Comparing what is and what might have been

The recent decision in the Technology and Construction Court between How Engineering Services Limited and Lindner Ceilings Floors Partitions PLC presents an opportunity to review the manner in which the courts will treat total costs claims.

Lindner entered into a sub-sub-contract with How for suspended ceiling works in connection with a redevelopment at Cannon Street Station in London. Works were completed in September 1991 but resulted in claims for loss and expenses by Lindner and counterclaims by How. These were referred to arbitration in March 1992 and the arbitration which followed has been of the type which gives construction arbitration a bad name. The arbitration ran for six and a half years before substantive awards were made by the arbitrator.

These awards have been the subject of appeal to the court, on the grounds that they contain errors of law and that they should be set aside for procedural misconduct by the arbitrator.

actual costs

One of the grounds for appeal concerned the manner in which the arbitrator had made assessments of claims put forward by Lindner. In his award the arbitrator recorded that apart from a number of discrete issues the claim was a total cost claim. That is, one based on actual costs, compared with the costs that would have been incurred had the delay and disruption not occurred.

The arbitrator concluded that he had no difficulty in accepting the global nature of such a claim. He proceeded to examine the calculations placed before him and found that the tender assessment of Lindner's labour costs was realistic and reasonable. He then reviewed Lindner's figures for costs actually incurred, and subject to certain deductions accepted these.

All through this exercise the arbitrator was clearly aware of the difficulties. One of the authorities cited to him was the case of Crosby -v- Portland where the Judge had said: "Extra costs are a factor common to all these clauses, and so long as the arbitrator does not make any award which contains a profit element... and provided he ensures there is no duplication. I can see no reason why he should not recognise the realities of the situation and make individual awards in respect to those parts of the claim which can be dealt with in isolation and a supplementary award in respect of the remainder of these claims as a composite whole."

Reviewing these matters Mr Justice Dyson QC acknowledged that no criticism could be made of the decision of the arbitrator to make an award in respect of the bulk of the claim as a composite whole, since the decision whether it was impossible to make an accurate apportionment of total extra costs between several causative events was one of fact and accordingly not subject to appeal.

Counsel for How argued on a different footing. The contract required an "ascertainment" of loss and expense. The assessments made by the arbitrator did not amount to an ascertainment. According to How the arbitrator had failed "to find out for certain" what costs Lindner would have incurred but for the disruption and delay.

direct loss

In support of this contention, Judge Humphrey Lloyd QC was quoted in the case of Alfred McAlpine Homes North Ltd -v- Property and Land Contractors where he said: "Furthermore 'to ascertain' means 'to find out for certain' and it does not therefore connote as much use of judgment or the formation of an opinion as had 'assess' or 'evaluate' been used." Judge Lloyd went on to say that in ascertaining direct loss or expense the actual loss or expense incurred must be ascertained and not any hypothetical loss or expense that might have been incurred whether by way of assumed or typical hire charges or otherwise.

Mr Justice Dyson was not persuaded. He did not accept that Judge Lloyd was suggesting that that there was no room for the exercise of judgment in the process of ascertainment. He noted that the phrase "to find out for certain" might be misunderstood as implying that what is required is absolute certainty. This clearly is not the case. The arbitrator is required to apply the civil standard of proof; namely to decide upon the balance of probabilities.

Mr Justice Dyson concluded that in ascertaining loss and expense, an arbitrator should exercise judgment where the facts are not sufficiently clear.

Thus in cases such as the present, an architect, engineer or arbitrator must decide whether the costs built into the tender rates were realistic on the footing that the contract proceeded without delay or disruption. This requires a practical assumption as to what would have been the situation had no delay or disruption occurred. Absolute certainty will be a rare commodity in such circumstances.