In Mainteck Services Pty Ltd v Stein Heurtey SA [2014] NWSCA 184, the New South Wales Court of Appeal considered the current legal position in respect of a number of issues that are of central importance to many building and construction disputes.

The Court expressed its frustration with an ‘evident misconception of propositions which out to be regarded as fundamental in this area’, and proceeded to set out a ‘first principles’ approach to determining the success or failure of a contractor’s ‘global claim’ for delay and disruption.

The main message from the judgment is that a global claim will succeed or fail based on ordinary notions of breach, causation and loss. In particular, where there is a significant cause of loss not attributable to principal, then a ‘global claim’ will fail.

This judgment sets out a useful roadmap for how contractors should structure their claims in building and construction disputes, and how principals may attack those claims.

Facts

BlueScope Steel (AIS) Pty Ltd and Stein Heurtey SA (SHSA) entered into a contract for the design, supply and installation of a walking beam furnace and associated equipment (Main Contract). Mainteck Services Pty Ltd (Mainteck) subsequently entered into an agreement with SHSA, under which Mainteck was to perform certain of the obligations of SHSA under the Principal Contract (Consortial Agreement). On the same day, SHSA, SH Australia and Mainteck entered into a Deed of Novation, whereby that Consortial Agreement was transferred by SHSA to SH Australia and SHSA guaranteed the obligations of SH Australia. Disputes subsequently developed between Mainteck and SHSA and SH Australia as to whether Mainteck had supplied equipment and performed services in connection with the Principal Contract beyond those that it was contractually bound to supply or perform under the Consortial Agreement. Those disputes were determined by a referee, and certain aspects of his reports were adopted by the NSW Supreme Court. Mainteck then appealed the matter to the Court of Appeal.

Decision

Mainteck pursued a ‘global claim’. In other words, it identified a number of delay events, and a total loss it said was suffered as a result, and claimed that loss on a ‘global’ basis. It did not seek to link specific delay events to specific portions of the loss. In so doing, Mainteck submitted that it was sufficient for it to establish a causal connection between some breaches by SHSA and the disruption to its works. If it established this connection, Mainteck considered it was entitled to either the whole of its claim, or an apportionment.

Leeming JA (with whom Ward JA and Emmett JA agreed) strongly concluded that this was not the law of ‘global claims’, and made the following points:

  1. There are no special legal principles which mean that plaintiffs in construction cases win or lose differently from plaintiffs in other classes of contractual disputes. A plaintiff will fail unless it establishes breach, causation and loss. Although some cases have used the language of a ‘global claim’, this does not involve any special principles of law.
  2. Contractors routinely rely on the decision of Byrne J in John Holland Construction & Engineering Pty Ltd v Kvaerner RJ Brown Pty Ltd (1996) 8 VR 681. In that case, his Honour considered that a mere difficulty in estimating the damages flowing from a breach was not sufficient to deny relief. Rather, his Honour held that a claim where a plaintiff did not seek to attribute any specific loss to a specific breach was available, and that causation may be determined by the application of ‘common sense’. This means it is sufficient if the breach was a material cause of the loss.
  3. The application of this decision, however, must be viewed with some caution. In it, his Honour was dealing with an application to strike out a pleading, and as such it is only authority for that proposition (i.e. the claim was not so hopeless that it should be struck out). Further, his Honour emphasised that, even in such a case, the plaintiff must still identify what is the loss alleged to have been sufered, and how this loss was caused by the breach. He concluded by saying:
    In my opinion, the court should approach a total cost claim with a great deal of caution, even distrust. I would not, however, elevate this suspicion to the level of concluding that such a claim should be treated as prima facie bad.
  4. The subsequent application of Byrne J’s decision (particularly in a long line of Scottish decisions) has made it clear that, to succeed, the plaintiff must eliminate from the causes of his loss and expense all matters that are not the responsibility of the principal. In other words, if the evidence shows that the contractor is responsible for any part of the cost identified in a ‘global claim’, then the claim necessarily fails, unless there is some rational method for separating out the component parts.

In this case, a significant cause of the loss appeared to be Mainteck’s own decision not to install a particular type of crane. Given that position, Mainteck’s global claim had to be rejected.