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Mark Holden-Smith

How To Quantify Loss & Expense Claims

Here is a short guide, with key considerations, on how to quantify loss & expense claims.

how to quantify loss and expense claims

Entitlement


Notification of Matters Giving Rise to Loss & Expense

Construction contracts generally, and all standard forms of construction contracts, require notification to be given of specific matters that give rise to the loss & expense, and often the notification is a condition precedent to payment.


Form of Notification

If the contract requires a specific form of notification, then it must be followed, and for example the JCT Design & Build Contract 2016 states that that Relevant Matters under the contract shall be notified in writing.  However, pursuant to the case of Obrascon v Attorney General for Gibraltar[1] this may mean that any claim may constitute a contractual notice provided it is made in writing[2]. This wording may include submissions such as payment applications, emails, letters, reports so long as they are made in writing but this matter should be approached with caution and the contract followed carefully.


Timing of Notification

If the contract stipulates a time frame in which to give a notice that is often a condition precedent to entitlement for loss & expense in which case if the time bar is not complied with there is no entitlement to loss & expense.  In the case of Walter Lilly & Co v Mackay[3] the court clarified that the wording requiring that the "contractor's application shall be made as soon as it has become, or should reasonably have become, apparent to him that the regular progress of the Works or of any part thereof has been or was likely to be affected..."[4] meant that the application could be made before the loss or expense has been incurred (prospective) or after it has been incurred (retrospective). Accordingly, there may be some scope to argue the strictness of when the time bar actually bites but again this should be approached with caution and the notice given as soon as possible because if the time bar does bite then there is no entitlement to loss & expense.

 


Causation

Generally causation can be looked at in two elements being (a) factual causation, and (b) legal causation.


Factual Causation

The general test for factual causation is the 'but for test' set out in the case of Cork v Kirby[5] under which "If you can say that the damage would not have happened but for a particular fault, then that fault is in fact a cause of the damage; but if you can say that the damage would have happened just the same, fault or no fault, then the fault is not a cause of the damage."[6]  Importantly, it is to be noted that the but for test does not prove the cause of the damage, but is used to demonstrate the fault is a cause of the damage.  The extent of damage claimable is subject to the legal requirements for causation which generally are to be found either in the express or implied terms of the contract.  Where the but for test cannot be applied the courts may employ the material contribution test, but generally the but for test is the first step in proving causation and is a good starting point for proving causation in any loss & expense claim.


As a practical example, the JCT Design and Build 2016 contract provides for entitlement to loss & expense because the regular progress of the works is affected by a Relevant Matter.  Accordingly, in line with the but for test the first question to be answered would be what is the achieved regular progress but for the Relevant Matters?

 

Legal Causation

Legal causation means the extent to which the loss is claimable (not too remote) and caused by the matters claimed.  So, for example, the but for test may reveal that the regular progress is in fact affected by the impact of Relevant Matters which proves the Relevant Matters are a cause of the loss but does not prove the Relevant Matters are the only cause of the loss.  The legal rule in the JCT DB 2016 is that it is only the loss caused by the Relevant Matters that is claimable which means the legal causation must be proven by demonstrating the extent to which the Relevant Matters caused the loss claimed and then the loss & expense claim would be limited to that extent.  This requirement is also in line with cl.4.21.5 which provides for impediments as Relevant Matters except to the extent caused or contributed to by the Contractor.

 


Quantum


Delay

When quantifying the delay costs the approach approved by the SCL Protocol[7] is to assess the costs by reference to the period of delay effect and not the impacted period at the end of the project[8].  This means the costs are claimable by reference to the period of delay effect felt at the time the delay occurred.  For example, if a project period is 7 days from Monday to Sunday and a 1 day delay occurs on Tuesday which means the works go on for one extra day until the following Monday, the delay costs are claimable during the Tuesday when the delay occurred (Delay Effect) and not the extended period on site during the Monday (Delay Impact).  Using the JCT DB 2016 again as an example clause 4.19 provides for reimbursement of loss when the regular progress is affected and not when the completion date is impacted which is in line with the principle of claiming costs when the delay effect was felt.  However, it is to be noted that this is not a strict rule and the period of delay effect and impact may overlap.

 

Disruption

When quantifying disruption the SCL Protocol agrees that the most widely accepted method is the 'Measured Mile' analysis[9], which was also approved by the courts in the case of Whittall Builders Co Ltd v Chester-Le-Street DC[10].  Taking the JCT DB 2016 again as an example, this analysis would involve measuring the loss in productivity by comparing the achieved rate of output in the periods not impacted by the Relevant Matters, to the achieved rates of output in the periods impacted by the Relevant Matters with the result being a claim for the loss over and above the productivity that would have been achieved but for the Relevant Matters.

 

Global Claim

A Global Claim is a claim for the total cost and although in Walter Lily v Mackay the court clarified that there is nothing wrong with such a claim in principle[11], in that case though, the court also made it clear that the casual link is still critical to a Global Claim. Importantly a Global claim that is merely based on the identification of a breach followed by a submission of the total costs with no causation is unacceptable because “damages for breach of contract may only be awarded for breach of contract, and not for loss caused by the manner of the breach[12], and it is the courts view that a claim that fails to prove the extent of the loss caused is a legal absurdity[13].  This means that even if the losses are caused by so many different events that only a Global Claim is possible, the starting point should still be to demonstrate the loss would not have occurred but for the claimed faults, and then any matters being the claimants fault would need to be extracted from the claim.


Contact

If you require assistance with a construction claim or dispute do not hesitate to contact us for a free review at:

07834284308



[1] Obrascon Huarte Lain SA v Her Majesty's Attorney General for Gibraltar [2014] EWHC 1028 (TCC).

[2] [2014] EWHC 1028 (TCC) (see para.313).

[3] Walter Lilly & Co Ltd v Mackay and another (No 2) [2012] 143 ConLR 79.

[4] [2012] 143 ConLR 79 (see 88).

[5] Cork v Kirby Maclean Ltd [1952] 2 All ER 402

[6] [1952] 2 All ER 402 (see 407).

[7] SCL Delay and Disruption Protocol 2nd Edition (2017) ('SCL')

[8] SCL, Core Principles, Principle 22.

[9] SCL p.46.

[10] Whittall Builders Co Ltd v Chester-Le-Street DC [1985] No 1980 W 3060 (see 8).

[11] [2012] 143 ConLR 79 (see 242).

[12] Malik v Bank of Credit and Commerce International SA [1998] A.C 20 (see 51).

[13] British Columbia Saw Mill Co Ltd v Nettleship (1867-8) LR 3 CP 499 (see p.508).

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