Proving delay claims (Walter Lilly & Co v Mackay)

This case is an interesting one factually not the least due to Mr Mackay. However, due to the
aggressive approach taken by him, a Court has closely considered a number of issues that, from
a construction law point of view, are very useful. In particular:

How do you determine a contractors entitlement to extension of time (EOT) when

there are multiple causes?

Where there are concurrent delays (ie. an event of delay caused by breach on the part
of the principal occurs at the same time as an event of delay caused by the contractor),
is the contractor entitled to an EOT, is it to be apportioned or is there no EOT
entitlement?

Are global claims acceptable? That is, claims where there are a number of breaches
of contract on the part of the principal and evidence that the contractor has made a
loss on the job, but no clear evidence that the loss resulted from the breach. Can the
principal avoid such a claim by saying that the contractor was inefficient or simply
under priced the job.

Use of the measured mile in proving loss.

Facts
Mr Mackay and two others purchased three adjacent lots of land for the intention of having their
dream homes constructed on it. The dream home was to have five floors and include:

a cinema;

a library;

a his and hers study;

a basement swimming pool (with change rooms);

a wine cellar;

a gymnasium with ballet bars; and

staff quarters.

Mrs Mackay spent a very large amount of time in researching in particular the interior design
and fitout. She collected images from magazines such as House & Garden.
Initially one contract for three houses was let for 15.5m with Walter Lilly & Co Ltd, a builder, with
possession to be July 2004 and a date for practical completion as January 2006 (78 week build
period). Sometime later the building contract was in effect split into three leaving the contract
between Mackay and the builder at 5.2m.
The project was a disaster waiting to happen, largely due to the design being substantially
incomplete at the time the project was let and the project being designed on the run. The reason
for this was apparently that planning permission was due to run out. Mackay became
disillusioned with his architect, quantity surveyor and builder.
Between July 2004 and July 2008 the builder lodged some 234 EOT notifications of which 196
remained unanswered by the end of June 2008.
During this period:

Mr Mackay fell out with his architect and replaced him in March 2008.
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Mr Mackay appointed an overseeing (and aggressive) consultant to oversee the work

of his other consultants and the builder.

Mr Mackay became more and more upset with the process.

A certificate for practical completion was issued in August 2008.

There were numerous claims by the parties against each other, most notably for our purposes,
an extension of time and prolongation cost claim by the builder against the owner.
The colourful Mr Mackay (a builders worst nightmare)
In hindsight, I expect that neither the builder nor the consultants would have had any dealing with
Mr Mackay if they had their choice. To say he was a difficult client is an understatement.
In particular:

He was an extremely wealthy man worth in excess of 100m.

He told the Court that he had spent some 17-18m so far on the construction and 6m
to the date of the hearing on the running of the case.

The Judge stated of Mr Mackay Whatever the cause of his increasing frustration, his
behaviour toward the architects, some employees and other consultants was not
simply coarse it was combative, bullying and aggressive and contributed very
substantially to the problems on this project I have formed the view that he is and
has been for a long time angry .

Mr Mackay sued many of the parties involved in the development (the architect, the
services engineer, the lighting consultants and the interior designer). He was sued by
his second architect for fees, by his independent consultant Knowles and by several
firms of solicitors for fees.

Mr Mackay had a colourful way of describing speaking to various parties:

Describing one of the co-owners Mrs West as avaricious and jealous and
needing a f***ing good slapping.

He emailed his architect on various occasions complaining that the minutes

prepared by him were a work of fiction and his behaviour in relation to
defects was nothing short of scandalous.

He accused Mr Davis (architect) of being the most unprofessional person

he had met, that he was a charlatan and liar and that his head was so far on
the chopping block that it is holding on by a thread.

He described his architect as a f***ing pussy and that he wakes up in the

morning wanting to kill him. At a similar meeting later that week he called
Mr Davis to his face a f*****g little twat.

In writing to the builder he stated Guess what? When I have forgotten about
you in a years time enjoying my 100m home or sailing on one of my 40m
yachts my middle name is relentless. I have the money and anger at this
stage to push onyou are such a loser. Im going to finish you off over the
summer. But dont worry youll be reading the contract, Ill be on the beach.

Proving entitlement to EOTs

The EOT clause in this contract was similar to ones commonly used in Australia. It entitled the
contractor to an EOT where delay was caused by a relevant event this included delay caused
by the principal. A difficulty here was that there were some 234 EOT notifications from the
builder and at the same time numerous allegations by the principal that the contractor had failed
to order works within time or had to stop to rectify defects.
The Judge was faced with the daunting task of determining the EOT to which the builder was
entitled and looked for the most efficient way of doing so. The approach taken was as follows.

Critically consider what actually delayed the works as they went along:

Look at each delay event and see if and to what extent it caused delay. For
instance in this case it would be wrong to say that the problems with the
courtyard sliding doors delayed the works until it emerged as a problem in
April 2008. In that regard there were many issues cropping up each month
that loomed as potential delays but when the time arrived came to nothing.

This is consistent with the Australian cases that a prospective approach is

appropriate. On the particular day is the event delaying the works?

The Judge liked and followed the approach of the builders expert, who approached the delays
on a month by month basis, so that for each month he looked at what was actually impacting the
works that month and compared that to what the contractor was planning to achieve that month.
As a result he would look at a particular month and the events that took place that month and say
that he was satisfied that the contractor had been delayed by say two weeks that month.

Concurrent delays
The treatment of the issue in Walter Lilly
One of the issues that arose during the course of the hearing was as to whether and to what
extent the builder would be entitled to an extension of time where there were two concurrent
causes of delay, one caused by the builder and the other by the owner. A typical example would
be:

The superintendent is 12 weeks late in providing a relevant approval.

The contractor wasnt ready for three of those weeks in any event due to failure to
meet a delivery date.

Does the Contractor get 12 or 9 weeks EOT?

The EOT clause in Walter Lilly relevantly:

allowed an EOT where (amongst other things);

any of the causes of delay was a relevant event; and

the completion date was likely to be delayed as a result.

permitted the Architect to grant an EOT as he then estimates to be fair and

reasonable.

The Judge found that:

there was debate in the authorities as to whether concurrent causes of delay (only one
of which was a contractually permitted cause of delay) meant that:

the contractor is entitled to a full EOT for the contractually relevant cause of
delay, even though there may have been some other cause of delay which
did not entitle the contractor to an EOT; or

the contractor is entitled to an apportioned EOT under which the EOT is

reduced to reflect the fact that there were non-contractually permitted causes
of delay.

ultimately the resolution of the issue is likely to turn on the construction of the particular
EOT clauses in the contract at hand;

in this case, the EOT clause permitted an EOT for a relevant event and where delay
is caused by concurrent causes, the contractor is entitled to a full EOT provided that
one of those causes was a relevant event; and

the fact that the architect was to determine a fair and reasonable EOT did not
authorise the architect to undertake some sort of apportionment exercise to allow for
the other (non-contractually permitted) causes of delay.

The reasoning for allowing a full EOT notwithstanding a concurrent delay where there is no
specific provision as to how this is to be assessed is:

this is because the rule where delay is caused by the employer is that not only must
the contractor complete within a reasonable time but also the contractor must have a
reasonable time within which to complete. It therefore does not matter if the
contractor would have been unable to complete by the contractual completion date if
there had been no breaches of contract by the employer (or other events which entitled
the contractor to an extension of time), because he is entitled to have the time within
which to complete which the contract allows or which the employers conduct has
made necessary. De Beers v Altos Origin IT Services UK Ltd [2011] BLR 274 at [177].
See also Adyard Abu Dhabi v SD Marine Services [2011] EWHC 848 at [277].

There was nothing in the contract inconsistent with this.

He also referred to a further factor (which he classed as less important), and that was
that if a different conclusion was reached, the principal would be seen to be profiting
from acts of prevention if an EOT was denied in circumstances where one cause of
the delay was an act of prevention. If that logic is accepted, it is important to note that
this would not assist a contractor where a concurrent cause of delay was an act
beyond the control of the principal (eg weather, latent conditions) as these do not
enliven the prevention principle (see McLure JA in Spiers Earthworks).

Note that no loss could be recovered for the event of concurrent delay as the contractor was
unable to proceed in any event. In our example, the Contractor would get a 12 week EOT but
only become entitled to prolongation costs for 9 weeks.
The broader implications
It seems from Walter Lilly that if an EOT clause on its face permits an EOT for a relevant delay
(or qualifying causes of delay) and does not expressly deal with the issue of concurrent
irrelevant (non-qualifying) causes of delay, theres a strong argument that the EOT must be
granted in full even where concurrent delays occur.
As always it pays to read the precise words of the contract you have before you.
It is worth noting that clause 34 of AS4000 makes express provision for an apportionment in the
event of concurrent delays:
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34.3 Claim
The Contractor shall be entitled to such extension of time for carrying out WUC (including
reaching practical completion) as the Superintendent assesses (EOT), if:
a) the Contractor is or will be delayed in reaching practical completion by a qualifying cause of
delay; and
b) the Contractor gives the Superintendent, within 28 days of when the Contractor should
reasonably have become aware of that causation occurring, a written claim for an EOT
evidencing the facts of causation and of the delay to WUC (including extent).
If further delay results from a qualifying cause of delay evidenced in a claim under paragraph
(b) of this subclause, the Contractor shall claim an EOT for such delay by promptly giving the
Superintendent a written claim evidencing the facts of that delay.
34.4 Assessment
When both non-qualifying and qualifying causes of delay overlap, the Superintendent shall
apportion the resulting delay to WUC according to the respective causes contribution. In
assessing each EOT the Superintendent shall disregard questions of whether:
a) WUC can nevertheless reach practical completion without an EOT; or
b) the Contractor can accelerate, but shall have regard to what prevention and mitigation of the
delay has not been effected by the Contractor.

By contrast, clause 35.5 of AS2124 states:

Where more than one event causes concurrent delays and the cause of at least one of those
events, but not all of them, is not a cause referred to in the preceding paragraph, then to the
extent that the delays are concurrent, the Contractor shall not be entitled to an extension of
time for Practical Completion.

More recently I have seen Rio Tinto conditions (which were very well drafted) not deal with the
concurrency issue in the EOT provisions. I would expect the principles in Walter Lilly to apply to
that contract.
Beware of contracts that allow EOTs where it is the sole cause of the delay.
Assessing delay damages global costs claims
In Walter Lilly the contractors claim for delay costs was approx. 1.4m which was, in essence, a
claim for continued preliminary costs incurred for the additional duration of the contract term.
The contractor alleged that the contract period ran over because of facts and matters for which
the Principal was responsible.
The claim for those costs was made under clause 26 of the contract:
If the Contractor makes written application to the architect that he has incurred or is likely to incur
direct loss and/or expense . in the execution of this contract for which he would not be reimbursed
by a payment under any other provision because the regular progress of the works or of any part
thereof has been or is likely to be materially affected by any one or more of the matters referred to in
clause 26.2 .

The sums claimed in the 1.4m fell broadly into two categories.

Firstly, there were extended time or delay related preliminaries.

Secondly, the contractor claimed what it called thickening preliminaries. It described

those as a claim for costs associated with providing additional resources necessary to
deal with or overcome the consequences of the Principal caused delays (variations and
late instructions etc) that were over and above the anticipated preliminaries.

The principal argued that these claims were nothing more than global costs claims and, as
such, were barred by relevant case authority.
A global costs claim is commonly known as a claim that is calculated by identifying numerous
potential or actual causes of delay and/or disruption, working out a total cost incurred in
completing the job, deducting from that the net payment made by the principal and lodging a
claim for the difference on the basis that it is attributable, without more and by inference, to the
causes of delay and disruption identified or relied upon by the contractor.
The Judge in Walter Lilly, in dealing with that argument, started by reviewing all of the relevant
authorities on global costs claims. Having done that, he summarised a number of key points
about global costs claims in general and their status in the industry:

Ultimately, claims by contractors for delay and disruption related loss and expense
must be proved as a matter of fact. The contractor has to demonstrate on the balance
of probabilities that:

events occurred which entitle it to claim loss and expense;

those events caused delay; and

delay and disruption caused it to incur loss and expense.

It is open to prove these elements with whatever evidence will satisfy the Court to the
relevant standard of proof. In other words, there is no set way for a contractor to go
about proving these matters. In some cases a contractor may choose to lead detailed
factual evidence which precisely links delay events with individual days or weeks of
delay, or with individual instances of disruption, which then demonstrates with precision
what that delay or disruption actually cost. But this is not the only way to go about it.

There is nothing wrong in principle with a global costs claim. However, there are
added evidential difficulties for a contractor to overcome if the claim is formulated in
that way. It will have to establish that the loss it claims would not have been incurred in
any event, and to do that it will need to show that:

it would have made a profit on doing the job at its tender price that is, it
didnt under-price the work; and

there were no other inefficiencies in the way it carried out the works that
caused it to incur additional cost.

As to the question of the burden of proof, it is wrong to suggest that the burden
somehow transfers to the principal. The burden remains with the contractor to prove
those matters on the balance of probabilities.

The fact that one event or factor within the responsibility of the contractor caused or
contributed to the loss does not necessarily mean that the contractor can recover
nothing. It depends on what the impact of that factor is and whether it can be
quantified separately. To illustrate with an example - take a situation where a
contractor has lost $1m in circumstances where it would otherwise have made a net
return on the project:

its claim will not fail because it is shown that it overlooked and did not price
one $50,000 item in its tender. The consequence would be that the claim is
reduced by that $50,000 because it has not been able to prove that that part
of the loss would not have been incurred in any event;

so too if the Contractor has spent time dealing with a problem of its own
making, so long as the time it spent in that respect can be quantified and
deducted from the global loss.

Obviously, there is no need for a contractor to go down the global costs claim route if
the actual cost attributable to individual loss causing events can be readily determined.
It maybe, however, that a Court will be more sceptical about a global costs claim if the
direct linkage approach is readily available but not deployed, but it does not mean that
it should be rejected out of hand.

Coming back to the Principals argument in Walter Lilly, the principal maintained that the 1.4m
claim was a global costs claim. It argued that the claim did no more than:

identify a number of breaches in this case, the relevant alleged delay events;

allege that it had incurred extra costs over and above those allowed by it in the contract
sum;

fail to demonstrate that the breaches the delay events actually caused it to incur
the extra over costs it was claiming;

and because of that, fell foul of those general principles.

It argued that by formulating its claim in that way, the contractor was doing no more than inviting
the Court to draw an inference that the costs overrun was due to the delay events.
The Judge didnt agree. He stated that he remained wholly unconvinced that on any proper
analysis, the contractors claim was improperly formulated. He advised that:

the contractors case for the 1.4m was related solely to periods of delay for which it
claimed separate and distinct extensions of time;

the claims for the two forms of preliminaries were set out in the pleadings and, by and
large, comprised the actual costs it incurred in engaging staff to carry out the work over
all or part of the extended period;

as a matter of evidence, it adduced evidence of the actual costs of each and every
member of staff that it deployed to carry out the work over the extended period;

in relation to the thickening of resources claim, it specifically gave evidence that

explained what resources it provided, why they were additional to what it had originally
priced and why they were necessary to deal with the events that caused it delay; and

it also lead evidence of the actual cost of those additional resources.

The Judge also stated that he was satisfied that it was impractical for the Contractor to relate
every dollar of loss to each established and pleaded delay event. In that respect he stated:
the project was a complete mess from the administrative side of [the principal]. The job started with
remarkably little design, there were hundreds of variations, there was a substantial level of discord
between the principal and its professional team. By early 2007 until the end of the project, it was
virtually impossible to sensibly program the works

This reflects preparedness on the part of the Court to take a flexible non-mathematical approach
where it is clear that a contractor would have incurred at least some additional preliminaries by
reason of a delay and disruption event. For instance, in relation to a project manager who
divided his time between this project and other projects, the court could and would apportion the
amount it felt could be recovered for the time that project manager spent on the particular job in
question.
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As to the issue of apportionment, one of the key witnesses for the contractor said in evidence:
by definition any apportionment is going to be a process that has swings and roundabouts.
The judge had no difficulty with that evidence, stating:
in my judgement, there is nothing wrong with an attempt to apportion continuing site or project related
costs on a project such as this. There could be no criticism from the Principal if a contemporaneous
minute by minute allocation or apportionment had been done at the time. What has happened instead is
that allocation or apportionment was done on a relatively broad brush basis at the time The issue
should be not whether apportionment is appropriate (because it clearly is) but, what the right
apportionment is.

In that respect, it is probably nave or disingenuous to suggest that little or nothing should be
allowed in circumstances where it is patently obvious that substantial preliminary resources were
deployed. Although arguments could no doubt be made that some of the time (and cost) may
have been spent on matters for which the contractor had no entitlement to claim, the parties can
of course argue as to whether it should be one third, one half or 100%. The fact, however, that
the contractor is entitled to substantial reimbursement though is absolutely clear.
Similar principles and propositions apply to claims by a contractor for head office overheads and
lost profit resulting from delays.
To succeed in claims of that nature, it is necessary for the contractor to prove that:

there is a delay for which it is entitled to be compensated for under the terms of the
contract; and

if the delay had not occurred it would have secured work on projects which would have
produced a profit and/or a contribution to its head office overheads.

Traditionally, contractors have used formulas such as the Emden or Hudson as methods for
proving and quantifying those claims.
In Walter Lilly, the contractor relied on the Emden formula in making a separate claim over and
above the 1.4m for head office overheads and loss of profits.
In dealing with that claim, the Judge commented that the use of the formula was a legitimate and
helpful way of ascertaining, on the balance of probabilities, what the size of such a claim might
be.
Bearing in mind that the general thrust of the Judges views and comments on these issues in
Walter Lilly was that there was no one fixed way of proving delay or disruption claims.
Other approaches to calculating delay and disruption loss: the measured mile
As Walter Lilly makes clear, there is no one fixed way to prove a delay and disruption claim.
Consistent with the statements in the Walter Lilly case indicating a preparedness to take a nonmathematical approach, there are a couple of cases dealing with a measured mile that take a
similar approach.
The measured mile concept is particularly useful when the works are linear in nature such as
construction of a road, railway or pipeline where you expect to be doing the same work over and
over again.
James Corporation is an example.
In the US case of James Corp. d/b/a James Construction v. N. Allegheny Sch. Dist., et al. 938 A.2d
474 (P.A. Commw. Ct. 2007), the court took such an approach. In that case:

A contractor won a tender to renovate five elementary schools.

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Work progressed well at first but the builder was delayed by various matters, mainly
actions on the part of the principal that either constituted directions for variations or
were acts of prevention.

Despite this, the principal refused to grant any extension of time. As a result the
contractor accelerated the works, finished on time but claimed acceleration costs.

In making its claim, the contractor used the measured mile approach to demonstrate
its losses, comparing its productivity on site when it wasnt held up by the principal with
productivity when it was held up.

The Judge made the following points:

The law does not require proof of damages to the standard of mathematical exactness.
The law simply requires the claim to be supported by a reasonable basis for the
calculation. The court will award compensation where the facts afford a reasonably
fair basis for calculating the contractors entitlements. Para [25], [26], [27].

Measured mile analysis is an evaluation of damages which compares the

cost of completing work not subject to delay or acceleration with costs of
completing work during a period of impact, the difference representing the
measure of damages. Para [28], [29], [30].

The work compared need not be exact. Para [28], [29], [30].

It is considered the ideal approach to measuring a loss of productivity. Para

[28], [29], [30].

The Court examined the expert evidence of a measured mile as follows:

Contractor's witness, an expert in project controls and claims analysis (claim expert),
explained his measured mile analysis included an earned value factor since the
Project was delayed from the beginning and the work could not be easily compared.
According to claim expert, this comports with industry standards.
Claim expert then described his methodology. Dividing the Project into two time
periods, claim expert compared the percentage of work completed in each period to
the number of labor hours utilized. During the first period, Contractor expended 4,279
hours to complete 41.76% of the Project. Had Contractor been able to work at the
same pace during the second period, it would have expended an additional 5,967
hours to complete the remainder of the Project.
However, the Project's total hours equaled 19,645 hours; therefore, Contractor used
15,366 hours to complete the second period (19,6455,967). Thus, the inefficient
labor hours amounted to 9,366 (15,3665,967 = 9,366). To arrive at an earned value
factor of 61%, claim expert divided the inefficient labor hours by the number of hours
worked in the second period (9,366 15,366 = 61%).
Utilizing the earned value factor, claim expert then determined the number of
inefficient labor hours Contractor and its subcontractor each experienced. The results
were multiplied by the applicable hourly rates of pay. In total, claim expert valued
Contractor's damages at $294,000.
Claim expert's testimony, accepted as credible here, is legally sufficient to establish
the extent of Contractor's damages.
As stated, damages need not be calculated with mathematical precision; rather all the
law requires is a reasonable basis for the calculation.
Moreover, the trial court did not blindly accept claim expert's valuation. The trial court
reduced Contractor's asserted damages upon a broad finding the delays did not
impact some areas of work as severely as others.

Penvidic case
The statement in the James Corporation case that damages not be calculated with mathematical
precision (just a reasonable basis) has found some support. For example in the Penvidic case in
Canada:

A contractor was engaged to lay a railroad track with the stated intention of accessing
the line from another tract and proceeding from the starting point until completion.

The principal failed to provide access from that point for a year causing the contractor
to have to access the track route by road and work from the centre outwards. Once
access was provided in the manner anticipated work proceeded much more efficiently.

One of five items in the contractors claim for damages (relating to laying of ballast for
the track) was calculated, not on actual loss suffered, but on a rate per tonne an
expert said would cover the additional costs of doing such work out of sequence.

The Canadian Court of Appeal rejected such approach, but the appellant Court
accepted it. This was because:

Work proceeded much more efficiently after proper access was given,
compared to productivity beforehand. It was evident that the contractor had
incurred substantial additional costs because of the issues as to access. In
other words, the measured mile approach demonstrated that
substantial loss had been incurred.

The Court took the view that the records as to this item of claim, by the
nature of the contract, had to be fragmentary and probably contained mere
estimations.

The evidence of the expert as to the rate claimed being reasonable to cover
additional costs, was considered credible.

On that basis the Court was entitled to assess the loss on the best evidence
available which was this rate.

It is relevant in the Penvidic case that the measured mile approach assisted with the
assessment of one out of five claims in that for that claim it showed that substantial
loss had been suffered.

The upshot is:

the general rule as to proving loss tends to be that the increased costs directly
attributable to delay resulting from a breach of contract is normally measurable with a
reasonable degree of certainty; and

where it is clear that substantial loss has occurred and the calculation of the loss is
difficult, a court may be prepared to relax the standards of proof of loss and accept
more robust methods of fixing the damages, such as by use of the measured mile.

Summary
Where you have multiple disputed EOT claims over a long project, the correct approach to
determining the EOT entitlement is on a day by day basis (or in Walter Lilly a month by month
basis) looking see if on any particular day there was a delay caused by a relevant event.

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In the absence of specific provision as to an EOT entitlement for concurrent delays, the
Contractor will be entitled to the full EOT without deduction or apportionment. Contracts such as
AS4000 and AS2124 may provide for apportionment or no EOT for concurrent delays.
Where it is clear that the contractor has suffered significant delay damages brought about by
breach on the part of the principal, but it is difficult to prove the exact loss brought about by any
breach, the Courts may be prepared to fix the damages based on its best estimate using a
flexible, non mathematical approach. A method of doing that may be by the measured mile.
For more information, please contact:

Rob Shaw
Partner
Phone
Mobile
Email

08 9288 6889
0401 718 994
rob.shaw@lavanlegal.com.au

Shane Pentony
Partner
Phone
Mobile
Email

08 9288 6880
0466 149 182
shane.pentony@lavanlegal.com.au

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