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05th August 2012

Dream home nightmare

If there has been a theme relating to some of the cases that the Hewitsons’ Construction Team has been advising on in the first half of 2012, contractor’s claims for additional time to complete building works has stuck out prominently.

This area of construction law has been the subject of many pages of legal decision and commentary. The recent case of Walter Lilly & Company v Giles Mackay + DMW Developments Ltd (2012) provides some helpful guidance as to how to approach such disputes.

The background relates to the development of three high value houses in West London. Various disputes arose, some of which were referred to adjudication, the construction industry’s fast track dispute procedure. The decision of the Court covered the works to one of the houses, No.3 Boltons Place (No.3), which at a building cost of £5.2m was to be occupied by Mr Mackay and his family as their “dream home”. Given the additional millions that had to be paid to complete the work, not to mention the many millions more paid out in legal fees and costs, this was one dream that became a nightmare.

The underlying contact was the JCT Standard Form Building Contract, a widely used set of terms and conditions setting out the arrangements for building works to be undertaken for an employer by a contractor. As in the Walter Lilly case, the contract is often used subject to a set of amendments to the standard conditions.

One of the key features of the JCT contract is that a contract administrator is put in place to make decisions independently of the parties about, when the works are complete, the issue of instructions to the contractor and to determine applications by the contractor for extra time and money.

In regard to No.3, disputes arose in regard to alleged defects and claims for responsibility for delays and the amounts due between the parties arising as a consequence. The contractor had made a number of claims for extensions of time during the course of the works, some of which had been granted, but by the end of the works the employer regarded the contractor as being in delay.

The contractor responded saying that it was entitled to a full extension of time to the end of the works and so should avoid having to pay any liquidated damages for delay as the employer was claiming. In addition, the contractor sought over £2.3m in additional sums arising out of being delayed for reasons, which it blamed the employer for.

To say that the relationship between the employer and the contractor became acrimonious would be an understatement. The judgement of the Court makes clear the low opinion that Mr Mackay had of the contractor. Some very fruity language was used in exchanges between the parties. From the contractor’s point of view, the works had commenced with the design only partly completed and there had been a great number of variations and changes in the client’s requirements, only instructed after the contractor had started on site.

In regard to the arguments about defects in the works, the Court analysed the parties responsibilities, including the extent to which the contractor was responsible for the design of items of the works, as well as the building of those items. It was decided that the contractor was not liable for most of the issues associated with the defects.

It was also decided that the contractor was entitled to a full extension of time to the end of the works and so was not liable for any liquidated damages. As a further consequence, the contractor was owed additional sums by the employer arising from being delayed.

The Court reviewed previous legal decisions in this area, including in regard to the issue of what happens where there are competing reasons for delays on a project, i.e. where both the employer and the contractor bear responsibility. The Court said that in assessing a contractor’s entitlement to more time, an extension should be granted in regard to events which the employer is responsible for, even if there are parallel delay matters for which the contractor is responsible. So, any competing delay events for which the contractor is responsible are to be ignored.

In terms of how to go about determining what happened in such cases, the Court said that this must be based on the evidence of factual witnesses and on the opinions of suitably qualified experts. The approach of the experts should be based on an objective approach. There was criticism of the employer’s expert who the Court felt had often been too subjective in his reports and who had strayed into areas that he was not a recognised expert in.

This part of the judgement is useful given that previous decisions of the Court have adopted a variety of approaches to the basis for expert evidence.

The Court said that a reality check of what actually happened to affect the timing of the works should always be applied and mere theories about what might have happened were not to be used. The contractor’s expert had analysed on a month by month basis what in reality had impacted on progress.

In regard to assessing the amount of money the contractor was entitled to, the Court said that based on the terms of the JCT contract, it was a pre condition to being able to make a claim that the contractor had made a timely application for additional losses and expenses, along with supporting information and details. However, the timing of a claim could turn on when the contractor had actually incurred the relevant loss and expense.

This is important given that such claims often arise late in the day in a project, possibly long after the event that is relied upon for the making of a claim has passed. It is also common that the contractor will have provided only limited details to support its claim.

In the Walter Lilly case the Court made it clear that the contractor has to provide reasonable details in support of its claim, but it is not necessary to have to provide every conceivable detail and back up documentation. The contractor does not have to prove its claim beyond “all reasonable doubt” only “on a balance of probabilities”.

So, a contractor that that sets out a claim that links its claims for more payment to the particular factors relied upon to a specific claim for extension of time, which identifies each head of loss or expense precisely and spells out the precise period for which it is claimed will generally have done enough.

In this case there was disagreement about parts of the contractor’s claim that had been made on what is sometimes called a “global claim” basis i.e. a claim based on a bundle of factors rather than being broken down to specific items. The Court said that there was nothing wrong in principle with such claims where it was impracticable to present the claim more specifically, but the contractor would still need to discharge the evidential standard (balance of probabilities) that the loss which has incurred would not have been incurred were it not for the event in question.

In this case the Court allowed for the fact that that the contract was a “complete mess” on the administrative side with insufficient design detail at the outset and with hundreds of variations and “hopelessly late provision of instructions and information” to the contractor. There was also a lack of unity between the employer and his designers and a general lack of certainty as to the requirements for the works gave the contractor some justification to present at least parts of its claim in a “global manner”.

Contractors will see benefits in this decision, although employers can take some comfort that the particular circumstances that applied, including the considerable lack of certainty as the employer’s requirements from the outset, the many changes that were made during the course of the works and the lack of project team cohesion, will not apply in all cases.

For more advice on the implications of this case, please contact Colin Jones on colinjones@hewitsons.com

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