Whether to bring a construction claim in arbitration depends on a number of factors that should be considered. If these issues are honestly considered at the outset of a construction dispute that is to be resolved by arbitration, they should lead to a sound conclusion as to the whether the construction claims should indeed be brought in arbitration. Similar questions should also be asked by respondents in the event of a construction dispute arising.
Issues to be considered include (1) issues regarding the nature of the claim to be brought in arbitration, (2) issues regarding the respondent, (3) issues regarding the legal basis of the claim, (4) issues regarding the facts underlying the arbitration claim, (5) issues concerning witnesses for the arbitration, (6) issues regarding experts for the arbitration, (7) issues regarding the timing of the claim in arbitration, (8) issues regarding the impact of bringing a claim in arbitration, (9) issues regarding the respondent’s potential counterclaim, (10) issues regarding the cost of construction arbitration, (11) issues regarding negotiations prior to and during the arbitration, (12) issues regarding the settlement of the construction arbitration and (13) issues regarding enforcement of the arbitral award.
These issues are phrased in terms of questions to be considered by the claimant.
1. Questions Regarding the Nature of the Claim to Be Brought in Arbitration
What is the nature of the claim event – is the claim being brought for payment regarding work done, for variations, for damages for breach of contract or for an extension of time and prolongation costs?
Is the claim event within the risks to be borne by the other party under the applicable contract?
What is the likely amount that of damages or losses that can be recovered? To what extent can the claimed amount actually be recovered? Are the respondents in fact able to pay it?
Regarding the prospects of the claim, what are the (1) pessimistic, (2) optimistic and (3) probable outcomes?
What are the consequences if no claim is made?
Who are the persons who will be affected by the claim and, if so, how?
Can potential negative consequences of bringing the claim be mitigated by other measures?
Does the amount of the claim justify the effort and costs of bringing the claim?
Is the cost of arbitration greater than the claimed amount? If so, then it may be senseless pursuing arbitration unless the claim is a matter of principle.
2. Questions Regarding the Respondent in the Arbitration
Who are the party or parties to be named as respondents in the claim?
What are the vulnerabilities of the respondents?
Will one or more of the respondents likely agree to settle the claim?
Will the respondents have the resources and motivation to bear the costs associated with resisting the claim?
If the respondents lack financial resources, should another entity be made a party to the proceedings?
3. Questions Regarding the Legal Basis of the Claim to Be Made by Arbitration
On what legal basis is the claim going to be made?
If the claim is based on a contract between the parties, which particular clause does the claim rely upon? If the claim is based on a contract between the parties, are there other provisions in the contract which may modify or undermine the particular clause that is being relied upon?
If the claim is based on an implied term, what are the conditions where authorities have previously admitted such an implied term under the applicable law? Are these conditions satisfied in relation to the particular claim event?
If the claim is founded on the basis of a statutory right, have the conditions to exercise this statutory right been satisfied?
Has there been any action or conduct of the claimant, or an agent, which might undermine the validity of the claim?
Is the claim time-barred? If so, have respondents taken any steps, such as acknowledging debt, that would operate to prevent it from relying on the defence that the claim is time-barred?
Does the contract include provisions relating to the notification of the claim? What are these requirements and have they been respected? Are these notice requirements likely to operate as conditions precedent to the recovery of the amounts being sought? If there are aspects that have not been complied with, are these failures likely fatal to the claim?
4. Questions Regarding the Facts Underlying the Arbitration Claim
What are the facts surrounding the claim event? How accurately are the facts recorded by way of documentary evidence?
Which facts are crucial to winning the claim? Can they be proved convincingly and, if so, how convincingly?
What form of proof of facts should be used? What is the effort and expense involved in obtaining this proof of facts?
Are there facts that are likely to be conceded by the other party? What impact will these have on the strength of the claim?
Are there admissions of fact which should be secured from the other party prior to initiating arbitration? If so, how can this be done?
Which facts can be established on the basis of contemporaneous records? How reliable are the contemporaneous records?
Will the arbitral tribunal admit all evidence that has been gathered? Can the evidence be admitted in accordance with the applicable arbitration rules?
Which facts can only be established from documents that are likely to be in the possession of the opposing party? What is the likelihood that such documents may be accessed by document production? What objections is respondent anticipated to raise in relation to the production of these documents?
What evidence will respondent need to resist the claim or advance his counterclaim, and does respondent possess it? What are the time and costs that will be required by the respondent to gather this evidence?
How does the quality of respondent’s evidence compare with the quality of the evidence supporting claimant’s claim?
5. Questions Concerning Witnesses for the Arbitration
Which facts can only be established by witness evidence? As witness evidence is generally less probative than documentary evidence, how crucial is this evidence?
Who can serve as a witness? How many of the witnesses are likely to be available at the time of the arbitration hearing?
How credible are the witnesses in relation to the facts on which they will testify? Will they be perceived as being self-interested?
How well will the selected individuals perform as witnesses?
What are the costs involved in arranging for their attendance of the arbitration hearing (transportation, accommodation)?
If a witness does not reside at the venue for the arbitration hearing, will this witness be able to obtain a visa? If not, is there another person available who may be more appropriate?
Who will the other party likely call as their witnesses? Will their witnesses be credible?
How does the credibility of the witnesses on both sides compare?
6. Questions Regarding Experts for the Arbitration
Which issues are highly technical and should be established through expert evidence?
What credentials and experience are needed for these experts to be credible?
Will the expert require additional investigation or studies in order to draft its expert report? How much time will be required for this purpose?
Who are the best candidates available to serve as an expert? Will there be any conflict of interest with their appearance as experts?
What are the likely costs involved to secure expert testimony? Will these costs be recovered if the claim is successful?
What is the probative value of the evidence of each expert?
What impact will the expert evidence have on the case of the other party?
Who are likely to appear as experts for the respondents?
How will the credibility of experts on both sides compare?
7. Consideration of the Timing of the Claim in Arbitration
Will the claim submission affect the execution of the works, or has the project ended?
When should the claim in arbitration be submitted? Should this be preceded by an effort at informal consultation and negotiations or by mediation?
Are there other dispute resolution mechanisms required prior to arbitration, such as adjudication, under the contract? If adjudication is required, will the result of adjudication impact the prospects of the same claim in arbitration being made? Can adjudication be avoided?
How does the timing of the claim relate to the limitation period?
Will the timing of the claim impact the evidence to be gathered?
What is the present state of respondent’s finances? Will respondent’s finances improve over time, or does respondent run the risk of becoming insolvent in the near future?
What impact will the timing of the claim have on earlier claims and future claims?
Is there any advantage in waiting to submit the claim later?
8. Consideration of the Impact of Bringing a Claim in Arbitration on Other Matters
Will submission of a claim affect prospects of future work with the respondent? How likely is future work?
Are respondent’s representatives likely to react to the claim by withholding co-operation or by taking a less accommodating attitude? Will a claim while the project is ongoing lead to the architect or engineer withholding a certification of completion? Will it lead to the retention fund being withheld?
Will the submission of a claim lead the other party to call on a performance bond? Can this risk be mitigated?
Will submission of a claim likely terminate negotiations? Is there any real possibility of resolving the dispute via negotiations?
Will the claim have an effect on subcontractors, suppliers and other third parties? Will the claim lead third parties to institute their own claims against the claimant? Will it lead them to also initiate claims against the respondent?
Will the claim in arbitration be confidential? If not, will news concerning the claim diminish prospects of other work?
Will the claim affect working relationships between the claimant and others working on other projects undertaken by the claimant?
What are the implications if the claim fails? Are there steps that can be taken to minimise this impact?
9. Questions Concerning the Respondent’s Potential Counterclaims
What is the likelihood that bringing a claim by arbitration will trigger the other party to initiate counterclaims? If a counterclaim will be initiated, what is the legal basis of this counterclaim?
What are the prospects of the counterclaims succeeding? Which facts or legal rules will be critical to the counterclaims’ success?
What are the possible defences which may be raised against the counterclaim?
If the counterclaim will succeed, is the amount awarded for the counterclaim likely to exceed the amount awarded in the claim?
Will the counterclaim be dropped if the claim is eventually withdrawn?
10. Consideration of the Cost of Construction Arbitration
How much time and effort will be required to get the claim to a stage where it is ready for arbitration?
What is the cost of gathering all evidence, analysing the merits of the case and formulating the claim?
How much management time will the claim in arbitration consume? Who will be involved and provide support for the arbitration?
Can the necessary individuals be released to support the arbitration? How long can they be released? Can someone else be assigned to perform the duties of the person who will be supporting the arbitration?
What is likely to be the cost of the arbitration if it succeeds? As legal fees tend to be the largest cost element of any construction arbitration, what are the fees being offered by the lawyers and are there equally qualified lawyers who could handle the manner in a more cost-effective manner?
11. Questions Regarding Negotiations Prior to and During the Arbitration
How willing is the other party to negotiate? Are there any reasons why the other party may prefer a negotiated settlement?
Are there any reasons not to negotiate? Are any risks posed by negotiation?
What is the other party likely to seek in negotiations? Is the other party’s position acceptable?
Are there safeguards in place to ensure that the other party is not attempting a fishing expedition, using the pretext of negotiations to discover the underlying claim strategy, to obtain documentation or to test the resolve of the claimant?
Will the initiation of negotiations be misconstrued as suggesting that the claimant has a weak case?
What qualities and experience are required for the person leading the negotiation effort? What personal interests would he have in either settling the matter or undermining the negotiation?
Who is the best person from claimant to lead this effort? Should counsel be entrusted with negotiations, or should the claimant itself lead the negotiations?
What is the likely negotiation approach of the designated representative from the other party? What stance is he likely to take?
What is the scope of authority for the negotiator for the respondent? Is he empowered to commit the respondent to settlement or will further approvals be required?
How should the negotiation team be briefed and by whom? What resources will they require?
Are external consultants needed to coach the negotiation team?
What range of offers submitted during negotiations should be given serious consideration, bearing in mind the costs and consequences of arbitration.
What period of time should be allowed to attempt to settle the matter through negotiations?
What are the consequences if negotiations fail?
Will continuance of negotiations undermine the claim? In particular, will negotiations delay the rendering of a final arbitration award? If so, will the ability of respondent to pay an award decrease over time?
Apart from the designated representative, is there anyone else who can influence respondent to accept the outcome of the negotiation? Should a separate approach be made to him or her?
Where should negotiations take place? What is the impact of the choice of venue on the atmosphere of negotiations?
How should the negotiation agenda be structured?
Is the negotiation to be held on a “without prejudice” basis?
Is it useful to have a formal mediator to structure the process?
Should issues be resolved in terms of a global offer, or is it more useful to go through each issue separately?
What should the starting point of negotiations be? Should it begin with general principles, or should it begin with issues which are less contentious?
Should the issue of liability be discussed separately from quantum? Will doing so reduce areas of contention?
Can allegations of liability be avoided to facilitate settlement?
Should facts and positions be permitted to go on record?
Under what circumstances should the claimant make the “first offer”?
How should the “first offer” be pitched to encourage the other party towards a negotiated settlement?
What advantages or risks will the offer present?
How should counter-offers tendered by the other party be evaluated? Who should be involved in their evaluation?
How should responses to counter-offers be formulated?
When should the negotiation team terminate negotiations and walk away without settlement?
12. Questions Regarding Settlement of the Construction Arbitration
Who is authorised to approve the terms for settlement if the negotiation teams agree to the terms of settlement?
How should the settlement agreement be drawn up? Should this be done on the same day as the conclusion of the negotiation?
Who should draft the settlement agreement, claimant or the respondent?
13. Questions Regarding Enforcement of the Arbitration Award
In the event of non-voluntary compliance, which of respondent’s assets may be targeted?
Which counsel at the place of the respondent’s assets shall be used in order to enforce the arbitration award?
If enforcement is impossible since the respondent has dissipated its assets, can secondary actions be brought against the respondent’s shareholders or directors at the place of enforcement?
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If these questions are honestly considered, at the outset of an arbitration, then there will be a high likelihood of only meritorious claims, which should be made, being made.