Ascertainment of loss and expense

Heads of claim

Under both the JCT and the ICE provisions, the contractor is given an entitlement to recover reasonable costs associated with a number of identified issues. In JCT Standard Building Contract With Quantities 2011 (JCT 2011), these are referred to as 'matters' and are listed in clause 4.24. In the ICE Conditions of Contract Measurement Version (7th edition), these issues are identified within the individual clauses.

When calculating the reasonable costs of the contractor, it is essential to start with each of these issues (causes), tracing their effects through the contractor's accounts. The information provided by the contractor needs to be presented in sufficient detail to allow this to be effected. However, strict proof is not required. So long as the claim assessor is satisfied that there is an entitlement, they should assess the quantum on that basis. (See Ascon Contracting Ltd v Alfred McAlpine Construction Isle of Man Ltd [1999] and Section 4.2.1.9 of the old Surveyors' Construction Handbook.)

Important issues to be considered are those of causation and remoteness, which are discussed below.

Causation

When tracing the effects of the heads of claim through the contractor's costs, it is necessary to consider each of the claimed costs, identifying whether it has been caused by the head of claim currently under consideration.

The first test to apply is the 'but for' test. That is, 'but for the occurrence represented by this head of claim, would this cost still have been incurred?' If the answer is 'yes', apply the second test. If the answer is 'no', the cost has been caused by the occurrence.

If the first test has not been satisfied, the second test is to identify the 'dominant' cause. That is, if there are two or more potential causes of the loss at any given point, what is the dominant cause of the loss? In such circumstances it is the dominant cause which is deemed to have caused the loss. If there is no dominant cause such that the competing causes are equally effective in delaying the works, the causes of loss are considered concurrent.

In determining the dominant cause of the delay it will usually be the event that causes the longest delay that is dominant.

The correct approach will usually be to step through the programme month by month to determine when there were delays occurring, what effect they were having on the planned completion of the works and therefore which delays were dominant.

Where there are genuine concurrent causes of delay the approach adopted by the courts in Scotland differs from the approach adopted by the courts in England.

In Scotland the loss should be apportioned between the causes. See John Doyle Construction Ltd v Laing Management (Scotland) Ltd [2004] and London Underground Ltd v Citylink Telecommunications Ltd Rev 1 [2007].

In England the contractor should be granted a full extension of time but they cannot recover in respect of the loss caused by the delay unless the loss has been caused in fact by the occurrence under consideration. The question of whether the loss has been caused in law by the occurrence is referred to as 'remoteness of damage' and is discussed in the next section.

Remoteness

Having satisfied the tests of causation in fact, the third test is to establish whether or not the loss has been caused by an occurrence in law. That is, whether or not a loss is 'too remote'.

In F. G. Minter v Welsh Health Technical Services Organisation [1980], the court decided that the first rule in Hadley v Baxendale [1854] was synonymous with 'direct loss and/or expense' under the Joint Contracts Tribunal (JCT) 63 standard form of contract. We can apply this reasoning to the JCT 2011 forms and to 'additional costs' under the Institution of Civil Engineers (ICE) forms.

The test to be applied is whether or not the loss arose naturally from the ordinary course of things. That is, whether at the time a contract was entered into, a reasonable person would have concluded that the loss of the type in question was a serious possibility, or a real danger as a result of the event in question.

This issue has been reconsidered and approved by the House of Lords in the case of Jackson v Royal Bank of Scotland (HL; 2005).

For example a situation in which an architect issues late information, which delays a brickwork subcontractor by 4 weeks. One week after the subcontractor would otherwise have completed the works, they become insolvent. The main contractor is put to considerable additional cost and delay in appointing another subcontractor to complete the works. Is the employer liable for this additional time and cost? The additional cost has been caused in fact by the late information, as without this, the additional costs arising out of the insolvency would not have been incurred. However, it may not be recoverable by the contractor. It may be considered too remote, on the grounds that it is a type of loss that the parties could not reasonably have considered (at the time that the contract was entered into) as being a serious possibility as a result of late issue of information.

However, if both causation in fact and in law have been satisfied, then the loss is recoverable under the head of claim under consideration (see Section 4.2.2.2 of the Surveyors' Construction Handbook).

Mitigation

'Mitigation' is the phrase used in law to refer to the obligation on the claimant to temper the costs that it intends to claim as damages.

This principle denies the claimant the opportunity to recover any part of the damage that has been caused unnecessarily or that could readily have been avoided by the claimant. (See British Westinghouse Company v Underground Electric Railways [1912].)

The principle does not impose on the claimant an obligation to take any step that a reasonable and prudent person would not ordinarily take in the course of their business. Nor does it impose on the claimant an obligation to spend significant sums of money to mitigate a loss.

Similarly, the express obligation in clause 2.28.6.1 of JCT Standard Building Contract With Quantities 2011 (JCT 2011) is not thought to impose on the contractor an obligation to spend substantial sums of money to reduce delays.