Measure of Damages.

© Daniel Atkinson 2007 29 April 2007

In Ian McGlinn v Waltham Contractors Ltd [2007] EWHC149(TCC) , His Honour Judge Peter Coulson dealt with a wide range of legal issues. The matter of the the Architect's duties of inspection was examined in a previous article Architects Duty of Inspection. Coulson J also examined the measure of damages for defective properties.

The particular building project related to a luxury house called "Maison d'Or" that was built for  the multi-millionaire Mr Ian McGlinn in Jersey between January 1999 and December 2001. It sat empty for the next 3 years whilst the alleged deficiencies in its design and construction were investigated by a team of experts and contractors. In 2005 it was completely demolished and not rebuilt. McGlinn's primary case was a claim for damages of £3,649,481.34.

McGlinn's case was that Maison d'Or was so badly designed, and so badly built, that he was entitled to demolish it and start again. He claimed damages for breach of contract/negligence against the building contractors, Waltham; the architects, Huw Thomas Associates ("HTA"); the structural, mechanical and electrical engineers, the quantity surveyors and so-called Project Managers.

The main point in relation to the measure of damages was whether an employer could simply show that he relied on the advice of an expert on the repair work to be carried out, in order to succeed in his claim. in this case the chosen method of repair was to demolish and rebuild rather than to carry out repair of individual defects.  A further complication was that different alleged defects were claimed to be the responsibility of different defendants.

Coulson J usefully provided a summary of the relevant law.  

General Principles of Quantum

Traditionally damages were based on the diminution in the value of the property itself, but more recently the appropriate measure of loss has usually been taken to be the cost of reinstatement/repair because that was the foreseeable consequence of the defective work: East Ham BC v Bernard Sunley & Sons Ltd [1966] AC 406, Hollebone v Midhurst and Fernhurst Builders Ltd [1968] 1 Lloyds Rep 38; Harbutts Plasticine Ltd v Wayne Tank & Pump Co Ltd [1970] 1 All ER 225 and Darlington Borough Council v Wiltshier Northern Ltd [1995] 1 WLR 68 at 79.

If the claimant only has a limited interest in the property, or if he could obtain a satisfactory replacement for the property by buying elsewhere, then it would not be foreseeable that he would carry out repair/reinstatement, and his loss would be accurately assessed by reference to the diminution in the value of the land or the cost of purchasing a replacement. The cost of reinstatement/repair will not be used as the measure of loss if such cost is disproportionate to the end to be attained Ruxley Electronics v Forsyth [1996] AC 344 HL.

Reasonableness

Reasonable costs did not mean the minimum amount which with hindsight would have sufficed. When the nature of the repairs is such that the employer can only make them with the assistance of expert advice, the defendant should have foreseen that he would take such advice and be influenced by it The Board of Governors of the Hospitals for Sick Children & Anor v McLaughlin & Harvey Plc and Ors 19 Con LR 25 referred to as the Great Ormond Street case.

Reasonableness is part of the primary assessment of damages as well as of mitigation of damage Southampton Container Terminals Ltd v Schiffahrisgesellsch "Hansa Australia" MGH & Co (The MV "Maersk Colombo") [2001] EWCA Civ 717.

Mitigation of Damages

If there are two equally effective alternative remedial schemes, and one is cheaper than the other, then prima facie the employer is obliged to put in hand the cheaper of the two schemes. If the employer is incurring loss because he cannot use his property, his duty to mitigate may require him to repair it as quickly as possible, even if earlier repairs would cost more than later repairs would. The duty to mitigate may require the plaintiff to have regard to advice from third parties, or even from the defendant, or from the defendant's advisers Great Ormond Street.

Prima facie, the employer is entitled to the cost of the work carried out pursuant to the expert advice, even if, with hindsight, criticism could be made of the scheme that was put in hand. An expert's negligent advice would form an independent cause of damage which breaks the chain of causation. The defendant could not reasonably have foreseen that the employer would act on negligent advice. Advice which was not negligent would not by itself break the chain Great Ormond Street.

Simple reliance by an employer on an expert is not the test as to whether an employer had acted reasonably in making an assumption. Provided the employer had provided the expert with all material facts and the expert has made all reasonable investigations, the advice would be a highly significant factor Skandia Property UK Ltd v Thames Water Utilities Ltd [1999] BLR 338.

Rebuild/Repair or Diminution in Value

Coulson J considered that a claim for costs of demolition and rebuilding, and a claim for the costs of repair were no different in principle since they were both both reinstatement claims. The difference between the demolition/rebuilding option and the repairing option was simply a matter of degree.

Coulson J considered that the case before him was one in which the correct measure of loss was reinstatement.  The critical issue was whether those reinstatement costs should be calculated by reference to the costs of demolition/ rebuilding or the costs of individual repair (the Defendants' case).

Rebuild or Individual Repair

Coulson J considered that unlike the situation in Great Ormond Street the remedial works were not carried out only because of the existence of defects. In Great Ormond Street the engineer's modifications to the piling design of the new wing of the hospital were negligent and resulted in the construction of inadequate foundations. Both sides agreed that remedial work was necessary as a result of that default; the real issue was whether the Defendant could criticise the particular remedial scheme that had been carried out on expert advice. In the instant case there were a number of significant factors lying behind the decision to demolish which were not directly connected to the breaches of contract on the part of the Defendants.

The defects at Maison d'Or affected all of the main elements of the house but were were unconnected with the structural soundness of the building itself.  There was no part of Maison d'Or which could have been described as structurally unsound, or dangerous, which affected any of the three Defendants. Coulson J observed that it was an extreme course to knock down a newly completed building because it was said to be defective, particularly where the majority of the defects were aesthetic matters only. Coulson J found that Maison d'Or was demolished because of ordinary building defects, many of which were entirely explicable on the simple basis that the building was not finished.

Accordingly Coulson j held that the appropriate measure of loss was the cost of the repair work necessitated by the individual items, distinguishing Great Ormond Street.

Multiple Defendants

Coulson J then approached the issue on the basis that he was wrong to distinguish Great Ormond Street on the facts.  He considered that the principle in Great Ormond Street was that if two remedial schemes were proposed to rectify a defect which was the result of a defendant's default, and one scheme was put in hand on expert advice, the defendant was liable for the costs of that built scheme, unless it could be said that the expert advice was negligent. Coulson J considered that the principle was subject to the qualification in Skandia that reliance on an expert was not enough on its own in every case to prove that the Employer had acted reasonably.

Coulson J decided that Great Ormond Street was not authority for the proposition that a defendant was liable for a proportion of the demolition and rebuild costs regardless of the defects his responsibility.  Coulson J noted that taken to its logical conclusion the wide proposition would render a defendant liable for a proportion of the costs of demolition and rebuilding where the defendant was liable for only one of all the defects which cumulatively gave rise to the advice to demolish and rebuild. Such a situation would simply not be foreseeable. Coulson J considered that the defendant's one default had not caused the demolition and rebuilding, so that could not be the appropriate measure of loss.

In the instant case, Coulson decided that even if Mr McGlinn had acted reasonably in deciding to demolish the house, because of the advice he received as to the cumulative effect of all the defects, he could not recover the costs of demolition as damages against a particular Defendant in circumstances where only a handful of those defects are the responsibility of that Defendant.

Conclusions

The measure of damages is based on reasonableness. Blind reliance on expert advice is not sufficient to validate a particular course of action, although persuasive evidence.  There are difficulties in predicting the most appropriate approach to remedial actions, particularly where there are many defects having a cumulative effect.  Before contemplating demolition a prudent employer needs to consider fully worked out schemes for each option and if possible involve the defendants in the decision.  If there is no intention of immediately rebuilding then if safety requirements permits, the demolition should be postponed.  Any remedial works needs to be carried out promptly, unless cost analysis shows to the contrary, since the measure of damages will usually be fixed at prices when the remedial works should have been carried out, not at the date of judgment.