Common mistakes in ... multiparty disputes

You may be embroiled in a multiparty dispute, perhaps involving more than one contract, or seeking to recover your losses or payments made in settlement from third parties. Here’s how to maximise your chances of success, both before and after the contract award.

At the contract stage

• Whatever form of dispute resolution procedure you decide is appropriate, make sure the provisions are consistent across the project. Where there is potential for disputes to arise involving the same or similar issues, ensure that each contract provides for disputes to be heard in the same proceedings (or at least concurrently using the same procedure). You should also include a consistent definition of “related dispute” in each contract.
• Include provisions for the joinder of third parties. If you opt for court proceedings in this country, the court process makes it relatively easy to join third parties to your dispute. However, for other forms of dispute resolution, such as arbitration, which relies on the consent of the parties, this can be more difficult. This is because where the dispute concerns more than two parties under different contracts, each must agree that their respective disputes can be joined together.

Without the provisions set out above, you risk multiple proceedings involving overlapping issues and parties and potentially inconsistent awards. In most cases it will be preferable to determine the issues in one set of proceedings. This saves time and money and avoids the possibility of inconsistent findings of fact and law by two or more arbitrators.

• Do not rely on court-enforced consolidation. Your arbitration clause should also provide for the consolidation of proceedings when, for whatever reason, a number of separate arbitrations involving related issues on the project have been started. Again, this will avoid the risk of inconsistent arbitral awards.

Including consolidation provisions in your contract is far safer than assuming that the courts will intervene to order consolidation. Allowing the courts to step in and control the process would be contrary to the consensual nature of arbitration and, as a result, there are few jurisdictions with laws that provide for effective court-ordered consolidation of arbitral proceedings.

• Consider suitable adjudication provisions. On a major project, certain contracts may fall outside the scope of statutory adjudication.

If so, you should consider whether contractual adjudication across all contracts would be more appropriate to avoid a potential mismatch in the dispute resolution provisions across related contracts.

Do not enter into global settlements relating to numerous different claims

Similar joinder and consolidation issues to those in arbitration arise in relation to adjudication, and its short timescales compound the complexity of multiparty issues. Therefore you should ensure that any contractual adjudication provisions allow sufficient time within the process to include the joinder of third parties and the consolidation of related disputes.

Settling disputes
Parties on major projects often find themselves stuck in the middle - defending and settling claims on the one hand and on the other seeking to pass them to the third party that was ultimately responsible for the losses.

• Do ensure that your settlement is reasonable. A party seeking to recover a settlement sum paid to one party from a third party will need to show that it was reasonable for it to settle the claim at that level. Factors that may be taken into account when deciding on reasonableness include:

l whether the claim was of sufficient strength to justify the settlement sum
l whether you took legal advice on the merits of any settlement
l the inherent uncertainties and expense of litigation
l the benefits of settling the case rather than continuing to dispute it.

• If you intend to recover the sum from more than one third party, you should avoid reaching a global settlement across claims. If no specific sums are attributed to each claim that has been settled, you are unlikely to be able to recover elements of the global settlement against your subcontractors. You would still be required by the court to prove your loss and show that a particular part of the settlement sum is attributable to a particular subcontractor.

Ben Mullard is an associate at Berwin Leighton Paisner