Michael Gallucci · @MPGQS
2nd Jul 2013 from TwitLonger
Is a global claim legally & contractually capable of being made, and how will the Walter Lilly case change global claims?
A global claim is defined in Hudson as follows “Global claims may be defined as those where a global or composite sum, however computed, is put forward as the measure of damages or of contractual compensation where there are two or more separate matters of claim or complaint, and where it is said to be impractical or impossible to provide a breakdown or sub-division of the sum claimed between those matters”.
As no case on causation is advanced with a global claim they offend the normal legal principles and general legal position. In Wharf Properties v Eric Cumine , it was stated that “This claim is advanced not only without any specification of the causal connection between the breaches and the sums claimed but without any facts leaded which will enable [the Defendant] to ascertain which parts of these sums are being alleged to be attributable to the breaches alleged”. This claim was struck out of the courts and on the basis of this statement, if there is no causal connection between the breach and the sums claimed then global claims should fail.
This view is cemented by the SCL Delay and Disruption Protocol which states “the not uncommon practice of contractors making composite or global claims without substantiating cause and effect is discouraged by the Protocol and rarely accepted by the Courts”.
The objection to global claims is understandable. If there are no causal links between the sum claimed and the event, then it can be seen as reversing the burden of proof onto the employer. It is easy in a global claim for the employer to be blamed for everything when lack of cost control, or mistakes in tender pricing are hidden from view in the claim. If a contractor bids a project in the normal way and wraps up all the additional costs into a global claim at the end, then this can result in a lump sum contract becoming a cost reimbursable contract.
However, other cases that have been heard contradict the view that global claims are acceptable, as in Merton v Stanley Hugh Leach where in principle it was decided that a claim for loss and expense was permissible. Also, it is essential that the contractual conditions required for a valid claim are complied with as in Mid Glamorgan County Council v J. Devonald Williams , where an application to have the global claim struck out failed.
In ICI v Bovis a global claim was presented in a Scott Schedule format. The court decided that the schedule was inadequate, but did not go as far as to prevent the claimant from pursuing the claim. ICI were ordered to produce a new schedule. Taking this further, in British Airways Pensions Trustees Ltd v Sir Robert McAlpine the strike out of the global claim failed on appeal and further and better particulars were ordered to be provided. Further and better particulars were also requested in John Holland v Kvaerner , and AMEC Process & Energy v Stork Engineers .
In the case of Bernhard’s Rugby Landscapes v Stockley Park Consortium the court held that the claim submitted was a total cost claim. The claim was permissible as the court felt it was impractical to disentangle the costs and particularise them against the claim heads and that the situation that Bernhard’s were in was not caused by their own conduct. From 2002 to 2004, it became accepted that global claims were permissible if it was impractical to ascertain the loss and allocate to each of the claim headings.
Up until last year, the generally accepted position was that as decided in John Doyle v Laing Management . John Doyle calculated their global claim by comparing their estimate for the works with the actual costs. Laing agreed that a claim could be advanced in this way as long as John Doyle were not responsible for the increase in the costs and that Laing were responsible for all the causal factors the resulted in the increase. As it was easily shown that one of the elements of delay was not of Laing’s making, it was contended that the claim should fail.
Ian Pennicott QC of Keating Chambers summarised the court’s decision on John Doyle v Laing Management as follows:
“(i) For a loss and expense claim under a construction contract to succeed the contractor must normally plead and prove individual causal links between each alleged breach or claim event and each particular item of loss and expense.
(ii) If it is impossible to separate out the consequences of each of the alleged claim events and the contractor is able to demonstrate that all of the events on which he relies are in law the responsibility of the employer, it is not necessary for him to demonstrate causal links between individual events and particular heads of loss.
(iii) However, if it is proved that a significant cause of the (cumulative) delay alleged was a matter for which the employer is not responsible a global claim must necessarily fail.
(iv) If an event or events for which the employer is not responsible cannot be categorised as significant the claim may not fail. In such cases, an apportionment exercise may be feasible although this may produce a somewhat rough and ready approach.
(v) In pleading the claim, the fundamental requirements of any pleading must be satisfied namely that fair notice must be given to the other party of the facts relied upon together with the legal consequences that are said to flow from such facts; so far as causal links are concerned, in a global claim situation there will usually be no need to do more than set out the general proposition that such links exist (causation being largely a matter of inference from expert’s reports); and heads of loss should be set out comprehensively.”
London Underground v Citylink was heard as adjudication and then arbitration and in both cases the global claim was rejected. London Underground appealed and the judge held that there was no objection to an arbitrator rejecting the claim based on the facts of the case presented. In previous cases outline above, it would be normal for the claimant to be asked to make further submissions, however in this matter it was not.
In 2012 a major judgement was published that gave new guidance on the proper treatment of concurrent delay events, global claims and the contractor’s obligation to notify. In the case of Walter Lilly v Mackay Akenhead J reviewed relevant cases on global claims, he drew “together all the relevant threads” and set out several propositions on global claims (at paragraph 486). Of them, the following confirm that a global claim can be legally and contractually made:
(a) “Ultimately, claims by contractors for delay or disruption-related loss and expense must be proved as a matter of fact.”
(b) “There is nothing in principle 'wrong' with a 'total' or 'global' cost claim. However, there are added evidential difficulties (in many but not necessarily all cases) which a claimant contractor has to overcome. 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.”
(c) “I do not accept that, as a matter of principle, it has 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. One needs to see of course what the contractual clause relied upon says to see if there are contractual restrictions on global cost or loss claims. Absent and subject to such restrictions, the claimant contractor simply has to prove its case on a balance of probabilities.”
The judgment made three important developments to the law on global claims. These being that one, it is no longer a requirement for a contractor to prove that it is impossible or impractical to separate out the consequences of each event. Two, that global claims are no longer likely to fail in the event that they include matters for which the employer is not responsible and three, the contractor will need to provide proof that it would not have incurred the loss in any event.
Therefore the success of global claims in contingent on the claim being based on fact and good records and reports being in place to support the costs incurred for additional staff and resources. If causal links are not provided then the court may reduce the sums claimed on an arbitrary basis (as in Walter Lilly). Just because the claim is submitted globally, it does not mean that evidential proof is unnecessary.
The evidence that should be included with a global claim should include witness statements from the key personnel on site, particularly the site foremen, supervisors and site agent. Other evidence should be presented such as site diaries, minutes of meetings, site instructions, dated photographs, progress reports and the contractual correspondence.
Court proceedings are underpinned by the requirements of the overriding objective and proportionality. If the costs of particularising the claim are disproportionate to the sums being claimed, then by dismissing global claims, the rights of the claimant are being deprived. See GMTC Tools & Equipment Ltd. v. Yuasa Warwick Machinery .
Global claims generally include the calculation of loss and expense that has been incurred due to changes and variations in the contract causing the costs to over-run. Due to the number of changes, the claimant will conclude that it is difficult to allocate particular costs to particular variations and thus they claim on a global basis. Taking this premise further, the claimant will allege that the number of changes have caused his labour to be disrupted on the site and that the completion date has been delayed. Normally the claimant will be asking for the additional costs over and above the tender sum.
It would be expected for a global claim to include calculations of loss of overheads (the Walter Lilly case supported the use of Emden or Hudson formula), loss of profit which stems from the delay as long as this can be evidenced. Other usual heads of claim would include site preliminary costs and labour disruption costs.
In the United States, global claims are known as ‘total cost claims’ and the courts require that following must be proven; the tender/estimate was reasonable, the actual cost is fair and reasonable, the claimant was not responsible for any part of the increased cost and there is no other method to quantify the damages. See Lichter v Mellon , Phillips Construction v United States and Boyajian v United States .
In the Boyajian case, the contractor calculated his damages by deducting his actual and anticipated costs from the contract sum and did not itemise the damages. The court rejected this approach because Boyajian had failed to demonstrate the damages caused during delay and non-delay periods. So even though the court rejected the total cost method, it was rejected due to the factual circumstances of the case and not that the method of recovery was unacceptable.
Global claims are the last resort, and the claimant should establish that it is impossible to bring the claim in any other way. Expert evidence would be expected to support the claimant’s case. In Walter Lilly, Akenhead J made clear that he was unhappy with the Employer’s expert, as his approach was that “every conceivable detail and backup document which may or may not be needed must be provided and all evidence required to prove the claim is correct.” Akenhead J expressed the view that the Contractor is not obliged to provide information regarding costs in the fullest of detail as it would be impractical to do so.
It should be noted that in the Walter Lilly case, the claim was presented as not being global and the court agreed that Walter Lilly had established a link between the events identified and the resources expended.