In the arbitration concerning Mall of Scandinavia, the contractor has claimed compensation for additional costs incurred due to what are referred to as “störningar i entreprenaden” [disruptions in the construction contract], which have had an adverse effect on the contractor’s productivity. The contractor argued that the disruptions were due to conditions attributable to the client, which is why the contractor claimed a right to compensation for additional costs. By applying Chapter 35, section 5 of the Code of Judicial Procedure to parts of the claim for additional costs, the arbitral tribunal has deviated from the principles that it set out itself as a prerequisite for the chances of success. The application of Chapter 35, section 5 of the Code of Judicial Procedure means that the contractor was awarded compensation without having shown any individual instance of disruption and the additional costs caused by the disruption.
In the arbitration, the contractor filed a claim for additional costs amounting to SEK 850 million due to disruptions in the construction contract and a claim for SEK 150 million due to the fact that the construction contract entered service prematurely. The contractor claimed that the disruptions that primarily resulted in additional costs consisted of the amount of ÄTA (alterations and additions) work, which resulted in lower productivity and which corresponded to an amount of SEK 850 million. The disruptions consisted of ÄTA work (ABT 06, Chapter 2, sections 3–4, Chapter 6, sections 6–7), obstacles in the construction contract (ABT 06, Chapter 5, section 4), significantly disturbed conditions for the performance of the construction contract (ABT 06, Chapter 6, section 5) and premature entry into service of the construction contract (ABT 06, Chapter 5, section 2).
REQUIREMENT FOR A SPECIFIED CLAIM
During the arbitration, the client’s objections included an assertion that the contractor’s claim was not sufficiently specific to be successful. The contractor argued that the claim was sufficiently specific since it was distributed over time and the grounds were specified to a sufficient extent. The following is a summary of how the claim was distributed and specified:
- Additional costs of SEK 180 million were payable from July 2014 to 7 January 2015 due to the ÄTA work and/or obstacles in the construction contract
- Additional costs of SEK 287 million were payable from 7 January 2015 to July 2015 due to the ÄTA work and/or obstacles in the construction contract
- Additional costs of SEK 785 million were payable from 1 August 2015 up to the date when the final inspection was passed on 23 December 2016 due to significantly disturbed conditions for the performance of the construction contract.
- Additional costs of SEK 150 million were payable due to the premature entry into service of the construction contract on 12 November 2015.
The contractor’s claim was calculated according to what is known as the difference method and the claim consisted of the difference between the calculated cost of the construction contract without disruptions and the contractor’s actual costs for performance of the construction contract during the periods specified above.
PHASE 1 AND 2 OF THE ARBITRATION
The arbitration was divided into two phases. During phase 1, the arbitral tribunal examined certain questions of principle including with regard to the claim for additional costs. The examination of questions of principle resulted in a separate arbitration award in which the arbitral tribunal examined the question of whether the contractor, in order to succeed with its claim for compensation for additional costs caused by alleged “disruptions, etc.”, must cite and prove each individual disruption, etc., and the additional costs caused thereby. “Disruptions, etc.” meant all the grounds for compensation cited by the contractor for its disruption claim, i.e. obstacles, significant disturbance of the conditions for the construction contract, forced acceleration, failure to provide information and breach of contract.
The arbitral tribunal concluded that the method cited by the contractor for its claim for additional costs in the form of a composite claim in the nature of a “global claim” or “modified total claim” based on a comparison between reported actual cost and calculated cost cannot be applied under Swedish law and the applicable provisions of ABT 06. The arbitral tribunal established that the contractor must cite and prove each individual disruption and the additional costs caused by the disruption in order for its claim to be successful. A disruption could refer not only to a single circumstance, but also to a number of circumstances that together entail a disruption and several mutually independent disruptions may occur. The circumstances alleged to constitute a disruption must be specified, like the costs for which compensation is claimed due to the disruption.
During phase 2 of the arbitration, the arbitral tribunal examined the substance of the contractor’s claim for additional costs. The contractor adjusted its claim in advance of phase 2 by distributing its claim over different periods of time in the construction contract and the grounds for the claim were adjusted to only include provisions in ABT 06 on ÄTA work and obstacles, significant disturbance and premature entry into service of the construction contract. Nevertheless, it was still maintained that the number of ÄTA orders was the main reason for the additional costs. The calculation of the claim was the same as in phase 1, i.e. the claim was calculated according to what is referred to as the difference method and consisted of the difference between the calculated cost of the construction contract without disruptions and the contractor’s actual costs for performing the construction contract.
To sum up, the arbitral tribunal considered that the additional costs that were alleged to have been incurred in the period prior to August 2015, amounting to a total of SEK 467 million, could not be compensated because the circumstances alleged by the contractor did not cause the costs and nor were the costs themselves specified to a sufficient extent.
ANALOGOUS APPLICATION OF CHAPTER 35, SECTION 5 OF THE CODE OF JUDICIAL PROCEDURE
Otherwise, the arbitral tribunal upheld the contractor’s claim for additional costs incurred in the period after August 2015 amounting to SEK 300 million. The arbitral tribunal considered that Chapter 35, section 5 of the Code of Judicial Procedure could be applied analogously to the contractor’s claim for additional costs that were alleged to have been incurred due to a significant disturbance of the construction contract and that were calculated according to the so-called difference method. This is despite the fact that the difference method was rejected in the separate arbitration award. In a discretionary assessment, the arbitral tribunal arrived at an amount of SEK 300 million, i.e. an amount corresponding to approximately 35 per cent of the contractor’s total claim for additional costs. The final arbitration award does not provide any detailed account of how the arbitral tribunal arrived at the amount in question or the way in which the amount could derive from the contractor’s claim.
PREVIOUS CASE LAW
The analogous application of Chapter 35, section 5 of the Code of Judicial Procedure to the claim for additional costs may appear to be a bold move by the arbitral tribunal, but if we look at previous case law, it is an approach that has been adopted several times before (see, for example, the arbitration award in the Bonnier case from 1973, the Serafarens sjukhem arbitration award from 1986 and the Södra vägbron arbitration award from 2005). Unfortunately, there is no precedent in this matter and many of the previous rulings in existence are arbitration awards. Although there are previous examples of the analogous application of Chapter 35, section 5 of the Code of Judicial Procedure to claims for additional costs under construction law, our view is that the arbitral tribunal has waived several fundamental principles of both procedural law and construction law in this regard.
ALLEVIATION OF THE EVIDENTIARY BURDEN CONCERNING CLAIMS FOR ADDITIONAL COSTS
Firstly, the arbitral tribunal chose an analogous application of the rule on alleviation of the evidentiary burden in Chapter 35, section 5 of the Code of Judicial Procedure. That provision itself is a procedural exemption provision which, in certain situations, allows for alleviation of the evidentiary burden in cases where it is difficult to produce full evidence of the amount of the damage. In the case with which we are concerned, it is not a question of damage but of a claim for additional costs. The provision is therefore not directly applicable and, as stated above, an analogy must be drawn from the provision. To draw an analogy from a clear exemption provision is a bold move in itself. Moreover, in this case there are considerable differences between a claim for damages and a claim for additional costs. Damage is often something that is suffered by a party due to a course of events that is beyond the party’s control and for that reason it may be difficult to produce evidence for it. However, a party cannot be said to suffer an additional cost in the same way. The costs are accrued due to particular events and it is therefore possible to document the costs on an ongoing basis and deduce the cause for them. It is reasonable to require a contractor to have a project report that continuously monitors costs and documents both the costs and the reasons for them. Reporting of this type also provides the basis for the provisions of ABT 06. Even though in some cases it may be difficult to produce full evidence for a claim for additional costs, the same reasons of principle do not apply in the same way as they do in certain types of damage that are difficult to prove. There may certainly be reason to lower the standard of proof in certain cases, but this must take place after a careful analysis of the costs in the specific case and the contractor’s difficulties in securing evidence. An analogous application of Chapter 35, section 5 of the Code of Judicial Procedure, as in the case with which we are concerned, without specifying the reasons for it in more detail does not provide legal certainty for any of the parties and gives rise to uncertainty as to what applies in other equivalent situations.
ALLEVIATION OF THE EVIDENTIARY BURDEN ALSO IN RELATION TO CAUSATION
Secondly, the arbitral tribunal’s application means that the contractor has also received an alleviation of the evidentiary burden in relation to causation. Chapter 35, section 5 of the Code of Judicial Procedure is not directly applicable to causation, but the arbitral tribunal’s application in this respect also entails an analogous application of the rule on alleviation of the evidentiary burden. It is particularly noteworthy that the arbitral tribunal does not explain in more detail why and in what way an alleviation of the evidentiary burden is justified with regard to causation. The existence of causation between a particular event and a cost is a prerequisite for any compensation to be considered at all and the lack of reasoning in the arbitration award in this respect is odd.
IT OPENS UP THE WAY FOR GLOBAL DISRUPTION CLAIMS IN SWEDISH LAW
Thirdly, the ruling means that the arbitral tribunal – contrary to the ruling in the specific award – opens up the back door for global disruption claims in Swedish law. As stated above, the arbitral tribunal noted in the separate award that in order for its claim to succeed, the contractor must cite and prove each individual disruption and the additional costs caused by the disruption. By applying Chapter 35, section 5 of the Code of Judicial Procedure to parts of the claim for additional costs, the arbitral tribunal has deviated from the principles that it set out itself as a prerequisite for the chances of success. The application of Chapter 35, section 5 of the Code of Judicial Procedure means that the contractor was awarded compensation without having shown any individual instance of disruption and the additional costs caused by the disruption. For the client, this application is problematic because it is extremely difficult to produce evidence to the contrary against a number of circumstances whose consequences have not been specified. In the long run, this means that it is no longer the contractor who must face the risks of its deficient accounting. Instead it is the client who faces the risk of not being able to present sufficient evidence to the contrary. In our opinion, this national shift leads to unreasonable results and is not at all compatible with the allocation of risk on which ABT 06 is based.
To sum up, the questions of whether and when a contractor can be granted an alleviation of the evidentiary burden in the case of a claim for additional costs is a pressing issue that would need to be addressed either by means of a clear precedent or by addressing the matter in the revision of ABT 06.
Quick facts:
-
What is Chapter 35, section 5 of the Code of Judicial Procedure?
In a dispute relating to damage, the party claiming to have suffered damage bears the burden of proof for the amount of the damage, the circumstances that allegedly caused the damage to the injured party and the link between the circumstances alleged to have caused the damage in question and the amount of the damage.
When this is examined by a court, there is scope for the court to carry out a discretionary assessment of alleged damage pursuant to the provision in Chapter 35, section 5 of the Code of Judicial Procedure. The provision can be applied if it is a question of estimating damage that has occurred and the amount of damage cannot be proved or is difficult to prove. That provision, according to its wording and underlying aim, is intended to apply to damage. The provision cannot be applied in order to carry out a discretionary assessment of costs other than damage. Nor can the provision be applied in order to carry out a discretionary assessment of causation, i.e. the link between the circumstances alleged by the injured party to have caused the alleged damage and the amount of the damage.
