Measure of Damages for Defects    © Daniel Atkinson 1999

See also Measure of Damages and Breach of Contract

Defects are a constant problem on construction projects. Standard forms normally provided for the contractor to remedy the defects at his own costs during both the construction and the defects liability period. The question which arises is whether these provisions supplant the Employer's right to damages at Common Law.

Two cases provide an answer. Both cases involved contracts on the JCT Minor Works form. Clause 2.5 of the form requires the contractor at his own cost to make good defects due to materials and workmanship not in accordance with the contract, which appear within the defects liability period.

In William Tonkinson & Sons Limited -v- the Porochial Church Council of St. Michael and Others (1990), Construction Law Journal Volume 6 No 4 the defects arose in the construction period and the contractor was given notice of them before Practical Completion. The Architect did not however require the contractor to remedy the defects prior to practical completion, but instead the Employer gave instructions to other contractors to remedy the defects, which were completed before Practical Completion.

It was held that the Employer was entitled to recover damages for the defective work as it was still a breach of contract, despite occurring during the construction period. Clause 2.5 provides an additional remedy for the Employer ie the right to require the contractor to make good the defects, and not releasing the contractor from his ordinary liability to pay damages for defective work. The amount of damages which the Employer would be entitled to recover however, is not his outlay in remedying the damage, but the cost which the Contractors would have incurred in remedying it if they had been required to do so; the sum is anticipated to be much less than the actual remedial costs.

In Pearce & High Limited v Baxter (1999) Court of Appeal defects had become apparent before the end of the defects liability period, but these were not notified to the contractor. It was accepted that the contractor's obligation under Clause 2.5 to remedy defects cannot be enforced unless a contractor has notice of the defects. Subject to the contract terms the defect is still a breach contract with a right to recover damages. Such a right cannot be excluded except by clear, express words or by a clear and strong implication from the express words used.

It was held that the Employer's failure to comply with Clause 2.5, whether by refusing to allow the contractor to carry out the repairs or by failing to give notice of the defects, limits the amount of damages which he is entitled to recover. As a matter of legal analysis this is explained in terms of either set-off or mitigation. The first analysis permits the contractor to set-off against the Employer's damages claim the amount by which he, the contractor, has been disadvantaged by not being able or permitted to carry out the repairs himself. The second analysis refers to the requirement for the Employer to mitigate the loss for which is entitled to recover damages.

The measure of damages was therefore the cost of repairs by the contractor as if he had remedied the defects himself on the assumption that this is lower than the cost of repair by a third party. The absence of notice of the defect does raise the possibility that the measure of damages in some circumstances may only be the diminution of the value of the property by reason of the defect, if the measure based on the cost of repair is unreasonable. The decision was not concerned with this aspect however and left the question open.