The pandemic generated by COVID-19 brought the whole world to a halt. From boutiques shops to airline companies, most businesses are affected by the pandemic. However, as with every rule, there are some exceptions. Some companies, mostly those related to online activities, are booming. Other companies are naturally trying to adapt to this new status quo, uncertain of when things will get back to normal. Lastly, some companies, like pharmacies or grocery shops, are deemed essential by states and continue to be active.
However, as some businesses continue their activity, they are faced with the sour reality of a general shutdown of the judiciary system.[1] But in times of great instability, with economic consequences that are forecasted to surpass the 2008 economic recession,[2] legal disputes are expected to arise. Additionally, there are a number of previous commercial disputes which were ‘frozen’ within the national judiciary system, waiting for the crisis to pass and for the courts to reopen their doors. However, parties need not wait for the courts to reopen and procedures to restart. They can agree to solve their dispute through arbitration, even when court proceedings have already commenced.
While most of international commercial disputes are solved via arbitration for reasons that have to do with better enforcement mechanisms, neutrality and expertise of arbitrators, the judiciary courts are still the main avenue taken by parties when dealing with conflicts which are bounded within a state jurisdiction. With national court systems on lockdown due to COVID-19 pandemic, arbitration can step in as an alternative to the national court systems. In fact, the purpose of arbitration was to provide the parties with an additional mean of solving their legal differences. Naturally, when the court system is unreachable, arbitration becomes a viable and attractive solution.
There are compelling reasons as to why parties should start looking towards arbitration in times of crisis.
1. Arbitral institutions are ‘open for business’
Most arbitral institutions did not close their gates. Institutions such as LCIA, ICC, HKIAC and SIAC are operating remotely and accepting new cases. Although such institutions are primarily designed to deal with international disputes, most of the time the definition of an international dispute is broad and will include parties of the same nationality, if the place of arbitration is ‘foreign’ to the parties.[3] Secondly, smaller arbitration institutions, such as AFA in France, CACI-CCIR in Romania or SAKIG in Poland, expressly accept domestic commercial disputes. Thirdly, parties can still opt for ad-hoc arbitrations, without relying on the support of any arbitral institutions that might not tolerate domestic arbitration.
2. Arbitration can cope with remote procedures
Because international arbitration is made out of parties and arbitrators of different nationalities, the procedures have been tailored over the time such as to minimize the necessity of unnecessary face-to-face meetings. Hearings are more often held by teleconference and parties can even opt for the Seoul Protocol on Video Conference in International Arbitration.[4] Thus, the experience that arbitral institutions and arbitrators gathered over the years in conducting remote procedures can be successfully applied at times when extraordinary circumstances impose social distancing.
3. Emergency procedures / Flexibility
Most arbitration rules now provide for emergency arbitrators and fast-track procedures. This can be particularly helpful when emergencies generate clogged commercial relations. Parties also have the possibility to decide the scope of arbitration and set their own rules applicable to a particular dispute. Such increased flexibility, as opposed to the more bureaucratic proceedings of national courts, can also result in lower costs for the parties that need to settle their dispute.
For these reasons, parties who either find themselves trapped in a long-standing legal dispute before national courts, or who are thinking about commencing proceedings or entering new commercial agreements, should seriously consider signing an arbitration agreement. The arbitral institutions are well equipped to take over the burden of the court systems and help parties move forward with their legal standstill. In turn, arbitral institutions should continue their activity and make use of their expertise in dealing with remote proceedings to help businesses solve their conflicts and ensure that commercial activity is maintained even at times of global crisis.
[1] National courts in Italy and Ireland are closed. In France and the Netherlands courts are closed for all but essential litigation. Likewise, in Romania the Superior Council of Magistrates decided that courts will be closed for all but urgent cases.
[2] Available here.
[3] Article 1(3) of the Model Law – (3) An arbitration is international if: a) the parties to an arbitration agreement have, at the time of the conclusion of that agreement, their places of business in different States; or b) one of the following places is situated outside the State in which the parties have their places of business: (i) the place of arbitration if determined in, or pursuant to, the arbitration agreement; (ii) any place where a substantial part of the obligations of the commercial relationship is to be performed or the place with which the subject-matter of the dispute is most closely connected; or c) the parties have expressly agreed that the subject matter of the arbitration agreement relates to more than one country.
[4] Available here.
Andrei Săvescu, PhD, Managing Partner SĂVESCU & ASSOCIATES, Arbitrator at CCIR
Mihai Ioachimescu-Voinea, LLM, Associate SĂVESCU & ASSOCIATES
