Emerald trial

International banks view England’s courts as their best bet for a favourable decision, often giving rise to a legal battle over jurisdiction. By Steven Friel

The English courts are ­considered by many ­international litigators as more favourable to banks than other leading commercial jurisdictions in Europe and the US. One does not have to look far for the reasons for this perception.

The fact scenario in JPMorgan Chase Bank v ­Springwell (2008) will be familiar to many investors and the decision of Mrs ­Justice Gloster in the Commercial Court has sent shivers down the spines of such investors and their claimant lawyers.

Springwell suffered huge losses on ­investments in ’emerging markets’ ­instruments that Chase had sold or issued. Springwell alleged mis-selling and also that Chase had failed in its duty to advise. Gloster J rejected these allegations.

She drew ­attention to Springwell’s ­sophistication as an investor and found that Chase was under no duty to advise Springwell as to the merits of the ­investment. Gloster J also upheld the ­effectiveness of Chase’s non-reliance ­clauses. The message is clear: investors who are sophisticated enough to make their own decisions cannot blame their bankers when investments go sour.

Mindful of decisions such as that in ­Springwell, international banks are often keen to bring their disputes before the ­English courts rather than appear in what might be ­considered less bank-friendly jurisdictions.

In UBS v HSH Nordbank (2008), HSH alleged that UBS had mismanaged a ­portfolio of derivatives linked to the US mortgage market. HSH commenced ­proceedings in New York in February 2008. UBS, keen to have the action resolved in England, commenced London High Court proceedings, but jurisdiction was refused by the Court of Appeal in June 2009.

Just as the banks accused of negligence might prefer to litigate in England, many investors will make great efforts to keep their claims out of the English courts. Those firms that act on the investor/ claimant side often spend time coming up with ­imaginative arguments as to why the English courts should decline jurisdiction.

Seeing red

The banks facing the latest raft of ­consumer credit claims have also seen the authorities take a bank-friendly turn. Many thousands of credit card and small loan customers have, with the aid of a new breed of claims management companies, attempted to have their debts wiped out by highlighting technical breaches of the ­Consumer Credit Act (CCA) committed by the lending banks.

Although it has been argued that ­consumer protection considerations should lead to strict application of the ­technical ­requirements of the CCA, with even minor breaches by the banks leading to non-­liability on the part of the consumer, ­McGuffick v RBS (2009), ­Walker v South Pacific Personal Finance (2008) and Carey v HSBC (2009) are all cases in which the courts have taken a more ‘pragmatic’ approach. The borrowers are not getting off the hook that easily.

And, of course, the bank charges case has ended with a bank-friendly ruling by the Supreme Court. The banks’ unauthorised overdraft charging terms are not fully assessable for fairness under the Consumer Contract Regulations, which means that the terms cannot be assessed on whether the banks offer value for money.

Of course, London litigation is not a bed of roses for the banks. Litigation funding is becoming an accepted part of the City ­landscape, with funders actively shopping around for parties with claims against banks. And the Jackson report is, to an extent, funder-friendly.

The Financial Services Bill will provide avenues for collective redress in consumer cases. Banks are natural targets for such claims. And despite the recent line of bank-friendly cases, there is still a high volume of consumer credit cases in which borrowers are attempting to avoid repayment.

My kingdom for a firm

Many of the biggest City law firms will not act against the big banks for fear of losing out on the lucrative transactional work handed out by them. Investor claimants may have to look hard to find a City firm willing and able to take on their claims.

The London market awaits the next ­monster piece of banking litigation that might come along. When it does interested parties will watch closely to see whether or not time and costs will be saved following the report and recommendations of the Commercial Court Long Trials Working Party and the Jackson report on the costs of civil litigation.

Steven Friel is a litigation partner at Davies Arnold Cooper