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This month’s contract corner looks at the question of global or total-cost claims.
Global claims were defined by Byrne J in the Australian case John Holland Construction v Kvaerner RJ Brown as being a claim where:
“the claimant does not seek to attribute any specific loss to a specific breach of contract, but is content to allege a composite loss as a result of all the breaches alleged, or presumably as a result of such breaches as are ultimately proved”.
This has lead to tension with those who say that the loss attributable to each cause should be separately identified and particularised,[1] but as everyone will recognise, that separation is not always a simple task. In a judgment recently released in the UK,[2] Mr Justice Akenhead set out a number of principles which apply to global claims. Although the case revolved around clause 26.1 of the JCT Standard Form of Building Contract 1998 Edition Private Without Quantities, the general principles set out by the judge will apply to many other projects. Clause 26.1 states that:
“If the Contractor makes written application to the Architect that he has incurred or is likely to incur direct loss and/or expense (of which the Contractor may give his quantification) in the execution of this Contract for which he would not be reimbursed by a payment under any other provision in this Contract … because the regular progress of the Works or of any part thereof has been or is likely to be materially affected by any one or more of the matters referred to in clause 26.2; and if and as soon as the Architect is of the opinion that … the regular progress of the Works or of any part thereof has been or is likely to be so materially affected as set out in the application of the Contractor then the Architect from time to time thereafter shall ascertain, or shall instruct the Quantity Surveyor to ascertain, the amount of such loss and/or expense which has been or is being incurred by the Contractor.”
Mr Justice Akenhead concluded that there is nothing “wrong” in principle with a “total” or “global” cost claim and set out the following propositions:
(i) Claims by contractors for delay- or disruption-related 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).
(ii) 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.
(iii) 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.
(iv) A global claim may have added evidential difficulties which a claimant contractor has to overcome. For example:
(a) It will generally have to establish (on a balance of probabilities) that the loss which 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.[3]
(b) It will need to demonstrate in effect that there are no other matters which actually occurred (other than those relied upon in its pleaded case and which it has proved are likely to have caused the loss).[4]
(v) 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.[5]
(vi) If there are events during the course of the contract which are the fault or risk of the claimant contractor 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. [6]
(vii) 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 has himself created the impossibility of disentanglement was, in the view of the Judge, wrong.[7]
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.”
[1] The late Iain Duncan Wallace, (Hudson’s Building and Engineering Contract, 11th Edition, page 1090) went so far as to say that “claims on a total cost basis, will prima facie, be embarrassing and an abuse of the process of the court, justifying their being struck out and the action dismissed at the interlocutory stage”.
[2] Walter Lilly v Giles Patrick MacKay, [2012] EWHC 1773 (TCC)
[3] This means it will need to demonstrate that its accepted tender was sufficiently well priced that it would have made some net return.
[4] 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 that may have caused or did cause all or part of the loss.
[5] 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.
[6] Here the Judge gave an example of time spent by management in dealing with lift problems (in particular the 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 which the contractor is entitled to recover loss”.
[7] Indeed, in John Holland, Byrne J noted that a global 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”.