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COVID-19: A good time to settle?

Posted on 29 April 2020

With the IMF warning that the global economy is set for a recession equivalent to the Great Depression of the 1930s, companies around the world are reflecting on their business models to ensure their immediate survival and ultimate longevity.

For many companies, the challenges are obvious, with them facing difficult decisions about whether to furlough staff and the daily reality of how to keep the business afloat. For others, this time of crisis has necessitated ingenuity. From the pubs and restaurants transforming themselves into takeaways and online delivery services to the monetising of online gym sessions and the upsurge of apps facilitating remote working, diversification has become the new norm.

A different challenge exists for those companies currently embroiled in existing litigation. As companies and individuals take stock of their priorities, could now be a good time to settle?

The wheels of justice keep turning

Courts have been clear from the outset of the lockdown that cases should continue and hearings should be conducted remotely wherever possible.  The High Court has demonstrated unprecedented flexibility in recent weeks, with Court staff and systems adapting to ensure that cases continue to run smoothly from living rooms and studies across the country.

National Bank of Kazakhstan & Anr v. Bank of New York Mellon & Ors, the first remote trial to take place in the Commercial Court, demonstrated that even highly complex multi-day trials can continue, with witnesses from around the world giving their evidence by video-conference.

In line with that approach, the Courts are showing reluctance to adjourn trials.  In refusing an application to adjourn the trial in Anheuser-Busch v Heineken, Daniel Alexander QC sitting as Deputy Judge said that, where possible, "the wheels of justice should keep turning at their pre-crisis rate" and that "lawyers….may need on occasion to push a little harder to enable that to be achieved".   

Despite the resilience demonstrated by the Courts, not all cases will be suitable for a remote trial and it seems inevitable that some cases will face delays resulting from backlogs in the system. Whilst the High Court's electronic filing system has facilitated a "business as usual" approach, the same is not true in the paper-reliant world of the County Court. The service of documents is also potentially more challenging, particularly where a party does not have legal representation or a document has to be personally served on an individual. Although these obstacles are not insurmountable, the prospect of such delay may prompt parties to seek more immediate means of resolving their dispute.

Jam today or jam tomorrow?

With Carluccio's and Debenhams amongst the first of the high-street chains to call in the administrators, the need to meet cashflow requirements is likely to be at the forefront of the minds of business owners.

In the context of settlement, this is likely to boil down to two questions: first, is (certain) cash today preferable to the prospect of (potentially more, but less certain) cash in the future? Second, how confident are you that your opponent will survive to see out the litigation? With cash-strapped banks withdrawing lending facilities, liquidity has never been more important.

Past losses or future?

Those with quantifiable losses may well seek to negotiate a settlement figure with the importance of cash in mind.  Not all cases can be easily reduced to a cash figure, however. Where settlement hinges on a particular non-cash asset, the general economic uncertainty caused by COVID-19 is likely to lead to greater debate about its true value in the context of the proposed deal. The obvious example is real estate – and whilst it may be possible to attribute a value to real estate based on historic pre-COVID 19 values, parties are likely to have to accept a degree of risk. The same goes for the valuation of shares. Forensic accounting experts are equipped to conduct valuations on the basis of historic profits, but this is not a straightforward exercise. For some, waiting for the markets to recover may mean kicking settlement into the long grass.

Settlement in the new litigation timeline

In the pre-COVID world, litigators would have referred to the "optimal" time to make a settlement offer – perhaps immediately after submitting compelling witness evidence or expert reports, or in the aftermath of disclosure, if the other side have been forced to disclose damaging documents.

Waiting for the optimal time is a luxury many cannot now afford – and in reality, settlement can occur at any time. Parties may want to consider a truncation of elements of the litigation process to help engage in meaningful discussions. For example, by providing key evidence early or conversely requesting your opponent disclose documents early, parties can seek to accelerate the disclosure process and provide the information needed to facilitate constructive discussions.

Method of settlement

Once a party has decided to broach the subject of settlement, the next consideration is likely to be how. Although the phrase "bringing the other side to the table" has traditionally referred to an actual table, litigators and parties are embracing both old and new alternatives to in-person negotiations.

Without Prejudice offers (those that cannot be referred back to in later "open" correspondence) can be made straightforwardly by email or telephone. Part 36 offers – a particular form of Without Prejudice offer, with cost implications for a side that unreasonably refuses to accept it – can also be made remotely. Even mediation remains a distinct possibility. The proliferation of video-conferencing technologies, including those equipped with virtual break-out rooms, enables parties to conduct mediations from the comfort of their living rooms. This might be particularly appropriate where a party has a non-monetary grievance they wish to air with their opponent, and often goes hand-in-hand with an accelerated disclosure process.

Certainty in uncertain times

Now more than ever, many of us face competing interests on our time. For some, seeking a settlement can help secure an outcome that might otherwise lie months or even years ahead in a matter of weeks. Conversely, others will not have the time or inclination to engage with settlement discussions, in the face of market instability and other priorities.

The risk of the judge finding against a party and the risk of having to pay the other side's costs are the roll of the dice all those involved in litigation face. Settlement carries a different kind of risk – it returns greater control to the parties' hands, but it cannot mitigate against the risk of subsequently regretting a bad bargain.

For those for whom now may be an expedient time to settle, litigators and parties alike are demonstrating creative approaches to remote negotiations -  and for those who do not or cannot settle, the wheels of justice continue to turn.

Practical guidance for COVID-19
Read the latest COVID-19 related updates on our hub.

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