COVID-19 and Brexit highlight the benefit of arbitration over litigation

June 2021  |  SPECIAL REPORT: INTERNATIONAL DISPUTE RESOLUTION

Financier Worldwide Magazine

June 2021 Issue

The coronavirus (COVID-19) pandemic has presented judicial systems around the world with unprecedented challenges, with many courts being forced to close or left trying to deliver access to justice in a safe environment.

In addition, the withdrawal of the UK from the European Union (Brexit) has also had a significant impact on cross-border litigation with a European dimension, affecting jurisdiction and the enforcement of judgments. This article examines how these two major recent events have highlighted the benefits of alternative dispute resolution (ADR) and, especially, arbitration over litigation.

One of the most attractive features of arbitration is the autonomy given to parties and the flexibility that is inherent in the arbitral process. Unlike national judicial proceedings, parties do not have to follow a rigid court procedure or rely on the random selection of a national court judge. Instead, parties are free to agree directly upon what procedure to follow and the identity of the arbitrators who will determine their dispute.

In arbitration, unlike in litigation, parties may also consensually amend the procedure and procedural timetable that they have agreed to follow. Parties can agree, for example, to drop certain steps such as document production if it is unnecessary or not desirable due to time or cost constraints.

This party autonomy is readily justifiable. Parties are ordinarily best-placed to know what characteristics are most appropriate for the decision makers of their dispute and to understand what process is suitable to follow to resolve their dispute. As a result of this high level of party autonomy, arbitration is a more flexible and adaptable form of dispute resolution than litigation.

The inherent flexibility of the arbitral process has shown itself to be a major advantage over litigation in the pandemic. Arbitral institutions adapted swiftly to the challenges presented by the pandemic and switched to remote hearings with relative ease. Many court systems, on the other hand, have found it much more difficult to adapt and overcome the global difficulties caused by the pandemic.

In the UK, the backlog of cases in the court system has increased drastically each month since the outbreak of the pandemic. According to recent figures from the Ministry of Justice, the backlog of outstanding cases in the courts increased by almost 200,000 cases since the start of COVID-19 in the UK. This increase is despite the fact that the Ministry of Justice has invested millions in setting up Nightingale courts, which are temporary courts set up in order to tackle the backlog of cases.

This backlog of cases is at least partly caused by the difficulties the court system faced in adapting to a remote environment. According to a recent report published by the Civil Justice Council examining the impact of the COVID-19 pandemic on the civil justice system, the inability to conduct physical hearings has presented real difficulties.

Some of the issues highlighted include the high rate of adjournments as a result of the pandemic, underinvestment in technology and the facilities needed to conduct a remote hearing, the lack of availability of suitable platforms for remote hearings and the lack of suitably-trained staff able to use the technology needed to conduct hearings remotely. Other court systems have not fared much better. In the international sphere, the IBA Litigation Committee’s ‘Report on Impact of Covid-19 on Court Operations’ highlights that the judicial system in many countries around the world have also been suspending hearings or adjourning proceedings of non-essential matters and restricting hearings based on priority and urgency.

In light of the issues faced by domestic courts, it is perhaps not surprising that the UK government is now expressly encouraging parties in contractual disputes to use alternative methods for dispute resolution. In May 2020, the UK government published “Guidance on responsible contractual behaviour in the performance and enforcement of contracts impacted by the Covid-19 emergency”. The guidance strongly encourages parties to seek to resolve any emerging contractual issues responsibly through negotiation, mediation or any other ADR mechanism before commencing litigation.

The fact the UK government is encouraging commercial parties to stay out of court in a time of crisis and make use of alternative dispute resolution to resolve their disputes is telling. It highlights some of the benefits of ADR over litigation. Such benefits include the speed and efficiency with which disputes can be resolved, confidentiality (should that be desired by the parties) and the ability to exercise control over the dispute resolution process.

In sharp contrast to many court systems, the response of arbitral institutions and other alternative dispute resolution to the challenges presented by COVID-19 has been swift, flexible and effective. All major arbitral institutions quickly adopted new measures to mitigate delay and other difficulties created by the pandemic and allow dispute resolution to carry on as usual.

For example, arbitral institutions have embraced a shift toward the digitalisation of proceedings through remote hearings and paperless proceedings. The 2021 International Chamber of Commerce (ICC) Rules and 2020 London Court of International Arbitration (LCIA) Rules, for example, include provisions on virtual hearings and paperless filings. These measures have been welcomed by commercial parties and have been critical in avoiding unnecessary delay to arbitral proceedings. The response of arbitral institutions such as the ICC and the LCIA has been a success. Indeed, the ICC recently announced that it recorded a record number of 949 new arbitrations in 2020 as parties have embraced the use of remote hearings in arbitration.

In parallel with this shift towards the digitalisation of proceedings, arbitral institutions have considered and addressed issues of cyber security and data protection. For example, the ICC has recently published a cyber security guide which sets out measures relating to cyber security that parties should consider when organising a hearing. It contains a checklist for a protocol on virtual hearings that includes measures relating to confidentiality, privacy and security. Such steps were crucial in securing the confidence of commercial parties that arbitral proceedings conducted remotely will take place in a digitally secure environment.

Parties to international arbitrations have found it much easier to adapt to the ‘remote’ environment than the domestic courts. Partly due to the intrinsic flexibility of the arbitral process, and partly due to the steps taken by arbitral institutions, there has not been the same level of disruption to arbitral proceedings as there has been to court proceedings as a result of the pandemic. Arbitrations have proceeded with submissions and evidence being filed electronically, case management conducted by telephone and hearings conducted remotely.

Seen in this light, the COVID-19 crisis has highlighted a key benefit of arbitration over litigation. Arbitration has shown itself to be agile to meet the needs of parties and flexible enough to allow parties to create a remote dispute resolution procedure that meets their requirements. In this way, arbitrations have generally not suffered the same delays and adjournments as court proceedings in the wake of the pandemic.

The end of the Brexit transition period on 1 January 2021 has highlighted another major advantage of arbitration over litigation, namely, the enforceability of an arbitral award. Arbitral awards are enforceable in most countries in the world. This is because international arbitration awards are enforceable under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, commonly known as the ‘New York Convention’. The New York Convention requires signatories to “recognize arbitral awards and enforce them” subject to limited exceptions. As of April 2021, the New York Convention has 168 state parties, meaning that arbitral awards are enforceable in a streamlined way in those 168 countries.

There is no equivalent convention for the enforcement of court judgments. This means that the enforcement of a court judgment will differ depending on each country’s own courts’ enforcement rules. Brexit has shown that this can be problematic. Post-Brexit, the UK no longer has the benefit of the Brussels Recast Regulation which provides for the reciprocal enforcement of jurisdiction clauses and court judgments in the EU. This has led to uncertainty as to whether English court jurisdiction clauses and judgments will be enforced by the courts of EU member states.

Arbitration, however, is unaffected by Brexit because arbitral awards will continue to be enforced under the New York Convention to which the UK is a signatory in its own right. This, of course, makes arbitration an attractive option for parties who want to use English law but want certainty regarding enforcement of the award in the EU and elsewhere.

In conclusion, the COVID-19 pandemic and Brexit have highlighted the two major advantages of arbitration over litigation: the inherent flexibility of the arbitral process and the enforceability of arbitral awards. These two advantages mean that arbitration is likely to be the preferred choice of dispute resolution method for parties for years to come.

 

Charlie Caher is a partner and Matteo Angelini is a senior associate at WilmerHale. Mr Caher can be contacted on +44 (0)20 7872 1633 or by email: charlie.caher@wilmerhale.com. Mr Angelini can be contacted on +44 (0)20 7872 1524 or by email: matteo.angelini@wilmerhale.com.

© Financier Worldwide

BY

Charlie Caher and Matteo Angelini

WilmerHale

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