What is the measure of a contractor's liability for defective work that is left in place because removing it is impractical?
When defective work is left in place, the employer does not automatically recover the cost of putting it right. The measure is what is reasonable, tested against the loss actually suffered.
It depends on what is reasonable, not simply the cost of correction: Ruxley v Forsyth limits recovery to loss of amenity where reinstatement is out of all proportion to the benefit, the measure can be the value provided rather than the cost of cure, and whether damages rest on repair or replacement is decided on the evidence as the most reasonable solution
It depends on what is reasonable, not simply on the cost of putting the work right. Ruxley Electronics v Forsyth held that damages compensate for an established loss, so where taking down and rebuilding would be out of all proportion to the benefit, the cost of reinstatement is not recoverable and the award is limited to loss of amenity. Where defective work still has value as it stands, the measure can be the value provided rather than the cost of correction, as RJ Young v Thames Properties shows, while McLaren Murdock v Abercromby allowed the cost of replacing a heating system because it was not disproportionate to the benefit. Whether damages are measured by repair or replacement is decided on the evidence as the most reasonable solution, the approach in the Great Ormond Street case and in McGlinn v Waltham Contractors and Linklaters v Robert McAlpine. Where the defect is left in place, the forms provide for an appropriate deduction, such as JCT 2011 clause 2.38.
| Starting point | The employer can recover the cost of rectification |
| The limit | Ruxley: no reinstatement where wholly disproportionate |
| Value provided | RJ Young and McLaren Murdock: value, not always cost of cure |
| Repair or replace | Decided on the evidence as the most reasonable solution |
| Left in place | Use the contractual deduction, such as JCT 2011 clause 2.38 |
The problem
Most standard forms give the architect or engineer power to instruct the contractor to take down and remove work that does not comply with the contract, and that power runs on into the defects period. Sometimes work is defective but taking it down is not practical. JCT 2011, clause 2.38, meets that case by allowing an appropriate deduction for defects, shrinkages or other faults that are not required to be made good. The harder question is how much the employer can recover where the work is left in place: the cost of putting it right, or something less.
The measure of damages
The measure of damages was settled at the highest level.
A swimming pool was built shallower than the contract specified, but was safe to dive into and no less valuable for the shortfall. The employer claimed the cost of demolishing and rebuilding it to the specified depth. Their Lordships held that damages compensate for an established loss and are not a gratuitous benefit, so the reasonableness of the award is tied to the loss actually suffered. Awarding the cost of reinstatement was unreasonable where the loss did not extend to a need to reinstate: the employer had a serviceable pool and did not need a new one. Reinstatement was not the correct measure, and the award was limited to loss of amenity. In an obiter observation it was noted that, once a loss is established, what the claimant intends to do with the damages is not the court's concern; intention to reinstate bears only on the reasonableness, and so on the extent, of the loss.
Value against cost of cure
Where the work departs from the contract but has value as it stands, the measure can be the value of what was provided rather than the cost of correction.
A car park was laid with far less limestone than the contract required. The court held that a contractor who departs from the contract is still entitled to payment for the work actually carried out, unless the work was of no benefit, was entirely different, or was incomplete. Damages were measured on the value of the car park as laid, not the cost of putting it right.
On a defective heating system, the court applied the principle that the innocent party is generally to be placed in as good a financial position as if the breach had not occurred, and is entitled to the cost of remedial work unless that cost is disproportionate to the benefit gained. The cost of replacing the heating system was held not to be disproportionate, so it was recoverable.
Repair against replacement
Whether damages for defective work are measured by repair or by replacement is decided on the evidence, as whatever course is the most reasonable on the facts.
Known as the Great Ormond Street case, and followed in McGlinn v Waltham Contractors (2007) and Linklaters Business Services v Robert McAlpine (2010), it holds that a party carrying out repair or reinstatement must act reasonably. That party recovers the cost the defendant ought reasonably to have foreseen it would incur, not unreasonable expenditure, and reasonable cost is not the minimum that hindsight might show would have sufficed. Where the nature of the repair means the claimant can only proceed on expert advice, the defendant should foresee that such advice would be taken and acted on.
Practical steps
Start from the position that the employer can recover the cost of rectifying defective work.
Test that cost for reasonableness: reinstatement is not recoverable where it is out of all proportion to the benefit, as in Ruxley v Forsyth.
Where the work has value as it stands, consider the value provided rather than the cost of correction.
On repair against replacement, marshal the expert evidence; the court will decide the most reasonable solution on the facts.
Where the defect is left in place, use the contractual deduction, such as JCT 2011 clause 2.38, rather than assuming a full reinstatement claim.
Authorities
| Authority | Citation | What it decides |
|---|---|---|
| Ruxley Electronics and Construction Ltd v Forsyth | [1995] 3 All ER 268 | Damages compensate for an established loss; where reinstatement is out of all proportion to the benefit it is not the correct measure, and the award may be limited to loss of amenity |
| RJ Young v Thames Properties | (1999) | A contractor departing from the contract is still entitled to payment for the work actually done, unless it was of no benefit, entirely different or incomplete; the measure was the value provided, not the cost of correction |
| McLaren Murdock and Hamilton v The Abercromby Motor Group | (2002) | The innocent party recovers the cost of remedial work unless it is disproportionate to the benefit; replacing the defective heating system was not disproportionate and was recoverable |
| Board of Governors of the Hospitals for Sick Children v McLaughlin and Harvey | (1987) | The Great Ormond Street case: a party carrying out repair or reinstatement must act reasonably and recovers the reasonably foreseeable cost, not unreasonable expenditure; followed in McGlinn v Waltham Contractors (2007) and Linklaters v Robert McAlpine (2010) |