An increasing number of disputes from emerging markets are arriving at the doors of the English courts, and their complexity and scale is escalating. Herbert Smith's Philip Carrington and Simon Bushell report on the hurdles faced by practitioners

The English High Court and the London Court of International Arbitration (LCIA) have long been favoured by international commercial parties with major disputes. However, the frequency, size and complexity of such disputes is now reaching new heights. The economic and political turbulence in emerging and frontier markets, especially Russia and other members of the CIS, the Middle East and Africa, has been the catalyst for a series of disputes over the past five years or so that place significant – and welcome – demands on the London legal market and its legal infrastructure.

The break-up of the former Soviet Union in 1991 was followed by the privatisation of substantial and highly valuable former state-owned concerns involving, for instance, much in demand natural resources or financial enterprises. In this regard, Russia led the way, and in the process created a new business elite – 'the oligarchs' – who have in some cases gone on to develop major global enterprises.

There have been, and will continue to be, similar stories emanating from several of the developing African nations where democracy is either embryonic or non-existent, and successive governments have found themselves embroiled in corruption claims.

Recently, the civil unrest and political turmoil seen across several countries in North Africa and the Middle East have destabilised longstanding autocratic regimes. The likelihood is that, once interim (or democratically elected) governments are properly established, complex asset recovery exercises will be undertaken, which will involve a plethora of substantive and satellite proceedings in London and/or a variety of the typical offshore jurisdictions where English common law and procedure is invariably applied to some degree.

So why do cases from the emerging and frontier markets spill over into the English (and several of the offshore) courts and established arbitration centres? The most obvious reason is that parties actually choose English law to govern their dealings (which acts as a jurisdictional gateway) or they specify the English courts or the LCIA as the place where they wish their disputes to be resolved. Otherwise, parties may be attracted by the availability of particular causes of action, forms of injunctive relief or court-backed means of evidence gathering.

This is in contrast to many developing legal systems, practices and procedures in the perhaps more obvious natural forum, where there is less flexibility and the potential for greater volatility and uncertainty of outcome.

In all of these cases, analysis is required to establish whether the English court can be properly invited to assist. Because of their nature, scale and complexity, these emerging market disputes tend to spawn both English High Court and arbitration proceedings under the rules of established centres – often the LCIA and also the International Chamber of Commerce (ICC) – as well as proceedings in other jurisdictions, particularly the offshore jurisdictions where assets may be located or have been secreted.

Typically, many – if not all – of the parties to these disputes are foreign nationals or foreign incorporated entities, whose susceptibility to the English courts' jurisdiction is neither obvious nor clear cut. Service of proceedings and establishing jurisdiction is invariably an issue, and a time-consuming one. Such disputes can also be politically charged – with concerns surrounding the lack of availability of a fair or even efficient trial in the perhaps more obvious natural forum, fuelling the claimant's desire to bring its proceedings before the English courts.

Complex tangle

Often such disputes involve wide-ranging allegations of fraud and wrongdoing arising out of a complex tangle of facts, sometimes stemming back years and against a very different political and commercial backdrop. The available documentary evidence may be sparse. Agreements (or key aspects of commercial arrangements made) may be almost entirely oral in nature. The use of offshore-incorporated vehicles/structures, which render opaque the ultimate ownership of assets, is commonplace. Establishing the governing law of the relevant claims can be difficult.

Frequently, early and urgent interlocutory relief is required, typically in the form of a freezing order and related disclosure orders, and not just from the English courts. In recent years, emerging market disputes have contributed to the continued development of the English freezing order jurisdiction.

A challenge to the English court's jurisdiction in these types of cases is generally a given, if only as a stalling tactic on the part of the defendant(s). In 2011 there was a series of 'piercing the corporate veil' cases.

In many of these cases the immediate imperative was to make out a threshold case, in the face of a challenge by the defendant(s) to the English court's jurisdiction, that the corporate veil should be pierced to enable the claimant to assert that the defendants are bound by a contractual jurisdiction clause in favour of the English courts, and thereby to establish jurisdiction more readily.

Jurisdictional disputes are also not unusual in the context of international arbitration, where potentially the 'real' wrong-doer is someone hiding behind the corporate veil but who is not a signatory to the arbitration agreement.

Competing or overlapping arbitration clauses, relevant to some part or aspect of the overall dispute and those involved or implicated in it, are a common feature and can add to the challenges. It is almost always the case that only those parties who are signatories to the arbitration agreement can be parties to any arbitration, but usually the dispute will involve others beyond the parties to the arbitration agreement and may be much wider in scope than the particular aspect to which the arbitration clause relates.

The arbitral process itself presents specific difficulties for a claimant seeking to pursue a fraud claim. There are various issues: often arbitrations are the subject of an accelerated procedural timetable; non-parties to the arbitration agreement cannot readily be joined to the arbitration, leading to multiple actions (often running to different timetables); there are typically very limited powers to compel the attendance of witnesses, especially if overseas; disclosure of documents is usually given on a narrower basis; there is an absence of strong sanctions for non-compliance; at the eventual hearing the time for cross-examination is often restricted; and there is a lack of public scrutiny owing to arbitral confidentiality. All of these are important considerations that can weigh heavily on a claimant's prospects and be readily exploited by a defendant.

A coherent strategy

From a litigator's perspective, these disputes test both legal and tactical skills, as well as the ability to co-ordinate large teams of lawyers in multiple locations. An early and extensive investigation is the key to formulating a forceful and coherent strategy. This must encompass not only the merits, but also the jurisdiction issues and hurdles, and the emergency remedies that may need to be investigated (or which, from the defendant's perspective, may already have been obtained) in England and abroad to secure and preserve assets and/or to obtain information and where any resulting judgment or award can be effectively enforced.

These types of cases also raise an array of issues beyond the immediate matters in dispute, of which both litigators and litigants must take note. For example, the circumstances in which the assets or agreements in issue came to be acquired or entered into are not necessarily matters that any of the protagonists may now wish to highlight and which may have unpalatable consequences, such as unwanted political scrutiny, a regulatory investigation or simply a damaging judicial finding or observation.

Anticipating and thinking through these sorts of unexpected outcomes is part of the process of investigation and preparing clients as thoroughly as possible. No-one likes unpleasant surprises, least of all clients, and those advising them need to do their utmost to avoid them.

In the emerging and frontier markets context, the separate disciplines of litigation and arbitration are less readily distinguished: the sharpest teams will blend know-how, experience and judgement across both disciplines to achieve the best outcome for the client. To this they will add the necessary forensic and foreign law expertise.

Such extensive planning and strategic thinking will often feel counter-intuitive to the client who is looking for a quick result. It is not easy to persuade such a client that this is the best method, but it is the key to promoting an effective outcome in these complex and often novel disputes.

Philip Carrington and Simon Bushell are partners at Herbert Smith.