Global claims: a brave new world?

This article addresses the 2nd edition of the Society of Construction Law’s Delay and Disruption Protocol, and the developments in case law concerning ‘global claims’. We discuss key questions arising from such developments, including how global claims are not defined and does this subtle shift in approach pose a greater risk to insurers underwriting business in the construction industry? What can be done, if anything, about it?

During the last year, the Society of Construction Law published the draft 2nd edition of its highly influential Delay and Disruption Protocol (the Protocol). As the name suggests, the Protocol is intended to offer guidance where one party aims to recover:

• An extension of time
• Compensation for the additional resources used to complete a project.

The 1st edition of the Protocol has become a very important resource, especially for professionals that act as contract administrators or project managers, who have to exercise their judgment to consider applications for extensions of time by contractors.

The draft 2nd edition of the Protocol has addressed, amongst other things, developments in case law concerning “global claims” (sometimes referred to as “total costs” claims or “rolled up” claims). It states:

“Some key changes introduced by the 2nd edition are as follows: (e) There is recognition of an apparent trend for the construction legal industry and the courts to take a more lenient approach towards global claims, albeit the risks of proceeding on this basis remain.”

This poses the question, what are “global claims”? Does this subtle shift in approach pose a greater risk to insurers underwriting business in the construction industry? What can be done, if anything, about it?

Background – delay related claims

Global claims commonly arise where construction projects are in delay. Delays may be caused by a myriad of factors, including bad weather, changes to the works instructed by the employer, problems with the design of the building and/or poor workmanship. Responsibility for delays may rest with a number of entities, including the contract, the employer, the architect, the engineer or sub-contractors, which reflects the complexity of modern developments.

Time means money. The terms of the building contract will determine whether the risk for the delay sits with the contractor or the employer. Typical delay related claims by the contractor may include:

• Relief from liquidated damages, which takes the form of an extension of time to the completion date of the contract.
• Financial compensation for loss and delay, which may cover the additional costs of the contractor being on site.
• The costs of any steps taken by the contractor to mitigate delay.

Depending on the cause of the delay, these losses may be passed on by the employer to the professional team, which is often where the risk lies for insurers.

Global claims

Unhelpfully, there is no agreed definition of what constitutes a “global claim”. Several textbooks and eminent Judges have tried to produce one.

Keating on Construction Contracts says:

“A global claim … is one that provides an inadequate explanation of the causal nexus between the breaches of contract or relevant events/matters relied upon and the alleged loss and damage or delay that relief is claimed for.”

In the case of Walter Lilly & Company Limited v (1) Giles Patrick Cyril Mackay and (2) DMW Developments Limited [2012], Mr Justice Akenhead said:

“What is commonly referred to as a global claim is a contractor’s claim which identifies numerous potential and 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 payments which is attributable without more and by inference to the causes of delay and disruption relied upon.”

In practice, a global claim is often pursued by a contractor because it lacks the documentation - and sometimes the funds - to prove which losses are caused by a specific delay. Global claims are generally thought to be pernicious by defendants because:

• They lack detail and certainty, which can make setting reserves and determining policy issues difficult for insurers.
• By their nature, they are presented in an imprecise way, which can be an unfair tactical advantage because the claimant may constantly change its case.
• They place the emphasis on the defendant to “make the running”. This goes against the common law ethos, which requires a claimant to prove its case.

Proponents of global claims contend they save money that would otherwise be spent paying lawyers. The law has tried to strike a fair balance, which the Protocol aims to reflect.

What is the Law?

In Walter Lilly, Akenhead J highlighted seven principles applicable to global claims. The law is that there is nothing wrong with global claims. The claimant, however, is taking a risk by not seeking to prove its claim in the traditional way.

• To succeed with a global claim, a claimant must:
• Comply with the requirements of the building contract by:
• Giving any applicable notices; and
• Responding to requests for information by the architect/contract administrator.
• Prove the claim as a matter of fact on the balance of probabilities.
• Put forward enough evidence to substantiate its alleged losses.
• Show that it would not have incurred the alleged delay related losses in any event.
• Highlight any delays that are not the defendant’s responsibility.
• Separately plead any heads of claim where a demonstrable causal link can be proved.

Risks to insurers?

Faced with the unenviable task of defending a global claim, an employer may:

• Invite the relevant professional to takeover conduct of the defence.
• Opt to settle it on best available terms safe in the knowledge that it can look to its professional team’s insurance for compensation.

Both are unappetising prospects for insurers because:

• In the first instance, they may be left with the cost of defending a very complex delay claim. Running arguments based on concurrency often requires very technical and expensive input from specialist delay analysts.
• In the second instance, in line with principle established in Biggin & Co Limited v Permanite Limited [1951], the employer may argue that it reached a “reasonable settlement” and, even though liability was not proven, that this constitutes the measure of loss. Challenging a settlement as “unreasonable” is notoriously difficult.

The risk for insurers is that global claims:

• Place them in an invidious tactical position.
• Strip away the evidential requirements that can be used to mitigate any exposure to losses, especially if faced with a purportedly “reasonable settlement”.

An increased cultural acceptance of global claims within the construction industry should be a concern for insurers.

Lines of defence

For many good reasons, insurers are usually loathe to get involved in disputes between contractors and employers. These often involve unresolved final accounts, which can precipitate tit-for-tat fee claims, set offs and allegations of negligence against professionals. The legal costs of unravelling it all can be significant. With regard to global claims, there is a risk that a contractor may avoid this expense in a way that a defendant cannot. If an insured believes it may be responsible for delays on site, a more interventionist strategy may be helpful.

The Protocol states:

“The Contractor must be aware that there is a risk that a global claim will fail entirely if any material contribution to the causation of the global loss can be shown to have been made by a factor or factors for which the Employer bears no responsibility and it is not possible for the CA, adjudicator, judge or arbitrator to assess the value of that non-recoverable portion on the available evidence.”

The best lines of defence to a global claim are often to show that:

• The employer is not responsible for the dominant cause of the delay to the project
• The claim is based on losses that would have been incurred in any event, which may include traditional “no loss” arguments or detailed delay analysis to address issues of concurrency; and/or
• The contractor has failed to prove its claim as a matter of fact.

A further interesting tactic may be to try to re-shift the burden of proof back on to the contractor by referring to the advice regarding record keeping contained within the Protocol. If the contractor is unable to show that it has complied with the good practice contained within the Protocol, an arbiter of fact may be asked to draw adverse inferences and to view a global claim with even greater scepticism.

Comment

The law is taking an increasingly relaxed approach towards global claims. The draft changes in the Protocol reflect this gradual cultural shift, which should be a concern for insurers because global claims are difficult and expensive to defend. Savvy contractors and developers commonly use delay claims to reach favourable settlements of problematic final accounts, which may drag in professionals and sub-contractors. It is plausible that insurers will see an increase in the number of notifications from professionals arising from allegations that they have caused delays on site. Insureds may benefit from advice during the life cycle of difficult projects to minimise risks and to protect their position.