Cases - Alfred McAlpine Homes Ltd v Property and Land Contractors Ltd

Record details

Name
Alfred McAlpine Homes Ltd v Property and Land Contractors Ltd
Date
[1995]
Citation
76 BLR 59
Legislation

JCT Standard Form of Building Contract

Keywords
Construction - litigation - loss and expenses - loss of profit - overheads - proof of loss - postponement of loss - actual loss - notional loss - proof of loss required - formulaic approach - formulaic approach not always appropriate
Summary

This case gives some important guidance as to the extent to which claimant contractors need to prove their loss before they are able to recover loss of profit and overheads in loss and expense type claims.

The case concerned the construction of 22 houses for which the claimant employed the respondent. The claimant issued a notice under clause 23 of the JCT Standard Form of Building Contract to postpone the contractor's works. The defendant duly submitted a loss and expense claim under clause 26 of the contract for additional preliminary costs, comprising overheads and profit and idle plant on site. The claimant refused to agree this claim. The respondent was a small contractor who was only able to undertake one major project at a time. The project was delayed and the respondent claimed for loss of overheads and profit under a number of heads. This case arose out of an appeal from an arbitrator's decision. The Court held (amongst other things) that:

  • Under the terms of the contract, the contract administrator was obliged to 'ascertain' - i.e. 'make certain' the cost claimed, and a general assessment would not be permissible.
  • A claim for hire charges for idle plant was recoverable in principle, but the contractor must demonstrate his actual loss; a reference to reasonable hire charges is not sufficient.
  • If the company in question is a single contract company, it is entitled to recover its fixed overheads expenditure as a result of delay. If the company had several projects, then its loss would be the shortfall in the contribution to such overheads that the volume of work was expected to make (i.e. it can recover its 'unabsorbed overheads').

After a thorough review of the authorities, HH Judge Humphrey Lloyd QC concluded that a claimant contractor must first prove a loss before it can be entitled to compensation. The loss could arise from an inability to take on other available and profitable work, while failing to recover adequately through additional work on the delayed project, or through being prevented from reducing overhead resources during the delay period. The judge went on to say that 'when a contractor is busy and is taking on work all the time, it will probably not be possible to demonstrate the effect to which I have referred'.

The judge also confirmed that while there might be circumstances where a formulaic approach to the quantification of the loss might be appropriate, the JCT requirement 'to ascertain' did not connote 'as much use of judgment or the formation of an opinion' as would have been the case had 'assess' or 'evaluate' been used. (See also St Mowden Developments Ltd v Bowmer & Kirkland Ltd [1996] CILL 1203.)

With regard to plant wholly owned by the contractor, the judge said:

'in ascertaining direct loss and expense under clause 26 of the JCT conditions in respect of plant owned by the contractor the actual loss or expense incurred by the contractor 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.'