Measure of Damages    © Daniel Atkinson 1999

See also Measure of Damages for Defects    and  Breach of Contract

The two most important questions before starting legal proceedings in construction are usually first "how much am I likely to recover?" and second "has the defaulting party sufficient funds to satisfy any award or judgment?". The answer to these questions will determine the legal strategy adopted for recovery. It is often forgotten that there are alternative methods of evaluating loss for breach of contract and which applies may make a considerable difference to the amount awarded as damages.

The general principle is that the measure of damages for breach of contract is intended to place the injured party in the same situation, as far as money can do it, as if the contract had been performed Robinson -v- Harman(1848)1Ex850. If, for instance, the sub-contractor does not complete his part of the development, then the measure of damages in this case will be the cost of completing the project in a reasonable manner less the contract price Mertens -v- Home Freeholds Co (1921) CA. The overriding requirement is that actual loss should have occurred. Damages are based on the loss incurred by the injured party, and are not based on the gain by the party in breach Surrey CC -v- Bredero Homes Ltd (1992) 3AllER 302.

If there has been a total failure of consideration the injured part can make a claim in restitution. So for instance if the sub-contractor has not performed at all, the contractor can claim for the return of monies paid. If the sub-contractor has been overpaid and has failed to complete, the contractor can recover the overpayment even if he has managed to have the work completed without in fact incurring any loss despite the overpayment D O Ferguson Associates -v- Sohl (1992)62BLR 95.

Defective construction work is a particular type of breach of contract and can be described as work which fails to comply with the express descriptions or requirements of the contract, including any drawings or specifications, together with any implied terms as to its quality, workmanship, performance or design.

The normal measure of damages for defective work is the cost of reinstatement taken at the time when the defect was discovered East Ham Corporation -v- Bernard Sunley (1966)3A11ER619. 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, it all depends upon the circumstances of the case William Cory & Son Ltd -v- Wingate Investment (London Colney) Ltd (1980) 17 BLR 104 CA.

In some cases the measure of damages for defective work may instead be the reduction in market value of the development. This will be the case when it is unreasonable to award damages based on the cost of putting right the defects. This is particularly so when the value of remedial works is out of proportion to the value of the development and only affects the "amenity value" of the development G W Atkins Ltd -v- Scott (1980)46ConLR14. It is this last principle which is often forgotten. Two recent decisions emphasise that it may apply in construction disputes.

In Ruxley Electonics and Construction Limited -v- Forsyth (1993)3WLR118 Mr Forsyth engaged the Plaintiff to build a swimming pool stating the depth at one end as 7'6" but instead it was built to a maximum depth of 6'9". Because the pool as constructed was perfectly safe to dive into the House of Lords considered it would be unreasonable to award damages based on rebuilding the pool. This would be out of all proportion to any benefit Mr Forsyth would enjoy if the pool was rebuilt. He was instead awarded £4,000 for loss of amenity. It was held that Mr Forsyth could not be allowed to create a loss, which did not exist, in order to punish the Plaintiffs for their breach of contract. The basic rule of damages was that they were compensatory not punitive.

In R J Young v Thames Properties Ltd (1999)5BLISS10 the Plaintiff contracted to resurface a car park for a lump sum price. The work was not in accordance with the contract, but was a perfectly usable car park. Comparing what had been done against what had been contracted for the judge at first instance found that there had been substantial performance. The Court of Appeal held that this was the appropriate objective test. As to the measure of damages, the Court of Appeal held that it was correct in principle to deduct an amount reflecting the difference in value of the car park as built and as contracted for, rather than a sum based on putting right the car park to contract specification.