Arbitration in a time of crisis – observations from our recent webinar
On 22 April 2020, Linklaters and Webber Wentzel hosted a webinar on international arbitration and the Covid-19 health crisis. Speakers addressed the specificities of disputes likely to arise during and after the crisis and the challenges of conducting international arbitrations in this context.
Moderated by Matthew Weiniger QC, the webinar started with Roland Ziadé discussing the role of force majeure and similar legal doctrines likely to be invoked in many Covid-19 disputes. Rupert Bellinghausen then highlighted the possibility of using fast track arbitration to resolve such disputes. Airlie Goodman provided insights—transferable to arbitral hearings--on experience from the first fully virtual trial before the English commercial court. Gerard Meijer and Bo Ra Hoebeke explained how ongoing court litigation can be converted into arbitration by party agreement, drawing from their experience in the Netherlands. Finally, Vlad Movshovich (Partner, Webber Wentzel) shared observations on the considerations which should inform whether a virtual hearing is appropriate.
Force majeure and hardship
Among the legal doctrines available, force majeure (where contractual performance is prevented by unforeseeable circumstances beyond the party’s control) and hardship (where performance has been rendered excessively onerous) will be frequently invoked by parties to disputes arising out of the crisis. Applying these doctrines leads to different consequences. Contracts may include standard or tailor-made force majeure or hardship clauses, or these or similar doctrines (like commercial impracticability or frustration) may apply under governing law.
Force majeure criteria have been rather strictly construed historically and matters tend to be highly fact-specific. However, Covid-19’s unprecedented impact and the severity of governmental measures may lead to successful claims based on force majeure, at least for contracts entered into before the nature and severity of the crisis were known, provided that the parties also comply with applicable notice or mitigation requirements. Given that establishing hardship is often less onerous than proving force majeure, the Covid-19 situation may be even more likely to be found, in certain cases, to constitute hardship.
Finally, while some parties may seek to take advantage of the Covid-19 crisis to obtain relief from contractual deficiencies not directly caused by the pandemic or to disrupt their contractual relationship because business has become less attractive, arbitrators can be expected to be sensitive to proof of such matters when assessing such claims.
Is international arbitration more attractive to resolve Covid-19 disputes?
The current crisis will result in a large number of disputes, most of which will end up before national courts. In most jurisdictions affected by the pandemic, courts have been ordered to avoid in-person hearings, thereby creating significant delays and backlogs. When possible, parties are encouraged to attend virtual hearings but there tends to be a lack of confidence in the technical and logistical aspects of such hearings.
When speed is of the essence, international arbitration may become more attractive to resolve such disputes. Many arbitral institutions have already adopted rules for expedited or fast-track arbitration, and specific rules to cater for Covid-19 disputes are even under consideration. Parties could opt for arbitration as the more efficient mechanism even where the underlying contract does not provide for an arbitration clause.
There has been a steady increase in the use of technology in arbitration, notably for various procedural hearings, in matters of urgency. In fact, there seems to be a natural correlation between the two given that arbitration touches upon everything that technology can facilitate, such as bringing together participants from different countries, flexibility offered by institutional rules, party autonomy, the increased use of written pleadings and evidence rather than oral testimony, etc.
To avoid delays, parties may want to consider converting their litigation into arbitration. With the parties’ consent, this can be done for pending (and future) litigation. This would be useful, for example, in the Netherlands, where many hearings before Dutch courts have been postponed and where the judiciary is only beginning to implement the remote conduct of commercial cases. Although respondents may be reluctant to agree, they may nevertheless consent to preserve a long-standing commercial relationship, or if they filed a counterclaim or are confident of their position. Parts of a dispute may also be submitted to arbitration, especially if certain issues must be addressed urgently.
The arbitrators can then take the case ‘as is’ at that stage, review the documents already filed and schedule a virtual hearing as soon as possible. Afterwards, an award would be rendered as in a usual arbitration.
Is a virtual hearing suited for all arbitrations?
At the end of March, Linklaters participated in a four-day virtual trial before the English High Court Commercial Court division. Our experience was overall a very positive one but brought to light some inherent limitations. For example, the trial timetable and sitting times may need to be adjusted to accommodate participants in different time zones and to allow for sequential translation of witnesses and experts instead of simultaneous interpretation. Further, although the hearing room atmosphere was largely preserved, challenging witness credibility, communication with a witness before or during the hearing, and witness supervision are also restricted in a virtual trial. More details on the trial can be found here.
To decide whether a virtual hearing is appropriate, a party should consider whether the proposed procedure is in its interest. If the objective is to find a quick resolution to the dispute, a virtual hearing may be a solution. However, an in-person hearing allows complete oversight of all aspects of the proceedings, avoiding some of the challenges mentioned above.
Cyber security concerns are also more likely to arise in arbitrations than in court proceedings given the confidential nature of arbitration. One should therefore consider whether the underlying dispute may be the target of cyberattacks and if so, put appropriate safeguards in place to avoid intrusions and data breaches.
Parties should consider the “human factor”. Some arbitrators are better fit to conduct virtual proceedings because of prior experience, better access to technical resources, or confidence in using new technology. Beyond these capabilities, they must also demonstrate their ability properly to conduct a virtual hearing, by enforcing protocols and taking appropriate measures when necessary.
In the current situation, virtual hearings are a good alternative to in-person hearings but may not be suited to all circumstances. Parties should therefore assess whether a remote hearing will meet their expectations and conduct proper due diligence in terms of technology, procedural requirements and priorities before agreeing to a virtual hearing.