COVID-19: Implications for the future of Dispute Resolution

Dispute Resolution

COVID-19: Implications for the future

of Dispute Resolution

As the 2019 Novel Coronavirus (COVID-19) continues to spread

CONTENTS across the world, businesses are facing significant levels of
instability and uncertainty caused by weakened financial markets
ISSUES TRIGGERING DISPUTES IN and disruption to workplace operations and business pipelines. It
THE SHORT TERM is almost certain that such instability and uncertainty will result
Force Majeure / Frustration / Impossibility
Supply of Goods in a growth in the number and types of disputes, as businesses
Compliance and Investigations become unable (or unwilling) to perform existing contractual
Insurance disputes obligations and/or have to re-adjust to new pressures on their
The immediate impact on our courts and
arbitrations finances and operations.

DISPUTES ARISING IN THE Below we provide our views on the types of disputes that will
MEDIUM TERM arise from the COVID-19 crisis, in both the short and the longer
Insolvency litigation term. We then consider whether COVID-19 may have a broader
Mergers & Acquisitions impact on the way we resolve disputes in the future.
Consumer claims and enforcement of consumer
protection laws
State support for companies, industries and
economies
Claims arising from our reliance on technology ISSUES TRIGGERING DISPUTES IN THE SHORT TERM
Employment and pensions
Export bans, e.g. of medical equipment
Force Majeure / Frustration / Impossibility
In the short term, there is already a spike in disputes arising from parties
THE POTENTIAL LONGER TERM
finding themselves unable or unwilling to comply with existing contractual
IMPACT ON THE WAY WE RESOLVE
obligations and seeking to cease to be bound by those obligations by relying
OUR DISPUTES
The courts and tribunals on legal concepts such as force majeure, frustration and impossibility. In
Rethinking force majeure many jurisdictions, these are not legal terms of art with fixed meanings, but
Governing law and jurisdiction principles that must be applied by reference to the facts before determining
whether they are engaged. This often allows room for debate between the
HOW CAN YOU PRE-EMPT parties to a contract as to the meaning and consequences of these terms and
LITIGATION RISK? therein lies fertile ground for disputes.

1 | Baker McKenzie
 COVID-19: Implications for the future of Dispute Resolution

We expect that the coming weeks and months will likely Third-party compliance risk: Typically, compliance
bring to the fore questions of force majeure, frustration, officers spend a good proportion of their time meeting
impossibility and hardship clauses in response to issues with employees and other third parties carrying out
such as: quarantines, business closures, lack of staff able compliance checks and audits. Without that face-to-face
to work, cancelled events and travel restrictions. This is contact, the risk exists that supervision over employees
by no means an exhaustive list and, in many jurisdictions, and third parties will be more difficult, particularly in
whether such doctrines and / or contractual provisions certain parts of the world where compliance risks are
can be relied upon will depend on the particular contract traditionally elevated. It is crucial that businesses start
and business at issue. adapting their approach to compliance checks and
balances to ensure that systems and controls continue
Local law advice should be taken whenever concepts such to meet the relevant legal or regulatory benchmarks,
as force majeure, frustration or impossibility are being even in this time of crisis. Not making such adaptations
relied on to avoid or adjust contractual obligations. You risks storing up significant compliance related issues,
can access our comparative analysis of force majeure particularly in those jurisdictions where closer oversight
provisions in more than 20 major jurisdictions in our from regional or head office compliance professionals is
Coronavirus Resource Center. most keenly required. In the future, enforcement agencies
or regulators are unlikely to have sympathy for companies
Supply of Goods who let compliance issues fester or slip during the
Suppliers of goods will also face particular challenges COVID-19 crisis.
over the next few weeks and months as supply chains
slow down or freeze up entirely due to business closures, Fraud: Companies should also be on the lookout for
lack of staff and transport delays. Such delays may almost fraudsters seeking to make money out of the crisis. One
inevitably lead to knock-on claims for damages by other very typical fraud of which we expect to see more in
contracting parties in the supply chain. Again, concepts the coming weeks and months is so-called “authorised
such as force majeure, frustration or impossibility are push payment frauds”. Authorised push payment
likely to be relevant to these disputes. fraud happens when fraudsters deceive consumers or
individuals at a business to send them a payment under
During these times of instability, businesses may false pretences to a bank account controlled by the
also struggle to ensure supply chain compliance where fraudster. We expect fraudsters to seek to take advantage
rapid re-adjustments are made to business models. of the chaos in supply chains in order to perpetrate these
By way of example, businesses will have to consider simple, but devastatingly effective, types of frauds
how new suppliers are vetted remotely without face against business. Companies and their directors should
to face meetings, if that would be the usual practice. remain on their guard and ensure that all systems and
Weakening the on-boarding process in any way brings controls remain robust.
with it inherent contractual, litigation, compliance and
financial risks for the business that should be avoided if Local law advice should be sought in all compliance
at all possible. Accordingly, all necessary steps should be high-risk jurisdictions in which the business operates to
taken to ensure that new suppliers are vetted adequately, ensure that adequate steps are being taken to maintain
even in the absence of face-to-face meetings. compliance procedures in these challenging times.

Compliance and Investigations Internal investigations: COVID-19 is also going to affect

ongoing internal investigations. In the current climate,
Compliance and investigations is a key area where the
no face-to-face internal investigation interviews can
impact of COVID-19 will be felt immediately and keenly.
effectively take place. Such face-to-face interviews are
Central to this is the question of how the conduct of
often the preference for investigations practitioners
employees and other third parties (who may incur criminal
as body language is often crucial to an assessment of
liability for the company) can be monitored adequately
witness credibility. Without such face-to-face interviews,
from a compliance perspective with less in-person
businesses will need to ensure they have the technology
contact. Key risks include those arising from anti-trust
in place to ensure that interviews can at least take place
compliance, anti-bribery and fraud.
over video conference.
2 | Baker McKenzie
 COVID-19: Implications for the future of Dispute Resolution

Insurance disputes resolution platforms currently under development,

Disputes are already emerging between insureds and their the progress of which may well be accelerated by the
insurers over liability for COVID-19 related losses. Most present circumstances. Perhaps we will see use of such
businesses will hold relevant business interruption insurance, platforms become more common as they develop to be
but these policies often contain exclusions for viruses, such more accessible. Practically speaking of course, there
as COVID-19, or cover named diseases only. The cancellation remain a number of major considerations for court users
of events means that insurance claims are spiking, but to grapple with in this new world of online courts and
only some claims will be successful, such that we expect tribunals. To give one particular example: how are courts/
to see a steep increase in litigation where insurers refuse tribunals going to deal with the personal service of
to cover losses. However, a number of important aspects documents? With large swathes of the workforce now
of such claims remain clouded in doubt, including how loss working permanently from home, it seems very likely that
caused by pre-emptive, preventative measures, rather than documents served through normal means (i.e. served by
Government-mandated actions, will be dealt with. post) may end up at an office which is closed. It is yet to
be seen whether litigants (or would-be litigants) will seek
As a practical first step, companies should carefully to take advantage of these unique situations to their own
check insurance policies and begin a conversation with strategic advantage.
their insurer as soon as possible. Looking forward, when
insurance policies are renewed, both the insured and the From a practical perspective, businesses that are currently
insurance companies will have to think about how to engaged in ongoing litigation or arbitration should keep
account for the impacts of COVID-19 and similar outbreaks a close eye on announcements made by the relevant
in the future. Defining and pricing such risks is difficult governing body or institution to ensure they are aware of
when so much about COVID-19 is unknown, but it seems changes to rules and or/procedures.
that an overall rise in insurance premiums is one potential
response of the insurance industry.

The immediate impact on our courts and arbitrations

We are already seeing a number of fundamental
procedural changes to the way in which disputes are
resolved as a result of the COVID-19 outbreak.

With the physical court closures and postponement of

arbitral hearings, we are seeing a sharp rise in “virtual
hearings” or entire trials moving to being online. There
is little feedback yet on how this is working in practice,
but it is in the interests of all court users to make it work
effectively and efficiently. There may be some resistance
to entirely online civil court hearings in jurisdictions, such
as in the US, where jury trials are the norm, and industries
have been built around the connecting with, and studying
of, juries. However, we also believe that there may be
increased interest in mediation as a tool to resolve
COVID-19 driven disputes and the possibility of running
these online.

There has already been a rise in the use of online

settlements, through technologies such as SmartSettle,
which uses a blind bidding system to facilitate negotiated
solutions. There are a number of automated dispute

3 | Baker McKenzie
 COVID-19: Implications for the future of Dispute Resolution

DISPUTES ARISING IN THE Mergers & Acquisitions

From an M&A perspective, it is increasingly likely that a
MEDIUM TERM significant number of deals in progress will be stalled or
abandoned due to COVID-19 related uncertainty. While the
collapse of such pre-contractual discussions is less likely
Turning away from the types of disputes of which we to result in formal litigation, we consider it more likely
expect to see more in the coming weeks, we now focus that parties will seek to recover by way of litigation or
instead on those disputes we expect will emerge in the arbitration losses suffered as a result of a “bad” deal e.g.
coming 6-12 months as we (hopefully) deal with, and where a target company has not performed or economic
move on from, the immediate COVID-19 crisis. conditions have made the investment far less lucrative.
In such circumstances, we expect to see litigation
Insolvency litigation and arbitration in relation to the representations and
COVID-19 is leading to the sharpest economic slowdown warranties given under SPAs arising in greater numbers
we have seen in a generation, though we do not know if than one might expect in a better economic situation.
it will be followed by a quick or slow recovery. Given the
slowdown, we would expect to see a concomitant uptick The result of COVID-19 and how investment managers
in insolvency and other financial disputes, for example are currently advising clients to respond to the issue will
in the energy sector where the drop in the oil price is also potentially see future claims by investors against
also creating havoc, and amongst financial institutions those investment managers for negligent advice and the
and corporates. These will inevitably happen across the ensuing financial losses suffered.
globe but, given the high level of debt in Asia and Africa
and the slowdown in the Chinese economy, we expect to Consumer claims and enforcement of consumer
see a particular increase in insolvency-related disputes protection laws
as relationships start to unravel in China’s ‘Belt and Consumer facing companies, particularly those in the
Road’ projects. The automotive and aviation sectors also events and travel industries, are facing enormous
look to be particularly vulnerable. As borrowers’ access challenges over the coming months as they are deluged
to financing is constrained by any slowdown, this may with refund claims for cancelled events, flights and
trigger default situations, leading to disputes throughout holidays. Consumer businesses as a whole will also be
the project chain and ending with lenders. There will under pressure from increased consumer claims for non-
be a time lag between any slowdown and the resulting delivery or late delivery of goods and services. Many
disputes, but in the near term financial institutions and consumer businesses are trying to incentivise customers
corporates should be sensitive to third party insolvency to re-book flights or accept vouchers for future use as a
risk, particularly when entering into increasingly complex means of staggering refund demands and easing cashflow
financing arrangements. constraints.

Governments may be minded to shape legislation to Businesses can offer incentives to consumers to encourage
take account of this unique situation. For example, in re-booking or the supply of alternative goods or services,
the UK, the Government has announced proposals to but must ensure that their messaging of such offers
relax the rules on wrongful trading to absolve directors to consumers does not mislead and does not prevent
of liability for wrongfully trading through a technically a consumer from receiving a full refund if that is their
insolvent company. Perhaps other Governments will show preferred option and right. Where messaging does not
willingness to follow suit, recognising the need to support comply with consumer protection legislation, businesses
business continuity, rather than to protect investors and can expect regulators in this space to take direct action to
creditors. enforce the law. We do not expect to see any softening of
enforcement of consumer law due to the COVID-19 crisis.
For example, the Competition and Markets Authority

4 | Baker McKenzie
 COVID-19: Implications for the future of Dispute Resolution

(CMA), the UK regulator of competition and consumer law, use and reliance on technology may well result in an
has set up a COVID-19 taskforce specifically to monitor increasing number of disputes around the use of that
market developments and identify harmful sales and technology.
pricing practices as they emerge. It has already indicated
that it will advise the UK Government on emergency Employment and pensions
legislation if there are negative impacts for consumers A careful approach is required before mandating unpaid
which cannot be addressed through existing powers. leave or use of accrued leave for employees who are
not sick or known to be infectious in order to avoid the
State support for companies, industries and inevitable increase of employment-related litigation in
economies the wake of COVID-19. Employers must also ensure they
In the EU, a number of Member States are considering, or consider already complex paid sick leave laws. Remote
have already announced, substantial supporting packages working also creates complex wage and hours issues,
to limit the impact of the outbreak on the economy. and, paired with the economic uncertainty of COVID-19,
State aid usually requires European Commission approval provides a breeding ground for potential wage and
and some support measures have already received hour violations. Further, COVID-19 could result in a surge
such approval; we might see Member States protesting in claims arising pursuant to violations of collective
against unfavourable EC decisions, or companies whose bargaining agreements or under equal employment
competitors receive State aid might consider complaining opportunity laws, although it remains an open question
to the EC or commencing litigation. whether COVID-19 could give rise to claims for disability
discrimination.
More broadly, the crisis has given rise to State
interference in economic life in ways previously In addition, as the stock markets plummet and people
unimagined. This may give rise to judicial review claims lose out on pension returns, those investors are likely to
in some jurisdictions and investment treaty claims by seek compensation, which is likely to result in additional
companies seeking compensation, although there may be litigation. Related to this, there is likely to be an increase
reputational factors for such claimants to consider around in claims against directors for breach of duty.
being seen to sue governments at a time of national (and
international) crisis. Export bans, e.g. of medical equipment
Some governments, such the French, Czech Republic,
Claims arising from our reliance on technology Polish and Russian governments, have implemented
Our new educational and working environment is now, measures such as restrictions on certain kinds of
more so than ever, reliant on there being in place a fast protective personal equipment leaving their countries.
and efficient IT infrastructure with sufficient capacity. Of The EU Commission has enacted Implementing Regulation
course, IT infrastructure can become unstable (e.g. due to 2020/402 on 14 March 2020 restricting the export of
viruses, low capacity, low resources, connectivity, etc.) or protective personal equipment to outside the EU.
fail entirely and the compromising of data means clients, Germany has repealed its national restrictions in response
employees and companies may suffer. The increasing to the EU Implementing Regulation. In total, as of 21
March, it was reported that 54 countries had implemented
export restrictions for medicinal products. While the
details differ, the export restrictions have prohibited
and continue to prohibit suppliers from fulfilling their
contractual delivery obligations with international
customers. The potential claims that could be brought
to courts and arbitration based on a non-delivery or a
delayed delivery of goods are numerous. Depending on
the applicable law, it is to be expected that actions for
damages, payments and other types of claims will rise as
a consequence of the export restrictions imposed.

5 | Baker McKenzie
 COVID-19: Implications for the future of Dispute Resolution

THE POTENTIAL LONGER TERM that would not be expected. In other jurisdictions,
we expect that if the courts and tribunals can put in
IMPACT ON THE WAY WE RESOLVE place the resources now to make such online hearings
happen in the coming weeks and months, it will mark a
OUR DISPUTES permanent sea-change in the way that justice is delivered
in those jurisdictions.

Looking further ahead, one question we have Rethinking force majeure

already been considering is whether the impact
Businesses will undoubtedly use this experience to
of COVID-19 may have a longer term impact on the
shape their use of, and approach to, force majeure and
way we resolve disputes.
other similar concepts in their contracts. We expect that
such clauses will no longer be considered entirely boiler
We would be delighted to hear your views on this.
plate as may have previously been the case. Likewise,
companies may look to renegotiate existing key contracts
The courts and tribunals
that do not currently contain suitable force majeure-type
As noted above, a number of courts and tribunals have wording.
already moved online. We consider this crisis will be a
turning point for the use of online courts and tribunals. Governing law and jurisdiction
The current crisis will require investment from all sides in
Contractual parties may also reflect on their governing
the technology to make such hearings work effectively.
law and choice of jurisdiction for agreements in light of
We do not expect that investment will go to waste once
COVID-19. There is a risk that commercial litigants take a
the immediate crisis is over. Once it is clear (as it soon
move away from those jurisdictions that have been badly
should be) that smaller hearings and applications can be
affected by the virus and, instead, decide to resolve their
heard very effectively and fairly over video conferencing,
disputes in jurisdictions that were either less affected by
both the courts/tribunals and their users will expect such
the pandemic or were better able to keep their judicial
online contact to become the norm (or at least accepted
functions open and operational during the crisis. A key
more readily).
consideration may be the extent to which justice in
the country is able to operate in the event of a similar
Online mediation, which is currently in operation across
pandemic in the future.
much of the world, may also see significant growth.
Mediation efforts have been growing rapidly around the
As regards the choice of dispute resolution mechanism,
world, with increasing amounts of legislation to support
we consider it possible that, in the wake of uncertainty,
this efficient and cost effective method of dispute
court closures and delays, contractual parties may seek
resolution. Mandatory mediation has been in place for
some comfort in the arbitration process; it being outside
some time in jurisdictions such as Australia, Italy and the
the bureaucracy of the state.
Philippines, and other countries now seem to be following
suit (for example Turkey, Greece and India). We may see
that COVID-19 poses an opportunity for online mediation
to be adopted more commonly in disputes that would
ultimately be referred to international arbitration, as
mediation has until now tended to be more common in
the litigation context than in arbitration.

For certain jurisdictions (notably China, the Netherlands,

Singapore and the UK), the idea of online courts and
hearings is not particularly novel, though the practice
of using them until now has been limited to lower value
disputes. However, we may see the use of online hearings
becoming a new normal in disputes where previously

6 | Baker McKenzie
 COVID-19: Implications for the future of Dispute Resolution

HOW CAN YOU PRE-EMPT LITIGATION RISK?

In light of the issues raised above, we set out below some of the steps that
businesses can and should be taking now to avoid or minimise the risk of
becoming embroiled in any of the disputes identified above.

1. Spend time checking your key contracts, focussing particularly on force

majeure provisions, dispute resolution clauses and termination procedures.
Consider whether there is a need for a pre-emptive re-negotiation or a
restructuring of some kind. Think about your obligations to mitigate the
effect of contractual non-performance, any applicable time bars in your
contracts, any notification requirements and other procedural issues.

2. With a greater reliance on technology to help employees perform their

jobs, and a move to replace face-to-face meetings with video calls, ensure
that regular online video conference training is implemented to
ensure that employees and other relevant third parties are not missing out
on training (especially compliance training) due to a lack of face-to-face
meetings.

3. Discuss issues as soon as possible. In our experience, starting

conversations with counterparties as early as possible when there is a
sign of trouble reduces the risk of disputes further down the line and
helps protect long-term relationships during times of distress. In addition,
reaching out to lender banks to discuss potential issues with servicing of
loans may avoid situations escalating prematurely.

4. Think carefully about your compliance requirements. As your

supply chains are being adjusted due to COVID-19, you should consider
restructuring your compliance procedures and processes. Perhaps you could
consider moving to an e-based compliance and risk assessment system
instead?

5. Seek help if you need it! If you need to talk to someone about any
of the issues detailed in this update, or would like more detailed advice,
please get in touch with your usual Baker McKenzie contact, or our
dedicated COVID-19 team. Our response will draw on Baker McKenzie’s
Visit our Coronavirus Resource Centre
more than 1100 disputes lawyers around its 77 offices in 46 countries,
for the latest insights
leveraging the full breadth and depth of our legal and industry expertise
to help our clients navigate risk around the world.

bakermckenzie.com
© 2020 Baker McKenzie. All rights reserved. Baker & McKenzie International is a global law firm with member law firms around the world. In accordance with the common terminology used in
professional service organizations, reference to a “partner” means a person who is a partner or equivalent in such a law firm. Similarly, reference to an “office” means an office of any such law firm.
This may qualify as “Attorney Advertising” requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome.