Thursday, December 2, 2010

Put on that" Evaluator's Hat" during Claim Preparation!!

During a claim preparation, have you ever thought on how does the receiving party analyses your claim? If you haven’t, it is best that you start thinking so. This may increase the chances of your claim being accepted and paid without a fuss.

So what are the particular steps commonly looked for in the analysis required of a claim?

Identifying the Event

It is first best to identify and analyse the event in which is giving rise to the claim. It is necessary to identify and characterize the event so that the applicable terms of the contract can be assessed to determine which party bears the risk of the event.

There are generally 3 possible alternatives:

· The risk is borne by the Contractor,

· The risk is allocated by the Principle, or

· If risk is not allocated the question then arises as to whether the risk will lie where it falls or whether by operation of law it shall be distributed to one of the parties.

Assessing the Consequences.

The second step in the process is the identification of the consequences of the event.

Example: If it is a time related event, is there a float in the program as such that may be used and will there be a real impact on Completion? There on can the delay be seen if it’s a Contractor’s delay, the Principle’s delay, or a neutral delay.

Is there a sufficient ‘legal’ link between the event and the consequences?

The next step is to analyse the relationship between the event and the consequences. Here, it is important to identify the sufficiency of both factually and legally in order to establish the concept of remoteness to the analysis.

The application of the first legal test is essentially a matter of common sense, where if something naturally flows as a consequence then it is likely a court would find it has sufficiently satisfied the legal test of remoteness. However, if there is no natural connection between the event and the damage which flows, it is necessary to go to the second legal test for remoteness. In such circumstances, parties will argue that the damages may fairly and reasonably be considered to have been ‘in the contemplation of both parties at the time they made the contract as a probable result of its breach.’ Loss of profit claims generally rely on such a nexus. (Hadley v Baxendale -


In the event where there is a late completion of the construction of an apartment building, the cost which flows ‘naturally’ from the breach may be the need to expend rental on alternative accommodation until the building is completed. Perhaps a little less direct is the forgone rental income from prospective tenants in the completed building. In circumstances like this, the damages may be seen to have arisen naturally from the breach itself. There may still be some argument as to what levels of tenancy could be expected, what the current market conditions were, etc, but there is a clear nexus between the event and the consequence.

The situation is less clear where a party asserts that with the rental income it would have received from tenants it would have invested the moneys and made a profit. For example, it may have invested in the short-term money market and made a profit of ‘x%’. In situations such as this, the defendant may suggest that the damage suffered in not making profits on the short-term money market did not naturally flow from the breach. Then questions can be raised as to what was contemplated in the mind of each party at the time they made the contract. If it is the case that the intention to invest the money in the short term money market was made sufficiently clear, it is likely that a court will not see that the damage was remote even though it is not seen to have arisen naturally from the breach.

Is there a sufficient ‘factual’ link between the event and the consequences?

Even if it is possible to establish the legal link between the event and the consequence it is still necessary to carefully analyse the factual link. Several questions may be asked in this process, such as:

· Could the consequence have been avoided or mitigated? Even though a breach has occurred, a party cannot sit back and simply hope another will pick up the cost. There is an obligation to minimise the impact of the event. This is a general obligation placed on those who have suffered loss and the law has long held that to the extent the party does not mitigate it cannot recover the damage suffered.

· Did the event actually cause the consequence? This is essentially a question of causation. Have there been any supervening acts or events which have operated to break the cause and effect relationship between Event 1 and Consequence 1? What about the float?

Identifying the loss.

The final step in the logical analysis is the identification of the cost or loss that may have incurred from the consequences. Each item to be claimed but be properly substantiated.

So from all of these above, don’t you think if a claimant considered all of these factors during the claim preparation, it would have saved loads of frustration on both parties?