7 Key Considerations to Commercial Disputes During Covid-19
These unprecedented times, from the Coronavirus pandemic and the forthcoming economic shock, has already led to many disputes arising for businesses. Whether this may be because of misrepresentation, or due to contracts written before the pandemic – the current situation has created many disputes for businesses to wade through as they prepare for the eventual lift of restrictions and re-openings.
Although the dispute could arise from the pandemic which is affecting us all, disputes often lends itself to either party being unable to see matters from the perspective of the other, which often leads to a corresponding inability to alter their position. When the parties’ positions become entrenched, it can be difficult to row back from the brink of hostilities.
Considering this, we have devised a guide to managing legal disputes and how to avoid a full-blown legal battle. We also discuss what parties, particularly commercial entities must consider and address when faced with conflict; before embarking on a course of action which ultimately will end in frustration and futility as well as, or in the alternative, severe financial loss.
- What are the Common Causes of Commercial Disputes during Covid-19?
Most disputes, Covid-19 related or otherwise, usually arise because of a lack of communication, a miscommunication or a lack of consideration of the rights or the perspective of the other party of parties.
During this time, it is vital to maintain communications with those who you often encounter and have previously signed contracts with. For all sectors, the governments continuous advice has been to remain aware of your contracts, how your business has been affected – as well as how other parties’ businesses have been affected by the pandemic.
It is important to acknowledge each other’s interest and putting oneself in the shoes of the other. Listen critically to the important requirements of the other in order to determine the best way forward. For this to be possible, it is vital that the parties adopt a principle of transparency that allows both or all parties to declare their principal objectives.
By communicating clearly with the opposing party, a full-blown legal battle can be averted. If you act as a landlord for example, note that several debt recovery measures have been temporarily halted. Instead, you can communicate with your tenant to devise a scheme which is best suited to both of you. An example would be a temporary rent break in exchange for a longer lease.
Click here to read our Guidance to Commercial Landlord in these troubling times.
To ensure effective communication is taking place, Roger Fisher and William L. Ury & Co in their book, Getting to Yes: Negotiating Agreement Without Giving In, suggest that parties should develop objective criteria. In other words, be realistic with the outcomes you require. In a dispute situation, parties need to understand that whilst they may not get everything they want, they can get what they need by being objective and reasonable in their approach.
The authors also suggest that parties need to:
- Look forward and not back.
- Be hard on the problem and not the people.
- Invent creative options for mutual gain.
In doing the above, it will be possible to avoid a full-scale legal combat in most cases. There are of course situations where commercial realities may not be the only paramount consideration such as in disputes involving tax, or governmental authorities whose focus will not always be an amicable settlement of a particular dispute but the pursuit of wider economic and fiscal policies. However, in the case of the Coronavirus (Covid-19) pandemic and the subsequent economic shock, the government have repeatedly asked for constant communication to be arranged between parties.
- Are Proceedings Always Unavoidable?
There are situations where it is not always possible to avoid legal proceedings, particularly when a party or parties refuse to take a principled approach to the issues at hand; use personal attacks or play dirty tricks; simply refuse to budge from their opening position; seek to maximise their gains unfairly; or refuse to take part in discussions or negotiations.
Recent examples have been within construction disputes, where one or more of the parties involved or even third parties and stakeholders suffer detriment unfairly when immediate action is not taken. This is also the case for David v Goliath type scenarios where one of the parties may seek to gain unfair advantages over the other a result of their dominant financial or bargaining position. This could become a common case over the next few months as many businesses have suffered greatly during the pandemic, whilst specific businesses have flourished.
In such instances and other situations where the possibility of an amicable resolution is remote, it is important for proceedings to commence swiftly for the matter to be brought before and decided by an impartial arbiter.
- Litigation: Courts and Tribunals
Litigation refers to the act of or process of commending and determining points of law, contract or tort through the court. It is the action through which private individuals and other types of legal entities such as incorporated bodies and even governments can enforce rights belonging to them in court.
In the UK, there is a labyrinth of Court and Tribunals and the type of remedy that will be ordered by the court or tribunal will depend largely on the type of proceedings brought. However, the most common remedies available through litigation include:
- Financial compensation or damages.
- A declaration that your rights have been breached.
- An order overturning the decision you have complained about – in England and Wales this is called a quashing order. In Scotland, it is called a reduction.
- An order that the public authority should do something – in England and Wales this is called a mandatory order and in Scotland, it is called a specific performance.
- Alternative Dispute Resolution
Owing to the time-consuming and expensive nature of the litigation process, alternative dispute resolution (ADR) has evolved in many jurisdictions over a number of years as an alternative to litigation.
In the UK, the following methods of ADR should generally be considered as an alternative to litigation:
- Negotiation and Conciliation
Parties considering ADR need to take into consideration certain factors and will usually be guided by their legal representatives as to the most suitable procedure. However, note that some of the factors that need to be considered when deciding on an appropriate method of dispute resolution are:
- Confidentiality – when dealing with sensitive commercial information
- Ability to choose an adjudicator
- Speed and need for speed to determine the outcome of the dispute
- ADR costs can be controlled, keeping both parties in control of their spending.
- Binding decisions – decisions can be binding or non-binding depending on the process chosen and the points of reference agreed at the outset of the process.
- Get Professional Advice Early
As the current situation has caused great uncertainty for many, and with lots of speculation surrounding government advice, note it is important to obtain suitable legal and professional help as early as possible.
This will ensure the situation is dealt with in a timely manner, before the situation escalates. A current and necessary example for this would be force majeure. As more and more businesses are unable to fulfil their contractual obligations, many are resorting to their contracts to see if they can claim force majeure. If you are unsure, gain legal advice. This goes for all commercial disputes.
An ethical adviser is always bound to act in your best interest. They will seek to establish the issues at hand and your objectives. They will aim to understand the red flags and what outcomes you can live with and which lines must not be crossed, when perhaps a party is too close to the problem, and when it can be difficult for the client to ascertain what is reasonable and what is not.
A reputable adviser will conduct a ‘Risk v Benefit’ analysis to ensure any course of action you take makes sense economically and will therefore advise you of the options available at each stage and its consequences.
- Funding Litigation – Can you afford it?
It is critically important for parties to obtain clear and accurate advice on the funding options that may be available to them before embarking on any type of legal proceedings or ADR, as well as the financial consequence and impact of each method of funding. Similarly, a party needs to think of the consequences of losing as well as winning.
There are various litigation funding options:
- Legal Expenses – Before the Event Insurance (BTE)
- Legal Expenses – After the Event Insurance (ATE)
- Third Party Funding
- No Win – No Fee (Damages Based Agreements & Conditional Fee Agreements)
Click here for further information on source of litigation funding which may be available.
- Avoid Hollow Victories
A ‘hollow victory’ refers to a victory which you win but may not be able to enforce for one reason or the other. Typically, when a party litigates against “a man of straw” or in the case of a company non-existence of assets (i.e. where the other party is incapable of paying out on the judge you have obtained.) This can also arise where assets have been hidden overseas or transferred out of reach. Advice should be sought early in the process on how to minimise these risks.
In certain cases, we would advise a trace of these assets and an appropriate injunction to prevent or stop these asset hiding activities. Suffice to say, it is important to conduct thorough due diligence on the other side to ensure that the benefits of legal actions are not or become an exercise in futility.
These are very troubling and unsettling times. Of this there is no doubt. Companies at this time will find themselves under immense pressure it may be tempting to launch well justified legal proceedings. Parties need to consider whether full scale legal hostilities are necessary in the situation or matter and settle as early as possible to avoid wastage of time, focus and expense. We urge parties to proceed to litigation with an abundance of caution and only as a last resort after having pursued all options to resolve issues of dispute.
Conversely, where legal proceedings are inevitable, then it is equally important that parties proceed prudently seeking out the best possible representation and advice while taking into consideration the factors mentioned in this discourse.
We are here to support businesses in these difficult times. Should you require any further information, or to speak to a member of our excellent team of Solicitors, you can contact us on 0800 037 1305 and request a Free Video Consultation.
Please note that this article is provided for general information only. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content of this blog.