CONSULTATION RESPONSE FINANCIAL LIST CONSULTATION PAPER A. Introduction 1. The Commercial Bar Association ( COMBAR ) is a specialist bar association representing self-employed and employed barristers who practise in the field of international and commercial law. COMBAR s membership includes thirty eight sets of chambers, together with a number of individual and honorary members. COMBAR is committed to promoting access to the commercial bar for talented candidates from diverse backgrounds. 2. This Paper is provided in response to the Rolls Building Financial List Consultation Document (the Consultation Document ). This Consultation Document invites comments on proposals to implement a new Financial List (the Financial List Proposals ). 3. The Financial List Proposals provide for a joint Commercial Court/ Chancery Division Financial List, operating under existing Commercial Court Guide procedures. The Financial List will be available for qualifying high-value or important Financial List claims, will draw on the judicial resources of specialist Commercial Court and Chancery Division judges, and will provide for a designated judge from inception to enforcement. The Financial List is to be implemented by a new Part of the CPR, a new Practice Direction, a new Guide, new Court Forms and a new Practice Direction providing for a pilot scheme for Financial Market test cases (the Draft Instruments ). 4. The Consultation Document invites comment on the following specific issues:
a. The content of the Draft Instruments implementing the Financial List; b. The definition of Financial List claim ; c. The procedure for allocating judges to Financial List claims; d. The procedure governing Financial List claims; e. The proposed market test case procedure. 5. COMBAR provides its comments below. COMBAR provides a summary in Section B below, before making a number of general observations on the Financial List Proposals in Section C below. In Section D, COMBAR addresses the specific questions posed (to the extent they raise issues not already addressed in Section C). B. Summary of COMBAR s response 6. COMBAR welcomes proposals which will consolidate and enhance London s enviable reputation as an international financial dispute resolution centre and which will facilitate the just and efficient resolution of complex financial disputes. Given the growth in financial disputes and financial regulation, and the increasingly complex nature of financial products, a specialist Financial List to deal with certain types of financial cases is attractive. Informal soundings taken from a number of financial institutions indicate that they would welcome such a development. 7. In COMBAR s view, in order for the Financial List to have a real purpose and be credible, the following points should be considered: a. A suitably narrow definition of disputes: The disputes heard by the Financial List ought to be limited to the highest value and most complex disputes involving specialist issues of financial law and practice. There is a risk that a broader definition will capture a significant proportion of the Commercial Court s existing case load as well as a proportion of the Chancery Division s work and will (i) risk undermining the reputation and operation of those Courts; and (ii) prove 2
unworkable in practice, given the proposal to have a docketed judge in every case in the Financial List (see further below). b. Genuinely specialist judges: The judges hearing cases in the Financial List need to have specialist expertise in relation to financial matters and products, and be kept abreast of both industry and legal developments. Otherwise there will be no advantage in having a specialist Financial List and there may be credibility issues. This is a point that has been particularly emphasised by some of the financial institutions. c. Appropriate staff and resources: The Financial List will need to be appropriately staffed and resourced by reference (a) to the definition of disputes falling within its scope; and (b) to the judges with suitable specialist expertise. This will be essential to avoid delay. d. Appropriate procedures and processes: The listing procedure ought to be suitably streamlined to avoid unnecessary costs being incurred and delays, and to provide an efficient process in line with that of the Commercial Court. 8. COMBAR is particularly concerned that the introduction of a Financial List does not undermine the internationally established reputation of the Commercial Court. There is an inherent risk that introducing a specialist list may lead to a perception that the ordinary list is somehow inferior. However, if the work allocated to the Financial List is limited to that of a genuinely specialist nature (and heard by Judges with appropriate expertise) the risk will be mitigated. 9. These points are addressed in turn in Section C below. C. COMBAR s full response to the proposals C1. Potential impact on user perceptions of the Commercial Court and Chancery Division 10. The Commercial Court has an enviable international reputation in financial dispute resolution. It has been the chosen forum for a vast array of high-profile and complex financial claims concerning derivative and other financial products and transactions, 3
financial benchmarks and ISDA disputes. The Chancery Division also has a renowned body of expertise in relevant financial matters such as insolvency. 11. A Financial List which combines the specialist financial expertise of both the Commercial Court and the Chancery Division could be extremely attractive. However, care must be taken to in order not adversely to affect market perceptions of the Commercial Court and the Chancery Division. To this end, the purpose and scope of the Financial List needs to be carefully calibrated. 12. Two particular issues arise: a. First, a substantial part of the Commercial Court s business is concerned with the financial markets. This has particularly been the case since 2008 and is expected to continue. A significant volume of this caseload would now be eligible for the Financial List (given the broad definition of Financial List case proposed, see Section C.2 below). Implementing the Financial List could, therefore, result in a busy workload for the Financial List and a much-reduced workload for the ordinary, non-financial List Commercial Court. b. Second, many of the highest-value, complex and/or legally significant Commercial Court cases in recent years have involved banking and/or financial markets matters 1. In future, it is likely that users would elect to bring these cases in the Financial List. As a result, the ordinary Commercial Court (and indeed the ordinary Chancery Division) may hear fewer high-profile and/or significant cases. This may leave Court users with the impression that the ordinary Commercial Court (and indeed the ordinary Chancery Division) are in some way inferior to the Financial List. Similar perception issues could arise in relation to Commercial Court and/or Chancery Division judges who are not specifically allocated to the Financial List. 13. It is also possible, in this context, that users may interpret the implementation of the Financial List negatively, i.e., as suggesting shortcomings or deficiencies in the existing 1 E.g., the US$8bn counterclaim brought by SHI in relation to complex derivative products in Deutsche Bank AG v SHI [2013] EWHC 3463 (Comm) or the litigation over complex collateralised debt obligations in UBS v Kommunale Wasserwerke Leipzig [2014] EWHC 3615 (Comm). 4
Commercial Court and/or Chancery Division. This would be an unfortunate outcome given their extremely high quality and international reputation. 14. To a large extent, these concerns would be alleviated by ensuring that the nature of cases and the pool of specialist judges available for the Financial List is limited strictly to those cases where specialist knowledge is required, thus ensuring that complex and high profile disputes that involve vanilla financial issues, or only involve ancillary financial issues will continue to be heard by Chancery and Commercial judges. This is addressed further below. 15. Considerable care will nevertheless need to be taken in promoting and explaining the Financial List to users in order to avoid any damage to the excellent reputations of the Commercial Court and Chancery Division. C2. Definition of Financial List case 16. It is recognised that the definition of Financial List claim will have to be wide enough to ensure that appropriate cases are eligible. However, COMBAR considers that the scope of the definition presently proposed might benefit from refinement: a. First, the definition provides that a Financial List claim is any claim which relates to any of the matters stated in paragraph (a). There is a risk that this captures cases in which financial markets elements are insubstantial. COMBAR suggests that a slightly reformulated definition should be considered, which emphasises that the claim should be one which principally concerns or principally relates to the matters listed in paragraph (a). Whilst this would require a judgment to be made in any case about the extent to which a claim is concerned with financial matters, it is unlikely to be difficult to apply in the majority of cases. b. Secondly, the definition provides if a claim relates to one of the matters listed in paragraph (a), then it will be a Financial List claim as long as the value of the dispute is more than 50 million. However this is likely to capture a large number of disputes (e.g. simple, albeit high value, loan repayment debt claims) that could be dealt with by non-specialist Chancery or Commercial judges. It may be that an additional condition, for example that the case involve complexities that require 5
particular specialism in the financial markets, would materially limit the volume of disputes listed on the Financial List and would ensure that only those cases requiring genuinely specialist expertise are listed. c. Thirdly, the definition proposed appears to allow for very considerable flexibility as to the cases which can be ordered into the Financial List. Although the Guide ( 5) suggests that the Financial List is limited to claims with a value of more than 50 million or equivalent, part (b) of the definition suggests that in fact a wide range of much lower value claims could be ordered into the list if they required particular financial markets expertise or raised generally important issues. Whilst COMBAR recognises that there may be lower value cases which raise important financial markets issues (e.g. consumer credit test cases), it is suggested that guidance is provided making clear that it is only in exceptional circumstances that a claim below the financial threshold will be included in the list. d. Fourthly, the (potential) inclusion of insurance, re-insurance and professional negligence cases in the definition of financial markets significantly expands the scope of the Financial List, and is likely to exacerbate further the potential reduction in workload for the ordinary Commercial Court identified in Section C.1 above. Nor is it clear, in any case, that Financial List judges (i.e., with specialist financial markets expertise) would necessarily be best placed to hear insurance or professional negligence matters. C3. Specialist Judges 17. At present, Commercial Court users can expect all Commercial Court judges to have a good level of familiarity with financial markets and financial products, and to be well placed to resolve financial disputes with the assistance of appropriate expert evidence on financial products and practices. 18. The implementation of a specialist Financial List will undoubtedly promise a high degree of specialist expertise and therefore, understandably, will encourage users to expect a much higher level of judicial familiarity with financial matters and financial markets developments. Indeed the Financial List Guide (as presently drafted) states that 6
the Financial List will have Judges with particular expertise in the financial markets who have suitable expertise and experience in the relevant fields (draft Financial List Guide, 2). 19. This will encourage a user perception that the Financial List will offer specialist judges who understand complex financial products without further explanation, and who will be up to date on both legal and financial market developments. In that regard, regular seminars as to legal developments will be important in terms of updating judges as to new financial products, but simple market updates are unlikely to suffice to provide judges with suitable expertise in financial matters. 20. In order to meet user expectations (and to ensure the credibility of the Financial List), COMBAR strongly recommends that the pool of Financial List judges be limited to genuine specialists - essentially judges from a specialist banking/insolvency and finance background in terms of their practice. Whilst the current pool could also include judges who have gained genuine expertise from their time on the bench, going forward this will not necessarily be the case if cases of the relevant type are allocated to the Financial List. 21. Maintaining a small specialist pool of judges also militates in favour of a narrow definition of Financial List claims, as identified in C2 above. C4. Administrative concerns and burden on the judiciary 22. It is proposed that a designated judge will be allocated to every case in the Financial List. Many cases in the list will involve multiple case management conferences and/or interim applications and/or protracted enforcement proceedings (in addition to a long trial itself). The result may be that judicial resources are stretched. 23. This proposal may also exacerbate the challenges of listing cases in the Financial List, particularly given that allocated judges may already be committed to large trials and/or interlocutory applications on other Financial List matters, and so unavailable to accept new Financial List cases. This may undermine the Financial List s ability to provide fast [and] efficient dispute resolution as referred to in 3 of the Guide. 7
24. In addition, 17 and 18 of the Consultation Document (and 11 of the draft Financial List Guide) suggest that submissions from the parties can be made 4 weeks prior to the Case Management Conference as to whether a Financial List claim should be allocated to a Commercial or Chancery judge. However all judges sitting in the Financial List will be specialist judges and it should be unnecessary to draw a distinction between whether a Commercial or Chancery judge is required. The proposal as currently formulated may undermine the objectives and perception of the Financial List. It also introduces more bureaucracy and the possibility of disputes between the parties. Finally, it is another example of the additional burden on the judiciary if the Judge in charge of the Commercial Court and the Chancellor need together to allocate every judge for every case heard in the Financial List. 25. These points support the view that detailed consideration should be given to the likely volume and nature of the Financial List caseload, in conjunction with an assessment of the judicial and administrative resources available to Financial List cases. If users expectations are to be met, it is likely that significant resources will need to be made available. C5. Financial cases raising administrative law issues 26. Finally, COMBAR notes that some high value financial markets cases, raising issues of considerable importance, are currently issued in the Administrative Court (e.g., cases concerning regulatory issues and/or sanctions). It is not presently clear whether such cases could or would be heard in the Financial List. D. Specific COMBAR Responses to the Consultation s Questions D.1 Comments on the content of the Draft Instruments: 27. Comments have been provided on the definition of Financial List claim and related issues in Section C2 above. 28. COMBAR has the following additional comments on the content of the Draft Instruments: 8
a. Paragraph X.4(1) of the draft CPR Rule provides that all Financial List claims will be allocated to a designated judge at the time of the first CMC. More flexibility may need to be introduced. (This point also applies to 1.2 of the draft Practice Direction and 10 and 11 of the Guide.) b. 4 of the draft Practice Direction addresses the transfer of claims to/from the Financial List. It appears that only a Financial List judge may transfer claims to the Financial List ( 4.1, 4.2 and 4.4). However, it would be helpful to clarify in the draft Practice Direction whether only Financial List judges may transfer claims out of the Financial List ( 4.3) or whether other judges may also do so. c. As regards the specific paragraphs of the draft Financial List Guide: i. COMBAR has identified in Section C3 above the need to ensure that sufficient judicial and administrative resources are available in order to meet the objectives stated in 2 and 3 of the Guide. ii. 5 of the Guide may not be wholly consistent with the definition of Financial List Claim in X.1(2) of the draft CPR Rule. Specifically, 5 of the Guide could be read to suggest that each criterion in paragraphs (a), (b) and (c) of CPR Rule X.1(2) needs to be satisfied before a claim is eligible for the List. However the draft CPR Rule itself is drafted to suggest that satisfaction of any of these criteria will render a claim eligible. iii. 11 of the Guide addresses the process of assigning a designated judge. As presently drafted, the reference to any matters considered relevant to judge allocation is very wide. See also the concerns raised above. iv. 12 is potentially confusing, since it is not clear what aspects of the Chancery Guide apply. It may be helpful to identify specific paragraphs of the Chancery Guide which apply. 9
v. 14 (which deals with transfer) could cross-refer to X.4(2) of the draft CPR Rule and 4 of the draft Practice Direction, as well as to CPR Part 30. D.2 Comments on the proposed definition of Financial List Claims 29. Comments have been provided in Section C1 above. D.3 Comments on the procedure for allocating judges to Financial List Claims 30. Comments have been provided in Section C2 above. D.4 The procedure governing Financial List claims 31. COMBAR agrees that it is sensible for Financial List claims to be governed by Commercial Court procedure. Specific concerns regarding the potential judicial and administrative burdens that may be created by the Financial List have been identified in Section C4 above. D.5 Proposed market test case procedure 32. The facility to allow parties with opposing interests to resolve matters of market significance even when there is no cause of action may be attractive to some Court users and enhance London s status as an international financial dispute resolution centre. A concern has been raised that it is not clear whether these proposals are intended (and will be effective) to implement a change to the substantive law that declarations will not be granted if there is no dispute between the parties. 33. The various safeguards built into the procedure in the draft Practice Direction are important. Whilst these will need to be developed on a case-by-case basis, the procedure should strike a balance between allowing test cases to be heard in London but ensuring that all the relevant arguments will be put and competing interests properly represented. 29 May 2015 10