

He would like to see more innova-tions of the types regularly used inAnglo-Saxon countries, such as the in-troduction of schemes of arrangement,under which a majority agreementamong creditors can force the hand oflesser stakeholders and thus limit thesquabbling over assets.

“We have to bring in solutions thatare totally away from the systems andtraditions that have existed in Spainpreviously,” he adds.

Spanish lawyers can’t seem to agreewhat’s going to happen next.

“Insolvency filings have peaked,”predicts Daniel Jiménez. “I don’t thinkwe’re going to see increases of 300% to400%. I think it’s going to be steady.

Divar has a far less optimistic out-look. Insolvencies will continue to rise,

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“Best Spanish Law Firm of the Year”Chambers Europe Awards for Excellence 2010

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MADRIDTel.: +34 915 860 400mail: [email protected]

LONDONTel.: +44 (0)20 7260 1800mail: [email protected]

LISBONTel: +35 1 21 030 86 00mail: [email protected] www.uria.com


Rafael Murillo

“We have to bringin solutions that aretotally away fromthe systems andtraditions that haveexisted in Spainpreviously”

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he believes: there is more drama tocome out of the collapse of propertygiant Martinsa-Fadesa, Spain’s largest-ever corporate default.

Now that the ratings company Fitchhas stripped Spain of its AAA creditrating, further turbulence is assured.

More than ever, the country’s courtsneed a saviour.

Great expectationsThere is a hint of evangelism in theway the Spanish talk about arbitration.Bring up the subject and you’ll hearhope and excitement that hasn’t beenheard in common-law countries fordecades.

The Arbitration Act of 2003 was along-overdue update of legislation dat-ing back to 1988. The Law reinvigo-rated a practice that was in danger ofgoing stale.

“Thirty years ago our SupremeCourt didn’t apply the New York Con-vention,” says Juan Viaño of Gómez-Acebo & Pombo.

“I can’t remember having spent anytime in arbitration 20 years ago. Tenyears ago, when I joined this firm, wehad an eye on arbitration but it wasn’tan important part of dispute resolu-tion.

“Today I work significantly more inarbitration than in litigation. This ten-dency increases every month andevery year. Now the question is: whereare we going to be in another 10years?”

One hint of things to come lies over-seas. Every major Spanish law firm isheavily targeting Latin American busi-ness, and a part of this drive is offeringa viable Spanish-speaking arbitrationseat in Madrid.

At least one recent arbitration inMadrid involved no Spanish parties atall.

One experience recounted by DavidArias of Pérez-Llorca reflects a growingrecognition of Spanish arbitration over-seas: “Last year I was in Miami attend-ing an ICC Congress. At a mostlySpanish-speaking conference I met Ju-lian Lew QC, who doesn’t speak Span-ish.

“I asked him: ‘What are you doinghere?’ He replied: ‘You know, interna-tional arbitration now speaks Spanish.Here is where a lot of the interestingcases are taking place.’”

Nevertheless, arbitration’s popular-ity at home is mainly restricted to blue-

chip businesses with complex commer-cial disputes. Domestic parties remainwary.

Even some of the blue-chips are stillunconvinced. “We have a client – oneof Spain’s 35 biggest companies,” saysDaniel Jiménez of Ashurst. “They said:‘We are sceptical of arbitration and we

don’t include arbitration clauses in ourcontracts.’”

One of the main reasons for thescepticism is concern about the inde-pendence of practitioners. Whereasjudges are seen by Spanish clients asseparate from the business community,arbitrators frequently mingle withbusinesspeople. This is hard to stom-ach for those who are unused to it.

“If a client loses a lawsuit, the read-ing is: ‘very bad judge’,” says Viaño.“If a client loses an arbitration, thereading isn’t ‘what a bad arbitral tribu-nal’. It’s: ‘something very strange hashappened’.”

Since arbitrators have a vested inter-est in being independent, the challengeis addressing perceptions.

“It is not only that they are impar-tial but that they are seen as impar-tial,” says Miguel Virgós, a partner atUría Menéndez.

In his view the route to success isnot promoting arbitration as cheaperor faster, but emphasising the fact thatsince arbitrators are closer to the busi-

ness community they are better placedto judge a dispute – particularly as par-ties are able to select them.

“Judges tend to apply the law,while arbitrators tend to apply the con-tract,” says Virgós. “If the contract iscomplex, in the face of difficulty ajudge will tend to go to see what thecodes say, whereas an arbitrator willtry to see what answers are in the con-tract. So in a way arbitration gives youmore control over your transaction.”

The mission of convincing theircountrymen of arbitration’s merits fallsto the Club Español del Arbitraje. Theclub was formed in 2005 as a vehiclefor Spain’s dispute resolution lawyersto establish best practice, lobby thecountry’s government, and promote


“If a client loses alawsuit, the readingis: ‘very bad judge’.If a client loses anarbitration, thereading is:‘something verystrange hashappened’”Juan Viaño, Gómez-Acebo &Pombo

SJ BerwinLitigation and Arbitration

Setting the strategy for success

www.sjberwin.com

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SL Berwin LLP is a limited liability partnership registered in England no OC313176

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arbitration among the Spanish busi-ness community.

The charm offensive appears to bebearing fruit. “I’m beginning to seethat smaller companies and businessesare willing to agree to arbitrationclauses,” says Carlos de los Santos ofGarrigues.

“Those arbitration clauses are usu-ally attributed to institutions, particu-larly the Corte de Arbitraje de Madrid,which I think is doing a very good job.At least they’re beginning to look atthe possibility of including an arbitra-tion clause.”

Virgós is even more optimistic. Inhis view economic recovery should actas a catalyst for arbitration’s develop-ment in Spain, perhaps eventually put-ting it on a par with the UK.

And herein lies an opportunity. Thescourge of UK and US arbitration is theexcessive discovery requirements. Butin Spain, discovery is very limited – itcan’t be used as a fishing expedition.

A Latinised version of arbitration,lighter on discovery and expense,could become Spain’s trump card.

For Arias, the ideal situation is acompromise between common-lawand civil-law values. “In medio stat vir-tus: virtue lies in the centre,” he says.

But how do you achieve an effectivejudgment in an intricate dispute with-out extensive discovery? “It’s a viciouscircle,” says Arias. “But in the end, the

core of the dispute can be summarisedwith reference to the original agree-ment and to the contemporary records.Anyhow, it is a fact that civil-law sys-tems have successfully dealt with com-plex cases for decades without anyneed for extensive discovery.

“As clients increasingly demand flatrather than hourly fees, arbitration willnaturally become lighter becauselawyers have less interest in prolong-ing a dispute,” he adds.

Other lawyers seem to welcome theprospect of wider discovery.

“The real issue in discovery is theobligation you have in the US to showevery single thing in the courts in thepresence of the other party, which wedon’t have here. It’s a real substantivechange in mentality,” says ÁlvaroMendiola, a partner at CuatrecasasGonçalves Pereira.

But he adds: “I wouldn’t opposehaving it. I think the discovery systemis a very good one. It encourages par-ties to come to an agreement.”

Mendiola recognises full discoverywould be unwelcome among Spanishparties, perhaps even more than puni-tive damages. The answer? Get withthe times.

“We can’t just take the benefits ofour home jurisdiction when we wantto be a global player,” he says.

Gómez-Acebo & Pombo’s FranciscoPeña also sees heavier discovery as an

evolutionary step for Spanish arbitra-tion.

“We welcome any modification ofthe law,” he says. “It’s an aspiration.”

Mediation: a cultural unknownMediation is another aspiration thatcould clear up the courts even more ef-fectively, but lies maddeningly out ofgrasp. The problem is that it isn’t avery Spanish thing to do.

“It’s not embedded in our way ofthinking,” says Carlos de los Santos ofGarrigues. “When you have a clientthat doesn’t like you to say ‘goodmorning’ to the other party’s counsel,how can you mediate?”

The consensus among Spanishlawyers is that Latin clients feel once athird party has been brought into a dis-pute then the time for conciliation isover. Nothing short of a binding judg-ment will do.

There are also problems in legal cul-ture. “Trying to persuade less sophisti-cated litigators to use what isessentially the most sophisticated formof dispute resolution is very difficult,”says De los Santos.

In part, scepticism about mediationcomes from prior experience. Formany years Spanish court procedurehas used a similar process: the acto deconciliación.

At a case’s first hearing, the judgeasks the parties if there is any chance

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Alvaro Mendiola

“We can’t just takethe benefits of ourhome jurisdictionwhen we want tobe a global player”Alvaro Mendiola,CuatrecasasGonçalves Pereira

of reaching an agreement before theproceedings begin. To which the an-swer is invariably: no.

This mechanism has had a spectacu-lar lack of success – most lawyers viewit as little more than a formality, or adelaying tactic at best. “No-one takes itseriously,” says Sierra.

Nevertheless in 2008 the EuropeanCommission published a Directive re-quiring member states to put in place aframework for mediation.

The government dutifully re-sponded with a draft Law to imple-ment the directive: the Civil andCommercial Mediation Bill.

But the country’s lawmakers alsodid something quite unexpected. In-stead of adopting an internationalstandard, as they had done so success-fully with the Uncitral Model Law,they opted to start from scratch.

Thus the Spanish version of media-tion will be compulsory and massivelybureaucratised. If the Bill is passed inits current form (as seems likely), me-diators will be required to register withthe justice ministry, and must take outprofessional insurance policies.

There will be no right to waiveagreements, which will have an en-forceable status akin to res judicata.“There’s nothing else like this in the

world,” says David Arias. In general, lawyers praise the confi-

dentiality provisions. But everythingelse seems to miss the point of media-tion, which is by nature an organic, in-formal process.

So why reinvent the wheel if media-tion is so alien to the Latin mentality?Some blame political arrogance.Among them is Jose Antonio Caínzosof Clifford Chance. “The ministry ofjustice and the government are alwayssaying justice in Spain is slow. Forpoliticians – especially with relation toelections – it’s very attractive to say tovoters: ‘I am changing justice to makeit quicker.’”

But if that is the government’s mo-tive, it could backfire, says Caínzos.Mediation may alleviate pressure onthe courts by removing the need tohear disputes under €6,000 – but theresulting improvement in access to jus-tice could limit the effect as more dis-putes arise.

There even seems to be an air ofenigma about precisely who is respon-sible for the notorious Bill. Many Span-ish lawyers are annoyed that they werenot consulted.

“My personal thought,” says JuanIgnacio Fernández of CMS Albiñana &Suárez de Lezo, “is that it is being

done by people who haven’t ever beento court.”

But the Bill does have a small coreof supporters in the Spanish legal mar-ket. Daniel Jiménez of Ashurst says theBill’s critics must accept that mediationis a fledgling practice in Spain. Onlyonce a culture is in place can it start toimprove, he argues.

“In my opinion since mediation isunknown in Spain there is very little tocriticise. You can’t just impose media-tion: you have to take things step bystep,” he says.

“Cases below €6,000 are not goingto be the ones that drive forward medi-ation in Spain. There is a huge igno-rance in Spain of what mediation isand the Law helps to explain what me-diation is.

“For Jiménez, the Bill’s critics mayhave another agenda: “I understandthat some arbitrators can be worriedabout mediation because they can losework.”

Whatever their motivations, themessage from Spain’s arbitrationlawyers is clear: if the governmentwishes to regulate mediation it shouldnot interfere with the runaway successof Spanish arbitration.

Arias believes the Bill will be passedunchanged into law – and ignored. “I


“When you have a client that doesn’t like you to say ‘goodmorning’ to the other party’s counsel, how can you mediate?”Carlos de los Santos,Garrigues

will be happy,” he says, “if at least itdoesn’t interfere with arbitration.”

PortugalIt’s Saturday afternoon. Down a side-street on the fringes of Lisbon’s trendyBairro Alto, scores of middle-class Por-tuguese are taking shelter in one of thecity’s coffee shops.

There’s something quintessentiallyPortuguese about the scene. And it’snot the egg custard pastries.

The room is littered with gadgets:Apple laptops, BlackBerries, Bluetoothheadsets and other hi-tech gizmospunctuate the view. It’s a stark contrastwith the ancient cobbled streets out-side.Technology is central to the country’smission to disprove its sunny, laid-back Mediterranean stereotype. Andone of the most fervent fronts is thelegal sector.

Unlike in Spain, where the experi-ence of technology differ wildly (onelawyer describes local attitudes asbeing “at the end of the nineteenthcentury”), the Portuguese legal marketis unanimous in praising the uptake ofdigita methods.

The jewel in the crown is Citius, acase management system run by thegovernment.

Lawyers and their clients log ineach morning and check if any docu-ments have been served by the court,without the need for paper or cross-country travel.

Everything is encrypted, and thePortuguese Bar association regulatesaccess. It is possible to liaise with thecourts almost exclusively online in therun-up to litigation. Judges can evenrule via Citius.

Practitioners are delighted. “Thereare some critics that say this is just afaçade that the government is making.But as lawyers this has been a greathelp,” says João Maria Pimentel ofUría Menéndez.

He adds: “Normal mail is disap-pearing. Nowadays we receive it all byemail – paper is disappearing from ourdesks. Not only are the lawyers usingthe internet but also the judges andbailiffs.”

Portugal’s digital revolution is alsofinding a foothold in the law firms’own systems. One firm has taken thisfurther than any other.

Abreu Advogados has a separate di-vision which only practises mass debtrecovery. The service depends on vol-ume, so efficient, modern technology isessential for it to be profitable.

Although the service pre-datesCitius, the system’s introduction hasbeen a massive boost, says the partnerin charge of the project, Natália GarciaAlves. Clients are able to follow theprogress of every case, even down totracking the relevant phone calls madeby Abreu’s lawyers.

“It is great because we can knowwhat is going on at any time,” shesays. “Before Citius even existed wealready did this kind of practice butwe had to go to courts with docu-ments.”

Rescue and restructureIf only this celebration of efficiency ex-tended to court procedure. Like itseasterly neighbour, Portugal suffersfrom a cripplingly slow judicial sys-tem, particularly when it comes to liq-uidating a company, which can takeup to four years.

Some respite came in the form of anew Insolvency Law in 2004. The legis-lation consolidated the processes of re-structuring and insolvency, and gaverise to new opportunities to effect acorporate rescue, even during the liq-uidation process.

Meanwhile the company enjoyscourt protection similar to that ofChapter 11 proceedings in the US.

But it wasn’t until 2006 that anychange was seen in practice. “Nowthere is clearly a different movement,”says Nuno Líbano Monteiro of PLMJ.“The banks are clearly interested inrescuing the company.”

And what a difference it makes. “The probable speed of the insol-

vency process has a lot to do with theability of the courts to deliver,” saysFrederico Gonçalves Pereira of Vieirade Almeida.

“When there’s a will to restructure –when there’s an attractive project – thecourts are not a problem. The prob-lems come with the liquidation of thecompany.

“The legislative change of 2004 isclearly helpful because it gives thecreditors the opportunity to intervenemore. My experience is that this inter-vention by the creditors has been moreeffective in the past two-and-a-half

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IFLRLaw Firm

of the YearPORTUGAL 2009

years because the importance of thecredit is a lot bigger and with highercredit we have the will to find a recov-ery solution.”

This epiphany has come at the righttime. Stricken by losses totalling €700million, Banco Português de Negócios

(BPN) collapsed in late 2008, swiftlyfollowed by accusations of fraud.

The government had little choicebut to bail out the bank, but the realdamage was collateral: a host of com-panies connected with BPN, most ofthem in real estate, now face the threat

of insolvency.“It was like a house of cards,” re-

calls Líbano Monteiro.Small industrial producers of tex-

tiles, cork and sunflower seeds are alsounder pressure.

Many will be saved; some will not.


Attempts to save the Portuguese armof German shoemaker Rohde wentawry as creditors lost faith in the com-pany’s management, which was hugelydependent on the company’s Germanparent.

Where recovery fails, companiesdrop into the tortuous process of insol-vency.

António Pinto Leite of MoraisLeitão Galvão Teles Soares da Silva &Associados, is succinct: “In Portugalit’s difficult for a company to die.”

As the firm’s managing partner hebelieves the issue is entirely down topoor management – of personnel, ofcases and of bureaucracy.

“When you have a high pressure ofbureaucratic issues, those are the is-

sues that you have to deal with first inthe morning, because if you wait twodays or three days they become hugeissues,” he says.

In Pinto Leite’s view the courts havemuch to learn from law firms. (Afterall, he says, “we were all colleaguesback in university”.)

The best judges should focus on thecomplex cases; those with manage-ment skills should manage; and therest should concentrate on clearing thelitigation backlog, hearing cases onwhich they are actually suited to rule.

Suspicious mindsIf arbitration is characterised by evan-gelism in Spain, in Portugal it is stuckin a crisis of faith.

Despite having legislation in placesince 1986, providing for ad hoc arbi-tration, companies remain uncon-vinced about the merits of the process.Manuel Cavaleiro Brandão of PLMJsays the lack of belief is particularlypronounced among smaller compa-nies.

“They like to see things in court,” hesays. “It’s a kind of private vice ofmany of our clients!”

Addressing suspicion about arbitra-tion is difficult, particularly as the Por-tuguese Arbitration Association lacksthe impact of its Spanish equivalent(which launched a Portuguese chapterin 2006).

Cavaleiro Brandão blames a lack ofinternational networking by the associ-

As a pioneering country in globalization, Portugal can provide creative thinking for different problems and dilemmas. When the matter involves the law, you should strive for the best solution.

That’s why at PLMJ we offer internationally recognised legal services in several areas of the law.

So, if you have a dispute in a Portuguese-speaking country, PLMJ is your answer.

www.plmj.com

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49

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ation. And on the domestic front, thegovernment has offered little support.

Says Cavaleiro Brandão: “In the past,the government was accepting arbitration

but not pushing it. We are now promot-ing arbitration, but I must admit in not asstrong and systematic a way as the Span-ish are doing it. We are trying to do it butmuch more from the universities and lawfirms, not the government.”

Things are at last starting to move,however. The government has passedlegislation that allows the country’slabour ministry to impose compulsoryarbitration in some cases.

Recognising its potential to alleviatethe courts, the government is also in-centivising the transfer of pending liti-gation into arbitration.

Meanwhile the Portuguese Arbitra-tion Association is weighing in with aproposal for a legislative update whichwould allow for interim measures andother provisions aimed at making arbi-tral awards more robust.

As for the caseload, much of the de-velopment has been hidden from pub-lic view - internal shareholder disputesgoing to arbitration, for example – butthere is movement.

Other areas of ADR are decidedlystationary, however.

“It is easy to talk about mediation,because there isn’t much to talkabout,” says Cavaleiro Brandão.

“Companies and their managers reallyaren’t used to it and it’s hard to sell it.”

Given the relatively rapid adoptionof arbitration and legal technology, theemergence of Portuguese mediation

may only be a matter of time. “I think it will happen. Even arbitra-

tion wasn’t regarded as a first optionin this kind of dispute and now it is be-coming more and more [prevalent],”Cavaleiro Brandão says.

“You have to pass on the message.What’s important to the market agentis to have a fast and safe way to re-solve issues. This is clearly the way todo it.”

Change is abroadAs the neighbours inch towards a sort ofintegration, the real challenge may haveless to do with what happens within thepeninsula than what happens beyond it.Every leading firm in Spain and Portugalhas one eye overseas.

For dispute resolution lawyers thismeans selling their arbitration expertiseabroad, a tricky feat considering someparties at home are yet to be convinced.

But as we have learned from thedays of empire, the Iberian ambition isquixotic by nature.

Latin America is an obvious desti-nation: the hispanophone countries for

the Spanish, Brazil for the Portuguese.Arbitrators like José María Alonso ofGarrigues and Jesús Rémon of Cuatre-casas are among the region’s most ac-tive disputes lawyers.

It doesn’t stop there. Offices in Lon-don, New York and Brussels are derigueur for large Spanish firms. Somehave offices in Beijing, Shanghai, War-saw or Bucharest.

Diaz-Bastien & Truan has the un-usual goal of winning over India. Itmay seem a strange decision for a firmin a civil-law country with no obviouscultural ties, but the demand for Iber-ian expertise in real estate and greenenergy is strong.

For the Portuguese firms, mean-while, there is a litter of ex-coloniesbrimming with opportunity: Angola,Mozambique, Cape Verde andMacau.

Some day soon the tide of insol-vency will subside, the collapsingcourts will find their feet again, andIberian arbitration will come of age.

When that happens, we may againglimpse the rival empires of old. CDR.


If arbitration ischaracterised byevangelism inSpain, in Portugal itis stuck in a crisisof faith

BSkyB v EDS:how to avoid aliability cap

The epic court battle between BSkyB and EDS,a technology supplier, has exposed the risk ofmaking overly optimistic statements in order tosecure a contract. Philip Clifford and AlexHamilton examine when pre-contractual pufferygoes too far.

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BSkyB, the UK satellite TVcompany, has succeeded inthe English High Court inclaiming that it should re-

cover losses far in excess of the £30million cap on liability under its con-tract with EDS (the information tech-nology supplier since acquired byHP). The amount of damagesawarded in February was £200 mil-lion, with a further £75 million pay-ment awarded in March.

BSkyB’s claim arose out of a £46 mil-lion project for EDS to provide a newcustomer relationship management(CRM) system for BSkyB’s call centres.The project overran massively andBSkyB sued EDS, claiming over £700million in damages. The judge held thatEDS was liable for fraudulent misrepre-sentations and that these claims werenot subject to the contractual caps on lia-bility.

Not your usual caseThe case has been closely watched, ifnothing else for its sheer size. It lastedover six years, with 109 days in court.The much anticipated judgment took15 months to be delivered and camein at more than 460 pages. With fewinformation technology industrycases actually going to trial, the casehas inevitably been described bycommentators as a milestone judge-ment.

The case is, however, unlikely tobe repeated soon as so much de-pended on the behaviour of one ofthe main witnesses for EDS who wasfound by the judge to have “demon-strated an astounding ability to bedishonest”. The witness, Joe Gal-loway, who had been the head ofEDS’s regional CRM group at thetime of the bid, was challenged on hisclaim that he had an MBA qualifica-

tion from a college in the US VirginIslands. Despite the witness describ-ing in detail the college and how hehad attended it, BSkyB showed thatthe college sold degrees through itswebsite, as memorably illustrated bya BSkyB lawyer’s dog being grantedone!

The judge said that “[h]aving ob-served him over the period he gavehis evidence and heard his answers toquestions put in cross-examinationand by me, which have been shown tobe dishonest, I also consider that thisreflects upon his propensity to be dis-honest whenever he sees it in his inter-est, in his business dealings. Whilst, ofcourse, this does not prove that JoeGalloway made dishonest representa-tions, it is a significant factor which Ihave to take into account in assessingwhether he was dishonest in his deal-ings with Sky.”

50

Expert Views

The judgmentIn his judgment of 26 January 2010,Justice Ramsey found that: EDSbreached the main contract withBSkyB.

During the competitive bid andprior to BSkyB and EDS entering into aletter of intent and then the main con-tract, EDS fraudulently misrepresentedthat it had carried out a proper analy-sis of the amount of elapsed timeneeded to complete the initial deliveryand go-live of the customer contactcentre and that they held the opinionthat, and had reasonable grounds forholding the opinion that, they couldand would deliver the project withinthis timescale.

Prior to an amendment to the con-tract being agreed by the parties, EDSmade a negligent misrepresentationthat it had developed an achievableplan to get the project back on track,which had been the product of properanalysis and re-planning.

Justice Ramsey held that EDS in-tended BSkyB to rely on the represen-tations, which BSkyB did, to select EDSfor the CRM project instead of Price-waterhouseCoopers, to enter into theletter of intent and the main contractand to continue with EDS rather thanselect an alternative systems integratorfollowing difficulties with implemen-tation of the project. To reach this con-clusion, he considered many of thedocuments and meetings that typicallyarise during the competitive process,including:• EDS’s Response to Sky’s invitationto tender (ITT) - the judge said that theuse of phrases such as “on time” and“within the required timescales” couldbe taken as confirmation of thetimescales being represented. Thejudge also referenced diagrams withinthis Response in support of his find-ings. • Planning documentation - the judge

commented that there was “surpris-ingly little documentation relating tothe process by which EDS prepared itsResponse”. He considered the twoproject plans setting out sequence andtime for the deal, the work that hadgone into the production of the plans,variations between the two plans, vari-ations between the plans and other evi-dence, and the level and nature of theconsideration of the plans. • Witness evidence - key participantsin the projects, on both sides, weresubject to detailed cross-examination. • EDS internal report - the judge con-sidered and quoted a report which wasthe result of a review to monitor thedevelopment of the project (prior evento the main contract being signed). • Internal EDS e-mails. • Planning meetings and oral state-ments made in those meetings.

Significantly, the evidence high-lights that potential liabilities aroseearly on in the project; the judge wentas far as to rely on EDS’s response tothe ITT, possibly one of the earliestdocuments between the parties, whendeciding if misrepresentations hadbeen made.

Finally, the judge was able to findthat the misrepresentations were madefraudulently based on the evidence ofjust one of EDS’s witnesses.

The consequencesHowever unusual this case may havebeen with the drama surroundingEDS’s witness and the judge’s relianceon this to find fraudulent misrepresen-tation, we do expect this case to lead tosignificant changes to pre-contract dis-cussions in the information technologyindustry.

Suppliers are going need to reviewhow their sales teams operate andthink again whether hyperbole thatmay have been considered to date asmere “puffery” can any longer be

safely included in bids. The teams willneed guidance on not only what can besaid, but also how key assertionsshould be backed up with internal doc-umentation. We are not convinced thatthis ruling will reduce suppliers’ ap-petites for taking on riskier projects,but we do believe that suppliers willbe more cautious in how they describetheir capabilities and the timelines theycan meet.

Customers on the other hand, willwant to ensure that they have docu-mented the key representations madeby the supplier that they are relying onand preferably include these in thecontract.

Hopefully, greater effort being putinto clarifying what can be achievedwill lead to more projects being deliv-ered on time and on budget, or at leastmore realistic timelines and budgetsbeing agreed at the beginning. CDR

The authors would like to express theirthanks to the co-authors of this article,Brian Meenagh and Jane Rahman.

Philip Clifford and Alex Hamilton are bothpartners in Latham & Watkins’ disputeresolution practice.

Suppliers need toreview how theirsales teamsoperate and thinkwhether hyperbolethat may have beenconsidered‘puffery’ can besafely includedin bids

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For a man who admits “in thepast I have not been hugelyinterested in the subject ofcosts”, Lord Justice Jackson

appears to have had a Damasceneconversion.

In his much anticipated final reporton civil litigation costs, Jackson LJ setsout, in meticulous detail, an impressiveand comprehensive survey of the cur-rent approach to costs in civil litigationin England.

Perhaps Jackson LJ’s most radicalproposals are to be found in the per-sonal injury/defamation spheres. Theseproposals, taken in the round, do ap-pear to be helpful for defendants withmeritorious defences. What about com-mercial disputes? Jackson LJ appears tobe content to leave the CommercialCourt relatively untouched. He notesthis court has recently undergone a re-view of its procedure, conducted a pilotscheme of new measures and, onlymonths ago, introduced consequentialreforms into its guide.

Although he warns against compla-cency, Jackson LJ acknowledges theoverwhelmingly positive feedbackfrom Commercial Court users, as wellas the court’s continuing attraction toforeign litigants. Nevertheless, the re-

port does contain many interestingproposals which, if adopted, wouldhave an impact on users of the Com-mercial Court and commercial practi-tioners. Highlighted below are threesuch proposals.

Contingency feesFirst, Jackson LJ’s recommendations inrelation to contingency fee arrange-ments (where a lawyer’s fee is calcu-lated as a percentage of moniesrecovered, with no fee payable if the

client loses) are notable.Such arrangements are not cur-

rently permitted in contentious busi-ness in England; Jackson LJrecommends they should be. He rec-ommends adopting what he describesas the “Ontario Model”, where costsshifting is effected on a conventionalbasis (i.e. loser pays) and not by refer-ence to the contingency fee. He sug-gests contingency fee arrangementsshould be properly regulated andshould not be valid unless the clienthas received independent legal advice.

Given this signal, it is anticipatedthat practitioners will now begin toscrutinise with increased urgency thepractices in other jurisdictions wheresuch arrangements are permitted, suchas the US. The change in culture thatthis could herald should not be under-estimated.

SettlementSecondly, on Part 36 offers (settlementoffers) Jackson LJ recommends an up-lift of 10% on damages for a successfulclaimant who beats its Part 36 offer.For claims over £500,000 he suggests“there may be a case for scaling downthe uplift”.

In high-value claims even a reduced

Lord Justice Jackson’s final report aims tobring down the mountainous cost of litigationin the UK. Sarah Garvey shares her take onthe proposals.

A commercial lawyer’sperspective

Practitioners willnow scrutiniseother jurisdictionswherecontingency feesare permitted. Thechange in culturethis could heraldshould not beunderestimated

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percentage uplift may well influence theconduct of parties in litigation. It mayencourage greater realism and precisionin the formulation of settlement offers inthe first place by claimants keen to getthe benefit of the uplift, as well as in-creasing pressure on defendants to con-sider such offers seriously, and at theearliest opportunity.

This proposal will no doubt be wel-comed by claimants, as it should serveto promote early settlement. On a re-lated point, Jackson LJ suggests theabolition of the Carver principle. Thiswould mean that when the court wasassessing whether or not a party has“beaten” a Part 36 offer, it only has tolook at monetary figures to work thatout. This proposal is welcome, as itwill promote greater certainty.

The disclosure ‘menu’Thirdly, disclosure is recognised in thereport as a major source of costs incommercial litigation, with e-disclo-sure increasing this burden in recentyears. To date, that cost has often beenaddressed less by active case manage-

ment and more by having the samedocuments sifted initially in variouslow-cost centres outside the EU.

Jackson LJ recommends that stan-dard disclosure should no longer bethe default position in large com-mercial claims. Rather, there shouldbe a “menu” of options, containingdifferent breadths of disclosure fromwhich the court and the partieswould choose at the first CMC. Thisproposal is interesting and throwsup many possibilities.

It may, for example, be attractive tocertain foreign litigants who mightwish to agree with the other side to amore limited, civil law approach todisclosure (assuming the court agrees -one intriguing issue will be how thecourt reacts to such requests).

However, the proposal may also in-troduce a new element of uncertainty,making it more difficult for solicitorsto advise on the prospects of theirclient’s claim succeeding (if there is un-certainty as to whether a “smokinggun” document will have to be pro-duced, for example). It will also make

it more difficult to advise on costs atthe outset if there is uncertainty aboutwhether extensive or more limited dis-closure will be ordered.

If pricing litigation becomes stillmore difficult, this may create interest-ing tensions for contingency fee andlitigation funding assessments. Thereis no recommendation for the engage-ment of disclosure assessors (theprospect of appointing an experiencedlawyer to assist the Court with disclo-sure had been mooted in Jackson LJ’spreliminary report).

Further, on e-disclosure specifically,Jackson LJ supports the draft practicedirection on e-disclosure and recom-mends training for lawyers and judgesin this area.

The UK’s then Justice Secretary,Jack Straw, described the report as a“remarkable piece of work”. At 557pages long, there was certainly a lot forhim to digest in the months leading upto the general election. CDR

Sarah Garvey is a lawyer at Allen &Overy.

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UndisputedleaderOut now: The International Comparative Legal Guide toLitigation & DisputeResolution 2010

www.iclg.co.uk

The Arbitration Institute ofthe Stockholm Chamber ofCommerce has recently ren-dered the award in the Sev-

mash case in favour of the Norwegiancompany Odfjell. The winning partyconsidered the amount of damagesawarded to be small. However, eventhis amount can be difficult to obtainthrough the process of enforcementand recognition of arbitral awards inRussia.

Facts of the disputeThe Russian shipyard Sevmash is cur-rently in financial hardship that has al-ready caused a number of delayedprojects. As the result of one such delay,one of its customers, namely Odfjell,filed a complaint before the SCC arbitra-tion. The tribunal held Sevmash liablefor $43.8 million to Odfjell for the dam-ages caused by a failure to deliver 12chemical tankers. (The total amount ofthe contract was $540 million.)

Of note is the fact that the contractfor construction of chemical tankers,entered into in 2004, was touted as ahistorical deal in Norwegian-Russianindustrial cooperation. However, therelationship between the parties soonbegan to sour. The first vessel, sched-uled to be delivered in September2007, was postponed for an additional14 months. The same happened withother projected deliveries. Fed up withthis, Odfjell unilaterally terminated the

contract in February 2008. According to Sevmash, the con-

struction period needed to be extendeddue to the lack of funding. This wasbecause of prices in the contract fixedat the 2004 level. According to Odfjell,the increase of the original price bynearly 10% was considered by the par-ties. However, when subsequentlySevmash refused to speed up produc-tion, asking instead for even moremoney, the deal fell apart. Odfjell’sCEO Terje Storeng then said that theRussian shipyard had “acted with dis-respect as well as a lack of will to meetthe contract conditions”.

Initially, the Norwegian companysought compensation in the amount of$300 million. However, the tribunalgranted the relief only in part. Sev-mash’s counterclaim was rejected. Inaddition, the cost of the arbitration wasallocated as 75% against Sevmash.

Likely actions of the partiesThe Sevmash case in many aspects re-sembles a number of recent disputes,such as the one concerning Swedishcompany Stena RoRo, and therefore wecan anticipate how the parties are likelyto act. The losing party will most likelytry to challenge the award at the place ofarbitration, that is, in the Swedishcourts. In contrast, the lawyers for Odf-jell will apply to the Russian courts forrecognition and enforcement.

In this situation the Russian courts

may follow the practice which has re-cently been established by theSupreme Arbitrazh Court in the StenaRoRo case. For the first time, Russia’shighest court in its ruling invoked Ar-ticle VI of the New York Conventionand Article 144(5) of the Russian Arbi-trazh Procedural Code, which providethat the process of enforcement of anaward may be stayed until an applica-tion to set the award aside is resolvedby the courts at the seat of arbitration.

The other issue that may be of con-cern for the Swedish company is theapproach to the concept of public pol-icy which Russian courts take whenthey consider enforcement of foreignawards. However inconsistent thepractice on this matter is, the arbitrazhcourts most frequently find violationsof public policy when an award is ren-dered against major ‘strategic’ Russianenterprises. Sevmash - being Russia’slargest shipyard, specialising in build-ing nuclear-powered submarines, oiland gas platforms and tankers, andwhose golden share is held by the state- can scarcely make an exception.

How the courts have actedIt is often believed that Russian courtsconstrue the concept of public policy ina very broad manner. In this respect,going back to the Stena RoRo case, itwould be worth observing how the po-sition of arbitrazh courts at differentlevels evolved in this case.

Russia: Sevmash case showsgrowing acceptance of foreignawards Russia’s treatment of a recent cross-bordercontract dispute holds clues about the country’schanging attitudes towards foreign arbitral awards,write Irina Maisak and Alexander Vaneev.

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The shipyard Baltiysky Zavod wasthe respondent and the losing party inthis case.

The court of first instance ruled thatthe award had been rendered pursuantto the contract that the parties had notentered into and, consequently, on thebasis of an arbitration agreement thathad never been made by them. As thetext of the contract reads, the transac-tion shall be approved by the boards ofdirectors of each party and, in the ab-sence of such approval, the contractshall be deemed null and void.

Stena RoRo failed to provide the min-utes of the board meeting for transactionapproval. The court of first instance er-roneously considered the minutes asforming the part of the contract andtherefore did not permit the submissionof witness statements as evidence of theapproval. This was considered by thecourt of first instance falling under Arti-cle V(1)(c) of the New York Convention.(The award deals with the difference notcontemplated by the terms of the sub-mission to arbitration.)

In addition, the court found that thedebtor was a “strategic” enterprise(and therefore a Russian enterprise)and the enforcement would run itbankrupt, which would be distressing“for the state in general and for the in-terest of its nationals”.

The court of second instance re-jected the latter argument butbrought under the heading of public

policy the findings concerning failureto conclude a contract. The court elab-orated that it was improper to makethe party liable for non-performanceof a contractual obligation that didnot exist. Such liability was declareda violation of the fundamental princi-ples of Russian civil law, in particularthe principles of freedom of contractand equality of parties, as well as theprinciple of liability.

Changing outlook of the courtsThe aforementioned judgments seem tobe evidence of the hostility of Russiancourts to foreign arbitration awards af-fecting the most important local enter-prises. This practice has been changed.

It is therefore no surprise that theSupreme Arbitrazh Court dissentedwith the lower courts and held thatthe issue of entry into force of a con-tract refers to the merits of the caseand therefore lies within the scopeof the tribunal’s competence. Sincethe tribunal of the Stockholm Cham-ber of Commerce had already con-sidered this issue, it was improperto revisit it through Russia’s na-tional courts.

Furthermore, the Supreme Arbi-trazh Court held that the requirementsconcerning the order and recording ofthe approval of major transactions bylegal entities shall be governed by thelaw of the country of a legal entity’s in-corporation.

Thus, Russia’s highest court foundthe application of public policy irrele-vant to this case and settled that theissue of whether the contract covered bythe arbitration agreement is bindingshall be subject to the tribunal’s consid-eration, rather than that of the nationalcourts.

A final issue which is expected to bedecided in the Stena RoRo case andmay have influence on the Sevmashcase is the applicability of arbitration-related provisions contained in the bi-lateral Agreement on the Trade inGoods and Payments between theUSSR and Sweden, concluded on 7September 1940 (confirmed by thecountries in 1976 and later by a specialprotocol in 1993).

These provisions include the ruleson arbitration, as well as the rules onenforcement and recognition of tribu-nal awards, which differ from thosespecified in the New York Conventionand therefore can be used by the Russ-ian debtor as additional grounds forchallenging the award.

The case is pending proceedings re-lating to a challenge initiated by the re-spondent in the Swedish courts. TheSupreme Arbitrazh Court is expectedto return to the case after those pro-ceedings are finished. CDR

Irina Maisak and Alexander Vaneev areassociates of the dispute resolution practiceat Magisters (Moscow).

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On 11 September 2009, theUS Court of Appeals forthe Federal Circuit(CAFC) issued its opinion

in Microsoft’s appeal of the $358 mil-lion damage award in Lucent. In ajury trial, Microsoft was found tohave infringed a patent that describesa method to enter information on acomputer screen without using a key-board (for instance, by using a stylus).Microsoft appealed the damagesaward to the CAFC. Finding that the“damages calculation lacked suffi-cient evidentiary support”, the CAFCremanded the matter for a new trialon damages.

Less than two weeks later, on 23 Sep-tember 2009, the CAFC heard oral argu-ments in Microsoft’s appeal of thecourt’s decision in i4i. The patent thatMicrosoft was found to have infringeddescribes a method to edit ExtensibleMarkup Language (XML) files. The juryfound that Microsoft incorporated thetechnology described in the patent andawarded damages in the amount of$200 million to i4i. Microsoft appealedthe damages award and, in its question-ing at the hearing, the CAFC took upseveral issues related to the appropriatestandard for estimating damages.

In March 2009, the judge in the casemade a ruling related to damages inthe Cornell matter. A jury had foundthat Hewlett-Packard infringed apatent that describes a method to reada component of a processor’s instruc-

tion reorderbuffer (IRB). The juryawarded damages in the amount of$184 million to Cornell. In response toa post-trial motion by Hewlett-Packard, Judge Rader reduced thedamage award to $53 million, less thanone-third of the amount awarded bythe jury.

While the details differ, several com-mon themes emerge from the CAFCjudges’ consideration of the methodolo-gies on damages in these three matters.These common considerations havegeneral applicability in matters involv-ing patent damages. First, the economicapproach to calculating reasonable roy-alty damages, because it focuses on theincremental value provided by thepatented technology, does not dependon whether the patented technology is alarge or small component of the overallproduct.

Second, it is not economically sensi-ble to determine the royalty base androyalty rate independently of one an-other because a mismatched rate andbase can lead to an unreasonable dollaramount of royalties. Finally, non-eco-nomic approaches to calculating rea-sonable royalties, such as the use ofnon-comparable benchmarks and theso-called 25% rule, are unreliable be-cause they are not based on factualsupport for the patent’s use in the spe-cific cases at hand.

Size doesn’t matterWhether the patented feature is small

or large is not the right question. In-stead, the reasonable royalty analysisshould seek to determine the economicvalue generated by the patented fea-ture relative to the next-best (non-in-fringing) alternative. In principle, asmall feature might generate substan-tial value. Indeed, the product may notbe commercially feasible without thefeature. Conversely, a large featuremight have a very similar next-best al-ternative, making its economic valuesmall.

The economic value of the patentedtechnology derives from the licenseebeing able to earn higher profits (i.e.through charging a higher price for ormaking greater sales of the product)with the patented component thanwithout it. If the patented componentis unimportant (to customers and thelicensee), it will not have a substantialimpact on demand for the product,and thus it will not have a substantialeffect on the licensee’s price, sales andprofits (unless it is a cost-saving tech-nology).

The reasonable royalty analysisshould focus on the link between thepatent and the licensee’s profits (indollars). There are many accepted andrigorous economic approaches that canbe used to determine how the demandfor the product would change, if at all,when an additional feature is added to,or removed from, the product. Theseeconomic approaches do not dependon whether the patented technology is

Three cases reshaping patentlicensing practice

Several recent disputes over technology patentsshow the emergence of a smarter approach tocalculating royalty damages, write Elizabeth MBailey, Gregory K Leonard and Alan Cox.

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a large or a small part of the overallproduct - they measure the economicvalue in either case.

Royalty and rate intertwinedIn the past, whether the patentedcomponent is a small or large part ofthe overall product has been debatedin the context of whether the so-calledentire market value rule can beinvoked to argue that the royalty baseshould be the entire product asopposed to something smaller.However, the focus on the royalty basemisses the point as a matter ofeconomics. Litigants and partiesengaged in licensing negotiations careabout the total dollar amount ofroyalties. The royalty rate and theroyalty base must be chosen inconjunction so that the product ofmultiplying them will yield a dollaramount that reflects the economicvalue of the patented technology.

Inside expert testimonyNon-economic approaches suffer froma number of problems. First, as dis-cussed above, it makes no economicsense to determine a royalty rate inde-pendently of the royalty base becausethe product of the two independentlydetermined numbers may yield a dol-lar royalty that has no relationship tothe incremental value of the patentedtechnology. Second, purportedly com-parable licenses may not, in fact, becomparable. Licensing agreements and

the patents that underlie them vary intheir attributes. Unless the importantattributes are the same across two li-censes, they will generally not be com-parable.

Similarly, the economic circum-stances surrounding the typical or in-dustry average licensing negotiationthat led to the typical or industry av-erage royalty rate are unlikely to cor-respond to the economiccircumstances surrounding the hypo-thetical negotiation at issue. Before anexisting licence can be used as abenchmark, one must carefullyanalyse whether it is truly compara-ble in terms of factors such as thetechnology covered, the product ofthe licensee, the degree of competi-tion between the licensor and li-censee, and cross-licensingarrangements.

In some situations, damages expertsapply the so-called 25% rule - i.e. theroy technology because it is based onoperating profits of the product ratherthan the incremental value providedby the patented technology.

Furthermore, it imposes a one-size-fits-all approach to determining theroyalty rate. In the real world, eachpatent has a different economic value.Moreover, the economic circumstancesthat influence the negotiated royaltytypically differ substantially from ne-gotiation to negotiation, even if thesame patent is involved. As with non-comparable licences, failure to take

these negotiation-specific economic cir-cumstances into account can lead to er-rors in the resulting royalty.

ConclusionA reasonable royalty is one whichmakes the patentee whole with respectto the infringement. In contrast to theuse of non-comparable benchmark li-cences and the 25% rule, the economicapproach to calculating a reasonableroyalty is reliable because it isgrounded in the specific economic con-ditions and facts of the case and fo-cuses on the value of the patentedtechnology. The economic approachtakes into account the alternativesavailable to both parties to determinethe range of royalty payments overwhich the parties would have bar-gained. As these three cases illustrate,using a damages expert who utilisesapproaches that do not account foreconomic and business realities, suchas non-comparable benchmark licencesor the 25% rule, can result in damagecalculations that risk being overturnedon appeal. CDR

This article was originally published inManaging Intellectual Property.

Elizabeth Bailey is a Vice President inNERA Economic Consulting’s Boston of-fice and Alan Cox and Gregory Leonardare Senior Vice Presidents in NERA’s SanFrancisco office.

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The Belgian legal system rivalsthat of neighbouring Ger-many in its reputation for ef-ficiency and reliability.

Commercial cases take, on average, sixto 12 months to process in the courts.

But at appeal level disputes can lastbetween two and three years beforethey are concluded.

The speed with which your case isdecided depends on which of the fiveregional courts your matter is heard in.Brussels and Liège have a significantbacklog of cases, while Flanders andMons are less burdened.

“There have been various efforts toreduce the backlog of the judicial sys-tem,” says Christophe Ronse, litigationhead at Belgian law firm Altius, “butwith varying results.”

A key feature of Belgium’s judicialsystem is the non-existence of docu-ment discovery.

Production of a document will onlybe granted when it can be shown thatit is reasonably likely to be in the op-ponent’s possession and to contain

facts that are relevant to the dispute.The absence of discovery saves both

time and costs, even though legal costsgenerally fare well when comparedwith other jurisdictions.

Since 2007 the losing party pays op-posing counsel’s costs; the amount de-pends on the level of compensationawarded in the judgment. But eventhese are capped at €30,000 and courtfees are nominal.

The appearance of witnesses in pro-ceedings is also rare. You must demon-strate that the witness is essential toyour case and specify the topics uponwhich the witness will be questioned.

“In 30 years of litigating, I have onlyseen a designated witness in a com-mercial case three or four times,” saysBrussels-based Françoise Lefèvre,global head of litigation at Linklaters.

Belgium’s experience of class ac-tions is also limited. But it is antici-pated that class actions will eventuallybecome a reality, as Belgium falls inline with the rest of Europe.

“Everybody is prepared for the ar-

rival of class actions,” says Jean-PierreFierens, head of litigation at Stibbe,“except for the Employers’ Federation,which is very concerned about poten-tial attacks on Belgium’s corporations.”

Litigation Belgian law is modelled on the Frenchlegal system.

The judiciary is an independentgovernmental body with equal stand-ing to the legislative and the executivebranches. Civil lawsuits are broughtbefore district courts of first instance.

Other district courts include thecommerce and labour tribunals. Ver-dicts handed down by these courtsmay be appealed before five regionalcourts of appeal or the five regionallabour courts.

However, if your case is urgent, youcan request summary proceedings be-fore the commercial court, court of firstinstance, or court of appeal, dependingon the nature of your case.

The highest court is the SupremeCourt of Cassation, whose function is

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Disputeresolution in BelgiumThe fallout from the sale ofFortis Bank, Belgium’s prizedlender, has been a showcasefor the country’s streamlinedcourt system. But the uptakeof ADR is dismal.

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only to deal with questions of law, notfact.

The case: In 2008 Fortis Bank found it-self in need of an €11.2 billion govern-ment bailout. Then, to the fury of itsshareholders, the Belgo-Dutch lenderwas sold to French bank BNP Paribas.

Reversing a first-instance decision,the Brussels Court of Appeal froze thedeal with BNP Paribas.

The court ordered that the Belgiangovernment should not have agreedthe deal without the shareholders vot-ing on the transaction.

And when a Supreme Court reportconcluded in December 2008 that Bel-gium’s prime minister Yves Letermehad attempted to steer the first in-stance court ruling, the governmentcollapsed.

“The speed with which the Fortiscase was carried out is a perfect exam-ple of how efficient Belgium’s legalsystem can be when you convince thecourt of the real urgency of the situa-tion,” says Lefèvre.

Fortis and other co-defendantssought recourse before the SupremeCourt, which quashed the appeal deci-sion in February 2010.

But a new deal with BNP Paribashad already been approved by the ma-jority of shareholders in April 2009.

The Fortis case is of added impor-tance to Belgium because it was con-ducted similarly to a class action.

“Fortis was the largest financial in-stitution in a very small country,” saysFierens. “Almost every Belgian citizenwas effectively a shareholder.”

Linklaters acted for Fortis and Mis-chael Modrikamen, an independentlawyer, represented about 2,400 angryshareholders.

The market: Either Dutch or French isrequired to be spoken in court, de-pending on the region where the courtis established.

Consequently there are very few in-ternational law firms that can offer acredible local litigation offering, andthey tend to focus more on interna-tional arbitration.

Allen & Overy and Linklaters over-came this hurdle by merging with localfirms. The former joined up with LoeffClaeys Verbeke and the latter with De

Bandt van Hecke & Lagae.Of the domestic practices, Stibbe

and Hanotiau & van den Berg aremajor players in dispute resolution.

ArbitrationBelgium is keen to be recognised as anattractive venue for international arbi-tration. But for many internationalclients looking for an arbitration seat,Belgium is not an obvious jurisdiction.

Many believe the country lacks largenumbers of arbitration cases because itsstate court system works so well.

Says Fierens: “I am surprised to seehow many low-value cases go to arbi-tration in Belgium even though thestate courts are virtually free.”

Yet when arbitration is the pre-ferred route, clients can benefit frommore reasonable costs.

The case: The Brussels Court of Ap-peals recently delivered a landmarkjudgment in the longrunning Cytec vSNF saga.

SNF had terminated a long-termsupply agreement because of allegedanti-competitive effects.

The contract provided for ICC arbi-tration in Brussels. Two awards wererendered in Brussels in 2002 and 2004in Cytec’s favour. SNF claimed the de-cisions breached Articles 81 and 82 ofthe EC Treaty.

In 2007 the Brussels first instancetribunal set aside the awards, holdingthat the decisions were in breach of Eu-ropean competition law and violatedpublic policy. Meanwhile the FrenchCourt of Appeal granted orders to en-force the awards in France.

Eventually a 2009 Brussels Court ofAppeal decision reversed the first in-stance judgment, refusing to set asidethe arbitral awards and concludingthat there was no breach of public pol-icy. It also found that Article 82 hadnot been violated.

Linklaters acted for Cytec. Thecounsel for SNF were Bernard Han-otiau and Olivier Caprasse of Hanotiau& van den Berg.

The market: High-profile internationalfirms such as Allen & Overy and Lin-klaters are among the market leaders forinternational arbitration in Belgium.

There is, however, a core of inde-

pendent local talent. Hanotiau & vanden Berg and Stibbe yield strong arbi-trators such as Bernard Hanotiau andVera van Houtte, respectively.

Some of the country’s best-knownpractitioners are based in cities otherthan Brussels. These include Hansvan Houtte in Leuven; Didier Matrayin Liège; and Herman Verbist inGhent.

Mediation“I’ve been hearing for the last 10 yearsthat mediation is taking off,” saysFrançoise Lefèvre of Linklaters. Shehas been involved in four mediationsover the last two years and her firm’sBelgian litigation group has been man-dated on between eight and 10 in thesame period.

But for many litigators, it’s all talk -some have only experienced mediationfirst-hand in relation to family lawmatters.

A lot of lawyers believe that the Bel-gian court system is efficient enough tonegate the need to seek recourse in me-diation.

Says Christophe Ronse of Altius:“Despite the efforts of representativeassociations such as the Brussels Busi-ness Mediation Center and somejudges to recommend mediation theoffer is very rarely taken up in com-mercial disputes.”

It’s not only a matter of costs.Fierens, an accredited mediator, re-ports a cultural resistance to the idea.

Clients in Belgium are not psycho-logically ready for mediation at thestart of a case, but only after a fewyears when they are exhausted andhave explored all options, he says.

“In Belgium there is the view that ifthe lawyers cannot sort it out betweenthemselves then a mediator will nothave much more luck,” Fierens says.

The market: Just as elsewhere, themarket for mediation centres on indi-viduals rather than law firms.

Avi Schneebalg, an independentpractitioner, and Patrick Van Leynseeleof Dal & Veldekens are among Bel-gium’s active mediators. Other notablemediators include Jean-Pierre Fierens ofStibbe, Didier Matray of Matray Matray& Hallet and Pascal Hollander of Han-otiau & van den Berg. CDR

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The length taken to conduct acommercial case in Austriacompares reasonably well toother European jurisdic-

tions. On average, first-instance casescan last up to two years, with appealstaking a further six to nine months.Cases in the Supreme Court may takeanother six to nine months.

Key features of Austria’s judicialsystem include the summarising ofhearings. Literal transcripts are notproduced.

Nonetheless the results are ab-solutely reliable, believes BettinaKnoetzl, dispute resolution head atWolf Theiss.

Like in Germany, disclosure is ab-sent in Austria. The upside is obvious.“Conducting litigation in Austria isgenerally much cheaper than in theUK,” says Knoetzl.

Yet the initial costs of processing aclaim can be steep. Before commencingthe case, Austria’s Court Tariff Actcompels claimants to pay 1.2% of theclaim value into court.

If at any point the case is settledthen these court fees are lost. But if youwin the case, the loser pays your costsin accordance with the Lawyers’ TariffAct (Rechtsanwaltstarifgesetz).

Contingency fees do not exist inAustria but a number of external fi-nancing companies have begun financ-ing disputes, offering to pay the legalcosts in exchange for a percentage ofthe final award.

Meanwhile the arrival of US-styleclass actions in Austria remains hotlydebated. But judges can use their dis-cretion to bundle claims together.

“Yet they are reluctant to do this,”says Irene Welser, dispute resolution

head at Cerha Hempel SpiegelfeldHlawati (CHSH), “because the actualfacts of each case are different.”

Litigation Like neighbouring Germany, Austriahas a civil-law system.

The Austrian judiciary is independ-ent and Austrian judges are consideredtrustworthy as well as effective.

At first instance, the case will beheard before a district court (Bezirks-gericht) or a regional court.

At second instance appeals are madeto a regional court if the case was ini-tially brought before a district court.

And if a regional court decided thefirst instance decision, the appeal willbe heard before a province court (Ober-landesgericht).

The Supreme Court (Oberster Gericht-shof) is the highest court and limits itself

Disputeresolutionin Austria Thousands of cases linkedto the Meinl EuropeanLand (MEL) andImmofinanz financialscandals are offeringAustria the opportunity toparade the merits of itscourt system. But Austria’strue star is arbitration.

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to issues of legal importance.No oral hearings take place before

the Supreme Court.

The cases: Allegations over frauderupted over investment funds atMeinl European Land (MEL), a quotedproperty group closely held by theMeinl dynasty.

Julius Meinl, chairman of MeinlBank, was charged with breach oftrust, overcharging fees and fraud inconnection to his role at MEL.

MEL had completed a huge buybackof shares to support its share price. Butin breach of domestic stock exchangerules the buybacks were not publicisedin Austria. MEL has since been sold andrenamed Atrium Real Estate.

Wolf Theiss is active on theclaimants’ side of the Meinl matter.

Similarly Immofinanz’s KarlPetrikovics has faced breach of trustand fraud allegations.

Because of Meinl and Immofinanz,around 12,000 cases have been lodgedin the Commercial Court.

The market: Local firms dominate theAustrian dispute resolution market.Big names include CHSH, Wolf Theiss,Schoenherr, Dorda Brugger Jordis andAndreas Reiner & Partner.

International powerhouses such asFreshfields Bruckhaus Deringer andCMS Reich-Rohrwig Hainz Rechtsan-wälte are also among the jurisdiction’smost active firms.

But litigation before ordinary courtsremains very much in the hands ofoutstanding individuals.

ArbitrationFor many CEE clients, Austria is theperfect setting in which to conduct anarbitration hearing.

Clients know what to expect fromVienna’s neutral, arbitration-friendlyseat. There are no surprises, particu-larly because the arbitration system ismodelled on the Uncitral Model Law.

“For legal, emotional and geograph-ical reasons, Vienna is the perfect placefor CEE clients to have their arbitrationheard,” explains Christoph Liebscher,arbitration head at Wolf Theiss.

Plus Austria has an excellent pool ofarbitrators whose knowledge of theCEE region is second to none. Many ofthem have CEE roots themselves.

New-generation arbitrators are es-pecially impressive. “They producequality decisions that are difficult tochallenge,” says CHSH’s Welser. “Plusthey can work in foreign, even CEElanguages. This is rarely the case inLondon.”

Mandates are also arriving from be-yond CEE’s borders. Russians tradi-tionally go to Stockholm or Londonbut recently Liebscher has noticed aninflux of Russia claims. “Russians in-creasingly see Austria as a good placeto conduct business,” he says.

The cases: Freshfields Bruckhaus De-ringer is instructed on a widely publi-cised Icsid arbitration concerningAustria’s utility company EVN and itsinvestment acquisition of 90% of theshares of EVN Macedonia, the coun-try’s only electricity distribution andsupply company.

The arbitration is in response to pro-ceedings initiated by the Republic ofMacedonia against EVN Macedonia.

Macedonia has demanded €93 mil-lion plus interest for unpaid electricitydating back to pre-privatisation days.

Such proceedings breached Mace-donia’s share purchase agreement withEVN and its obligations under bilateralinvestment treaties.

Lead partner Willibald Plesser,CEE/CIS regional co-head at Fresh-fields Bruckhaus Deringer, is workingclosely with his Paris, London and UScolleagues on the arbitration.

The case is significant, not just be-cause of the size and complexity of thecase, but also because of the impact itcould have on other investments in thesector and region.

Meanwhile Wolf Theiss has repre-sented Danish Polish Telecommunica-tion Group I/S in Uncitral arbitrationproceedings.

The case concerns a joint venturerevenue dispute over Poland’stelecommunications infrastructure.

The €1 billion arbitration has beendivided into three different phases and

the arbitral award for phase one is cur-rently awaited.The market: Several of Austria’s leadingdomestic and international law firmshouse strong arbitrators, such as Gün-ther Horvath of Freshfields BruckhausDeringer; Christoph Liebscher of WolfTheiss; Benedikt Spiegelfeld of CHSH;and Gerold Zeiler of Schoenherr.

MediationAustrian law firms witnessed a greatdeal of hype over mediation aroundsix or seven years ago.

But although it is common in envi-ronmental and family matters, media-tion is not yet a popular option forresolving commercial disputes.

Indeed Austrians are sceptical of me-diation, especially when many media-tors are not lawyers but come fromother professions, such as psychologists.

Plus becoming registered as a medi-ator is a tedious process.

Freshfields Bruckhaus Deringer’sWillibald Plesser is a certified mediatorbut has rarely conducted formal busi-ness mediations.

Since Austria’s legal system worksso well there is little incentive for par-ties to resort to mediation in businessmatters.

But because of Austria’s recent fi-nancial scandals, this could change ifthe workload and backlog at the Com-mercial Court continues to build up.

Otherwise mediation tends to beused where disputes between partiescannot be resolved in court. For exam-ple, mediations are often sought in re-lation to internal conflicts within anorganisation.

But although few people knew ofmediation’s existence until a couple ofyears ago, Knoetzl believes that peoplenow have a good understanding ofhow it works.

Recently large mediation proceed-ings concerning Vienna’s InternationalAirport took place to study the currentimpact of the airport and developmentplans.

Individual lawyers involved in me-diation include Alexander Petsche ofBaker & McKenzie and NikolausPitkowitz of Graf Pitkowitz. CDR

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Conference Diary

JuneFriday 4 The Uncitral Model Law on International Commercial Arbi-tration: 25 Years Location: Brussels, BelgiumOrganiser: AIA

ICC Arbitration Today: Arbitrator IndependenceLocation: Paris, FranceOrganiser: International Chamber of CommerceCDR discount: CDR Premium subscribers can [email protected] for a code to claim discountedmember rates on this event.

Sunday 6 - Tuesday 8International Litigation Summit 2010Location: Las Vegas (NV), USOrganiser: Marcus Evans

Wednesday 9 - Thursday 10Commercial Arbitration in Russia, Sweden and EnglandLocation: Moscow, RussiaOrganiser: Arbitration Institute of Stockholm

Monday 14 - Thursday 17 International Commercial ArbitrationLocation: Paris, FranceOrganiser: International Chamber of CommerceCDR discount: CDR Premium subscribers can [email protected] for a code to claim discountedmember rates on this event.

Wednesday 16 - Thursday 17Professional Negligence and Liability ForumLocation: London, UKOrganiser: IBC Legal

Monday 21 - Tuesday 22 8th European Forum on Anti-CorruptionLocation: Hilton London Tower Bridge Hotel, London, UKOrganiser: American Conference InstituteCDR discount: CDR Premium subscribers can [email protected] for a code to claim £150 off theprice of this conference.

Tuesday 22 - Thursday 24Internal and Regulatory Investigations in Oil & GasLocation: CCT Venues, Canary Wharf London, UKOrganiser: International Quality & Productivity Center (IQPC)CDR discount: CDR Premium subscribers can [email protected] for a code to claim 10% off theprice of this conference.

Wednesday 23 - Friday 25 Resolving International Energy and Infrastructure DisputesLocation: Lagos, NigeriaOrganiser: IBA

Monday 28 - Friday 2 July European Competition LawLocation: Brussels, BelgiumOrganiser: Academy of European Law

Tuesday 29Crisis Management WorkshopLocation: Oxford, UKOrganiser: Manches LLP

Wednesday 30Crisis Management WorkshopLocation: London, UKOrganiser: CIArb

JulyThursday 1 - Friday 2State Aid Litigation in the EULocation: Brussels, BelgiumOrganiser: Academy of European Law

Friday 2 - Sunday 4Workshop on International Commercial ArbitrationLocation: Hong Kong, ChinaOrganiser: International Chamber of CommerceCDR discount: CDR Premium subscribers can [email protected] for a code to claim discountedmember rates on this event.

Thursday 8Tax Dispute Resolution & Litigation SummitLocation: Sofitel, St James, London, UKOrganiser: IBCCDR discount: CDR Premium subscribers can [email protected] for a code to claim 10% off theprice of this conference.

Sunday 18 - Tuesday 20Corporate Litigation ExchangeLocation: Colorado, USOrganiser: IQPC ExchangeCDR discount: CDR Premium subscribers can [email protected] to benefit from complimentaryhotel stay and accommodation.

Tuesday 20 - Wednesday 21Antitrust and Enforcement ComplianceLocation: Washington (DC), USOrganiser: American Conference InstituteCDR discount: CDR Premium subscribers can [email protected] for a code to claim $200 off theprice of this conference.

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Conference Diary

Thursday 9Joint Seminar with LCIALocation: London, UKOrganiser: CIArb

Friday 10 - Sunday 12European Users’ Council SymposiumLocation: London, UKOrganiser: LCIA

Sunday 12 - Tuesday 14IP Law SummitLocation: Las Vegas (NV), USOrganiser: Marcus Evans

Chief Litigation Officer SummitLocation: Las Vegas (NV), USOrganiser: Marcus Evans

Tuesday 14 - Wednesday 15Corporate Counsel Forum Europe Location: Hampshire, UKOrganiser: Legal Week

Thursday 16 Litigation ForumLocation: London, UKOrganiser: Legal Week

Wednesday 22 - Thursday 23Investment Treaty ArbitrationLocation: London, UKOrganiser: C5CDR discount: CDR Premium subscribers can [email protected] for a code to claim 10% off theprice of this conference.

Thursday 23rdArbitration and SportLocation: Paris, FranceOrganiser: International Chamber of CommerceCDR discount: CDR Premium subscribers can [email protected] for a code to claim discountedmember rates on this event.

Sunday 26 - Tuesday 28European Corporate Counsel Summit Location: Montreux, SwitzerlandOrganiser: Marcus Evans

Wednesday 13 - Thursday 14Intelligent Competition ComplianceLocation: London, UKOrganiser: American Conference InstituteCDR discount: CDR Premium subscribers can [email protected] for a code to claim £150 off theprice of this conference.

Tuesday 19 - Wednesday 20CIArb CongressLocation: Heidelberg, GermanyOrganiser: CIArb

Tuesday 19 - Wednesday 20Arbitral AwardsLocation: Dubai, UAEOrganiser: International Chamber of CommerceCDR discount: CDR Premium subscribers can [email protected] for a code to claim discountedmember rates on this event.

Sunday 24 - Tuesday 26 Corporate Counsel Exchange™Location: The NetherlandsOrganiser: IQPC ExchangeCDR discount: This event is by invitation only and CDR Pre-mium subscribers can email [email protected] fordetails on a CDR invitation.

Sunday 18 - Tuesday 20Corporate Litigation ExchangeLocation: Colorado, USOrganiser: IQPC ExchangeCDR discount: CDR Premium subscribers can [email protected] to benefit from complimentaryhotel stay and accommodation.

Tuesday 20 - Wednesday 21Antitrust and Enforcement ComplianceLocation: Washington (DC), USOrganiser: American Conference InstituteCDR discount: CDR Premium subscribers can [email protected] for a code to claim £150 off theprice of this conference.

For more upcoming conferences, visit www.cdr-news.com

Featured partner event

September October

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Gary Wickham is the headof legal at CLS Holdings,a property investmentcompany. In the first of

our in-house profiles, Gary shares histhoughts on strategy, costs... and mys-terious disappearances.

We collect evidence early and reviewour case with a sceptical mind. Thismeans taking out the emotional ele-ment of feeling wronged, and ration-ally deciding what the risk/benefitsituation is. When your client stronglyfeels that they are in the right yousometimes have to point out that inpractice there is nothing to be gainedby pursuing the matter - no matterhow wrong that seems morally.

Our last major dispute was resolvedthrough expert determination. Wedeal with minor, straightforwardclaims in-house - otherwise we useAshurst, Taylor Wessing and MaplesTeesdale.

A good legal adviser makes clearfrom the start what the strengths andweaknesses of your case are and cansee the overall picture rather than get-ting bogged down in details.

Arbitration is the lesser of two evils.It has its faults but tends to be acheaper and quicker way of bringing adispute to resolution. It has a betterchance of leaving the parties able tocontinue a commercial relationship.

UK lawyers have become much morewilling to discuss fee options. Butcommercial dispute resolution is stillone of those areas where it’s almostimpossible in advance to know whatlevel of legal fees will be involved. Myfeeling is that in the rest of Europesuch flexibility on fees is less preva-lent.

The US legal system is politicisedand driven by interest groups, much

more than European legal systems.The US system is too plaintiff-friendlyand the consequences of losing a casecan be so damaging that there is hugepressure to settle even if the claim iswithout serious merit. European legalsystems have a more balanced ap-proach and the excesses of the US sys-tem hopefully will limit the risks ofEuropean legal systems moving too fartowards the US model.

Globalisation is a positive thing, butit causes rapid changes in local indus-tries as they are forced to become moreefficient to compete with foreign com-petition. For globalisation to have a netpositive effect, local, national andtransnational bodies need to ensurelocal expertise, skills and resources areused more efficiently in new areas.

Cost control is critical. I have to en-sure compliance with the everchanging legal and regula-tory environment, andjustify the in-house de-partment’s existence in-ternally. We need toseen as a positive assetto the organisationrather than a costcentre or an obstruc-tion to doing deals.

Approachability ismy most helpful per-sonality trait. This re-duces the chances ofmatters festering andthen becoming con-tentious. As an in-house

lawyer, it is extremely important to methat people at all levels of the organisa-tion feel able to come and discuss is-sues with me at an early stage,confident that I will help them achievea solution to any potential problem.

When I’m stressed I tend to revert in-wards and focus solely on what I amdealing with. I then become less able todelegate matters which make the situa-tion worse.

My most useful tool? My contacts atour external law firms. I call them toget a free second opinion. It’s a greathelp.

The worst experience was sitting inmy office past midnight for theumpteenth day in a row, havingknown with 99.9% certainty since earlyafternoon that completion would not

occur that day, but needing tobe available in case I was

wrong. I wasn’t.

I was on the way towork one day, readingin the newspapers thatsomeone we had anoutstanding arrange-ment with had disap-peared. The only traceof him was his car,which had been aban-doned at the side of a

motorway. We won-dered how on earth we

were going to sort out theconsequences. It worked

out in the end. CDR

Profile

Full disclosure

Gary Wickham

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