An important judgement was recently delivered by Akenhead J in the Technology and Construction Court in London in the case of Walter Lilly and Company Limited v Giles Patrick Cyril Mackay (and Another).
The judgement was delivered on 11 July 2012 and is over 200 pages long. It covers a range of issues arising out of a construction project in London that went badly wrong. While the facts of the case are complex, suffice to say that the case involved the usual disputes between an Employer and Contractor in respect of claims for late completion and defective work on the one hand and claims for extensions of time and loss and expense on the other.
Akenhead J took the opportunity to review the authorities on a number of issues in his judgement but the three matters referred to in the heading of this Alert are of particular interest. They will be dealt with briefly in turn below.
A number of approaches have been adopted by the Courts over the years in dealing with concurrent delays, that is, where 2 causes of delay operate concurrently and where the Contractor is entitled to receive an extension of time under the Contract for one of the causes, but not the other.
In the 1980s and 1990s, there was a body of opinion that held that a Contractor was required to establish that the cause for which he was entitled to receive an extension of time was the “dominant cause” of the delay. This was the approach adopted in Fairweather v London Borough of Wandsworth (1987).
This approach was also adopted by the Scottish Courts as recently as 2010 when, in the decision in City Inn Limited v Shepherd Construction, it was held that whether or not the dominant cause is a “relevant delay event” will determine if a claim for an extension of time is successful. The decision, however, went further and stated that it is open to a certifier or tribunal to apportion the delay between the two causes and that the Contractor should only receive an extension for a reasonably apportioned part of the concurrently caused delay.
This is the so called “apportionment” approach.
The English Courts have, however, chosen not to adopt this method. Instead, they have held that by applying the prevention principle, if there are two concurrent causes of delay, the Contractor is entitled to receive an extension of time for the “relevant event” entitling an extension of time under the Contract, notwithstanding the concurrent effect of the other event.
This was the position adopted by Dyson J in Henry Boot Construction (UK) Limited v Malmaison Hotel in 1999 and by Edwards Stuart J in De Beers v Atos Origin IT Services UK Limited, in 2011.
This approach was endorsed by Akenhead J in the Walter Lilly case where he stated:
“I am clearly of the view that where there is an extension of time clause such as that agreed upon in this case and where a delay is caused by 2 or more effective causes, one of which entitles the Contractor to an extension of time as being a “relevant event”, the Contractor is entitled to a full extension of time.”
Such a conclusion was reached not only on the basis that “relevant events” would otherwise amount to acts of prevention and that it would be wrong in principle to deny the Contractor a full extension of time but also as a matter of interpretation of the extension of time provision contained in Clause 25 of the JCT Form of Contract.
Akenhead J went on to state that there is nothing in Clause 25 which suggests that an extension of time should be reduced if there is a concurrent delay and although the Architect had a duty to award a “fair and reasonable” extension of time, this does not mean that there should an apportionment as between two concurrent delays.
In concluding, Akenhead J stated that the City Inn case is “inapplicable within this jurisdiction”.
The Defendants in Walter Lilly had argued that a number of the claims advanced by the Contractor consisted of “global” claims and, as a result, were barred by authority.
Akenhead J took the opportunity to review the law which has developed on this issue over the last 50 years or so starting with Crosby v Portland UDC in 1967, London Borough of Merton v Stanley Hugh Leach (1985), Wharf Properties Limited v Eric Cumine Associates (1991) and the Australian case of John Holland Construction and Engineering Pty Limited v Kvaerner J R Brown Pty Ltd (1996).
In drawing together all of the threads of the previous authorities, Akenhead J concluded, in summary:
- it does not have to be shown by a Contractor that it is impossible to prove cause and effect between a delay event and losses incurred or that such impossibility is not the fault of the party seeking to advance the global claim. In the absence of contractual restrictions on global loss claims, the Contractor simply has to prove its case on a balance of probabilities;
- it is open to a Contractor to prove its entitlement with whatever evidence will satisfy the tribunal and the requisite standard of proof and there is no set way for Contractors to prove the elements of its claims;
- there is nothing in principle “wrong” with global or total cost claims. However, there are added evidential difficulties which a Contractor has to overcome and it will generally have to establish, on a balance of probabilities, that the loss which it has incurred would not have been incurred in any event (eg if its tender was so low that the loss would have occurred irrespective of the events relied upon by the Contractor);
- the fact that one or a series of events which are at the risk of the Contractor caused or contributed to the total or global loss does not necessarily mean that the Contractor can recover nothing;
- a Court will not usually allow global or total cost claims if the actual costs attributable to individual loss causing events can be readily and practicably determined. While a tribunal will be more sceptical about a global cost claim if the direct linkage approach is readily available but not deployed, this does not mean that a global claim should be rejected out of hand; and
- the decision in Merton and John Holland did not establish that a global award should not be allowed where the Contractor has himself created the impossibility of disentanglement of loss attributable to each head of claim.
Particulars of Claims
Akenhead J examined the two conditions precedent contained in Clause 26 of the JCT Form of Contract which required, first, the submission of a timely application to the Architect that it had incurred or is likely to incur direct loss and expense and, secondly, the provision of details of loss and expense to enable an ascertainment to be made by the Architect or Quantity Surveyor.
In examining what information must be provided in each case, Akenhead J stated that it is legitimate to bear in mind what knowledge and information the Architect already has.
For example, if the Architect attended meetings regularly and had received numerous applications for extensions of time from a Contractor, it could be legitimately argued that the Architect already had a substantial amount of information available to him. The Contractor would therefore be required to produce less information to enable the Architect to form an opinion that loss and expense had been incurred or was likely to be incurred.
Akenhead J went on to state that Clause 26 of the JCT Contract only required the submission of details “reasonably necessary” for the ascertainment of loss and expense. Accordingly, there was no reason to believe that an offer to the Architect or the Quantity Surveyor to inspect records at a Contractor’s office could not be construed as submission of details of loss and expense. He emphasised that all that was required by the clause was the provision of “details” of loss and expense which would not necessarily include all back-up accounting information which might support such detail.
Akenhead J concluded that there was no need to construe Clause 26 in a strict way or in a way which was penal against the Contractor, in particular where the grounds contained in Clause 26 giving rise to a loss and expense entitlement are the fault and at the risk of the Employer.
In relation to providing details of extended preliminaries, for example, the Judge stated that it is legitimate to bear in mind that the Architect and the Quantity Surveyor were not strangers to the project in considering what was needed for them to carry out an ascertainment. As a very detailed breakdown of preliminary items was already included in the Contract at the time of its award, it could be argued that the Architect and the Quantity Surveyor could value the Contractor’s loss and expense simply by reference to the Contract rates and prices for a longer period than that which was anticipated at the time that the Contract was concluded.
The Judge rejected the argument advanced by the Employer that in order for the Architect or Quantity Surveyor to “ascertain” loss and expense, it must produce all material evidence necessary to prove its claim beyond reasonable doubt.
The words included in Clause 26 should be construed, he held, in a “sensible and commercial way that would resonate with commercial parties in the real world”. All the Contractor had to do was to put the Architect or Quantity Surveyor in a position where they can be satisfied that all or some of the loss and expense claimed is likely to be or has been incurred.
There is no doubt that Akenhead J’s judgement in Walter Lilly is an important one. It deals with a number of the “old chestnuts” that preoccupy construction practitioners and also demonstrates a pragmatic and commercial approach by the Courts in dealing with Contractors’ claims rather than a strict legalistic one.
It is reasonable to believe that the decision in Walter Lilly will be regarded in years to come as one of the landmark decisions of the Technology and Construction Court.