High Court Commercial Claims 2020-2021
The past year has been unprecedented. Covid-19 has had a hugely disruptive impact in many areas of the economy and generated a great deal of speculation about the state of the disputes sector and forecast growth in claims originating from Covid and its consequences.
The issuing of new claims is a reliable indicator of the prospects of the sector, and we wanted to explore how Covid had impacted this, going back to January 2020. We therefore traced the volume of commercial claims issued in the High Court over the course of 2020 and up to the end of May of 2021.
While litigation recovered from the initial lockdown and the latter part of 2020 saw a return to higher levels of business confidence, the data suggests that when you strip away a host of lower value data protection claims in April and May for this year, 2021 has not seen that trend continue. This suggests that the sector is yet to see the surge in covid related litigation that many have been expecting.
As indicated in the chart, the 1st Quarter of 2020 started with faint rumblings of Covid-19 that initially didn’t impact new claim activity. January, and the first week of February, experienced the new year boom in litigation we have seen in previous years, but by Week 5, caution has begun to creep-in and a noticeable downward trend had started.
Between Weeks 5 and 10, there was a clear decline in claim volumes, by Week 12 the government had announced a pause in non-essential travel and contact.
By Week 13 the first lockdown was instituted and by the end of the week an average of 2,000 covid cases per day was being reported. The decline in new claims issued bottomed out around Week 15 as claimants put a severe brake on pursuing their disputes and incurring any expenses. This reflected wider economic caution as companies paused most activities.
Towards the end of April, the number of claims began to recover and then dramatically spike around the time that lockdown measures were lifted (Week 20). While there is a correlation between these events, the main reason for the jump in claims activity was a flurry of (73) celebrity phone hacking claims being issued against News Group and the Mirror Group newspaper groups.
The summer months signalled that confidence was returning and volumes remained relatively stable through the 3rd Quarter. A second lockdown was announced in September, but the dip in claim volumes was less marked when compared to the first lockdown. Volumes continued to rise through the rest of the year, as claimants returned to the courts. The year ended with a pre-Christmas rush to submit claims as Brexit and the Lugano exit loomed.
Commenting on this, Nicola Gare, Global Disputes PSL at HFW notes, "The spike in English claims being issued towards the end of 2020, was very much driven by parties with claims against EU counter-parties wanting to avail themselves of the service and enforcement benefits under the Recast Brussels Regulation and Lugano Convention, as the UK's membership of these ended with the end of the Brexit Transition period on 31 December”. However, she points out “the UK's membership of the Hague Convention on Choice of Courts 2005, along with a recent change to the English court procedural rules means that parties can be confident that service and enforcement of English claims in the EU will continue to be relatively straightforward. "
The pre-Christmas rush would explain the slow start to 2021 as the most pressing claims had been filed. This also coincided with the third lockdown in Week 2 of 2021, and an average of 60,000 daily covid cases. Claim volumes only began picking up at the end of January and stabilised at around the 100 per week territory. A significant spike commenced in late April (Week 15) as Pure Legal Ltd issued a tranche (98 in April and May) of low value data protection claims on behalf of individuals against a range of organisations.
However, if you remove these 98 claims, then the first five months of 2020 and of 2021 (2,263 for 2020 and 1971 for 2021) suggest new dispute activity is 13% down year on year, the much-anticipated surge in Covid generated litigation not yet evident.
Gare comments that the current absence of the anticipated increase in litigation may be due to parties taking a more conciliatory position during the pandemic, as intended by UK government's Covid restructuring initiatives, which in addition to the Cabinet Office's plea to corporates in May 2020 not to litigate during the pandemic, included a moratorium on for example, insolvency cases under the Corporate Insolvency and Governance Act 2020.
With the ending of final parts of the moratorium, and hopefully the turning of the Covid corner in June, Gare thinks that the anticipated increase in claims will be seen- "businesses will be more focussed on their share value, and will need to consider seeking to enforce their contractual rights and to recover sums owed to them, otherwise they risk financial difficulties themselves."
Ben Knowles, Head of Disputes at Clyde & Co comments:
“It is fascinating to see this analysis from Solomonic which is the best empirical analysis which we have seen of the English disputes market (having in mind that many of the disputes are international in nature) to date. But it is important to understand that this is focused on new disputes, and, that is only half the picture. Putting the empirical data together with the anecdotal experience of disputes practitioners, during the last 18 months there have been periods when client’s focus has been absolutely on the business practicalities of dealing with Covid, remote working and the IT upgrades required to make that work, furlough schemes, emergency financing etc. That undoubtedly led to a decline in the commencement of new matters. At the same time, as Courts went to remote working, there were existing cases which were adjourned, delayed or put on hold, where the practicalities of moving matters forwards were difficult to overcome, particularly around full hearings in larger matters.
Another factor in the suppressed levels of activity was the curtailing of travel, both within the UK and internationally, which has likely encouraged clients to address immediate issues, and put longer term issues on the back burner. The obvious exception to the above, related to the business interruption claims in the insurance sector, which moved forwards quickly, despite all the practical difficulties. We also saw a change in attitude in the construction sphere, with clients taking a harder line in relation to their commercial positions, which is causing cases to fight rather than settle. We would expect that to naturally lead to an increase in new disputes, in due course. Looking to the future, and having in mind that for most contractual claims, clients have 6 years within which to commence proceedings, and that 6 year period may not commence until the end of a contract, if that is when claims crystallise, it will be interesting to see whether, during the next 24 months the figures show an uptick in disputes directly related to losses suffered as a result of Covid. From what we have heard from many clients, that is something we would expect to see”.