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Ascertaining loss and expense according to the law

Solicitor and chartered builder Michael Gerard of Michael Gerard Solicitors explains the importance of understanding how ascertainment of loss and expense is defined in law.

In cases where a contractor has been delayed and/or disrupted by a defined relevant event, according to stipulations laid out in the JCT Standard Building Contract 2016, the architect (or quantity surveyor) assumes responsibility for ascertaining the loss and/or expense incurred.

However, to be sure of the exact definition of what it means to ascertain loss and expense, and to have clarity around the standard of evidence required, there are two important court judgements that offer guidance.

Ascertain = certainty

Case 1: Alfred McAlpine Homes Northern Ltd v Property and Land Contractors [1995] 76 BLR 59.

This is a case from 1995 and the resulting judgement has been applied to loss and expense claims since then.  Here, presiding judge Humphrey Lloyd QC stated that ‘to ascertain’ was defined as to “find out for certain” and that it “….does not therefore, connate as much use of judgment or the formation of an opinion had “assess” or “evaluate” been used”. This meant that any loss or expense claim had to be proven to the civil standard of balance of probabilities and could not be estimated or assessed.

As a result, contractors were required to painstakingly list each alleged default, linking it to delay or disruption and demonstrating any knock-on effect, all substantiated by clear and accurate records. The case also effectively ended the indiscriminate use of global claims (which is defined by Keating as: “…one that provides an inadequate explanation of the causal nexus between the breaches of contract or relevant events / matters relied upon and the alleged loss and damage or delay that relief is claimed for”), although the courts were still able to accept a global claim from a contractor if it was the only route available.

Ascertain = to be satisfied

Case 2: Walter Lilly & Co Ltd v Giles Patrick Cyril Mackay and DMW Developments Limited [2012] EWHC 1773.

Heard 17 years after the McAlpine case, this judgement acknowledged the burden that proving something with ‘absolute’ certainty placed on the contractor.  As a result, the definition of ascertainment was ’re-aligned’, so that the architect / quantity surveyor just needed to be ‘satisfied that all or some of the loss and expense claimed was likely to be or had been incurred’.

This case centred on a disagreement about the extent of information necessary to evidence Walter Lilly’s claim, with the employer arguing that the contractor had provided insufficient detail. However, the judgement found that most of the matters which entitled the contractor to loss and expense were actually the employer’s culpability, and that the wording of the loss and expense clause was not to be construed against the contractor.

The judgement also established that it was not necessary to provide every conceivable detail and piece of supporting documentation required under the clause, stating that the threshold for the condition precedent could still be met even without substantiated proof of every pound of loss and expense.

Finding a workable solution

The Walter Lilly judgement appears to have been influenced by the need to operate in a way that is practical and viable. The judge reasoned that the words of the contract should be construed “in a sensible and commercial way that would resonate with commercial parties in the real world”.  As  a result, the architect / quantity surveyor only needed to be ‘satisfied’ rather than ‘certain’ that all or some of the loss and expense claimed is likely to be (or has been) incurred.

An interesting part of the Walter Lilly judgement was the assessment of loss of overheads and profit. It was decided that the contractor must prove on balance that if the delay had not occurred, it would have secured work which would have produced a return (over and above costs), representing a profit and/or a contribution to head office overheads.  There was also a claim made for delay-related overhead and profit, also known as ‘unabsorbed overheads’.

The Walter Lilly judgement acknowledged the importance of the McAlpine case in establishing that a claim for the recovery of unabsorbed overheads should be proven – not assumed. Ultimately, both judgements declared that ascertainment requires the architect or quantity surveyor to ensure, not assume that the loss was actually incurred, and that this loss be legitimately quantified by applying tried-and-tested formulae – without the necessity of proving every penny of loss. This seems to be a feasible compromise that offers a fair solution for both parties.

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