01/04/2020

Clearing the COVID-19 logjam: can arbitration rescue stalled trials?

[Updated version 20 April 2020]

With the courts subject to the vagaries of coronavirus-induced State shutdowns, the flexibility of arbitration is making it an increasingly popular choice for parties to commercial contracts. But can arbitration really provide an effective solution to the problems that parties to litigation face in the here and now? Gordon Nardell QC and Angharad Parry of Twenty Essex explain an initiative under development.

In England and Wales, the civil courts are functioning and are adapting admirably to social distancing, with judges and staff of HM Courts and Tribunals service moving efficiently to holding remote hearings by telephone or video, supported by bespoke Practice Direction 51Y. A ‘first’ was achieved last month with completion of the first Commercial Court trial in London conducted entirely by video conferencing.

The Business and Property Courts are doing their best to maintain trial dates that are already fixed, as doubtless are all the courts across the jurisdiction. However, throughout the entire system, in London and elsewhere, capacity is under pressure as judges and other key personnel find themselves self-isolating as a result of illness – their own or that of family members. It is also yet to be seen whether remote cases will run to time estimate, or whether additional delays may begin to accrue. As we move forward, it’s unlikely that every listed case suitable for remote trial can be accommodated in its intended slot, and certain that numerous cases ready (or nearly ready) for trial, but yet to be listed, will face delays – potentially stretching to months.  A logjam is already building and affecting cases at a less advanced stage. Parties have reported that some hearing centres are declining to list case management conferences, making it impossible for cases to progress.

It is right to say that in recent years, commercial arbitration has faced its fair share of complaints about delay, cost and inadaptability – mirroring the very drawbacks of court procedures that fuelled the growing attractiveness of arbitration in the first place. Yet the arbitral community has demonstrated its capacity to move with remarkable speed when the need arises. The emergency arbitrator procedures instituted by the main institutions, enabling parties to obtain interim relief within arbitral proceedings without the need for judicial intervention, have been a success story. And over the past few weeks the arbitral process has shown itself adept at meeting the challenges of social distancing, moving procedures and hearings online.

Drawing on that experience, it should be possible in principle for the arbitral community – institutions, arbitrators themselves, and other practitioners – to step up and rescue parties to litigation who want their trial-ready disputes to be resolved promptly but whose hearings are being squeezed out of the lists by the impact of COVID-19.

In early April we floated with litigation and arbitration colleagues the idea of a protocol under which the parties to court proceedings at an advanced stage could agree to “convert” their impending trial to an arbitral hearing, using the pleadings and evidence already assembled for the litigation and adopting a procedure with which parties more familiar with litigation than arbitration feel comfortable. The parties would be able to retain their existing legal teams and avoid wasting the huge resources sunk into the pre-trial process.

Under the protocol, the parties would enter into an arbitration agreement with three key elements:

• Providing for the rapid appointment of a tribunal with availability to prepare and hold a hearing in short order.
• Prescribing the applicable procedural rules.
• Making agreed provision for the costs of the litigation to date – perhaps the most obvious choice being to empower the tribunal to deal with the costs of the preceding litigation as part of the recoverable party costs of the arbitration, while respecting any orders for costs made in the proceedings to date (such as “in any event” orders and reserved costs).

In most cases there would be likely advantages in appointing an arbitral institution to administer the case, relieving some of the burden on the tribunal which will have its work cut out to prepare a hearing at breakneck pace. The protocol could provide for the institution’s standard rules and procedures to be applied in a way suited to the parties’ needs and the exigencies of the process.

It is important to be realistic about the limitations to the arbitral process and areas of divergence from litigation, which will not be to all parties’ taste. For example, limited rights of appeal (and potentially the absence of any appeal, depending on the chosen seat), and more constrained powers to compel witnesses or take other compulsory steps involving non-parties. It will also be necessary to ensure the subject-matter is properly arbitrable and to check that there are no other impediments to producing a valid and enforceable award – though these problems are unlikely to affect more than a small proportion of commercial cases. The tribunal costs may be expected to exceed the State court fees associated with the trial stage; though with the tribunal coming late to the show, the parties will not have borne the expense of tribunal fees for the earlier stages of the case. While a three-person tribunal would be the norm in a high-value case, it would be open to the parties to opt for a sole arbitrator if they wish.  .

As arbitration is fundamentally a consensual process, it goes without saying that “Lit-to-Arb” will only be attractive in cases where both sides have a common interest in having their dispute resolved swiftly. In many – perhaps most – of the cases currently held up in the courts, one side may well have a significantly greater interest in expedition than the other. The parties will also have to decide whether the proceedings – and in particular the resulting award – should be confidential (still the norm in arbitral proceedings) or not.  In some cases that too might be a deal-breaker.

While acknowledging those constraints, however, initial soundings in the dispute resolution community have been favourable. We are working to develop the proposal further. Indeed there is no reason why this approach should not be extended to other jurisdictions where court processes are similarly under strain as a result of COVID-19. In some EU countries, including France and Spain, as well as in several Middle Eastern and North American jurisdictions, a range of civil court sittings have been suspended for the time being. But most of these jurisdictions benefit from a positive legal framework and an active arbitral community able to step in.

We’ll post further updates as this work progresses, but meanwhile we continue to welcome ideas and feedback from across the disputes community.

Gordon Nardell QC FCIArb and Angharad Parry