How pandemic impacts are affecting the Irish claims & disputes landscape

This EY Forensic & Integrity Services survey explores how the COVID-19 pandemic has impacted the Irish claims and dispute resolution landscape, and what legal professionals expect as time goes on.

In brief

• The biggest impact of the pandemic on claims and disputes is expected to be felt in the coming year.
• Claims are expected to increase to protect shareholder value, however businesses are also expected to prioritise operations post pandemic which may stop the pursuit of claims.
• Despite the risk of increased claims, it appears that many businesses are not prepared to deal with it.

The COVID-19 outbreak has had a profound effect on the global economy and whilst many industries and sectors are showing signs of recovery more than two years on, the full extent of financial upheaval may yet to be felt by businesses.

At the beginning of the pandemic, it was expected that the disruption would trigger a surge in pandemic-related claims and legal disputes.

Public health measures have been lifted in recent months which has allowed many businesses to return to ‘normal’, albeit with many corporates operating hybrid/remote working models and businesses putting safeguards in place. However, the economic ripple effects of the pandemic are likely to continue for many Irish businesses.

Pandemic impact and beyond

While 74% of respondents have not seen an increase in disputes or legal claims so far caused by the COVID-19 pandemic, almost 60% expect to see a significant increase in the next 12 months.

Where an increase is expected, 37.5% of respondents believe this will be seen in the next three to six months, and 62.5% believe this will be seen further down the line, in six to 12 months’ time.

The survey provides evidence for what we have seen in practice with our clients – there have been COVID-related claims and disputes since the pandemic began; however, the greatest impact may yet be felt.

Perspectives on the claims risk universe

The survey shows that breach of contract and insurance claims have been seen the most to date (26% and 26% respectively), and these are also expected to continue to be seen in the future (24% and 18% respectively). This aligns to what we have seen in practice, particularly given the big issues throughout the pandemic of non-performance of contractual obligations and business interruption from government-enforced hospitality closures. Respondents felt that legal claims arising in these areas are set to continue over the next 12 months. Shareholder disputes have also been seen to date and are expected in the coming year (15.8% and 16.3% respectively).

Together these responses indicate that a broad range of claim/dispute types are expected, across various sectors and driven by different types of relationships. This highlights the importance for businesses to undertake a holistic assessment of their contract risks and potential legal remedies open to them to proactively mitigate and minimise their overall claims risk exposure. Refer to the ‘Preparedness’ section below for more details on this.

Approach to claims and disputes

Pre-existing disputes

It appears that businesses were focused on managing the initial impact of COVID by deferral or early settlement of claims. 67% of respondents felt that because of the pandemic there was more pressure to settle pre-existing disputes earlier than normal, and 67% stated that clients have taken a more conciliatory approach to disagreements with their counterparties. In addition, of those that have seen an increase in claim/dispute activity to date (26% of respondents), 71% stated that their clients renegotiated contracts or granted relief to counterparties due to the COVID-19 pandemic.

During the pandemic

A focus on business fundamentals was seen during the pandemic. 30% say that their clients deferred or stopped investigating a potential legal claim against a counterparty during the pandemic, which they are likely to resume post-pandemic. The main reasons cited for this were the prioritisation of navigating the business impact of the pandemic (63%) and a lack of funds to investigate and pursue claims (50%). 

However, other altruistic factors were also cited. Of those that deferred or did not pursue a legal claim, 38% said that the decision was based on a desire to take a more conciliatory approach to the counterparty, and 25% said that it was based on a concern about being seen as opportunistic during the pandemic. 

Alternative Dispute Resolution

While some businesses renegotiated contracts or granted relief to counterparties, 89% of respondents said that their clients opted for some form of alternative dispute resolution (ADR) to resolve disputes since the start of the pandemic.

The most common reason cited for favouring ADR was COVID-19, i.e. going through the courts was expected to take too long due to court closures (63%), while 59% stated that ADR tends to be favoured generally. Mediation was the significantly most-favoured remedy, with 96% of respondents having clients that favoured this option when using ADR. 

One respondent stated:

“[The] market is waking up to ADR. Arbitration is now more readily accepted. Probably more of a flow from the incorporation of more agreements to arbitrate in commercial contracts over the last five to seven years. Mediation is becoming more prevalent, and obligations to advise of mediation, are having an impact.”

When asked whether they are more likely to use ADR going forward, the majority of respondents (59%) stated that they are already quite likely to consider it. However, 31% said they are more likely to consider it due to the general trend to engage in ADR (not because of COVID-19), and 11% cited the emergence of remote hearings as a mechanism of ADR as the reason.

Now that the pandemic appears to have stabilised for the time being, an increase in claim activity is likely to be seen. As above, 59% of respondents expect an increase in activity over the next six to 12 months, and interestingly, 37% expect their clients to now take a less conciliatory approach to resolving disagreements with counterparties.

Shareholder value

Whilst there appears to have been a certain level of solidarity during the pandemic, our survey indicates that over the next 12 months, an altruistic desire to take a more conciliatory approach with their contractual counterparties is not seen as a key factor influencing businesses/clients not to pursue claims.

The protection of shareholder value was seen during the pandemic and is expected to be a priority looking forward. Respondents indicated that the most influential factor when deciding whether to pursue a claim over the next 12 months is the ongoing need to prioritise operations post-pandemic (74%). The second-most influential factor is the need to maximise the recovery of losses and protect shareholder value (56%). Whilst these factors pull in opposite directions, the common thread is the survival and self-preservation at the forefront. The third-most influential factor is a lack of funds to investigate and pursue claims (48%).

Interestingly, respondents feel that over the next 12 months, factors influencing businesses/clients not to pursue claims (60%) are likely to outweigh the pressure to pursue them overall (40%).