In the last Trett Digest, Lawyer Julian Cohen explained the concept of the ‘burden of proof’ and the ‘standard of proof’. In this follow-up article, he discusses the issue of ‘proof’, as may arise on construction and engineering cases. In this article he can do no more than to give you some brief thoughts on various aspects of construction and engineering cases in relation to the burden and standard of proof. In any event, the judgement calls that need to be made will depend to a very large extent on the particular claim and who you represent.
A whistle stop tour through these factors:
The contract
(i) Contractual requirements
It is, of course, absolutely imperative that care is taken to ensure compliance with any specific contractual requirements in relation to the claim. A failure to do so can be fatal to the claim – or, at the very least, introduce another (unnecessary) battle that you need to fight.
There is often a temptation at an early stage to avoid providing notices and /or details of claims as required by the contract – on the basis either that following the contractual procedure is too difficult and costly or, because it., may cause the other party to become hostile. In my experience, however, a failure to comply with procedural requirements in the contract often comes back to haunt you. After all, if you do not comply with the contractual requirements and you end up with a full blown dispute, is it realistic to assume that the other party will not exploit your failure (however much they have previously encouragedinformal working practices)? Early thought should also be given to whether the contract excludes claims for certain types of costs or losses.
If particular types of loss are excluded, it may be legitimately possible to re-package some of those losses so as to bring them within other heads of loss that are recoverable. For example, some costs may legitimately be capable of being allocated to a variation order or to prolongation. If the contract allows a profit element on variations but not prolongation costs, it would obviously be sensible for the claim to include these costs in the variation claim.
Timing and objective
(ii) The stage of claim
This is a fundamental consideration. For example, the levels of proof appropriate for a commercial claim and the same claim in an arbitration are usually quite different.
Arbitrators and, particularly, judges expect a fairly high degree of proof. The breakdown of the costs and losses claimed and the substantiating proof are usually expected to be reasonably detailed to show that the costs and losses have actually been incurred.
If, for some genuine reason, it is difficult to prove specific actual costs and losses, the claimant is usually expected to show that its assessment is the best estimate that he it can reasonably produce and that it fits with reality.
On the other hand, commercial claims often do not need to be prepared in so much detail or be substantiated to the same extent. Plenty of claims are routinely accepted or negotiated with a much lower level of proof. It would be neither cost nor time efficient to do otherwise. In addition, the other party to a contract already has its own knowledge about the project and the dispute – whereas an arbitrator or judge has no background knowledge at all.
When a claim is being prepared it is therefore important to identify how much proof is appropriate for that stage. It may also pay to think ahead.
For example, it may be worth considering how a commercial claim may need to be developed to meet the higher degree of proof that will apply if the claim later goes to arbitration. Ideally, it should be possible to develop the existing commercial claim in more detail. However, a fresh approach is sometimes needed for the arbitration (detailed delay analyses are often postponed until an arbitration is inevitable for cost reasons). In that situation, a decision needs to be made as to how much work to put into the commercial claim so as to maximise the chances of settling the claim whilst minimising wasted work if it is necessary to proceed to arbitration.
(iii) The purpose of the claim submission
Clearly, the purpose of the submission should dictate how the submission is prepared and presented.
For example, a much lower level of substantiation may be required if the claim is put together to comply with contractual notice provisions (although careful regard should be had to the contractual requirements to ensure compliance).
If the purpose of the claim is to enable a negotiation, the level of proof needs to be considered in the context of the negotiating strategy and what is likely to influence the other party.
On the other hand, if the aim of the claim is to be persuasive and to lead to the maximum amount of money being recovered, the claim usually needs to be well substantiated and supported with a higher level of proof.
The nature of the claim itself
(iv)The amount of money involved
The amount of time and money spent on proving costs and losses needs to reflect the amount of money at stake. Small claim items do not usually warrant the same degree of proof as large ones.
On the other hand, cutting corners even with small claims items exposes you to risks – both in relation to the small claim items themselves and also potentially in relation to knock on effects with other and larger claim items. If, for example, a defending party can show that a sufficient number of the smaller claims are unsubstantiated or, worse, exaggerated, this can sometimes affect the credibility of all of the submitted claims.
(v) The complexity of the claim
In very general terms, the more complex a claim, the greater extent of the proof needed. This is in part because there tend to be more elements to prove in a complex claim than a simple one. It can also be because in a complex claim it is less obvious that [a] leads to [b]. There may be a great number of other explanations. A demonstration of factual accuracy and a logical progression is important.
The law, however, recognises that some claims are so complex that it is almost impossible to prove each element of them – or that to do so would be fiercely expensive and time consuming. When that situation arises, a different approach to proof may be appropriate.
A good example is the approach to the pleading of global delay claims in relation to which there is a significant amount of case law. The judicial debate on the acceptability of global claims tends to be in the context of whether a particular pleaded global claim is so defective as to mean that it should be struck out and not even considered by the arbitrator? 1
The current judicial approach is that global claims are discouraged but can be pleaded if it is genuinely not feasible to identify and plead how each specific loss was caused by each specific breach.
So, for example, delay claims should not be pleaded globally if it is possible to link specific causes and effects. Instead, each item of loss should be linked to a specific cause and this linkage proved. However, where it is impracticable to disentangle the specific losses and link them to specific causes, a global claim can be pleaded. The causes of delay and the actual losses still need to be identified but it is not necessary to plead how each specific delaying event caused each head of loss.
Even if a global claim can be pleaded, it does not mean that the judge or arbitrator will find a global presentation persuasive at the end of the case. The claimant can not simply say it is too complicated to prove, so he should be awarded everything he claims! Persuasiveness will depend on the facts, whether the claimant could reasonably have been more specific, and how the global claim is presented. Indeed in practice, some arbitrators expect a higher level of proof that the claimed losses are to the account of the other party where there is a global claim than where the claimant alleges that a specific loss was caused by a specific event.
A claimant with a global claim can not therefore abandon proving his claim – he simply needs to adopt a different approach. For example, the claimant should consider bringing evidence to show that a global claim is appropriate and the claimant is not merely trying to evade proving cause and effect. Equally, the claimant may need to show that his own behaviour and conduct has not caused the need for a global claim.
Finally, and most importantly, the claimant will still need to prove that it incurred the costs and losses that it is claiming and that these were caused by the other party.
(vi) The difficulty of proving actual loss
The underlying principle is, of course, that a party can only recover losses that it can prove it actually suffered. Courts and arbitrators tend not to let parties off lightly from doing this.
However, the law does recognise that there are some circumstances in which it is overly difficult or expensive to prove the amount of actual losses. In those circumstances the claimant can sometimes make use of general assessments or formulaic calculations as a starting point.
However, where this is possible, it does not mean that the claimant can simply rely on the assessment or formula and need not worry about proving its claim. The claim must still be proved by evidence – but the evidence needed is to show that which shows that the assessment being made is both a realistic assessment of actual losses and also the best estimate that can reasonably be made in the circumstances.
For example, it is often difficult for a contractor to prove the actual amount of head office overhead losses it suffered by reason of prolongation. Where this is the case, courts and arbitrators are open to the loss being assessed or estimated by way of one of the established formulae (Hudson, Emden or Eichleay).
An arbitrator or judge should not, however, accept a simple straightforward claim calculated using one of these formulae.
First, the claimant must prove that the loss of overheads was caused by the prolongation (by showing that but for the prolongation, the Claimant would have funded the relevant overheads by other work).
Secondly, the amount of the overheads claimed must also be proved and not left to be a matter of speculation2. In this regard, the starting point is that the claimant should show that ascertaining its actual losses is too difficult and that it is therefore reasonable to use a formula.
Evidence should also be brought to show that the most appropriate formula has been used. The assumptions behind each formula, of course, differ. So the claimant should show that the assumptions of the formula used represent the best fit with reality and bring evidence to support the figures inputted into the formula. The formula itself and/or the calculated figure should then be adjusted to try to reflect more closely the particular facts of the claim.
(vii) The nature of supporting records and evidence available
The level of proof that can be produced will be dictated, at least in part, by the nature of the records and information available. A claim may have to be presented at a very general or global level simply because detailed records do not exist. This often leads to a reduced recovery because the claimant can not bring enough proof. A simple presentation as a global claim may disguise the problems with proof during the commercial claims process and subsequent negotiations. It is unlikely to succeed if the claim is considered by an arbitrator or judge.
It is therefore important that detailed and accurate records are available. Equally, claimable items of expenditure should be separately identifiable. How is an arbitrator supposed to value a claim for acceleration costs if the records do not separately identifying what labour and plant costs were used for acceleration and what were ordinary project resources?
(viii) The challenges being put up by the other side
It, of course, goes with out saying that any known challenges being made by the other side need to be taken into account.
More generally, as I mentioned at the start of this article, consideration needs to be given to the way in which the persuasive burden of proof will swing between the parties as the claim develops.
So, for example, if an aspect of the claim has not yet being been challenged, this may point to producing less rather than more proof of that aspect. Equally, once a challenge has been made, the level of evidence needs to be at least sufficient to negate the challenge and shift the persuasive burden back to the other side affect the degree of proof presented.
In summary
The issue of how much proof should be given for a claim is something that needs to be considered at an early stage so as to ensure that the claim’s submission stands the best chance of achieving its objectives whilst itself being flexible and cost efficient.
There is no universal answer to how much proof is enough. However, consideration of the sorts of issues that I have identified above should be a helpful starting platform point for making a decision on any particular claim.
Julian Cohen is a Senior Associate
with the Hong Kong office
of Masons Solicitors
Tel + 852 2521 5621
1 See for example J Crosby -v- Portland UDC 5 BLR 121, Wharf -v- Eric Cumine 52 BLR 1, British Airways Pension Trustee Ltd -v- Sir Robert McAlpine & Sons 72 BLR 26, Benhard’s Rugby Landscapes-v- Stockley Park 82 BLR 39, John Holland Construction & Engineering -v- Kyaerner R J Brown [1997] BCL 262, Nauru Phosphape Royalties Trust -v- Matthew Hall Mechanical & Electrical [1994] BCL 179.
2 On overhead recovery claims and formulae see, for example J F Finnegan Ltd -v- Sheffield City Council 43 BLR 124, Alfred McAlpine Home North Ltd -v- Property and Land Contractors 76 BLR 65, Builders Co Ltd -v- Chester-le-Street District Council, AMEC Building Ltd -v- Camus Investments Co. Ltd (1997) 13 Const. U. 50, Beechwood Development Company (Scotland) Limited -v- Stuart Mitchell t/a Discovery Land Surveys Scottish Court of Sessions, 12 February 2001.