The post-pandemic litigation tsunami—views from London International Disputes Week 2021

The post-pandemic litigation tsunami—views from London International Disputes Week 2021

On Wednesday 12 May 2021, a panel of experienced practitioners from across the world came together at London International Disputes Week 2021 (LIDW21) to discuss what the post-pandemic world may hold for disputes lawyers.

 

Speakers at the session were: Catherine Addy QC (chair), Barrister Maitland Chambers; Karen Briggs, Senior Managing Director, FTI Consulting; Susan Dunn, Founder, Harbour Litigation Funding; Brian Lacy, Partner, Ogier; Mona Vaswani, Partner, Milbank. 

Introducing the topic, Addy reminded the audience that registered corporate insolvencies in 2020 was lower than it had been in previous years, and in the first quarter of 2021 it was lower still. Due to measures introduced by governments, struggling companies have been allowed to ‘limp on’ beyond their natural decline. Addy introduced the metaphor of a future ‘tsunami’ of insolvency-related disputes, which will likely occur when the plug of state support is finally pulled. She asked the panellists for their thoughts on the matter.

 

What have the panellists’ experiences been since the pandemic started?

Lacy, head of Ogier’s BVI dispute resolution team, gave an offshore lawyer’s perspective. He said he had seen coronavirus-related cases emerging in two distinct circumstances:

  • the first was market volatility, which occurred principally right at the outset of the pandemic. The uncertainty and the collapse of oil prices caused difficulties for many, including for oil and gas companies. The difficulties also manifested themselves in currency fluctuation. He mentioned Phoenix Commodities as a casualty of this volatility and as a prime example of a ‘covid case’
  • secondly, he spoke of the exploitation of liquidity needs—in this period, many companies have needed additional cash injections to see them through the turmoil. Through equity raises, some companies may have sought to achieve secondary results, such as diluting a particular shareholders’ rights. Lacy referred to speedy virtual litigation in the BVI courts in respect of a share placement

Briggs considered matters from a litigation consultant’s perspective. She spoke of various themes and issues FTI Consulting had seen, including the following:

  • overall, the pandemic has fuelled a rise in distress, related to employment, financial, health and more
  • there is heightened risk—for example, in relation to problems arising for employers whose employees are working from home
  • the scope of matters being litigated is broad—for example, there are, and will be, more claims related to health and safety

She also spoke of differences between the coronavirus related recession and previous ones, citing findings from the FTI resilience barometer:

  • fraud and misconduct—although undoubtedly an issue in previous recessions, the amount of coronavirus-specific fraud cases has been substantial
  • security breaches—with the rise of homeworking and advancements in technology, cyber security breaches have been much more prevalent than in previous recessions
  • market volatility—a range of disputes, including: force majeure claims; and, supplier disruption disputes

So, although there are similarities compared with previous recessions, the coronavirus crisis has nuances which are unlike those experienced in the past.

Vaswani spoke of what she has been seeing ‘on the frontline’ of onshore commercial litigation.

A key point she discussed was airline insolvencies.

Airline insolvencies (such as LATAM Airlines) are clearly a topical issue. Currently the rate of repossessions in leasing is low, as lessors have no other place to put the airplanes, as most companies in the sector are struggling. Therefore, it is preferable for lessors to keep them with a defaulting airline. However, once the sector picks up pace, security repossessions are likely to increase in due course. She highlighted that it is not just the core business which will suffer in these scenarios, with airports and other tightly related enterprises being caught up in the tidal wave.

Dunn spoke of what she has seen as a funder, including the differences between now and the 2008 financial crisis and common behaviours she has seen. She also spoke favourably about how the English courts have adapted, expressing hope that, in the next phase, technology will continue to be used more widely to make the court process more efficient.

Behaviours she has seen have included an immediate emergence of cases for funding, whereas after 2008, many cases took until the limitation periods had elapsed to arise. Seen covid-related and ‘business as usual’ cases arising for funding, including:

  • early on, widespread panic about revenues, with lawyers coming to her to see if revenues could be maintained by obtaining funding (knee-jerk reactions)
  • lawyers looking for advice on whether their clients would need funding in the future (more thoughtful approaches)
  • funding for business interruption insurance claims (Dunn referred to the FCA test case that went all the way up to the UK Supreme Court in around six months, which was critical to the survival of many SMEs—an amazing testament to the legal system)
  • as for general cases, they have seen the full range of cases. The highest number of inquiries have come from England the US and Hong Kong, with a significant number of enquiries from the US concerning IP; continuing to see business as usual funding in respect of ICSID arbitration cases

Dunn commented on how well the English courts have dealt with the pandemic in dealing with cases, and encouraged increased use of technology to make court processes more efficient.

 

What did the panellists expect from the incoming tidal wave?

Briggs picked up the question highlighting three key areas in which litigation is likely to see a substantial increase:

  • first and foremost, fraud, fraud, fraud! This was a point all the panellists picked up on as likely to be one of the biggest drivers of disputes for the foreseeable future
  • new challenges in cross-border disputes, which are not necessarily related to coronavirus, such as Brexit and Schrems II
  • whistleblowing—the SEC has reported a jump in whistleblowers, which Briggs felt is likely to increase disputes and investigations as the tide goes out

Furthermore, coronavirus-related lending in the UK has exacerbated risks for financial services companies, which has the potential to increase disputes. She told attendees that she is being asked to look more at risk assessments and horizon scanning/trend spotting than she had been prior to the pandemic.  

Endorsing Briggs’s points, Vaswani said that ‘as the dust settles’ businesses will be more willing to enforce their rights where advantageous, rather than taking the conciliatory approach the government has urged them to have throughout the pandemic. She also picked up on Dunn’s point, remarking that she thought ‘seeds will be sown’ for future regulation in money laundering and more rigorous compliance oversight.

A few more issues she thought would come to light in the next wave of litigation will be:

  • conflicts of interests stemming from parties (particularly in financial services) having ‘fingers in different pies’
  • contractual disputes such as force majeure, frustration, supervening illegality, and more
  • M&A disputes, as purchasers, look in more detail at the fine print to get out of deals struck before the pandemic, including post-closing purchase price adjustments
  • Employment disputes, such as termination claims and health and safety claims due to prolonged home working. As well as coronavirus-related litigation, she felt that the pandemic has changed the expectations of the workforce (for example concerning flexible working and provision of a fair and level playing field in this regard)
  • data breaches, both for companies and for individuals
  • money laundering and corruption claims further down the line, due to the pandemic environment

Dunn highlighted the impact the pandemic has had, and will have, on various stakeholders. For example, Dunn has seen an increase in the number of governments looking for funding, as they should be doing, in her view. She also cautioned lawyers and clients to work with the right funders who have ring-fenced funding. She stated that it is no longer acceptable for lawyers not to know about funding, as their clients are now going directly to her, without the lawyer being the middleman.

Lacy raised a few points on the future of disputes from an offshore lawyer’s perspective:

  • he thinks there will be more restructuring, as, since 2008 there are much better tools to use and they are much better understood
  • funding will increase—while this featured post-2008 in onshore jurisdictions, it was much less common offshore. This is now more prevalent and will give rise to much more significant asset recovery litigation, with people not being able to get away with things they may have been able to do in, and after, the 2008 crash
  • technology will remain central to hearings. He has seen complex and lengthy trials with witnesses across jurisdictions being held successfully and expects to see witness examination and interpretation continue remotely. The classic complaint that witnesses cannot take part in a hearing because they are in a remote location will no longer sit. Furthermore, if there is no travel involved, cases may progress more speedily

Vaswani, based on the points made by herself and the other panellists, felt that, if she were a head-hunter, now would be the time to seek lawyers focusing on employment, insolvency, M&A, data protection and many other sectors. Ultimately, ‘we will all be fairly busy for a while’ so, using Addy’s metaphor, it may be ‘time to get a little rest before we get our surfboards out to ride the litigation wave…’

 

Note: this is a summary of the discussion and does not purport to be a full account of the event.

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About the author:
Gloria is a Paralegal in the Lexis®PSL Paralegal Hub. She graduated in International Law and Globalisation from the University of Birmingham in 2019 and has been at LexisNexis UK since March 2020. She has experience working for US, UK and Italian law firms on a range of matters, including IP, financial services and immigration law.