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Commercial litigation and class actions have erupted in the COVID era

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It is trite to say that the COVID-19 pandemic has caused an international economic crisis with many businesses struggling to survive. While many businesses are affected severely by the pandemic, there are exceptions, including the grocery, alcohol and homeware sectors as well as industrial cleaning, home delivery services, construction, and litigation experiencing an increase in demand, explains Attwood Marshall Lawyers Commercial Litigation Senior Associate and NSW Law Society Accredited Specialist in Dispute Resolution, Charles Lethbridge.

Introduction

There have been certain professional services which have experienced an spike in demand during the pandemic as the needs of people and businesses shift. Many people have sought legal advice, particularly in relation to litigation, to find out what options are available to them after they have suffered significant financial loss when being forced to close their doors or drastically reduce levels of service. Similarly, in the workplace relations space, there has been a flurry of requests with respect to obligations and rights around employment issues.

There are also the enquiries that flow from commercial contractual breaches where people need advice around “termination of contracts due to frustration” or “force majeure” clauses.

How does a contract become frustrated? When continuing to perform a contract becomes impossible due to an unforeseen event, such as a pandemic, at the fault of neither party, the contract can be terminated in certain circumstances.

What is a force majeure clause? A force majeure clause in a contract relieves a party from performing their contractual obligations due to an event outside their reasonable control. The pandemic has impacted many business owners and stopped them from being able to fulfil their contractual obligations in certain circumstances.

Contrary to the hysterical predictions for 2021, we have seen relatively low levels of insolvency activity. This is likely due to the steps taken by the Federal government who stepped in to support businesses early in the pandemic by offering schemes such as JobKeeper Payments, which ceased on 28 March 2021, and the temporary amendments to the insolvency regime.

Although it is good news that the forecasted tsunami of insolvencies has not materialised, it will be interesting to see if the so-called ‘zombie’ companies can pull through when business support programs run dry.

Timeline of Insolvency Law changes during the pandemic

Should we expect to see a significant wave of corporate insolvencies?

History certainly suggests that many businesses will fail, particularly those which had high levels of debt or which were struggling financially before COVID-19 hit. For the businesses that have not restructured or adapted in the meantime, there is a much higher risk of failure ahead. If history repeats itself, this could mean an uptick in work for insolvency practitioners in the not-too-distant future.

History suggests that litigation before the Courts increases during or post crisis. It has been 13 years since the Global Financial Crisis (GFC) devastated the global economy and presented a boon to commercial litigators, including funded litigation and class actions with many of those matters only recently coming to an end.

Such litigation was enabled with the High Court of Australia clearing the way for litigation funding (Campbells Cash & Carry Pty Ltd v Fostif Pty Ltd [2006] HCA 41) 2 years before the GFC, finding that litigation funding was not an abuse of process or contrary to public policy.

Since the GFC, the number of class actions and funded litigation has increased significantly, and litigation funding has become an important element of the Australian legal system.

At Attwood Marshall Lawyers, we have seen a significant increase in commercial disputes since the onset of the pandemic and the resulting litigation that flows from these disagreements.  

Contract disputes

Contracts come undone in any recession, and in this recession, disputes have widely centred on contract clauses like force majeure and frustration of the contracts. The worldwide nature of the crisis means that counterparty commercial risk is truly global with worldwide government lockdown measures causing all manner of issues including international trade.

Our litigation team currently have several clients seeking to enforce their rights pursuant to commercial contracts concerning the production of goods offshore, and enquiries continue to increase with many people looking for the best way to resolve disputes over contracts.

Company and business disputes

Disputes between directors and shareholders (or business partners) invariably arise during a time of economic downturn. This is due to stresses associated with a downturn in production and profits. Arguments over contributions or effort and differing opinions as to the management and direction of the business during a recession invariably lead to disputes between directors and/or shareholders, with many business partners unable to agree on which direction to take the company or business.

Unfair trade practices

Fraudsters never let a good crisis go to waste. There has been a spike in COVID related fraud complaints to State and Federal authorities.

We expect that the broader use of online communication and electronic financial transactions will lead to additional identity theft and credit card fraud. We predict vigorous enforcement from both Federal authorities and State authorities which will likely draw widespread private litigation as well.

Consumer product and protection actions are also expected to boom during these challenging times.

Insurance litigation

Professional liability claims are on the rise as the pandemic continues. When navigating an economic downturn, people and companies tend to look for ways to raise money to survive. Often it becomes clear that had that person received better advice from their financial advisor, or another professional engaged to provide expertise and advice, they would be in a much better financial position, notwithstanding impacts to their business caused by events which trigger economic downturns.

For example, a company may seek to pursue a financial professional with a liability claim if poor advice was given about business strategy and finances during the pandemic.

In this regard we are seeing an increase in enquiries with respect to professional negligence by solicitors, accountants, IT companies and insurance brokers.

If you have received negligent advice or service and believe you have a claim for damages, it is important to seek advice from a legal professional who has extensive experience in pursuing professional negligence claims. Taking the right steps to make a professional negligence claim with the support of an experienced commercial litigation lawyer will help you ensure your case is in the best possible shape to achieve a successful outcome.

We want to help you through this difficult time and will aim to resolve your dispute in the most efficient way

If you are involved in a dispute which has arisen because of the pandemic’s impact on your business, you may be able pursue your rights for losses or other legal remedies via channels including mediation, arbitration, or litigation.  

At Attwood Marshall Lawyers, our dispute resolution and litigation team are skilled at providing the best possible advice to resolve commercial disputes. If you or your business have suffered losses or require a situation to be rectified, we can act on a “No Win, No Fee” basis for approved cases.

We will assess your case immediately to be able to advise you on your prospects of success and explain what the next steps are to take. We want to reduce your risk as much as possible as we know you have already suffered enough loss and stress. It is our intent to help you find the best possible solution so that you can recoup your losses where possible and get your life back on track.

If you need help or advice please contact Commercial Litigation Department Manager, Amanda Heather, on 07 5506 8245, email aheather@attwoodmarshall.com.au or free call 1800 621 071 any time to find out where you stand.

Read more:

Professional negligence claims expected to rise in the aftermath of COVID-19

Have you had an insurance claim denied? Understand your options and insurance company tricks of the trade

Business Interruption Insurance Decided

Are you facing bankruptcy or is your business facing liquidation? It doesn’t need to be a stressful process

 

 

 

 

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