Global Claims The effect of John Doyle Construction Ltd v Laing - - PDF document

Global Claims

The effect of John Doyle Construction Ltd v Laing Management (Scotland)/London Underground Limited v Citylink Telecommunications Limited

Presented to ICES Date: 15 November 2007 by David Moss, Gregory Buckley and Claire Rawlinson of Hammonds

1 WHAT IS A GLOBAL CLAIM 1.1 What is a global claim Global claims are a modification of the following basic principles of contractual claims, so far as a tribunal will allow such modification. Breach/claims event The claimant has the burden of proving (a) that the breach of contract, breach of duty or other claims event has actually

• ccurred; and

(b) that the defendant is factually and legally responsible for it. Causation The claimant has the burden of proving that the breach/claims event caused the loss alleged to have been suffered. Quantum The claimant has the burden of proving loss suffered and amount of that loss. A global claim is one where the claimant cannot or will not adduce evidence to prove these essential elements and offers instead a collection of breaches/events and a total sum of loss incurred and asserts that the former caused the latter. “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.” (Hudson) In other words claims where the sum put forward as the measure of damages for loss

• r expense is said to have been caused by two or more events which have interacted

with each other in very complex ways, so that it becomes extremely difficult, if not impossible, to identify what loss and expense each event has caused. A global claim is sometimes referred to as a “rolled up”, “total cost” or “actual cost” claim. 1.2 Types of global claim Loss and expense Usually based on an allegation that there were numerous variations in contract and the costs overran. The claimant then alleges the cost overrun is recoverable as a result of the variations. There is, however, no analysis that a particular variation leads to a particular item of cost.

Delay and disruption The claim is usually based upon an allegation that there were numerous variations events interfering with the works and the works were delayed, entitling the contractor to an extension of time and monies. Again there is no link between the alleged events and delay. There are a number of ways in which the global sum may be quantified, but it is usually done on the basis of the total additional cost said to be the result of the matters complained of. 1.3 The problem with global claims – basic principles of contract claims Reversed burden of proof Usually the claimant has the burden of proving breach of contract, that the breach caused the loss alleged to have been suffered and proving the loss suffered and the amount of loss. A global claim is one where the claimant cannot or will not adduce evidence to prove these essential elements and offers instead a collection of breaches/ events and a total sum of loss incurred and asserts that the former caused the latter. Global claims computation by itself is evidence neither of breach or other entitlement, nor of damage or additional cost. Even if accompanied by separate and convincing evidence of breaches of contract or other valid grounds of compensation, and even if strong inference is raised at least some damage or additional costs must have been caused, the method is not even evidence as to what that additional coats must have been caused. The method is not even evidence as to what that additional cost is, since there are many other possible explanations of the cost overrun. Unfair and prejudicial to defendants In addition, global claims, whether or not computed from a basis of total cost, are almost invariably unfair and highly prejudicial to defendants, since they avoid indicating the precise case to be met and enables the claimant to change course during the evidence. No reduction for individual claims The tribunal has no satisfactory material before it to reduce the overall claim in respect of disallowed individual claims. 1.4 Brief History of Global Claims Under English Law early cases provided that a global claim could in principle be made. London Borough of Merton v Stanley Hugh Leach [1985] 32 BLR 31: “If application is made....for reimbursement of direct loss and expense attributable to more than one head of claim and at the time when the loss or expense comes to be ascertained, it is impractical to disentangle or

disintegrate the part directly attributable to each head of claim then, provided

• f course that the contractor has not unreasonably delayed in making the

claim and so has himself created the difficulty, the architect must ascertain the global loss attributable to the two causes ...”. There were then a number of cases which where heralded as sounding the end of global claim. An example of this strict approach was the Privy Council’s decision of the Hong Kong case of Wharf Properties v Eric Cumine Associates (No. 2) [1991] 52 BLR 8, where the clients’ actions against their architects for negligent design and contract administration were struck out as incomplete and therefore disclosing no reasonable course of action. Per Lord Oliver “the pleading is hopelessly embarrassing as it stands....in cases where the full extent of extra costs incurred through delay depend upon a complex interaction between the consequences of various events, so that it may be difficult to make an accurate apportionment of the total extra costs, it may be proper for an arbitrator to make individual financial awards in respect of claims which can conveniently be dealt with in isolation and a supplementary award in respect of the financial consequences of the remainder as a composite whole. This has, however, no bearing upon the obligation of a plaintiff to plead his case with such particularity as is sufficient to alert the

• pposite party to the case which is going to be made against him at the trial”.

But this hard-line position has historically been balanced by exceptions and qualifications: ICI Plc v Bovis Construction Ltd Queen's Bench Division, 17 February 1992 The ICI case arose out of the refurbishment of ICI’s premises where the cost rose from an original estimate of approximately £30m to over £53m. A global claim was made against the main contractor, the architects and the consulting engineers. The global claim for abortive work in respect of hundreds of items amounted to £840,211. It was said that the apportionment was impossible. The defendants asked, if they had a complete defence to all the items save for two minor ones- ’circuits need changing’ and ‘fire bell repositioning’ - what monetary consequences would flow from these two items? The judge held that if any of the events could not be proven at trial, the only consequence is that actual sum paid will fall to be distributed between a lesser number of events, not that the total recoverable will be less. The judge found it palpable nonsense that £840,000 could be the cost of repositioning a fire bell. GMTC Tools v Yuasa Warick Machinery Court of Appeal (Civil Division), 24 November 1994 A manufacturing company sued the firm which had supplied it with an unreliable computer controlled precision lathe. The claim was global to the extent that it did not deal precisely with the costs arising from each and every breakdown. The judge

• rdered that more detailed information be provided. The Court of Appeal held that the

judge was not entitled to require a party to establish causation and loss by a

particular method. Subject to the respondent knowing the case it had to answer, the claimant could formulate its claim for damages as it wished. British Airways Pensions Trustees v Sir Robert McAlpine (1994) A dispute arose in connection with the diminution in value of a development property due to defects. The amount claimed was £3.1m. The respondent sought particulars in respect of each and every defect and when not provided the judge ordered that the claim be struck out. The Court of Appeal reversed the decision with Lord Justice Saville saying: “The basic purpose of pleading is to enable the opposing party to know what case is being made in sufficient detail to enable that party properly to prepare to answer it. To my mind it seems that in recent years there has been a tendency to forget this basic purpose and to seek particularisation even when it is not really required. This is not only costly itself, but is calculated to lead to delay and interlocutory battles in which the parties and court pore over endless page of pleadings to see whether or not some particular point has or has not been raised or answered, when in truth each party knows perfectly well what case is made by the other and is able properly to prepare to deal with it. Pleadings are not a game to be played at the expense of the litigants, nor an end in themselves, but a means to the end, and that end is to give each party a fair hearing. Each case must of course be looked at in the light of its own subject matter and circumstances.” 2 RE-EMERGENCE OF GLOBAL CLAIMS 2.1 Overview The judgement in Scottish decision of John Doyle Construction Limited v Laing Management (Scotland) Limited (2004) represented a major shift in judicial approaches to global claims, adopting a much more permissive stance. A more relaxed view of global claims has now been endorsed by the English courts in London Underground Limited v Citylink Telecommunications (2007). 2.2 John Doyle Construction Limited v Laing Management (Scotland) Limited John Doyle were works contractors employed by management contractors Laing under an amended Scottish Works Contract Form, the project being the construction

• f a new corporate headquarters for Scottish Widows. John Doyle claimed a 22 week

extension of time and £4.8 million for loss and expense caused by delayed and

• disruption. Laing argued that since John Doyle had made a global claim, if any of the

loss and expense in it was not caused by them, the whole claim must fail. Lord MacFadyen at first instance felt that “it would be wrong to exclude, at this stage, the possibility that the evidence led at proof before answer will afford a satisfactory basis for an award of some lesser sum than the full global claim”. The decision of the Inner House on Laing’s appeal is an important re-assessment of the modern law. The findings of the Inner House can be summarised as follows:

• Individual causal links must normally be proved between each breach/claims

event and each item of loss and expense.

• If this is impossible, the claims events can be pleaded as producing a cumulative

effect so long as the contractor can show that all the events pleaded are the responsibility of the employer. In this situation a global claim can succeed.

• However even where the loss has been caused both by matters for which the

employer is responsible and by matters for which he is not responsible the claim can still succeed if those for which the employer is responsible are the dominant cause of the loss. (Equally if matters for which the employer is not responsible are the dominant cause of the loss then the global claim will fail).

• Even where it is not possible to identify a dominant cause of the loss and the

causes are truly concurrent a global claim may partially succeed. It may be possible for the tribunal to make an apportionment between those matters for which the employer is responsible and those for which he is not responsible. In this way the tribunal could apportion liability for the loss and award the contractor a part of his global claim.

• In pleading the claim, both the events relied on and the heads of loss must be set
• ut comprehensively. The pleading of causation should be simple and not
• elaborate. Causation is largely a matter of inference and the evidence on it will

usually be in experts’ reports. Consideration of this aspect should wait until all the evidence is before the tribunal. There are three main changes in emphasis in the law in John Doyle and each is, to a greater or lesser extent, encouraging of global claims. These are summarised as follows:

• Whereas previously it was understood that any cause of loss shown to be not

the responsibility of the defendant would be fatal to the global claim, it now appears that this only applies if the cause of loss is dominant.

• The court seemed comfortable with the idea of apportionment of loss by the

tribunal between causes for which the employer is and is not liable, even if this may be a rough and ready process.

• The issue of whether causation can be proved should normally wait until the

trial when all the evidence is in and so, presumably, would not be decided at the interlocutory stage on an application to strike out. 2.3 London Underground Limited v Citylink Telecommunications The project involved the replacement of the communications system throughout London’s underground rail network together with the operation of that new system. Citylink claimed an overall extension of time, based on a large number of alleged breaches of contract by London Underground Ltd, which was alleged to have caused delay. An adjudicator and then an arbitrator rejected the global claim. The arbitrator however recognised that even if the global claim failed that may not be the end of the matter.

There may be sufficient evidence of a surviving claim to establish a connection between an individual loss and an individual event. London Underground Limited challenged the arbitrator’s award and argued that it should have ended at the finding

• n the global claim.

The Judge held that there was, in principle, no objection to an arbitrator taking such a course provided the result was based on primary facts that had been at issue in the

• proceedings. The arbitrator’s finding was based on the case presented, argued and

dealt with in the evidence, taking account of the failure of the global claim. The judge considered that there was nothing in this case that required the arbitrator to seek further submissions. The decision in London Underground v City Link is not a green light for global claims but the reverse, since the arbitrator decided only that issue where the evidence showed a connection between delay and the event. In most cases, the tribunal will not immediately decide the surviving claim but will give the parties the

• pportunity to make further submissions.

2.4 Lessons for those seeking to bring global claims Factually

• Establish that it is impossible to bring the claim any other way;
• Be careful to call evidence to suggest that it is not your fault; but not too much

evidence or this becomes a battle ground;

• Establish that no element of the sum claimed has already been recovered: but

keep this at a high level unless the point is seriously challenged;

• Establish there is no material causative factor causing the delay, disruption or

cost for which the Defendant is not liable. In doing so recognise that confusion is the key here and that the ultimate goal is to convince the Court that you are not to blame for a significant amount of the loss being claimed. Experts The quality of a global case is extremely dependent on the expert chosen. It is important to retain the best expert as early as possible. 2.5 Attacking a global claim Factually For those seeking to resist a global claim they should try to do as follows:

• Show that it is possible to bring the claim in other ways or, if not, that it is at least

partly the Claimant’s fault.

• Try to establish that the sum claimed has already been recovered

• Establish that there are many other material factors causing the delay, disruption
• r cost for which the defendant is not liable.

Tactically

• Strike Out

In some cases, it may be possible to make an application to strike out the claim before trial. However, to be successful, the applicant must show not only that the claim is hopefully vague and unclear but also not only that the claim is hopelessly vague and unclear but also that it is prejudicial in its defence of the claim. The court have been keen to stress that tactical applications to strike out will be rejected and adverse cost orders may be made.

• Inference

The important point to bear in mind is that the claim is based on a inference- that each and every variation or event either lead to cost or caused delay or

• disruption. The key to destroying a claim is to attack the inference – thus, if any
• ther event or variation is identified that did not lead to cost or expense, the claim

fails. In a delay claim the most effective response is a pure factual and logical analysis

• f each delaying event. Ascertain the event, ascertain whether it is on the critical

path, calculate the delay and ascertain whether the delay was critical. If it is then the contractor is entitled to the days delay actually caused.

• CPR 36 offer

Rebutting the inference may well suggest that other sums are actually due and

• wing or that the contractor is entitled to a different extension of time. It is

therefore critical to obtain a rough estimate of the sums owing/ the extension of time and make an early and generous CPR 36 offer – if only to protect against the considerable experts’ costs that will be incurred. 3 AVOIDING A GLOBAL CLAIM 3.1 Records To pursue a dispute requires evidence that a particular event caused the extra costs to be paid. Getting the evidence particularly for multiple events can be expensive. To avoid having to make a global claim it is necessary to be able to break down the contribution of each event, and the easiest way to avoid this and the expense of going back and finding evidence is to keep up to date and accurate records. The Society of Construction Law Delay and Disruption Protocol, (which discourages the making of composite or global claims by contractors) states, in effect, that if accurate and complete records are maintained, the contractor should be able to establish the causal link between an Employer Risk event and the resultant loss and/or expense suffered without the need to make a global claim.

The Protocol goes on to state that the failure to maintain such records does not justify the contractor in making a global claim. The Protocol contains detailed guidance as to the keeping of records and recommends that the parties reach a clear agreement on the records to be kept. The Protocol also contains model clauses in relation to the keeping of records. The Protocol is not a statement of law. However, it is undoubtedly better practice to keep good records and address delay and disruption issues when they arise, rather than to deal with them after the project has been completed. An employer might be well advised to insist, by way of express contractual provisions, that a contractor maintains the records recommended by the protocol. This may limit the necessity and opportunity for making a global claim but it is unlikely, to eliminate it entirely. If there is a contractual obligation upon the contractor to maintain particular types of records, perhaps in a defined format with a certain degree of detail then, if a failure to do so results in the pursuit of a global claim, it is not difficult to see that this would be another factor for a tribunal to consider when determining the merits of a global claim. However, in the post John Doyle era it seems unlikely that an assertion by an employer that a contractor has failed, in breach of contract, to maintain certain records would form the basis of a successful strike out application. The quality of records maintained is plainly a question of degree and detailed consideration would be required of (a) the records in existence and (b) the reasons for the non-availability of other records. The more records kept the better and it is not just a case of keeping records up until practical completion of the project. The minimum period that records should be kept is six years and if the contract is signed as a deed then records should be kept for 12 years. 3.2 Contractual Requirements All too often, things go wrong on construction projects for reasons beyond the control

• f a contractor and for which they should be compensated under the terms of their

relevant contract. Frequently due to a failure to give the appropriate notice, contractors fail to achieve a satisfactory financial settlement. Unfortunately, it is not usually possible to remedy such a situation retrospectively. Accordingly, close attention should be paid to the notice provisions of the contract. For example, attention should be paid to the words “shall” and “may”. If it is stated that a notice “shall” be served rather that “may” such notice must be given for it to be effective. Other common contractual provisions in respect of notices include notices to be given in writing or verbal notices to be followed up with a written notice.

3.3 Entire Agreement clauses An entire agreement clause will ensure that no varied or additional conditions exist with respect to the performance of the contract beyond those that are stated in the contract and any previous negotiations in which the parties to the contract had considered different terms will be deemed superseded by the final written version. If the contract is to contain such a clause it is important that all requirements for documents etc are put into place before the contract is entered into.

CONTACT Hammonds Trinity Court 16 John Dalton Street Manchester M60 8HS DX 14347 MANCHESTER 1 David Moss Partner Telephone No: 0870 839 5052 Fax No: 0870 460 3506 E-mail: david.moss@hammonds.com Gregory Buckley Solicitor Telephone No: 0870 839 5025 Fax No: 0870 443 4158 E-mail: gregory.buckley@hammonds.com Claire Rawlinson Solicitor Telephone No: 0870 839 5168 Fax No: 0870 460 3029 E-mail: claire.rawlinson@hammonds.com