No relationship will look the same now as it did pre-pandemic. Indeed, many relationships will have deteriorated due to a lack of human contact, whereas, others will have evolved through innovations such as Zoom and Microsoft Teams. This impact is felt on a commercial as well as personal level.
An increased potential for disputes
Commercial entities and their entrepreneurs, shareholders and directors are now more than ever before having to maintain and forge new kinds of relationships with their clients, suppliers and other companies in order to survive. Whilst many commercial relationships will remain intact throughout this process, it is predicted that as relationships evolve further and businesses adjust at different speeds and to different degrees to the new digital landscape, disputes could arise.
The completion of the Brexit transition will only add to the impact on the commercial landscape resulting in adjustments being required to business relationships going forward.
With the above in mind, companies may have to consider which commercial relationships are worth salvaging in the face of a dispute and which dispute resolution process will ensure those relationships are maintained post-Covid-19/Brexit.
The benefits of maintaining relationships
There are many reasons to preserve a commercial relationship following a dispute. Covid-19 and Brexit have shown us the fragility of the global market and supply chain. Whether it is down to travel and export restrictions or trade deals gone awry – maintaining relationships with local suppliers and clients will be incredibly important in the coming months and may determine whether or not a company survives.
On a more human level, businesses may have come together during the pandemic – offering mutual help and support to one another. In recognition of this, companies may wish to consider whether disputes are worth resolving if the relationship they know and trust can be salvaged. Additionally, businesses may wish to keep a particular client or supplier on board where due to Covid-19 and Brexit it could be difficult establishing a new, similar relationship.
Regardless of the reason - where a company decides that it wishes to maintain a commercial relationship it ought to ensure the chosen dispute resolution process will serve this end.
Processes for resolving disputes
Litigation - the primary dispute resolution process where parties opt to raise court action. The benefit with litigation is that there is no need to compromise as a decision is made one way or another and that decision is final (subject of course to a successful appeal). The finality of the decision along with the rigidness of the court rules can often make litigation reassuring as parties know where they stand.
However, as court awards typically favour one party over another – the losing party could bear resentment and feel a sense of injustice. Furthermore, due to the very nature of litigation and the tactics employed including the use of financial and time pressures – one party could potentially come out of the process having lost all trust and respect in the other. As such litigation can, and often does destroy relationships.
Court closures and restrictions due to Covid-19 and the resulting backlog could also potentially impact the waiting time before an action is heard. These uncertainties and potential delays could result in commercial disputes being drawn out for far longer than necessary allowing bad feelings to fester.
Mediation - a voluntary process which can take place prior to court proceedings being raised or whilst they are ongoing. It involves an independent third-party facilitating negotiation between the parties and their solicitors. The third party does not make a decision but rather encourages the parties to communicate their position in order to come to agreed settlement terms.
This dispute resolution process can be more cost-effective than raising court proceedings – however more importantly it can be far more effective in terms of preserving commercial relationships.
As mediation encourages compromise, it avoids the often harsh ‘all or nothing’ approach associated with the courts. It can also lead to creative solutions, and in the process can side-step any resentment. It’s also advantageous as by encouraging communication the parties could gain a far greater understanding of each other’s position and therefore strengthen their relationship moving forward.
Mediation can also lead to quicker resolutions than litigation. The court delays due to the pandemic have lengthened the litigation process and although courts are currently open and allowing for virtual hearings – it can take months before a hearing date is set. Mediation sessions can be carried out remotely and within a relatively short period of time allowing relationships to be preserved before they reach breaking point.
The above is not to say that mediation should be considered a substitute to litigation. Some cases, will require litigation - due to the attitudes of the parties or the nature of the dispute. However, where there is even a glimpse that mediation could be beneficial it should be attempted. Indeed, even if it is simply as a vehicle to narrow the issues in dispute prior to raising court proceedings it could result in a quicker outcome despite having to go through two separate resolution processes to get there.
Arbitration - similar, to mediation, arbitration involves a neutral third party who listens to the positions of both parties. However as opposed to encouraging parties to come to a decision, an arbiter will decide on the matter with the parties agreeing that their decision will be binding. Arbitration straddles the formality of court proceedings and the informality of mediation.
For many companies who operate internationally or have contracts with suppliers out with the UK, videoconferencing and email will be the norm in terms of building and maintaining relationships between individuals - the pandemic will not have affected this. The arbitration process lends itself to resolving disputes between such businesses who are used to operating virtually but can equally be utilised by any business. Due to the setup of arbitration, it could serve to avoid delays associated with court proceedings (where parties are required to attend court in person), particularly in cross-border disputes where due to current travel restrictions, parties cannot travel to courts in other jurisdictions.
Arbitration can avoid this practical difficulty and in doing so it could also avoid, long protracted disputes destroying commercial relationships.
Another benefit of arbitration is that the enforcement of arbitration awards remains broadly unaffected by Brexit which is not the case with court judgments. Since the end of the transition period for the UK leaving the EU on 31 December 2020, EU Law no longer applies unless it has been expressly preserved.
The current situation is that UK judgments are no longer automatically enforceable in other EU Member States and likewise is the position in regards to the enforceability of EU Member States judgments in the UK. That is not to say they will not be enforced- merely that there is the possibility that they may not be – depending on national laws. Until an agreement has been entered into between the UK and the EU actions raised after 31 December 2020 will be impacted where there is a UK/EU dimension. This may have bearing on whether companies wish to continue relationships outwith the UK and on what terms they may wish to enter into new commercial relationships.
The business benefits of trying to resolve commercial disputes digitally
This year has proven for some companies that digital interactions can be equally as effective as face-to-face meetings in terms of cash-flows and balance sheets. However, this new way of communicating is likely to impact relationships to some extent and will continue to do so in the coming months.
Where disputes arise, litigation will result in a decision being made – however potentially at the risk of the parties’ relationship. Therefore, it’s worth considering mediation (along with litigation) or arbitration – the latter in particular where there is an EU/UK element.
The potential benefits of companies utilising these resolution processes include – reaching quicker (and collaborative) decisions, convenience as these can be carried out remotely, reduced costs and most importantly the preservation of the relationship with the other party. Indeed, the ‘nipping it in the bud’ and upfront approach delivered by each process will no doubt ensure that parties do not leave the process feeling deceived or defeated but rather optimistic and productive.
