2020: a year we won't forget in a hurry. And one in 2019 that no-one could really have predicted. Notwithstanding that, as we all turn our attention to what we hope are brighter times around the corner, we offer some reflections on trends to look out for in contentious financial services in 2021. From Brexit to climate change, we've got it covered.
- Remote hearings (or hybrids) are here to stay: The Covid-19 pandemic temporarily threw the legal system into disarray, with a great deal of uncertainty as to how courts and the profession would adapt. Cue the rise of the remote hearing. While not without their challenges (not least the occasional bout of "technical difficulties"), remote hearings look like they are here to stay. While we expect that trials will eventually default to in-person arrangements where possible, the courts' (impressive) adaption to the new ways of working which the events of 2020 imposed on us all is likely to survive in procedural and shorter hearings in the future. The courts are busier than ever, and the experience last year has shown us all how remote hearings can work well and serve as a good way to cut out wasted time – no more waiting around, lugging bundles, etc. All of which means that focusing on best practice for remote hearings in 2021 will be time well spent.
- Brexit: jurisdictional troubles? One thing often remarked about Covid-19 in 2020 was that at least it got everyone talking about something other than Brexit. Towards the end of the year, however, Brexit was very much back in the headlines (to the extent it ever went away) with the UK and the EU agreeing a final Trade and Cooperation Agreement ("TCA") just days before the end of the transition period. However, the TCA is silent on jurisdiction and the enforcement of judgments, and the EU's decision on the UK's accession to the Lugano Convention remains pending. So, where does this leave us? In short, if the UK does not accede to the Lugano Convention (joining Iceland, Switzerland and Norway) and is reliant on the Hague Convention, it is fair to say there will be an a degree of uncertainty.
We noticed an increase in pre-action claims rushing to file before the end of 2020 to avoid any jurisdictional uncertainty. If the EU does not consent to our accession to Lugano, we expect that the English Courts will see an uptick in cases regarding jurisdiction clauses in 2021. One particular issue to look out for is whether asymmetric clauses are "exclusive" for the purposes of the Hague Convention. In mid-December, the Court of Appeal took a different view on this point from a couple of first instance decisions, stating that there were strong indications that the intention was to exclude asymmetric clauses from Hague, although it did not make a formal decision on the point. Read more on the key legal issues around Brexit and jurisdiction clauses here.
- A rising tide of climate related litigation? The number of climate-related litigation claims rises year on year, with claimants seeking ever innovative ways to use legal action as a tool to pressure governments, companies and investors to take more action to tackle climate change. Relatedly, climate change related disclosure has remained high on the regulatory agenda – so what will 2021 bring? We expect the level of awareness of, and responsiveness to, ESG factors (and climate change in particular) to continue to increase – but it remains to be seen how and when this will translate to climate change related litigation in the UK. An increasing number of claims worldwide have been founded on allegations of inadequate disclosures causing investor loss. There remain real practical difficulties in this sort of action in the UK pursuant to section 90 or 90A of FSMA 2000 – but that may not deter claimants in what is likely to continue to be seen as a fertile ground for establishing climate related liability.
- Another Financial List test case? 2020 saw the first judgment handed down in the Financial Markets Test Case Scheme – the FCA's business interruption insurance test case. The claim was expedited through the courts, going from issue, through a first instance judgment and to a Supreme Court hearing in only five months. Judgment is expected later this month. The Courts have clearly demonstrated their willingness and ability to expedite cases of this nature.
We have been waiting for five years for a case to use the Scheme, which was established in 2015 as part of the Financial List. With the first test case under the Court's belt, the question is whether any more will follow suit. The Scheme has a relatively narrow ambit: it is aimed at facilitating the resolution of market issues which require immediately relevant authoritative English law guidance. Given this, there are likely to be limited cases which fit the bill. The phasing out of LIBOR – which is expected by the end of 2021 – may present a suitable candidate for the second Scheme test case?
- An upcoming insolvency tsunami? In the early weeks of the Covid-19 pandemic, things looked particularly bleak and many predicted an insolvency tsunami. While undoubtedly there have been a number of high profile corporate collapses and administrations, the first three Quarterly Insolvency Statistics published by the Insolvency Service for 2020 revealed that for England and Wales the level of insolvencies were on the decrease in comparison to the previous quarters and 2019. The question is: have the various measures adopted in 2020 by the Government merely delayed the inevitable?
When the UK government Covid-19 support measures and insolvency restrictions come to an end, whether in Spring 2021 or later, the UK economy will be left with a painfully large number of companies with problems to solve. Some of them will no longer be able to survive and will need to be liquidated. Some of them will have viable businesses, but will be overburdened by accumulated Covid-19 and historical debt, and will need to be restructured. Insolvencies will undoubtedly increase, but restructuring solutions – both novel and tested – will be put to good use. Ashurst's restructuring and special situations team stands ready for the challenge of 2021. See here for their article looking to the year ahead and recapping 2020 by numbers.
Authors: Jon Gale (Partner), Sophie Law (Senior Associate), Tim West (Senior Associate), Max Strasberg (Senior Associate), Aaron Marchant (Solicitor), Catrin Southgate (Solicitor)
