UK businesses have avoided using litigation to resolve commercial disputes during the Covid-19 pandemic, instead turning to negotiation and mediation, according to research by EY
The latest EY research suggests that UK companies have followed official guidance, released by the Cabinet Office in May 2020, which called on corporates to steer clear of litigation throughout the pandemic.
Nearly two thirds (63%) of FTSE 350 and private companies surveyed by YouGov for EY said they had adopted a more conciliatory approach to business disputes since the pandemic began. 81% said they had applied reliefs to contract terms since the pandemic’s onset, with 69% granting or receiving time extensions, 59% renegotiating other contract terms, and 25% granting or receiving payments for additional costs. In addition, 77% said they had used alternative dispute resolution (ADR) to resolve an issue during the pandemic.
It also states that almost half of respondents have raised or anticipate raising a claim as a result of Covid-19, and 31% anticipate receiving or have received a claim.
Matt Fritzsche, a UK claims and disputes partner at EY, said: ‘We think some of this is driven by a genuine desire to ‘do the right thing’ during the pandemic, a further and perhaps more important factor is that businesses with claims to bring have spent the last 12 months focused on simply navigating the operational impact of Covid-19.’
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, many corporates also stated that they could face an insolvency risk. 56% of those surveyed said that they anticipate legal claims and disputes will have a ‘material financial impact’ on their business, including 14% believing the pandemic-related claims they may face are a risk to their going concern status.
Maggie Stilwell, UK&I claims and disputes leader at EY, said: ‘It is of concern that corporate respondents said that they felt under-prepared for any increased claims activity given the pressure on available resources, the potential scale of claims, wider operational and financial pressures and uncertainty over the long-term impact of COVID-19.’
‘In recent months we have noticed an increase in clients wanting to understand contract risk and performance, and evaluate financial and commercial remedies open to them, so they can focus actions and limited resources in the right areas.’
Both corporates and law firms expect litigation to increase over 2021 compared to ‘normal’ pre-pandemic volumes. Looking ahead, 48% 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 and 62% said their decision-making would be influenced by a need to ‘maximise the recovery of losses and protect shareholder value’.
Fritzsche added: ‘As vaccine rollouts continue, government support ends and attention turns to recovery, the balance is shifting, and a need to protect shareholder value will prompt businesses to become more active in pursuing claims as a potential avenue for recovery in the near future.’