Will COVID-19 revolutionise arbitration?

Special Issue

Carlos de los Santos, partner and Head of the Litigation and Arbitration Department at Garrigues

The health crisis caused by COVID-19 could turn into a chance to revolutionize arbitration and boost and strengthen its virtues as opposed to domestic court litigation. The flexibility inherent to this alternative dispute resolution system and its recourse to online tools and technology can be used to avoid proceedings being suspended.

Now that COVID-19 has spread throughout the world (according to data from the Johns Hopkins University, as of 23 March 2020, 169 countries have confirmed cases of coronavirus, it is obvious that very few sectors of activity (if not almost none) will emerge unscathed.

ADR, arbitration and mediation are going to be affected, too. In fact, the virus is spreading throughout the world and is already having a significant impact on the principal arbitration venues worldwide (such as New York, Geneva, Zurich, Singapore, Hong Kong, Paris and London). Arbitration institutions and practitioners must be prepared to deal with this new reality.

How much will arbitration be affected?

It will depend on who we are able to respond to this new challenge.

What should be done then to confront this challenge?

One option is being considered is to suspend all pending arbitral proceedings.

Some Spanish arbitral institutions have already done this under Royal Decree 463/2020, of 14 March  2020, declaring a state of emergency to manage the COVID-19 public health crisis, by simply applying the same measures as have been adopted for judicial proceedings.

On the other hand, other institutions, such as the International Court of Arbitration of the International Chamber of Commerce (ICC), the London Court of International Arbitration (LCIA) and the Hong Kong International Arbitration Court (HKIAC), among others, have adopted a more flexible and pragmatic approach, characteristic of arbitration. Thus, making a virtue of necessity, they have left to the parties and the arbitrators the decision regarding the suspension of proceedings or, where appropriate, adaptation to this new reality by using, for such purpose, all technological resources available to us to go ahead with arbitral proceedings.

If “adapt or die” is the motto that will guide the world of arbitration, the first thing to be done is to understand this new environment and then find the way to make the adjustments that best suit that environment.

Obviously, the ordinary courts cannot do this automatically but the world of arbitration CAN. In fact, it is doing this.

In recent years, we have been speaking at conferences and seminars about the impact of technology on the system of arbitration and the best way to incorporate all the tools available to us on the market. Well, the “COVID-19 Revolution” is here now, suddenly and without warning.

1. Restriction of movement of persons

Arbitrators, mediators, lawyers, witnesses, experts, parties, etc. (like the rest of the public), are faced literally, overnight, with very severe restrictions. We can no longer move around the world with the freedom with which we have moved up to now (either by legal imperative or due to personal responsibility to society as a whole); not even inside our own countries. However, even in exceptional situations of this type, this should not pose an insurmountable obstacle to continuing with pending arbitral proceedings but rather, on the contrary, we should consider this new reality as an opportunity to show the virtues of arbitration compared with national court systems.

The flexibility which is the defining characteristic of arbitration should permit the use of every kind of telematic and technological resources to go ahead with proceedings without suspending any kind of activity.

Even if the use or incorporation of those technological tools were not provided for in the procedural rules of the arbitration in question, they could be incorporated by agreement of the parties and the arbitrators.

With the technology which we have at present, it is obvious that there should not be major problems to prepare and complete the written stage of proceedings: preparing the memorials online with our clients; working with experts using numerous video conferencing systems which exist on the market; receiving, analyzing and submitting documentation online is not a problem. In fact, by way of example, one can highlight that last week a group made up of clients, legal counsel and experts in three different countries were holding different videoconferences at the same time in order to finalize expert reports for an arbitration. This is nothing unusual at the present time and many or most of us can and are doing this without any difficulty.

As regards the oral stage (hearings), it is true that suspension is the prevailing option. However, what if this situation goes on too long? The system of justice by arbitration can and must continue and an indefinite deferral of hearings does not seem a reasonable solution. In fact, although suspension is the first option, the fact is that hearings with numerous parties connected by various technological tools for video conferencing are being maintained and conducted. Again by way of example, we know (amongst other cases) that a hearing is being held in which over 80 persons are participating, between the arbitral tribunal, lawyers, witnesses and experts. All of them connected by a videoconferencing system, displaying documentation online, examining and cross-examining witnesses and experts without any difficulty.

In new arbitral proceedings which are commenced from now onwards all these issues must be taken into account (more than they were taken into account up to now) when drawing up the terms of reference and other procedural instructions and orders.

In short, as provided by the saying that Sancho made so much use of when addressing Don Quixote “when one door closes, another one opens” and in our world of arbitration, perhaps a door has been shut somewhat abruptly, but we have the flexibility and technology to open a new one immediately.

Let us not be afraid, nor take the easy option. Suspend everything until…. when? Until everything goes back to the way it was? And if this is no longer the case, or is different? Adapt or die, but with the difference that the system of arbitration can be adapted immediately and provide a fast and efficient response without interruption to all pending and new disputes which arise.

In summary, this situation, which affects all of us, must provide an opportunity to take the step forward and show that the system of arbitration can continue to function, resolving disputes in such difficult situations as that with which we are faced.

2. New disputes (force majeure)

The coronavirus crisis will surely give rise to a myriad of new cases, both in commercial and investment arbitration, in which force majeure clauses will be relied on, and rebus sic stantibus defenses and other legal arguments will be raised related to fortuitous events or government restrictions and their effects on parties’ obligations, performance or breach, existence of or exemption from liability, etc.

These disputes will focus on whether or not the terms and clauses exempting performance of contracts or exonerating from liability for breach have been complied with. This will give rise to debate regarding foreseeability, reasonableness, loss and damage and mitigation of same.

The preparation of these cases will be like any other: ascertain the facts of each specific case and of each contract or legal relationship in particular. There is no room for general recipes or all-encompassing superficial opinions. As always, success in any arbitral proceeding lies in the best possible preparation of the case, both of the facts and of the law, drawing up at all times sound reasonable arguments in which our clients’ position is presented in the most favorable light possible compared with the other parties who may have acted erratically or unreasonably or contrary to what was originally agreed.

In short, this crisis will make us reflect, adapt, improve and, therefore, emerge stronger. It will surely be the driving force which we needed to complete the building of a more efficient system of arbitration, less dependent on obsolete traditional rituals derived from the practice in our local courts.