Editorial note: This article is part of the ILJ Forum series “International Cooperation and Global Governance in the Era of COVID-19 and Beyond.”
By: Lance Ang
I. Introduction
The term “disruption”, inasmuch as it has become overused today, could not be more apt to describe the inflection point in dispute resolution that marked the year 2020. The COVID-19 pandemic has posed a substantive challenge to contractual doctrine and court procedure, and more broadly, to the rule of law and administration of justice. COVID-19 has presented further potential ramifications in respect of two issues of particular importance in cross-border commercial dispute resolution:[1]
(a) transaction risk—to what extent should contractual default due to COVID-19 be left to be negotiated between the parties themselves?
(b) venue risk—should the jurisdiction agreement be enforced notwithstanding the lack of capacity or difficulties by the court with remote hearings in the chosen venue?
The manner in which these two issues are resolved going forward would determine how the fallout from cross-border contractual defaults may be properly mitigated, and consequently the impact on commercial certainty and the disruption of global supply chains. In this article, I consider the impact that the pandemic has had on commercial dispute resolution, focusing on how courts in Asia, with Singapore and China as case studies, have responded to this changing landscape, and the potential responses to enhance global governance in transnational commercial dispute resolution beyond the pandemic.
II. Contractual Defaults
Back in March 2020, the U.K. Lord Chief Justice warned about “the inevitable backlogs and delays that are building in the system.” The wide use of the common law as the proper law in cross-border transactions is attributed to the commercial certainty stemming from the traditional reluctance to interfere with the parties’ contractual arrangements and discharge a party from contractual performance even when circumstances have changed. In light of COVID-19, however, such an approach has risked a surge in contractual defaults and insolvencies, generating such a backlog of cases as feared and the disruption of supply chains. To mitigate this, the Singapore Parliament introduced a “legal circuit breaker” by legislating a moratorium of contractual claims for a limited category of contracts affected by the pandemic. This temporary relief, however, does not necessarily apply to cross-border agreements and preserves the parties’ rights to continue proceedings after a sunset period.[2] This stands in stark contrast with the Chinese civilian approach. The Supreme People’s Court (“SPC”), the highest court in China, issued a series of “guiding opinions” to mitigate the rise in contractual disputes arising from the pandemic.[3] They provide that Chinese courts may order the “modification” of the contract where continuing performance would cause “manifest unfairness” or for the parties to “share losses.”[4]
III. Digital Courts
Fears of delays in court proceedings were certainly magnified when the onset of the virus led to rapid court closures and the adjournment of hearings arising from the imposition of lockdowns across jurisdictions that affected up to 50% of the global population in early 2020. Yet, such delays were at least partially mitigated when courts and arbitral institutions across a broad swath of jurisdictions promptly instituted new procedures for hearings to be conducted virtually through video conferencing and other forms of remote technology. “Remote courts” were reported to be operational in at least 56 countries by July 2020. Such a development followed the preceding digitization of courts and reinforces the growing move towards “online dispute resolution” to enhance efficiency and facilitate access to justice.[5] When the country went into lockdown, the Singapore Parliament promptly passed legislation in April 2020 to liberalize the use of remote communication for court proceedings where there are sufficient administrative and technical facilities and arrangements in place, and it is “in the interests of justice to do so”. This followed the earlier work of the Singapore judiciary towards the model of an “online court” in a justice system constructed on the principles of “accessibility,” “proportionality,” and “peacebuilding”.
Likewise, for a country whose rule of law otherwise invites broad skepticism, China stands at the forefront in this development and has leapfrogged other jurisdictions in its significant investment in cutting-edge technologies as part of the concept of “smart courts”implemented by the SPC in 2015. This includes the roll-out and development of artificial intelligence (“AI”) tools for adjudication processes and case management, and novel technologies such as blockchain, distributed ledgers, cloud computing, and smart contract solutions in several local and specialized courts. The establishment of “internet courts” in Hangzhou, Beijing, and Guangzhou is emblematic of this fascinating development, in which the entire litigation process for millions of e-commerce disputes may be conducted online, including through the use of a “mobile court” app that can be downloaded on WeChat.
Importantly, notwithstanding the rapid paradigm shift toward remote hearings during COVID-19, 71.5% of lawyers surveyed by the Civil Justice Council in England and Wales were positive about their experiences for civil hearings that were mostly conducted in May 2020, even though 63.9% felt that video hearings were slightly worse or worse than physical hearings due to technical difficulties and communication problems.
IV. Responses
With respect to transaction risk, the case may be made that it would be best to leave the matter of contractual defaults to be resolved by the market. On this view, the parties should bear the risks and losses as allocated between themselves of their choice of proper law in the contractual bargain, not least in view of the importance of maintaining commercial certainty and the sanctity of contract beyond the pandemic. If the contrasting common and civil law approaches towards attributing losses discussed above are any indication, this calls for commercial certainty that the validity and effect of the choice of law agreement will be duly upheld in the event of a dispute. This would allow parties to mitigate their transaction risk and litigation costs by, for example, determining for themselves the extent to which force majeure, material adverse change and other doctrines for the discharge of contractual performance may be invoked under the proper law. Yet, arguably this approach only holds true where any failure of contractual performance is the result of events within the control of the contracting parties and which could have been reasonably foreseen. In exceptional situations such as an uncontrolled pandemic, a measured form of state intervention may be called for in respect of transactions entered into prior to and materially affected by such situations. For such contracts, short of a wholesale revision of contractual doctrine and reallocating the parties’ losses without due regard to the parties’ intentions, the courts should aim in the first instance to facilitate the continuation or re-negotiation of a viable contract rather than bringing it to an end. Where the parties’ intentions with respect to such situations have not been adequately addressed in the agreement, the courts (or the legislature, as may be preferable) should strive to allow for just and equitable solutions to enforce the parties’ legitimate expectations as to how their losses should be allocated in light of current circumstances. This may provide the basis for business confidence to facilitate an eventual economic recovery without undermining commercial certainty by rewriting the parties’ bargain on which business confidence relies. It must be emphasized, however, that such state intervention may be a necessary but blunt instrument that is unlikely to address the specific circumstances of each case, nor should such interventions (if enacted at all) be expected to last beyond than the immediate term. It ultimately falls on the parties which are best positioned to mitigate the impact of similar crises through appropriate contractual risk management.
Where venue risk is concerned, the imposition, lifting, and possible re-imposition of lockdowns across jurisdictions at different times in different phases and the uneven technological capacities and safeguards in domestic courts (with some evidently more advanced than others) pose the question as to whether the default position of giving effect to the parties’ autonomy pursuant to the jurisdiction agreement should hold. Under Article 6(d) of the Hague Convention on Choice of Court Agreements, the non-chosen court has very limited discretion to accept jurisdiction where the parties have agreed for proceedings to take place in another court exclusively. As an exception, the non-chosen court may do so if “for exceptional reasons beyond the control of the parties, the agreement cannot reasonably be performed.” This exception is intended to set a very high threshold equivalent to the frustration of the agreement and only applies where it would be near to impossible to bring proceedings before the chosen court, such as in the case of war or “where the chosen court no longer exists.” A similarly high threshold exists in the common law requirement of “strong cause” under which factors of procedural inconvenience are disregarded. Arguably, as with transaction risk discussed above, the current circumstances should privilege the objective of ensuring that proceedings occur in the optimal forum to ensure the effective resolution of disputes in accordance with the legitimate expectations of the parties, particularly where the procedural disadvantages arising from COVID-19 in the chosen venue were reasonably unforeseeable by the parties at the time of contracting. A less pedantic approach in the current circumstances would serve to mitigate procedural delays, litigation costs, and uncertainty of parties in pursuing or defending a claim.
If anything, COVID-19 is likely to catalyze further investment in online dispute resolution and AI, for better or worse, to enhance procedural efficiency and possibly level the playing field. It is likely to accelerate the competition between courts and alternative dispute resolution tribunals as service providers, and presages the move toward Frank Sander’s concept of a “multi-door courthouse”[6] in terms of providing an array of procedural options which meet the needs of disputants as consumers depending on the requirements of their dispute at hand. One should also not discount the possibility of adjudicators with autonomous cognitive abilities (i.e. “robot judges”), as Richard Susskind suggests. The digitization of dispute resolution is certainly not unprecedented and is a long time coming. AI is already embedded in legal practice and dispute resolution processes in the form of tools to analyze voluminous amounts of data and documentation and perform routine tasks. Data analytics and algorithms are already employed in the United States to predict litigation outcomes. Looking ahead, AI-driven data analysis—including machine learning, predictive coding and blockchain—have the potential to enable parties to anticipate, identify and predict outcomes and automate processes during different stages of a dispute, and contribute to early settlement while saving time and costs.
Such novel technologies are, of course, not without risks, and should be the subject of further detailed discussion. Such risks include the lack of transparency, ethical concerns, algorithmic bias, machine error with respect to such processes, and, most importantly, the potential impingement on procedural fairness and due process depending on the manner in which online dispute resolution is conducted and whether each party is able to present or defend its case effectively or secures undue procedural advantages over the other. Broader concerns include regulatory safeguards for confidentiality, data protection and cybersecurity, along with restructuring of the legal profession. A solution may be to permit the use of such technologies for routine lower-value non-complex claims, such as debt recovery. For more complex higher-value claims, the parties may be allowed to opt-in to such mechanisms by default subject to judicial supervision. It also calls for better understanding of the limitations of AI and the extent to which certain processes may be fully digitizable depending on how fit for purpose the technology is, particularly with respect to matters which call for value judgment, for example. To encourage innovation in experimental technologies and identify the regulatory safeguards required, selected courts may be allocated as sandboxes to test such technologies for wider adoption, similar to what the Dubai International Financial Centre courts introduced recently.
V. Concluding Thoughts
As noted by the World Bank, judicial efficiency and quality, and access to courts affect firms’ productivity, minimize transaction costs and improve economic development. COVID-19 has shown that the potential of disruptive technologies is not the enemy but the handmaiden of the rule of law, provided that the risks of such technologies are identified and managed accordingly. At a basic level, it is necessary to identify what the underlying requirements of the rule of law and administration of justice are in light of changing circumstances, the extent to which such technologies may serve as an enabler to meet such requirements, and the regulatory oversight required to manage the concomitant risks and costs. After all, justice should not only be done, but should manifestly and undoubtedly be seen to be done. To support cross-border commercial dispute resolution in the new normal as we emerge from the pandemic, one may hope for the prospect of further investment towards new interoperability technologies to facilitate digital connectivity between courts across borders, which may form the basis of a future global platform for the online resolution of disputes.
[1] Richard Fentiman, International Commercial Litigation 14 (2d ed. 2015).
[2] Author’s note: As of the time of writing, the sunset period ends in October 2020 but may be further extended.
Editor’s note: The Ministry of Law of Singapore has extended the relief period. See here for a summary of the relief periods for various kinds of contracts.
[3] SPC, “Guiding Opinion I on Lawfully and Properly Adjudicating Certain Issues Regarding Civil Cases Involving the COVID-19 Pandemic” [2020] No. 12, issued and effective as of Apr. 16, 2020; SPC, “Guiding Opinion II on Lawfully and Properly Adjudicating Certain Issues Regarding Civil Cases Involving the COVID-19 Pandemic” [2020] No. 17, issued and effective as of May 15, 2020.
[4] Id. See Qiao Liu, COVID-19 in Civil or Commercial Disputes: First Responses from Chinese Courts, 8(2) Chinese J. Comp. L. 485, 488–93 (2020).
[5] See generally Richard Susskind, Online Courts and the Future of Justice (2019).
[6] See generally Frank E.A. Sander, Varieties of Dispute Processing: Address Before the National Conference on the Causes of Popular Dissatisfaction with the Administration of Justice, 70 F.R.D. 111 (1976).
Executive Editor: Yixian Sun
