Contractual Risks Materialise as Disputes

The number of disputes is on the rise again. The COVID-19 pandemic in particular has caused companies to encounter unforeseen and rapidly emerging risks. At the same time, Brexit, climate change, digitalisation, sustainability requirements and the general increase in regulation also breed conflict.

While these are not all novel phenomena, their legal impacts remain uncertain. That said, it is also true that few contractual disputes are entirely unforeseen, as some level of risk-taking is inherent in commercial transactions.

Risks can be minimised through careful contract drafting. The COVID-19 pandemic has moved the spotlight of force majeure clauses from more traditional topics, such as natural disasters, to infectious diseases. It has also highlighted how important it is to agree in as much detail as possible on what kinds of circumstances may release a party from performance under the agreement at hand.

Other uncertainties, such as the legal impacts of Brexit can be mitigated by studying the legal instruments replacing the UK’s and EU’s regulations concerning conflict of laws and the recognition and enforcement of judgments.

Disputes arising out of climate change and regulatory reforms will be resolved over the coming years in both national courts and international arbitration proceedings. In this context, it could be noted that Finland has a comprehensive portfolio of investment treaties. These treaties guarantee investors fair and equitable treatment by the signatory countries and could entitle investors to compensation, for example, if a country alters its regulatory framework in an unforeseeable and discriminatory manner.

Companies will continue to be subject to an increasing number of changes and unforeseen circumstances. Most of the disputes arising from the risks and consequences of the COVID-19 pandemic still remain ahead of us.