The COVID-19 pandemic is accelerating many trends that will transform dispute resolution over the next five years. Ankura experts and legal authorities from various jurisdictions discussed these developments in a global webinar in late 2020. [1] This summary provides their views on the shifts taking place and how to remain ahead of them.
See You in Court? Remote Justice on The Rise
Three days before the first UK lockdown in March 2020, the head of the judiciary of England and Wales announced that all hearings would be heard remotely and issued comprehensive guidance on best practices for conducting virtual hearings. How did it work out? At the higher end of litigation and regulatory proceedings, virtual hearings were reported to have gone well. Some lower courts were finding it tougher due to a lack of funds and the size of caseloads. Looking at the EU, the picture was more mixed. Spain had no virtual hearings at all for the first eight weeks of lockdown. In other countries, such as Australia, decentralized procedures resulted in uneven results across districts. However, the feedback was generally positive as clients noted procedural efficiencies and cost savings while foregoing the need to travel to give evidence in international disputes.
While this may suggest that the future of court hearings will be fully virtual, the panel’s view was a blended approach would be optimal. The case for virtual hearings was largely proven, but there will still be times when credibility and complexity make face-to-face proceedings preferable. While the quality of technology will be crucial—and must not only be an option for the highest and best-funded courts—pixels on screens will not replace a judge’s need to see “the sweat on the brow” of a defendant or witness.
Brexit and the Future of English Law
From a global perspective, will Brexit lead to a decline in the workload or status of the English courts? One emerging view is that Brexit could fundamentally undermine the power of English law, potentially making it unenforceable beyond UK borders. This scenario would see English language courts in EU jurisdictions take over the workload lost as a result of Brexit, especially given the EU directive on consumer representative actions enacted on 24 December 2020. The more balanced and prevailing view is that whatever legal problems might occur as a result of Brexit, pragmatic steps will be taken to address them, supported by the English judiciary’s proven ability to adapt and evolve. In this scenario, the future of English law as central to resolving international disputes is likely to remain secure.
New and Emerging Risks on the Horizon
Even without anticipated COVID-19 related and climate change driven litigation on the horizon, there are plenty of warning lights flashing on the corporate risk dashboard that could give rise to legal action. With Forbes estimating that 83 percent of enterprise workloads had moved to the cloud by year-end 2020, and given the average cost of a data breach in 2019 was $3.92 million, data compliance is likely to be a key concern for corporate legal teams. As data protection regulations tighten and cyber-attacks become more sophisticated, in-house legal teams will intensify their focus in this area.
For multinationals, tax is also becoming an increasingly sensitive area as a range of issues— from complex transfer pricing to the reputational concerns around balancing tax efficiency with the need to pay “fair rates” of tax—drives risk higher. Staying on the global theme, laws with global reach such as antitrust, anti-dumping, anti-money laundering, and sanctions pose questions about how well companies are prepared to protect themselves against an employee’s negligence or default.
Recent accounting concerns, such as the Wirecard scandal, highlight the need for better compliance and could herald new corporate accounting regulation. At a time when businesses are still grappling with the immediate economic impacts of the pandemic, the danger is that compliance may be overlooked, resulting in abuse of and loopholes in processes.
Finally, a new focus looking ahead may be on well-being, with risks centring on employers’ liabilities to maintain a healthy and safe environment, for both physical and mental well-being.
The Legal Fall Out from COVID-19
With effective vaccines offering hope that the end of the COVID-19 pandemic may be in sight, the legal issues related to the pandemic will take longer to resolve.
Disputes around the extent to which COVID-19 can be classified as a force majeure and, therefore, used as a reason to discharge contractual obligations are likely to occupy litigators for some time. Closures and bankruptcies as a result of the economic damage done by the pandemic will also generate risks and litigation. Certain sectors, including commercial property and insurance, are likely to generate heavier losses and more potential disputes.
The travel industry is already seeing disputes over the extent to which COVID-19 was concealed by service providers or in cases in which individuals have contracted the virus. Actions against UK airlines for their use of vouchers instead of refunds could also give rise to legal action.
The U.K. Supreme Court has recently handed down judgement in the Financial Conduct Authority test case litigation against insurers. The outcome means there will be significantly greater coverage of claims by insured companies affected by COVID-19, and the focus will move now to the settlement of claims. This litigation is one example of how fleet of foot the English judicial system can be when dealing with critical issues in the public interest.
Shareholder complaints have been made about companies that are alleged to have made misleading statements about products and treatments designed to address the pandemic. Governments may also be in the firing line with possible actions related to their ability to provide accurate COVID-19 tests in compliance with the applicable requirements and regulations.
The COVID-19 pandemic will also likely create a major acceleration in cases relating to data hacks and data breaches as the pandemic drives more business operations online, increasing exposure to risk. Companies are well advised to urgently test and strengthen their compliance and risk management processes because the potential volume and value of these claims are attracting litigation funders.
The Rise and Rise of Class Actions
Class actions are spreading from their established sectors and territories. As a result, a global class actions market is rapidly emerging with actions that might start in California, emerge in England, then move to Australia. Volumes are rising to an unprecedented level with an estimated 900 COVID-19-related class actions in the U.S. alone at the end of October 2020. This trend is likely to continue, buoyed by cross-border coordination between powerful litigation funders.
England is becoming an emerging market for class actions. The shareholder class action brought against The Royal Bank of Scotland by investors who bought shares in its rights issue represented a watershed moment and has been followed by other major UK class actions involving data beaches and misstatements of accounts.
This trend toward the globalization and rising volume of cases will be further fueled by the EU Collective Redress Directive, which aims to implement a pan-European class actions jurisdiction across 27 member states. The legislation was endorsed by the European Parliament on 24 December 2020. The implications are clear: global businesses operating within the EU face a significant new class action risk. This legislation together, with the increasing number of COVID-19-related cases, mean the upward trend is set to continue.
Related to this area is the need to accurately assess damages. These should be aggregate damages but defining and calculating damages poses challenges. Another trend will therefore be the rising importance and sophistication of economic modelling techniques.
Climate Change Risk—Green is Now a Given
Reducing carbon emissions is no longer just an aspiration. In many cases, obligations have been reflected in national legislation, regulations, and/or case law.
When companies are either directly polluting or making false claims about the sustainability of their supply chains or products, they are now held accountable directly through legal mechanisms. These include tortuous claims for damages based on public and private nuisance and negligence, and investor treaty claims, rising from a breach of environmental treaty obligations and claims, based on breaches of national environmental law.
Companies can also be held accountable more indirectly through other types of claims, such as a breach of directors’ duties by authorizing polluting acts or failing to take sustainability factors and risks into account when making corporate decisions.
In addition, companies may be exposed to shareholder claims in which environmental disclosures are incorrect or misleading. With public and government attention on environmental issues rising at a steady pace, this is likely to be a key risk area in the near future.
From Litigation to Mitigation
Given the trends driving a rise in litigation, a parallel move toward mitigation is expected through better engagement with partners and contractors and more effective dispute resolution processes. While this is a global trend, the Middle East may be a hotspot. The region’s ambitious growth plans involve multiple mega-construction projects, which need to attract high-quality investments and contractors. Creating new dispute adjudication processes, or establishing specialist court divisions, may ease concerns that any dispute will lead to long and expensive formal procedures.
In future years, we can also expect to see more ‘umbrella’ contractual models for complex supply chains, so if one link in the chain breaks down the whole supply chain is responsible for making things right as amicably and constructively as possible whilst avoiding litigation.
Arbitration is becoming more commonly drafted into contracts with and lawyers involved in transactions are being asked more often whether to include litigation or arbitration procedures in commercial and corporate contracts. This may be driven by Brexit and the general perception (which may or may not be true) that it might be easier to enforce an arbitral award internationally than it is to enforce a court judgment. Litigators are starting to see arbitration clauses appearing in contracts where they might have previously expected to see only court jurisdiction; and where arbitration may not be the most appropriate method for all day-to-day contractual disputes (e.g., non-payment or minor quality/delivery issues). We can likely expect to see more, lower value commercial (domestic, not just international) arbitrations going forward.
And Finally…the Lawyer of the Future
New risks and realities require lawyers with new skills and qualities. Two capabilities top the list. First, lawyers who embrace, understand, and are comfortable with technology are needed. The other key quality is empathy. The ability to listen, collaborate, and communicate—along with a strong sense of purpose—will mark successful lawyers and law firms of the future.
If you would like to discuss any of the subjects covered in this article or find out more about how Ankura can help, please contact our team.
[1] The panel comprised and was supported by The Rt. Hon. Lady Justice Carr DBE (London, UK), Elina Mohamed, Legal General Counsel, OQ Refineries and Petroleum Industries (Muscat Governate, Oman), Jeremy Sher, International Co-Head of Class Actions, DLA (London, UK), Pamela McDonald, Partner, Construction & Energy Disputes, Pinsent Masons (Doha, Qatar), Andrew Herring, Partner, Civil Fraud U Asset recovery, Pinsent Masons (Birmingham, UK),Shannon Sedgwick, Senior Managing Director, Strategic Cybersecurity & Governance, Ankura (Sydney, Australia), Dr. Andrew Hildreth, and Tracey Stretton.
© Copyright 2021. The views expressed herein are those of the author(s) and not necessarily the views of Ankura Consulting Group, LLC., its management, its subsidiaries, its affiliates, or its other professionals.
Ankura is not a law firm and cannot provide legal advice.
