Commercial Conundrum: Are commercial courts losing their business?

June 26, 2020

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2 min read

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What's going on here?

Following 5 years of growth, litigation activity in the commercial courts have declined. There are suspicions within the industry that this trend is due to uncertainty surrounding Brexit.

What does this mean?

According to the Law Gazette, London’s commercial courts have heard 198 cases between April 2019 and March 2020. This is a significant decline of 9% on the previous year. The same report states that there has been a decline of 13.6% of cases with litigants hailing from the EU. 

In contrast however, the courts have seen an interesting increase in certain non-EU litigants, namely those from Kazakhstan and Singapore. Litigants from these countries have multiplied almost threefold. 

Other than the impending reality of Brexit, this decline in activity could be the result of the development of international commercial courts in France, Germany and the Netherlands. This would have the effect of drawing international litigants away from the UK.

What's the big picture effect?

The effect on law firms in the UK is  straightforward: a decrease in dispute resolution and litigation fees. Big name firms which have large dispute resolution practices such as Herbert Smith Freehills and Freshfields may feel the effects of these circumstances. However, as full service firms, it is likely that they will be able to compensate for this decline with an increase in work from their other practice areas. 

This decline in litigation is likely to be met with an increase in alternative dispute resolution (ADR). ADR allows companies to reach an agreement on various kinds of disputes without the lengthy and costly court process. An increase in ADR may lead to loss of work for barristers and advocates as ADR uses different professionals such as mediators and arbiters. The ADR process also includes law firms so this can generate revenue for law firms in the UK.

This may all change post lockdown. With much debate across the commercial world regarding the use of force majeure clauses in relation to COVID-19 circumstances, we are likely to see a flood of cases once the courts are fully functioning. Practical Law has defined force majeure events as “certain acts, events or circumstances beyond the control of the parties, for example, natural disasters or the outbreak of hostilities. A force majeure clause typically excuses one or both parties from performance of the contract in some way following the occurrence of such events.”. The ability to therefore enforce a force majeure clause is highly contested as its use can cost companies  millions. This can lead to new instruction for law firms and can offset loss suffered due to loss in from foreign litigators.

This is not guaranteed. The commercial courts may be seeing a sustained loss in activity and this would indeed be cause for concern for UK law firms. If the UK courts rule that coronavirus related loss is not sufficient to trigger force majeure, then there will not be a large upshot in cases. How then will COVID-19 affect litigation? Only time will tell.

Report written by Mohammad Hammoud

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