ADR: A Viable Alternative to Litigation in the Time of COVID-19? - Danny Holroyde


The uncertainty and disruption caused by COVID-19 has led to an increase in commercial legal disputes. Local lockdowns, business closures and debilitating illness among staff have interrupted business transactions, causing parties to seek to activate force majeure and frustration clauses. Businesses have sought to alleviate economic damage through insurance claims, only for these claims to be disputed by insurers who argue that the effects of an unprecedented global pandemic should not be covered by insurance policies. Investor confidence is at an all-time low, leaving parties struggling to wiggle out of M&A transactions; IT giant Xerox, for example, recently withdrew a USD34bn offer from HP after postponing meetings with shareholders to focus on its own methods of coping with the pandemic. Finally, an increase in insolvency disputes seems inevitable post-pandemic as the world comes to grips with what is predicted to be the worst global recession in years.


This mountain of potential legal discourse comes at a time when the judiciary itself is struggling to adapt to social-distancing requirements. In the UK, most ordinary court hearings have been replaced by from-home video calls, the quality of which depends on the limited IT infrastructure which participants have at their dwellings (and the IT know-how of an often less-than-tech-savvy legal profession). This combination of an increased caseload and unprecedented changes to the operation of the court system has meant that commercial litigation is being processed slower than ever, driving up costs for businesses and restricting economic productivity.


The stress put on the court system by the pandemic will likely lead many parties to turn to Alternative Dispute Resolution (“ADR”) as a replacement means of settling contractual disputes. This prediction seems to be the view of legal professionals. Baker McKenzie’s report states that “as regards the choice of dispute resolution mechanism, we consider it possible that, in the wake of uncertainty, court closures and delays, contractual parties may seek some comfort in the arbitration process”. So too, in a letter to members, the Chair of the Civil Mediation Council, Sir David Foskett, acknowledged that the current crisis could result in a greater demand for mediation.


The two most common types of ADR in commercial disputes are mediation, the process by which a neutral third party (the mediator) facilitates negotiation between the parties, and arbitration, the process by which a neutral third party (the arbitrator) adjudicates on the parties’ dispute. In either case, the parties will choose their own mediation or arbitration procedure, which will be set out in the parties’ contract.


When choosing between ADR and litigation as a means of settling disputes, parties will consider the economic viability of each process. The ADR process is faster, because parties can choose for themselves who will facilitate discussions, and the procedure for these discussions. Greater flexibility means disputes are not forced into a backlog of cases, for the parties can simply choose a mediator or arbitrator who does not have a long waiting list. Furthermore, parties could agree that large parts of the mediation will take place digitally (i.e. via email), avoiding the need even for timely video calls. The rigid procedure of the court system, and the inability for parties to strategically select the court before which their dispute is heard, means the litigation process is generally slower. Delays in settling disputes will bring businesses to a standstill and increase costs.


The cost of legal advice to commercial clients has also increased. The productivity of lawyers working from home, with limited IT equipment and distractions such as childcare, will naturally be lower than that of lawyers working from an office. As such, work for clients will be completed at a slower rate, increasing the lawyers’ billable hours. The increased cost of legal advice arising due to remote working was recognised by the courts in Muncipio de Mariana v BHP Group plc [2020] EWHC 928 (TCC), which concerned an application to adjourn a hearing due to the pandemic. The judge acknowledged that a remote hearing would take longer than an in-person hearing, and that this would contribute to increased costs for litigating the case. Some attempt has been made by the judiciary to mitigate the increased cost to litigants of legal advice, particularly as regards the slower rate at which pre-trial work will be completed due to remote working. In an interview with Thomson Reuters’ Dispute Resolution team, Imran Benson and David Juckes of Hailsham Chambers suggested that if a legal team has taken a pragmatic and sensible approach to managing the cost of remote working, the court might be sympathetic and allow for the recovery of costs. Furthermore, per paragraph 44.4(3)(g) of the Ministry of Justice’s Civil Procedure Rules, the courts must consider the place and circumstances under which work took place when deciding the recoverability of costs. “Circumstances”, for the purpose of these rules, would likely include the pandemic. Regardless, the expenditure saved by a business through the recoverability of legal costs will conceivably be far less than the expenditure that would be saved (or rather the profit that would be gained) from completing a commercial transaction in a timely manner, given such transactions are potentially worth millions of pounds. Indeed, small claims courts (dealing with claims for less than £500) already utilise mediators as an alternative to litigation. This is indicative of the fact that the judiciary itself recognises there are more economically viable alternatives to the court process. ADR, with its quicker process, is one such economically viable alternative to litigation.


There are other pandemic-related reasons why ADR should be favoured over litigation. One such reason relates to the disclosure of evidence in court. As part of the court process, litigating parties are required to disclose relevant evidence, in the form of “documents”, to the court. As businesses have moved to remote working, and in-person face-to-face meetings have become rarer, there has been an increase in documentation of discussions, such as via email communication, and virtual team meetings are now often recorded, so they can be reviewed by colleagues not present at the meeting. Therefore, there has been an increase in the volume of potentially relevant documents that could be the subject of disclosure. There are many reasons a business might be averse to having certain documents disclosed in court: the documents could be of a sensitive nature or be counterproductive to the case the business is making before the court. Disputing parties are free to choose the procedure of their ADR discussions, so could decide that no disclosure obligation should exist. Additionally, ADR discussions take place in private, whereas the litigation process in the UK is public (in accordance with the principle of open justice), and therefore parties in ADR do not risk potentially sensitive documents being disclosed to the media and public. This is one reason disputing parties might favour ADR over litigation in the time of COVID-19.


Furthermore, technology for conducting ADR discussions virtually is far more progressed than virtual litigation technology. Even prior to the coronavirus, virtual ADR discussions were not uncommon; the International Centre for Settlement of Investment Disputes reports that about 60% of the 200 hearings and sessions it organised in 2019 were conducted by video conference. While UK civil courts have long been permitted to conduct virtual hearings in the appropriate circumstances, these hearings were rather rare prior to the pandemic, particularly among senior courts; the Supreme Court, for example, conducted only its first virtual hearing in March 2020[1] (in response to the pandemic). As such, virtual ADR technology will be far more developed than that used by the courts, and those using the technology will be far more familiar with the nuances of a virtual hearing.


In this period of great change and uncertainty, there are clear benefits to utilising ADR rather than litigation as a dispute-settling mechanism. The ADR process is faster, meaning disputing businesses can return sooner to deriving commercial benefit from amicable working relationship. Additionally, parties derive practical benefit from the fact they are not obliged to disclose potentially sensitive or damaging evidence (as they are so obliged during litigation), and the technology which facilitates ADR hearings will be better developed and implemented than the technology used to facilitate virtual court hearings. All these factors mean that ADR is a viable, if not favourable, alternative to the court process in the time of COVID-19. The pandemic has been the impetus for the first exposure of many parties to ADR, and given the greater practicality and economic viability of ADR hearings over traditional litigation, it is predicted that even in a post-pandemic world, it is likely many disputing parties will no longer opt to return to the courtroom when settling commercial disputes.

 

[1] Uber BV and others (Appellants) v Aslam and others (Respondents) [2019] UKSC 29


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