Alternative dispute resolution in times of Corona
The Covid-19 pandemic poses new challenges not only for state court proceedings (see newsletter of 25.03.2020 (in German language)), but also for alternative dispute resolution.
The private-law nature of mediation and arbitration in the commercial sector makes it possible to react to the current situation more quickly and pragmatically than will be the case with state proceedings. Unlike proceedings before state courts, these procedures are designed to be flexible and to adapt to the respective interests of the parties.
Despite all this, of course, an adjustment to the current situation is necessary – not only by the arbitral institutions. But it also offers the opportunity to further develop the use of information technologies and the digitalisation of dispute resolution.
In the following – with special reference to proceedings conducted under the rules of the German Institution of Arbitration (DIS) – some aspects are presented which have to be considered from the perspective of the parties to arbitral proceedings.
Limited functionality of the arbitral institutions?
The functionality of the current arbitration institutions will continue to be preserved. The complete changeover to teleworking – which is already common practice for most arbitral institutions – should take place promptly and smoothly. Nevertheless, delays and interruptions are to be expected in ongoing proceedings in view of the circumstances. Prolongations of the handling processes are to be expected especially at the beginning. In the international area, travel restrictions and border closures will also make it more difficult or even temporarily impossible to conduct oral proceedings.
Overall, however, it can be assumed that the national and international arbitration community will be able to adapt and adapt relatively quickly. The possibilities for digital communication, which are technically already extensively available, facilitate a timely adaptation of new workflows. The greater flexibility in the structuring of proceedings compared to state jurisdiction is currently proving to be a particular advantage of arbitration.
The DIS points out in this context that it expects delays in the coming period due to the necessary closure of its Berlin office and the extensive switch to teleworking. However, the filing of new arbitration suits is still possible and desirable. In this context, the additional information contained in the „Notice on Procedural Particularities in the Administration of Arbitration Proceedings due to the Covid-19 Pandemic“ of 27 March 2020, which the DIS has also published on its website (http://www.disarb.org/), should be noted. In particular, it asks for the electronic transmission of the statement of claim and points out the limited availability by telephone. The paper copies that would otherwise normally have to be submitted in addition may now be dispensed with.
The secretariat of the International Chamber of Commerce (ICC) also states that it is fully operational, but asks for understanding for delayed work processes. In addition, all oral proceedings planned to take place at the ICC premises until the end of June have already been cancelled or suspended two weeks ago.
The same applies to the London Court of International Arbitration (LCIA), the American Arbitration Association (AAA), the Stockholm Chamber of Commerce (SCC) and the arbitration tribunals of the Swiss (SCAI) and Austrian (VIAC) Chambers of Commerce. The Hong Kong International Arbitration Centre (HKIAC) will remain open, but will conduct body temperature measurements on all parties involved.
The International Centre for Settlement of Investment Disputes (ICSID) has also joined the general changes in the area of investment arbitrage.
Conduct of proceedings by the arbitral tribunal?
If the arbitral tribunal has been constituted in arbitral proceedings and has thus been entrusted with the management of the proceedings, it is incumbent upon it to maintain the integrity of the proceedings within the scope of its duties arising from this. This does not include measures of the police power in court as in the state court according to secs. 176 et seq. GVG. Irrespective of this, the pandemic poses new challenges to the arbitral tribunals in the exercise of their discretionary powers to conduct proceedings. Not only the obligation to conduct proceedings swiftly must be taken into account, but also the other party interests which may be influenced by the pandemic in various ways. Attempts by a party to use the current situation as a delaying tactic will have to be counteracted by the arbitral tribunal. On the other hand, the right to be heard must be respected. This may have an impact on the setting of deadlines and hearing dates and on the answer to the question of whether to stick to them in the middle of the crisis (see below).
According to the notice of 27 March 2020, it should be noted in the context of the conduct of proceedings that, in deviation from Art. 27.2 DIS SchO 2018, the period for holding a first proceedings conference does not begin to run until the procedural file has been received.
Use of the written procedure?
In contrast to the ZPO for civil proceedings before state courts, the usual arbitration rules do not provide for the holding of oral hearings as a rule. For example, Art. 29 DIS-SchO 2018 (similar to sec. 1047 (1) ZPO) provides that oral hearings shall in principle only take place if the parties have explicitly agreed to this or if one of the parties so requests (the latter provided that oral hearings have not been excluded by agreement of the parties); otherwise, the order for oral hearings is at the discretion of the arbitral tribunal.
As far as there are no reasonable reasons for conducting an oral hearing, such a hearing is therefore already dispensable for reasons of procedural economy, although it is widely accepted practice.
The Covid-19 pandemic should lead to a reassessment of the need for and modalities of an oral hearing. For example, if the parties had agreed on an oral hearing because of the need to interview witnesses, the question arises whether a hearing by video is a possibility or whether it is preferable to interrupt the proceedings.
A change to the written procedure is possible at any time without any problems, as far as the arbitration rules allow it.
What is the situation regarding compliance with deadlines and schedules?
Current deadlines must continue to be observed, unless the arbitration tribunal extends or amends them due to pandemic circumstances.
For procedures before the DIS, the Notice of 27 March 2020 provides for a simplified deadline extension procedure for renewal applications justified by Covid-19. This applies to both the time limits imposed on the parties and the time limit for the issuance of the arbitral award. It should also be noted that due to the closure of the Berlin DIS office, the deadline mailbox there is also out of order. Physical documents should therefore only be sent to the head office in Bonn.
Due to travel and contact restrictions, the question currently arises – especially in international proceedings – for the arbitral tribunals and the parties to the arbitration proceedings as to possible postponements of the dates scheduled for oral hearings in the near future. It should also be taken into account that the appearance of witnesses before the arbitral tribunal – unlike before the state court – is voluntary and that the willingness to do so may be temporarily suspended due to a pandemic. This applies all the more so as witnesses may have to ask themselves whether the appearance before an arbitral tribunal constitutes an – even „urgent“ – justification which is provided for as an exception in the currently widespread restrictions on leaving the apartment/ habitual residence.
Switch to other communication channels?
In the coming months, the use of digital means of communication will have to be resorted to in arbitration proceedings – even more so than before. Most arbitration rules already provide for extensive possibilities in this respect.
Both the ICC and the LCIA, the HKIAC, the AAA, the SCC, the SCAI and the VIAC recommend the increased use of alternative means of communication. In addition to filing pleadings by e-mail, the main focus here will be on conducting oral proceedings in the form of video conferences.
The DIS gave detailed comments on this issue in its notice of 27 March 2020. Pursuant to Art. 4 of the DIS Rules 2018, the principle applies anyway that all pleadings – with the exception of the statement of claim and any counterclaim or extension of the claim – must be submitted primarily in electronic form. Increased use should be made of this option. The electronic transmission of the arbitral award is now also encouraged by the DIS – provided that the parties have agreed to this.
In proceedings with a foreign place of arbitration, problems could arise from national law with regard to the possibilities for virtual negotiations in detail, provided that the applicable arbitration rules do not provide for any regulations and national procedural law is applied as lex arbitri. However, due to the voluntary nature of the oral arbitration proceedings, it is generally to be assumed that there is also a freedom of the manner in which they are conducted.
Some institutions like the HKIAC already offer „virtual hearing services“, the use of which is open to the parties. As far as the institutions do not do so, self-organisation is of course required, but in principle this is not alien to the parties in arbitral proceedings.
Prior to the current situation, a future revision of the arbitration rules can be expected. With regard to the use of digital means of communication, a significant further development in the conduct of proceedings can be expected. It remains to be seen to what extent these changes will also change and shape the classic procedures in the field of arbitration after the Corona crisis.
Flood of new procedures?
The effects on the national and international economy will also leave their mark in the field of alternative dispute resolution.
The pandemic-related factory closures will result in a plethora of delays and non-performance. Supply chains will be interrupted by air and shipping restrictions. It is therefore only a matter of time before the first proceedings due to corona-related service failures or delays arrive at arbitration tribunals.
The central issue in connection with the movement of goods will be the interpretation of contractual agreements on force majeure. The classic questions of predictability will have to be discussed anew, as well as the question of risk distribution (in particular: disruption of the basis of the business?) and the obligations to mitigate losses as well as organisational duties.
In contrast to state proceedings, the corona crisis should be dealt with more quickly and less drastically in the area of alternative dispute resolution. More than ever before, the situation offers reason to expand and enhance the means of digital communication which are already useful in arbitration proceedings.
In ongoing proceedings, direct and timely coordination with the opposing party – and, if already appointed, the arbitral tribunal – should be sought on reasonable and necessary adjustments in view of the pandemic.
Stick to it…
Not only in civil and arbitration proceedings new legal challenges arise due to the corona pandemic. Some questions also need to be answered in substantive law.
Let us advise you – and above all, stay healthy!