Arbitration: A Good Alternative During the COVID-19 PandemicBy Omar Guerrero | Fri, 08/21/2020 - 09:15
Arbitration has traditionally been an alternative to court litigation and has been the preferred dispute resolution mechanism in international business for its numerous advantages over court litigation.
This year (2020) has been particularly challenging for court activity due to the COVID-19 pandemic. Although the federal government branded the “administration of justice” as an “essential activity,” federal and local judiciaries have suspended court activities for commercial cases for over four months now.
As a consequence, the administration of justice has suffered. Even before the pandemic hit, there was a significant delay and significant caseload. Now, in addition to the four-month suspension, there will be hundreds of new lawsuits that will be filed on the first day of reactivation of court activity. It is estimated that in the courts of Mexico City, around 64,692 cases and, at a federal level, around 350,000 cases have not been initiated due to the pandemic. Many of these new cases will have commercial nature that will flood local and federal courts. Lines to make new filings and review dockets extended for several hundred meters after the courts re-opening on Aug. 3, 2020.
In addition, as of Jan. 26, 2020, all commercial proceedings in Mexico (regardless of the amount in dispute) will be oral proceedings, which increase the challenge for the judiciary which compels that the Judge is actually present during the proceedings.
By contrast, arbitration proceedings have shown a greater ability to adapt to the COVID-19 pandemic. Technology has been the greatest asset to allow arbitration to continue. Arbitral institutions and many arbitrators have encouraged parties to maintain hearing dates through the use of virtual hearings. Major arbitration centers have collaborated to share resources and offer virtual hearing solutions. Suggestions such as the increased use of electronic filings, virtual evidentiary hearings and online case management have been widely discussed, and these mechanisms are now being applied in international arbitrations. Mediation and other ADRs have also benefited from technology. For instance, there have already been hundreds of video-conferenced mediations, settlement conferences and online dispute boards hearings.
THE MAIN ADVANTAGES OF ARBITRATION
Arbitration has always had several advantages regardless of the COVID-19 situation, as follows:
Choice of a “neutral” forum. The parties are free to choose a neutral forum (or place of arbitration) in their arbitration agreement where the dispute will be heard. In other words, they are able to stay out of the other party’s court. This prevents the parties from initiating proceedings in a foreign court, employ lawyers different than those who are accustomed to the business and, in some cases, translate the relevant documents to the local language of the court.
Internationally enforceable decision. The decision of the arbitral tribunal (award) is binding and final. The award would only be subject to an annulment court process to vacate the award for a short list of limited causes that would not enter into the merits of the case decided by the arbitrators. The award can be enforced domestically and internationally much easier than a court judgment. International treaties that govern the enforcement of an arbitration award have much greater acceptance than treaties for the reciprocal enforcement of court judgments and, generally, the proceeding to enforce awards is much simpler.
Flexibility. An arbitration proceeding is a “tailor-made” suit for each particular dispute. The parties and arbitrators are free to work out for themselves the procedures that will be best suited for the particular circumstances. Such flexibility, for instance, allows virtual hearings.
Confidentiality. Arbitration is not a public proceeding, as opposed to many court litigation proceedings. It is a private form of dispute resolution. Confidentiality is provided in some institutional rules and can be expanded (to cover witnesses and experts, for example) by the parties’ agreement.
Time and efficiency. Court litigation in Mexico is generally lengthy and affected by several delays due to the courts’ workload. In general, and especially for complex cases, arbitration proceedings are more expeditious than court proceedings. The lack of opportunity for multiple appeals of the decision on the merits also results in a shorter process.
Specialization. A final advantage of arbitration is that the parties are entitled to appoint an arbitrator that is an expert in the subject matter of the dispute. Hence, the arbitrator will have a faster and better understanding of the dispute and, ideally, reach a better final decision.
ADAPTABILITY OF ARBITRATION PROCEEDINGS
Many of the arbitration proceedings have continued during the COVID-19 pandemic. Parties and arbitrators have found different solutions to keep the proceedings going. In less complex cases, parties have requested the tribunal to dispense the oral hearing and decide the dispute based on documents alone.
The tribunals also have, on a case-by-case basis, adjourned some hearings for a later date or have extended timelines for certain submissions. This is only possible on arbitration proceedings that allow for this flexibility.
Arbitral Tribunals are also working to minimize the impact of COVID-19 on arbitral timelines. For example, one tribunal suggested (and the parties agreed) to facilitate the exchange of certain unsigned documents and filings and exchange the final signed version on a later date.
The use of technology in the arbitration proceedings has also played a major role in this adaptation process. Technology has been a part of arbitration proceedings for several years. A substantial part of the proceedings is usually online (e.g. filing of pleadings and evidence, communications with the Tribunal, among others). And the use of technology has intensified during the COVID-19 pandemic. Pending and new cases have been the beneficiaries of the use of videoconferencing through different platforms, such as Zoom, Microsoft Teams, Google Meet and others. Protocols, guidelines, and other useful information to facilitate the remote conduct of hearings have been the new tasks for arbitration institutions worldwide and new techniques to be effective at presentations of cases and cross-examinations of witnesses and experts have been the latest toolkit for arbitration practitioners.
THE FLIP SIDE: COURT LITIGATION
On the other hand, Mexican courts have shown less ability to adapt. The COVID-19 pandemic has evidenced the lack of modernization of the civil and commercial courts in Mexico. For years, the Mexican judiciary system has failed to adopt technological measures to make the proceedings more efficient, and that could have worked to address the current extraordinary situation.
The situation is particularly more challenging with the oral commercial proceedings that recently came into force for all commercial matters, since the in-person oral hearings are incompatible with the current social distancing mechanisms.
Several tribunals and courts around the world have updated their proceedings to adapt to the situation. For example, the U.S. Supreme Court discussed and resolved matters by a telephone conference. The Supreme Court of India has held hearings through videoconference services. In Spain, the first online trial was initiated. In the UK, the Supreme Court established rules to file evidence online. Even in Mexico, the Supreme Court of Justice started to hold sessions through Zoom and started resolving cases since June. Shortly after, the Collegiate Circuit Tribunals in Mexico also started resolving matters remotely through Zoom meetings.
But the reality of the civil and commercial courts in Mexico is different. It is true that several local (state) tribunals have implemented technological solutions to continue with the pending commercial proceedings (oral and traditional). For example, the Judiciary of the State of Mexico, even before the pandemic, established an Electronic Tribunal to decide criminal, family, commercial and civil matters online. Another example is the courts in the State of Nuevo Leon, which has implemented several remote or online mechanisms to continue with the administration of justice.
Courts have also tried to implement in a rapid manner the online commercial trial. The Federal Judiciary digitalized the oral commercial proceeding and, as of June 8, 2020, the oral proceedings may be initiated online and the pending proceedings may continue online. However, the online proceeding requires the consent of the parties and most of the proceedings remain suspended.
The judiciary has made an important effort to adapt to the current circumstances by implementing some technological solutions. Online proceedings have been discussed for many years, but the pandemic situation achieved in a few weeks what hundreds of publications and academic efforts could not achieve during the last 20 years: the leap from an academic subject, to a matter of public interest.
Yet, there are many formalities and infrastructure barriers in Mexican courts that prevent the proceedings from adapting to the situation and providing an efficient dispute resolution mechanism. From parties being reluctant to move to an online platform, to the less than friendly software to conduct the proceedings, the majority of the proceedings remained suspended. For these reasons, arbitration has been quicker and better at adapting.
The Federal Judiciary resumed their ordinary activities on Aug. 3, 2020. However, the reactivation of the administration of justice will not be absolute yet. Parties’ and counsels’ visits to the courthouse will only occur with a previous appointment and will only last 25 minutes. The filing desks will not function as usual and public deliberation sessions of tribunals will still be through a videoconferencing service. All these measures will cause that the administration of justice to be slower than usual and, therefore, the delay in most cases will continue.
Arbitration and litigation serve different purposes. Both are indispensable in a society. They are different medicines for different ills. For many years, arbitration has proven to have several advantages over court litigation, particularly in international, specialized or confidential disputes, or where a speedy resolution is of the essence.
The current COVID-19 situation has evidenced that arbitration has a great ability to adapt to the circumstances, implement technological advancements with ease and continue with the on-going arbitration proceedings. On the other hand, Mexican courts have shown a slower adaptability but they seem to look for ways to reactivate and provide efficient means for the immediate future. In the short term, courts will not operate in a regular fashion. Therefore, parties to commercial contracts may want to consider arbitration – and other ADRs – as a feasible alternative in their agreements, in case dispute arises.
Eduardo Lobatón is an associate at Hogan Lovells in Mexico City and focuses his practice in commercial and investment arbitration and commercial litigation. Eduardo also teaches civil and commercial law at Tecnológico de Monterrey.
Omar Guerrero is partner at Hogan Lovells in Mexico City where he heads the arbitration and litigation practices and co-head the antitrust area. Omar is also professor of ADR (Alternative Dispute Resolution Means) at Universidad Iberoamericana.