Wave of litigation set to end pandemic shift to ADR

Stilwell: Increase in clients wanting to understand contract risk

Businesses have been turning to negotiation and mediation to resolve disputes during the pandemic but expect litigation to return in volume this year, according to a survey by accountants EY.

Almost two-thirds (63%) of the 103 in-house lawyers working for large companies it polled said they have adopted a more conciliatory approach to business disputes since the pandemic began, with 77% using alternative dispute resolution (ADR).

But both 59% of the in-house lawyers and 66% of 110 litigation and arbitration lawyers in private practice expected litigation to increase over 2021 compared to pre-pandemic volumes.

Almost half (47%) of corporate respondents have begun or anticipated beginning a claim as a result of Covid-19, with 31% on, or expecting to be on, the receiving end of such a claim.

Over half of them (56%) said the rise in disputes would have a material financial impact on their business, while 14% feared pandemic-related claims could be a risk to their viability. Most felt unprepared for the rise in litigation.

Though nearly half said a continued desire to take “a more conciliatory approach to counterparties” would influence their decision on whether or not to pursue a claim in the next year, more (62%) said the need to maximise the recovery of losses and protect shareholder value would be of greater import.

Maggie Stilwell, UK&I claims and disputes leader at EY, said: “It is of concern that corporate respondents said that they felt under-prepared for any increased claims activity given the pressure on available resources, the potential scale of claims, wider operational and financial pressures and uncertainty over the long-term impact of Covid-19.

“That said, in recent months we have noticed an increase in clients wanting to understand contract risk and performance and evaluate financial and commercial remedies open to them, so they can focus actions and limited resources in the right areas.”

Both groups predicted that breach of contract claims would be the most common type of Covid-19 claim. Fraud, insurance and – in the eyes of in-house lawyers – investment treaty disputes would also be significant causes.

Matt Fritzsche, a claims and disputes partner at EY, said that while the more conciliatory approach of the last year was driven by “a genuine desire to ‘do the right thing’ during the pandemic” on the part of some companies, for many they simply too focused on the operational impact of Covid to consider claims.

“As vaccine rollouts continue, government support ends and attention turns to recovery, that balance is shifting, and a need to protect shareholder value will prompt businesses to become more active in pursuing claims as a potential avenue for recovery in the near future.

“It also seems that those that have used ADR have seen the benefits of doing so and may be more likely to use this option in future.”

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