Jordan ... claims issue.
Are global claims acceptable now?
01 July 2016
STUART JORDAN* elaborates on global claims, or ‘total cost’ claims, which although allowed in exceptional circumstances, are bad practice and can be avoided with early warning of event impact and well-maintained records.
Global claims remain controversial in the construction industry worldwide. To some, they are almost personally offensive. To others they are a necessary tool. These perspectives tend to be determined by whether a person spends his working life making claims for delay and disruption, or defending them.
Global claims are common in the Gulf, as they are everywhere, but I sense that they are an increasing proportion of total disputes here, perhaps because of some judicial encouragement from English Law. We can look at whether this is a universal issue and whether there are some features of local law here which might help to determine their acceptability.
Global claims (or composite or ‘total cost’ claims) come up in claims for compensation for losses (additional cost) arising from disruption to regular progress of works. As usual, the terms we use are elastic but we should distinguish between prolongation (the cost of the works taking longer) and ‘hard cost’ disruption, being the cost of inefficient working – or, in reality, less efficient working. We cannot assume that any contractor will be working at objectively optimum efficiency if left ‘undisrupted’ although claims are often based on such contentions. The cost of prolongation is generally easier to attribute to cause. Pure disruption, or loss of productivity, is more complex and this is where we most often see global claims.
A global claim, in brief, is a claim which is based on more than one event of disruption but which does not state the individual effect of each one. This, of course, transgresses one basic rule of compensation under general law – that the person claiming has to show causation between the originating event (breach, act of prevention or other employer-risk event) and the loss arising from it. So, the general consensus has been that a global claim should fail.
Courts and arbitrators have generally been tough on them. The complaint against global claims is that they are the last resort of lazy and poorly-organised contractors; in other words, the type of contractors who will delay and disrupt themselves. When this contractor is clearly going to lose money on a project, a speculative claim will follow. It will be stated globally, not out of necessity but because the intention is to confuse and to muddy the water on cause and effect.
The legal process objections are that such claims do not allow the defending party to see the case put against it. If a defending party cannot successfully call for a global claim to be dismissed for that reason, it effectively forces that party to untangle the claim to show it was not caused by events under their risk. The defending party has to create a coherent defending case on cause and effect where there is no such coherence in the claim itself. In other words, it reverses the traditional burden on the claiming party to make and then prove its case.
That’s the objection but the consensus has never been absolute: there have always been opinions (and court decisions) allowing global claims in exceptional circumstances. The general view has been that those circumstances would always include:
• The whole disruption being caused by employer-risk events with no contribution from contractor failure; and
• It being impossible, through no fault of the contractor, to plead the case with separate cause-and-effect detail.
One practical problem for the defending party is that, in stating that it is not impossible to untangle cause and effect, they have to do the work which the claiming party didn’t do!
In recent times, even these “exceptional circumstances” limits have been eroded. A decision in the English Technology and Construction Court (Walter Lilly v Mackay) told us that a global claim could succeed even where both the impossibility of pleading the case another way, and where part of the disruption, were due to the contractor’s own failure. This was a surprise and it has led inevitably to global claims since then being presented using this court decision as the shield. Of course, that decision is detailed and reasoned; certainly it is not carte blanche for global claims but it is an encouragement for contractors to give it a try.
So does this influence claims practice and outcomes in the Gulf? The basic law on compensation is expressed in different ways, the most fundamental being in Article 113 of the UAE Civil Code stating that it is the responsibility of the claimant to prove his claim and the responsibility of the respondent to refute it. Here, as everywhere, causation matters. A party bringing a claim for compensation has to show that his loss was somehow caused by the defending party. It is his burden to make that case and a global claim is vulnerable to attack for failing to do that.
We should, however, remember that disruption claims are not simple compensation claims made under general contract law for breach: they are express contractual entitlements triggered by specific events and the first test of their effectiveness is to see whether the contract allows for them. All questions on entitlement, allowable types of losses, calculation of quantum and (most important) evidencing the claim, can all be dealt with in the contract.
We are back to the basic principles of good practice in change management. If a construction contract requires early warning of event impact with the regular updating of the programme and cost plan, there is only limited scope for the entangling of the picture on delay and disruption. If the contract also requires the keeping of certain records, which are the agreed exclusive means of evidencing entitlement to extra time and money, the parties can avoid a world of trouble, global claims included.
* Stuart Jordan is a partner in the Global Projects Group of Baker Botts, a leading international law firm. Jordan’s practice focuses on the oil, gas, power, transport, petrochemical, nuclear and construction industries. He has extensive experience in the Middle East, Russia and the UK.
