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Litigation risk in COVID-19 environment: Big changes

Tuesday, June 02, 2020 @ 1:41 PM | By David Outerbridge, Sylvie Rodrigue and David Wawro

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Litigation risks are materially different today, under COVID-19 than at the start of 2020 when the threat of a world-changing global pandemic was barely an idea. The economic and strategic considerations affecting organizations’ litigation decisions are shifting. This article examines that shift and explores the consequences for litigants going forward as they seek to resolve disputes in the pandemic environment — both existing legal disputes and new litigation arising from COVID-19.

Effect of COVID-19 on existing litigious disputes

COVID-19 is influencing litigation leverage and litigation risk in existing disputes. The cost/benefit analysis of litigating, and the strategies and tactics needed to arrive at an optimal outcome, must be assessed anew by all litigants. Although the effect is not universal, there are many existing disputes in which the opportunities for compromise and early settlement have been enhanced. In others, the outlook is more likely to be one of delays.

Three major changes to be considered

First, there has been a material change in the value-for-money analysis associated with pursuing a litigated outcome. In the current liquidity and risk environment, the perceived benefits of expending substantial funds on a multiyear litigation process with an uncertain outcome are changing for some litigants. Many parties need to free up cash, reduce costs or eliminate contingent liabilities now. In some cases, the financial pressures created by the pandemic will drive a party to settle on terms that would have been unacceptable a few months ago. In other cases, the effect of the pandemic will be to cause a reduction in immediate legal spend and the deferral of litigation activity to a later date.

A second major shift in the litigation environment relates to the potential insolvency of one’s litigation adversary. With even some of the healthiest corporate players now financially threatened, litigants need to consider carefully whether to settle their disputes sooner or later, taking into account the potential that the financial viability of their litigation adversary may worsen. For plaintiffs, an early settlement now on less-than-optimal terms may be preferable to waiting for better terms, given the enhanced risk that the defendant may not survive the wait. For defendants, a plaintiff’s liquidity and solvency concerns may enable early settlement on terms more favourable to the defendant, or could incentivize the defendant to extend the proceedings in the hope that this will result in the plaintiff ceasing to remain financially viable.

A third factor is that government-imposed physical distancing requirements have resulted in reduced access to courthouses and tribunals, suspended filing deadlines, and (in many but not all matters) postponed trials, hearings, applications and motions. Out-of-court discovery procedures are likewise often being deferred, particularly where defendants can identify a compelling reason for delay, such as inability to meet with clients or access their documents, or a bona fide basis to insist on in-person examination.

While courts are still hearing urgent matters and certain classes of disputes (such as class actions) in some major centres — where hearings are proceeding on an ad hoc basis by way of videoconference, teleconference or in writing — the bulk of the court-driven and tribunal-driven litigation process is on hold. This creates, at least for now, a defendant-friendly environment because plaintiffs cannot as effectively push matters forward in many cases, and therefore cannot leverage the pressure created by an impending hearing or deadline.

New dynamics in disputes

The pandemic is generating a host of new legal disputes, including class actions. Human crisis creates a fertile environment for plaintiff class action lawyers, who do not need to look very far for claims they are willing to underwrite. COVID-19 is one of the greatest crises in modern history and could well be the greatest single generator of class actions to date in history, given the widespread unremedied harm and loss suffered by individuals across all segments of society. More on this in our next article.

This is the first of a two-part series.

David Outerbridge is a partner in Torys’ litigation department, based in Toronto. He acts as both trial and appellate counsel, with specialized expertise in complex written and appellate advocacy. Sylvie Rodrigue is the managing partner of Torys Montréal. She has a broad litigation practice with extensive experience defending class actions across Canada as well as other corporate commercial matters. David Wawro is a litigator in Torys’ New York office whose practice focuses on arbitration and mediation. He has tried cases in both the federal and state courts in New York and in several other states and has handled antitrust, securities, tax, employment and corporate litigation matters.

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