Cladding claim: reservation price and a document the client wants buried

Start by converting the arbitration into a probability-weighted net recovery, not a claim value. Assume three broad outcomes: 30 per cent chance of recovering GBP 1.9 million on the claim and defeating the set-off; 40 per cent chance of recovering GBP 1.3 million net; 30 per cent chance of recovering GBP 0.6 million or losing on the set-off. Expected gross recovery = (0.3 × 1.9) + (0.4 × 1.3) + (0.3 × 0.6) = 0.57 + 0.52 + 0.18 = GBP 1.27 million. Deduct NovaClad's own costs of GBP 450,000 and an expected adverse-costs exposure of, say, GBP 135,000 (30 per cent × GBP 450,000). Net BATNA ≈ GBP 685,000. Add a time-value and covenant-risk premium: the bank test in six weeks means a cash settlement now is worth materially more than an award in 12–18 months. A rational reservation price is therefore around GBP 750,000–900,000, not GBP 1.7 million. Meridian's ceiling is its authority of GBP 1.5 million, but its own BATNA may be lower because it has admitted GBP 900,000 and faces costs. The ZOPA is roughly GBP 0.75–1.5 million, with a realistic settlement band of GBP 1.0–1.3 million. The client's GBP 1.7 million target is above Meridian's authority and is not a reservation price; explain that distinction before the meeting.

There is no general duty of good faith or full disclosure in an arm's-length negotiation, and a report prepared for litigation may attract legal professional privilege. Silence about a weakness is therefore usually permissible. But the line is misrepresentation: you must not state or imply that the variation records are fully documented, or that NovaClad's delay case is unqualified, if you know that to be false. If Meridian asks directly, you can decline to answer-for example, 'we are not going to trade privileged assessments'-but you cannot lie. Advise the client that concealment carries practical risk: if the report later surfaces in disclosure, NovaClad's credibility collapses and any settlement may be attacked for misrepresentation. In mediation the same honesty rule applies, even though mediation is not a disclosure regime. Do not use the report as a sword while hiding its adverse conclusions. If a direct question is unavoidable and a non-answer would itself mislead, qualify the answer rather than assert a false positive. Record the client's instruction and your advice in writing.

Agenda: (1) confirm authority and confidentiality; (2) identify agreed facts-GBP 900,000 admitted; (3) exchange variation logs and delay analysis; (4) isolate the set-off and defects issues; (5) discuss cash-flow and payment structure; (6) record any settlement. First move: do not open at GBP 2.4 million. Given the documentation gaps and Meridian's GBP 1.5 million authority, an opening near GBP 1.85–1.95 million is credible if it is backed by a reasoned schedule: admitted GBP 900,000, documented variations GBP 650,000, delay GBP 400,000, less a realistic allowance for defects and undocumented items. That leaves room to move to the GBP 1.1–1.3 million band without forcing Meridian to seek board approval above its authority. Frame it as a principled assessment, not a demand: 'On the documents, our net position is X; we recognise the defects report cuts both ways, so we have discounted it.' Signal flexibility on structure-staged payments, NovaClad rectifying defects at cost, a warranty-because those trades can bridge the gap without moving the headline number far. Avoid an absurd anchor that invites Meridian to disengage.