A recent member survey from the London Litigation Solicitors Association revealed 84% of respondents expect more Covid-related contractual disputes to surface in the months ahead, and 70% expect more insolvency-related cases. With a wave of disputes expected, businesses should now be considering the best way to deal with one, should it arise.
A perfect storm
Action taken by the UK government and the courts during the pandemic was designed to support businesses and discourage a rush to litigation of disputes. The Cabinet Office produced “Guidance on responsible contractual behaviour in the performance and enforcement of contracts impacted by the Covid-19 emergency” in May 2020, which encouraged parties to act responsibly and fairly and to use alternative dispute resolution (ADR). Although not of legal effect, it expressed a policy of allowing ‘breathing space’ and sought to preserve businesses. Other steps were taken to avoid the risk of business collapse, such as introducing restrictions on winding up companies where difficulties had been caused by Covid. Statistics available from the commercial court suggest that the measures proved effective, the number of lawsuits commenced during the peak of the pandemic decreased.
There were undoubtedly supply issues arising out of the difficulties caused by the lockdown, but they have not apparently yet resulted in a rise in litigation. Litigation did emerge from the pandemic at an early stage in the form of disputes over the scope of coverage under business interruption insurance. Whilst a test case established some important parameters for claims, questions remained and the application of the principles resulted in further disputes and litigation.
Now, with the restrictions lifted, it is anticipated that parties will seek to exercise rights accrued during the pandemic. Coupled with that we have rising inflation re-entering the economy, the energy crisis and the war in Ukraine. These pose challenges for businesses and their supply lines, and the prospect of disputes arising. The removal of many of the restrictions on presenting winding up petitions could signal more corporate failures.
Facing a dispute?
For cross-border trading disputes, international arbitration remains a good option. It is fast, confidential and results in an award enforceable in most jurisdictions in the world. Litigation on the other hand has suffered slightly as a result of the Brexit changes. It had been hoped that the mutual recognition of judgments and service provisions we had enjoyed with fellow EU members might be restored outside of the EU under the Lugano Convention. However, the EU currently opposes the UK’s admission. How problematic this will be in practice remains to be seen.
There have been many changes to the litigation process in recent years. The disclosure pilot came in before the pandemic and was updated in November 2021. It introduced radical changes to the approach to disclosure and looks set to stay. In April 2021, Practice Direction 57AC was introduced governing the content and preparation of witness statements for trial. Although not changing the law on admissible evidence, it demands a fundamental change to the way trial witness statements have been prepared in practice in recent years. The encouragement of ADR by the courts continues unabated.
A developing area of litigation has been in relation to group claims both under group litigation orders and collective proceedings orders. Fuelled by litigation funders, these mechanisms provide the opportunity for claims to be pursued collectively in one action (often claims that on their own would be too small to pursue economically in their own right) potentially leading to very significant damages claims being brought against defendant companies.
When facing a dispute, it is important that a business gets early advice to understand where it stands legally, the strengths and weaknesses in its position and its options. Weighed against that will be the costs of pursuing those options, the costs risk involved and whether those costs and costs risks can be managed or reduced. Setting sensible commercial objectives for the outcome of the dispute in light of such advice and analysis is important. How best to achieve those objectives will depend upon the circumstances of the case and the nature and conduct of the opponent. However, there are useful tools available, such as mediation and other ADR processes (amongst others) that can be utilised either in the context of litigation or arbitration.
This article was first published in European Business Magazine and can be accessed here.
Michael Frisby