29. May 2020

Many businesses are busy labouring amid the economic turmoil of the COVID-19 pandemic. Aside from the difficulties of operative business, companies currently entangled in ongoing legal disputes face another special challenge. In these difficult economic times, businesses lack the human and financial resources to pursue expensive, time-consuming litigation while having to set aside maximum cash reserves. So it is no surprise that many companies are asking themselves whether now would be a good time to wrap up pending legal disputes by reaching a settlement.

Furthermore, openness to settlements is often even more appealing, because courts have suspended many hearing dates due to restrictions on social contact, and set some of them back many months. The prospect of such delays, combined with a prolonged state of uncertainty regarding the legal outcome and the need to set aside appropriate reserves, is causing litigants to look for other ways of settling their legal disagreements.

Businesses considering this will be looking closely at two issues: firstly, whether a certain sum of money which can be obtained now through settlement might be preferable to what may be a larger but less certain amount in the future. A bird in the hand, as they say, is worth two in the bush. Close on the heels of this is a second question: what are the chances of an adversary surviving a legal dispute and the financial crisis economically? Might the opposing party get into financial trouble in the course of proceedings and file for insolvency? If so, even victory in court would not bring satisfaction of the demands confirmed in a verdict, or at least not all of them. The risk of insolvency is central to deliberating a settlement.

The point at which a settlement is offered plays a key role in reaching it properly. Before COVID-19, litigants would wait for the ideal time to submit a settlement offer. This might be the moment before or after key testimony, or expert opinion, or the release of other important evidence. Or it could be after a hearing, the court perhaps having issued a tentative legal appraisal. But under COVID-19, waiting for the ideal time is a luxury which few businesses can afford. A settlement, on the other hand, can be reached at any time.

Even very complex cases and cases in which parties have filed multiple lawsuits against one another can be settled successfully using approaches such as alternative dispute resolution and court mediation. The burgeoning of video conferencing technology, including systems equipped with virtual break-out rooms, has enabled parties to conduct settlement negotiations and mediation from the comfort of their own living rooms and home offices.

Many businesses are now confronted with conflicting interests. Today’s difficult economic climate means parties can resolve their legal disputes in just a few weeks, rather than the months or years it often takes under normal circumstances. The risk of an uncertain outcome in a legal dispute and the risk of opposition insolvency impact on everyone involved in a legal conflict, but these become calculable if dealt with by settlement. And yet settlement entails its own brand of risk: it gives more control back to both parties, but forces them – even if they have a strong legal position – to make concessions they not would make if proceedings were to go ahead in full. This means opportunities and risks need to be weighed up carefully. For those who cannot or will not agree, the wheels of justice grind on, albeit slower.

Your contact persons:
Dimitrios Christopoulos, Partner
M  +49 173 729 14 26
E dimitrios.christopoulos@localhost

Waldemar Rembold, Managing Associate
M +49 174 1748 542
E waldemar.rembold@localhost