09 Jun 2020

Covid-19: risk mitigation and confidentiality

by Mark Thomas, Director, Disputes and Expert Witness Services - Dubai

Mark Thomas, our Director of Disputes and Expert Witness Services, considers Covid-19 from a Middle East perspective, offering steps to preserve contractual rights and entitlements, privilege and confidentiality during settlement negotiations.

This article was originally published in Gulf Construction Online.

Construction and engineering firms around the globe continue to grapple with significant Covid-19 issues that have forced business reviews at both strategic and operational levels in response to new challenges. New and innovative working practices are in their infancy with an eye on survival, stabilisation and ultimately safeguarding business for the future.

Risk identification, evaluation and monitoring plays an essential role in the mitigation and safeguarding process. Strategic level decisions to cut operational resource may ease short-term cash flow pressures but may have unintended consequence.

Reduced resource may result in increased exposure to supply chain claims, simultaneously rendering a business less potent in preserving its own rights and entitlements to claim or counterclaim.

Renegotiating mutually agreeable terms for remaining work including concessions for additional time and money, may seem an attractive and pragmatic navigation for contracting parties, but importantly, the act of negotiating should be approached with care.

In the Middle East, a baseline assumption is that any document can be produced before a court or arbitral tribunal, therefore, the perceived wisdom is to negotiate orally. Oral communications can be introduced into evidence before a court/tribunal, but such evidence is likely to carry considerably less weight compared to that afforded by document records.

UK common law “without prejudice” rules that protect confidential communication are not recognised in the UAE, or in the GCC generally. “Side-negotiations” should, therefore, only proceed following undertakings by both parties that ensure related information exchanges shall not be used in evidence in any formal dispute proceedings at a later date. Negotiations or concessions should be heavily qualified to ensure that they do not constitute an admission of liability.

The GCC culture of privacy is quite different compared to Common Law jurisdiction rules of disclosure. Information is only shared if the holding party decides to share it. An opposing party may apply (to court) for disclosure of a particular document, but the reasons for the request must be established. Court orders are both rare and difficult to enforce.

Alongside any negotiations, safeguarding rights and entitlements according to the terms of specific contracts remains paramount.

Depending on case specific facts and applicable contract terms and conditions, Covid-19 pandemic-related issues may be classed as “force majeure”, or “exceptional events”. Concepts of frustration and hardship may also come into play during detailed legal analysis.

Typically, force majeure claims are limited to requests for additional time to complete remaining work. A “but for” test applies (“but for” the exceptional event,  … the event …prevented the Contractor from performing its obligations…; Fidic). If granted additional time, a contractor is protected from damages for late completion up to the adjusted completion date, simultaneously the employer is protected from monetary claims from the contractor for the same extended period.

Opportunities for time and money claims may also arise. If, for example, a government imposes restrictions on the movement of people and goods, depending on the facts and contract terms, claims for additional time and cost may arise.

Maintaining contemporaneous project progress records and issuing timely and compliant contractual notices are basic safeguards for any contracting party. Accurate and reliable records add substantial weight both in support of negotiations, and certainly in formal dispute resolution proceedings.

A Covid-19 related example arises in Dubai where the government exempted construction activity from the 24-hour restrictions imposed on outdoor movement. Notwithstanding that exemption, reduced productivity caused by obligations to maintain safe working practices combined with restrictions imposed on internationally sourced material deliveries makes delay and disruption almost inevitable. Contemporaneous project records, combined with compliant timely contract notices shall be highly important in preserving and justifying entitlements to claim.

Analysis of factual events and accurate apportionment of associated costs can be complex matters, particularly when competing delay events occur. The freely available Society of Construction Law Delay and Disruption Protocol (Second Edition) offers recognised best practice guidance concerning such matters. As with any data analysis however, outputs are only as reliable as the information inputs, hence the repeated emphasis on maintaining accurate and reliable contemporaneous project records.

In summary, proper planning and adequate resource allocation offers assurance, protection and mitigation whilst maximising opportunities. Covid-19 issues require a fact-specific analysis of risks, impacts, obligations and liabilities to preserve rights and entitlements and organisations are recommended to undertake a review with their professional advisors. Accurate and reliable contemporaneous records and timely notices are key to optimising outcomes whether in prospective negotiations, or in contemplation of formal dispute resolution procedures if an amicable resolution remains elusive.

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