GLOBAL CLAIMS

BY

ROGER KNOWLES

GLOBAL CLAIMS Background The proper manner of presenting a claim where a legally binding decision is required is to link the cause, whether relating to delay, cost or other matter which forms the basis of the claim, with the effect. For example, if an Architect or Engineer is six weeks late in issuing to the contractor drawings for the foundations this would represent a typical cause being a breach of contract. The effect may be a six weeks delay to the completion of the works. To succeed in this claim the contractor would normally be expected to link the cause with its effect. The linking of cause and effect of delays and extra cost may not be difficult if they can be dealt with in isolation but often they arrive in significant numbers which creates a problem when trying to identify each cause and its effect. Contractors and subcontractors have overcome the problem by producing global or rolled up claims. As this type of claim does not satisfy the rule of linking cause and effect a substantial number of cases have come before the courts for a ruling. . Keating On Building Contracts 7th Edition at page 546 states: Contractors often have claims dependent on a number of separate causes each of which has contributed to delay and extra cost. In principle, the loss attributable to each cause should be separately identified and particularised, but separation may be difficult. In recent times contractors and subcontractors have been ever willing to short cut the need to link cause and effect by the use of the global claim. Where this occurs all causes of delay and extra cost are lumped together and one overall effect given as a consequence. The editors of Building Law Reports explained the global claim in the following terms in their commentary on the case of Wharf Properties Ltd v Eric Cumine Associates (1991): Global claims are ones where the connections between the matters complained of and their consequences, whether in terms of time or money, are not fully spelled out. In the Australian case of John Holland Construction v Kvaerner R J Brown (1996) the judge described a global claim as one where the claimant does not seek to attribute any specific loss to a specific breach of contract, but is content to allege a composite loss as a result of all the breaches alleged or presumably as a result of such breaches as are ultimately proved. Support for Global Claims Contractors who present global claims by way of justification usually quote the decision in the case of J Crosby and Sons Ltd v Portland Urban District Council (1967). In this case the contract overran by 46 weeks. The arbitrator held that the

contractor was entitled to compensation in respect of 31 weeks of the overall delay, and he awarded a lump sum rather than giving individual periods of delay against nine delaying matters. The respondent contested the award arguing that the arbitrator was wrong in providing a lump sum delay without giving individual periods in respect of each head of claim. Justice Donaldson however agreed with the arbitrator in that due to the complex interaction of one delay with another: The result in terms of delay and disorganisation of each of the matters referred to above was a continuing one. As each matter occurred its consequences were added to the consequences of the matters which had preceded it. The delay and disorganisation which ultimately resulted was cumulative and attributable to the combined effect of all these matters. I can see no reason why he (the arbitrator) should not recognise the realities of the situation and make individual awards in respect of those parts of individual items of claim which can be dealt with in isolation and a supplementary award in respect of the remainder of these claims as a composite whole. Similar support was provided in the decision of London Borough of Merton v Stanley Hugh Leach (1985) where Mr Justice Vinelott stated: The loss or expense attributable to each head of claim cannot in reality be separated.. If an 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 of 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 Hard Line Approach A somewhat tougher stance was taken in respect of global claims in the Hong Kong case of Wharf Properties Ltd v Eric Cumine Associates (1991). In this case the plaintiff made no attempt to link the cause with the effect in respect of a claim by the employer against he Architect for failure properly to manage, control, co-ordinate, supervise and administer the work of the contractors and subcontractors as a result of which the project was delayed with substantial additional costs being incurred. Six specific periods of delay were involved but the statement of claim did not show how they were caused by the defendants breaches. The plaintiff pleaded that due to the complexity of the project, the interrelationship and very large number of delaying and disruptive factors and their inevitable knock-on effects. it was impossible at the pleadings stage to identify and isolate individual delays in the manner the defendant required and that this would not be known until the trial. The defendant succeeded in an application to strike out the statement of claim. 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.

The matter was referred to the Privy Council in London in view of the apparent differing view taken in the Crosby and London Borough of Merton cases. The Privy Council however rejected the argument that these two decisions justified an unparticularised pleading. Lord Oliver had this to say: Those case establish no more than this, that in cases where the full extent of extra cost incurred through delay depend upon a complex interaction between the consequence 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 its case with such particularity as is sufficient to alert the opposite party to the case which is going to be made against them at the trial. 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. The editors of Building Law Reports Volume 52 at page 6 made the following observations regarding the effect of the Eric Cumine decision: This in turn will mean that those responsible for the preparation and presentation of claims of this kind will need to work hard with those who have first-hand knowledge of the event so as to provide an adequate description of them. Equally it will mean that proper records will need to be kept or good use will have to be made of existing records to provide the necessary detail. It will no longer be possible to call in an outsider who will simply list all the possible causes of complaint and then by use of a series of chosen weasel words try to avoid having to give details of the consequences of those events before proceeding to show how great the hole was in the pocket of the claimant. Use of a Scott Schedule The purpose of using a Scott Schedule, which is popular among judges in the Technical and Construction Court, is to define and state all the issues clearly by assembling all the relevant claims and responses in a tabular form. There is no standard layout for a Scott Schedule each one can be tailored to suit individual circumstances. In the case of Imperial Chemical Industries v Bovis Construction Ltd and Others (1992) Judge Fox Andrews QC ordered the plaintiff to serve a Scott Schedule. The case was complicated and there was more than one defendant, therefore a need for clarity was paramount. The Scott Schedule was required to contain: the alleged complaints giving rise to each claim the defendant against whom each claim was made which clause(s) in the contract had been breached alleged consequences of each claim

A completely different approach was taken in the case of GMTC Tools and Equipment Ltd v Yuasa Warwick Machinery Ltd (1994). The case had nothing to do with construction but related to a defective computer precision lathe which was to be used in the manufacture of blanks which in turn were machined to become rotary cutters. The principles employed in the case would apply equally to construction cases. The lathe did not operate as intended and the plaintiff prepared and submitted a claim based on the number of management hours involved in dealing with the problem and the number of hours during which the lathe was inoperable. Difficulties arose when the defendant sought further and better particulars of the claim. The judge ordered that a Scott Schedule should be drawn up providing detailed information attempting to link cause being the malfunctioning of the lathe with the effect being the wasted management time and the purchase of blanks to replace lost production. The plaintiff experienced difficulty in complying with the order and the matter came before the Court of Appeal. It was the view of Lord Justice Leggatt that a judge is not entitled to prescribe the way in which the quantum of damage is to be pleaded. No judge is entitled to require a party to establish causation and loss by a particular method. There are as can be seen two distinctly different approaches to the same problem which is not very helpful if one is preparing or responding to a claim. Striking Out Orders It can be seen from the case of Wharf Properties Ltd v Eric Cumine Associates that the courts in Hong Kong are prepared to strike out a claim thus depriving the plaintiff of any entitlement if it considered that the claim had not been prepared and presented in an acceptable manner. The case of British Airways Pension Trustees v Sir Robert McAlpine and Sons (1994) was to establish whether the courts in the UK would in turn be prepared to take a robust approach. The case arose out of a project in Croydon. There were defects in the work which were alleged to be due to faults by the Architect the contractor and others. It was argued that as a result of the defects the value of the completed work in the open market had dropped by 3.1m. The defendants requested that further and better particulars be provided in respect of the claim. They asked to be given detailed information as to how much of the loss in value could be attributed to each and every defect. For example if two windows were defective how did it affect the value of the property. The plaintiffs argued on a global basis by saying that the result of all the defect put together was a reduction in the value of the property in the sum of 3.1m. As the plaintiff was not prepared or was unable to provide more detailed information an application was made to strike out the claim. Judge Fox Andrews ordered the claim to be struck out, but his decision was overturned by the Court of Appeal. Lord Justice Saville in summing up said: The basic purpose of pleadings is to enable the opposing party to know what case is being made in sufficient detail to enable that party properly 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 in itself but is calculated to lead to delay and to interlocutory battles in which the parties and the courts pore over endless pages of pleadings to see whether or not some particular points have or have 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 citizens nor an end in themselves but a means to the end and that end is to give each party a fair hearing. Assessment From the decision in the case of Amec Building Ltd v Cadmus Investment Co Ltd it seems that the courts judge every case on its merits without laying down any hard and fast rule as to whether claims submitted on a global basis should be rejected. This case resulted form an arbitrators award which involved a claim for disruption. The contractors claim totalled circa 150,000 submitted on a global basis. In finding in favour of the contractor the arbitrator awarded only 5,000. The contractor appealed on the basis that the arbitrator had virtually dismissed the claim on the grounds that it had been submitted on a global basis. The court did not accept this argument concluding that the arbitrator had not been convince by the evidence that the contractors claim could be justified and had substitute a figure of 5,000. The judge in arriving at his decision had this to say: Certainly it seems to me that there is no substance in the complaint that the arbitrator had set his face against global claims and that thereby prejudiced Amec. What appears to have happened is that upon justifiable complaint of lack of particularity the arbitrator insisted upon an allocation of the overall claim to particular heads which was an attempted by Amec and when these matters were investigated by the accountants and in evidence and cross examination it clearly became quite clear to the arbitrator that there were occasion of duplications, matters compensated elsewhere and a general lack of particularisation. In those circumstances it seems to be that the arbitrator concluded that the plaintiff had not proved the costs incurred were due to the fault of Cadmus.As is clear from the careful judgement of the arbitrator he proceeded to analyse each of the claims made by Amec and decided each upon the evidence that was before him. Total Cost Claims Global claims come in various forms. It is not uncommon for the contractor to claim the recovery of all the costs incurred in the project plus profit less the amount certified and paid on the basis that but for the matters included in the claim the contractor would have recovered them all. This is often referred to as a total cost claim. This method was adopted in the case of Inserco Ltd v Honeywell Control Systems (1996) where the judges comments make interesting reading: Insercos pleaded case provided sufficient agenda for the trial and the issues for the trial and the issues are about quantification. Both Crosby v Portland District Council and London Borough of Merton v Stanley Hugh Leach concerned the application of contractual clauses. However I see no reason in principle why I should not follow the same approach in the assessment of the amount to which Inserco may be entitled. There is here as in Crosby an extremely complex interaction between the consequences of the various breaches, variations and additional works and in my judgement it is impossible to make an accurate

apportionment of the total extra cost between the several causative events. I do not think that even an artificial apportionment could be made it would certainly be extremely contrived even in relation to the few occasions where figures could be put on time etcIt is not possible to disentangle the various elements of Insercos claims from each other. In my view the cases show that it is legitimate to make a global award of a sum of money in the circumstances of this somewhat unusual case which will encompass the total costs recoverable under the February agreement, the effect of the various breaches which would be re4vocerable as damages or which entitle Inserco to have their total cost assessed to take account of such circumstances and the reasonable value of the additional works similarly so assessed. In How Engineering Services Ltd v Linder Ceilings and Partitions (1999) the arbitrator Mr Jupp awarded a sum in respect of loss and expense, based upon a global assessment. The dispute arose out of two contracts, the Atrium and the Station. In finding for the claimant the arbitrator accepted the claimants costs as set out in the points of claim and arrived at a figure of 130,346. From this he deducted 4,186 in respect of work carried out prior to the receipt of the notice, 32,611 in respect of realignment of ceilings which was treated as a variation order, and 3,155 for remedial works. The award was thus based on a total cost claim calculated on a global basis against which the defendant appealed arguing that the arbitrator had not ascertained the sum as require by the arbitration clause. It was the view of the court that in some cases the facts are not always clear. Different tribunals would reach different conclusions and an arbitrator is entitled to assess loss and expense in the same way as a court assessing damages. The court upheld the arbitrators award. In the case of Berhards Rugby Lanscapes Ltd v Stockley Park Consortium (1997) the plaintiff landscape contractor entered into an agreement under seal with Trust Securities Holdings for the construction of a golf course on a landfill site under a contract which incorporated the ICE 5th Edition . The work was subject to delay and detailed and lengthy claims were submitted. It was alleged by the defendant that the claims were bound to fail due to a number of reasons one of which was that they contained global delay claims for variations. It was held by the court that the global claim was a total cost claim. The plaintiff had qualified its alleged loss by subcontracting the expected cost of the works from the final costs. Such a claim was permissible if it was impractical to disentangle that part of the costs attributable to each head of claim and the situation had not been caused by the plaintiffs conduct. In such circumstances the inference was that the employers breaches had led to additional costs and that the cause nexus was to be inferred rather than demonstrated. Significant Losses Caused By The Contractor The case of John Doyle Construction Ltd v Laing Management (Scotland) Ltd (2004) was heard in the Scottish Inner House Court of Session had to decide whether in principle global claims were bound to fail.Lang Management was the management contractor for the construction of the new corporate headquarters for Scottish Widows in Edinburgh. A number of works packages were contracted out to John Doyle. An action was brought by John Doyle seeking an extension of time of 22 weeks together with loss and expense. John Doyle admitted that despite their best efforts it was

impossible to identify cause and effect in respect of each item which caused delay and disruption and this was why the claim had been prepared on a global basis. It was argued on behalf of Laing that the basis of the global claim was that all the additional costs incurred by John Doyle resulted from the delay and disruption caused by Laing. This being the case if one of the events relied upon by Doyle was shown not to have been caused by Laing then the case would be undermined. The judge was sympathetic to this view but felt the whole matter should be treated with common sense. However the situation may have been different if a significant amount of the loss could be shown to have been caused by Doyle. The judges view was that if a global claim is to succeed the contractor must eliminate from the claim all costs that are not the responsibility of the employer. He considered global claims to be a risky business but nonetheless allowed proceedings to continue. A similar situation arose in the case of Great Eastern Hotel Company Ltd v John Laing Construction Ltd (2005). In this case the employer brought an action against the contractor in respect of the refurbishment of the Great Eastern Hotel in London. The contract was a construction management contract and it was alleged that the contractor was in breach of the construction management agreement. The claim against the contractor included claims which had been made by the works contractors which the employer was bound to pay. It was alleged that some of these claims resulted from failures by the contractor. These claims were global and if the employer was to succeed the court had to be satisfied that there should be deducted from the causes of loss all matters which were not the responsibility of the employer. The Society of Construction Law Delay and Disruption Protocol The Society of Construction Law Delay and Disruption Protocol provides a view concerning global claims which accords with many of the judgements to which reference has already been made. However some of the views seem a little off line from what has been decided by the courts. In summary the views expressed in the Protocol are: 1. 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.(This does not appear to be correct as in all the above referred to cases only in the Hong Kong decision in Wharf Properties was the case dismissed for being global). 2. If the contractor has made and maintained accurate and complete records the contractor should be able to establish the causal link between the employer risk event and the resultant loss and or expense suffered without the need to make a global claim. 3. In what should only be rare cases where the financial consequences of the various causes of compensation are impossible to distinguish so that an accurate apportionment of the compensation claimed cannot be made between the several causative events, then in this rare situation it is acceptable to quantify individually those items of the claim which can be dealt with in isolation and claim compensation for the remainder as a composite whole. (It

seems fanciful of the Protocol to suggest that this situation is rare when in reality it is commonplace) 4. The contractor will nevertheless need to set out the details of the employer risk events relied on and the compensation claimed with sufficient particularity so that the employer knows the case that is being made against him. Summary The basic rule when submitting a claim for delay and or additional cost is that there is a need to link individually the causes of delay and extra cost with the effect. However the complexity of contemporary claims sometimes needs to be dealt with by a global approach. However a careful balance needs to be made between the practical difficulties of claimants and the rights of the defendants to know the case they have to answer in adequate detail. A question which is often asked is whether a claim which does not properly link cause with effect will fail. It depends upon the circumstance. Good advice to claimants is to ensure that they eliminate from the claim any delay or cost which is not the fault of the other party. In the final analysis a global claim is unlikely to fail merely because it has been prepared on a global basis, however any award is likely to be modest.

Some of the text in this module has been extracted from 150 Contractual Problems and Their Solutions 2nd Edition by Roger Knowles published by Blackwell Publishing

STANDARD QUESTIONS 1. What is a global claim. 2. In what manner did the decisions in the cases of Crosby and Sons Ltd v Portland Urban District Council (1967) and London Borough of Merton v Stanley Hugh Leach (1985) lend support to global claims. 3. Explain how the Hong Kong Court of Appeal took a hard line in respect of global claims and what did the editors of Building Law Reports see as the likely consequences. 4. What is a Scott Schedule and how is it used 5. What is a total cost claim 6. How successful in the UK have applications to the court been for striking out claims submitted on a global basis. 7. Where a claim has been submitted on a global basis what is the effect if a part of the loss has been due to the fault of the claimant. 8. What recommendations have been made by the Society of Construction Law with regard to global claims. 9. In view of the recent decisions of the courts in the UK are claims which are submitted on a global basis likely to succeed. If the answer is yes are there any reservations.

MODEL ANSWERS 1. Claims to be legally binding should identify separately each item of claim together with its effect. Due to the difficulty contractors and subcontractors often experience in providing this type of detailed information they often produce a global or rolled up claim. This is one where no individual connection is made between each item of claim and its effect. Often the individual items of claim are identified but the loss is expressed as a composite whole. 2. The case of J Crosby and Sons Ltd v Portland Urban District Council was an appeal against the decision of an arbitrator who awarded 31 weeks extension of time and associated costs to the contractor. Of this period 9 weeks related to matters which were intertwined resulting in difficulty being experienced in identifying the precise cause and effect of each of the matters which resulted in delay and extra cost. The arbitrator therefore made a single award of 9 weeks against the list of items which had resulted in the delay. It was the view of the court that it was impracticable if not impossible to assess the additional expense caused by the delay and disorganisation due to any one of the matters involved and agreed with the arbitrators award. A similar situation occurred in the case of The London Borough of Merton v Stanley Hugh Leach where the court accepted a global claim on the basis that it was impractical to disentangle or disintegrate the part directly attributable to each head of claim and provided the contractor had served the appropriate notice required by the contract the Architect must ascertain the global loss attributable to the two causes. 3. A hard line approach to global claims was taken in the Hong Kong case of Wharf Properties Ltd v Eric Cumine Associates. In this case a claim was made by an employer against an Architect in respect of a major development in Hong Kong. The employers case was that the Architect had failed to properly manage, control, co-ordinate, supervise and administer the work undertaken by the contractors and subcontractors as a result of which the project was delayed with substantial additional costs being incurred. Six periods of delay were involved but the statement of claim did not show how they were caused by the defendants breaches. The plaintiff argued that due to the complexity of the project, the interrelationship and very large number of delaying and disruptive factors and their inevitable knock-on effects it was impossible at the pleadings stage to identify and isolate individual delays in the manner the defendant required and that this would not be known until the trial. The Court of Appeal in Hong Kong agreed to strike out the claim on the basis that the pleadings as they stood were hopelessly embarrassing seven years after the action began and that unparticularised pleadings in such a form should not be allowed to stand. The editors of Building Law reports offered a view that as a result of the decision in this case those responsible for the preparation and presentation of claims would need to work harder with those with first hand knowledge of the event so as to provide an adequate description. It will mean

keeping proper records to provide the necessary detail. No longer will it be possible to call in an outsider who will simply list all the possible causes of delay to avoid having to give details of the consequences of those events. 4. A Scott Schedule is a means of setting out in tabular form pleadings which contain a great deal of complex detail. The relevant issues are set out and provide an opportunity for both the claimant and defendant to state its case in respect of each issue. For example it may be alleged that one of the causes of delay is the late issue of bending schedules in respect of the reinforced concrete columns. A Scott Schedule would provide an opportunity for both the claimant and defendant to state its case in respect this item. Producing the information in this form allows for quick and easy understanding of each of the parties case. In the case of Imperial Chemical Industries v Bovis Construction Ltd and Others (1992) a Scott Schedule was required to contain: The alleged complaints giving rise to each claim The defendant against whom each claim was made Which clause(s) in the contract had been breached Alleged consequences of each claim

5. Global claims come in various forms. It is not uncommon for the contractor to claim the recovery of all the costs incurred in the project plus profit less the amount certified and paid on the basis that but for the matters included in the claim the contractor would have recovered all of them. This is often referred to as a total cost claim. A claim prepared in this manner was allowed in the case of Berhards Rugby Landscapes Ltd v Stockley Park Consortium (1997) as it was held to be impractical to disentangle that part of the costs attributable to each head of claim. 6. The decision in the Hong Kong case of Wharf Properties Ltd v Eric Cumine Associates is one of the few examples of a court agreeing to strike out a claim on the basis that it has been prepared on a global basis. Few if any reported cases heard in the UK courts have resulted in striking out applications been successful. 7. In the case of John Doyle Construction Ltd v Laing Management (Scotland) Ltd (2004) an action was brought by the plaintiff seeking an extension of time of 22 weeks together with loss and expense. It was argued that the claim was based upon the premise that all the losses incurred we due to breaches on the part of Laing and if it could be shown that a part of those losses were not due to these breaches then the claim would fail. The judge was sympathetic to this view but felt that the whole matter should be treated with common sense and allowed the claim to stand. It may have been different if a significant amount of the claim could be shown to have been caused by Doyle. The judges view was that if a global claim is to succeed the contractor must eliminate from the claim all costs that are not the responsibility of the employer.

8. The recommendations of the Society of Construction Law with regard to global claims are as follows: 1. 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. This recommendation does not appear to be correct as in all the cases referred to in this module only in the Hong Kong decision in Wharf Properties Ltd v Eric Cumine Associates was a striking out action successful 2. If the contractor has made and maintained accurate and complete records the contractor should be able to establish the casual link between the employers risk event and the resultant loss and expense suffered without the need to make a global claim. 3. In what should only be rare cases where the financial consequences of the various causes of compensation are impossible to distinguish so that an accurate apportionment of the compensation claimed cannot be made between the several causative events, then in this rare situation it is acceptable to quantify individually those items of the claim which can be dealt with in isolation and claim compensation for the remainder as a composite whole. It seems fanciful of the Protcol to suggest that this situation is rare when in reality it is commonplace. 4. The contractor will nevertheless need to set out the details of the employers risk events relied upon and the compensation claimed with sufficient particularity so that the employer knows the case that is being made against him. 9 The basic rule when submitting a claim for delay and/or additional cost is a need to link individually the causes of delay and extra cost with the effect. However the complexity of contemporary claims sometimes need to be dealt with by a global approach. However a careful balance needs to be made between the practical difficulties of claimants and the rights of the defendants to know the case they have to answer in adequate detail. A question which is often asked is whether a claim which does not properly link cause with effect will fail. It depends upon the circumstances. Good advice to claimants is to ensure that they eliminate from the claim any delay or cost which is not the fault of the defending party. In the final analysis a global claim is unlikely to fail merely because it has been prepared on a global basis, however the award is likely to be modest.