Measure of Repair Damages and Mitigation
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KEYWORDS: |
Breach of contract, damages, measure of damages, cost, repair, reinstatement, mitigation, general damages, Coulson J. |
Construction work which has not been carried out in accordance with the specification or the standard required by the contract constitutes a breach of contract . The prima face measure of damages is the cost of repair rather than reduction in market value of the property or loss of amenity subject only to the carrying out of repairs being a reasonable course to adopt Ruxley Electonics and Construction Ltd v Forsyth [1995] HL 73BLR1. The principle is that the cost of repair must not be significantly disproportionate to the benefit that is obtained from it. In Birse Construction Ltd v Eastern Telegraph Company Ltd [2004] EWHC 2512 (TCC) Judge Humphrey Lloyd QC considered that it must be reasonable to apply the measure of damages as the cost of reinstatement.
The cost of reinstatement is taken at the time when the defect was discovered East Ham Corporation v Bernard Sunley [1966]. The claimant will not necessarily lose his entitlement to damages if he waits for the outcome of the case before carrying out the remedial works, but that depends upon the circumstances of the case William Cory & Son Ltd v Wingate Investment (London Colney) Ltd [1980] 17BLR104 CA.
Inevitably in construction disputes there will be competing remedial schemes recommended by experts which will not have been fully detailed out. In order to decide which scheme for treatment of the defect should be the basis of the measure of damages it will be necessary to consider the effectiveness of the scheme on the balance of probabilities in all the circumstances including
If one scheme is not more detrimental to the appearance of the buildings and is effective on the basis above, it must be preferred if it is the cheaper solution HH Judge Hicks in George Fischer (Holdings) Ltd. -v- Multi-Design Consultants Ltd. [1998] 61 ConLR 85.
The decision by Judge Coulson in Iggleden v Fairview New Homes (Shooters Hill) Ltd [2007] EWHC 1573 (TCC) is useful guidance on the application of the above principles.
The case was a relatively modest building defects dispute where the maximum sum claimed did not exceed £100,000. Mrs. and Mrs. Iggleden bought a new house from Fairview in December 2001. Clause 5 of the contract provided that the house would be built in good and workmanlike manner. A range of defects manifested themselves during 2002.
There did not appear to be any issue as to liability, but considerable time past in which there were arguments as to the scheme to be adopted. Iggledens' experts were ready for trial in October 2003, but no remedial works were carried out and the proceedings themselves were not commenced for a further three years, in the late summer of 2006. Despite the passage of time the proceedings started without there having been a without prejudice meeting between the parties.
Fairview made allegations of unreasonable conduct, delay and failure to mitigate by Iggleden and these matters had to be considered by Judge Coulson in deciding the measure of damages and whether to award damages at all.
The practical approach taken by Coulson J can be seen in relation to three defects
In the case of defects in driveway and garage, Coulson J adopted Iggledens' scheme of re-laying of the surface which rectified the defect of ponding as the measure of damages. The alternative scheme required changing the design of the falls, but the design fall of the driveway did not itself constitute a breach of contract. There was therefore no justification for re-building the driveway to a different design fall. He considered that the Iggledens' scheme was a better solution. Even if the two schemes were roughly equivalent from a technical point of view, then adopting the approach of Judge Hicks in George Fischer, Coulson J would have awarded damages on the basis of the Iggledens' scheme because it is cheaper, but would achieve the same remedial result.
In the case of the kitchen island unit, which was out of level and needed rectifying, Coulson found that the cause of the problem with the island unit - namely, the slope of the floor beneath - should be remedied. The appropriate action was to level the floor in the kitchen. The problem with the island unit was simply a symptom of an underlying problem, and it was that underlying problem that needed to be rectified if the breach of contract was to be properly remedied. If the defective floor itself was not rectified, the solution could not help but be some sort of "bodge-up", as Iggledens' expert put it, which made no attempt to deal with the real defect.
Couldon J recognised that the island unit in the kitchen was an important feature of that room because it divided up the space between the kitchen area and the dining area. In those circumstances he considered that, because the floor in that important area is so severely out of tolerance it would be wholly unsatisfactory and inadequate if that problem was not resolved. It can only sensibly be resolved by levelling the entire floor of the kitchen.
Fairway argued that if the whole of the kitchen floor was re-laid, that would be an excessive solution in accordance with the principle in Ruxley. Coulson J did not accept that. Just as the debate on the garage and driveway came down to a debate between two competing remedial schemes, so the argument about the kitchen also was a debate about two competing remedial schemes.
In the case of the Bathroom Floor, there was nothing to indicate that the bathroom floor, which itself was within tolerance, needed to be the subject of any remedial work at all. Also the cost of levelling the bathroom floor on the first floor was in excess of £8,0002 as compared to £4,123.07 for re-levelling both the front and the rear rooms on the same floor. The explanation was the large amount of stripping out and replacement that would be involved with the bathroom and its associated fittings, tiling, and the like. Coulson J considered that the figure was excessive and unreasonable in all the circumstances. In those circumstances the principles in both Ruxley and Fischer became relevant. Coulson J held that it would be wrong and unjust to make an order against Fairview in respect of the bathroom floor.
Fairview argued that Iggleden had acted unreasonably and that it had failed to mitigate their loss. Fairview submitted that no sums calculated by reference to the cost of remedial work ought to be recovered by Iggleden by way of damages. Fairview argued that the unreasonableness arose out of both Iggeldon's refusal to accept various offers and in not allowing Fairview to carry out the remedial works.
Coulson J considered the development of the case and his decision gives useful guidance to those involved in such cases. The thread that runs through the decision is that parties should adopt a reasonable and pragmatic approach to the practical issue of the remedial works scheme.
Accordingly, although Coulson J did not consider that Iggleden had acted unreasonably in not accepting the August 2003 offer, they did act unreasonably in not bringing matters to a head at this time, and, if they did not accept Fairview's offer, or any improved offer, failing to carry out their own remedial works. Iggleden was to be roundly criticised for failure to adopt their own proactive course of action, their failure to accept anything less than the full scope of the works which they wanted to have carried out and, in particular, their lengthy periods of silence and inactivity. In the round it was Fairview which was always seeking to resolve the matter and Iggleden who were always rebuffing their efforts.
Fairview submitted that it should be allowed to carry out all remedial works ordered by the court as it offered and that it was unreasonable for the Claimants to have rejected, and to continue to reject, that offer.
Coulson observed that certain standard forms of construction and engineering contracts gave the contractor the right to return to carry out certain types of remedial work. there was no such contractual right in the instant case. The only issue was whether Iggleden failed to mitigate their loss by refusing to allow Fairview to carry out the works.
Coulson observed that there were a number of cases where it has been held that the claiming party has not mitigated his loss because he unreasonably refused to prevent the contractor to complete and/or rectify items of outstanding work. An example was the conclusion of His Honour Judge Toulmin, Q.C. in City Access Ltd. -v- Daniel P. Jackson [1998] 64 CommLR84 at p.113. Coulson J noted that in City Access the work which was unreasonably refused was snagging work, rather then large-scale remedial works involving the decanting of the occupiers. The leading case on nonrecoverable mitigable loss in the contractual context was Payzu Ltd. -v- Saunders [1919] 2KB 581 the leading case in which Lord Justice Bankes observed that there would always be cases where as a matter of fact it would be unreasonable to expect a Plaintiff to consider any offer made in view of the treatment he has received from the Defendants. Coulson considered that the issue in the instant case turned on whether it was reasonable for Iggleden now to say that in the light of the past events they did not want Fairview to come back to the property to undertake any work at all.
Coulson J observed that the outstanding works were more than mere snagging and arose out of Fairview's failure to build the property properly in the first place, compounded by Fairview's unwillingness to do the full scale of works necessary. He held that on all the evidence it was not unreasonable for Iggleden to say that they did not want Fairview to return to the property to undertake any further work.
Coulson considered that it would take a relatively extreme set of facts to deny a homeowner financial compensation for admitted defects, and leave him with no option but to employ the self-same contractor to carry out the necessary rectification works.
Coulson J rejected Fairview's application for a declaration that Iggleden' refusal was unreasonable, so that accordingly Iggleden was entitled to financial damages in respect of the costs of the remedial works. Significantly Coulson J reserved the position on costs since the conduct of the parties was also relevant to that issue.
Nonetheless Coulson J held that it was not reasonable that such works were being carried out four years after the bulk of those works would, but for Iggleden' intervention, have been carried out free of charge by the Defendant and therefore Iggleden had failed to mitigate their loss as a result of those delays. The remedial works should have been completed by the end of 2004. This was reflected in the calculation of loss and interest.
The final issue was the claim for general damages.
In Eiles v London Borough of Southwark [2006] EWHC1411 Ramsey J gave a summary of the law in this area. The approach of the courts to general damages for vexation, distress and worry is to provide compensation which is not excessive, but modest and which may not be very substantial per Lord Denning MR and Oliver LJ in Perry v. Sidney Phillips [1982] 1 WLR 1297. In Watts v. Morrow [1991] 1 WLR 1421 Bingham LJ said that general damages were recoverable but were limited, generally, to damages for physical inconvenience and discomfort and mental suffering directly related to that.
Coulson J examined the amounts awarded in recent cases and observed that they were modest, ranging from the £500 awarded by His Honour Judge Newey, Q.C. in Fryer -v- Bunney [1982] 263 EG 158, to the £1,250 awarded by His Honour Judge Davis, Q.C. in James McKinnon -v- County Metropolitan Developments [1985] CILL 225. The figure in a more recent case - Bayoumi -v- Protim Services Ltd. [1966] 30 HLR 785 - was £1,500 per year. In the most up-to-date decision of Mr. Justice Ramsey in Eiles -v- London Borough of Southwark [2006] EWHC 1411, TCC he allowed £1,000 for a total of five years of living with the problems, and an additional £1,250 for a period of two years of investigations and remedial works. That made a total award of general damages of £2,250.
Coulson J awarded £750 by way of general damages to each of the claimants for each of the three years. That gave an amount of £2,250 for each claimant and a total by way of general damages of £4,500.