Do you have $500k to spare?
How a contract dispute nearly pushed an Australian manufacturer to the brink.
Nobody reads a 100-page contract until something goes wrong… unless you’re a lawyer.
Our client was thrilled to win the contract for the supply of tailor-made components for a set of solar farms. The components’ job was to keep the whole system operating safely in the event of a short circuit. In other words, a critical role.
They’d successfully delivered the custom-built electrical safety components across multiple sites.
Then came the call - one site had shut down.
Our client went to site and a component swap seemed to solve the issue, until it didn’t.
A second site went offline.
A site shutdown on a solar farm is one of the worst things that can happen, leading to millions in lost revenue.
Their customer was losing money every minute the sites were down.
To make matters worse it started to rain, hard. When it rains it pours.
There was no way to get on site to inspect the solar farms and assess what went wrong. Remember, water and electricity don’t mix.
“Your product failed. You need to pay for this.”
The customer issued a notice of dispute, citing breach of contract.
When contracts become costly surprises
The contract previously scanned and signed, suddenly became the most important document in the room.
Buried deep within the 100-page contract was an arbitration clause. At the time of signing, no one noticed (including probably the lawyers who drafted it) that arbitration is often an expensive private legal process and in this case, would end up costing as much as the claim itself. And that's without accounting for the risk of incurring "loser pays" legal costs.
Our client needed our help to get them out of this mess and hopefully avoid paying half a million dollars or more in arbitration costs.
Cutting through the legal red tape
Their customer, a private investor-backed solar energy provider, alleged that the failure was due to faulty components and demanded compensation for significant financial losses.
Our client faced an urgent question: What went wrong, and how do we fix this before it spirals into costly arbitration?
Our first move? Scrap the idea of arbitration.
Arbitration makes sense for international disputes or highly sensitive cases but in this situation, it was unnecessary and impractical.
We had to come up with a solution that would work for both parties and settle out of court.
A creative approach
We spoke to the customer’s lawyers and CFO and came up with a more sensible way of resolving the dispute without going to arbitration.
Instead of hiring more expert witnesses, we used existing technical reports from both parties’ experts who had a theory on what happened. Remember, no one knew for certain what had happened: because of the rain it had been unsafe to go on site to do a thorough investigation. We were working with theory only.
With the technical reports, we devised a process based on game theory mathematics and design thinking. That’s right, lawyers can be creative too. Here’s what we did:
Identified the variables: Breaking down all potential causes of failure into measurable elements.
Applied probability analysis: Assigning probability scores to each possible cause based on expert insights.
Negotiated with data: Using this structured approach to facilitate productive discussions with the customer’s lawyers and CFO.
By simplifying the dispute into clear, logical components, we narrowed the issues and built a fair resolution framework.
After 6 months of negotiation, we settled.
The result
We settled for less than $200,000. Of course, the client wasn’t jumping for joy at having to fork out a significant amount of money, but it was far less than the $500,000+ they’d have spent if we went down the arbitration route.
Because we had a rough idea of how much disputes like this cost, we were able to charge our client a fixed rate every month rather than the cost going up and down which can really mess with the P&L.
But the biggest win in our book was the two parties continued to do business together after reaching this resolution.
It truly was a win-win all round.
Don’t make the same mistakes
This case reinforced a critical lesson all engineering and technical companies can learn from:
Read the fine print before signing.
If in doubt, check with your lawyer.
Settle out of court whenever possible.
If your company signs complex contracts, Sharpe & Abel can help you safeguard your business before issues arise.