Brodies – The Legal View – Contract disputes: What are your options?

Subscribe to our newsletter

To be updated with all the latest news, offers and special announcements.

High costs, a punitive tax regime and a low oil price have conspired to present a serious challenge to all those working in the UKCS. A low oil price puts everyone under greater pressure and it is not unreasonable to expect that the courts and arbitrators will be in for a busy time if matters continue on their current path. 

There have been many recent examples of contractor rates being cut, redundancies, orders being cancelled or re-priced and, in some instances, attempts being made for historic rebates.

This is not surprising. In difficult times the temptation is to cut costs wherever you can. All too often, however, this leads to a zero sum game. Tensions rise between operators and contractors, members of the supply chain and employers and employees, spilling over into disputes that risk damaging valuable relationships, with severe consequences when the good times finally return.

It is important to remember the need for greater co-operation and collaboration highlighted in the Wood Report, as well as the lessons of the past. The industry has lived with the reality of price volatility since its inception. The oil price will recover but by then will it be too late to repair relationships damaged during the lean times on which future growth and prosperity might well depend?

Of course, the best strategy is to avoid entering into a dispute if you can, however disputes are a part of life and there are circumstances in which they are unavoidable. Nevertheless, there are many ways of resolving disputes in a mutually agreed fashion that don’t carry the same risk of simmering resentment that could ultimately damage your business in the long-term.

Before you embark on a dispute it is important that you take a good hard look at your needs and interests. 

If you drive too hard a bargain do you risk damaging a relationship forever or driving out of business a critical supplier, whose services you may well need in the future? Look carefully too at the likely outcomes of court action versus arbitration, both of which result in an imposed decision. It is all too easy to forget in the heat of the moment that if you go down the court route and do not reach a deal then you could be waiting a very long time to get what you want and it will cost you time and money to get there.  

By far the cheapest and most effective method of resolving disputes is through direct negotiation. Having legal and other specialist advisers behind the scenes to help you get the best out of that process is an effective way of getting the best results.

If that does not work mediation is a sensible alternative. Within the space of a few weeks, you can resolve your dispute and reach a legally binding deal. This can be achieved through the simple commitment of a single day during which you meet the other side and discuss the dispute with the assistance of an independent mediator whose only role is to facilitate a mutually agreed settlement. This confidential process is great for saving time and cost, understanding the relative strengths of positions and maintaining (if important) long term working relationships. 

If confidentiality is important to you, and mediation is not an option, then taking your case to arbitration and avoiding the glare of the publicity of a court action is a good choice. Arbitration works best where specialist knowledge is necessary for a successful outcome as parties can choose the judge and procedure for running the dispute. It is often easier to enforce arbitration decisions abroad (in order to get paid) than court judgements, giving arbitration another significant advantage when chasing money or assets abroad.

Sometimes, however, court is the best or only option –  particularly if you need an urgent remedy to prevent a breach of your rights or interests. Going to court does not prevent off -the-record negotiation or mediation, both of which are regularly used alongside court action.

The current climate is challenging but with the right approach to avoiding or managing conflict, there are opportunities out there to achieve positive results, and help maintain valuable relationships.

Ken MacDonald is a dispute resolution partner with Brodies in Aberdeen and a member of the Legal Issues Forum ADR Work Group of Oil & Gas UK. For more information, contact Ken on 01224 392 170 or at kenneth.macdonald@brodies.com.

If there are any topics you would like us to cover in future columns, please email us at legalview @ brodies.com.

The information in this article does not constitute any form of advice or recommendation by Brodies LLP and is not intended to be relied upon by you in making any specific decisions or taking (or refraining from taking) any action. If you wish us to give such advice, please contact the author.

Share

Share on facebook
Share on twitter
Share on linkedin

Related News