Businesses shun litigation for conciliation amid pandemic - report

UK businesses have avoided using litigation to resolve commercial disputes during the pandemic, instead turning to negotiation and mediation.

New research by EY suggests UK companies have heeded official guidance, released by the Cabinet Office in May 2020, which called on corporates to steer clear of litigation throughout the pandemic.

Almost two-thirds (63 per cent) of the more-than 100 FTSE350 and private companies surveyed by YouGov for EY said they had adopted a more conciliatory approach to business disputes since the pandemic began.

Four-fifths (81 per cent) of the companies surveyed said they had applied reliefs to contract terms since the pandemic 's onset, with 69 per cent granting or receiving time extensions, 59 per cent renegotiating other contract terms, and 25 per cent granting or receiving payments for additional costs.

Seventy-seven per cent of companies surveyed had used Alternative Dispute Resolution (ADR) to resolve an issue during the pandemic.

Jonathan Middup (pictured), a UK Claims & Disputes partner at EY in the Midlands, said: “Economic disruption and contractual performance issues on the scale we 've seen in the last year would ordinarily be accompanied by a rise in claims as companies look to protect shareholder value.

“However, the exceptional circumstances presented by the Covid-19 pandemic have not led to the rise in litigation you 'd expect - so far.

“Almost two-thirds of those surveyed reported that they have taken a more conciliatory approach while the business community grapples with an unprecedented crisis, and this appears to have contributed to a short term move away from companies embarking on litigation. ”

Almost one-third of corporate respondents (32 per cent) said that, during the pandemic, they had deferred or stopped investigations which they would have pursued beforehand.

Looking ahead, while 48 per cent of corporate respondents said that a 'continued desire to take a more conciliatory approach to counterparties ' would influence their decision on whether or not to pursue a claim in the next year, 62 per cent said their decision-making would be influenced by a need to 'maximise the recovery of losses and protect shareholder value '.

More litigation expected in 2021, although many corporates are not ready, and some face an insolvency risk

Both corporates and law firms expect litigation to increase over 2021 compared to 'normal ' pre-pandemic volumes.

As well as 59 per cent of corporate respondents expecting claim volumes to rise, a parallel EY survey of over 100 commercial litigation and international arbitration lawyers found that 66 per cent of respondents also expected Covid-19 to prompt an increase in claims.

Almost half (47 per cent) of corporate respondents have raised or anticipate raising a claim as a result of Covid-19, while 31 per cent anticipate receiving or have received a claim.

EY 's research also found that companies do not feel prepared for a rise in litigation and that some are concerned about the potential financial impact of claims and disputes on their business.

Over half of corporate respondents (56 per cent) said that they anticipate legal claims and disputes will have a 'material financial impact ' on their business, including one-in-seven companies (14 per cent) who believe the pandemic-related claims they may face are a risk to their going concern status.

Despite the financial implications of claims, 43 per cent of corporate respondents say they feel unprepared for a rise in activity.

While 62 per cent of lawyer respondents recommended that businesses should undertake an assessment of their contract risk and evaluate potential legal remedies, only 45% of corporate respondents had undertaken such an exercise.