Introduction

In construction disputes, it is not uncommon that a single claim can be made up of thousands of contractual variations or defects. As the claimant generally bears the burden of proving its claims, the use of sampling and extrapolation can be an effective tool to present its case and manage the dispute. The United Kingdom Court of Appeal’s recent decision in Building Design Partnership v Standard Life Assurance Limited [2021] EWCA Civ 1793 has again confirmed that claimants can plead extrapolated claims.

Sampling and extrapolation in construction cases

In Amey LG v Cumbria County Council [2016] EWHC 2856 (TCC), the defendant sought to counterclaim against the plaintiff contractor who provided highways maintenance and associated services. The defendant has examined a sample number of patching and surfacing works undertaken by the plaintiff and pleaded its counterclaim on the basis that the defective samples can be extrapolated to the entirety of the works undertaken by the plaintiff.

The English court held that as a matter of principle, statistically random sampling is not the only method to establish a claim or proposition. A claimant can establish a claim by reference to representative sampling, a sampling method which relies on careful advance planning but nonetheless subjective judgements on how the sample should be selected. The defendant however failed to show that the samples were sufficiently representative and free of bias and hence its extrapolation claim was dismissed.

In Building Design Partnership v Standard Life Assurance Limited [2021] EWCA Civ 1793, Standard Life Assurance Limited (“Standard Life”), a developer of a substantial mixed retail and residential development brought a claim for damages in negligence and breach of contract against its contract administrator (who was also the leader of the “design team”, Building Design Partnership Limited (“BDP”), alleging the cost of its property development doubled following, among other things, 3,604 variations in the building contract.

Standard Life pleaded a detailed claim against BDP by analysing 167 variations out of 3,604 and calculated that the design team was culpably responsible for 122 (i.e. 83.1%) of them (“Detailed Claim”). Standard Life then extrapolated that percentage across the remaining 3,437 variations which they have not investigated, and pursued a further claim of £23.6 million against the design team in respect of the remaining variations (“Extrapolated Claim”). Of the 83.1% variations for which the design team allegedly bore responsibility, BDP was responsible for 81.71%. Applying these percentages to the remaining variations, Standard Life concluded that BDP was proportionately liable for over £20 million of Standard Life’s total loss.

Not surprisingly, BDP attempted to strike out the extrapolated claim on the basis that it was an abuse of process. At first instance, Kerr J dismissed BDP’s application and held that it would have been disproportionate to require Standard Life to investigate and plead out every variation and related loss and expense claim which formed part of the Extrapolated Claim. BDP appealed. Finally, the Court of Appeal dismissed the appeal against Kerr J’s decision to allow Standard Life to plead its original statement of case on an extrapolated basis without pleading a detailed case on each of the allegations.

UK court’s approach towards sampling and extrapolation

The Court of Appeal in Building Design Partnership cited Amey and Imperial Chemical Industries Ltd v Merit Merrell Technology Ltd (No.2) [2017] EWHC 1763 (TCC); 173 Con LR 137 which supported the principle that a party could plead a claim on the basis of sampling and extrapolation.

When arriving at the decision that there was no abuse of process, the Court of Appeal gave sufficient weight to the principle of proportionality. The Court of Appeal opined that although pleading an Extrapolated Claim may make the claim more difficult to establish at trial, that is a balancing exercise which any claimant like Standard Life has to take, between saving costs by not doing things which it might have done, and on the other hand, maintaining a realistic prospect of ultimate success. Alternatively, requiring the claimant to plead out all variations item by item would have resulted in unacceptable costs.

The Court of Appeal also pointed out that, if a defendant like BDP has no way of understanding what it needs to do in order to defend itself against the Extrapolated Claim, then the Extrapolated Claim is likely to be found to be an abuse of process. Therefore, it has to be borne in mind that, when pleading a case on an extrapolated basis, whether or not a defendant knows the case they have to meet in respect of the Extrapolated Claim becomes a critical issue.

Taking into account several factors, such as the allegations in the Extrapolated Claim were based on the same grounds as those in the Detailed Claim, BDP’s substantial involvement throughout the project, the Court of Appeal considered that BDP were fully aware of the case that they have to meet. The Court noted, however, that if, in a different case, a defendant had no way of understanding what it needed to do to defend itself against an extrapolated claim then such a claim would likely be found to be an abuse of process.

The balance between fairness and efficiency?

While pleading by extrapolation is likely to make the task of proving a claim more efficient and manageable, one may be concerned that allowing an extrapolated claim to proceed may cause unfairness.

In Building Design Partnership, BDP complained that allowing the claim to proceed put unfair commercial pressure on BDP because with such a large part of the claim having been made without any investigation, BDP would be forced to settle the claim due to the risk that the Extrapolated Claim might succeed and/or due to the costs it would incur investigating the 3,437 variations itself.

The Court of Appeal rejected BDP’s submission for the following reasons:

1.        BDP, as leaders of the design team, working on the project on a day to day basis, having ordered the variations and subsequently approved payment of the variations, knew more about the individual variations than Standard Life and was well placed to assess the risks presented by the Extrapolated Claim; and

2.        had Standard Life investigated and pleaded out all of the 3,437 remaining variations at the outset BDP would have objected to the vast costs that would have been incurred by Standard Life, and would have argued that Standard Life’s conduct in frontloading such significant costs had put commercial pressure on BDP to settle the claim.

Whether it is fair or not will be in the eyes of the beholder. However, Coulson LJ makes clear in paragraph 92 of his judgment that:

“The days of the court requiring parties in detailed commercial and construction cases to plead out everything to the nth degree are over. It is not sensible; it is not cost-effective; it is not proportionate … Pleading out every last detail at the outset of the proceedings should not be regarded as the paradigm method of framing such disputes, particularly if there are more proportionate alternatives which still enable the defendant to know the case that it has to meet.”

Hong Kong court’s attitude?

Unfortunately, there has not been any Hong Kong case that explores the issue of sampling and extrapolation in details.

In the case of Sun Cheong Construction Co Ltd v Incorporated Owners of King Fu, Ho Fu, Ki Fu & Ka Fu [2019] HKCFI 2076, the plaintiff contractor was engaged by the defendant incorporated owners to carry out maintenance and repair works for the buildings. The defendant alleged that the plaintiff failed to remove badly rusted metal objects left on the external walls of the buildings and hence its works were defective. The defendant’s expert surveyed 5% of the total area of the external walls and observed 118 abandoned nails and bolts in 2009 and estimated the number of these rusted metal objects on the external walls of all the buildings to be more than 2000. The Court found that the defendant’s expert has failed to give any convincing reason or basis to support his estimate of 2000 and only accepted that 118 rusty foreign objects had been observed in 2009.

Yet, this case should not be taken as an example where the Hong Kong court is reluctant to accept or consider extrapolated claims. The Court’s attitude could have been different if the defendant’s expert could provide adequate grounds to support the sampling methodology adopted in his report.

Key takeaways

Sampling is an established scientific discipline that is reliable when the proper methodology is applied. Where there may be flaws in the methodology used in establishing or supporting one’s case, our adversarial legal system allows such flaws to be challenged by the other party, which mitigates the unfairness that may be posed by biased sampling. The advantage of accepting extrapolated claims is the ability of assessing a large amount of defects effectively while managing the litigation costs at a proportionate level to the subject in dispute.

Indeed, it may not be a bad idea for the parties in disputes, in particular, in arbitration proceedings, to work together and agree on directions concerning sampling protocol or methodology with a view to managing the dispute in an efficient and cost effective manner.

The uncertain position on sampling and extrapolation in Hong Kong may deter parties from making voluminous claims of defects or variations because of the sheer costs involved to adduce evidence. It is hoped that the Hong Kong court will provide a helpful clarification on in the future when faced with relevant facts.