Guidance on contractor claims: extensions of time and loss and expense

A very significant recent case, Walter Lilly v Mackay [2012] EWHC 1773 (TCC) has provided the construction industry with some much needed guidance and clarity in relation to treatment of many of the common elements of construction disputes: extensions of time, concurrent delay and loss and expense.

The project, the construction of a luxury town house for Mr Mackay and his family, was labelled by Mr Justice Akenhead as ‘a disaster waiting to happen’. Design responsibility remained for the most part with the client’s architect although when construction began very little of the design had been finalised. The list of design decisions awaiting client approval grew longer as did the lists of alleged defects as the project progressed. Unsurprisingly the project fell behind programme and the relations between the parties deteriorated badly. Walter Lilly brought proceedings seeking:

• An extension of time until the date of practical completion
• The return of liquidated damages and sums wrongly deducted and
• Loss and expense related to the delays on the project and unpaid value of the works.

Concurrent delays – apportionment approach rejected

Until the Walter Lilly case there was some uncertainty as to how the English courts approach concurrent delay.  Concurrent delay occurs when a contractor is in culpable delay but an employer-risk event (Relevant Event in JCT terms) occurs during the same period.  The majority of extension of time clauses provide that the architect or contract administrator should grant an extension of time which is ‘fair and reasonable’.  The English approach, documented in the Malmaison case (Henry Boot Construction (UK) Ltd v Malmaison Hotel (Manchester) Ltd (1999) 70 Con LR 32), had been to award a full extension of time for delay caused by the two or more event provided that at least one of them was a relevant event.  A different approach was taken by the Scottish courts in City Inn Ltd v Shepherd Construction Ltd [2010] BLR 473.  The Scottish courts decided that a contractor should only get a reasonably apportioned part of the concurrently caused delay. Before Walter Lilly, it was uncertain whether the reasoning in City Inn would apply to English cases.

The ‘apportionment approach’ was rejected and held not to be relevant to the English jurisdiction.  The Judge stated that as the majority of relevant events would amount to acts of prevention by the employer it would be wrong to deny a contractor an extension of time in those circumstances. As long as the contract in question provides for an extension of time for a “relevant event” and the contractor can prove that this event has occurred, the contractor is entitled to an extension of time.

A sensible and commercial approach to loss and expense

The Walter Lilly judgment also provides useful guidance on the interpretation of loss and expense clauses. Although the clause in question related to a JCT contract the same reasoning is still of assistance when considering other standard form building contracts. The contract, like most building contracts, contained various requirements or conditions precedent for an application for loss and expense:

• Timely application to the contract administrator must be made in writing; and
• Supporting documentation must be provided detailing the loss or expense to enable ascertainment to be made by the contract administrator

In this case, both parties agreed that a timely written application together with supporting details were necessary for the contractor to be successful in its claim for direct loss and expense.  However, there was some debate over the extent of information required to evidence the contractor’s loss and expense claim. The employer argued that the contractor provided insufficient detail and had therefore not satisfied the requirements of the contract in relation to applications for loss and expense.

The Judge concluded it was important that the wording of the loss and expense clause was not construed against the contractor as the majority of the matters which entitle the contractor to additional loss and expense are the employer’s ‘fault’. The Judge ruled that the clauses should not be interpreted in a strict manner so as to punish the contractor for operating the loss and expense provisions of the contract.

Although the guidance provided in the judgment should not be regarded as a general rule on what must be provided in each case, the Walter Lilly judgment does offer the industry sensible advice on the approach to be taken in submitting and reviewing loss and expense claims.

It is appropriate to take into account the contract administrator’s existing knowledge and information obtained from their experience on the project.  If for example the contract administrator has received several applications for extensions of time, they should already have a substantial amount of information available.  The contractor’s application for loss and expense must enable the contract administrator reasonably to form an opinion that ‘direct loss and/or expense has been incurred or is likely to be incurred’ because the regular progress of the works has been delayed or disrupted by the actions or omissions of the employer or by events which are at the employer’s risk.

It is not necessary to provide every conceivable detail and supporting documentation which may theoretically be needed where the relevant clause states ‘such details…as are reasonably necessary for such ascertainment’. The threshold for the condition precedent can still be met if the contractor does not provide details for each pound of loss and expense.

That is because the words of the contract should be construed “in a sensible and commercial way that would resonate with commercial parties in the real world” and that the contract administrator needs to be in the position where they are satisfied that all or some of the loss and expense claimed is likely to be or has been incurred. There is no requirement for the contract administrator to be “certain”.

Conclusion

Whilst this decision may be seen as giving contractors more room for manoeuvre it is still important that any claims are as substantiated as they can be. Whilst the condition precedent for an application may be met by providing a less detailed claim, the contractor still needs to persuade the contract administrator to accept its estimation of the likely loss and expense.