HOW COVID-19 SHAPES THE FUTURE OF DISPUTES AND PROCEDURE
In March 2020, the World Health Organization (WHO) characterised the outbreak of coronavirus (COVID-19) as a pandemic. Globally, more than four million people have been infected with the virus. Governments have followed different approaches to tackle this unprecedented situation.
The impact of COVID-19 and the responding countermeasures taken by governments have interfered with almost all areas of life, including disputes. In many countries, the governmental shutdown programmes included the suspension of state court litigation and limited any judicial services to online access only. The arbitration world has also been hit by the virus: in contrast to state courts, the preliminary message from major arbitration institutions has been to continue pending cases without delays and hold hearings remotely instead of in-person to the extent possible.
State courts already face a multitude of disputes triggered by the pandemic. In contrast, leading arbitration institutions have reported an overall decrease of filings since the outbreak but expect an increase of COVID-19 related commercial arbitrations in the mid-term future. Eventually, foreign investors may also attempt to hold states liable for COVID-19 related measures taken by governments.
Commercial disputes
Since the outbreak of COVID-19, the performance of contracts has become a major issue. The pandemic has disrupted the ordinary conduct of business in various ways. We have encountered disruptions to supply chains, closed factories and plants, as well as restrictions to travel and to the import and export of goods. These circumstances have made it difficult for many parties to fulfill their contracts. Others use the pandemic as a pretext to refuse performance and to exit unprofitable contracts. As a result, quite a few parties to international contracts complain about breaches of contract by their counterparties.
Under all COVID-19 regimes reviewed for this article, the general principle pacta sunt servanda continues to apply, and non-performance may be excused only if specific requirements are met. Whether this is the case depends very much on the individual case, which in turn exposes a party to a certain degree of legal uncertainty. Indeed, in most cases neither the individual contract nor applicable regulations may expressly account for the COVID-19 outbreak, which is why any justifications for non-performance are mostly based on rather vague concepts such as force majeure, hardship or frustration.
Jul-Sep 2020 issue
Freshfields Bruckhaus Deringer LLP