Preliminary trends in arbitration in the shipping sector in light of COVID-19

Introduction

The COVID-19 pandemic has resulted in court access in many jurisdictions being severely curtailed. Certain jurisdictions are permitting urgent matters to proceed, often by way of telephone or videoconference. Many matters, however, have been delayed or postponed. By virtue of its flexibility, arbitration has been offered up as a solution to commercial parties who wish to nevertheless progress the resolution of their dispute. In light of COVID-19, are we seeing more parties in the transport sector turn to arbitration? In addition, for those parties whose contractual arrangements already provide for arbitration, how has COVID-19 affected the behaviour of parties for whom difficulties or disputes have arisen? Reflecting the global reach of our transport practice, this article explores the trends that we are seeing in the transportation and logistics sectors worldwide.

Greater appetite to re-negotiate and share the pain

In contrast to certain trends seen in 2009 during the last financial crisis, we are seeing a much greater appetite to re- negotiate and share the pain of the current difficulties. In long term charterparties and contracts of affreightment, rather than insist on their contractual rights and trigger the arbitration clauses, we are seeing parties seek to cooperate in order to weather the storm. This is also the case in the offshore context. At this juncture, the global situation and the resulting impacts continue to evolve.

Even if a party has a claim, it is a challenge to begin to quantify it when one cannot  yet predict the extent of loss nor how long the current situation will last. This has resulted in a flurry of commercial discussions, rather than entrenched positions. Consequently, for the volume of disputes and difficulties we have been seeing, there are comparatively fewer arbitration proceedings commenced in the transportation sector than we might have anticipated.

Some increase in arbitrations, arrest proceedings and injunctions

This is not to say that it is all peace and harmony. There is certainly a segment of the market that is charging ahead. New LMAA (London Maritime Arbitrators Association) proceedings are regularly being commenced. For those parties currently in LMAA proceedings, while there have certainly been some delays due to COVID-19, many arbitral proceedings are business as usual. While the courts systems have been affected by COVID-19, arrest proceedings and injunctions in support of arbitration remain available in many jurisdictions. This is the case, for example, in Canada, England, the United States, Singapore, and South Africa.

Insolvencies and restructurings

In the grand scheme of things, we are still in the early days of the COVID-19 crisis. We anticipate that the insolvencies and restructurings to come will impact on the number of arbitrations being commenced. If a contractual counterparty is teetering on the edge of an insolvency, one must carefully consider whether it is actually worthwhile incurring the time and cost of commencing arbitral proceedings, only to have them stayed at a later date. For further information about COVID-19 related insolvencies, please also see our article on Insolvency and Arbitration.

Concluding thoughts

To conclude, international arbitration remains a flexible way to resolve disputes during the COVID-19 crisis. Both institutional and ad hoc arbitrations have been accommodating in terms of virtual hearings and electronic documentation. In our view, the increased appetite for resolving matters commercially has less to do with the dispute resolution process itself, and more to do with seeking to ensure that co-contacting parties stay afloat and that money is not spent on proceedings that could well be pyrrhic victories at the end of the day.