Concurrency, global claims and loss and/or expense
The case of Walter Lilly and Co Ltd v Mackay1 was described by Mr Justice Akenhead as being “a full-blooded conflict between the parties in which there seems to have been little, no or belated room for compromise,”. The judgment that resulted has provided valuable guidance on the preparation and likely resolution of claims, including in relation to the correct approach to determining extension of time claims (in England and Wales) where there is concurrency, global claims and the nature of information contractors are required to provide when submitting claims, at least under the JCT Form.
Walter Lilly was engaged by DMW in 2004 as a main contractor under a JCT Standard Form of Building Contract with bespoke amendments to build three houses at 1, 2 and 3 Boltons Place, Earls Court. Mr and Mrs Mackay were to occupy number 3 on completion. Mr Mackay (together with Mr Daniel and Mr West, who were to occupy numbers 2 and 3) formed DMW as the corporate vehicle through which the development would be carried out. Little, if any of the design had been completed prior to the involvement of WLC, as a result of which the project suffered from considerable delay.
Concurrent delay
Upon commencement of the project, DMW and WLC agreed to split the building contract in three so that there would be a separate contract for each plot. A deed of variation dated 23 December 2004 was signed to this effect. Throughout the project period WLC had sought, and was granted, extensions of time on numerous occasions by the first architect under the building contract. DMW eventually changed architect and at the date of practical completion (deemed by the court to have occurred on 7 July 2008) DMW withheld liquidated damages for late completion. WLC argued that it was entitled to an extension of time for the whole period of delay. DMW said that WLC was responsible for the delays. Mr Justice Akenhead notably distinguished between a prospective assessment of delay by the architect before practical completion occurs and a retrospective analysis by a court, arbitrator or the architect after practical completion.
Following this approach, the Judge found that the court must use its knowledge of events as provided by witness and expert evidence, and on the balance of probabilities should determine what delay was actually caused by relevant events. The relevant extension of time clause required the Architect to grant an extension of time which was “fair and reasonable having regard to any of the Relevant Events.” There was nothing in the extension of time clause, which was in standard form, to suggest that any extension of time should be apportioned or reduced if the Contractor could be shown to have been partly responsible for the delay. It should also be remembered that the relevant events tend to be matters for which the employer is responsible. Having considered a number of English authorities on concurrent delay, including Henry Boot Construction (UK) Ltd v Malmaison Hotel (Manchester) Ltd and the more recent decision in Adyard Abu Dhabi v SD Marine,2 the Judge held that WLC was entitled to the full extension of time claimed:
“where there is an extension of time clause such as that agreed upon in this case, and delay is caused by two or more effective causes, one of which entitles the contractor to an extension of time as being a relevant event, the contractor is entitled to a full extension of time”.
In reaching his conclusion, while recognising the judgment as “persuasive”, the Judge notably rejected the approach taken by the Scottish court in City Inn Ltd v Shepherd Construction Ltd3 as “being inapplicable in this jurisdiction”.
Global claims
Here, Mr Justice Akenhead again reviewed a number of the traditional authorities including the Crosby, Merton, Wharf, Stockley Park and John Doyle cases and concluded that there is nothing in principle “wrong” with a “total” or “global” cost claim.
Claims by contractors for delay or disruption related to loss and expense must be proved as a matter of fact. The contractor has to demonstrate on a balance of probabilities that, first, events occurred which entitle it to loss and expense; secondly, that those events caused delay and/or disruption; and thirdly, that such delay or disruption caused it to incur loss and/or expense (or loss and damage as the case may be). It does not, as a matter of principle, have to be shown by a claimant contractor that it is impossible to plead and prove cause and effect in the normal way or that such impossibility is not the fault of the party seeking to advance the global claim. In the absence of any contractual restrictions, the claimant contractor simply has to prove its case on a balance of probabilities.
There is no set way for contractors to prove their claim. It can be done with whatever evidence will satisfy the tribunal and the requisite standard of proof. The Judge noted that a claim may be supported or even established by detailed factual evidence which precisely links reimbursable events with individual days or weeks of delay or with individual instances of disruption, which then demonstrates with precision to the nearest penny what that delay or disruption actually cost.
What does a contractor have to prove?
A global claim may have added evidential difficulties which a claimant contractor has to overcome. For example, it will generally have to establish (on a balance of probabilities) that the loss that it has incurred (namely the difference between what it has cost the contractor and what it has been paid) would not have been incurred in any event. This means it will need to demonstrate that its accepted tender was sufficiently well priced that it would have made some net return.
It will also need to demonstrate in effect that there are no other matters that actually occurred (other than those relied upon in its pleaded case and which it has proved are likely to have caused the loss). However, it was wrong to suggest that the burden of proof transfers to the defending party. That said, the defending party can raise issues, or adduce evidence, that suggest or even show that the accepted tender was so low that the loss would always have occurred irrespective of the events relied upon by the claimant contractor or that other events (which are not relied upon by the claimant as causing or contributing to the loss or which are the “fault” or “risk” of the claimant contractor) occurred which may have caused or did cause all or part of the loss.
The fact that one or a series of events or factors (unpleaded or which are the risk or fault of the claimant contractor) caused or contributed (or cannot be proved not to have caused or contributed) to the total or global loss does not necessarily mean that the claimant contractor can recover nothing. The Judge gave as an example, the situation where a contractor’s global loss is £1 million and it can prove that but for one overlooked and unpriced £50,000 item in its accepted tender it would probably have made a net return; the global loss claim does not fail simply because the tender was underpriced by £50,000. The consequence would simply be that the global loss is reduced by £50,000 because the claimant contractor has not been able to prove that £50,000 of the global loss would not have been incurred in any event.
If there are events during the course of the contract that are the fault or risk of the claimant contractor and which caused or cannot be demonstrated not to have caused some loss, the overall claim will not be rejected save to the extent that those events caused some loss. Here the Judge gave an example of time spent by management in dealing with lift problems (in particular over-cladding). Assuming that this time can be quantified either precisely or at least by way of assessment, that amount would be deducted from the global loss. Mr Justice Akenhead noted that this was not inconsistent with the Judge’s reasoning in the Merton case that “a rolled up award can only be made in the case where the loss or expense attributable to each head of claim cannot in reality be separated”, because, “where the tribunal can take out of the “rolled up award” or “total” or “global” loss elements for which the contractor cannot recover loss in the proceedings, it will generally be left with the loss attributable to the events for which it is entitled to recover loss”.
There is no need for the court to go down the global or total cost route if the actual cost attributable to individual loss-causing events can be readily or practicably determined. However, the suggestion that a global award should not be allowed where the contractor himself has created the impossibility of disentanglement was, in the view of the Judge, wrong. And not, as had been argued in the Walter Lilly case supported by either the Merton or John Holland cases. Mr Justice Akenhead noted that in Merton, Vinelott J was referring to unreasonable delay by the contractor in making its loss and/or expense claim; that delay would have led to their being non-compliant with the condition precedent but all that he was saying otherwise was that, if such delay created difficulty, the claim may not be allowed. Vinelott J was not saying that a global cost claim would be barred necessarily or at all if there was such delay. In John Holland, Byrne J relied on Vinelott J’s observations. Again he did not say that a global cost claim would be barred but simply that such a claim “has been held to be permissible in the case where it is impractical to disentangle that part of the loss which is attributable to each head of claim, and this situation has not been brought about by delay or other conduct of the claimant”.
This all led Mr Justice Akenhead to conclude that:
“In principle, unless the contract dictates that a global cost claim is not permissible if certain hurdles are not overcome, such a claim may be permissible on the facts and subject to proof.
Will a global claim succeed at trial?
This leaves open the question of whether a global claim will succeed at trial. At trial, it should not be forgotten that you must prove your case and there is an important distinction between a global claim as a matter of pleading and a global claim as a matter of evidence. The position seems to be this:”
Where a claim for an extension of time and/or loss and expense is advanced pursuant to contractual terms, then an arbitrator or the court can make a global award, subject to the same limitations as were set out in the Walter Lilly case This means that whilst a tribunal will be more sceptical about the global cost claim if the direct linkage approach is readily available but is not deployed, that does not mean that the global cost claim should be rejected out of hand. That said, the mood is against merely impressionistic assessments, and a claimant is far more likely to succeed if he can show what effects flowed from what events giving rise to entitlement.
Where the claim is for damages for breach of contract, the claimant’s task may be somewhat easier, because he will usually be able to claim damages for loss of a chance, at any rate in the alternative, and under that head the arbitrator or the court is much more likely to be persuaded - indeed is probably required - to take an impressionistic approach.
Contractors must prove their claims as a matter of fact and on the balance of probabilities. They must show the occurrence of a Relevant Event and that it caused delay leading to loss and expense. In principle, a contractor does not need to show, when putting forward a global claim, that it is impossible to plead and prove cause and effect in the normal way. If there are contractual restrictions on global claims, then they may have an impact. Otherwise, the contractor must prove his case on the balance of probabilities.
Whilst there is nothing in principle “wrong” with a global claim, it may raise evidential difficulties since the contractor will have to show that the loss he has incurred would not have been incurred in any event. He will need to demonstrate that his tender was sufficiently well priced that he would have made some net return and that no other matters are likely to have caused the loss. A global claim does not transfer the burden of proof to the party defending it and he may adduce evidence that the accepted tender was so low that the loss would always have occurred, irrespective of the events relied on by the contractor.
Even if an event that is not the fault of the employer caused or contributed to the global loss, that does not mean that the contractor will recover nothing. It depends on the impact of such an event. It may be that the claim will not be rejected but a deduction will be made for the individual event which is not the employer’s responsibility.
If it is practicable to attribute actual costs to individual events, the court may be sceptical about a global claim. However, a global award may be made even if the contractor himself created the impossibility of disentanglement as to the various causes. The measure of the claim’s success will depend on the facts and will be subject to proof.
Loss and expense/notification of claims
The Judge also had to consider Walter Lilly’s claims for loss and expense which were subject to the standard JCT loss and expense clause. The relevant clause was based on the standard JCT clause 26.1 (the JCT 2011 equivalent is 4.23) which said that:
26.1.1, the contractor’s application shall be made as soon as it has become, or should reasonably have become, apparent to him that the regular progress of the Works or of any part thereof has been or was likely to be affected as aforesaid; and
26.1.2, the contractor shall in support of his application submit to the architect such information as should reasonably enable the architect to form an opinion as aforesaid; and
26.1.3, the contractor shall submit to the architect or to the quantity surveyor such details of such loss and/or expense as are reasonably necessary for such ascertainment as aforesaid.
The Judge noted that an entitlement to various heads of loss and expense will not be lost where for some of the loss details are not provided. Otherwise, one can have the absurd position that where £10 out of a £1 million claim is not adequately detailed but the rest of the claim is, the whole claim would fail to satisfy the condition precedent. That cannot have been intended. The condition precedent within clause 26.1.3 only requires the contractor to submit details which “are reasonably necessary” for the ascertainment of loss and expense. It does not say how the details are to be provided but there is no reason to believe that an offer to the architect for them to inspect records at the contractor’s offices could not be construed as submission of details of loss and expense.
What is required is “details” of the loss and expense and that does not necessarily include all the backup accounting information that might support such detail. It would have been possible for the clause to say that the contractor should provide “details and all necessary supporting documentation” but that is not what the clause says. There is no need to construe clause 26.1.3 in a peculiarly strict way or in a way which is penal as against the contractor, particularly bearing in mind that all the clause 26.2 grounds that give rise to the loss and expense entitlements are the fault and risk of the employer. The architect must be satisfied that the loss and expense claimed is likely to be or has been incurred but he does not have to be “certain”.
In accordance with London Borough of Merton v Leach, it is legitimate to bear in mind that the architect is not a stranger to the project in considering what needs to be provided to them. For example, they almost certainly attend site meetings. The obligation is to submit details which are “reasonably necessary” for the ascertainment of loss and expense. The Judge noted that the word “ascertain” means to determine or discover definitely or, more archaically, with certainty. This did not mean that, the contractor had to produce every piece of conceivable material evidence such as was necessary to prove its claim beyond reasonable doubt:
“In my judgment, it is necessary to construe the words in a sensible and commercial way that would resonate with commercial parties in the real world.“