Loss and Expense After Walter Lilly
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It’s the Employer’s fault that the Contractor is out of pocket. What does the Contractor have to do to recover his loss and expense? Walter Lilly has made things just a little clearer.
In our last article we discussed how the Courts in England and Wales are likely to interpret concurrent delay under JCT (and similar) forms of contract and decide who bears the risk of the delay.
You might be in that particular tricky spot, or, unusually, it might be ‘cut and dry’ who is to blame, but deciding who bears the risk for a delay is only the first consideration on the Contractor’s way to recovery of loss and expense.
What is loss and expense?
Put simply, a claim for loss and expense commonly refers to a claim by a Contractor for any monetary loss and expense he suffers as a result of an event which causes delay to the regular progress of the contract works.
In order to be compensated for that loss and expense, the delay has to either be as a result of the Employer’s behaviour, or an incident for which the Employer bears the contractual risk (in the language of JCT, a Relevant Matter – not to be confused with a Relevant Event! There is often a misconception that an extension of time equals a claim for loss and expense).
The JCT forms of contract contain what has been described as “elaborate machinery” dealing with claims for loss and expense. The Courts have previously given some guidance on this “elaborate machinery”, but Walter Lilly serves as a timely reminder, if not a Haynes Manual, for Contractors, Contract Administrators and Quantity Surveyors alike.
Although Walter Lilly was based on a 1998 form of JCT contract, the operative provisions have not markedly changed in more recent editions. In order to be of maximum assistance, this article will deal with the requirements of the contractual loss and expense mechanism in generality, rather than by reference to specific clauses. As ever, however, it is essential to look to the exact terms of your own contract, particularly if it has been subject to amendment from a standard form, when faced with ‘real-life’ issues.
In order to make a claim for loss and expense under a JCT form of contract, a Contractor has to jump through certain ‘hoops’ and fulfil certain conditions precedent. If he does not do so, then the Contract Administrator, or Quantity Surveyor, has no obligation, or power, to compensate the Contractor under the Contract.
Hoop 1 – make the application
The first condition precedent the Contractor must satisfy to claim loss and expense under a JCT contract is to make an application as soon as it has become, or should reasonably have become, apparent that the regular progress of the works has been or is likely to be affected by a Relevant Matter.
In other words, the application can be prospective (before the loss or expense has been incurred) or retrospective (after it has been incurred), but it must be made promptly.
This sounds straightforward enough, however, the timescale for submission of the application was not dealt with in Walter Lilly, and conceptually, it might be argued in different circumstances that an application was made late if a Contractor delays in making its application.
Hoop 2 – support the application: detail the delay
The second condition precedent is intimately linked with the first, and, indeed, the Court in Walter Lilly somewhat combined the two. The Contractor is required, upon request, to submit such information as is reasonably necessary to allow the Contract Administrator to form an opinion on whether regular progress has been affected by a Relevant Matter or that loss and/or expense has been is likely to be incurred due to such delay.
Relevant Matters, as touched on above, are matters which are either the fault of the Employer, or for which the Employer bears the risk contractually, which cause delay. Examples include: Variations, legitimate suspension by the Contractor and instructions of the Architect/Contract Administrator.
Importantly, the list of Relevant Matters is not the same as the list of Relevant Events. The latter only entitles a Contractor to an extension of time, not money.
Hoop 3 – support the application: detail the loss and expense caused by the delay
The third condition precedent is that the Contractor is required, upon request, to submit such information as is reasonably necessary for the Contract Administrator or Quantity Surveyor to ascertain the amount of the loss and/or expense due to the Relevant Matter.
Has the Contractor jumped through all the Hoops?
As discussed above, the first condition precedent was not in dispute, however, the second and third conditions precedent were the focus of the parties’ disagreement in Walter Lilly. In particular, the parties were in disagreement about the level of detail required to be provided by the Contractor to satisfy the second and third conditions precedent.
Whilst, Mr Justice Akenhead said that it was difficult to lay down a general rule as to what was required to be provided, he pointed out that in relation to the both the conditions precedent, it was appropriate to take into account the level of knowledge of the project which the Contract Administrator himself possessed.
In Walter Lilly, the Contract Administrator had regularly attended site meetings and had received scores of applications for extensions of time for completion from the Contractor. It was reasonable therefore, to expect that the Contract Administrator had a substantial amount of information already in his possession to help him form an opinion on whether the regular progress had been affected or that loss and/or expense had or is likely to be incurred due to a Relevant Matter.
In such circumstances, the Contractor did not need to resubmit all the information that the Contract Administrator already knew from his involvement in the project, but only such additional information as may be necessary to enable the Contract Administrator to form his opinion.
In relation to the third condition precedent, the Employer argued that the Contractor needed to provide, in the words Mr Justice Akenhead, “every conceivable detail and back up documentation which may or may not be needed must be provided and all evidence required to prove the claim as correct needs to be deployed”.
Mr Justice Akenhead disagreed with that assessment of what was required.
Instead, Mr Justice Akenhead said that the wording of the Contract could have imposed such a condition, but in his view the wording did not do so. Rather, the Contract requires that the Contract Administrator/Quantity Surveyor is put in a position to determine whether some or all of the loss and/or expense as claimed is likely to be or has been incurred; he/she does not have to be certain of the amount.
This is reinforced by the fact that the Contract Administrator/Quantity Surveyor might be asked to determine loss and/or expense which is “likely to be incurred”. As Mr Justice Akenhead pointed out, this would require a ‘crystal ball’, in addition to all the relevant backup information if the Contract Administrator/Quantity Surveyor was required to be certain.
Again, Mr Justice Akenhead said it was reasonable to take account of the fact that the Contract Administrator/Quantity Surveyor was not a stranger to the project and may have access to Bills of Quantities and other pricing documents which will assist him in this exercise.
Consequently, the Contractor in Walter Lilly was able to supply less information than the Employer argued should have been provided in order to satisfy the conditions precedent and, therefore, the Contractor was entitled to recover loss and expense under the JCT’s machinery.
Walter Lilly deals with the position under JCT forms of contract, however, the reasoning of Mr Justice Akenhead is likely to apply equally to any similarly drafted contracts.
What ought to be remembered here is that whilst it may be that the conditions precedent of the JCT loss and expense provisions are more easily satisfied than some may have thought, this does not mean the Quantity Surveyor or Contract Administrator will necessarily agree with the material provided by a Contractor.
Whilst the Contractor might decide not to ‘back up’ every claim with substantiation, he does so at his own risk - the Contract Administrator or Quantity Surveyor may take the view that the limited information provided by the Contractor does allow him/her to form an opinion on the cause of the delay, or ascertain the value of the loss and expense, but does not evidence the entitlement claimed.
In other words, in the worst case scenario, a Contractor might be entitled to loss and expense because he has supported his application with the minimum amount of information to satisfy the conditions precedent, but the Contract Administrator or Quantity Surveyor might decide that the information provided demonstrates only a nominal amount of loss and/or expense falling far short of the Contractor’s expectations.
Ultimately, if the parties disagreed with an ascertainment of the loss and/or expense, they have recourse to a dispute resolution forum, such as litigation or adjudication, where the tribunal will determine the entitlement and extent of any such entitlement to loss and/or expense by reference to the evidence available and the balance of probabilities.
This brings us on to the next topic in this series, Global Claims and whether a claim for loss and/or expense can succeed on the basis of a Global Claim.
If you would like more information about the important issues raised in this article and how it may affect your business, we will be pleased to hear from you.
Maxwell Fox-Leonard - Solicitor, Construction, Engineering & Projects
Tel: 0161 909 4656 Email: firstname.lastname@example.org