If you were wise enough to get the lawyers on board as soon as the project started, you can stop reading now. If not, good luck and hope that the below tips help.
1. Prevention is better than cure
The more time and resources you allocate to tender preparation and contract formation, the better your chances are in avoiding a dispute and huge arbitration costs. The occurrence of project nightmares can often be traced back to the tender stage, when insufficient time and resources were dedicated towards identifying risks – let alone trying to avoid them or properly price them. Contractors should ensure that the division of risk is well detailed. The contactor usually incurs significant risk when the employer seeks to assign unexpected costs onto the contractor. This is especially true for lump sum contracts where the time for completion and contract price are fixed. On the other hand, employers should identify and transfer all potential risks (e.g. unforeseen ground conditions, delays in obtaining necessary governmental approvals, delays and losses caused by Covid-19) to the contractors to avoid incurring additional costs and expenses on dealing with those problems in the future. The best way to prevent problems is to have your lawyers on board early to help identify the risks so that you can draft for them, or price the contract accurately.
2. Get to the root of the problem
The team which prepares the tenders and conducts contract negotiations rarely comprises the personnel who administer the contract. It is not surprising that many construction disputes first arise from misunderstandings between the parties’ on-site personnel. It is therefore wise to ensure that the contract “doers” are familiar with the duties and obligations of the employer and the contractor. Experience tells me that not all project managers read their contracts.
Disputes can certainly be avoided if the initial on-site decision makers are educated on how to avoid them. For example, basic training on negotiating techniques may help them quickly reach an amiable resolution. Furthermore, it is very important to have the right personalities with the appropriate level of authority negotiating the resolution of a dispute at the earliest opportunity.
3. Early professional review
When a dispute does materialise, it is important to get your legal team (whether in-house or external) involved as soon as possible. That early involvement means that you can:
- Assess the merits of a dispute from the outset;
- Double check that you are keeping necessary records and help identify the evidence available;
- Meet the dispute resolution requirements in the contract;
- Write the correct project correspondence in an appropriate tone; and
- Proceed in the correct legal and technical direction.
4. Let’s be realistic
A realistic assessment of the claim may not guarantee its resolution, but an unrealistic assessment is almost certain to result in a dispute. External lawyers should be engaged to assess the chances of success and evaluate the cost of proving or defending the claim. This will help avoid spending a significant amount of time, effort and expense dealing with unsubstantiated or inflated claims. As a general rule, the bigger the claim, the stronger resistance you should expect, and the more legal fees you will incur. Not only will you need to bear your own legal cost, you will also need to pay the opposition’s cost if you fail to substantiate your claim or, even worse, abandon it. Arbitration is a long-term commitment in terms of time and resources. As such, carefully think it through before starting one.
5. A good start is half the battle
Picking the right arbitrator/tribunal has a profound impact on the conduct of the arbitration and can possibly affect the outcome. However, this is often something overlooked when the contract is prepared.
A client once asked us whether the number of the Arbitrators set out in the contract’s disputes clause could be changed, as he was worried that a sole arbitrator might not be able to handle the dispute properly and dispose of the matter fairly. It was unfortunate that our client had not thought this issue through at the time the contract was being drafted. In such a situation, there is nothing your legal advisors can do to rectify it unless the other party agrees to alter the number of Arbitrators. In terms of the appointment of arbitrators and composition of the arbitral tribunal (after a dispute has crystallised), one should take the following factors into account:
- whether the size of the tribunal fits the dispute, given its value and complexity;
- whether the tribunal has the expertise to decide on the issues in dispute; and
- the tribunal’s availability and its ability to attend pre-hearing conferences and the substantive hearing. For dispute resolution clauses, other factors such as language, applicable rules and seat of the arbitration should also be considered properly when preparing the contract.
6. Preservation of evidence
Record keeping is essential to proving or resisting claims. Ideally, all documents (e.g. emails, progress reports, daily reports and correspondence between parties) should be gathered and stored in a central system as the project progresses and should be preserved in anticipation of potential disputes. Documentary evidence can be significantly undermined unless there are witnesses of fact who, if required, can appear before the tribunal. The nature of construction projects means that much of the workforce, even those in senior and management positions, may be employed on the contract for only the duration of the project. As soon as the project is over, the contractor’s key witnesses may scatter all across the world and start working on other projects for other contractors. As such, steps should be taken early to identify and interview potential witnesses and other people who have knowledge about the dispute. The best practice is to obtain a preliminary signed statement from key witnesses as early as possible whilst they are still on the project. The last thing you want to do is to write a witness statement for a factual witness who is either very busy with another project or who has left the project and does not have access to their own documents anymore. It is very damaging to the witness’ credibility if the opposition’s counsel / the Arbitrator finds out that the witness did not write his/her own statement when he/she fails to explain what was written in the statement during cross-examination.
7. Finding the right expert
The role of an independent expert is to assist the Tribunal and not to advocate your case. For this reason, you should not engage someone simply because he/she agrees with or is willing to support your case. Instead, you should hire someone with a good reputation and the right expertise in the area of dispute. More importantly, it is essential that he/she has experience in giving evidence in court or arbitration proceedings. However, even if you are able to find a perfect expert, it is meaningless if he/she is too busy and does not has sufficient time to work on your matter. The expert should be thoroughly prepared when giving evidence in the proceedings as he/she will not be able to consult his/her assistant during cross-examination. Arbitrators tend to rely on expert testimony, especially on technical issues. A good expert may not win the case for you, but a bad or biased one will greatly increase the risk of their evidence being ignored.
8. Discovery
This is probably one of the most unpleasant topics in arbitration. Not only is it time consuming, laborious and expensive, but the damage caused by bad discovery can be profound if the process is not handled properly. One of our clients acted against our advice and claimed consultant fees incurred during the project. In order to claim costs, our clients disclosed all the relevant invoices. Not only did the invoices contain the amount payable, but they also contained detailed narratives of the tasks performed by the consultants during the project. Since the consultants worked on the project prior to the engagement of their lawyers, the communications between the consultants and the clients were not protected by legal privilege and were therefore disclosable. Throughout the arbitration, the client spent more in legal fees responding to broad sweeping discovery requests than the total of the consultant fee claimed. One should take disclosure obligations seriously. Any delay, uncooperative behaviour or unreasonable withholding of information may suggest there is something to hide and give a very bad impression to the Arbitrator.
9. How does the war end?
Arbitration is expensive, time consuming, demanding (mentally and physically) and, at times, a tortuous exercise. No one wants to fight to the bitter end. It is in clients’ best interests to settle disputes at the right time, for the right amount, and on the right terms. One should therefore try to negotiate and settle disputes from a position of strength. As such, it is a good idea to identify key issues in the arbitration that can be resolved ahead of the main hearing, as soon as possible. This can help foster an early settlement opportunity and might preserve the existing business relationship. Having said that, there is no universal dispute avoidance strategy as each dispute is unique. Therefore, parties should always be prepared to consider alternative solutions (e.g. negotiation) or engage in settlement discussions in order to resolve a dispute as soon as possible. This will save the parties a lot of time and money.
10. Last but not the least
At the risk of stating the obvious, trust your lawyers and listen to their advice!
