Ariana Stuart (senior associate) and Henry Morley-Hall (solicitor) in Dentons Kensington Swan’s Construction and Major Projects team.
As the size and complexity of construction projects increases, so too does the complexity of claims. It is increasingly common to see large projects with thousands of variations, drawing amendments, instructions, and requests for information.
Each of these events on their own may have only small consequences on the cost of the project. It is only when they are taken together that the additional costs or complications begin to become clear. Establishing these can become exceedingly and disproportionately difficult, especially if a contractor is forced to unpick each of the change events. Often this makes such claims uneconomic to run.
A recent decision from the Court of Appeal of England and Wales (Building Design Partnership Limited v Standard Life Assurance Limited [2021]) provides an interesting example of an extrapolation approach being taken in respect of a very high volume of distinct, but similar Variation claims.
Lord Justice Coulson accepted the use of “sampling and extrapolation” in the case as a way to reduce the ultimate time and cost of hearing argument over more than 3500 distinct Variation claims. The Court found that where a sample of claims can be found, on the balance of probabilities, to be representative of the entire pool of claims, then the results of that sample could be extrapolated into a result in respect of the entire pool. But while the case sounds like a promising development for parties who consider that they have been put to cost by the sheer volume of change on a project, the decision related to very specific circumstances.
Background
Standard Life Assurance Limited (SLA) was the developer of a mixed retail and residential development. Building Design Partnership Limited (BDP) was engaged as the contract administrator and leader of the design team; a role not unlike the Engineer under NZS 3910.
The original contract price with the builder (Costain Ltd) was £77.4m, however the sum paid to settle the builder’s final account was £146.4m, almost twice the original price. SLA claimed that the bulk of the overspend was a result of BDP’s myriad of Variations to the contract works. Of the final account sum paid to the builder, £50.3m was made up of: £28.4m paid in relation to Variations; and £21.9m paid in relation to the builder’s claims for loss and expense due to delay and disruption caused by the Variations.
In total there were 3604 Variations. SLA took a sample of 167 of these Variations, and concluded that late, inadequate, inaccurate, incomplete or uncoordinated design information provided by BDP had led to the need for a Variation in 81.7 percent of the cases (adjusted for value).
Using the evidence from this sample, SLA extrapolated that BDP was similarly responsible for 81.7 percent of the expenses associated with the other 3437 Variations.
The decision
The case hinged on whether it was appropriate for SLA to extrapolate and hold BDP responsible for all the Variations based on the results of the sample. It is not uncommon for sampling and extrapolation to be used in cases where there are many separate pieces of evidence, and where review of all is impractical.
This case differed from the previous ones because SLA was attempting to use the sample as the basis for the entire pool of Variations without pleading a detailed claim in respect of each.
The Court allowed the claim to be brought on this basis. Coulson LJ noted that presenting a claim in this way would make proving the claim significantly more difficult to establish at trial, but he stated that: ‘…it is an inherent part of the trade-off which any claimant who has to negotiate, between saving costs by not doing things which, if money were no object, it might have done, and maintaining a realistic prospect of ultimate success…’
The Court considered, however, that in order for SLA to proceed: A connection between the sample and the pool must be established; and the defendant must still be left with a clear picture of the case against it so that it could provide a defence. In this case, it helped that BDP were taken to have had intimate detail of each of the Variations in the pool, given their role as administrator.
Here, SLA was also aided by the fact that to provide a detailed claim on each Variation was clearly uneconomic. The Court estimated that legal costs would have been at least as much as the sums at stake, and around sixty further lever arch files would have been required to contain the necessary documents.
What it means for New Zealand contractors
As the case demonstrates, Courts are willing to consider factors such as cost and efficiency when making decisions around the presentation of large claims. This case opens the door for the use of extrapolation and sampling as a means of reducing the amount of evidence that must be presented in similar cases where there are large numbers of factually similar claims.
But there is a difference between pleading a claim on the basis of sampling, and actually proving it. The bar for proving claims in this manner is unlikely to be met. While SLA has managed to convince a court that it may present its claim on the basis of extrapolation, it is unclear whether it will actually manage to prove its claims.
The availability of this extrapolation approach will be highly fact specific. Here, it was simple to show that a sample was representative of the whole because the claims related to the conduct of BDP across the project generally, and because BDP had not attempted to distinguish the sample from the pool. A claimant considering a sampling exercise should always expect the defendant to scrutinise any differences very closely. Any such difference may lead to the complete failure of the claim.
The case also illustrates the continuing importance of keeping meticulous records. This is what allowed SLA to pursue the claims that they did. BDP on the other hand, was left without convincing counter-arguments because its record-keeping had been poor.
While this decision signals a shift away from the strict requirement for every claim to be argued, there should not be complete disregard for the high standards of proof and evidence. This decision relates to a very specific fact scenario.
As a result, contractors must continue to ensure they keep meticulous records of all work carried out in order to prove any claim that arises.
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