a common sense

approach to loss and

expense
In our Autumn edition of Construct, my article Malmaison
is back: clarity on concurrent delay on claims' reviewed
how the English Courts assess delay in extension of time
claims in light of the decision of the Technology and
Construction Court in Walter Lilly -v- Giles Patrick MacKay
[2012]. In this article, I review how the case clarified an
important aspect concerning the mechanics of clause 26
(loss and expense) of the JCT 1998 (Private without
Quantities in this case).
The claimant, Walter Lilly, claimed just over 1.4m in
respect of prolongation costs from the defendant, Mr
Mackay. Clause 26 gave Walter Lilly a right to claim loss
and expense in the following terms:
26.1 If the Contractor makes written application
to the Architect that he has incurred or is likely to
incur direct loss and/or expense for which he
would not be reimbursed by a payment under any
other provision in this Contractbecause the
regular progress of the Works or of any part
thereof has been or is likely to be materially
affected and if and as soon as the Architect is
of the opinion thatthe regular progress of the
Works or of any part thereof has been or is likely
to be so materially affected as set out in the
application of the Contractor then the Architect
from time to time thereafter shall ascertain, or
shall instruct the Quantity Surveyor to ascertain,
the amount of such loss and/or expense which
has been or is being incurred by the Contractor;
provided always that:
26.1.2 the Contractor shall in support of his
application submit to the Architect such
information as should reasonably enable the
Architect to form an opinion as aforesaid; and
26.1.3 the Contractor shall submit to the Architect
or to the Quantity Surveyor such details of such
loss and/or expense as are reasonably necessary
for such ascertainment as aforesaid.

October 2012

Judge Akenhead continued a theme which develops

throughout the 660 paragraph long judgment, namely that
the contractor should not be punished for operating
provisions of the contract which entitle him to relief,
extensions of time or additional cost (Loss and Expense).
At paragraph 463 he says: ...in considering Clause 26,
one must bear in mind that most of the matters which
entitle the Contractor to such loss and expense are the
fault or at least the risk of the Employer, such as
variations or the late provision of information or
instructions by the Architect. One therefore needs to
consider with some care precisely what the words mean,
without construing them against the Contractor as such.
The debate in this case centred on the extent of the
documentation and information to be provided by the
Contractor to the Architect in support of its loss and
expense claim (Clause 26.1.2 and 26.1.3). Somewhat
predictably, the defendant (Employer) argued that the
Contractor should provide everything to effectively prove
its case at the preliminary notification of the loss and
expense stage.
However, Judge Akenhead did not share this view: This
is almost akin to saying that the Contractor must produce
all conceivable material evidence such as is necessary to
prove its claim beyond reasonable doubt. In my judgment,
it is necessary to construe the words in a sensible and
commercial way that would resonate with commercial
parties in the real world.
Judge Akenhead made it clear that clause 26.1.3 only
requires the Contractor to submit details which are
reasonably necessary for the ascertainment of loss and
expense. In practice, what this detail means is that this
could comprise the following:

an offer to the Architect or Quantity Surveyor

for them to inspect records at the Contractor's
offices could be construed as submission of
details of loss and expense

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a common sense approach to loss and expense

Details of the loss and expensedoes not

necessarily include all the backup accounting
information which might support such detail.

Key to his consideration was the fact that:

The Architect already had a very substantial

amount of information at his fingertipsthe
Architect and the Quantity Surveyor are not
strangers to the project...;

It would be wrong that if, because some details

were not provided to support the loss and
expense claim, the entire claim should fail: one
would have the absurd position where 10 out of
a 1 million claim is not adequately detailed but
the rest of the claim is, the whole claim would
satisfy the condition precedent [of 26.1.3];

The Contractor in this case had already produced

a fair amount of detailed information which
demonstrated a prima facie case to support the
loss and expense claim; and

There is a more definitive second bite of the

cherry. If there are elements of the loss and
expense claim which were unsupportable at
notification stage, this would be settled by
adjudication or litigation/arbitration in the usual
way on the balance of probabilities.

This clarification in terms of the practical ways of

evidencing and submitting loss and expense claims will
provide a good degree of comfort to contractors. It is said
that the JCT suite of contracts evenly balances the rights
and remedies of the contractor and the employer. The
Judge in this case amplified that by saying that in
construing the provisions of clause 26 and in particular,
Clause 26.1.3, there was no need to construe the
provisions in a peculiarly strict way or in a way which is in
some way penal against the contractor

It is clear from the judgment that Judge Akenhead was

influenced by the fact that Walter Lilly had provided a
considerable amount of information to Mr MacKay in
support of its loss and expense claim. However, in
different circumstances, this judgment may have
inadvertently created a justification for contractors to
relieve themselves of properly substantiating loss and
expense claims. All contractors need to do now is invite a
client to inspect documents at its offices to support loss
and expense claims, without having ordered them in any
particular way. As such, the effect of this judgment may
be to shift the onus from contractor to the employer to
work out the detail of the claims. This presents a problem
not only for the client who has to expend the time and cost
undertaking that exercise themselves (where the claim
should have been presented to them), but, no doubt, it
will also fall upon the clients agent (architect, QS or PM)
to do that task. That may lead to further scope and fee
disputes between employers and their consultants.
Judge Akenhead may have taken a pragmatic and
common sense approach to his analysis of loss and
expense claims. His judgment means that the bar has
now been set for contractors and employers to do the
same. But at whose cost now? Time will tell.
For further information, please contact:
Emlyn Hudson, Partner +44 (0) 161 836 7883 email
EHudson@gateleyuk.com

www.gateleyuk.com