International arbitration in the time of COVID-19: a rapidly changing environment

Declared a pandemic and ‘the worst health crisis’ in recent times, the effects of the novel COVID-19 outbreak are diverse and ongoing. 

Although the full extent of its implications remains to be seen, it is already clear that investors and commercial actors in multiple sectors of the global economy are and will continue to be affected. 

On their end, governments are deeply embedded in all aspects of the fallout of the outbreak. 

As the COVID-19 situation continues to develop, we consider its implications for international arbitration.

Moving towards contactless arbitration

Measures taken by governments, corporates, law firms and arbitral institutions in response to the outbreak may affect every aspect of an arbitral proceeding. 

These include restrictions on travel and in-person meetings, office, city or country lockdowns and quarantine requirements for individuals. 

These measures are resulting in the cancellation, postponement, or relocation of scheduled or ongoing hearings; they may also require a novel approach towards how oral hearings are conducted in practical terms.

The particular impact for an arbitration will, to some degree, depend on the stage of the proceedings. 

Where an oral hearing has already commenced or is imminent, specific policies and operational constraints applicable to the hearing venue or arbitral institution may determine whether and how the hearing can occur; parties should continuously monitor rapid developments in that regard. 

For example, in light of the current full lockdown in France, the ICC has postponed or cancelled any hearings and meetings scheduled at the ICC Hearing Centre in Paris until 13 April 2020. 

The ICC Secretariat and the LCIA have moved to working remotely and handling everything electronically (including the commencement of new arbitrations). 

For its part, ICSID has released a statement that it is taking steps to safeguard participants in its hearings. Parties may also wish to consider the current draft of Delos’s checklist on holding arbitration and mediation hearings in times of COVID-19.

In any event, in determining whether an oral hearing should proceed in person or whether some or part of it should be held via tele- or video-conference, stakeholders should consider the location of the hearing, existing or potential travel restrictions, and the personal circumstances of the participants (eg location, age and health conditions). 

Parties should also consider how to leverage technology in order to minimise the need for in-person contact. 

This could include options of virtual conference rooms, an entirely electronic record and interactive web-based programs for viewing documents. 

It may also involve implementing appropriate home office technology to facilitate a move towards a possible reality of ‘contactless arbitration’. 

It would be prudent for stakeholders to agree on mandatory or permitted precautionary measures to be taken during an oral hearing, such as avoiding physical contact (including handshakes), regular disinfection of microphones and a protocol for monitoring the health of the participants. 

These issues may be addressed through procedural orders, which would help to ensure clarity and consistency across all participants.

Where an arbitration is in its early stages, parties should use the time to plan ahead for all contingencies and look to minimise the need for in-person contact from the outset. 

Discussions between the parties or with the tribunal should certainly include the above-listed considerations. 

Again, tribunals should look to address all such issues by way of formal directions or procedural orders.

Impact on commercial arbitration

All varieties of contracts may be affected by the legal, practical and economic consequences of the outbreak. Particularly relevant consequences include supply chain disruption, travel restrictions, currency fluctuation and other market turmoil.

In existing contracts, parties may struggle to perform them properly or try to excuse themselves from performance entirely. 

In these circumstances, where contractual counterparties are unable to negotiate a commercial solution and insurance policies fail to cover the outbreak or its knock-on effects, new arbitration claims will be inevitable. 

Whether a party will be legally excused from its contractual obligations or able to terminate a contract will depend on the terms of each contract and the relevant factual circumstances. 

Parties will need to consider express contractual rights, such as force majeure and material adverse change clauses, as well as legal or equitable remedies such as frustration.

In contracts currently being negotiated, parties may wish to include commercial terms to try to apportion risk arising from the outbreak. 

For example, pricing adjustment clauses for contracts relying on tariffs or affected by exchange rate fluctuations, or step-in or buy-out rights to address performance concerns. 

Parties may also want to consider whether to expressly include (or exclude) COVID-19-related events in their contracts, for example in their force majeure clauses, to clarify whether the outbreak falls within their scope.