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Disputes arising from COVID-19 disruptions – skipping to Court or skipping Court?

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Published 21 April 2020

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Commercial contracts would not have anticipated the current commercial pressures which have arisen from the coronavirus outbreak. Naturally, this has led (or will lead) to unfulfilled obligations in commercial contracts, without a clear contractual solution for how to proceed. While the non-breaching party could bring a claim for breach of contract, recourse to the Courts at this time may not be the most effective way forward. This is particularly so where the breach is clearly a temporal one and the relationship between the parties is expected to return to normal once the global emergency subsides.

The downside of litigation during COVID-19

Besides the obvious shortcomings of litigation (costly; time-consuming), businesses should consider the following additional factors relevant to the current crisis:

  • No interim relief: You are unlikely to be able to get interim relief from the Court, especially where there is an inability on the counterparty to perform its obligations. If the breach is having an immediate impact on cash-flow, filing a claim will not relieve this pressure.
  • Uncertainty in the final outcome: Arguments relating to the doctrine of frustration or interpretation of Force Majeure clauses can be complex and are fact dependent. How the Court will ultimately deal with those arguments in each case is uncertain.
  • Backlog: While the UK Courts have quickly adapted to ensure that cases can be dealt with remotely (e.g. video-link hearings), there will no doubt be a backlog resulting from adjourned hearings and other limitations on the Courts at this time. Similarly, the predicted rise in claims due to COVID-19 will no doubt place further strain on the Court system.

To avoid these difficulties, businesses should assess whether commercial discussions could lead to an effective solution by agreement. If the parties cannot come to an agreement on their own, alternative resolution mechanisms should be considered.

Possible alternative resolution mechanisms 

Mechanism  Summary 
Mediation
  • A negotiation process where an independent third party (usually an experienced Solicitor or Barrister) acts as a “mediator”.
  • The mediator does not make a decision, rather, they assist parties to identify issues, assess options and negotiate an agreement to resolve their dispute.
  • Mediation will be particularly useful for those parties seeking to find an interim solution, with a view to preserving the longer-term commercial relationship.
  • In normal circumstances, a face-to-face meeting would occur, however, video-conferencing could easily be utilised at this time. There have already been a substantial number of successful video mediations in the UK during the COVID-19 era, in particular, using Zoom.
Early Neutral Evaluation (“ENE”)

 
  • An independent evaluator (usually an expert within the relevant business sector, former Judge or Barrister) is appointed to give the parties an assessment of the merits of their case and express a view on what the outcome would be if the matter proceeded to Court.
  • The evaluator does not resolve the dispute, but the intention is that the parties use the final evaluation as a basis for negotiation following the ENE.
  • The ENE process is usually a paper exercise, so it would be suitable for the current lockdown measures.
Expert determination

 
  • Expert determination is a binding dispute resolution process that can offer a relatively quick means of determining disputes of a specialist or technical nature (where legal and factual issues are limited).
  • It is commonly used in two  contexts: (1) where some form of valuation is required; or (2) where an expert scientific or professional opinion is central to the dispute.
  • Depending on the preference of the parties, the determination could be made on the papers or there could be an oral hearing (in the case of the latter, it would need to be undertaken by video-conference).

 As noted above, there are a number of disadvantages to proceeding down the path of litigation at this time. If businesses are currently entangled in a COVID-19 related dispute, it is recommended to seek legal advice on whether another resolution mechanism would be more effective at this time, particularly where the parties see the current position as temporary and wish to preserve commercial relations.

Of course, however, if the relationship between the contracting parties has come to end (through termination or otherwise), businesses may wish to adopt the strategy of pursuing the above alternative resolutions in conjunction with more traditional litigation through the Courts.

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Shorter Reads

Disputes arising from COVID-19 disruptions – skipping to Court or skipping Court?

Published 21 April 2020

Associated sectors / services

  • Business
  • Commercial Contracts

Commercial contracts would not have anticipated the current commercial pressures which have arisen from the coronavirus outbreak. Naturally, this has led (or will lead) to unfulfilled obligations in commercial contracts, without a clear contractual solution for how to proceed. While the non-breaching party could bring a claim for breach of contract, recourse to the Courts at this time may not be the most effective way forward. This is particularly so where the breach is clearly a temporal one and the relationship between the parties is expected to return to normal once the global emergency subsides.

The downside of litigation during COVID-19

Besides the obvious shortcomings of litigation (costly; time-consuming), businesses should consider the following additional factors relevant to the current crisis:

  • No interim relief: You are unlikely to be able to get interim relief from the Court, especially where there is an inability on the counterparty to perform its obligations. If the breach is having an immediate impact on cash-flow, filing a claim will not relieve this pressure.
  • Uncertainty in the final outcome: Arguments relating to the doctrine of frustration or interpretation of Force Majeure clauses can be complex and are fact dependent. How the Court will ultimately deal with those arguments in each case is uncertain.
  • Backlog: While the UK Courts have quickly adapted to ensure that cases can be dealt with remotely (e.g. video-link hearings), there will no doubt be a backlog resulting from adjourned hearings and other limitations on the Courts at this time. Similarly, the predicted rise in claims due to COVID-19 will no doubt place further strain on the Court system.

To avoid these difficulties, businesses should assess whether commercial discussions could lead to an effective solution by agreement. If the parties cannot come to an agreement on their own, alternative resolution mechanisms should be considered.

Possible alternative resolution mechanisms 

Mechanism  Summary 
Mediation
  • A negotiation process where an independent third party (usually an experienced Solicitor or Barrister) acts as a “mediator”.
  • The mediator does not make a decision, rather, they assist parties to identify issues, assess options and negotiate an agreement to resolve their dispute.
  • Mediation will be particularly useful for those parties seeking to find an interim solution, with a view to preserving the longer-term commercial relationship.
  • In normal circumstances, a face-to-face meeting would occur, however, video-conferencing could easily be utilised at this time. There have already been a substantial number of successful video mediations in the UK during the COVID-19 era, in particular, using Zoom.
Early Neutral Evaluation (“ENE”)

 
  • An independent evaluator (usually an expert within the relevant business sector, former Judge or Barrister) is appointed to give the parties an assessment of the merits of their case and express a view on what the outcome would be if the matter proceeded to Court.
  • The evaluator does not resolve the dispute, but the intention is that the parties use the final evaluation as a basis for negotiation following the ENE.
  • The ENE process is usually a paper exercise, so it would be suitable for the current lockdown measures.
Expert determination

 
  • Expert determination is a binding dispute resolution process that can offer a relatively quick means of determining disputes of a specialist or technical nature (where legal and factual issues are limited).
  • It is commonly used in two  contexts: (1) where some form of valuation is required; or (2) where an expert scientific or professional opinion is central to the dispute.
  • Depending on the preference of the parties, the determination could be made on the papers or there could be an oral hearing (in the case of the latter, it would need to be undertaken by video-conference).

 As noted above, there are a number of disadvantages to proceeding down the path of litigation at this time. If businesses are currently entangled in a COVID-19 related dispute, it is recommended to seek legal advice on whether another resolution mechanism would be more effective at this time, particularly where the parties see the current position as temporary and wish to preserve commercial relations.

Of course, however, if the relationship between the contracting parties has come to end (through termination or otherwise), businesses may wish to adopt the strategy of pursuing the above alternative resolutions in conjunction with more traditional litigation through the Courts.

Associated sectors / services

  • Business
  • Commercial Contracts

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