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Global claims after Walter Lilly v Mackay

Each summer I normally spend some time updating my note on global claims. It’s not normally a particularly taxing job and, since the Scottish case of John Doyle Construction Ltd v Laing Management (Scotland) Ltd, there haven’t really been any significant developments in the law. However, this summer has been somewhat different, and my task has been significantly more taxing. Unless you’ve been utterly consumed with the heroics of Hoy, Ennis, Farah and the rest of Team GB, you will have read (or at least heard about) the important case of Walter Lilly v Mackay. One of the many subjects Akenhead J dealt with is global claims, and what he said is of great significance.

Akenhead J’s seven propositions on global claims

Akenhead J reviewed all of the relevant cases on global claims and, with consummate clarity, he drew “together all the relevant threads” and set out seven propositions on global claims (at paragraph 486). In my view, three important developments to the law on global claims arise from these propositions:

  • It is no longer a requirement for a contractor to prove that it is impossible or impractical to separate out the consequences of each event.
  • Global claims are no longer likely to fail in the event that they include matters for which the employer is not responsible.
  • The contractor will need to provide proof that it would not have incurred the loss in any event.

Impossible or impractical to separate consequences of an event

It is no longer a requirement for a contractor to prove that it is impossible or impractical to separate out the consequences of each event.

Prior to Walter Lilly v Mackay, my understanding was that a contractor needed to prove that it was impossible or impractical to separate out the consequences of each event in order to succeed with a global claim. The judgments in J Crosby and Sons Ltd v Portland UDC and London Borough of Merton v Stanley Hugh Leach certainly suggest that this was the case, as did Recorder Tackaberry QC in Mid Glamorgan County Council v Devonald Williams and Partners:

“Where, however, a claim is made for extra costs incurred through delay as a result of various events whose consequences have a complex interaction that renders specific relation between event and time/money consequence impossible or impractical, it is permissable [sic] to maintain a composite claim.”

However, in paragraph 486(a) of his judgment in Walter Lilly v Mackay, Akenhead J stated that, as a matter of principle, he did not accept that it is necessary for a contractor to prove that:

“…it is impossible to plead and prove cause and effect in the normal way or that such impossibility is not the fault of the party seeking to advance the global claim.”

Rather, in the absence of any contractual restrictions on global claims, there is no set way for a contractor to prove its case. Akenhead J acknowledged that a tribunal might be “more sceptical about the global cost claim if the direct linkage approach is readily available but is not deployed”, but said that this does not mean that a global claim should be rejected out of hand.

Reference should also be made to paragraph 486(g) where Akenhead J dismissed Mr Mackay’s contention that a global claim should not be allowed where it is the contractor that has created the impossibility of disentanglement.

Employer not responsible for events

Global claims are no longer likely to fail in the event that they include matters for which the employer is not responsible.

Until John Doyle v Laing it was generally considered that, if an employer could demonstrate that at least part of the contractor’s loss had been caused by a “not merely trivial” event that was not the employer’s responsibility, then the contractor’s global claim would fail in its entirety. For obvious reasons this was described by one commentator as the “Exocet” defence. John Doyle v Laing arguably changed the law in this area because the event the employer was not responsible for had to be significant rather than “not merely trivial”.

Walter Lilly v Mackay has developed the law yet further, and a global claim will now not necessarily fail in the event that it includes a contractor risk event.

Akenhead J confirmed that, simply because a global claim has been contributed to by events for which the employer is not responsible, it does not follow that the global claim fails. Rather, the events for which the employer is not responsible should be omitted from the global claim leaving behind the loss attributable to the events that the contractor is entitled to recover loss.

Contractor’s loss not incurred in any event

The contractor will need to provide proof that it would not have incurred the loss in any event.

Akenhead J confirmed that the contractor has the burden of establishing that the loss which it has incurred would not have been incurred in any event. In particular, he said that a contractor:

“…will need to demonstrate that its accepted tender was sufficiently well priced that it would have made some net return… and that there are no other matters which actually occurred.”

Akenhead J dismissed the contention that the burden transfers to the employer to prove that the tender sum was unreasonably low.

What are the implications?

There is little doubt in my mind that we will see a rise in the use of global claims as a result of the first two developments above. However, contractors should nevertheless continue to be wary about the use of global claims. In particular, Akenhead J stressed that a contractor still has to prove its claim as a matter of fact and, in particular, it must demonstrate three things on a balance of probabilities:

  • Events occurred that entitle the contractor to loss and expense.
  • Those events caused the contractor delay and/or disruption.
  • Such delay or disruption caused the contractor to incur loss and/or expense.

This could still be a difficult task when there is a lack of direct causal links.

However, employers may seek to limit any rise in global claims by restricting the use of such claims in their contracts. Akenhead J raised the possibility of such restrictions when he stated at paragraph 486(a) that:

“One needs to see of course what the contractual clause relied upon says to see if there are contractual restrictions on global cost or loss claims.”

Employers are also likely to attempt to argue that the contractor would have suffered the loss in any event. Akenhead J acknowledged that it is open to employers to:

“…adduce evidence that suggests or even shows that the accepted tender was so low that the loss would have always occurred irrespective of the events relied upon by the claimant contractor or that other events… occurred may have caused or did cause all or part of the loss.”

Further reading?

My revised note on global claims is now available, although I suspect we might now see this area of the law develop yet further over the next 12 months. Watch this space.

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