COVID-19 impact on the UK Economy & ADR

Authors: Tariq MahmoodArran Dowling-Hussey
In: Article Published: Monday 06 April 2020

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In these unprecedented times, we are already seeing companies collapsing, Flybe ceased operating at the start of March stating that COVID-19 was the final nail in the coffin. Widespread media coverage in early April states that Debenham faces administration and clothing giant Arcadia is preparing to close a huge number of stores as the effect of the lockdown tears through the high street. The global pandemic could lead to a great depression and the adverse economic effects seem almost certain to outweigh the impact of the 2008/2009 world-wide recession.  We will look at how COVID-19 may impact the UK economy in the coming months and how ADR may be used in order to address business disputes in an expeditious and cost-effective manner. 

It is clear that there is much uncertainty, and businesses have been forced to be closed down to ensure they meet government guidelines.  The Chancellor of the Exchequer has offered financial support to businesses but will this go far enough to stop the corporate failures? The UK Government on 28 March 2020 announced plans to bring forward legislation to amend the UK's insolvency laws “at the earliest opportunity” in response to the COVID-19 pandemic. Time will tell whether reforms will be enacted and whether they are effective.

It is seemingly obvious that, inter alia, the following areas will be heavily affected to the point, in some cases, of being at risk of being virtually non-existent within 6 months:

(a) Retailers, people are not spending on purchasing clothes/toys or other non-essential items;

(b) Restaurants/pubs have been closed due the lock down; people are now having virtual pub/coffee get togethers;

(c) Hotels; the world-famous Ritz hotel was sold at the end of March at around the same time that the hotel closed to the public for the first time in its history, due to public health issues;

(d) Airline, train and bus companies due to the restrictions on domestic and international travel;

(e) Cinemas, theatres and professional sports teams and events, as spectators can not attend films, plays, concerts and sports events in the normal way. Significant events such as Wimbledon[1]have been postponed or cancelled. 

In some cases, companies and professional service providers may be able to fend off collapse. Many of these companies will have had existing disputes before the Covid-19 crisis emerged and others will have had commercial differences emerge since. With cash flow issues brought to the fore for many small and medium size enterprises (‘SMEs’) and indeed with larger entities, there will be added focus now as to how quickly disputes can be resolved. In that light, those faced with the circumstances just set out, but who have not used, or are unfamiliar with, Alternative Dispute Resolution (‘ADR’), may want to find out more about processes such as arbitration and mediation.

For instance, ADR is widely used in relation to rent-review disputes, a situation where retailers, pubs, cinemas and others committed to commercial leases will look to negotiate with landlords using evidence of reduced rental values due to reduced footfalls. Moreover, a wide range of disputes can also be expected between policy holders and insurance companies.

ADR

Alternative Dispute Resolution refers to several systematic processes used outside the traditional venue of a courtroom. ADR encompasses a range of dispute resolution methods such as adjudication, arbitration, conciliation, early neutral evaluation, expert determination and mediation. The two most common and popular types of ADR are mediation and arbitration.

  • Mediation is where an independent third party helps the parties to a dispute to reach a mutually acceptable outcome. The mediator will add formal structure to the communication you and the otherside have, with the aim of helping you to reach a voluntary agreement. The mediator cannot impose a solution upon the parties and will not act as a decision maker so as to adjudicate on legal issues between the parties. 
  • Arbitration is where an independent third party considers the facts and makes a final binding decision. It will be set out in writing and, as stated, it will be legally binding all parties. The process in many ways mirrors the path of a traditional court case but can be structured such that it is reached in a much quicker way and unlike a court hearing is held in private. The speed, lower cost of an arbitration is attractive to many users of the process along with the opportunity for the parties collectively to ‘choose their own judge’, as well as the fact that the decision of an arbitrator cannot be appealed. 

With mediation, its facilitative party driven nature means it is a popular method of quickly resolving disputes. As it is not an adjudicative exercise there is usually less rancour between the parties who successfully reach a settlement agreement compared to the position at the end of a court case or arbitration. However, whilst mediation can be extremely successful, with between 60-80%[2]of mediations concluding with an agreement, some mediations obviously don’t work. In those circumstances an escalating dispute process more popularly known as ‘med-arb’ / ‘arb-med’ may be appropriate. 

ADR advantages remain applicable

The inherent advantages of ADR, that attract users during more usual times, remain equally applicable in these uncertain times. It is also helpful to note that mediation and arbitration can be conducted online. The present restrictions on travel and need to practice social distancing do not preclude parties availing themselves of whichever ADR method is most suitable to resolving their dispute.

DR TARIQ MAHMOOD AND ARRAN DOWLING-HUSSEY © 2020

BARRISTER

33 BEDFORD ROW

Dr. Tariq Mahmood FCIArb is a Barrister and Arbitrator working from 33 Bedford Row Chambers in London. He is head of 33 Bedford Row’s Arbitration & Alternative Dispute Resolution group ('Arbitrators@33BedfordRow'). 

Arran Dowling-Hussey is like Dr. Mahmood a member of Arbitrators@33BedfordRow and practices as a Barrister, Arbitrator, Adjudicator & Mediator. He can be contacted at adhussey@33bedfordrow.co.uk

NOTICE: This article is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of Chambers or by Chambers as a whole.

The members of Arbitrators@33BedfordRow have a wide range of multi-jurisdictional experience and can advise clients of how to most effectively use ADR. We look at each case on a case by case basis and do not champion any one process repeatedly but rather try and match our clients needs to the most suitable ADR tool available. We offer a range of cost-effective fees for disputes under £25,000 such that our members will sit as an ADR neutral and issue a decision on an expedited basis for a fixed fee. If you have any queries regarding the above or any ADR queries during this difficult time, please do not hesitate to contact Mark Byrne on 0207 242 6476 or m.byrne@33bedfordrow.co.uk

[1] It is noteworthy that, according to an interview Dirk Hordoff, vice President of German Tennis Federation, gave Sky Sports Germany on March 29, 2020, Wimbledon was ‘the only grand slam far-sighted enough to insure itself against a worldwide pandemic.’ The claim for loss of income for the first cancellation since 1939 has been widely reported as being up to £200 million. 

[2] There are a range of statistics proffered as to the success rate of mediation, The figures presuppose that the participants in a mediation are act bona fide and are prepared, if applicable, to settle. Obviously different studies and institutions will suggest different figures and the statistics vary from year to year, but the typical range quoted is: between 60-85% mediations reach settlement agreements. See https://www.cedr.com/foundation/mediation-audit/ (accessed on April 6, 2020).