Global Claims in Adjudication after Walter Lilly v Mackay : is it now open season?

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Global Claims in Adjudication after Walter Lilly v Mackay : is it now open season?

March, 2013
Jennie Gillies

Unless you found yourself marooned on a desert island during 2012, it will not have passed your attention that the whole of the construction world suddenly got very excited in August. Contractors started to clink champagne glasses in celebration, but it had absolutely nothing to do with Team GB’s success at the Olympic Park. Indeed, whilst the contractors were celebrating, employers had started to panic. The reason…? Rumours were spreading that the TCC had given the green light to global claims. Applying that green light to adjudication, this excitement (and trepidation) was understandable; if the rumours were right it was open season for the bringing of claims which, on the one hand, were quick and easy to quantify, but which, on the other, were time consuming and expensive to defend.

Was this excitement merited? Does the decision of Akenhead J in Walter Lilly v (1) Mackay; and (2) DMW Developments Limited [2012] EWHC 1773 (TCC) change the way in which global claims ought to be approached in adjudication?

What is a global claim?

The term “Global” Claim is not one which has ever been used with consistency by parties to claims – partly because defending parties have often described claims as being advanced solely on a “global” or “total cost” basis as a means to pass scorn on the way a claim has been brought. In essence it is a claim for additional time, additional money or both made by a contractor against an employer where “the breaches and the relief claimed are specified, [but] the question of causation linking the breaches and the relief claimed is based substantially on inference, usually derived from factual and expert evidence” (per Ramsey J in London Underground Ltd v Citylink Telecommunications Ltd [2007] BLR 391 at 414). This definition was echoed by Akenhead J in Walter Lilly v (1) Mackay; and (2) DMW Developments Limited (see paragraph 484) where he concluded that a global claim is one where a contractor “identifies numerous potential or actual causes of delay and/or disruption, a total cost on the job, a net payment from the employer and a claim for the balance between costs and payment which is attributed without more and by inference to the causes of delay and disruption relied on”.

The hazards of global claims in adjudication

Whether one is concerned with adjudication, arbitration or litigation, the flaw in many global claims – and the circumstances in which many such claims have been discussed in case law – derives from the fact that allegations tend to be presented in such an amorphous manner from which it is difficult (if not impossible) for a defending party to ascertain the precise nature of the case which it is being asked to meet. In litigation this might often give rise to an application for further particulars to be provided (absent which a defending party might seek to make an application to strike out a claim) and there is therefore an opportunity to correct a deficient pleading so as to make it clearer how loss and expense is alleged to have been suffered. Put simply, the additional time allowed in court or arbitral proceedings means that, once evidence has been presented and tested, a claim which at first sight appeared to be presented on a global basis, actually has more to it and establishing a link between breach and the relief sought becomes less strained.

Time, however, is the one commodity not available in adjudication and the risks of a claim being presented globally are clear to see from the TCC’s decisions in London Underground Limited v Citylink Telecommunications Ltd [2007] and Carillion Construction Limited v Stephen Andrew Smith [2011].

The case of London Underground Limited v Citylink Telecommunications Ltd [2007] EWHC 1749 (TCC) concerned a dispute in relation to a major project to replace the communication system throughout the London Underground rail network. The defendant (“CTL”) was a consortium appointed by London Underground (“LUL”). The parties fell into a dispute regarding delays to the project and the financial consequences of the same. The contract provided a multi-tiered dispute resolution process which envisaged referral to adjudication before any subsequent use of arbitration. CTL referred its claim to adjudication in 2004; the claim advanced was for an extension of time where the overall period was based on a large number of alleged breaches of contract. The Adjudicator rejected the claim in its entirety because he did not consider that CTL had "made good the claim in all but the most trivial respects."

A similar outcome was experienced by the referring party in a dispute determined by an adjudicator in 2003 (reported in Carillion Construction Limited v Stephen Andrew Smith [2011] EWHC 2910 (TCC)). This case concerned a contract between Carillion and a company owned by Mr Smith in relation to the supply and installation of an underground water and gas pipeline system and two separate sets of adjudication proceedings brought against Carillion (Adjudication No’s 2 and 3).

  • Adjudication No 2 took place in June 2003. Mr Smith issued adjudication proceedings in relation to a claim for an extension of time and loss and/or expense (prolongation, disruption and associated costs) in the sum of approximately £380,000. Carillion raised the global argument and, in particular, argued that the Sub Contractor had not substantiated or proved its loss and expense claim. Carillion also raised a counterclaim and set-off in relation to Contra-Charges.
  • The Adjudicator rejected the claim for loss and expense brought in Adjudication No 2 for reasons which included :
    • that the claim advanced lacked particularisation; and
    • that generalised allegations of breach were not causally linked to the loss and expense claimed.

      The adjudicator concluded that since the claim was global in nature, it was impossible to sever the good from the bad.
  • A number of years later, in September 2011, Mr Smith sought to remedy the gaps in the claim and referred a further dispute to adjudication (Adjudication No 3) using material served by Carillion in the previous adjudication. A very detailed claim for loss and expense was prepared which valued the claim at over £1 million which was accompanied by considerable documentation and submission (described by Akenhead J as a “substantial opus”). The Adjudicator made a positive award in favour of Mr Smith (albeit in tandem with proceedings issued by Carillion for declaratory relief).
  • In those Part 8 proceedings, however, Akenhead J held that the adjudicator did not have jurisdiction to consider the claims brought in Adjudication No 3. Notwithstanding the differential in the value of the claim, it was held that in substance it was the same, or substantially the same, claim which had been adjudicated upon in 2003.

Mr Smith was, in short, not entitled to a second bite of the cherry and by advancing a claim on a broad global basis initially had prevented himself from thereafter advancing a claim on a basis which was evidentially more compelling.

Global Claims after Walter Lilly v Mackay

So has anything changed as a result of Akenhead J’s decision in Walter Lilly v Mackay?

Summary of the case
This case concerned a luxury residential construction project in Earls Court and for present purposes the facts can be shortly stated :

  • The Claimant contractor (WLC) was engaged under a JCT 1998 Contract to build three residential properties following land acquisition by DMW (an SPV formed by Messrs Daniel, West and Mackay who each intended to occupy the properties subsequently built).
  • Mr Mackay was the owner of plot C.
  • Initially the contract was for the construction of all three plots for a total contract sum of £15.4 million. During the works, the contract was varied to provide for the three units to be built under separate contracts. The contract sum for unit C was £5m.
  • The works were required to be completed by January 2006.
  • The project was (in the words of the judge) "a disaster waiting to happen”; it fell into significant delay and relationships broke down irretrievably. Practical completion was not certified until July 2008 (2 ½ years late).

The proceedings concerned WLC’s claim for an extension of time until July 2008 and, in financial terms, involved claims for loss and expense.

  • £1.43 million was sought for prolongation (prelims, prolongation and thickening costs);
  • £700k was sought in relation to sub-contractor delay and disruption claims; and
  • £280k was claimed for OH&P.

In truth (and as found by the Judge) the claim was not advanced on a global basis. The prolongation claim was divided into seven chronological parts in respect of which WLC provided an explanation of the causes of delay / disruption and how additional resources needed to be deployed and a spreadsheet analysis of time allocation for staff and resources (by reference to which the £1.43 million claim was calculated). However, the Defendants argued that this was an irrecoverable global claim and therefore consideration was given to those arguments in the Judgment.

Giving judgment overwhelmingly in favour of WLC, the Court held that WLC was entitled to an extension of time and held that WLC had established a link between the events identified and resources expended. Akenhead J reviewed relevant authorities relating to global claims and summarised the law by reference to six principles of general application (see paragraph 486 of the Judgment) :

1) Claims by contractors for delay or disruption related loss and expense must be proved as a matter of fact; a claimant contractor does not have to show that it is impossible to plead and prove cause and effect in the normal way in order to advance a global claim.

2) There is no set way to prove a claim but it remains the contractor’s responsibility to establish (i) that events occurred which – in theory - entitle it to loss and expense; (ii) that those events caused delay and/or disruption; and (iii) that such delay or disruption did in fact cause it to incur loss and/or expense.

3) Whilst there is nothing in principle "wrong" with a "total" or "global" cost claim, there are added evidential difficulties which a claimant contractor has to overcome. Where a claim is advanced on the basis of the difference between what it has cost the contractor and what it has been paid under the contract, the claimant contractor is likely to need to be able to establish that the additional expense would not have been incurred in any event. The Claimant retains the burden of establishing that the loss was not caused because (a) the tender was sufficiently well priced; and /or (b) there were no other matters which actually occurred. It is not for the defendant to prove that these matters caused the contractor to suffer additional expense.

4) The fact that a defendant establishes that one or a series of events which were the fault of the contractor caused or contributed to the delay does not mean that the total or global loss claim fails in its entirety.

5) A contractor is not debarred from pursuing a global claim if it could otherwise seek to prove its loss in another way, although a tribunal will be more sceptical about the global cost claim if the direct linkage approach is readily available but is not deployed. However, the global cost claim should not be rejected out of hand.

6) A contractor is not prevented from advancing a global claim where its own errors (for instance in record keeping) have created the impossibility of disentangling the various events from their consequences.

Is this a sea change?

In the writer’s view, Walter Lilly does not actually mark any great sea change for those dealing with global claims in adjudication proceedings and should offer comfort for all parties on the way forward; the judgment provides useful guidance on the steps which ought to be taken by any referring party advancing a claim on this basis, and (conversely) the ammunition which should be gathered by a responding party faced with a claim lacking support. Key considerations for the parties should now be :

Referring Party

  • Can we establish that alternative (more traditional) methods of proving the claim are less useful to resolve the dispute?
  • How can we establish that the tender was adequate?
  • If we ‘go global’ are we prepared for internal commercial information to see the light of day?

Responding Party

  • What doubts can be put into the adjudicator’s mind regarding the contractor’s decision to advance a global claim? What evidence has the contractor ignored?
  • What do we know about the tender?
  • What other possible factors causing delay can be highlighted?

The real change in approach after Walter Lilly concerns, the approach that adjudicators ought now to take when considering a global claim (which has not been proven) but where some relevant evidence has been adduced :

  • As discussed earlier in this article, the Adjudicator in London Underground Limited v Citylink Telecommunications Ltd, rejected the global claim which was advanced by CTL. The claim was, however, subsequently referred to arbitration and the issue which Ramsey J was required to consider was whether the arbitrator, having rejected CTL's evidence on causation of delay, was correct to grant an extension of time of 48 weeks (i.e. a fraction of the global claim which had been advanced originally). Giving judgment in the affirmative, Ramsey J made it clear that even where a global claim has failed, surviving claims will emerge from evidence and provided that any decision is based on the primary facts adduced in the proceedings, a tribunal can make alternative findings.
  • Akenhead J’s comments in Walter Lilly were entirely consistent with this approach (although contrast the recognition that the starting point for the quantification for an award which is only for a part of the global claim advanced is the global claim figure itself, less such amounts as are proven by the defending party not to have been validly claimed).

Armed with the comments made by two senior TCC judges, adjudicators ought now be comfortable in making partial awards even where global claims have not been made out in their entirety; provided that the findings reached are based on the evidence actually presented by the parties and cannot be construed as a “frolic of his/her own”.

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