Pleading complicated construction matters as global claims: a look at the decision in John Holland Construction & Engineering Pty Ltd v Kvaerner R J Brown Pty Ltd & Anor (1996) 8 VR 681

Global claims 

Global or total cost claims are used in complex construction disputes where the loss suffered by one party is said to be attributed to several different factors.

Often, where multiple disruptions or delays affect a project’s progress, it is difficult to precisely identify which reason results in an alleged breach of contract, making the causal link to damages difficult to establish.

The risk for a party bringing a global claim is that each alleged cause of delay must be linked to the damage claimed. Though they are an acceptable way to bring an action, the difficulty lies in linking the damage claimed to specific events.

Further, there is the risk that the claim will duplicate loss or try to hide claims for damage not attributable to a breach of the principal. For this reason, the courts have approached these claims with caution.

Case discussion: John Holland Construction & Engineering Pty Ltd v Kvaerner R J Brown Pty Ltd & Anor (1996) 8 VR 681

The law in this area was discussed in great detail in the matter of John Holland Construction & Engineering Pty Ltd v Kvaerner R J Brown Pty Ltd & Anor (1996) 8 VR 681, in the judgment of Byrne J.

Facts

Woodside Offshore Petroleum Pty Ltd invited John Holland, operating as a joint venture with engineering companies Kvaerner Brown & CMPS & F Pty Ltd (Kvaerner), to submit a proposal in Holland’s name for the construction of a floating facility used in an oil-drilling operation.

Holland was successful in its bid, and having entered into a pre-bid contract with Kvaerner for design and engineer services, subsequently entered into a construction contract with Kvaerner for the Project.

John Holland commenced proceedings against Kvaerner Brown for damages and costs incurred in the completion of the Project arising out of:

(a) Breaches of both pre-bid and construction design contracts;

(b) Adjustment to sum payable under construction design contract for negative variations;

(c) Negligence in the performance of pre-bid design contract;

(d) Negligence in performance of construction design contract;

(e) Misleading and deceptive conduct;

(f) Negligence misstatement.

The reported matter concerned an interlocutory summons to strike out substantial portions of the pleadings.

The statement of claim framed the claim for damages on a global basis, claiming for composite loss as a result of the defendants’ alleged breaches of contract, supported by particulars referring to a schedule and various sub-schedules, which collectively compared the tender estimates against the actual loss to calculate the loss overall. Much of the loss claimed was unliquidated.

Whilst it was submitted by the defendants that the form of the document was repetitious and the allegations were too complex, Byrne J accepted that it was an appropriate way to plead complicated construction matters.

Breach of contract and extra costs incurred by John Holland

Byrne J was not concerned with the amount of the plaintiff’s loss – at paragraph 13, he cited the decision of Dixon and McTiernan JJ (at 143) in Fink v Fink (1946) 74 CLR 127, in that where a plaintiff establishes a breach of contract it will not be denied relief on the ground only that it is difficult to estimate the damages which flow from that breach.

What was of concern was the causal link between the loss claimed and the breach of contract, a pragmatic examination of any such causal link, and a common-sense approach to the logical principles of causation.

His Honour further noted that although a loss under contract may be attributed to a particular act or omission at law, notwithstanding other acts or omissions played a part in the occurrence of the loss, it is sufficient that the breach only is a material cause of the loss in question, and that the plaintiff’s pleading in the matter overcame this issue by “implying, rather than stating the necessary causal relationship”.

At [15], Byrne J clarified the function of a global claim (or total cost claim), stating that in its simplest form, “a contractor, as the maker of such claim, alleges against a proprietor several breaches of contract and quantifies its global loss as the actual of the work less the expected cost”.

This case was complicated by the fact that there were two contracts Holland alleged breaches of, and that the deficient design in some way caused the tender to be too low, or the construction cost to be too high, or both [at 17].

Whether a Global Claim prejudices the defendant from the outset

Byrne J turned to the court’s inherent scepticism of global or total cost claims, noting that whether the claim is likely to cause prejudice, embarrassment or delay the pleading itself and the claim or claims it makes must be examined [at 22].

His Honour confirmed his own opinion that the court should treat total costs claims with a great deal of caution and distrust [at 23]. The dictates of justice are to be considered the fundamental concern of the court, such that matter can be determined “expeditiously and economically, and above all, fairly”.

His Honour noted that the claim should be explored to determine whether it is hiding any ‘bogus’ claims by “presenting it in a snowstorm of unrelated and insufficiently particularised allegations” and recognised the burden that a global claim places on defendants in calling upon discovery and cross-examination when every item of the plaintiff’s claim alleged to be caused by the defendant.

The onus is therefore on the plaintiff in a global claim to ensure that the causal nexus alleged between the wrongful acts or omissions of the defendant and the loss suffered be set out with sufficient particularity so the defendant may know the case they have to meet – a failure to do so may be sufficient to strike out the claim.

Findings

His Honour found that several items alleging defective work failed to demonstrate a causal nexus between the act or omission and the loss claimed by Holland.

Conversely, the claims alleging that material take-offs were inadequate or erroneous, so Holland incurred delay costs in placing orders, were found to be sufficient in demonstrating the nexus, and that the issuance of particulars may address further concerns regarding individual design deficiencies.

Further costs were identified as having been incurred by Holland by way of Kvaerner failing to provide a design that fell within the requirements of the Petroleum (Submerged Lands) Act 1967 – his Honour was satisfied that a causal nexus could be drawn with regards to this claim.

Regarding Holland’s delay claims, the impact of the late delivery of drawings was particularised by providing comparative bar charts setting out actual and expected times of delivery and applying an hourly rate for the extra time required. 

The extra time was calculated by deducting the estimated time from the actual time required to perform the work, and therefore sufficiently identified the nexus between the act (delay) and the head of loss (hourly rate and time).

“Negative variations”, or claims based on breach of contract where Kvaerner failed to perform works under the contracts resulting in Holland performing works and comparing the actual costs against the estimate, or Woodside performing works and back-charging Holland, were held to have discernible causal nexus.

Negligence claims

His Honour found it surprising that the matter brought claims in negligence (where it likely that it would be dealt with substantially under contract). This was particularly because if Holland failed under contract, succeeding in negligence comes with it a heavier onus and often brings a contributory negligence claim (at 31).

What was found was that the particulars of the negligence claims alleged a duty to perform a contract; however were given tortious tags in that it alleged the defendant was required to execute the contract with due care.

Noting that the performance of a contract, and its performance with due care, are essentially different at law, his Honour held that these pleadings should not stand.

Misleading and deceptive conduct claims

Holland alleged that certain statements made by Kvaerner made during the tender stage and then later prior to the commencement of the head contract induced them to agree to undertake the Project.

However, the issue his Honour took was that the losses for the statements were claimed cumulatively. As such, it was impermissible to “roll up the two different losses, notwithstanding that there may be some overlap”.

The causal nexus between the loss arising for misleading conduct generally was not apparent.

Application in NSW

John Holland Construction & Engineering Pty Ltd v Kvaerner R J Brown Pty Ltd & Anor was considered and applied in the matter of Mainteck Services Pty Ltd v Stein Heurtey SA [2014] NSWCA 184.

The Court of Appeal, in that case, confirmed the judiciary’s scepticism towards global claims, stating that there are “there are no special legal principles that mean that plaintiffs in “building cases” win or lose differently from plaintiffs in other classes of contractual case”, and that there were no special principles of law which meant that the plaintiff in a building matter did not have to establish breach, causation and loss for each head of damage [at 186].

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Total cost claims are a complex area in building & construction law.

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