Roundtable: Commercial Litigation 2011
The International Who’s Who of Commercial Litigators has brought together three of the leading practitioners in the world to discuss key issues facing lawyers today.
Participants
James Clark
Gibson Dunn & Crutcher LLP
California, USA
Who’s Who Legal:ADR methods such as mediation and commercial arbitration continue to be popular tools when it comes to settling disputes. How, if at all, has the increasing use of ADR impacted your litigation practice?
Des Williams: ADR methods such as mediation and commercial arbitration continue to be popular in South Africa when it comes to the resolution of commercial disputes. The increasing use of ADR has generally been positive, as the tendency in South Africa is to look at the larger dispute resolution picture, and to see arbitration as an increasingly important practice area, and not as a threat to litigation. Most litigation lawyers in South Africa also have some involvement in arbitration practice, and although there are political issues affecting arbitration, South African lawyers are generally keen to grow and develop their arbitration practices. There is a strong view that South Africa should be seen as a regional arbitration centre for the resolution of disputes involving parties in African countries. However, the development of South Africa as a regional arbitration centre has been delayed, as government has failed to implement recommendations for the adoption of the UNCITRAL Model Law to replace the outdated South African Arbitration Act. If the UNCITRAL Model Law is adopted, it is expected that South Africa will grow significantly as a regional arbitration centre and that this will be a very positive development for dispute resolution lawyers in South Africa.
Davinder Singh SC: It has resulted in an increased workload for our litigation lawyers. Contrary to popular belief it is not the case that the greater the number of cases that go to arbitration, the fewer the number which end up in the Singapore High Court. International arbitration is usually between parties who would never have used the Singapore High Court anyway. The participants in international arbitrations are usually both foreign parties who have chosen a foreign law to govern their relationship. If they did not agree on an arbitration clause, the dispute would have ended up in the courts of one of the parties’ countries. But because they have selected Singapore, the dispute is resolved here, bringing a welcome addition to the flow of work. The availability and success of mediation have encouraged more parties to commence litigation knowing that there is a good chance that the dispute can be resolved through mediation. This enormous success of the Singapore Mediation Centre has led to parties now being confident that mediation holds a real prospect of early resolution and at a lower cost than if the matter were to go all the way.
James Clark: Arbitration (and mediation) continue to be growing areas for dispute resolution in the US. Clients (particularly those with sophisticated in-house legal staffs) now routinely include arbitration (and sometimes mediation) and choice of venue clauses in their commercial contracts. Even where there is no contractual agreement to arbitrate, clients often elect to do so if they can get the opposing side to agree, primarily as a cost-saving measure, but also to avoid the vagaries of the US jury system. Having been in Singapore last year to visit our firm’s Singapore office, I agree with Davinder entirely that Singapore is becoming a preferred venue for international arbitration, particularly when Asian-based parties are involved.
As to the effect of arbitration on our commercial litigation practice, I agree that it almost certainly has expanded it, particularly in international arbitration. For our practice, our New York (and especially) London offices have seen that practice grow almost exponentially, as clients seek to limit costs, have experts determine complex commercial disputes, and have an agreed-upon body of applicable law govern an inter-jurisdictional dispute. For us, Singapore is likely to be next.
In the US, the limits on discovery that are typical in arbitrated matters undoubtedly have reduced that area of our practice. But because clients hesitant to pursue a matter in court have been more willing to pursue arbitration, I believe that the trend in that direction actually has increased our overall litigation work. In particular, the US Supreme Court’s April 2011 decision in AT&T Mobility v Concepcion, which strongly reinforced the reach of the Federal Arbitration Act in consumer disputes, is a ringing endorsement of arbitration in both our state and federal courts.
On a final note, it is now the practice of most of our state and federal courts to require mediation of cases pending in those courts. As a result, that form of ADR has become an increasingly important part of our commercial litigation practice.
Who’s Who Legal: In this financial climate and given the expense associated with litigation, lawyers we spoke with noted that clients are becoming tougher on fees. Have you found this to be the case? Are alternative fee arrangements or contingency fees becoming more popular?
Des Williams: South African clients are becoming tougher on fees, as has been the experience in other countries. Despite the fact that alternative fee arrangements and contingency fees are now permissible (subject to certain conditions and requirements) there has not been any significant move towards such arrangements or contingency fees. It is far more common for clients to attempt to negotiate percentage discounts on hourly rates, particularly if the client is a source of regular work. It is expected that there will be a move towards alternative fee arrangements and contingency fees as class action procedures develop in South Africa. At this stage, the class action procedure is fairly restricted and undeveloped, but significant developments are expected within the next few years, and these developments are likely to be accompanied by increased demand for alternative fee arrangements.
Davinder Singh SC: I would not use the word “tougher”. Clients have always searched for value, as they are entitled to do. They are informed of the fees upfront and either agree to them or discuss reduced fees. That has been happening for as long as I can remember, and we have not seen either a different pattern emerge or a material increase in the number of requests to discuss fees. That is not to say that things will not change. If the financial clouds do not soon pass, companies with reduced budgets will inevitably seek to reset fee arrangements, but that is only to be expected. One alternative arrangement that is sometimes used is the capping of fees. Contingency fees are not permitted in Singapore for litigation.
James Clark: Like Davinder, I probably wouldn’t use the term “tougher”, although clients are increasingly attentive to fees, and have become more aggressive in suggesting ways to limit or control them. There are a number of popular devices. We see very few pure contingency arrangements in commercial litigation, although “success fee” arrangements – lowering hourly rates in return for a “bonus” if the result of the litigation meets certain economic criteria – are now proposed and used more frequently than in the past. Many clients have encouraged – if not required – the use of “contract lawyers” for less critical aspects of the case, often with the actual cost of those lawyers passed on without any “mark-up” by the firm handling the matter. Outsourcing of some work, particularly in managing “e-discovery”, is now often the norm. Still, the most common measure for controlling costs remains the application of a negotiated discount from typical hourly rates, generally 5 to 10 per cent, although sometimes more.
Who’s Who Legal: Our research revealed that there has been a real focus on initiatives against corruption internationally. What are the key developments in this area in your jurisdiction? Are your clients affected by new rules overseas?
Des Williams: Corruption is a major issue in South Africa, and there are important initiatives to prevent and combat corruption. The key legislation is the Prevention and Combating of Corrupt Activities Act of 2004 (“PACCA”). PACCA has exterritorial jurisdiction and applies to offences that occur outside South Africa, if the offence is committed by a citizen of South Africa, or someone who is ordinarily resident in South Africa (among others). There is also a high level of corporate awareness of corruption legislation in foreign jurisdictions, including particularly the UK and the US. South African companies with links to entities in the UK and US are particularly aware of the UK Bribery Act and the US Foreign Corrupt Practices Act, and do seek advice regarding the provisions of this legislation.
Davinder Singh SC: Singapore has been consistently rated as one of the most corruption free places in the world. The Singapore government acutely understands how corruption can erode trust in the system and affect the flow of investments into the country. It is almost fanatical about its unceasing campaign to keep Singapore corruption free and to achieve the best scores in respected and widely read international rankings. Because Singapore companies have businesses all over the world, they keep themselves abreast of the latest corruption related laws in other countries. That educational process is helped to a great extent by timely and highly informative reports in the local media about new developments elsewhere, including the UK Bribery Act.
James Clark: In the US, there has been substantial recent growth in the number of investigations and prosecutions brought under the principal US anti-corruption statute applicable to international transactions, the Foreign Corrupt Practices Act (FCPA). Essentially, the FCPA makes it illegal for “any person” subject to the Act to “offer or provide” anything of value to officials of any foreign government or foreign political party with the intent to obtain or retain business. The FCPA also contains a number of provisions relating to what “books and records” any US-connected person must maintain, lest they risk running afoul of the statute. Since the FCPA applies to any person in the territory of the US, or whose securities are listed on a US stock exchange, which currently includes some 1,500 non-US-based “issuers” – the FCPA’s facial jurisdiction is enormously broad.
Two US governmental agencies have enforcement jurisdiction for alleged violations of the FCPA: the US Department of Justice (DOJ), and the Securities and Exchange Commission (SEC). Both agencies have become much more aggressive recently in their expansive interpretation of what constitutes a violation of the FCPA, its jurisdictional reach, and the investigative tactics they have employed in enforcing it. This has resulted in a substantial increase in the number of enforcement actions over the past several years. For example, there were only two DOJ FCPA enforcement actions initiated in 2004, compared with 48 in 2010. For the SEC, the comparable numbers increased from three in 2004 to 14 in 2010. Because almost all companies and individuals historically have settled the agencies’ claims short of litigation, the DOJ and SEC positions really have not been tested. However, more entities now have chosen to litigate such claims, and it is virtually inevitable that 2011 will establish a record in the number of trials of charges initiated under the Act.
Who’s Who Legal: Are there any other sectors where you have seen a rise in the use of litigation?
Des Williams: South Africa’s new constitutional dispensation has led to increasing Constitutional Court litigation. This litigation usually involves issues affecting fundamental rights, which are entrenched in the Constitution. We have also seen a significant increase in litigation in relation to mining law issues. Changes in South African mining and prospecting rights legislation has led to uncertainty, and there have, in recent years, been major challenges, in the courts, to awards of prospecting rights and in relation to other mining issues. Much of the litigation relating to mining issues is complex and relates to valuable rights. We are also seeing increasing litigation in specialised fields, including competition law, health care and pension fund law.
Davinder Singh SC: The one that immediately comes to mind is litigation connected with competition law. That is a relatively new area in Singapore but the application of the laws has spawned quite a few appeals. The other area where the use of litigation has risen is company disputes. Singapore is now seeing the phenomenon of family companies, which were set up two or three generations ago, fraying because of differences in vision among the children or grandchildren.
James Clark: The two areas exhibiting the most growth in litigation in the US – apart from the FCPA enforcement proceedings noted in an earlier comment – have involved the increased privacy issues raised by the exponential growth in electronic communications and social networks, and the fall-out from the consequences of the collapse of the “derivatives” market, and its effect on US (and foreign) financial institutions. As to the former, much of the litigation has involved the (allegedly unauthorised) collection and use of an array of personal information involving consumers of the service in issue. The latter has been primarily directed to the finger-pointing among banks, investment bankers, and other lenders who lost billions when the derivatives market proved to be a house of cards.