DD02: A global claim is doomed to fail, unless…
Updated: May 6, 2021
A contractor may decide to claim the net difference between actual and planned costs and allege that the difference was caused by the cumulative effect of events for which it was not responsible/liable, and which gives an entitlement to additional time and/or payment. This type of claim is often referred to as a “global claim” but may also be called a “total cost/total time claim” or “rolled up claim”.
Is it permissible to make a global claim?
A judge, arbitrator, adjudicator or the like, will not deny a claim for damages on the ground that it is difficult to establish the exact amount of damages. However, a contractor will have to establish how the loss was caused. The contractor will need to demonstrate the causal link between an event and its related losses (and its not actual less tender/planned), and this often poses real problems for a contractor.
However, in Nauru Phosphate Royalties Trust v Matthew Hall Mechanical & Electrical Engineers, the court expressed the view that it may be permissible to maintain a global claim where it was impossible or impractical to identify a specific nexus between each of the alleged events and the delay and disruption caused.
However, in the subsequent case of John Holland Construction & Engineering v Kvaerner RJ Brown, the court favoured a more “hardline” approach and that the decision in Nauru should not be taken as allowing for leniency.
In John Holland v Kvaerner, the court allowed a “total cost” claim where it was impracticable to disentangle that part of the loss which was attributable to each head of claim, and that this situation was not created by the conduct of the contractor.
Global claim – causation based on inference
The contractor, either deliberately or by default, is asking the employer or tribunal to assess the claim by inference rather than by direct evidence. This means that, in the absence of any other known cause of the contractor’s loss, the employer must therefore be liable.
Proving a global claim
If all the events causing loss are the liability of the employer and the contractor demonstrates this, then the courts do not always demand that the contractor demonstrates its additional costs/loss on a cause-by-cause basis.
It is therefore essential for the contractor to show that is not responsible for any of the alleged causes of loss. In reality, this may be difficult to prove. If the employer is able to prove that the contractor caused any of the loss claimed, then the global/total cost claim will almost certainly fail.
However, the calculation of loss need not be exact, as long as the contractor has satisfied the burden of establishing the fundamental facts of liability, causation and resulting loss.
Establishing an inference
In a global claim, proof of causation will mostly, or totally, be by inference. On some occasions, the effect of a delay or disruptive event may be self-evident and the inference easily drawn. However, in circumstances where it is unclear what effect the alleged causes would have had, and how they may have caused delay and/or disruption, it will be necessary to better particularise and support the argument as the inference will be more difficult to draw. The more factual the evidence is of actual delay and/or disruption, the more likely a global claim is likely to succeed.
To increase the chances of establishing the inferred causal link between the delay and/or disruption acts on the one hand, and the delay and/or disruption effects on the progress of the works on the other, the contractor should try to find evidence of actual delay and/or disruption at a ‘micro level’ by way of packages of evidence, using as far as possible, contemporaneous project documents.
It will be necessary for the contractor to show that its tender price was reasonable. In Downer Connect v McConnell Dowell Constructors (Aust), a claim was made for disruption caused by variations which was attacked for not establishing the causal link.
In Ipex ITG v Melbourne Water Corporation (No 3), the contractor claimed the difference between the cost of the labour and the quantity of labour agreed to be provided. However, the argument did not establish a true basis for the damages claimed in that there was no evidence that the work could have been carried out by the agreed resources had there been no breach. In the appeal, the Supreme Court decision was upheld, and the appeal court said that it was necessary for the contractor to demonstrate that the agreed quantity of resources was reasonable to achieve the original contract requirements.
At a more “macro” level, experts are often instructed to provide an additional level of evidence to support the causal link being inferred. For example, in relation to a loss of productivity claim, an expert may carry out a measured mile or baseline productivity analysis.
Causation/inference must be proved
In Mainteck Services v Stein Heurtey SA, the New South Wales Court of Appeal confirmed that Australian courts require proof of causation in the context of a global claim. Australian courts recognise that a contractor may advance a global claim where it is impractical to disentangle the composite loss attributable to a series of causes and that situation was not brought about by the contractor.
The Court of Appeal in Mainteck formed the view that it is unlikely that a global claim will succeed if other causally significant events exist for which the defendant is not responsible. In such circumstances, it is likely that the claim will fail in its entirety.
In a common law jurisdiction, the principles of causation are generally applied in an “all-or-nothing” manner.
Key take-away message re global claims
The key take-away message is for contractors to use their best endeavours to demonstrate the cause and effect links to the greatest extent possible in order to increase chances of success; that is, avoid making and submitting global claims.
To help with this end, the contractor should set up the project in a way that would assist and support the cause and effect analysis, such as accurate record keeping, accurate program updates and analysis. It is essential to know when time and cost has been impact, but it is also essential to know why time and cost has been impacted.
The next articles will cover how to quantify the financial loss caused by delay and disruption. Dealing with delay first, most standard form contracts do not give an entitlement to the contractor for anything other than critical delay, that is delay to the progress of the works that causes a delay to the completion of the project/contract date for completion, whichever is applicable.
Access to articles
This and previously published DD articles are:
DD01: Why is it necessary to distinguish between delay and disruption? What’s the distinction?
DD02: A global claim is doomed to fail, unless…