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Lines drawn in global conflict

LAW

A recent ruling by the Appeal Court has changed the way that employers' consultants and contractors approach total costs cases and it will affect time extensions and apportioning based on fault, writes Lindy Patterson

CLAIMS submitted by contractors at the end of a project are often 'global', meaning that the contractor claims a lump sum representing part or all of its losses for which it holds the client responsible.

These claims are often also 'total cost' claims - in other words they represent all the contractor's costs beyond the contract price.

The contractor's position in such cases is usually that it is impossible to break down its costs and allocate specific sums to individual events for which the client is responsible.

This may be because the events occurred together or were so closely related in their effect that the cost is impossible to separate.

On the other hand, the party on the receiving end of such a claim is likely to argue that there is no way of eliminating from such a claim the costs or events for which the contractor itself may be responsible.

Global claims have been the subject of many legal arguments over the years.

One recent example involves John Doyle Construction, which launched a global claim against Laing Management Scotland in respect of the reinforced concrete works and superstructure package it undertook for Laing at the Scottish Widows Headquarters in Edinburgh.

The start of the superstructure package was delayed and Doyle sued Laing for an extension of time and for loss and expense.

Doyle did, however, accept that one of the causes of the delay was the knock-on effect of delays in the groundworks subcontract, which Doyle also undertook.

Doyle pleaded a global claim on the basis it was not possible to separate the cost consequences of each cause of delay and disruption.

Laing argued, as a matter of principle, that a valid global claim depended upon all the causes of delay and disruption being established as the contractual responsibility of the employer.

Clearly this was not the case here: one of the causes was the delay of the earlier package that was not Laing's responsibility and as such the whole claim had to be struck out.

The judge, Lord MacFadyen, decided that he needed to hear evidence of what had happened previously on the project before deciding whether he could separate the effects and identify individual losses.He therefore ordered a full hearing.

Laing did not want a full hearing and went to the Court of Appeal to have Lord MacFadyen's decision overturned.

It came as no great surprise when the appeal was rejected. But what is startling about the Appeal Court's decision is that it then proceeded to devote the bulk of its written judgment to how a claimant might, when making a global claim, be able to prove an entitlement, particularly when the claim is of the total cost variety.

The Appeal Court pointed out that success in a total cost claim depends upon establishing three things:

that the tender price was adequate to do the job;

that there were breaches of contract or of contractual entitlement to additional sums;

and that the actual cost was greater than the expected cost.

The underlying logic of this is that there must be no other reasons for the contractor having incurred the additional cost.

In the 1996 case of John Holland Construction v Kvaerner R J Brown the court confirmed that other causes of loss had to be eliminated before a total cost claim could succeed.

So such claims can fail if it can be proved that the tender price was inadequate or, more commonly, if other causes of delay such as poor productivity cannot be eliminated.

In the Doyle case the Appeal Court agreed that Doyle would have to eliminate from its claim all factors that were not Laing's responsibility.

The Appeal Court then proceeded to suggest how a global claim might succeed by using 'the application of common sense to the logical principles of causation' One of the first things the claimant must do is determine the dominant or significant cause of delay or disruption.

If the employer is liable for this cause or causes the court will allow the contractor to recover its loss notwithstanding the existence of other more minor causes.

If there are several significant causes of loss, some of which are the employer's responsibility and others which are not, the court may apportion the cost based on the relative importance of the various contributing causes or form its own view on the evidence and reach a rough and ready result.

This is on the basis that to do otherwise would deny the contractor a remedy 'even if the conduct of the employer or architect is plainly culpable' to quote the Court of Appeal.

These comments are set to change the response of employers and their consultants to such claims.

For example, should the employers' consultants now undertake the sort of exercises described by the court - such as ascertaining significant causes and apportioning based on fault?

Contractors, on the other hand, will need to think carefully how these comments might affect the submission for extensions of time and loss and expense.

Key points

The general principle is that a global claim can only succeed where the contractor has eliminated all causes of its loss that were not the responsibility of the employer

An exception to this principle is where there are some causes that are not the employer's responsibility but where the dominant or more significant cause is the employer's responsibility. In such an instance the full loss will be recoverable

Another exception is where there are competing significant causes.The court may in such cases apportion losses and allow the contractor some recovery based on the relative importance of each cause

Where the practical difficulties of carrying out such exercises are recognised by the court a rough and ready result may be considered more desirable than no result at all.