Australia: NSW Appellate Court confirms Australian approach to global claims of breach of contract

Introduction

The Australian position in relation to global claims, which are "ambit claims" where the loss claimed is caused by a number of different factors, has been confirmed by the New South Wales Court of Appeal in a decision made in June this year, Mainteck Services Pty Ltd v Stein Heurtey SA [2014] NSWCA 184. Global claims have been described in the leading Australian decision from the Victorian Supreme Court of John Holland Construction & Engineering Pty Ltd v Kvaerner RJ Brown Pty Ltd (1996) 82 BLR 81 as a claim where "the claimant does not seek to attribute any specific loss to a specific breach of contract, but it is content to allege a composite loss as a result of all of the breaches alleged, or presumably as a result of such breaches as are ultimately proved." The article adopts this description of global claims in its discussion of the topic.

In general terms, the Australian position is that every cause of the loss making up the "global claim" must be attributable to the owner (assuming the claim is under the head contract). The Honourable David Byrne QC in his article Total Costs and Global Claims¹set out the three elements of a global claim:

"(1) The contract price is realistic, that is, it is equivalent to the reasonable price of performing the contract work.
(2) The actual cost figure represents a reasonable cost of carrying out the project including the extra work.
(3) No factor other than the compensable event is responsible for the difference between the actual cost and the contract price."

It is the third element that has caused most controversy. Following the publication of the above article and the decision of John Holland Construction & Engineering Pty Ltd v Kvaerner RJ Brown Pty Ltd (1996) 82 BLR 81 there were two decisions delivered in the United Kingdom 2which (contrary to the third element above) opened the door to an "apportionment approach".³

Since those UK decisions, the "apportionment approach" has been rejected in Australia. In Mainteck the Court held:

"... (the contractor's) submission, before the Referee, the primary judge and this court, was that it was sufficient for it to establish a causal connection between some breaches by (the owner) and disruption, as a result of which it said it was entitled to either the whole of its claim, or an apportionment. That is not the law."⁴ (emphasis added)

This rejection of the "apportionment approach" was also confirmed in the recent Western Australian Supreme Court decision in DM Drainage & Constructions Pty Ltd (as trustee for DM Unit Trust t/as DM Civil) v Karara Mining Ltd.⁵

The key message for those involved with global claims is this: to succeed on a global claim in Australia, the contractor must establish that every part of the composite loss claimed was caused by a compensable event. These decisions reinforce the importance of good contemporaneous record keeping (from the contractor's perspective) to ensure that sufficient evidence is available to demonstrate that the entire loss claimed is caused solely by owner risk events or the owner's breaches. Equally, good contemporaneous record keeping from the owner's perspective will likely arm it with sufficient ammunition to contest the already precarious "global claim".

Footnotes

¹(1995) 11 BCL 397. Also referred to in Mainteck
²Laing Management (Scotland) Ltd v John Doyle Construction Ltd [2004] BLR 295 (at [16] and [17]); Walter Lilly & Company v Mackay & Anor [2012] EWHC 1773 (TCC).
³Requires (as referred to in Laing Management) an objective assessment "according to the relative importance of the various causative events in producing the loss" (at [17]).
⁴At [182].
⁵[2014] WASC 170 at [62].