Loss & Expense Claims in Practice

RICS MENEA Region

Holiday Inn Express, Internet City,
Dubai, UAE
29th February 2012

Matt Molloy
MSc FRICS FCIArb FCIOB MAE Barrister
Jonathan Cope
BSc(Hons
BSc( Hons)) FRICS FCIArb FCIOB MAE Barrister
1
29-Feb-12
MCMS Limited
 Introduction

The aims of this presentation are:

- to give an overview of how parties to a construction

contract can be compensated for delay and disruption
- to review the recoverable heads of claim available
- to review the requirements of proving entitlement

2
29-Feb-12
MCMS Limited
 Areas Covered

Entitlement under the contract for loss and/or
expense

Entitlement to damages

The difference between loss and/or expense and
damages

Recoverable heads of claim

Proving entitlement

Global Claims

3
29-Feb-12
MCMS Limited
 Entitlement under the contract
for loss and/or expense (1)

Firstly you need a clause/term in the contract that provides

for loss and/or expense (loss and/or expense clause)

A loss and/or expense clause will give a right to a party to be
paid additional remuneration in the event that a specific event
occurs.

These can be split into:
- Employer breach e.g. Delay by Employer
- Employer risk events e.g. Ground conditions

4
29-Feb-12
MCMS Limited
 Entitlement under the contract
for loss and/or expense (2)

The clause may determine how compensation is to be
calculated.

The clause may exclude a claim for damages (an
exclusive remedy clause).

The clause may provide for notice provisions that if not
complied with will prevent recovery (condition
precedent clause)

The purpose of loss and/or expense clause is to
determine the circumstances in which and how a party is
compensated for delay and disruption

Not all contracts make clear what can be recovered and
may refer to direct loss, loss and expense, additional cost

If there is ambiguity use general principles of damages.
5
29-Feb-12
MCMS Limited
 Entitlement to damages (1)

Firstly you need a term of the contract (either express or

implied) that has been broken most obvious example is
implied term that an Employer will not hinder or prevent the
Contractor from carrying out the work

Secondly you need a breach of that term i.e. a failure of
one party to comply with the requirements of that term (its
obligation)

6
29-Feb-12
MCMS Limited
 Entitlement to damages (2)

Thirdly the breach must have caused losses of the type which
were in the reasonable contemplation of the parties at the
time they entered into the contract. Losses which arise
naturally from the breach will inevitably be in the reasonable
contemplation of the parties, but unusual losses will only be in
their reasonable contemplation if the special circumstances
which gave rise to the losses were known at the time the
contract was entered into.

Hadley v Baxendale (1854) 9 Ex 341

Purpose of damages is to put the parties back in the position
they would have been in if the contract had been performed.

7
29-Feb-12
MCMS Limited
 The difference between loss
and/or expense and damages

Will depend on the wording of the loss and /or expense
clause in the contract

May be no difference at all

Alternatively, loss and/or expense clause may provide for a
formulaic or contract rates approach to calculating
amount of remuneration damages must be actual losses
incurred or likely to be incurred and will need to be proved in
terms of causation and quantum

8
29-Feb-12
MCMS Limited
 Recoverable heads of claim (1)

Increased preliminaries e.g. Water/electricity for the works,
scaffolding, plant, small tools, site supervision, general
attendant labour, telephone bills etc.

Thickening and prolongation. Will generally be a direct loss
i.e. 1st limb of Hadley v Baxendale.

How to value prolongation costs?

9
29-Feb-12
MCMS Limited
 Recoverable heads of claim (2)

Overheads head office costs specifically proved e.g. head
office staff allocated to job, specific post/telephone calls
however majority of cases not specifically allocated so can
only recover if it can be proved that prolongation prevented
contractor from obtaining work elsewhere due to loss of
turnover (formula acceptable if no better records available)

Formulae: Hudson, Emden, Eichleay

Generally a typical percentage contribution of every contract
is applied to head office costs for the company as a whole
which is then used to establish contractors loss.

10
29-Feb-12
MCMS Limited
 Recoverable heads of claim (3)

Loss of Profit dependant on contractor establishing that if

the project had not been delayed, the contractor could have
used the turnover profitably.

Employer potential loss of profit would normally be included in
the contract as LADs

Loss or productivity or uneconomic working as a result of
delay or disruption to contractors regular progress costs
may include labour, plant or materials costs

Measured mile and other techniques

11
29-Feb-12
MCMS Limited
 Recoverable heads of claim (4)

Fluctuations
- Increased costs of labour plant and materials resulting
from inflation as a result of delay.

Finance Charges
- Loss of interest on borrowings or investment should be
recoverable under 1st limb of Hadley v Baxendale.
- Bank interest
- Direct loss if it is on borrowings

12
29-Feb-12
MCMS Limited
 Recoverable heads of claim (5)

Interest
- Express term of contract
- Implied term of contract
- Judgment interest (Court/Arbitration)
- As damages i.e. only when in the reasonable
contemplation of the parties anomaly arises between
recovery of interest as general damages and recovery of
interest as special damages

13
29-Feb-12
MCMS Limited
 Proving entitlement (1)

Loss and/or expense under the contract (not formulaic or
contract rates approach)
- Note proof is established on balance of probabilities
basis
- Has event occurred/losses been incurred? (matter of fact)

- Has event caused loss and/or expense claimed? (this will

involve demonstrating linking event to loss and/or
expense)
- Would loss and/or expense claimed be incurred anyway as
a result of contractor defaults? ( note concurrent delay
may prevent recovery)

14
29-Feb-12
MCMS Limited
 Proving entitlement (2)

Damages
- Level of proof = balance of probabilities.

- Has there been a breach of a term/have losses been

incurred? (matter of fact)
- Has breach caused damages (losses) claimed? (cause and
effect linkage)
- Would losses be incurred anyway as a result of contractor
defaults? (e.g. concurrent delay)
- Are the losses claimed deemed to be in the contemplation
of the parties at the time the contract was entered into
either by imputed or special knowledge

15
29-Feb-12
MCMS Limited
 Proving entitlement (3)

Proving the loss and expense:

Records, records, records.
- Prolongation costs completion date must have been
delayed
- Disruption - will need to compare actual costs incurred
with those contemplated
- loss of contribution to head office overheads records or
formula
- loss of profit
- Finance charges

16
29-Feb-12
MCMS Limited
 Notices as Conditions Precedent

Where notice must be given before a claim will be valid

Does failure to give notice bar a claim?

Judicial support for condition precedents but only if clause
expresses this in clear terms otherwise it will not be a
condition precedent.

Condition precedent may be waived in practice

17
29-Feb-12
MCMS Limited
 Summary

Reimbursement for delay and disruption can be either as a
result of the inclusion of a term/clause in the contract or by
way of damages arising from a breach of a term

The amount of loss and/or expense or damages may be the
same

Ordinarily you need to link causal event with financial effect
(losses) (although global claims can succeed subject to
certain criteria)

Level of proof is on balance of probabilities

18
29-Feb-12
MCMS Limited
 Global Claims

1. What is a global claim?

2. What are the objections to global claims?
3. What are the requirements of a successful
global claim?
4. How can a global claim be defeated?
5. What happens if a global claim is defeated?
6. How can a contractor avoid having to make a
global claim?

19
29-Feb-12
MCMS Limited
 Global Claims

John Doyle Construction Limited v Laing
Management (Scotland) Limited [2004] BLR 295

20
29-Feb-12
MCMS Limited
 Q1: What is a global claim?

A contractor must prove

1. One or more events for which the employer is
responsible
2. Loss and expense suffered by the contractor
3. A causal link between the event and loss and
expense

Global claim is a modification of this principle

21
29-Feb-12
MCMS Limited
 Q1: What is a global claim?

Definition from Hudson (11th edition)

- 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-
sub-division of the sum between those matters.

Justification for global claims

Total cost claim

Composite claim & Rolled-
Rolled-up claim
22
29-Feb-12
MCMS Limited
 Q2: What are the objections to
global claims?
1. Offend generally accepted legal position and
reverse the burden of proof
2. Ignore other explanations of causes of
additional costs
3. Can result in a lump sum or remeasurement
contract being converted into a cost
reimbursable contract
4. Invariably avoid pleading the precise case to
be met
23
29-Feb-12
MCMS Limited
Q3: What are the requirements of
a successful global claim?

Requirement 1: Claim must be pleaded with
sufficient particularity to enable the defendant
to know the case against it

Requirement 2: All other contractual
requirements for a valid claim must have been
complied with
- Notice requirements
- Particulars of the delay or loss

24
29-Feb-12
MCMS Limited
Q3: What are the requirements of
a successful global claim?

Requirement 3: It must be impossible or
impractical to separate the consequences of
each of the events
- What must contractor prove?
- How complex must interaction between a group of
events be for it to become impractical or impossible
to identify causal links and apportion loss?
- What evidence is required?

25
29-Feb-12
MCMS Limited
Q3: What are the requirements of
a successful global claim?

Requirement 4: Any significant matters the
employer is not responsible for must be
eliminated
- Pre John Doyle:
Doyle: Global claim would fail if employer could
demonstrate that at least part of the loss had been caused by a
not merely trivial event that was not its responsibility
- Post John Doyle:
Doyle: Global claim will only fail if employer can
demonstrate that at least part of the loss has been caused by a
significant event that is not its responsibility
- Dominant cause approach to causation

26
29-Feb-12
MCMS Limited
Q3: What are the requirements of
a successful global claim?

Requirement 5: All parts of the claim where a
causal link can be demonstrated must be
pleaded separately
- Why?

More chance of success

Different heads of claim may have different legal or
contractual bases

Some matters may already have been agreed
- How?
Variations note all encompassing
Prolongation costs
Disruption costs measured mile
27
29-Feb-12
MCMS Limited
Q3: What are the requirements of
a successful global claim?

Requirement 6: There must be sufficient

evidence to support the losses claimed

28
29-Feb-12
MCMS Limited
 Q4: How can a global claim be
defeated?

Defences
- Employer demonstrates that it is not responsible for a
significant cause of the delay or loss, and that this
was the dominant cause

Applications to strike out

29
29-Feb-12
MCMS Limited
 Q5: What happens if a global
claim is defeated?

John Doyle: A claim can still succeed

John Doyle: Tribunal can apportion or find a
causal link between an individual event and an
individual loss

Difficulties of apportionment

London Underground Limited v Citylink
Telecommunications Limited [2007] EWHC 1749
(TCC)

30
29-Feb-12
MCMS Limited
Q6: How can a contractor avoid
having to make a global claim?

The importance of records

The importance of records

AND

THE IMPORTANCE OF RECORDS..

31
29-Feb-12
MCMS Limited
 The end

Further information at www.mcms.co.uk

Thank you

32
29-Feb-12
MCMS Limited