Legal Update following Walter Lilly v Mckay

Presented by Anneliese Day QC

 WALTER LILLY v MACKAY
[2012] EWHC 649; 141 Con LR 102

ANNELIESE DAY QC
4 NEW SQUARE
 The Project
• Walter Lilly win a £15.3 million tender in 2004 to build
the Mackays and 2 other families luxury homes in
Boltons Place, South Kensington on site of old BT
exchange
• No 3 to be occupied by Mr Mackay and his family as
their dream home. Estimated build cost of £5.2 million
• JCT Standard Form Building Contract 1998 Edition
Private Without Quantities with a CDP supplement
• Design work only in elementary stages when Project
let. Many works packages only briefly described and
subject to provisional sums
 “a disaster waiting to happen”
• The Date for Completion was 23 January 2006.
• Liquidated Damages of £6,400 per day.
• Project was hopelessly under-designed
• Employer’s design team issued 1,508 further drawing revisions,
schedules and specifications and 146 formal Architect’s instructions
to the contractor
• Walter Lilly raised 121 confirmation Instructions and 249 Technical
Queries.
• The design team was “always on the back foot”.
• During the currency of the works Walter Lilly issued 234 notices of
delay and requests for an extension of time
• Of these 196 EOT requests went unanswered.
• Completion was achieved on 7 July 2008.
 WHO FOOTS THE BILL?
• At first blush a routine dispute between parties over claims by
contractor for further payment and EOTs and by the employer for
defects

• 16 days in court and 32,000 pages of docs

• 9 factual witnesses and 8 experts
• 33 bundles for experts alone
• 660 paragraphs to the judgment, 191 pages
• EOT to date of practical completion awarded
• A bill for £2.3 million plus costs in relation to loss and expense claim
• Defects claim almost wholly unsuccessful
• Legal costs of £9 to £10 million claimed to have been incurred
 Judge’s view of Mr Mackay
He “was and became increasingly frustrated as the project
stumbled into substantial delay, rising costs and confusion
as to who was responsible for what. I find it difficult to
determine comprehensively whether it was the original
architects, or other consultants, who were, so to speak, to
blame or whether they gave appropriate advice at relevant
stages to their client which was not
followed..........Whatever the cause of his increasing
frustration, his behaviour towards the architects, some
Walter Lilly employees and other consultants was not
simply coarse, (for which he apologised on a number of
occasions when giving evidence); it was combative,
bullying and aggressive and contributed very substantially
to the problems on the project”
 The contrast

• WLC’s limited responses were "polite and

restrained" while Mr Mackay appeared to be
"used to getting his own way".

• Mackay set up a website to try and find and

publicise complaints about Walter Lilly
 Importance of Disclosure
• At outset of trial judge broke new ground by ruling that
legal advice privilege did not apply to documents prepared
by claims consultants
• Gave rise to disclosure which show strategy adopted by
Mackay behind scenes: deliberate decision not to comply
with the contract
• Knowles brought on board two years after start of project
• Knowles did not hold itself out as offering services of
qualified practising solicitors and barristers
• immaterial that the people providing the advice had
trained at the Bar and that Mackay believed engaging
Knowles to provide legal advice.
 ISSUES COVERED BY THE JUDGMENT
• CONCURRENT DELAY EVENTS
• GLOBAL CLAIMS
• NOTIFICATION OF CLAIMS
• DESIGN LIABILITY
• CAUSATION
• HEAD OFFICE OVERHEAD CALCULATIONS
• SETTLEMENTS WITH SUBCONTRACTORS
• DUTY TO WARN
 Extensions of Time
Mr Justice Akenhead refocused attention on the role the court
generally plays when considering questions of extensions of time:

“It is first necessary to consider what the Contract between the

parties requires in relation to the fixing of an appropriate extension
of time. Whilst the Architect prior to the actual Practical Completion
can grant a prospective extension of time, which is effectively a best
assessment of what the likely future delay will be as a result of the
Relevant Events in question, a court or arbitrator has the advantage
when reviewing what extensions were due of knowing what actually
happened. The Court or arbitrator must decide on a balance of
probabilities what delay has actually been caused by such Relevant
Events as have been found to exist…. How the court or arbitrator
makes that decision must be based on the evidence, both actual and
expert”.
 CONCURRENT DELAY

• Standard EOT clause requiring Architect to

grant an EOT which was “fair and reasonable”
having regard to any of the Relevant Events
• One of the causes of delay is the responsibility
of the Employer and one is not
• Comprehensive review of authorities
 Prior to Walter Lilly two schools of
thought
• English school of thought: Henry Boot v
Malmaison (contractor entitled to a full extension
of time for delay caused by two or more events
provided one is Relevant Event)

• Scottish school of thought: City Inn v Shepherd

(contractor only entitled to an extension of time
for reasonably apportioned period of concurrent
delay)
 Akenhead J: “....the City Inn case is inapplicable
within this jurisdiction”
• Two or more effective causes, one entitles contractor
to an extension of time as being a Relevant Event,
contractor gets a full extension of time for that event.
• Based on principle that many of the Relevant Events
which otherwise amount to acts of prevention and
wrong to deny contractor an EOT in these
circumstances.
• Also based on a “straight contractual interpretation” of
Clause 25 of JCT standard form. Nothing in clause to
suggest extension should be reduced if contractor
partly to blame for delay.
 Summary on concurrency
• “Apportionment” • However, would still be
approach adopted in open to parties to draft
Scottish case of City Inn contract in a different way
not part of English law but on basis of standard
• “test is primarily a forms no concurrency re
causation one” EOT
• Good news for • Still have to prove loss
contractors and expense
• Important to think about
governing law for Scottish
projects
 Note on expert evidence and delay
• Court emphasised that evidence about delay should be based on evidence
of factual witnesses and on the opinion of suitably qualified experts
• Experts should approach matters on an objective basis
• Retrospective or prospective approach to delay analysis should ultimately
lead to same result: debate which often occurs between delay experts as
to whether or not a “prospective” or “retrospective” delay analysis is the
more appropriate is ultimately a sterile one because “if each approach
was done correctly, they should produce the same result
• Employer’s expert criticised for being too subjective in his reports
• A reality check of what actually happened to affect the timing of the works
should always be applied and mere theories about what might have
happened were not to be used
• Favoured contractor’s expert’s approach of analysing on a month by
month basis what had happened in reality
 Miscellaneous
• Snagging is an inevitable feature of most complex projects:
time taken in snagging works per se is not delay caused by
the contractor: such snagging could only be said to cause
delay if it is excessive: “Obviously, if there is an excessive
amount of snagging and therefore more time than would
otherwise have been reasonably necessary to perform the
desnagging exercise has to be expended, it can potentially
be a cause of delay in itself”

• “[I]n the delay assessment exercise the Court should be

very cautious about giving significant weight to the
supposedly contemporaneous views of persons who [do]
not give evidence”.
 Global Claims
• Common problem
• General guidance on approach to be taken
• Authorities again reviewed in detail
• Defined as:
 claims where causes of delay are identified and
the total of the Contractor’s cost is computed
 from this figure the Employer’s net payment is
deducted and a claim for balance made
 do not attribute individual costs to actual events
“one needs to be careful in using the expressions
‘global’ or ‘total’ cost claims. These are not terms
of art or statutorily defined terms....What is
commonly referred to as a global claim is a
contractor’s claim which identifies numerous
potential or actual causes of delay and/or
disruption, a total cost on the job, a net payment
from the employer and a claim for the balance
between costs and payment which is attributed
without more and by inference to the causes of
delay and disruption relied upon”
 Principles which apply
(paragraph 486)

• Contractors must prove their claims as a matter of fact

and on the balance of probabilities.
• Must show the occurrence of a Relevant Event and that
it cause delay leading to loss and expense
• Do not have to show that impossible to plead and
prove cause and effect in the normal way
• But must prove claim on balance of probabilities
• Any contractual restrictions on global claims may have
an impact
 Potential Evidential Difficulties
• Nothing wrong with global claim in principle BUT may
raise evidential difficulties
• Contractor must show that the loss incurred would not
have been incurred in any event
• Need to show tender sufficiently well priced and that
would have made some net return
• Global claim does not transfer burden of proof to party
defending it
• Defending party may provide evidence to show that
tender so low loss would have occurred in any event
irrespective of events relied on by the contractor
 Global claim not all or nothing
• Even if an event which is not the fault of the Employer
caused or contributed to the global loss, this does not
mean contractor will recover nothing
• It all depends on the impact of such an event
• Claim may not be totally rejected but a deduction will
be made for an individual event which is not the
Employer’s responsibility
• Judge gave example of contractor claiming £1 million
which it can prove save for one underpriced item in
tender of £50k. Simply reduce claim by £50: not all or
nothing!
 Beware.......
• If it is practicable to attribute actual costs to
individual events, the Court may be sceptical
about a global claim
• However, a global claim may be made even if the
Contractor himself made it impossible to
disentangle the various causes
• The measure of the claim’s success will depend
on the facts and will be subject to proof
• No set way for contractors to prove such claims
 In summary, contractor must demonstrate on
balance of probabilities that:
• Events happened which entitle it to loss and expense
• Those delays caused delay and/or disruption
• Such delay and/or disruption caused it to incur loss
and/or expense
• Any condition precedent clauses re notification are
complied with
• Contractor can prove its case using whatever evidence
satisfies the tribunal, including witness statements
• Loss which has been incurred would not have been
incurred in any event
 On the facts of Walter Lilly
• Court allowed for the fact that the contract was a
“complete mess” on the administrative side with
insufficient design detail at the outset, with hundreds
of variations and “hopelessly late provision of
instructions and information” to the contractor

• Also allowed for lack of unity between the employer

and his designers and a general lack of certainty for the
works to give the contractor some justification to
present at least parts of the claim in a “global manner”
 Notification of Claims
• Clause 26 of JCT requires the Contractor to give notice of loss and
expense “as soon as it has become, or should have reasonably
become, apparent to him that the regular progress has been or is
likely to be affected … [and] to submit to the Quantity Surveyor such
details of loss and/or expense as are reasonably necessary…”

• Pre-condition to making a claim that contractor had to make timely

application for additional losses and expenses, along with
supporting information and details

• However timing of claim could turn on when the contractor had

actually incurred the relevant loss and expense (could be
prospective or retrospective)
 Practical Approach
• Extent of information already available to the Architect (for
example through Site meetings) must be taken into account
in considering the Contractor’s obligations for provision of
information
• The contractual obligation was to submit details which are
“reasonably necessary” for ascertainment of loss and
expense.
• This could be met by an offer to the Architect to inspect
records at the Contractor’s office (as actually occurred in
this case)
• As soon as reasonably sufficient material is received, the
architect or contract administrator should proceed to make
his ascertainment.
 Look at wording of clause in question
• The architect must be satisfied that the loss and expense claimed is
likely to be or has been incurred
• Does not have to be “certain”
• Only needs to review all the detail that is reasonably required by
the wording of the clause
• Contractor has to provide reasonable details in support of claim but
not every conceivable detail
• Have to prove claim on “balance of probabilities” and not “beyond
reasonable doubt”
• moving towards a more common sense approach based on the
architect’s knowledge and understanding of the project as opposed
to having to delve in to every receipt, time sheet and proof of
expense.
 DESIGN LIABILITY
• Contract was entered into on the JCT Standard Form of Building Contract
1998 with Contractor’s designed portion supplement

• Envisages that the parties will enter details of the works where the
contractor will complete the design. The contractor will generally put
forward proposals to indicate how the design will be carried out, which
will be embodied in the contract.

• However, here the position was more fluid. Certain aspects of the design
(such as windows) were specified in the tender documents, but the
intended arrangement was that the employer would notify the contractor
if and when he wanted the contractor to carry out design.

• This arrangement is difficult to operate in practice. Extremely difficult for

contractor to properly price and plan on this basis.
 failure to delineate the areas of design responsibility in the
contract at the outset was a recipe for problems later on

• The contract proceeded and the employer gave no such

design notifications to the contractor.
• Did the architect do so?
• It was held that the wording of the contract must be
strictly interpreted and that, unless the employer himself
(or the architect with his specific authority to do so) gave
notice, the design liability remained with the employer.
• On facts all design liability remained with the employer
 Calculation of Lost Overhead
• WLC relied upon a formula calculation in Emden
• This approach endorsed by the Judge
• He held that, provided the contractor has proven
(on a balance of probabilities) that, if the delay
had not occurred, it would have secured work
elsewhere, the use of a formula such as Emden
and Hudson is a “legitimate and indeed helpful”
way of ascertaining the loss of contribution to
head office overheads.
 Settlements with sub-contractors
• Prior settlement with sub-contractors
• Employer’s Expert claimed that the files provided in support of the
claim did not demonstrate or prove in an absolute sense all the
claims put forward.
• Lengthy review of authorities
• Held that Walter Lilly was put in a position in which it faced a
substantial and broadly meritorious claim which it was reasonable
to settle. The need to settle with the sub-contractor was caused by
delay and disruption caused by the Employer and the settlement
fell well within the “reasonable range of settlement”.
• Recognised that there is or may be a residual uncertainty as to
whether there was an exact or 100% correlation in terms of all the
factors attributable to DMW which delayed and disrupted Walter
Lilly and its sub-contractor and other factors which delayed and
disrupted the sub-contractor. So slightly reduced amount claimed
 Duty to Warn?
• American black walnut was specified by the architect
• Mr and Mrs Mackay decided to have it finished in
Danish oil rather than French polish.
• Once installed and exposed to daylight the timber
discoloured and was left in a “orange coloured state”.
• Mr and Mrs Mackay felt that WLC should have warned
them that this would have happened.
• However the judge held that the contractor was
“engaged simply to provide materials and services in
accordance with the drawing and specifications; he did
not have a duty to warn the Employer about design
issues”.
 The end of the story

One house for sale: yours for £60

million