The Latest Authorities on Claims for Delay Disruption and Loss Expense ....pdf

8/14/2019 The Latest Authorities on Claims for Delay Disruption and Loss Expense ....pdf

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THE LATEST AUTHORITIES

ON CLAIMS FOR DELAY, DISRUPTION AND

LOSS & EXPENSE

and the Practical Implications for those Preparingand Defending Claims

8 OCTOBER 2013, TUESDAY

PRINCE HOTEL

KUALA LUMPUR

www.charltonmartin.com


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About Charlton Martin Group The Regions leading Construction Contracts Consultancy

Consultants who specialise in dispute resolution and dispute

avoidance after many years of industry experience

Serving various market sectors including:

o Engineering

o Oil & Gas / Petrochemical / Process

o Construction

o Power

2www.charltonmartin.com


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About Charlton Martin Group


Michael Charlton andRodney Martin have worked together

successfully for the past 16 years, the last 6 of which have been

as Chairman and CEO of the Charlton Martin Group.

The Charlton Martin Group provides services in 4 key areas:

Contract Administration

Claims Preparation / Defense Dispute Resolution

Training


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Our Offices Hong Kong

Singapore

Malaysia

Plus Regional and Internat ional Coverage



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What Defines Us?


WORK ING HARDER AT WINNING

To pro vid e hig h quali ty consultanc y servic es which arerelevant

to ou r clients needs and circumstances in any par t icu lar

si tuat ion.

In do ing so to be the construct ion con tracts co nsul tant of

cho icew ithin the Asia Pacif ic Regio n.


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www.char l tonmart in .com

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Programme

09:00 09:45 Lecture 1 by Mr Michael Charlton

09:45 10:30 Lecture 2 by Mr Rodney Martin

10:30 11:00 Tea / Coffee Break

11:00 11:45 Lecture 3 by Mr Michael Charlton

11:45 12:30 Lecture 4 by Mr Rodney Martin

12:30 13:00 Questions & Discussion

13:00 14:00 Lunch

14:00 15:30 Workshop 1

15:30 15:45 Tea / Coffee Break

15:45 17:30 Workshop 2

17:30 Close

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Lecture 1

BY

MR MICHAEL CHARLTON



Lecture 1: Introduction & Factual Background

Introduction

Factual background toWalter L illy & Co Ltd v Mackay

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Introduction

Walter Lil ly & Co L tdvMackay and Ano ther (No 2) [2012]

EWHC 1773 (TCC)

Reported in full 139 pages of judgment and 660 paragraphs!

Also reported in Building Law Reports [2012] BLR 503

provides a commentary and edited report (lengthy factual and fact

specific content removed)

NOTE: Application for leave to appeal against the judgment in

this case was refused in January 2013.

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Introduction

Why theWalter Li l lycase?

Addresses the following important topics:

Concurrency in delay

Practical Completion

Conditions Precedent and Notices

Details and Records to Prove Loss and Expense

Global Claims

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Introduction

Why theWalter Li l lycase?

Addresses the following important topics:

Head Office Overheads and Use of Formulae

Recovery by Main Contractor of Reasonable Settlements of

Subcontractors Claims

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Factual Background

Walter Li l lyvMackay

Project from hell!

Recipes:

Difficult and determined employer

Poor and underprovided design

Architect who was undermined and prevented from operating

Consultants to further undermine the architects position

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Factual Background


Recipes:

Indecision and changes by employer

Complete breakdown between employer and his design team

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Factual Background


Messrs Daniel Messrs Mackay Messrs West

DMW

Developments

(Employer)

Bought and build on a plot of land at 3, Boltons Place, London SW5

(A house each)

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Factual Background


Project:

Contractor: Walter Lilly & Company Ltd (WLC)

Contract Sum: 15,372,962.83

QS: Gardiner & Theobald (G&T)

Architect: Barrett Lloyd Davis Associates (BLDA)

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Factual Background


Project:

Date for Possession: 12 July 2004

Date for Completion: 23 January 2006

Contract Period: 80 weeks (approx. 18.5 months)

Contract: JCT 98, without quantities

WLC only priced Preliminaries, remainder presented as

provisional sums

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Factual Background


WLC were responsible in respect of design for a list of items.

There was little design or detail available at tender stage.

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PROJECT

Unit A Unit B Unit C (MrMackays)

split into 3 contracts viadeed of variation


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Factual Background


Delays right from the beginning:

Demolition works

Piling works

End of 2004, design information still incomplete due to indecision by

DMW

After original completion date (January 2006), major aspects of

design still not resolved!

None was considered as WLCs fault at that time

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Factual Background


Cost plan (drawn on the basis for the provisional sum) became

inadequate

High quality and specification demanded by Mr and Mrs Mackay

(e.g. hand stitched leather to bookshelves) made delays worse

Issue arose: Who was responsible for delays in dealing with

provisional sums? Differing views by WLC and DMW

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Factual Background


November 2005 : WLC applied for19 weeks EOT

January 2006 : WLC reported 27 weeks EOT

April 2006 : WLC requested for33 weeks EOT

June 2006 : WLC anticipated completion in November 2006 i.e.

36 weeks delay

Cost ballooned 5.5 mil to approx. 9.375 mil by May 2006

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Factual Background


Up to 29 June 2006, BLDA considered the main causes of delay

are:

Late instructions and design information

Splitting of packages into smaller packages

Poor coordination of services, the lifts and substation

Problems from only one staircase compared to two in original

specification

WLC not taking enough design responsibility (not accepted by WLC)

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Factual Background


July 2006: Only 20 weeks EOT granted. WLC applied for another

EOT, identifying 46 weeks delay due to late instructions by BLDAarising from changes to doors and wall specification

October 2006: More and more delays!

Continuous strained ties between Mr Mackay and BLDA and G&T

prompted him to employ Knowles for contractual and adjudication

advice.

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Factual Background


Strategy with Knowles on board:

Pursue WLC, make them responsible for LD

and restrain BLDAs actions

BLDA was accused of masking its own delay by issuing EOTs to

WLC. Under pressure, BLDA wrote numerous letters to WLC

omitting sections of work to shorten the contract period.

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Factual Background


Final EOT extended completion date to 16 February 2007.

Practical Completion for Unit A certified on 2 February 2007,

while MrMackays unit was still in delay due to various problems.

Mr Mackay indicated intention to hold LDs from 16 February 2007

had client walk around meetings without WLCs presence

Knowles became influential and advised withholding of 550k for

defective and outstanding works Knowles involvement raised

temperature

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Factual Background


March 2007: DMW withheld payment BLDA suspend service

April 2007: WLC requested 71 weeks of EOT as most major

delays were still ongoing

Mr Mackay blamed BLDA and continued interfering BLDA

cannot issue instructions without Knowles agreement

WLC commenced adjudication with DMW succeed amounts

withheld for various defects were inappropriate

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Factual Background


Knowles aggressive policy:

Wewould like to create a situation whereby direct work is not

delaying [Practical Completion] i.e. Practical Completion is

solely delayed byWLCsworks. WLCsworks can be omitted to

achieve this if possible

Recommended BLDA be dismissed

G&T instructed not to issue any further interim valuations

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Factual Background


January 2008 : Delay due to specialist ceiling works

February 2008 : Mr Mackay fall out with Knowles unpaid bills

Engaged in highly derogatory dialogues

Objected Knowles suggestion that DMW were responsible for

part of the delays

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Factual Background


March 2008 : DMW terminated BLDA. Navigant appointed

January to August 2008 : Many artists and tradesmen worked on

the site damaged WLCs work WLC spent time rectifying

but Navigant were not dealing with their EOT applications

Navigant: Practical Completion 7 July 2008 (original: 23 Jan 2006)

G&T: Valuation No. 40 9.1 mil (original: 5.3 mil)

Dispute continues into 2009 and 2010

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Factual Background

A Brief Look into the Judgment

On the witnesses generally favourable to WLC while Mr

Mackay was found to be an unsatisfactory witness

On the experts approach

WLCs expert preferred objective identified critical delay by

referring to logical sequence of events on the longest path

MrMackays expert focused on WLC not proving their case

not expertsjob based on conversation not in evidence

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www.charltonmartin.com 32

Lecture 2

BY

MR RODNEY MARTIN


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Lecture 2: Concurrency, Practical Completion &

Conditions Precedent and Notice

Concurrency in Delay



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Concurrent Delay

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Concurrent Delay(work delayed due to two or more competing causes of delay)

Contractor /

Subcontractors

responsibility

OR Neutral event

delays occur at the same time

Architect /

Engineer /

Employers

responsibility


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Keating on Construction Contracts:

Dominant Cause Approach

Leyland Ship ping v Norw ich[1918]which cause is dominant is a question of fact which is not solved

by mere point of order in time, but is to be decided applying

common sense standards

H Fairweather v Lo nd on Boro ug h of Wand sw orth[1987]

To assume that it is possible to analyse two causes of delay and

assess which event is the dominant or predominant cause of

delay was considered by the court to be inappropriate

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Apportionment

Jo hn Doyle v Laing Management[2004]

City Inn v Shepherd Constru ctio n[2010]

Favoured in these cases - requires a compromise between the

parties by allocating total delay among matters causing delay.

Rejected in other cases and not considered applicable under

English law where standard form construction contracts are used

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But For

Turner Page Musi c v To rres[1997]but for the delay caused by the Architect the delay should not have

occurred but rejected in this case as being inconsistent with the

more popular Dominant Cause approach

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Devlin Approach

If a Delay is the result of two causes one of which constitutes a breach

of contract (e.g. late instruction) then the EOT will be calculated using

the delay caused by the breach

But this is not a helpful approach where delay caused by both parties

would result in both parties claims (prolongation cost by contractor and

LAD by employer) being successful which makes little sense for samedelay period

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Burden of Proof Approach

Applies where one of the delays clearly caused by the Contractor

Contractor must demonstrate that delay to completion was caused by

matters which entitle him to EOT in isolation of his own delay

No entitlement where concurrent delays since Contractor could notshow separate liability for delay

Resulting in same outcome as but for test

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First Past the Post

One of the delays occurs first in time (thus first past the post)

Used for dealing with questions of EOT

All other delaying matters are then ignored until the first cause has

ceased to have effect

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Loss Lies Where It Falls

Where parallel Contractor and Employer delays occur, Employer

required to acknowledge the right to EOT and thus will be prevented

from levying LDs

Contractor will have no entitlement to loss & expense because this

would arguably have been incurred in any event due to his own

culpable delay

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Leading Cases

Wells v Arm y and Navy Co-operati ve Soc iety[1902]

Where an Employer delays the Contractor, he or she will not be entitledto deduct liquidated damages even though the Contractor is causing

delay

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Leading Cases

City Inn Ltd v Sheph erd Constru ctio n Ltd[2008]

Delay that had been caused by matters for which Contractor wasresponsible would not deprive the Contractor of an Extension of Time for

the delay caused by a Relevant Event

Architect should apportion responsibility for delay only way for architect

to give fair result. Similar to contributory negligence.

But for test rejected.

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Leading Cases

City Inn Ltd v Shepherd Con stru ctio n Ltd[2010]

Identified concurrency as a delay caused by the Contractor (culpable delay)occurring at the same time as a delay caused by the Employer where both

cause delay to completion. The appeal decision of the 2008 judgment still

supported apportionment.

De Beers UK Lim ited v A tos Orig in IT Serv ices UK Lim ited[2010]

In considering the principles of concurrency, City Inn and apportionment was

ignored. Failure by Atos to give notice fatally undermined arguments that

non payment by De Beers was a repudiatory breach.

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Leading Cases

Ady ard Abu Dhabi v SD Marin e Servi ces[2011]

Contractors pre-existing delay is relevant to the question of determininga contractors entitlement to an extension of time.

Thus concurrency in this case was defined as two or more effective

causes of delay of approximately equal causative potency

Thus a pre-existing delay might have more causative potency

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Leading Cases

Henry Bo ot Constru ctio n (UK) Ltd v Malmaison Hotel (Manchest er)

L td[2000]

If there are two concurrent causes of delay, one which is a Relevant

Event and other is not, the Contractor is entitled to Extension of Time for

the period of delays caused by the Relevant Event

One of the most important cases on how to deal with concurrency and now

favoured by the courts See Walter Lilly

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Leading Cases

The Royal Brompto n Hosp ital NHS Trust v Frederick Alexander Hammond

and others[2001]

Extension of Time can be granted when:

(1) the Relevant Event has occurred; and

(2) the Relevant Event is likely to cause the completion of works as a whole

to be delayed beyond the completion date then fixed under the contract

The need to show that the relevant event caused actual delay to the completion of

the project is always necessary notwithstanding any consideration of delay events

which are pre-existing and ongoing events or those which are truly concurrent

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Leading Cases

Motherw ell Brid ge Cons truc t ion Ltd v Micafi l Vakuum techn ik[2001]

A full Extension of Time should be awarded where there is concurrent Contractor-caused and Employer-caused delay, if it is fair and reasonable to do so

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Standard Forms of Contract References

Where standard forms are silent on the issue of concurrency, the

common law position applies.

In Malaysia, only the IEM 2011 deals with concurrency at Clause 44.3(6):

the Engineer must not consider in his certification of any extension of

the Date for Completion the effect of the events due to the Contractors

fault which operate concurrently with any of the events listed in Clause

44.1(1).

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Decision in Walter Lilly

Where delay is caused by two or more effective causes, one entitles

contractor to EOT as Relevant Event, Contractor is entitled to full EOT.

Logic Many Relevant Events would be acts of prevention and it would

be wrong in principle to construe Clause 25 to deny contractor full EOT

in those circumstances

Relevant Event provides for EOT, nothing suggests there is any sort of

proviso that EOT be reduced if causation criterion established.

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Architect to award fair and reasonable EOT, does not permit

apportionment test is causation

City Inn is persuasive but not applicable in English law

In the event, by analysis it was found by the experts that there was

actually no concurrency at all a very common situation

The Malmaisoncase is now considered good authority in concurrency

cases

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It is considered that the Walter Lilly decision will be valid in Malaysia

although this remains to be tested.

There is no reason to suppose that the City Inn apportionment ruling

would be applicable in Malaysia.

The PAM conditions of contract in use in Malaysia in this regard are

similar to JCT 98 on which the Walter Lilly decision was made.

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Society of Construction Law Protocol

Where Contractor delays to completion occur concurrently with Employer

delays, the Contractors concurrent delay should not reduce any EOT

due, even where Employer delays are only overlapping (i.e. ofconcurrent effect rather than truly concurrent) SOCL page 16

Accords with Walter Lilly judgment

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What is practical completion?

An important issue in the Walter Lilly case.

PAM 2006 Clause 15.1 states:

When in the opinion of the Architect, the Employer can have full use of the Works

for their intended purposes, notwithstanding that there may be works and defects

of a minor nature still to be executed and the Contractor has given to the Architect

a written undertaking to make good and to complete such works and defects

within a reasonable time specified by the Architect; and other requirements

expressly stated in the Contract Documents as pre-requisite for the issuance of

the Certificate of Practical Completion have been complied with.

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CIDB 2000 Clause 1.1 states:

Practical completion: completion of the works including tests on

completion under the contract and where the works include equipment

which requires a licence for its operation, then completion so as to

render such equipment eligible for issuance of a licence in respect of its

operation. Provided however the existence of minor outstanding works

and defects, which do not affect the functional use of the works shall not

affect Practical Completion.

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PWD 203A (Rev. 2010) has similar definition to that of PAM 2006

IEM 2011 does not provide helpful definition of completion thus

common law applies

Note that under PAM 2006, de minimis rule applies to minor works and

defects in determining practical completion

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The Common Law

J Jarvis v Westm ins ter Corp oratio n[1978]

I take the words [practical completion] to mean completion for all practical

purposes

J Nevil le v Wil liam Press and Sons[1981]

Ithink the word practically gave the Architect the discretion to certify

that William Press had fulfilled its obligation, where very minor de minimis

work had not been carried out, but that if there were any patent defects

the Architect could not have given a certificate of practicalcompletion

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Substantial Completion

Max Abrahamson on Engineering Law and the ICE Contracts, 4th Ed.

The Concise Oxford Dictionary equates substantial with virtual which is

defined as thatis such for practical purposes though not in name or according

to strictdefinition. It is at least clear on the one hand that the fact that the works

are or are capable of being used by the Employer does not automatically mean

that they are substantially complete (anysubstantial part of the Works which

has both been completedand occupied orused)and on the other hand that

the Engineer may not postpone his certificate under this Clause until the works

are absolutely completed and free of alldefects

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When has Practical Completion been achieved?

What effect does snagging have on PC?

Judge considered that PC meant completion for all practical purposes

and that what completion entails must depend upon the nature, scope

and contractual definitions of the works, as they may have developed by

way of variations or architects instructions

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De minimis snagging should not be a bar to PC unless there is so much

of it that the building cannot be used for its intended purpose

In the Walter Lilly case, work was often omitted and awarded to others

outside the contract because due to the extensive use of Provisional

Sums there was no issue in doing so

In this case once the work was omitted it no longer formed part of the

contract and did not need to be done or completed in order to obtain PC

Although it is unusual for all work to be the subject of provisional sums, if

it were to be the case then none of the Malaysian forms restrict the

omission of work by definition as a variation

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Notice

Hudsons, 11th Edition

Sincethe purpose of such provisions is to enable the owner to considerthe position and its financial consequences, (by cancelling an instruction

or authorising a variation, for example, he may be in a position to reduce

his financial liability if the claim is justified), there is no doubt that in

many if not most cases the courts will be ready to interpret these notice

requirements as conditions precedent to a claim, so that failure to give

notice within the required period may deprive the contractor of allremedy.

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Notice

PAM 2006 Cl. 24.1(a) Notice within 28 days from start of the

occurrence of the matter giving rise to claim

with estimate & relevant info substantiatingthe claim

IEM 1989 / PWD 203A Notice within 30 days with estimate

IEM 2011 Cl. 53.1 Notice within 28 days after event. However,

Cl.53.5 allows the Engineer to makedetermination irrespective of whether the

Contractor complied with Cl. 53.1 Defeats

purpose of condition precedent

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Notice

CIDB 2000 Cl. 32.1 Notice within 30 days after the event and

must specify Such notice is a condition

precedent

FIDIC 1999 Cl. 20.1 Notice within 28 days after Contractor

became aware of the event or should

have become aware of the event

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Notice

WW Gear Cons tru ct ion Ltd v Mc Gee Group Ltd[2010]

Timely application in writing was a precondition to the recovery ofloss and/or expense claim

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Nature and Form of Notice

Check contract requirements and comply

Case law on nature of applications -London Bo rough of Mertonv Stan ley Hugh Leach[1985]

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Lack of Notice

Gaymark Investments Pty Ltd v Walter Construct ion Group

[1999]

Lack of notice could not deny entitlement to EOT where cause of

delay was employer act of prevention

However, the lack of notice did deny the Contractor costs of delay

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Qualifications in Loss and Expense Clauses

Usual in standard form construction contracts that only additional

cost not reimbursed by payment under any other clause of the

contract will be recoverable.

Obvious example: variations clauses

PAM, IEM, PWD & CIDB Forms of Contract

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Notice was not really an issue regarding EOT, the issue was more

related to loss and expense

Counsel for the parties agreed that timely written application with

supporting information and details was a condition precedent under JCT

98 Clause 26

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Judge said it was necessary to bear in mind that most of the matters

which entitle contractor to loss and expense are the fault or risk of

employer, e.g. variations, late provision of information or instructions

Notice needed to be interpreted with care and without construing them

against contractor

Notice to be served when contractor has incurred loss and expense or is

likely to incur loss and expense

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For time related preliminaries contractor can wait until cost has been

incurred which will not be until the delay has in fact happened

Architect may not have to ascertain loss until it has happened

This may be relevant where loss is head office overheads or profit which

will not occur until the extended period

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There are two notices to be considered, one relating to application for

costs and the other relating to the provision of details of loss and

expense to enable ascertainment to be carried out

What is to be provided in each case depends on the circumstances of

each case

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CHARLTON MARTIN ONE DAY SEMINAR

TEA / COFFEE BREAK

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Lecture 3

BY

MR MICHAEL CHARLTON


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Lecture 3: Details and Records to Prove Loss and

Expense & Global Claims


Global orRolled up Claims

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Text Book References

Delay and Disruption in Construction Contracts (3rd Ed, 2005)

by Keith Pickavance

[the Contractor] should be required to produce the factual

evidence underpinning its opinion of the expected effects, together

with:

(1) a network programme accurately illustrating how it intended to

complete the works if the event had not occurred (i.e. a

workable master programme);

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Text Book References

(2) an updated network programme showing what had actually

been achieved in relation to the proposed programme before

the event occurred; and

(3) an impacted network programme demonstrating with

supporting descriptions, the duration of new or delayed

activities and their logical interface with the remaining works.

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Quotations

Order forms

Invoices

Receipts

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Delivery notes

Evidence of incorporation into works

Evidence of actual payment

Cost records required Audit Trail


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Standard Forms of Contract References

PWD 203A (Rev. 2010) Clause 44.2:

the Contractor shall submit full particulars of all claims for

direct loss or expense ... supporting documents, vouchers,

explanations and calculations which may be necessary to be

ascertained by the S.O.

Only IEM 2011 defines Costs

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Useful practical comments offered by the judge which have not

been addressed in earlier cases

It should be borne in mind that the architect already has

knowledge of project and delays and costs from attendance at

meetings and receipt of applications for EOT

Has much information at his fingertips

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Less information needs to be provided by contractor in

applications

Architect only needs to be put in position to form an opinion that

direct loss and expense has been incurred or is likely to be

incurred due to disturbance in regular progress of works

Reference made toMerton

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Failure to provide notice on minor item of loss will not invalidate

major amount claimed

JCT only requires contractor to submit details which are

reasonably necessary for ascertainment of loss and expense

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Offer to architect or QS to inspect records at contractors office

may be considered as submission of details of L&E

Details of L&E do not include backup accounting information

which may support same

No need to construe Clause 26 in a strict way or as penalty

against contractor

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Worth noting this, employers and consultants often consider

notices requirements which are conditions precedent to be apenalty, failure to comply bars all

Grounds under Clause 26 arise due to fault and risk of employer

DMW had requested comprehensive list of information which was

not necessary under contract

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QS and architect are aware of and familiar with items which will

incur additional costs in event of delay

CP would be fulfilled by reference to BQ preliminary items

Architect and QS not strangers to contract

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The judge posed an unusual and interesting view:

Arguablethat loss and expense could be valued by reference to

contract rates or prices for such preliminaries on basis that those

rates or prices represent the loss (if not the expense) to the

contractor of having such staff or other preliminary activities onthe project for longer than anticipated

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Ascertainment means determine or discover definitely

Mass of back up detail not necessary

Inmy judgment it is necessary to construe the words in a sensible

and commercial way that would resonate with commercial parties in

the real world. The architect or QS must be put in the position in

which they can be satisfied that all or some of the loss and expense

claims are likely to be or have been incurred

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They do not have to be certain. One has to bear in mind that

the resolution will be on a balance of probabilities. Tribunal onlyhas to be satisfied that contractor probably incurred loss and

expense as a result of the events listed.

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Global or Rolled up Claims

Traditionally, it has been considered that notwithstanding the

extreme difficulty on occasion of isolating the specific cause and

relating it to a specific event, if it can be shown that any part of

the cause arises from the contractors own default, his claim will

fail entirely.

The usual response from employers and indeed the courts has

been that a contractor must take and maintain records.

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Leading cases

J Crosby & Sons Ltd v Portland Urban & Distr ict Counc il

(1967)

It is therefore impracticable, if not impossible, to assess the

additional expense caused by delay and disorganization due to

any one of these matters in isolation from the other matters.

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Leading cases

J Crosby & Sons Ltd v Portland Urban & Distr ict Counc il

(1967)

Ican see no reason why he (the arbitrator) should not recognize

the realities of the situation and make individual awards in

respect of those parts of individual items of claim which can bedealt with in isolation and a supplementary award in respect of

the remainder of these claims as a composite whole. (J

Donaldson)

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Leading cases

London Borough of Merton v Stanley Hug h Leach(1985)

The loss or expense attributable to each head of claim cannot in

reality be separated.

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Leading cases

Wharf Prop ert ies Ltd and Ano ther v Eric Cum ine As so ciates and

Others(1991)

The Court of Appeal in Hong Kong decided that the pleadings were

hopelessly embarrassing, as they stood (some seven years after the

action began) and an unparticularised pleading in such a form should not

be allowed to stand. (HK C of A)

The failure even to attempt to specify any discernible nexus between the

wrong alleged and the consequent delay provides, to use [counsels]

phrase no agenda for the trial (Privy Council)

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Leading cases

John Doy le Constr uc tion Ltd v Laing Management (Sco tland)

Ltd(2004)

A total cost claim

the contractor might reasonably have expected to perform the work

for a particular sum, usually the contract price;

the proprietor committed breaches of contract;

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Leading cases

John Doy le Constr uc tion Ltd v Laing Management (Sco tland)

Ltd(2004)

the actual reasonable cost of the work was a sum greater than the

expected cost.

This involves an assertion that, given that the breaches of contract

caused some extra cost, they must have caused the whole of the

extra cost because no other relevant cause was responsible for any

part ofit.

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Leading cases

John Ho lland Cons tru ctio n & Eng ineering Pty Ltd v Kvaerner

RJ Brown Pty Ltd[1996]

In such a case, if an event or events for which the employer is

responsible can be described as the dominant cause of an item

of loss, that will be sufficient to establish liability, notwithstandingthe existence of other causes that are to some degree at least

concurrent.

104


105/150



Leading cases

Ley land Sh ipp ing Company L td v Norwich Un ion Fi re

Ins uranc e Soc iety Ltd[1918] AC 350

Ifan item of loss results from concurrent causes, and one of

those causes can be identified as the proximate or dominant

cause of the loss, it will be treated as the operative cause, andthe person responsible for it will be responsible for the loss

105


106/150



Leading cases



Itmay be said that such an approach (of apportionment)

produces a somewhat rough and ready result. This procedure

does not, however, seem to us to be fundamentally different innature from that used in relation to contributory negligence or

contribution among jointwrongdoers

106


107/150



Leading cases



Itseems to us that in such cases the contractor should be

able to recover for part of his loss and expense, and we are

not persuaded that the practical difficulties of carrying out theexercise (of apportionment) should prevent him from doing so.

107


108/150



Leading cases



Itmay be possible to use a process of apportionment to

divide the pursuers increased costs between the two sets of

causes

The straight denial simply because a claim is global no longer

appears to be appropriate

108


109/150




Many of the above cases considered

WLC had claimed L&E across three residential units using a

notional splitthis was considered reasonable and there was no

purpose in trying to analyse precisely.

Claims were made for thickening of preliminaries due to

additional input cause by delay etc.

109


110/150




Global or total cost claims are not terms of art or statutorily

defined terms

Claiming all costs incurred on a project does not make the claim

global

110


111/150




A global claim identifies numerous potential or actual causes of

delay and/or disruption, a total cost on the job, a net paymentfrom the employer and a claim for the balance between costs and

payment attributed without more and by inference to the causes

of delay and disruption relied on

Judge not convinced WLCs claims were global

111


112/150




Prolongation costs related solely to delays asserted for which

EOT applied

Costs mostly for staff for extended period

Actual costs used

Evidence submitted on thickening

112


113/150




To prove global claims, evidence must be proved as fact

On balance of probabilities

First; events occurred giving entitlement

Second; those events caused delay

Third; those events incurred loss and expense

113


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JCT do not lay down that direct loss and expense cannot be

ascertained by appropriate assessments

No set way to prove the three elements of claim

Nothing in principle wrong with global claim

Added evidential difficulties in proving on balance of probabilities

Must show that tender sufficiently well priced to make some net

return, no other matters which actually caused loss

114


115/150




Concurrent events which cause loss which contractor responsible for do

not preclude some recovery

Necessary to make adjustment to allow for loss caused by contractor

1m claim does not fail because contractor responsible for 50k loss, it

is simply deducted from entitlement

Claim simply adjusted for losses caused by contractor

Particulars in prose form relating to thickening costs were acceptable

115


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Lecture 4

BY

MR RODNEY MARTIN


117/150


Lecture 4: Head Office Overheads and Use of

Formulae & Recovery of Main Contractor

of Reasonable Settlement of Sub-

Contractors Claims

Head Office Overheads and the Use of Formulae

Recovery by Main Contractor of Reasonable Settlement of Sub-

Contractors Claims


118/150


Head Office Overheads and the Use ofFormulae


119/150



Offices, plant and yards

Running costs

Directors salaries

Head office staff salaries

Administrative expenses

Travelling expenses

Legal and professional fees

Depreciation

Head Office Overheads


120/150



Head Office Overheads

Two approaches:

Actual increased overhead expended, or

The opportunity cost orloss ofopportunity method formula


121/150



The Actual Cost Approach

Identify actual head office costs affected by delay

May be difficult identifying which costs arise directly or indirectly

from delay

Should be possible for key head office staff to generate a

timesheet for delay period and compare with normal time sheet


122/150



The Actual Cost Approach

Support services such as accounts, secretarial, clerical, rent,

stationery etc. can be included a proportion of costs to be

allocated to key staff

Alternatively compare actual costs with amount included in tender


123/150



The Lost Opportunity Approach

Hudsons Formula

HO/Profit Percentage* x Contract Sum x Period of Delay

100 Contract Period (weeks)

(in weeks)

*Percentage in Contract


124/150




Emdens Formula

Head Office Overhead %** x Contract Sum x Period of Delay

100 Contract Period

**The HO/Profit percentage is arrived at by dividing the total overhead cost and

profit of the Contractors organization as a whole by the total turnover


125/150




Eichleay Formula

i.e. Value of work during contract period x Total Head Office OverheadTotal value of work for the company During Contract Period

as a whole during contract period

= Head office Overheads Allocated to the Contract

Head Office Overheads Allocated x Period of Delay Allocated to the Contract

Contract Period

= Amount Claimed


126/150




J F Finnegan L td v Sheffi eld City Counc il(1988)

It is generally accepted that, on principle, a contractor who isdelayed in completing a contract due to the default of his employer,

may properly have a claim for head office or off-site overheads

during the period of delay, on the basis that the workforce, but for the

delay, might have had the opportunity of being employed on another

contract which would have had the effect of funding the overheads

during the overrun period.


127/150




Ellis Don Ltd v The Parkin g Autho rity of Toro nto(1978)

The court accepted the use of the Hudsons formula

Wh ittall Buil ders v Ches ter Le Street Dis tic t Cou nc il(1985)

The court accepted the use of the Emdens formula which improved

on the Hudsons formula by using the actual head office / profitpercentage and not that used at tender


128/150




Tate & Ly le v Greater Lo ndon Coun ci l[1983]

After many years of success, the opportunity cost approach and theformula in general fell out of favour when in this case the court would

not accept a calculation of head office overheads based upon a

simple percentage requiring actual additional cost to be proved


129/150




Alfred McA lp ine Homes North v Proper ty and Land Contractors

(1995)

Emdens formula was rejected not because the opportunity costmethod was not appropriate but because they were not appropriate

in this particular case because of the companys method of working

and the prevailing economic climate

The arbitrator accepted the additional costs


130/150




The difficulty in proving and assessing the actual additional costs

incurred in respect of head office overheads have recently led to the

courts taking a more relaxed view of the degree of proof necessary.

Claims using loss of opportunity approach and formulae are re-

appearing no better alternative has yet to be devised

For example:

Norwest Hols t Const ruct ion Ltd v Co-opera t ive Wholesa leSociety(1989)

Emden formula used with a significantly reduced percentage


131/150




Opportunity cost method using formula relies upon:-

1. Overhead percentage capable of being earned at time of

delay

2. Overhead percentage reasonable

3. Work at same level of overhead recovery available during

period of delay


132/150




Opportunity cost method using formula relies upon:-

4. Method of working suitable to formula approach, i.e.

contractor seeking further work on on-going basis

5. Contractor denied opportunity of earning overheads

elsewhere as result of being detained on site during period

of delay

Contractor must prove above criteria


133/150




Following usually required:-

Audited accounts for appropriate period

Showing that level of overheads claimed is reasonable

Company trading and actively seeking work other than during

alleged delay period


134/150




Following usually required:-

Evidence of tender activity, invitation to tender, declinedduring period of delay

Increased margins applied to tenders which were

consequently unsuccessful

Company prevented from obtaining work during alleged delay


135/150



Loss of Profit

Principles similar to overheads

Some contracts exclude claims for loss of profit

Unless contract excludes both under contract and at common law

then loss of profit a legitimate claim

Problems in showing that a profit may have been made but for

the delay


136/150



Loss of Profit

Evidence of opportunities to tender on other contracts

Show all tenders submitted and awarded to demonstrate profit

level

Demonstration on balance of probability


137/150




Judge considered many of above cases

Contractor can recover overheads and profit lost as result of

delay on project caused by factors which entitle it to loss andexpense

Necessary to show on balance of probability criteria as listed

previously


138/150




Architect and QS do not need to be certain that loss has occurred.

Needs to be confident that loss and expense being allowed had

actually been incurred as a result of the delay and disruption


139/150


Recovery by Main Contractor of ReasonableSettlement of

Sub-Contractors Claims


140/150


Recovery by Main Contractor of Reasonable

Settlement of Sub-Contractors Claims

Settlement with Sub-Contractor

WLC had reached a full and final settlement with their sub-

contractor Norstead at 1,750,000

26k above amount claimed as entitlement

Issue as to whether the settlement was reasonable

R b M i C f R bl


141/150





Judge referred to Supershield Ltd v Siemens Bui ld in g

Technolo gies FE Ltd [2010] BLR145

Employer liable to contractor for contractors liability to his sub-

contractor

Not necessary for contractor to prove on balance of probability

that contractor was liable to sub-contractor or that he would have

been liable for that amount

R b M i C t t f R bl


142/150





For Employer to be liable to contractor, contractor must show

breach by employer has caused the loss incurred as for causation

of damages

Damages not too remote

Claim and settlement sufficiently strong to be considered

reasonable



143/150





Unless claim so weak that reasonable person would not take itsufficiently seriously to offer settlement, cannot be said that

settlement was not caused by breach

Loss must be within contemplation of parties



144/150




Test for Settlement

Is amount within range of amounts reasonable people in position of

settling party might have made

Following relevant:-

Strength of claim

Whether settlement made as result of legal advice

Uncertainties and expenses of litigation



145/150




Test for Settlement

Following relevant:-

Benefits of settling rather than expenses of litigation

Question of whether settlement reasonable it to be assessed

at date of settlement


146/150


Conclusion

Walter Lilly Judgment

Offers very helpful practical comments and decisions particularly on:-

Concurrency

Notices and provision of information as condition precedent

Amount of information which is contemplated by typical conditions

Global claims

Other topics including Practical Completion, Head Office Overheads,

Recovery of Settlement amounts


147/150



QUESTIONS AND DISCUSSION


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LUNCH BREAK


149/150



WORKSHOP

149


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