Australia: Causation and global claims under construction contracts

Clayton Utz Insights

Key Points:

No special principles of fact or law apply to global claims.

Mainteck Services Pty Ltd v Stein Heurtey SA [2014] NSWCA 184, a recent decision of the New South Wales Court of Appeal, confirms that there has been no relaxation by Australian courts of the requirement that a plaintiff must prove causation in the context of a global claim.

A "global claim" is a class of claim, often advanced under construction contracts, in circumstances where the Contractor (or Subcontractor or other plaintiff) alleges that it has suffered loss as a consequence of multiple interacting events for which the Principal (or Head Contractor or other defendant) is responsible. The Contractor does not seek to prove precisely the loss from each event; rather, the Contractor pursues a claim for the total loss it alleges it suffered as a result of all of the events. It is said that, in the context of a global claim, causation is proved by inference.

Global claims are generally in the nature of "total cost" claims, wherein the Contractor quantifies its loss as the difference between the contract price and the actual cost of performing the works.

Australian courts have recognised that a Contractor may bring a global claim where it is impractical to disentangle the composite loss attributable to a series of causes and that situation was not brought about by the Contractor. The decision of the Court of Appeal in Mainteck is significant because the Court expressed the view that it is unlikely that a global claim will succeed if other causally significant events exist for which the defendant is not responsible. In these circumstances, it is likely that the claim will fail in its entirety. In that respect, the Court declined to follow the decision of the Inner House of the Court of Session (Scotland) in Laing Management (Scotland) Ltd v John Doyle Construction Ltd [2004] BLR 295, in which the Court held that it may be possible in some cases to apportion the loss between the causes.

The facts in Mainteck

Stein Heurtey SA entered into a Subcontract with Mainteck Services Pty Ltd for the design and construction of a furnace at a mill complex at Port Kembla. Certain disputes arose between the parties and were referred to a Referee.

The Referee concluded that the works were "significantly interrupted" by a combination of events that included interference with Mainteck's activities by the continued civil foundation works after Mainteck had been given access to the site, the untimely provision of design documents and other deliverables for which Stein was responsible and the associated volume of variations and RFIs. The Referee was satisfied that these events interacted in a way that made discrete assessment of the loss of each cause impossible and that they in all probability resulted in an overrun of direct onsite labour man hours, compared to a reasonable estimate. The Referee concluded, however, that Mainteck had failed to account for "neutral events" or events for which Mainteck was responsible and that there was no cogent evidence of the effect of those events.

Mainteck's claim failed.

Mainteck's grounds of appeal included that the primary judge had erred in adopting the Referee's report. The Court of Appeal upheld the primary judge's finding.

The Court of Appeal's findings

In respect of global claims, Justice Leeming (with whom Justices Ward and Emmett agreed) said:

  1. there are no special legal principles applicable to "building cases" such that plaintiffs win or lose differently from plaintiffs in other cases regarding contracts of a different class; and
  2. to succeed in a global claim, a plaintiff must prove that the alleged breaches caused the loss, which does not involve any special principles of fact or law.

Justice Leeming then referred to a number of decisions in which it has been stated that a global claim will be made out if the events for which the defendant is allegedly responsible are the only causally significant ones. That is, the plaintiff must eliminate from the causes of loss all matters that are not the responsibility of the defendant.

The commentary on global claims in Laing Management was referred to as "authoritative" by Justice Daubney in McGrath Corporation Pty Ltd v Global Construction Management (Qld) Pty Ltd [2011] QSC 178. This may have indicated support for apportionment, although the judge did not express a view as the claim in McGrath was not, in fact a global claim. In Mainteck, Justice Leeming said that it was not necessary to express a concluded view on the correctness of the Inner House's comments in Laing Management because Mainteck had failed to advance any evidentiary basis upon which an apportionment could be made. However, his Honour said that those comments went "well beyond" any decided Australian cases. Justice Leeming also rejected a comparison in principle to contributory negligence, as he said that this a creature of statute and formed no part of the common law.

The decision in Mainteck is consistent with the approach taken by Justice Beech in DM Drainage & Constructions Pty Ltd v Karara Mining Ltd [2014] WASC 170. In that case (which was an application to strike out parts of the plaintiff's pleadings), Beech J reasoned that the authorities "firmly established" that the plaintiff must exclude any other operative causes of loss in order to succeed on a global claim.

Justice Beech said that this was necessary as a matter of logic in order to prove the loss to be the difference between the actual and expected cost and that "[w]ithout demonstrating that alternative causes are excluded, the inference of causation cannot be drawn."

Effect of decisions

Both Mainteck and DM Drainage confirm that it is not sufficient for a Contractor to point to some breaches by the Principal as causes of part of its cost overrun, if its claim is put on a global basis. Although there may be a perceived lack of fairness to potential plaintiffs with an "all or nothing" approach, this issue only arises where a plaintiff seeks to establish causation by inference, as Justice Leeming noted. The operation of other causes will not prevent a Contractor from recovering loss for a particular delay or other act for which the Principal is responsible, provided that the loss was in fact caused by the Principal's breach.

The decisions also go against the trend of optimism for global claims arising from the decision of the High Court of England and Wales in Walter Lilly & Co Limited v Mackay [2012] EWHC 1773. In Walter Lilly the Court did not regard as fatal to the success of a global claim either that a deduction could be made for individual events which are not compensable or that the claimant was responsible for making it impossible to disentangle the components of the alleged global loss.

In light of the Mainteck and DM Drainage decisions, Contractors and other plaintiffs will need to exercise caution if they wish to bring a global claim. Unless all other causes of loss can be excluded, a plaintiff risks recovering nothing whereas partial recovery may be possible on an ordinary claim for damages for delay or disruption where breach, causation and loss are proven.

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

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