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Commercial Dispute Resolution – Looking Through A Forensic Lens

Business World |

29 September 2020

The pandemic has affected all industry sectors, albeit in different ways and with varying degree of impact.

As economies across the world limp back from the impact of COVID -19, businesses are taking stock of damages, finding ways to recover losses and safeguard their economic interests, and devising strategies to survive and operate in the new normal.

Business relations which were once plausible are now a subject of intense scrutiny, debate and dispute. The world of commercial contracts is witnessing a storm as businesses and their legal advisors assess contractual and legal doctrines of force majeure, hardship and similar prominent subjects.

The pandemic has affected all industry sectors, albeit in different ways and with varying degree of impact. While some have slowed down, others have come to a grinding halt. The assessment of the extent to which a business operation may have been impacted by the COVID -19 situation and extrapolation of this impact into monetary terms is challenging and requires an all-encompassing approach. The prevailing and near-future issues that may require contractual deliberation and some of the factors to be mindful of are:

  • Future conditions which remain uncertain and are constantly evolving

  • The cascading effect a contractual failure has on the performance of all other commitments and resulting counterclaims

  • Seasonal nature of some business activities

  • Costs for re-mobilisation of resources to restart operations

  • Shortage of various factors of production and resulting cost escalations

  • Implications of fines, penalties, cost of capital due to unforeseen delays

  • Revisiting the valuation of assets and inventories in post-COVID-19 market conditions

  • Diligence observed by parties involved to minimise losses and the promptness in communication between counterparties

  • Effect on post-acquisition valuations, acquisition price adjustments

In a bid to safeguard economic interests, companies are initiating litigations or opting for Alternate Dispute Resolution (ADR) mechanisms such as negotiation, mediation, and arbitration. International arbitration institutions are a preferred means of dispute resolution for those involved in high-value and complex cross-border contracts, ventures and projects. 

Commercial disputes may arise due to various other factors such as conflicting commercial interests, pricing, abrupt terminations, changes to strategic partnerships and investment decisions and suspected business improprieties such as concealment of material facts, frauds, accounting malpractices, manipulations etc.

While businesses genuinely impacted and aggrieved may be right to demand a recalibration of contractual obligations based on the assessment of the economic outlook, however, some players may use these situations as an opportunity for concealment of their misconducts and deliberate avoidance and deferment of obligations.

An exhaustive assessment with a detailed study of actual impact, analysis of the issues, changes in assumptions, discovery of evidence is required in order to ascertain the magnitude of impact and the computation of reasonable and accurate damages. With more ADR usage in complex commercial disputes, financial expert involvement will likely increase, both in the traditional role as experts as well as non-traditional roles including mediator, arbitrator, and factfinder.

Forensic accounting experts are often engaged by disputing parties, their legal counsels, the jury and arbitrators to investigate and bring forth valuable insights on the subject matter and the required clarity in decision making. They help companies navigate complicated disputes by drawing upon a thorough understanding of the links among damages, causation and liability. 

A robust forensic study is what can get organisations an edge while resolving disputes.