In light of coronavirus (COVID-19), is arbitration preferable over litigation as a method of dispute resolution given the increased flexibility inherent in arbitration proceedings generally?

In light of coronavirus (COVID-19), is arbitration preferable over litigation as a method of dispute resolution given the increased flexibility inherent in arbitration proceedings generally?

Clare Ambrose, Twenty Essex

This is a ‘once in a generation’ challenge. We will see over the next months how the court system and the arbitration community respond. Arbitration is more flexible, and it is already common for directions to be made electronically, CMCs to be heard by telephone and disputes to be resolved by documents only. It is hoped that arbitration will be agile to meet the needs of parties. If so, and virtual hearings (or even partially virtual hearings) start to work well, then they will become an attractive feature. Corporations weathering this crisis will be mindful of resilience for the next one. Arbitration will be attractive if it is seen to work in times of crisis. If it becomes cheaper and more sustainable too then that must be a bonus.

Hamish Lal, Akin Gump

The tangible and significant impacts of coronavirus further support the notion that arbitration is preferable over litigation as a method of dispute resolution given the increased flexibility inherent in arbitration proceedings. The ability for the parties to consensually amend the Procedure and the Procedural Timetable should not be under-estimated. The parties can agree to drop certain steps (for example, document production) if a sorter process is needed to address wider timing challenges. Sadly, the process is open to abuse—however, professional and ethical standards in international arbitration act as a natural barrier to such abuse. Tribunals expect the parties to use a high degree of cooperation.

Cecilia Xu Lindsey, 9 Stone Buildings

In the light of the pandemic outbreak of coronavirus, when parties are contemplating a dispute arising under an existing contract, the parties are strongly advised to start from the dispute resolution clause in their contract and seek counsel’s advice. The parties’ contract is always their starting point. Depending on the wording of the terms in the contract, the parties may be able to resort to arbitration to resolve their dispute, either ad hoc or under the administration of a specific arbitration institution.

One of the most attractive features of choosing arbitration as the means of resolving disputes is the flexibility which is inherent in arbitral proceedings. Flexibility in arbitration refers to two aspects: the tribunal’s power and discretion to adapt the procedure to a particular dispute; and the parties’ power to agree procedures based on party-autonomy.

However, flexibility must be considered in the light of the particular circumstances of the specific case, combined with consideration of other features/advantages which arbitration may afford to the individual parties for resolving future disputes; this method of dispute resolution ought to be in contrast with litigation and other means.

For instance, arbitration offers very limited avenues for appeal against the resulting award, compared to rights of appeals in litigation, which means that an erroneous decision of a tribunal cannot be easily overturned. However, multiple arbitrators on a panel (managing their own professional schedules and diaries) may hinder the speedy process which might have been initially envisaged by the parties.

In certain jurisdictions, arbitral awards have less enforceability than court judgments, in that a party seeking to enforce an award must resort to the authority of state courts, although in the jurisdiction of England and Wales awards are enforced in the same manner as court judgments and have the same effect.

Further, arbitral tribunals and arbitrators generally are unable to enforce interlocutory measures against a party, such enforcement would have to resort to the power of state courts, even so, a party may still take steps to avoid enforcement of an award by removing assets to offshore jurisdictions.

On the other side, enforcing an award often results in resistance from the award debtor, which increases legal costs and may outweigh the financial incentive to select arbitration at the first place when negotiating the contract.

In the light of the global outbreak of coronavirus, when parties negotiate a new contract and draft the terms, including the dispute resolution clause, parties ought to consider far more comprehensively (instead of merely focusing on the point of flexibility in arbitration) in order to decide on whether arbitration would be an effective means (for these parties who enter into this specific contract) to resolve potential future dispute arising from their contract; and if not arbitration, what other mechanism could be more effective.

As seen from the analysis in the above paragraph, flexibility is one strong appealing element, yet there are a number of other elements which will also affect the effectiveness of the dispute resolution mechanism chosen by the parties when they settle the terms of their contract. To a wider perspective, effectiveness of a specific dispute resolution mechanism (eg arbitration) relies on the entire legal infrastructure and legislation of the specific state and jurisdiction, which would usually be provided for in the jurisdiction/forum and governing Law clauses of a contract. When negotiate a new contract and consider dispute resolution between the parties, attention ought to be directed more to the (possible) outcome of a dispute resolution mechanism, and accordingly what provisions of the relevant terms in their contract should be. The (trodden but overlooked) reality is that jurisdiction and governing law clauses are often treated as template without being given much proper thought before execution of the contract. Parties would be more likely to be caught out by lack of thought and action for deciding on the dispute resolution provisions in their contract, after the contract has been executed and performed, where discontentedness may arise and contemplation of dispute emerges during (expected) performance by the relevant parties.

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