Introduction

Given that the burden of proof in any claim for damages usually rests with the party making the claim, the problems of establishing delay and disruption damages in international construction arbitration are felt most acutely by the contractor or, in the case of a sub-contract, by the sub-contractor. 2 They may have suffered loss and expense, or may feel that they have, as a result of occurrences outside of their control or contractual responsibility. They may even consider that the employer3 is responsible for the delay. Nevertheless unless they can satisfy the applicable requirements of procedural and substantive law, they cannot recover compensation. So far as this goes, this may seem like a statement of the obvious; unless the claim can be established, it cannot succeed. But making out a claim for delay and disruption damages under a construction contract can be problematic, and this paper considers the reasons why such problems arise.

Equally, delay and disruption claims cause problems for the party defending the claims. The complexity of the subject and of the issues means that the employer will often have to contend with significant difficulties in defending such claims, and to incur substantial expenditure in doing so.

The paper considers three particular aspects that lead to legal and factual problems: causation, concurrency and calculation. These cover the difficult areas with which tribunals most often have to contend. [Page193:]

1. Causation

In many situations, the question of whether something has caused a particular effect can be simply answered. The law of causation, in its most basic form, is therefore both simple and obvious. As Lord Salmon remarked in the House of Lords4, "what or who has caused a certain event to occur is essentially a practical question of fact which can best be answered by ordinary common sense rather than by abstract metaphysical theory." Recently, Lord Hoffman remarked in the annual Blackstone Lecture at Oxford University, 5 "There is nothing special or mysterious about the law of causation. One decides, as a matter of law, what causal connection the law requires and one then decides, as a question of fact, whether the claimant has satisfied the requirements of the law. There is, in my opinion, nothing more to be said."

However, in practice, particularly in construction disputes, the task of showing that the defendant has caused the loss may be much more difficult than this elegant simplicity would suggest. This can be illustrated by a recent decision widely reported in the specialist construction law reports in the UK, even though it is not a construction case. It raised the question of the degree of certainty required between a cause and an effect. In Fairchild v. Glenhaven Funeral Services, 6 a claim for compensation for asbestos-related cancer was brought against an employer. It could not be proved that the exposure to asbestos for which the employer was responsible had caused the cancer. The employee had been exposed to asbestos by other employers. After the initial court decision and two appeals, the Law Lords had great difficulty in holding that causation was established, since all that could be shown was a substantial possibility that the defendant employer had caused the harm suffered. Lord Hoffman described this in the Blackstone Lecture as a problem that "has puzzled lawyers since Roman times", the difficulty of proving the cause of loss, when more than one cause is possible. In a highly controversial ruling, the Law Lords in this case found that the substantial possibility was enough to establish causation.

Another aspect of this are the cases where a party has "lost a chance" of doing something. In those cases, the English Court of Appeal in Allied Maples Group Ltd v. Simmons & Simmons [1995] 1WLR 1602, a case involving professional negligence, held that where the loss depends on the hypothetical action of a third party, the claiming party only has to prove that there is a substantial chance that the third party would have acted so as to confer the benefit or avoid the risk, the evaluation of the substantial[Page194:] chance being a question of quantification of damages.

Tribunals in construction cases routinely have to deal with causation issues of similar or greater complexity. As is remarked in Keating on Building Contracts, "Contractors often have claims dependent on a number of separate causes each of which has contributed to delay and extra cost. In principle, the loss attributable to each cause should be separately identified and particularised but separation may be difficult." 7 These difficulties have led to a tension between the contractor's obligation to plead its case properly, including proof of causation of the loss allegedly suffered, and a recognition of the practical difficulties in doing so. The consequence of this tension has been the development of a phenomenon known variously as "global" "rolled-up", "composite" or "total cost claims", phrases which have acquired derogatory undertones.

Nearly 40 years ago, the English High Court8 upheld the decision of an arbitrator to make a "global" award for claims arising under different terms of the contract, recognising that the loss incurred depended on an extremely complex interaction between different causes. The judge supported the arbitrator's pragmatism: "I can see no reason why (the arbitrator) should not recognise the realities of the situation and make individual awards in respect of those parts of the claim which can be dealt with in isolation and a supplementary award in respect of the remainder of these claims as a composite whole." An analysis of that case shows that the principle was being applied to a comparatively simple prolongation claim where the loss was being measured at a loss per week multiplied by the number of weeks.

The general approach was followed, and some 20 years later in London Borough of Merton v. Stanley Hugh Leach, the court held: 9 "If application is made ... for reimbursement of direct loss and expense attributable to more than one head of claim and at the time when the loss or expense comes to be ascertained, it is impractical to disentangle or disintegrate the part directly attributable to each head of claim then, provided of course that the contractor has not unreasonably delayed in making the claim and so has himself created the difficulty, the architect must ascertain the global loss attributable to the two causes ... ." [Page195:]

However, this kind of pragmatic approach has been attacked by lawyers, especially those representing employers. The criticism has usually focused on the difficulty of dealing with a case where a global sum is claimed for a multitude of events for which the employer is alleged to be responsible. As Ian Duncan Wallace QC10 has observed, "claims on a total cost basis, a fortiori if in respect of a number of disparate claims, will, prima facie, be embarrassing and an abuse of the process of court, justifying their being struck out and the action dismissed at the interlocutory stage." Critics of the global approach to claims often refer to the decision of the Privy Council in the Hong Kong case of Wharf Properties v. Eric Cumine Associates (No. 2) 11 where actions against architects for negligent design and contract administration were struck out for being inadequately particularised and disclosing no reasonable cause of action. Lord Oliver observed that "the pleading is hopelessly embarrassing as it stands". While he was prepared to accept the difficulties of the complex interaction between the consequences of various events making difficult an accurate apportionment of the total extra costs: "This has, however, no bearing upon the obligation of a plaintiff to plead his case with such particularity as is sufficient to alert the opposite party to the case which is going to made against him at the trial."

In Australia, the courts had developed a more practical approach to the problems of global claims. Mr Justice Byrne in John Holland Construction & Engineering Pty Ltd v. Kvaerner R J Brown Pty Ltd12 preferred to give the claimant the opportunity to amend the claim to provide the necessary particulars of causation rather than strike it out as incomplete. This approach was accepted in England by His Honour Judge Humphrey Lloyd QC13 in Bernhards Rugby Landscapes Ltd v. Stockley Park14, where he also allowed a global claim to be amended since "its current form is not so oppressive or abusive as to justify refusal of leave to amend [...] The deficiencies may [...] be cured by the provision of particulars or in some other way."

The Stockley Park case was characterised by a careful balance between the problems faced by the claimant in making out the claim and the difficulties that a global approach creates for defendants: A party "is entitled to present its case as it thinks fit", but "a defendant on the other hand is entitled to know the case it has to meet [...]. What is sufficient particularity is a matter of fact and degree in each case. A balance has to be struck between excessive particularity and basic information. The approach must also be cost effective." [Page196:]

Since Stockley Park there have been further important developments in the use of global claims to overcome causation problems.

The Society of Construction Law's Delay and Disruption Protocol, issued in October 2002, 15 is not of any statutory effect, nor is it a contractual document unless the parties choose to adopt any of its provisions as such. Nevertheless, it has been influential in promoting debate on how issues of delay and disruption should properly be handled by the parties. Its Guidance Note on Global Claims16 is hostile to the practice, perhaps surprisingly so:

"The not uncommon practice of contractors making composite or global claims without substantiating cause and effect is discouraged by the Protocol and rarely accepted by the courts.

"1.14.2 If the Contractor has made and maintained accurate and complete records, the Contractor should be able to establish the causal link between the Employer Risk Event and the resultant loss and/or expense suffered, without the need to make a global claim. The failure to maintain such records does not justify the Contractor in making a global claim. The Protocol's guidance as to the keeping of records is set out in Guidance Section 2.

"1.14.3 In what should only be rare cases where the financial consequences of the various causes of compensation are impossible to distinguish, so that an accurate apportionment of the compensation claimed cannot be made between the several causative events, then in this rare situation it is acceptable to quantify individually those items of the claim which can be dealt with in isolation and claim compensation for the remainder as a composite whole.

"1.14.4 The Contractor will nevertheless need to set out the details of the Employer Risk Events relied on and the compensation claimed with sufficient particularity so that the Employer knows the case that is being made against it."

By contrast, in the Scottish courts there has been a decision which will have given some encouragement to contractors. John Doyle were employed as works contractors by management contractors, Laing, on the construction of a new corporate headquarters for a financial institution. John Doyle claimed[Page197:] a 22-week extension of time and nearly £5 million for loss and expense caused by delay and disruption. Laing argued that, since this was a global claim, if any of the loss and expense alleged was not caused by them, the whole claim must fail. The findings of the Inner House of the Court of Session17 constitute an important reassessment of the modern law and have already been applied in England as well. They can be summarised as follows:

- Individual causal links must normally be proved between each breach/ claims event and each item of loss and expense.

- If this is impossible, the claims events can be pleaded as producing a cumulative effect, where it is not necessary to break down and isolate them.

- If, however, the employer is not liable for a significant cause of loss and expense, the claim fails.

- If there are only "some" events, not "significant" in this category, the claim need not fail. The tribunal may be able to apportion loss, although this will lead sometimes to rough and ready results.

- In pleading the claim, reasonable detail on events and heads of loss must be provided. Causation will be largely a matter of inference and based on experts' reports; consideration of these aspects should wait until all the evidence is before the tribunal. It can be said that there are three main changes in emphasis in the law in Doyle and each is, to a greater or lesser extent, encouraging of global claims.

- Whereas previously it was understood that any cause of loss shown to be not the responsibility of the defendant would be fatal to the global claim, 18 it now appears that this only applies if the cause of the loss is significant.

- The court seemed comfortable with the idea of apportionment of loss by the tribunal between causes for which the employer is and is not liable, even if this may be a rough and ready process. It is possible that arbitrators will often be better equipped than judges and more willing to make such apportionments. [Page198:]

- The issue of whether causation can be proved should normally wait until the trial when all the evidence is in and so, presumably, would not be decided at the interlocutory stage on an application to strike out. This would also, it is suggested, be more in line with the practice of arbitrators.

In a recent case, His Honour Judge Wilcox in the Technology and Construction Court in Great Eastern Hotel Co. Ltd v. John Laing Construction Ltd19 found as follows:

"I am satisfied that the Trade Contractor accounts are global claims, and if such a claim is to succeed, (Great Eastern) must eliminate from the causes of the loss and expense element all matters which are not the responsibility of Laing. 20 That requirement is mitigated in this case, because it is possible to identify a causal link between particular events for which Laing was responsible, and the individual items of loss. Such analysis was approved in the Court of Session Inner House in John Doyle Construction v. Laing Management (Scotland) Ltd I am satisfied on the basis of Mr Mitchell's21 evidence that the dominant cause of Trade Contractor delay was in fact the delay to the project caused by Laing's proven breaches."

In summary, it may be said that causation represents one of the single greatest problems for a contractor in a delay and disruption claim. Changing attitudes to global claims reflect the balance between practical understanding of a contractor's difficulty in separating causes of loss and the requirement that a claim must be properly pleaded and proved, in fairness to the defending party.

2. Concurrency

Whilst concurrency is related to the issue of causation, it is of sufficient importance to be treated in its own right. The word "concurrency" is used for a situation where a number of effective causes actually operate to create an effect. That effect is usually delay or disruption which gives rise to monetary claims. Causation is principally, although not exclusively, a problem for the claiming party, often the contractor, to overcome. Concurrency, on the other hand, creates major difficulties for all parties. It affects the employer whose liquidated damages entitlement may be challenged by a claim for extension of time, the contractor who seeks to base a claim for loss and expense for the period of delay which has led to late completion and the contract administrator, whether engineer or project manager, who must try to allocate responsibility for delay. [Page199:]

The principal problem with concurrency is that it leads to logical difficulties in applying simple concepts of causation. Very often, the underlying factual position will eliminate competing causes, but there will still be cases where there will be causative events of the same potency but with different parties being responsible for each one.

One particular problem is the absence of a consensus on the method of analysis. This applies both to the method of delay analysis and to the legal analysis of the consequences.

3. Delay analysis

The Society of Construction Law Protocol deals22 with the principal types of analysis available to show the effect of the different factors upon delay caused. It includes a table which indicates the suitability of the respective types of delay analysis according to the factual programming information available: as-planned programme without network, networked as-planned programme, updated as-planned networked programme or as-built records. It then sets out the types of analysis that can be used: as-planned versus as-built, impacted as-planned, collapsed as-built or time impact analysis.

It is certainly impossible in this paper to resolve the competing advantages and disadvantages of the different methods. Indeed, as the recent event held at King's College, University of London23 has shown, it is still an area where experts on the subject disagree. At that event, an audience of nearly 300 construction professionals was given a set of hypothetical facts concerning an unhappy project in which work had come to a standstill in exceptionally bad weather when the contractor's water pumps broke down and the excavations collapsed. The employer meanwhile had asked for a re-design of waterproofing and instructed the use of a proprietary product, which was delivered late and took longer to apply than the contractor had allowed. A whole range of other mishaps occurred, from an alleged error in the setting out, resulting in a need for additional excavation and backfilling, to late release of the reinforcing bar-bending schedules. Despite weekend working by the contractors' reinforcement fabricators, work finished one week late.

The representative for the contractor argued for the "impacted as-planned" analysis of the events, which would not only free the contractor from liability[Page200:] for liquidated damages, but would give rise to a substantial delay and disruption claim and an acceleration claim. Opposing this, the person acting on behalf of the employer adopted the "as-planned versus as-built" method, which showed the contractor to be in serious trouble and obliged to accept full responsibility for the delay. The representative for the engineer proposed to resolve the dispute using the "as-built but-for" test. The adjudicator's advisor favoured the use of the "time impact" method of analysis, but the audience rejected the motion: "This house considers that the time impact method is the most appropriate for the analysis of delay in construction disputes."

The audience was asked in turn which of the four methods they favoured, and none commanded a clear majority. Rather, each had a committed band of supporters. It was clear that there was no majority in favour of "time impact" analysis. Further, nothing approaching consensus could be found on the correct methodology - rather the audience split into four significant minorities.

This clearly illustrates the major difficulty for both sides in any dispute that requires a delay analysis. Whilst a method can be found that will support a case either for the contractor or the employer, the difficulty will be in predicting, objectively, the likely outcome of the case, since there is no single approach that the tribunal will follow. Self-evidently, this represents a problem for the tribunal as well as a risk for the parties. 24

4. Legal analysis

The delay analysts are not alone in disagreement over the correct approach to be followed in dealing with concurrent delay.

In an authoritative treatment of the subject to date, John Marrin QC25 considered the "correct approach to contractors' claims arising out of concurrent delays in the execution of construction projects". The focus of the paper is a hypothetical project for the construction of a shopping centre. On a twelvemonth contract, there is an overrun of one month; the causes of the delay being, on the one hand, extra work ordered by the architect and, on the other hand, the carrying out of the remedial work necessary to correct the contractor's defective workmanship, two causes to be assumed to be "of approximately equal causative potency". [Page201:]

The issue for discussion was whether, under the UK's widely used JCT Standard Form of Contract, 26 the following results would occur:

- The contractor would be granted a month's extension of time;

- The contractor would be entitled to a month's worth of prolongation costs;

- The employer would be entitled to a month's worth of liquidated damages.

The short response to these questions is that, in most legal systems, including England, there is no single authoritative right answer. This is so even though many standard forms of contract have been through many editions. In the case of the English JCT Standard Form, it is still estimated to be used on over three-quarters of UK construction projects.

John Marrin is obliged to consider five possible contenders. It is not possible to deal with them in detail here but they can be outlined.

First, he refers to apportionment: "a not unnatural response would be to suggest that the overrun and its consequences should be apportioned between the contractor and the employer [...] any such apportionment would be achieved by allocating financial consequences according to the tribunal's perception of the relative causative potency of the competing causes." His conclusion is that "in the context of contractor's claims under construction contracts, that approach has attracted only very limited support. 27 To some degree it is thought that this is because the courts of common law tend to apply the principles of causation in an 'all or nothing' way." Against this, Mr Marrin notes greater readiness to use apportionment in Canada and in New Zealand.

The second possible approach is described as the American approach. The US construction industry and the American courts recognise three distinct species of delay: excusable delay, compensable delay and inexcusable delay. Categorisation of a delay as one of these is a matter for the contract.

John Marrin notes that, "the American courts have arguably achieved the advantage of greater certainty. For example, delay not impacting on critical path activities is not even taken into account. Neither party is likely to be able to recover financial compensation unless a cause of delay can be clearly segregated from others. This latter point would conflict with the usual JCT position in the UK that an employer could recover liquidated damages even[Page202:] when it cannot show that contractor default is the sole cause of delay. For this reason 'it is thought that the courts in England would, if asked, decline to apply the American approach to a case governed by the JCT Standard Form'."

The third possible approach is the "but for" test. "On behalf of contractors, it is occasionally suggested that the correct approach in determining contractual delay claims is to apply the 'but for' test of causation. No doubt, this is because it is the test most favourable to the claimant. Thus, if a contractor worked well on the original specification and then incompetently and slowly on work ordered as a variation/change order, under the 'but for' test it could argue that the delay would not have occurred but for the variation/ change order, making it the employer's responsibility. Not surprisingly, it is thought that the English courts are most unlikely to apply the 'but for' test of causation to a contractual claim unless the wording of the contract clearly demands it."

The construction law text Keating28 has for a number of years, in successive editions, argued for the "dominant cause" approach. It was summarised in the 5th edition29 as follows: "If there are two causes, one the contractual responsibility of the defendant and the other the contractual responsibility of the plaintiff, the plaintiff succeeds if he establishes that the cause for which the defendant is responsible is the effective, dominant cause. Which cause is dominant is a question of fact [...] to be decided by applying common sense standards."

This approach, when used by an arbitrator, was criticised by the English High Court in H. Fairweather v. London Borough of Wandsworth30 in clear terms: "I do not consider that the dominant test is correct." As has been observed in a recent commentary, 31 "The problem with the dominant cause approach, as indicated by the Fairweather case, is that it necessarily requires a choice to be made between one cause or another [...]. The dominant cause approach will inevitably lead to injustice to one of the parties." Against this, it must be observed that the court in Great Eastern Hotel v. John Laing following John Doyle v. Laing Management32 adopted precisely this wording. [Page203:]

The preferred option by John Marrin is the Malmaison approach. This gets its name from the English case of Henry Boot Construction (UK) Ltd v. Malmaison Hotel (Manchester) Ltd33 in which Mr Justice Dyson34 regarded the following statement as uncontroversial: "if there are two concurrent causes of delay, one of which is a relevant event, and the other is not, then the contractor is entitled to an extension of time for the period of delay caused by the relevant event notwithstanding the concurrent effect of the other event."

The case of Royal Brompton Hospital NHS Trust v. Hammond (No 7) 35 seemed to give further support to the Malmaison approach: "If Taylor Woodrow (the contractor) was delayed in completing the works both by matters for which it bore the contractual risk and by relevant events, within the meaning of that term in the standard form [...] it would be entitled to extensions of time by reason of the occurrence of the relevant events notwithstanding its own defaults."

As Burr and Palles-Clark note, 36 "Malmaison and Brompton do not appear to deal specifically with the entitlement to loss and expense, (only extension of time), although it would seem to follow that, where the contractor is in concurrent culpable delay, he will only be entitled to recover the specific additional costs incurred as a result of employer's delay, which because of the contractor's default will exclude his general time-related costs."

The Society of Construction Law Protocol's guidance on this last point37 provides that, "If the Contractor incurs additional costs that were caused both by Employer Delay and Contractor Delay, then the Contractor should only recover compensation if it is able to separate the additional costs caused by the Employer Delay from those caused by the Contractor Delay."

While allocation of responsibility for the occurrence of events leading to delay is always to some extent a matter of contractual agreement, it must be regarded as highly unsatisfactory that there is no agreed methodology for delay analysis and no single legal approach to the concurrency issue, when these issues are commonly raised in construction claims. This in turn leads to uncertainty and unpredictability in the outcome of claims and unquestionably the encouragement of claims which might be non-starters on any mainstream analysis, could one be accepted as standard. [Page204:]

5. Calculation

It is not practical, in the context of this paper, to address all aspects of calculations of delay and disruption damages. The calculation of delay loss is, by comparison, much more straightforward than the calculation of loss caused by disruption. It has often been said that once a party has established a liability for delay or for disruption, the approach of the tribunal to the calculation of the quantum should be more flexible. This can be illustrated by two cases. In Chaplin v. Hicks [1911] 2 KB 786, the loss of an opportunity to appear in a "beauty contest" had to be assessed. The English Court of Appeal said this:

"Then came the point that was more strenuously argued, that the damages were of such a nature as to be impossible of assessment. It was said that the plaintiff's chance of winning a prize turned on such a number of contingencies that it was impossible for any one, even after arriving at the conclusion that the plaintiff had lost her opportunity by the breach, to say that there was any assessable value of that loss. It is said that in a case which involves so many contingencies it is impossible to say what was the plaintiff's pecuniary loss. I am unable to agree with that contention. I agree that the presence of all the contingencies upon which the gaining of the prize might depend makes the calculation not only difficult but incapable of being carried out with certainty or precision. The proposition is that, whenever the contingencies on which the result depends are numerous and difficult to deal with, it is impossible to recover any damages for the loss of the chance or opportunity of winning the prize. […]. I do not agree with the contention that, if certainty is impossible of attainment, the damages for a breach of contract are unassessable […]. I only wish to deny with emphasis that, because precision cannot be arrived at, the jury has no function in the assessment of damages[…]. In such a case the jury must do the best they can, and it may be that the amount of their verdict will really be a matter of guesswork. But the fact that damages cannot be assessed with certainty does not relieve the wrongdoer of the necessity of paying damages for his breach of contract." [Page205:]

This is an approach also reflected in the Canadian case of Wood v. Grand Valley Railway Company (1915) 51 SCR 283 where the Court said at 289:

"It is clearly impossible under the facts of that case to estimate with anything approaching to mathematical accuracy the damages sustained by the plaintiffs, but it seems to me to be clearly laid down there by the learned judges that such an impossibility cannot 'relieve the wrongdoer of the necessity of paying damages for his breach of contract' and that on the other hand for the tribunal to estimate them whether jury or judge must under such circumstances do 'the best it can' and its conclusion will not be set aside even if the amount of the verdict is a matter of guess work."

The suggestion of "guess work" may seem somewhat extreme, and tribunals usually adopt the more acceptable approach of "assessment". That assessment is generally based on the submissions of the parties. It is those submissions that put a value on the claim from the most optimistic view point of the particular party. Often, though, a defending party concentrates all its efforts on the liability aspects of the case rather than the detail of quantum. Whilst this may give the tribunal an unchallenged position, the process of assessment is still necessary to reflect only partial success on the issues.

One of the most difficult areas of proof of loss arising from delay is loss of profit. This claim can arise either as a claim by a contractor as a result of delay or disruption or as a claim by an employer resulting from delay where there is no enforceable liquidated damages regime.

Take the example of an oilfield where a defective piece of equipment causes a delay of a year to the start of production. What is the loss of profit? The oil is in the ground. Production is delayed at the commencement but can continue for a longer period at the end. What are the reserves? What will be the impact of earlier extraction from adjacent fields? There are therefore problems in assessing the quantity, the rate of extraction and the period over which the extraction takes place. Then comes the even more difficult question. What is the level of profit over, say, the 10- or 20-year period of production. In principle, if the level of profit is rising then the delay could be argued to be beneficial to the oil company. There is undoubtedly a loss of cash flow in the first year, but if the income stream, appropriately discounted, leads to an overall positive position for the oil producer, what is the loss? [Page206:]

Equally, supposing that a piece of equipment that is intended to have a maintenance cycle of 20 months in fact has a maintenance cycle of 16 months so that periodic disruptions are encountered, how is the loss of profit caused by that disruption to be evaluated? At what stage and to what extent should the damage be avoided by replacing the machinery?

Two further examples illustrate that, even where more simple aspects arise, calculation constitutes a problem in relation to delay and disruption claims. Take, for example, interest and head office overheads.

6. Interest

It might be supposed that a contractor's entitlement to interest in the event of late certification or non-certification or under-certification would be routine and long since settled in law. It is true that many of the principal standard form contractors purport to deal with this issue. 38

However, the calculation of interest causes problems in most arbitrations. 39 First, the question is whether the claim for interest is a matter of substantive or procedural law. This, in turn, may be a circular argument. Secondly, whether a matter of substantive or procedural law, it may be a matter that a party has to consider in the context of enforcement. For instance, an award of interest may defeat enforcement in a number of Islamic countries. Thirdly, there is the question of pre-arbitration, post-arbitration and post-award interest, with different rules arising in each jurisdiction. The position in English law is still uncertain as to certain forms of interest, particularly interest as damages, and is uncertain where substantive English law applies and the seat of arbitration is outside England and Wales.

The Society of Construction Law Protocol40 again sets out some of the background when it states that "There are often arguments as to the date on which interest on a Contractor's claim should start to run […] the appropriate starting date will not be the same in all circumstances." English case law has taken different positions on whether interest is payable where an arbitrator or other tribunal holds that an engineer's decision on a contractor's claim was an under-certification. In Morgan Grenfell v. Sunderland Borough Council41 , the author as counsel successfully contended that the contractor was entitled to interest on the claim: "if the arbitrator revises (the engineer's) certificate so as to increase its amount, it follows that the engineer has failed to certify[Page207:] the right amount and the contractor becomes entitled to interest." However, in Scotland in BP Chemicals Ltd v. Kingdom Engineering (Fife) Ltd42 and in England in Royal Borough of Kingston upon Thames v. AMEC Civil Engineering,43 a quite different view was taken. The judge in the latter case made this clear:

"If the engineer has done his contractual duty in issuing a certificate i.e. the amount that he certifies does indeed represent his opinion reached, in accordance with the terms of the contract, on the basis of the statement submitted by the contractor and is reasonable on that basis, he has not failed to issue a certificate, notwithstanding that an arbitrator may subsequently revise upwards the amount certified. That in such a case the contractor should not be entitled to interest on the ground of failure to certify is in my judgment consistent with the purpose of interim certification […] the contractor is not entitled to interest merely because the arbitrator has revised the engineer's interim certificates upwards."

The ICE in its 1999 7th edition sought to deal with this point44 with a "deeming" provision: "if in an arbitration pursuant to Clause 66 the arbitrator holds that any sum or additional sum should have been certified by a particular date in accordance with the aforementioned sub-clauses but was not so certified this shall be regarded for the purposes of this sub-clause as a failure to certify such sum or additional sum."

However, many contracts, both in the UK and in other jurisdictions, do not have an equivalent. As was recently pointed out, 45 "Those contracts, including standard forms and 'bespoke' contracts, still embody the possibility of a distinction between situations where the non-payment/under-payment is 'wrongful' or 'improper' and those where it is not, the interest provisions applying to the former but not the latter." This illustrates the problem that can occur in calculating what is often a substantial percentage of the overall recovery in these cases.

7. Head office overheads

In principle, if the contractor has suffered additional cost in its head office organisation as a result of delay for which it is not responsible, that ought to form a recoverable head of loss. An initial problem arises as, generally, it is[Page208:] difficult to establish that an element of loss is attributable to a particular delay or that there has been any additional cost as a result of the delay. Therefore, the basis of recovery is often this: the delay meant that head office resources were used for longer on the delayed project, and this meant, in turn, that the resources could not be used to obtain additional work which could otherwise have been obtained. Once the principal of recovery is established, then the mechanism for calculation is still far from straightforward. Whilst there is no agreed methodology, there are three principal formulae which are often applied: Hudson, Emden or Eichleay. The first two are taken from construction law text books; the third derives from a US case before the Armed Services Board of Contract Appeals.

These formulae are summarised in the SCL Protocol. 46 Hudson and Emden use an overhead and profit percentage which is applied to the contract sum and is pro-rated over the contract period. This gives a weekly sum which is multiplied by the number of weeks delay. The difference between the two formulae is that Hudson uses the tender percentage; Emden uses the actual percentage. The Eichelay formula is based on a percentage derived from the turnover from the delayed project compared to the overall turnover, and this is then applied to the overall overheads (not profit) of the company to give a contribution which it is assumed would be recovered on the delay project. Again that is divided by the contract period to give a weekly sum which is multiplied by the number of weeks delay.

There are, of course, divergent views about the merits of the respective options. The SCL Protocol47 considers that, "The use of the Hudson's formula is not supported. This is because it is dependent on the adequacy or otherwise of the tender in question, and because the calculation is derived from a number which in itself contains an element of head office overheads and profit, so there is double counting." Kirsh48 remarks that even Hudson itself (11th ed.) "accepts the greater precision of the Eichleay formula". However, while in Kirsh's view the Emden formula is "somewhat more realistic in its approach than the Hudson formula", because it takes the head office and profit percentage from reality rather than a tender figure, nevertheless it "should similarly be used with caution". 49

Whilst there may be dispute as to the appropriate method, each method leads to a result which has a logical basis. The main problem often arises in the detail and can lead to disputes over what overheads or profit was included[Page209:] in the tender (such as the effect of buying margins); what was the level of overheads (such as whether financing should be included) or what is the appropriate accounting period for turnover or overheads and profit for delayed projects.

Conclusion

The single theme linking the components of this paper is the lack of certainty in the assessment of delay and disruption claims.

On causation, contractors face considerable difficulty in meeting the standard for proof of causation demanded to establish a claim. The task of separating individual causes of loss and linking them to quantifiable amounts of loss suffered will usually prove difficult if not impossible, at all stages from formulating to proving the claim. Tribunals have recognised this in permitting some use of "global" or "total cost" claims. However, these can prejudice the position of the party seeking to resist the claim. Consequently, they are treated with caution by tribunals.

The problems of concurrent delay relate to the difficulty of carrying out an underlying factual and legal analysis to achieve the risk sharing that underlies most contracts. This has led to an absence of an accepted methodology for analysis.

Against this background, it is very common for tribunals to be faced with conflicting approaches and different calculations from opposing parties in any dispute. The effect, then, is one of uncertainty: for contractors in formulating their claims; for employers in defending them and for arbitrators and other tribunals in deciding them. It is this uncertainty in delay and disruption claims which makes the role of assessment by the tribunal a necessary part of resolving complex construction disputes. [Page210:]

1
Until November 2005 Head of Keating Chambers, London. As a High Court Judge assigned to the Queen's Bench Division, he will spend substantial periods of his time dealing with cases in the Technology & Construction Court.

2
It will be convenient normally to refer to "the contractor", which is intended to include sub-contractors, where their position in a sub-contract would be similar to that of the contractor under the main contract.

3
The word "employer" is used synonymously with "owner" or "client" in this paper, meaning the party who is commissioning the construction of the building or facility.

4
Alphacellv. Woodward ,1972, AC 824, p.847.

5
The Blackstone Lecture by Lord Hoffman was delivered at Pembroke College, Oxford on 14 May 2005 and is published in the Law Quarterly Review, Vol. 121, October 2005, pp. 592-603.

6
2003, 1 AC 32.

7
Keating on Building Contracts, Stephen Furst and Justice Vivian Ramsey eds., 7th ed. 2001, Sweet and Maxwell, London, p.546.

8
Crosby Ltd v Portland UDC,1967, 5 BLR 121.

9
1985, 32 BLR 31.

10
Hudson's Building Contract Ian Duncan Wallace, 11th ed. 1995 Sweet and Maxwell, London p.1092.

11
1991, 52 BLR 8.

12
1996, 82 BLR 81.

13
As he then was. His Honour Humphrey LLoyd QC is now an international arbitrator.

14
1997, 82 BLR 39.

15
The March 2003 reprint can be obtained from the Society of Construction Law: www.sc1.org.uk www.eotprotocol.com.

16
Guidance Note 1.14.

17
John Doyle Construction Ltdv. Laing Management (Scotland) Ltd

18
This was the argument put forward by Laing, the Management Contractor, in the position of the employer here.

19
2005, EWHC 181.

20
The employer was claiming against its Construction Manager in respect of loss and expenses claims by the Trade Contractors.

21
Expert witness on delay for the Employer.

22
Guidance Section 4.

23
The Great Delay Analysis Debate, King's College, London 18 October 2005, organised by the Society of Construction Law and the Centre for Construction Law and Management.

24
In Skansta Construction UK Ltd v. Egger (Barony), 2004, EWHC 1768 the English Technology and Construction Court chose to reject a time impact analysis put forward by one of the delay experts.

25
Concurrent delay by John Marrin QC, Society of Construction Law, London, 5 February 2002 (17 pages). Available from the Society of Construction Law at www.scl.org.uk.

26
Mr. Marrin was referring to the 1998 ed. The current edition is JCT 2005.

27
Although remarks in John Doyle Constructionv. Laing Management(above) seem to be more receptive.

28
See note 7 above.

29
The editor was Anthony May QC, now Lord Justice May of the Court of Appeal, 1991.

30
39 BLR 106, 1987.

31
The consideration of critical path analysis in English law by Andrew Burr and Robert Palles-Clark Construction Law Journal, Vol. 21 No. 3, 2005, p.222.

32
See note 19 above.

33
0 Con LR 32, 1999.

34
Now in the Court of Appeal as Lord Justice Dyson.

35
76 Con LR 148, 2001.

36
op.cit at p.231.

37
Guidance Note 1.10.1.

38
See, for example, Clause 14.7 of the FIDIC Red Book.

39
See also Recovery of damages for breach of an obligation of payment by Nayla Comair-Obeid, p. 133 and Means to be made whole: damages in the context of international investment arbitration by Henry Weisburg and Christopher Ryan, p. 165.

40
Guidance Note 1.15.6.

41
21 Con LR 122, 1991.

42
38 Con LR 14, 1994.

43
35 Con LR 39, 1993.

44
Clause 60(7).

45
The award of interest in the event of under-certification in construction and engineering contractsby Ellis Baker and Anthony Lavers, Arbitration, Vol. 71, No. 2, pp 140-147.

46
In Appendix A.

47
Guidance Note 1.16.7.

48
The Eichleay formula: computing and recovering unabsorbed head office overheads incurred by contractors as a result of employer-caused delay by Harvey Kirsh Construction Law Journal, Vol. 11 No. 2, 1995, pp 90-94.

49
See also: Assessment of prolongation claims: a contract administrator's perspective by Bevis Mak, Construction Law Journal, Vol. 18 No. 3, 2002, pp. 181-204 on the position in Hong Kong and under English law.