11 May, 2020

Fighting the Onslaught of COVID-19 Litigation?

As worldwide lockdowns slowly recede and many of us, including courts, claimants and respondents, step back out of quarantines, we will be “greeted” by a plethora of complex litigation issues. The large number and complexity of these issues will require all sides to put in place even more sophisticated strategies to tackle the ensuing litigation onslaught.

According to Harold Kim, the president of the U.S. Chamber Institute for Legal Reform, “[t]his early litigation is really, from our vantage point, the tip of the iceberg”.

Cue May 6, 2020: Serbia rescinded the almost two-month-long state of emergency and relaxed measures restricting freedom of movement, assembly and doing business. While these measures may have been instrumental in protecting public health, they also contributed to generating high dispute potential across a wide array of fields, related to labor, contracts, enforcement, damages, foreign investments, etc.

Labor disputes – troubles ahead!

Employment relations are notorious for their complexity, as both employers and employees are intent on maintaining their revenue and income in navigating intricacies of the Labor Act. These relations were only made more complex by the state of emergency.

For instance, some employers may have laid off parts of their workforce anticipating economic hardships – but were they right to do so? And were employers entitled to defer payments or decrease salaries outside the regulatory framework set up by the Labor Act, relying on the state of emergency? Moreover – what happens if an employer terminated an employment agreement arguing breach of work obligations or discipline by employee who failed to show up for work, but the employee in question conversely claims that it was the employer who failed to provide safe and healthy work space, protecting the employee from COVID-19? Was such termination legal?

The examples described above are only a drop in the bucket and possibilities for labor disputes are virtually limitless.

Contractual non-performance: justified by state of emergency?

The field of contractual relations is also rife with potential disputes.

One textbook example of a dispute in these circumstances would be a party failing to pay for the goods it ordered and received, pleading disrupted cash-flow caused by the state of emergency measures. Or, alternatively, a supplier failing to deliver goods purchased by their buyer, claiming their import was impossible due to border closures. In both instances, the aggrieved party may decide to litigate the aggrieving party, and request performance of contractual obligations and compensation for damages. What is the non-performing party supposed to do? Could they invoke legal notions such as force majeure or rebus sic stantibus to get out of their contractual obligations or, at least, mitigate what is due?

Another area with high litigation potential are tenancy agreements, especially those pertaining to lease of commercial premises. The questions are often simple: are tenants entitled to rent reduction if they could not run their businesses due to Governmental decrees? Would this inability amount to force majeure? The answers, however, are anything but simple and depend not only on the particular set of circumstances, but also on legal craftsmanship and persuasiveness of one’s legal argumentation in case of dispute.

Enforcements to make a comeback

Like other non-urgent court and off-court proceedings, enforcements were effectively stayed during the state of emergency. In fact, the state of emergency caused a hiatus in most enforcements already on track, while new enforcements were benched, pending abolition of the state of emergency.

Now, with the state of emergency out of the picture, enforcements are making a comeback. NPLs in particular are expected to boom, with debtors likely grasping for force majeure straws. Would such defense be to any avail? Again, there are no straightforward solutions, as legal intricacies do not allow simple, “yes” or “no” answers.

Suing the state for damages – for or against?

As life settles to the “new normal”, business owners in Serbia are calculating their losses. Although authorities launched an unparalleled set of financial measures to help the economy, including measures like fiscal benefits, tax deferrals and direct incentives, the fact is that many businesses will probably not be able break even.

What are they to do? Could they sue the State for damages, given that losses were incurred as result of prohibitions introduced by Governmental decrees? Unsurprisingly, once again, the answer is neither “yes” nor “no”, but rather – “depends”.

The issue of state liability for damages incurred by businesses is especially acute in the context of foreign investments in Serbia, as foreign investors are generally prone to attributing all sorts of detrimental conduct to the State in order to claim protection under the relevant BIT and initiate international investment arbitration against the host state, demanding exorbitant amounts. Whether this is feasible will, yet again, depend on facts, provisions of each particular BIT and craftsmanship of legal counsel. However, it is certain that such proceedings will be initiated in the (very) near future – and in very large numbers.

Conclusion (of sorts)

The types of disputes listed above are by no means exclusive. On the contrary – they represent basic examples of what will surely be a colossal number of very diverse cases. To add a poetic twist to the situation, introduction – and subsequent abolition – of the state of emergency in Serbia opened a Pandora’s Box of disputes, which parties may successfully navigate only with assistance of qualified legal counsel.

Author: Predrag Spasić