COVID-19 has dramatically altered the litigation landscape.<\/p>\n
It is not only that new types of legal disputes are emerging.
\nMore fundamentally, the economic and strategic considerations
\naffecting organizations’ litigation decisions are shifting.
\nThis article examines that shift, and explores some key resulting
\nconsequences for organizations going forward as they conduct
\nlitigation in the pandemic environment.<\/p>\n
The changed litigation landscape<\/h3>\n
The pandemic has substantially reduced economic activity and
\nliquidity, while simultaneously heightening health and safety risks
\nin every facet of our world. These two phenomena have triggered
\ncrisis decision-making across all segments of society, affecting
\nevery industry and every person. The result has been widespread
\ndisruption, harm and loss. The financial loss is being borne only
\npartially by governments, despite unprecedented publicly-funded
\nemergency economic relief.<\/p>\n
The losses that are not compensated for through government
\nprograms, and that are not otherwise remedied through existing
\ncontractual, statutory, regulatory or informal allocations of risk
\nand responsibility, fall into two categories: a) those that may be
\nremedied through some form of dispute resolution; and b) those that
\nwill not or cannot be remedied from a source outside the
\norganization.\u00a0<\/p>\n
In some cases, the financial pressures created by the pandemic
\nwill drive a party to settle on terms that would have been
\nunacceptable a few months ago.<\/p>\n
These latter losses will in many cases be absorbed by the
\norganization, and thus passed on indirectly to its stakeholders
\n(customers, shareholders and others), or else they will cause the
\norganization’s insolvency and a corresponding direct and
\nimmediate allocation of losses to the organization’s
\nstakeholders. One obvious likely effect of COVID-19 is thus an
\nincrease in insolvency-related litigation involving creditors
\nseeking to ensure that losses come to be stranded with others, and
\nnot themselves.<\/p>\n
It is in respect of the first category of losses noted
\nabove\u2014unresolved losses where there is a claimant willing and
\nable to advance a dispute, and an adversary solvent enough to
\ndefend\u2014that traditional economic and strategic circumstances
\nand assumptions have changed most significantly. These changes
\nmanifest themselves differently depending on whether one is dealing
\nwith an existing dispute, or new litigation arising from
\nCOVID-19.<\/p>\n
Changes affecting existing disputes<\/h3>\n
For existing legal disputes currently working their way through
\na formal dispute resolution process (whether in court, arbitration
\nor otherwise), three major changes need to be considered.<\/p>\n
First, there has been a material change in the value-for-money
\nanalysis associated with pursuing a litigated outcome. In the
\ncurrent liquidity and risk environment, the perceived benefits of
\nexpending substantial funds on a multi-year litigation process with
\nan uncertain outcome are changing for some litigants. Many parties
\nneed to free up cash, reduce costs or eliminate contingent
\nliabilities now. In some cases, the financial pressures created by
\nthe pandemic will drive a party to settle on terms that would have
\nbeen unacceptable a few months ago. In other cases, the effect of
\nthe pandemic will be to cause a reduction in immediate legal spend
\nand the deferral of litigation activity to a later date.<\/p>\n
A second major shift in the litigation environment relates to
\nthe potential insolvency of one’s litigation adversary. With
\neven some of the healthiest corporate players now financially
\nthreatened, litigants need to consider carefully whether to settle
\ntheir disputes sooner or later, taking into account the potential
\nthat the financial viability of their litigation adversary may
\nworsen. For plaintiffs, an early settlement now on
\nless-than-optimal terms may be preferable to waiting for better
\nterms, given the enhanced risk that the defendant may not survive
\nthe wait. For defendants, a plaintiff’s liquidity and solvency
\nconcerns may enable early settlement on terms more favourable to
\nthe defendant, or could incentivize the defendant to extend the
\nproceedings in the hope that this will result in the plaintiff
\nceasing to remain financially viable.<\/p>\n
A third factor is that government-imposed physical distancing
Some commercial parties will prefer private dispute resolution,
COVID-19 is thus influencing litigation leverage and litigation
The pandemic is generating a host of new legal disputes,
Class action activity in the first few months of the pandemic
\n<\/ul>\n The range of class actions that COVID-19 is generating will
The pandemic is also producing a range of new inter-party
Many of these claims will likewise be of heightened importance
A related trend in the non-class action litigation space may be
It is not yet known how courts and arbitrators will react to the
Due diligence takes a different form in a crisis, and
Originally published May 7, 2020.<\/em><\/p>\n The content of this article is intended to provide a general
\nrequirements have resulted in reduced access to courthouses and
\ntribunals, suspended filing deadlines, and (in many but not all
\nmatters) postponed trials, hearings, applications and motions.
\nOut-of-court discovery procedures are likewise often being
\ndeferred, particularly where defendants can identify a compelling
\nreason for delay, such as inability to meet with clients or access
\ntheir documents, or a bona fide basis to insist on in-person
\nexamination. While courts are still hearing urgent matters and
\ncertain classes of disputes (such as class actions) in some major
\ncentres\u2014where hearings are proceeding on an ad hoc<\/em>
\nbasis by way of video conference, teleconference or in
\nwriting\u2014the bulk of the court-driven and tribunal-driven
\nlitigation process is on hold. This creates, at least for now, a
\ndefendant-friendly environment because plaintiffs cannot as
\neffectively push matters forward in many cases, and therefore
\ncannot leverage the pressure created by an impending hearing or
\ndeadline.<\/p>\n
\nwith the goal (if not always the effect) of expediting the process,
\ncontrolling the costs, and achieving greater certainty of
\noutcome.<\/p>\n
\nrisk. The cost\/benefit analysis of litigating, and the strategies
\nand tactics needed to arrive at an optimal outcome, must be
\nassessed anew by all litigants. Although the effect is not
\nuniversal, there are many existing disputes in which the
\nopportunities for compromise and early settlement have been
\nenhanced. In others, the outlook is more likely to be one of
\ndelays.<\/p>\nChanges affecting disputes resulting from COVID-19<\/h3>\n
\nincluding class actions. Human crisis creates a fertile environment
\nfor plaintiff class action lawyers, who do not need to look very
\nfar for claims they are willing to underwrite. COVID-19 is one of
\nthe greatest crises in modern history, and could well be the
\ngreatest single generator of class actions to date in history,
\ngiven the widespread unremedied harm and loss suffered by
\nindividuals across all segments of society.<\/p>\n
\nalready includes:<\/p>\n\n
\nalleging failure to protect against COVID-19);<\/li>\n
\n
<\/p>\n
\nlayoffs, unsafe working conditions);<\/li>\n
\n
<\/p>\n
\nalleging failure to disclose the effect of the pandemic on the
\norganization in a timely fashion);<\/li>\n
\n
<\/p>\n
\nnot refunding payments relating to purchases that could not be
\nfulfilled); and<\/li>\n
\n
<\/p>\n
\nproviding coverage for certain types of losses).<\/li>\n
\ncontinue to grow. Successfully defending some of these class
\nactions will be vital for the organization being
\ntargeted\u2014that is, the significance of the claim may be such
\nthat the survival of the organization depends on either
\nsuccessfully defending against it, or negotiating a compromise
\nresolution that allows the organization to continue. The leverage
\nfor class counsel, and the determination of defendants, are
\nheightened.<\/p>\n
\ncommercial disputes, such as novel force majeure claims affecting
\nsupply chain and construction contracts, claims through which
\nbuyers seek to terminate corporate acquisition agreements based on
\nmaterial adverse effect clauses, interim operating covenants, bring
\ndown requirements or other alleged breaches, whistleblower suits
\nrelating to improper receipt of government funds, and cybersecurity
\nclaims, among a variety of others.<\/p>\n
\nfor defendants, for at least two reasons. First, less material
\ndisputes are now more likely to be resolved at the business level,
\ngiven cash scarcity, a less efficient justice system and the need
\nto prioritize business continuity. Second, the pandemic is
\ngenerating “bet the farm” litigation at a higher rate.
\nThe breaches of material contracts are more frequent; the dollar
\nvalues of the losses are higher.<\/p>\n
\nincreased use of private arbitration and other alternative dispute
\nresolution mechanisms outside the traditional court process. In the
\nshort term, this consequence is arising from the shutting down of
\nthe court system. In the longer term, it is expected that some
\ncommercial parties will prefer private dispute resolution, with the
\ngoal (if not always the effect) of expediting the process,
\ncontrolling the costs, and achieving greater certainty of
\noutcome.<\/p>\n
\nunprecedented cluster of problems and losses created by COVID-19.
\nThe effects of the pandemic are far broader than any single private
\nlaw dispute. It is likely that adjudicators, in assessing the
\nmerits of any particular claim arising from COVID-19 (whether a
\nclass action or an ordinary inter-party claim), will weigh the law
\nand the equities carefully before laying the concentrated financial
\nrisk of the pandemic on the shoulders of any single defendant.<\/p>\n
\nadjudicators can be expected to be attentive to whether a defendant
\ntook steps that were reasonable based on the limited time and
\ninformation available. The assessment of what constitutes
\nreasonable contractual risk allocation will likewise be performed
\ndifferently when dealing with a risk no one considered or could
\nreadily have fully accounted for. Ultimately, there are some losses
\nfor which our system of private law will not be prepared to
\ncompensate.<\/p>\n
\nguide to the subject matter. Specialist advice should be sought
\nabout your specific circumstances.<\/em><\/p>\n<\/div>\n
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