Preparing for disputes and the importance of acting early when a dispute arises

June 2023  |  SPECIAL REPORT: INTERNATIONAL DISPUTE RESOLUTION

Financier Worldwide Magazine

June 2023 Issue

The variously quoted aphorism ‘failing to prepare is preparing to fail’ is attributed to a number of historical figures. While the origin is perhaps uncertain, the message is not. It is a truth having wide-ranging application but no more so than in successfully navigating disputes.

Naturally, what may constitute ‘success’ in the context of a particular dispute is relative to the position in which a party may find itself. There is no ‘one size fits all’ approach to preparation as disputes will turn on their specific facts. This article considers, at a high level, some of the steps which parties can take to prepare themselves for disputes so as to maximise their chances of ‘success’, howsoever that is defined in the circumstances. The issues are approached generally in the context of construction projects where the parties have chosen to resolve their disputes by way of international arbitration.

Preparing for disputes and developing a dispute resolution strategy starts with how the parties agree in their contract that disputes will be resolved. Contractual ambiguity or omission is, unsurprisingly, one of the primary causes of disputes in construction projects. For example, this may arise because of ill-defined scope, poorly drafted contractual mechanisms, or provisions which are inconsistent with general principles of applicable law. However, in a rush to conclude terms, parties also frequently fail to carefully consider the drafting of important boilerplate provisions, most notably their agreement to arbitrate. ‘Midnight provisions’, so called due to lateness in the process at which the parties turn their mind, or not, to the drafting of such terms, are a common source of satellite dispute. Failing to carefully consider the drafting can also serve to undermine what may otherwise be a credible case by providing an opponent with the ability to exert commercial and strategic pressure which they otherwise might not have had. In certain circumstances, failing to address certain matters can also render an arbitration award unenforceable.

Unamended model arbitration clauses are frequently adopted without addressing matters omitted from such provisions and this can have a significant impact on how arbitrations are conducted. This can include failing to identify what the seat of the arbitration will be or leaving the choice to the arbitral institution identified in the arbitration agreement, if one is identified. Parties rarely give thought to or identify what law will govern their arbitration agreement and what implications that may have. Thought is also rarely given at the negotiation stage to the jurisdictions in which an arbitral award will need to be enforced and therefore, how the legal regime in that jurisdiction may affect the ability to so enforce in the context of the arbitration agreement as drafted. Such matters can and do consume substantial time and cost to resolve. They can, of course, also cut both ways. However, addressing such matters should form part of any properly constructed dispute resolution strategy.

As a result of the development and implementation in construction contracts of early warning mechanisms, claim notification procedures, and multi-tiered dispute resolution provisions designed to avoid formal dispute resolution, rarely does a construction dispute come as a true surprise, even if the parties’ respective positions have not been fully articulated at the time a dispute is first notified. It is usually the case that the parties are aware long before notification of where disputes are likely to materialise. Steps should be taken immediately to put a strategy to address them into place.

Whether considered from the perspective of the claimant or the defendant, the general aim is to always stay one or more steps ahead of the opponent with a proactive strategy. Circumstances may dictate otherwise. However, key to developing and implementing any effective strategy is to quickly identify and fully understand the weaknesses in a case, and what issues will ultimately matter to the tribunal in resolving that dispute. Selecting lawyers and the timing of their engagement is the most important decision which will be made. Engage a legal team at an early stage to undertake a merits assessment. The earlier counsel is engaged, the earlier the weaknesses in both parties’ positions can be objectively identified and a strategy developed for how best to address and present them, whether to the opponent as part of settlement discussions, or to the tribunal.

Objectivity and an intricate knowledge of how matters are likely to play out before a tribunal are essential to properly performing a merits assessment and developing a related strategy. The appointment of well-known and respected counsel can, by itself, serve to change an opponent’s expectations.

Thought will need to be given as to whether objectivity can properly be exercised in the circumstances where the lawyer or firm undertaking the merits assessment is invested in the drafting of the contractual documentation which may have caused the dispute, or may be instrumental, positively or negatively, in determining how it is resolved. There can be a tendency for parties to turn to their transactional counsel and their disputes colleagues when signs of a dispute start to materialise. Parties should take the time to consider whether that is truly in their best interests, compared with trial counsel who is experienced in litigating and arbitrating such matters who also will not be conflicted by attachment to the contractual drafting.

The ability to communicate candidly with the legal team is important to developing and implementing the strategy best suited to the company’s needs. It is not the purpose of this article to explore the differing legal frameworks across various jurisdictions regarding attorney-client privilege. It is sufficient to note that those rules differ with regard to the extent communications between a lawyer and their client are privileged and are therefore protected from disclosure (discovery) in formal proceedings. Likewise, those rules can differ in respect of internal communications between employees and in-house counsel. Knowing how and when those rules apply is important. Knowing the circumstances in which it might be said that privilege has been waived is equally important and procedures implemented to ensure it does not occur.

Processes need to be implemented from the outset to ensure that all evidence relating to a dispute and the component parts of the same can be quickly and comprehensively collated. Such processes save significant amounts of time in the performance of the early merits assessment. The utility of a merits assessment is directly correlative to the completeness of the evidential record reviewed. In circumstances where a party is forced into implementing a reactive strategy to defending a dispute, their ability to quickly collate all relevant evidence can make the difference to how ‘success’ is defined in those circumstances. Perhaps with a misconceived notion of cost savings, parties can and frequently do selectively choose which documentation to provide to their lawyers at the early stages of a dispute, rather than providing the complete record. Such an approach frequently proves to be more costly overall.

Save for the instances where a matter turns purely on a point of law or contractual construction, issues will ultimately be determined by a tribunal with reference to the evidence before it, having regard to the applicable burden and standard of proof. Such evidence can take many forms, for example contemporaneous documentation, fact witness evidence and independent expert witness evidence.

The evidence likely to be given most weight by a tribunal in a fact-led enquiry is the contemporaneous documentary evidence generated during the project, supplemented, where necessary, with evidence from witnesses of fact. Every piece of correspondence or documentation, whether internal or external, ought to be prepared with the draftsperson having at the forefront of their mind that it may one day need to be disclosed to their adversary and considered by an independent tribunal. Ensure that draft correspondence is reviewed by the legal team prior to issue to ensure consistency with the developed strategy. What may seem to be an innocuous comment or admission can potentially have wide-reaching implications.

The international construction industry can be a transient one insofar as employees are concerned and a party’s ability to prove its case is only as good as the evidence it has in support of that position. In a typical scenario where disputes on large-scale projects are not arbitrated until years after the event, little thought is ordinarily given to the terms on which key personnel are retained to ensure their availability to give evidence in proceedings at a later stage. However, it is an issue which can potentially have a significant impact on the outcome of a case.

Independent expert witness evidence may be crucial to a case depending on the nature of the dispute. Candidates should be fully researched and appointed as soon as possible. Appoint only an expert who is truly independent and a leading expert in their field. An expert’s independence and credibility can make or break a case.

There are, of course, many more steps which parties can and will need to take to prepare for disputes which they face, depending on the particular facts. However, preparation starts long before a dispute may be notified and, combined with a comprehensive and developed legal strategy, will shape what constitutes ‘success’ in the circumstances, along with the ability to achieve it.

 

James Bremen is a partner and James Mayers is of counsel at Quinn Emanuel Urquhart & Sullivan. Mr Bremen can be contacted on +44 (0)20 7653 2270 or by email: jamesbremen@quinnemanuel.com. Mr Mayers can be contacted on +974 6620 6649 or by email: jamesmayers@quinnemanuel.com.

© Financier Worldwide

BY

James Bremen and James Mayers

Quinn Emanuel Urquhart & Sullivan

©2001-2024 Financier Worldwide Ltd. All rights reserved. Any statements expressed on this website are understood to be general opinions and should not be relied upon as legal, financial or any other form of professional advice. Opinions expressed do not necessarily represent the views of the authors’ current or previous employers, or clients. The publisher, authors and authors' firms are not responsible for any loss third parties may suffer in connection with information or materials presented on this website, or use of any such information or materials by any third parties.