A Role for Global Claims in IT Litigation

September 1, 2007

In July 2007, two judgments on the controversial subject of ‘global claims’ appeared in the courts. The term is commonly used in the field of construction law for claims in which the claimant does not seek to attribute specific losses to specific breaches of contract, but rather alleges a composite loss as a result of all the alleged breaches.


The Commercial Court in the first of the two judgments, Petromec Inc v Petroleo Brasileiro SA [2007] EWHC 1589 (Comm), declined to permit the approach, whereas the Technology and Construction Court (TCC) approved it in the second judgment, London Underground Ltd v Citylink Telecommunications Ltd [2007] EWHC 1749 (TCC). The difference may only be a consequence of the different circumstances of the two cases. However, it may also indicate a greater willingness to accept the concept in the TCC, where the issue is most likely to arise. It can at least be said that London Underground v Citylink represents a mark of approval from the TCC to the Scottish case of Laing Management (Scotland) v John Doyle Construction Ltd (2004) BLR 295, which provided guidance on the circumstances in which a global claim might succeed.


The significance for practitioners of IT disputes lies in the close similarities of IT and construction disputes, particularly in the common features of overruns in cost and time which are often the cause of the debate. Resolution of IT disputes often involves the analysis of competing cases as to why a project has overrun. The customer will claim against the supplier for not delivering within an agreed or estimated time or cost. The supplier will argue in response that the customer has failed to fulfil its own obligations, such as providing legacy system documentation, making its users available for consultation or providing test data. In a complex case, this will give rise to a web of causes whose effects it may be difficult or impossible to prove, at which point the question arises of whether a global claim can be allowed to succeed.


Case-law Developments before Laing v Doyle


The door has been open to global claims since the 1967 case J Crosby & Sons Ltd v Portland Urban District Council (1967) 5 BLR 21. In this case an arbitrator had been faced with the question of whether a contractor could make a claim for lump sum compensation, arising from delay in a project for construction of a water main. The court ruled that it could see ‘no reason why he should not recognise the realities of the situation and make individual awards in respect of those parts of individual items 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’.


However, since then courts in England and other Commonwealth jurisdictions have been hostile to such claims for global costs or other claims that are global in nature. In Wharf Properties Ltd v Eric Cumine Associates (No. 2) (1991) 52 BLR 1, the Privy Council was faced with an appeal against a decision to strike out a pleading. The claim was against an architect in a building project in Hong Kong and the statement of claim was attacked on the basis that while six specific periods of delay and 15 separate breaches of contract were pleaded, the plaintiff failed to particularise the causal nexus between individual breaches and individual periods of delay.


The Privy Council upheld the decision to strike out the pleading. The submission that it did not disclose a reasonable cause of action was rejected, in that there was a theoretical possibility, despite what were described as extraordinary evidential difficulties, that the claimant would succeed in particularising and proving its case at trial. However, the strike out application was upheld instead under the provision in the now superseded Rules of the Supreme Court that the pleading might prejudice, embarrass or delay the fair trial of the action or otherwise constitute an abuse of the process of the court. That rule is recreated in similar terms in CPR, r 3.4(2)(b), which refers to circumstances where ‘the statement of case is an abuse of the courts process or is otherwise likely to obstruct the just disposal of the proceedings.’ The same principle would therefore still seem to apply under the CPR.


The Privy Council distinguished Crosby v Portland UDC on the basis that the case had raised only the question of quantification of the financial consequences of breach, whereas Wharf Properties raised the issue of specification of the factual consequences of the breaches in terms of periods of delay.


Many would question why there should be a distinction between financial consequences and other factual consequences, as both go to the issue of causation. However, the key point made by the Privy Council appears instead to have been that the burden remained on the plaintiff to plead its case adequately. In this context, it should be taken into account that despite several years of litigation and several attempts to seek particulars of the claim, the claimant sought to particularise and substantiate its case at trial. This points to the real significance of the case, that there is a distinction to be drawn between a claim which is global but adequately pleaded and a case which is not adequately pleaded.


A similarly sceptical approach was also taken in other Commonwealth jurisdictions such as Australia. In John Holland Construction & Engineering Pty Ltd v Kvaerner Brown Pty Ltd (1996) 82 BLR 83, the judge succinctly put the attitude of the courts: ‘In my opinion, the court should approach a total cost claim with a great deal of caution, even distrust. I would not, however, elevate this suspicion to the level of concluding that such a claim should be treated as prima facie bad.’ Those words were cited with approval by the English court in Bernhard’s Rugby Landscapes Ltd v Stockley Park Consortium Ltd (1997) 82 BLR 39.


Laing v Doyle


This attitude seemed to change with Laing v Doyle, suggesting to many practitioners that global claims would be allowed more widely. In that case, management contractors in a construction project sought an extension of time for the project and loss and expense consequential on delay and disruption, putting their case on a global claims basis.


The Inner House of the Court of Session ruled that, in principle, the global claim was to be allowed to proceed and set out guidance as to when such claims might be allowed.  The starting point was that, where a claimant could show that all of the events on which he relied were the responsibility of the defendant, a global claim would be allowed to succeed. By contrast, the defendant needed only to prove that a material part of the causation of the loss was an event for which the defendant was not liable, or for which neither party was responsible (eg bad weather in the context of a construction project), and the global claim would fail. However, the Inner House ruled that this principle was mitigated by three considerations:


  1. While the global claim itself might fail, it might nevertheless be possible to attribute individual items of loss to individual items for which the defendant was responsible.


  1. The question of causation had to be treated by ‘the application of common sense to the logical principles of causation’. The Inner House elaborated that this would mean that the defendant would be found liable where the event for which he was responsible was the dominant cause of loss, even if other concurrent causes existed.


  1. Where it could not be said that the events for which the defendant was liable were the dominant cause of the loss, it might nevertheless be possible to apportion the loss between the causes for which the defendant was liable and those for which he was not. While the Inner House accepted that this would produce a ‘somewhat rough and ready result’, it regarded such an apportionment as not fundamentally different in nature to that used in relation to contributory negligence or contribution among joint wrongdoers.


While this decision has been perceived by some commentators as a dangerous relaxation of the requirement to plead and prove causation, there has been a general acceptance that Laing v Doyle would be applicable in England and this seems to be confirmed by the decisions in July this year, though not without a divergence of judicial approach.


Petromec v Petrobas


Strictly Petromec v Petrobras was a question of the proper construction of a contract by which Petromec was engaged by Petrobras to supervise the upgrade of an oil rig. However, the familiar arguments arose.  Under the express terms of the contract, Petromec was entitled to ‘an amount equal to the reasonable extra cost’ of upgrading in accordance with an amended specification, over and above the costs which Petromec ‘might reasonably have incurred’ in accordance with the original specification.


Petromec put forward its case on the basis of a comparison of the global cost which would have been incurred under the original specification against the global cost under the amended specification. In response, Petrobras argued that the increased cost of each amendment had to be pleaded and proved. Otherwise, no credit would be given for matters such as failures in design, supply, installation and workmanship which had led to repairs, remedial work, replacements of non-functional or defective items, disruption, delay and acceleration of costs.


Cooke J took a firm line, regarding the methodology proposed by Petromec as one which would reverse the ordinary burden of proof in that it would leave Petrobras having to plead and prove items to be deducted. However, his decision was based not only on the construction of the contract but also on the application of the case law on global claims. He noted a number of the reasons put forward by courts in England, the USA and the Commonwealth for tending to disapprove the global claims approach:


  1. The approach enables a party to avoid the requirements of pleading and proof of entitlement and causation.


  1. The other party is not given proper notice of the case it has to meet.


  1. The approach causes real problems in trial preparation and case management and the conduct of the trial itself.


The judge rejected a submission that the Wharf Properties line of decisions was inapplicable to the question of contractual construction. He noted that Petromec faced difficulties in proving each item of causation individually, but emphasised that these were no greater than those that arise, and are determined by the courts, in large numbers of building disputes. The causal nexus had to be pleaded and proved.


However, it should be noted that Cooke J referred to the courts tending to disapprove of the global claims approach rather than disapproving it altogether. The previous cases, including in particular Laing v Doyle, had consistently acknowledged that the approach was a possibility but imposed strict safeguards as to when and how it might be used.


London Underground v Citylink


The Petromec v Petrobras judgment did not address the applicability of the Laing v Doyle decision. However, only two weeks later, the judgment in London Underground v Citylink was handed down, approving the application of the Laing v Doyle decision in England. The London Underground v Citylink decision was made on an application by London Underground, under s 68 of the Arbitration Act 1996, challenging an award of the arbitrator in disputes between London Underground and the Citylink consortium. Those disputes had arisen from the project for replacement of the communication system on the London Underground network.


London Underground’s challenge required the court to consider whether the arbitrator had been correct in his application of Laing v Doyle, in circumstances where Citylink’s claim had been a global one based on a large number of breaches of contract by London Underground, involving delay at individual locations and various underground lines. London Underground did not challenge the proposition that Laing v Doyle represents the proper approach to global claims, its challenge being based rather on whether the conclusion of the arbitrator fell within the case which Citylink had pleaded. However, Ramsey J confirmed that he himself regarded the approach as proper.


The judge noted the comments in Laing v Doyle that it is not necessary ‘that averments of causation should be over-elaborate, covering every possible combination of contractual events that might exist and the loss or losses that might be said to follow from such events.’ Instead, a party’s pleading need only disclose sufficient details to enable the other party to prepare its own case and to enable the parties and the court to determine the issues in dispute.




So where do Petromec v Petrobras and London Underground v Citylink take us? The short answer is not much further. Global claims have in theory been permitted by the English courts for 40 years but have tended to fail. London Underground v Citylink confirms that the guidance in Laing v Doyle as to when a global claim will be allowed is applicable in England. However, Petromec v Petrobras could be taken to indicate a divergence of judicial views as to whether global claims should be allowed in principle. The area remains ripe for a decision from the Court of Appeal to resolve that divergence.


For practitioners of IT disputes, the advisable approach must remain to avoid the global claims approach wherever possible. However, the key to being able to avoid the need for it is accurate record keeping. Suppliers and customers should be encouraged wherever possible to keep accurate and detailed records of time spent by employees and costs projected and expended. Those experienced in the field will recognise that, more often than not, this is not what currently happens. Those involved in procuring and delivering IT projects may therefore have to undergo a cultural change and pay closer attention to record keeping, in the same way that the construction industry has, over the years, been forced to do.


That said, the consequence of London Underground v Citylink appears to be that global claims do have a role to play in IT litigation and the Laing v Doyle approach will be applied. This should offer comfort to the claimant who is on the receiving end of a significant loss but unable to prove it due to lack of evidence. However it remains to be seen whether the Court of Appeal will keep the door open to the approach.



Jeremy Mash is a partner in Olswang’s litigation practice.