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You are here: BAILII >> Databases >> United Kingdom House of Lords Decisions >> Ruxley Electronics & Construction Ltd v Forsyth [1995] UKHL 8 (29 June 1995)
URL: http://www.bailii.org/uk/cases/UKHL/1995/8.html
Cite as: [1995] 3 WLR 118, [1995] 3 All ER 268, [1996] AC 344, [1995] CLC 905, [1995] UKHL 8

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JISCBAILII_CASE_CONTRACT

    Parliamentary Archives,
    HL/PO/JU/18/255

    Ruxley Electronics and Construction Limited (Appellants)
    v. Forsyth (Respondent) and one other action


    JUDGMENT

    Die Jovis 29° Junii 1995

    Upon Report from the Appellate Committee to whom was
    referred the Cause Ruxley Electronics and Construction Limited
    against Forsyth and one other action, That the Committee had
    heard Counsel as well on Monday the 27th as on Tuesday the 28th
    and Thursday the 30th days of March last upon the Petition and
    Appeal of Ruxley Electronics and Construction Limited, care of
    Lanes End House, 15 Prince Albert Street, Brighton BN1, praying
    that the matter of the Order set forth in the Schedule thereto,
    namely an Order of Her Majesty's Court of Appeal of the 16th day
    of December 1993, might be reviewed before Her Majesty the Queen
    in Her Court of Parliament and that the said Order might be
    reversed, varied or altered or that the Petitioners might have
    such other relief in the premises as to Her Majesty the Queen in
    Her Court of Parliament might seem meet; as upon the case of
    Stephen Forsyth lodged in answer to the said Appeal; and due
    consideration had this day of what was offered on either side in
    this Cause:

    It is Ordered and Adjudged, by the Lords Spiritual and
    Temporal in the Court of Parliament of Her Majesty the Queen
    assembled, That the said Order of Her Majesty's Court of Appeal
    of the 16th day of December 1993 complained of in the said Appeal
    be, and the same is hereby, Set Aside and that the Order of His
    Honour Judge Diamond Q.C. of the 13th day of July 1993 be, and
    the same is hereby, Restored: And it is further Ordered. That
    the Respondent do pay or cause to be paid to the said Appellants
    the Costs incurred by them in the Court of Appeal and in respect
    of the said Appeal to this House, the amount of such last-
    mentioned costs to be certified by the Clerk of the Parliaments
    if not agreed between the parties: And it is also further
    Ordered, That the Cause be, and the same is hereby, remitted back
    to the Central London County Court to do therein as shall be just
    and consistent with this Judgment.

    Cler: Parliamentor:

    HOUSE OF LORDS

    OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT

    IN THE CAUSE


    Ruxley Electronics and Construction Limited
    (Appellants)

    v.

    Forsyth
    (Respondent)


    ON 29 JUNE 1995


    Lord Keith of Kinkel
    Lord Bridge of Harwich
    Lord Jauncey of Tullichettle
    Lord Mustill
    Lord Lloyd of Berwick


    LORD KEITH OF KINKEL

    My Lords.

    I have had the advantage of reading in draft the speeches to be
    delivered by my noble and learned friends Lord Jauncey of Tullichettle, Lord
    Mustill and Lord Lloyd of Berwick. I agree with them and for the reasons
    they give would allow this appeal.

    LORD BRIDGE OF HARWICH

    My Lords.

    Damages for breach of contract must reflect, as accurately as the
    circumstances allow, the loss which the claimant has sustained because he did
    not get what he bargained for. There is no question of punishing the contract
    breaker. Given this basic principle, the court, in assessing the measure of the
    claimant's loss has ultimately to determine a question of fact, although the law
    has of course developed detailed criteria which are to be applied in
    ascertaining the appropriate measure of loss in a wide variety of commonly
    occurring situations. Since the law relating to damages for breach of contract
    has developed almost exclusively in a commercial context, these criteria
    normally proceed on the assumption that each contracting party's interest in
    the bargain was purely commercial and that the loss resulting from a breach
    of contract is measurable in purely economic terms. But this assumption may
    not always be appropriate.

    - 1 -

    The circumstances giving rise to the present appeal exemplify a
    situation which one might suppose to be of not infrequent occurrence. A
    landowner contracts for building works to be executed on his land. When the
    work is complete it serves the practical purpose for which it was required
    perfectly satisfactorily. But in some minor respect the finished work falls
    short of the contract specification. The difference in commercial value
    between the work as built and the work as specified is nil. But the owner can
    honestly say: "This work does not please me as well as would that for which
    I expressly stipulated. It does not satisfy my personal preference. In terms
    of amenity, convenience or aesthetic satisfaction I have lost something."
    Nevertheless the contractual defect could only be remedied by demolishing the
    work and starting again from scratch. The cost of doing this would be so
    great in proportion to any benefit it would confer on the owner that no
    reasonable owner would think of incurring it. What is the measure of the loss
    which the owner has sustained in these circumstances? If there is no clear
    English authority which answers this question, I suspect this may be because
    parties to this kind of dispute normally have the good sense to settle rather
    than to litigate.

    The cogent argument of Mr. Jacob, for the respondent, reduced to its
    hare essentials, can. I think, be summarised in three propositions.

    1. The judges' award of £2,500 damages to the respondent for
      'loss of amenity" demonstrates that the respondent suffered a
      real loss for which he is entitled to be compensated.

    2. In a building contract case there is no admissible head of
      damages capable of assessment by reference to such concepts
      as loss of amenity, inconvenience or loss of aesthetic
      satisfaction. These are imponderables which the court can only
      evaluate by plucking figures out of the air. If a possible head
      of damage of this nature were to be admitted in building
      contract cases, this would introduce chaotic uncertainty into the
      law and undermine clear and well settled principles.

    3. By these well settled principles damages in a building contract
      case can only be assessed by reference to diminution in value
      or cost of reinstatement. There being here no diminution in
      value, the only available measure of damages to compensate the
      respondent for his real loss is the cost of reinstatement.

    Attractive as was Mr. Jacob's development of this argument, it seems
    to me to suffer from an inherent logical flaw in that it leads from the premise
    that a loss has been suffered which is incapable of economic measurement to
    the conclusion that it must be compensated by reference to a measure of
    economic loss, sc. the cost of reinstatement, which has not been and will not
    be incurred.

    - 2 -

    It is no doubt correct that, in the absence of any cross-appeal against
    the judge's award, the propriety of that award is strictly not in issue. But
    since the attack on the principle of the award was central to Mr. Jacob's
    argument. I think the issue is one which we may properly address and I agree
    with my noble and learned friend Lord Mustill in the reasons he gives for
    concluding that there is no reason in principle why the court should not have
    power to award damages of the kind in question and indeed that in some
    circumstances such power may be essential to enable the court to do justice.

    But, quite independently of these conclusions, to hold in a case such
    as this that the measure of the building owner's loss is the cost of
    reinstatement, however unreasonable it would be to incur that cost seems to
    me to fly in the face of common sense.

    My Lords, since the populist image of the geriatric judge, out of touch
    with the real world, is now reflected in the statutory presumption of judicial
    incompetence at the age of 75, this is the last time I shall speak judicially in
    your Lordships' House. I am happy that the occasion is one when I can agree
    with your Lordships still in the prime of judicial life who demonstrate so
    convincingly that common sense and the common law here go hand in hand.
    For the reasons given in the speeches of my noble and learned friends Lord
    Lloyd of Berwick, Lord Jauncey of Tullichettle and Lord Mustill. I too would
    allow the appeal and restore the judgment of Judge Diamond Q.C.

    LORD JAUNCEY OF TULLICHETTLE

    My Lords,

    The respondent entered into a contract with the appellants for the
    construction by them of a swimming pool at his house in Kent. The contract
    provided for the pool having a maximum depth of 7' 6" but. as built, its
    maximum depth was only 6ft. The respondents sought to recover as damages
    for breach of contract the cost of demolition of the existing pool and
    construction of a new one of the required depth. The trial judge made the
    following findings which are relevant to this appeal:

    (1) the pool as constructed was perfectly safe to dive into: (2) there
    was no evidence that the shortfall in depth had decreased the value of the
    pool; (3) the only practicable method of achieving a pool of the required depth
    would be to demolish the existing pool and reconstruct a new one at a cost of
    £21,560; (4) he was not satisfied that the respondent intended to build a new
    pool at such a cost; (5) in addition such cost would be wholly disproportionate
    to the disadvantage of having a pool of a depth of only 6ft as opposed to 7'
    6" and it would therefore be unreasonable to carry out the works: and (6) that

    - 3 -

    the respondent was entitled to damages for loss of amenity in the sum of
    £2,500.

    The Court of Appeal by a majority (Staughton and Mann L.J.. Dillon
    L.J. dissenting) allowed the appeal holding that the only way in which the
    respondent could achieve his contractual objective was by reconstructing the
    pool at a cost of £21,560 which was accordingly a reasonable venture.

    The general principles applicable to the measure of damages for breach
    of contract are not in doubt. In a very well known passage Parke B. in
    Robinson v. Harman 1 Exch. (1848) 850, 855 said:

    "The next question is: what damages is the plaintiff entitled to
    recover? The rule of the common law is, that where a party sustains
    a loss by reason of a breach of contract, he is, so far as money can do
    it, to be placed in the same situation with respect to damages, as if the
    contract had been performed."

    In British Westinghouse Electric and Manufacturing Co. Ltd. v. Underground
    Electric Railways Co. of London Ltd.
    [1912] A.C. 673. Viscount Haldane
    L.C. said, at pp. 688-689:

    "The quantum of damage is a question of fact, and the only guidance
    the law can give is to lay down general principles which afford at
    times but scanty assistance in dealing with particular cases

    . . .

    Subject to these observations I think that there are certain broad
    principles which are quite well settled. The first is that, as far as
    possible, he who has proved a breach of a bargain to supply what he
    contracted to get is to be placed, as far as money can do it, in as good
    a situation as if the contract had been performed.

    The fundamental basis is thus compensation for pecuniary loss
    naturally flowing from the breach; but this first principle is qualified
    by a second, which imposes on a plaintiff the duty of taking all
    reasonable steps to mitigate the loss consequent on the breach."

    More recently in what is generally accepted as the leading authority on
    the measure of damages for defective building work, Lord Cohen in East Ham
    Corporation v. Bernard Sunley and Sons Ltd.
    [1966] A.C. 406 said, at pp.
    434D-435A:

    "... the learned editors of Hudson's Building and Engineering
    Contracts,
    8th ed. (1959) say at p. 319 that there are in fact three
    possible bases of assessing damages, namely, (a) the cost of
    reinstatement; (b) the difference in cost to the builder of the actual

    - 4 -

    work done and work specified: or (c) the diminution in value of the
    work due to the breach of contract. They go on:

    'There is no doubt that wherever it is reasonable for the
    employer to insist upon reinstatement the courts will treat the cost of
    reinstatement as the measure of damage.'

    In the present case it could not be disputed that it was reasonable for
    the appellants to insist upon reinstatement and in these circumstances
    it necessarily follows that on the question of damage the trial judge
    arrived at the right conclusion."

    Lord Upjohn, at p. 445A, likewise stated that in a case of defective
    building work reinstatement was the normal measure of damages.


    Mr. McGuire for the appellants argued that the cost of reinstatement

    was only allowable where (1) the employer intended as a matter of probability
    to rebuild if damages were awarded, and (2) that it was reasonable as between
    him and the contractor so to do. Since the judge had found against the
    respondent on both these matters the appeal should be allowed. Mr. Jacob on
    the other hand maintained that reasonableness only arose at the stage when a
    real loss had been established to exist and that where that loss could only be
    met by damages assessed on one basis there was no room for consideration of
    reasonableness. Such was the case where a particular personal preference was
    part of the contractual objective - a situation which did not allow damages to
    be assessed on a diminution of value basis.

    I start with the question of reasonableness in the context of
    reinstatement. There is a considerable body of authority dealing with this
    matter. Lord Cohen in the passage above quoted in East Ham Corporation v.
    Bernard Sunley and Sons Ltd.
    referred to the reasonableness of insisting on
    reinstatement. In Imodco Ltd. v. Wimpey Major Projects Ltd. and Taylor
    Woodrow International Ltd. (
    1987) 40 B.L.R. 1, 19 Glidewell L.J. stated that
    the cost of work to put pipes in the position contracted for would be
    recoverable if there was an intention to carry out the work and if it was
    reasonable so to do. In Minscombe Properties Ltd. v. Sir Alfred McAlpine
    and Sons Ltd.
    [1986] 2 Const. L.J. 303, 309 O'Connor L.J. applied the test
    of reasonableness in determining whether the cost of reinstatement of land to
    its contracted for condition should be recoverable as damages. In Radford v.
    de Froberville
    [1977] 1 W.L.R. 1262 Oliver J. said, at p. 1283E:

    "In the instant case, the plaintiff says in evidence that he wishes
    to carry out the work on his own land and there are. as it seems to
    me, three questions that I have to answer. First, am I satisfied on the
    evidence that the plaintiff has a genuine and serious intention of doing
    the work? Secondly, is the carrying out of the work on his own land
    a reasonable thing for the plaintiff to do? Thirdly, does it make any

    - 5 -

    difference that the plaintiff is not personally in occupation of the land
    but desires to do the work for the benefit of his tenants?"

    In C.R Taylor (Wholesale) Ltd. v. Hepworths Ltd. [1977] 1 W.L.R. 659. 667
    May J. referred with approval to a statement in McGregor On Damages that
    in deciding between diminution in value and cost of reinstatement the
    appropriate test was the reasonableness of the plaintiff's desire to reinstate the
    property and remarked that the damages to be awarded were to be reasonable
    as between plaintiff and defendant. He concluded at p.670 that in the case
    before him to award the notional cost of reinstatement would be unreasonable
    since it would put the plaintiffs in a far better financial position then they
    would have been before the fire occurred. In McGregor On Damages
    15th ed. (1988) paras. 1091-1092. after a reference to the cost of
    reinstatement being the normal measure of damages in a case of defective
    building, it is stated:

    "If, however, the cost of remedying the defect is
    disproportionate to the end to be attained, the damages fall to be
    measured by the value of the building had it been built as required by
    the contract less its value as it stands."

    In Bellgrove v. Eldridge (1954) 90 C.L.R. 613. 617-618. the High
    Court of Australia in a judgment of the court after referring with approval to
    the rule stated in Hudson on Building Contracts, 7th ed. (1946), p. 343 that:

    "The measure of the damages recoverable by the building owner for
    the breach of a building contract is, ... the difference between the
    contract price of the work or building contracted for and the cost of
    making the work or building conform to the contract . . . ."

    and referring to a number of cases supporting this proposition continued, at
    p. 618:

    ". . .In none of these cases is anything more done than that work
    which is required to achieve conformity and the cost of the work,
    whether it be necessary to replace only a small part, or a substantial
    part, or, indeed, the whole of the building is, subject to the
    qualification which we have already mentioned and to which we shall
    refer, together with any appropriate consequential damages, the extent
    of the building owner's loss.

    "The qualification, however, to which this rule is subject is
    that, not only must the work undertaken be necessary to produce
    conformity, but that also, it must be a reasonable course to adopt."

    A similar approach to reasonableness was adopted by Cardozo J. delivering
    the judgment of the majority of the Court of Appeals of New York in Jacob
    & Youngs v. Kent
    (1921) 129 N.E. 889, 891-892.

    - 6 -

    Damages are designed to compensate for an established loss and not
    to provide a gratuitous benefit to the aggrieved party from which it follows
    that the reasonableness of an award of damages is to be linked directly to the
    loss sustained. If it is unreasonable in a particular case to award the cost of
    reinstatement it must be because the loss sustained does not extend to the need
    to reinstate. A failure to achieve the precise contractual objective does not
    necessarily result in the loss which is occasioned by a total failure. This was
    recognised by the High Court of Australia in the above cited passage in
    Bellgrove v. Eldridge where it was stated that the cost of reinstatement work
    subject to the qualification of reasonableness was the extent of the loss,
    thereby treating reasonableness as a factor to be considered in determining
    what was that loss rather than, as the respondents argued, merely a factor in
    determining which of two alternative remedies were appropriate for a loss
    once established. Further support for this view is to be found in the following
    passage in the judgment of Sir Robert Megarry V.C. in Tito v. Waddell
    (No.
    2) [1977] Ch. 106, 332C:

    "Per contra, if the plaintiff has suffered little or no monetary loss in
    the reduction of value of his land, and he has no intention of applying
    any damages towards carrying out the work contracted for, or its
    equivalent, I cannot see why he should recover the cost of doing work
    which will never be done. It would be a mere pretence to say that this
    cost was a loss and so should be recoverable as damages."

    The Vice Chancellor was as I understand it there saying that it would
    be unreasonable to treat as a loss the cost of carrying out work which would
    never in fact be done.

    I take the example suggested during argument by my noble and learned
    friend Lord Bridge of Harwich. A man contracts for the building of a house
    and specifies that one of the lower courses of brick should be blue. The
    builder uses yellow brick instead. In all other respects the house conforms to
    the contractual specification. To replace the yellow bricks with blue would
    involve extensive demolition and reconstruction at a very large cost. It would
    clearly be unreasonable to award to the owner the cost of reconstructing
    because his loss was not the necessary cost of reconstruction of his house,
    which was entirely adequate for its design purpose, but merely the lack of
    aesthetic pleasure which he might have derived from the sight of blue bricks.
    Thus in the present appeal the respondent has acquired a perfectly serviceable
    swimming pool, albeit one lacking the specified depth. His loss is thus not
    the lack of a useable pool with consequent need to construct a new one.
    Indeed were he to receive the cost of building a new one and retain the
    existing one he would have recovered not compensation for loss but a very
    substantial gratuitous benefit, something which damages are not intended to
    provide.

    What constitutes the aggrieved party's loss is in every case a question
    of fact and degree. Where the contract breaker has entirely failed to achieve

    - 7 -

    the contractual objective it may not be difficult to conclude that the loss is the
    necessary cost of achieving that objective. Thus if a building is constructed
    so defectively that it is of no use for its designed purpose the owner may have
    little difficulty in establishing that his loss is the necessary cost of re-
    constructing. Furthermore in taking reasonableness into account in
    determining the extent of loss it is reasonableness in relation to the particular
    contract and not at large. Accordingly if I contracted for the erection of a
    folly in my garden which shortly thereafter suffered a total collapse it would
    be irrelevant to the determination of my loss to argue that the erection of such
    a folly which contributed nothing to the value of my house was a crazy thing
    to do. As Oliver J. said in Radford v de Froberville [1977] 1 W.L.R. 1262,
    1270D:

    "If he contracts for the supply of that which he thinks serves his
    interests - be they commercial, aesthetic or merely eccentric - then if
    that which is contracted for is not supplied by the other contracting
    party I do not see why, in principle, he should not be compensated by
    being provided with the cost of supplying it through someone else or
    in a different way, subject to the proviso, of course, that he is seeking
    compensation for a genuine loss and not merely using a technical
    breach to secure an uncovenanted profit."

    However where the contractual objective has been achieved to a substantial
    extent the position may be very different.

    It was submitted that where the objective of a building contract
    involved satisfaction of a personal preference the only measure of damages
    available for a breach involving failure to achieve such satisfaction was the
    cost of reinstatement. In my view this is not the case. Personal preference
    may well be a factor in reasonableness and hence in determining what loss has
    been suffered but it cannot per se be determinative of what that loss is.

    My Lords, the trial judge found that it would be unreasonable to incur
    the cost of demolishing the existing pool and building a new and deeper one.
    In so doing he implicitly recognised that the respondent's loss did not extend
    to the cost of reinstatement. He was, in my view, entirely justified in
    reaching that conclusion. It therefore follows that the appeal must be allowed.

    It only remains to mention two further matters. The appellant argued
    that the cost of reinstatement should only be allowed as damages where there
    was shown to be an intention on the part of the aggrieved party to carry out
    the work. Having already decided that the appeal should be allowed I no
    longer find it necessary to reach a conclusion on this matter. However I
    should emphasise that in the normal case the court has no concern with the
    use to which a plaintiff puts an award of damages for a loss which has been
    established. Thus irreparable damage to an article as a result of a breach of
    contract will entitle the owner to recover the value of the article irrespective
    of whether he intends to replace it with a similar one or to spend the money

    - 8 -

    on something else. Intention, or lack of it. to reinstate can have relevance only
    to reasonableness and hence to the extent of the loss which has been sustained.
    Once that loss has been established intention as to the subsequent use of the
    damages ceases to be relevant.

    The second matter relates to the award of two thousand five hundred
    pounds for loss of amenity made by the trial judge. The respondent argued
    that he erred in law in making such award. However as the appellant did not
    challenge it, I find it unnecessary to express any opinion on the matter.

    LORD MUSTILL

    My Lords,

    I agree that this appeal should be allowed for the reasons stated by my
    noble and learned friends Lord Jauncey of Tullichettle and Lord Lloyd of
    Berwick. I add some observations of my own on the award by the trial judge
    of damages in a sum intermediate between, on the one hand, the full cost of
    reinstatement, and on the other the amount by which the malperformance has
    diminished the market value of the property on which the work was done: in
    this particular case, nil. This is a question of everyday practical importance
    to householders who have engaged contractors to carry out small building
    works, and then find (as often happens) that performance has fallen short of
    what was promised. I think it proper to enter on the question here, although
    there is no appeal against the award, because the possibility of such a recovery
    in a suitable case sheds light on the employer's claim that reinstatement is the
    only proper measure of damage.

    The proposition that these two measures of damage represent the only
    permissible bases of recovery lie at the heart of the employer's case. From
    this he reasons that there is a presumption in favour of the cost of restitution,
    since this is the only way in which he can be given what the contractor had
    promised to provide. Finally, he contends that there is nothing in the facts of
    the present case to rebut this presumption.

    The attraction of this argument is its avoidance of the conclusion that,
    in a case such as the present, unless the employer can prove that the defects
    have depreciated the market value of the property the householder can recover
    nothing at all. This conclusion would be unacceptable to the average
    householder, and it is unacceptable to me. It is a common feature of small
    building works performed on residential property that the cost of the work is
    not fully reflected by an increase in the market value of the house, and that
    comparatively minor deviations from specification or sound workmanship may
    have no direct financial effect at all. Yet the householder must surely be
    entitled to say that he chose to obtain from the builder a promise to produce

    - 9 -

    a particular result because he wanted to make his house more comfortable,
    more convenient and more conformable to his own particular tastes; not
    because he had in mind that the work might in crease the amount which he
    would receive if, contrary to expectation, he thought it expedient in the future
    to exchange his home for cash. To say that in order to escape unscathed the
    builder has only to show that to the mind of the average onlooker, or the
    average potential buyer, the results which he has produced seem just as good
    as those which he had promised would make a part of the promise illusory,
    and unbalance the bargain. In the valuable analysis contained in Radford v.
    de Froberville
    [1972] 1 W.L.R. 1262 Oliver J. emphasised (at p. 1270) that
    it was for the plaintiff to judge what performance he required in exchange for
    the price. The court should honour that choice. Pacta sunt servanda. If the
    appellant's argument leads to the conclusion that in all cases like the present
    the employer is entitled to no more than nominal damages, the average
    householder would say that there must be something wrong with the law.

    In my opinion there would indeed be something wrong if, on the
    hypothesis that cost of reinstatement and the depreciation in value were the
    only available measures of recovery, the rejection of the former necessarily
    entailed the adoption of the latter; and the court might be driven to opt for the
    cost of reinstatement, absurd as the consequence might often be, simply to
    escape from the conclusion that the promisor can please himself whether or
    not to comply with the wishes of the promisee which, as embodied in the
    contract, formed part of the consideration for the price. Having taken on the
    job the contractor is morally as well as legally obliged to give the employer
    what he stipulated to obtain, and this obligation ought not to be devalued. In
    my opinion however the hypothesis is not correct. There are not two
    alternative measures of damage, at opposite poles, but only one; namely, the
    loss truly suffered by the promisee. In some cases the loss cannot be fairly
    measured except by reference to the full cost of repairing the deficiency in
    performance. In others, and in particular those where the contract is designed
    to fulfil a purely commercial purpose, the loss will very often consist only of
    the monetary detriment brought about by the breach of contract. But these
    remedies are not exhaustive, for the law must cater for those occasions where
    the value of the promise to the promisee exceeds the financial enhancement
    of his position which full performance will secure. This excess, often referred
    to in the literature as the "consumer surplus" (see for example the valuable
    discussion by Harris, Ogus and Philips (1979) 95 L.Q.R. 581) is usually
    incapable of precise valuation in terms of money, exactly because it represents
    a personal, subjective and non-monetary gain. Nevertheless where it exists
    the law should recognise it and compensate the promisee if the
    mis-performance takes it away. The lurid bathroom tiles, or the grotesque
    tolly instanced in argument by my noble and learned friend Lord Keith of
    Kinkel, may be so discordant with general taste that in purely economic terms
    the builder may be said to do the employer a favour by failing to instal them.
    But this is too narrow and materialistic a view of the transaction. Neither the
    contractor nor the court has the right to substitute for the employer's
    individual expectation of performance a criterion derived from what ordinary

    - 10 -

    people would regard as sensible. As my Lords have shown, the test of
    reasonableness plays a central part in determining the basis of recovery, and
    will indeed be decisive in a case such as the present when the cost of
    reinstatement would be wholly disproportionate to the non-monetary loss
    suffered by the employer. But it would be equally unreasonable to deny all
    recovery for such a loss. The amount may be small, and since it cannot be
    quantified directly there may be room for difference of opinion about what it
    should be. But in several fields the judges are well accustomed to putting
    figures to intangibles, and I see no reason why the imprecision of the exercise
    should be a barrier, if that is what fairness demands.

    My Lords, once this is recognised the puzzling and paradoxical feature
    of this case, that it seems to involve a contest of absurdities, simply falls
    away. There is no need to remedy the injustice of awarding too little, by
    unjustly awarding far too much. The judgment of the trial judge
    acknowledges that the employer has suffered a true loss and expresses it in
    terms of money. Since there is no longer any issue about the amount of the
    award, as distinct from the principle, I would simply restore his judgment by
    allowing the appeal.

    LORD LLOYD OF BERWICK

    My Lords,

    In the course of his judgment in the Court of Appeal Mann L.J.
    described the question in this case as a simple one, but one which had,
    nevertheless, attracted arguments which went to the foundation of the measure
    of damages for breach of contract. It is surprising, and perhaps disconcerting,
    that at this stage of the development of the law of damages, such a simple
    question should have caused such a wide diversity of judicial opinion.

    The facts, so far as are now relevant, may be stated very briefly. In
    the autumn of 1986 Mr. Stephen Forsyth, the defendant, wanted to build a
    swimming pool adjoining his house at Angley Park, Cranbrook, Kent. He
    entered into a contract with the plaintiffs, Ruxley Electronics & Construction
    Ltd., trading as Home Counties Swimming Pools. The contract price for the
    pool, with certain extras, was £17,797.40 including VAT. The depth of the
    pool was to be 6 ft. 6 ins. at the deep end.

    Subsequently Mr. Forsyth wanted the depth increased to 7 ft. 6 ins.
    He had a conversation with Mr. Hall, who owned or controlled the plaintiff
    company. Mr. Hall agreed to increase the depth without extra charge. It is
    important to note that there was no provision in the contract for a diving-
    board, nor was there any mention of a diving-board in the course of the

    - 11 -

    conversation between Mr. Forsyth and Mr. Hall; or if there was, it was no
    more than a very passing reference.

    Work started in June 1987. It was carried out by a sub-contractor.
    But the sub-contractor did not do the job properly, and the pool bottom
    cracked. Mr. Hall agreed to remove the existing pool and replace it free of
    charge. He also agreed to reimburse the professional charges which Mr.
    Forsyth had incurred.

    The new pool was finished by the end of June 1988. In November
    1988 the plaintiffs submitted their invoice. But Mr. Forsyth insisted on a
    reduction of £10,000 to compensate him for the disturbance which he had
    suffered during the rebuilding of the pool. Mr. Hall reluctantly agreed. Still
    Mr. Forsyth did not settle the plaintiffs' invoice.

    Then in March 1989 Mr. Forsyth discovered that the pool was only
    6 ft. 9 ins. at the deep end instead of 7 ft. 6 ins. On 20 March 1989 Mr.
    Forsyth's architect wrote to Mr. Hall to draw his attention to this matter, and
    to complain of some corrosion. Mr. Hall did some further work, but still Mr.
    Forsyth did not pay. Then on 19 January 1990 the plaintiffs commenced these
    proceedings, claiming £10,330 as the balance of their account.

    On the same date, an associated company owned or controlled by Mr.
    Hall commenced proceedings to recover £33,620, as the balance of account
    due on a contract for enclosing the swimming pool. But your Lordships are
    not concerned with the detail of that contract.

    On 5 March 1990 Mr. Forsyth's solicitors served a defence, and
    counter-claim. The document is interesting. It contains particulars of defects
    under ten sub-paragraphs. But nowhere is there mention of any complaint
    about the depth of the pool, although this had been known for nearly a year.
    There is a counter-claim for the cost of remedial works amounting to £3,694
    plus a claim for general damages for "aggravation, nuisance, annoyance and
    disappointment".

    Three years later, in April 1993, the defence and counter-claim was
    amended to increase the amount of counter-claim from £3,694 to £14,175.
    But there was still no complaint about the depth of the pool.

    The trial commenced before His Honour Judge Diamond Q.C. on 14
    May 1993. On 16 May Mr. Forsyth dismissed his solicitors and counsel. On
    17 May he amended his defence and counter-claim to raise for the first time
    the question of the depth of the pool. Thereafter it occupied far more time
    than any other issue. Expert evidence was called on both sides. As a result,
    Judge Diamond was able to make certain crucial findings of fact.

    - 12 -

    1. The pool as constructed was safe for diving. A depth of 6 ft. is
      adequate, even for a beginner. According to the official handbook, the
      minimum safe depth is 5 ft.

    2. Mr. Forsyth had no intention or desire to fit a diving-board, and would
      be unlikely to form such a desire in the future.

    3. Since the pool was safe for diving, the shortfall in depth did not
      decrease the value of the pool.

    4. It would not be possible to break out the bottom of the pool, and
      excavate to the required depth. The only way of increasing the depth of the
      pool was to demolish the existing pool altogether, and start again at a cost of
      £21.560.

    5. Mr. Forsyth had no intention of building a new pool. Mr. Forsyth
      professed to have formed such an intention (I use the language of the judge),
      but the judge thought it was questionable whether it would continue once the
      litigation was over. Mr. Forsyth has since given an undertaking to the Court
      of Appeal to rebuild the pool, if his claim for the cost of reinstatement should
      succeed.

    6) To spend £21,560 on a new pool would be unreasonable since the cost
    would be wholly disproportionate to the advantage, if any, of having a pool
    7 ft. 6 ins. deep, as opposed to 6 ft., or if one takes the depth 6 ft. out from
    the deep end.

    Having dismissed his professional advisers on the second day of the
    trial, Mr. Forsyth represented himself thereafter, and argued his case with
    obvious ability. His two main arguments, neither of which had been pleaded
    prior to the third day of the trial, were, first, that the contract was an entire
    contract, and that as the swimming pool had never been completed, he owed
    nothing, and indeed was entitled to recover back instalments which he had
    already paid.

    His second argument was that he was entitled to recover the cost of
    rebuilding the pool, which he estimated at £33,800 plus VAT.

    Judge Diamond rejected both these arguments. As to the first, he
    pointed out that the contract called for payment in stages, with 10 per cent.
    payable as a deposit, and 40 per cent. due on the starting date, and so on.
    Judge Diamond observed that in those circumstances it was very difficult to
    regard the arrangement between the parties as a lump sum contract.
    Moreover, he found as a fact that the pool was substantially completed in June
    1988. Mr. Forsyth's first argument formed the first of his grounds of appeal
    to the Court of Appeal. But it does not seem to have been pressed. It was
    not revived before your Lordships.

    - 13 -

    As to the second argument, the judge held, as I have said, that the cost
    of rebuilding the pool was wholly disproportionate to any prospective benefit,
    and was therefore unreasonable. Since Mr. Forsyth had no intention of
    rebuilding the pool he would, if his second argument were to succeed, have
    a pool which was substantially complete in accordance with the contract plus
    a windfall profit of £21,560.

    But the judge went on to consider whether he might not award some
    general damages for the loss of pleasure and amenity which Mr. Forsyth had
    suffered by reason of the lack of depth, that is to say, by not being able to
    dive 7 ft. 6 ins. deep, as opposed to 6 ft. or 5 ft. deep, the latter being, as I
    have said, the minimum safe depth. The judge dealt with general damages in
    the following paragraph.

    "In the course of his written submissions Mr. Forsyth reminded me
    rhat 'This is not a matter of commerce to be nicely measured in
    money. Swimming pools are not necessities, they are for fun. Due
    to Home Counties' default I have lost some fun.' I think that where
    a contract is for the provision of a pleasurable amenity, such as a
    swimming pool, it is entirely proper to award a general sum for the
    loss of amenity. I accept that there has been a loss of amenity brought
    about hy the shortfall in depth and I award damages for loss of that
    amenity in the sum of £2,500."

    The judge also award a modest sum of £750 for general inconvenience and
    disturbance in lieu of the £10,000 which Mr. Forsyth had demanded. I need
    not go into the reason why, in the circumstances, the judge regarded a modest
    sum as quite sufficient.

    In his notice of appeal, Mr. Forsyth's second and third grounds were
    that he ought to have been awarded the cost of rebuilding the pool, and that
    the figure of £21,560 found by the judge as the cost of rebuilding was too
    low. His fifth and last ground of appeal was that the figure of £2,500 for
    general damages was too low.

    In the Court of Appeal [1994] 1 W.L.R. 650 Dillon L.J., dissenting,
    agreed with the judge's approach. I quote the penultimate paragraph of his
    judgment, p. 662:

    "If the evidence had been that the value of the pool as constructed was
    less than the value of the pool with a depth of 7 ft. 6 inches as
    contracted for, but that the loss of value was substantially less than the
    £21,560 cost of reinstatement, then, given the finding that the pool as
    constructed is still deep enough to be perfectly safe to dive into, the
    obvious course would have been to award Mr. Forsyth the loss of
    value. The basis of that would have been reasonableness. He has no
    absolute right to be awarded the cost of reinstatement. I see no
    reason, therefore, why if there had been no loss in value he should

    - 14 -

    automatically become entitled to the cost of reinstatement, however
    high. That would be a wholly unreasonable conclusion in law.
    Accordingly I agree with the judge's approach and would dismiss this
    appeal."

    Staughton LJ. held in effect that Mr. Forsyth was entitled to the cost
    of reinstatement, however expensive, since there was no other way of giving
    him what he had contracted for. There are two main themes running through
    Staughton L.J.'s judgment: reasonableness and intention. As to the first, he
    held that while reasonableness lies at the heart of the rule that a plaintiff must
    mitigate his damage, it plays no part at all where there is no cheaper remedy
    available for the defendant's breach of contract. He said, at p. 659:

    "What money will place him 'in the same situation ... as if the
    contract had been performed?'. The answer, on the facts of this case,
    is the cost of replacing the pool. Otherwise a builder of swimming
    pools need never perform his contract. He can always argue that
    5 feet in depth is enough for diving, even if the purchaser has
    stipulated for 6, 7 or 8 feet, and pay no damages. In my judgment the
    key lies in the proposition of Oliver J. that reasonableness is a matter
    of mitigation. It is unreasonable of a plaintiff to claim an expensive
    remedy if there is some cheaper alternative which would make good
    his loss. Thus he cannot claim the cost of reinstatement if the
    difference in value would make good his loss by enabling him to
    purchase the building or chattel that he requires elsewhere. But if
    there is no alternative course which will provide what he requires, or
    none which will cost less, he is entitled to the cost of repair or
    reinstatement even if that is very expensive . . . Since there is no other
    alternative which will provide that which he has contracted for, he is
    entitled to incur that expense and charge it to the defendant."

    As to intention, Staughton L.J. held that it was irrelevant that Mr. Forsyth did
    not intend to rebuild the pool. What a plaintiff does with his damages is no
    concern to the defendant. In any event, Mr. Forsyth had now offered an
    undertaking to renew the pool if he recovered the cost of doing so as
    damages, although Staughton L.J. regarded such an undertaking as
    unnecessary.

    Mann L.J. took a middle course. He accepted that there might be
    cases where it would be unreasonable to award the cost of rectifying a failed
    project. But this was not such a case, since the bargain was for what Mann
    L.J. called "a personal preference". Although the value of the pool was the
    same, as found by the judge, Mr. Forsyth was entitled to have his personal
    preference satisfied. The only way that could be done was by rebuilding the
    pool.

    - 15 -

    Since the majority of the court awarded the full cost of reinstatement.
    they set aside the judge's award of £2,500 general damages for loss of
    amenity.

    Before your Lordships, Mr. Jacob did not seek to restore the award of
    £2,500. Indeed, he argued vigorously that the judge was wrong to have made
    such an award in the first place. It was, he said, contrary to all principle and
    unsupported by any authority. This seemed a surprising argument to hear
    from the mouth of Mr. Forsyth's counsel. But Mr. Jacob had his reasons.
    He submitted that there were only two possible alternatives open to the judge.
    One was to award the cost of rebuilding the pool; the other was to award the
    difference in value between the pool as built and a pool built to the contract
    depth. Since the difference in value was nil, and since Mr. Forsyth had
    undoubtedly suffered a real loss (otherwise the judge would not have granted
    general damages) the judge was bound to award the cost of rebuilding. He
    had no other choice.

    For reasons which I will elaborate later, I am unable to accept that, in
    a case such as the present, the judge was presented with such harsh
    alternatives. He was not bound to award either too little or too much. The
    law of damages is not so inflexible. But before I develop the answer to Mr.
    Jacob's argument. I should first consider the two themes which ran through
    Staughton L.J.'s judgment.

    Reasonableness

    The starting point is Robinson v. Harman (1848) 1 Ex. 850, where
    Parke B. said, at p. 855:

    "The rule of the common law is, that where a party sustains a loss by
    virtue of a breach of contract, he is, so far as money can do it, to be
    placed in the same situation with respect to damages as if the contract
    had been performed."

    This does not mean that in every case of breach of contract the plaintiff can
    obtain the monetary equivalent of specific performance. It is first necessary
    to ascertain the loss the plaintiff has in fact suffered by reason of the breach.
    If he has suffered no loss, as sometimes happens, he can recover no more than
    nominal damages. For the object of damages is always to compensate the
    plaintiff, not to punish the defendant.

    This was never more clearly stated than by Viscount Haldane L.C. in
    the first of the two broad principles which he formulated in British Western
    House Electric & Manufacturing Co. Ltd. v. The Underground Electric
    Railways Company of London Ltd.
    [1912] A.C. 673, 689:

    "The first is that, as far as possible, he who has proved a breach of a
    bargain to supply what he contracted to get is to be placed, as far as

    - 16 -

    money can do it, in as good a situation as if the contract had been
    performed. The fundamental basis is thus compensation for pecuniary
    loss naturally flowing from the breach ..."

    Note that Lord Haldane does not say that the plaintiff is always to be placed
    in the same situation physically as if the contract had been performed, but in
    as good a situation financially, so far as money can do it. This necessarily
    involves measuring the pecuniary loss which the plaintiff has in fact sustained.

    In building cases, the pecuniary loss is almost always measured in one
    of two ways; either the difference in value of the work done or the cost of
    reinstatement. Where the cost of reinstatement is less than the difference in
    value, the measure of damages will invariably be the cost of reinstatement.
    By claiming the difference in value the plaintiff would be tailing to take
    reasonable steps to mitigate his loss. In many ordinary cases, too, where
    reinstatement presents no special problem, the cost of reinstatement will be the
    obvious measure of damages, even where there is little or no difference in
    value, or where the difference in value is hard to assess. This is why it is
    often said that the cost of reinstatement is the ordinary measure of damages
    for defective performance under a building contract.

    But it is not the only measure of damages. Sometimes it is the other
    way round. This was first made clear in the celebrated judgment of Cardozo
    J. giving the majority opinion in the Court of Appeal of New York in Jacob
    and Youngs v
    . Kent (1921) 129 N.E. 889. In that case the building owner
    specified that the plumbing should be carried out with galvanized piping of
    "Reading manufacture". By an oversight, the builder used piping of a
    different manufacture. The plaintiff builder sued for the balance of his
    account. The defendant, as in the instant case, counter-claimed the cost of
    replacing the pipe work even though it would have meant demolishing a
    substantial part of the completed structure, at great expense. Cardozo J.
    pointed out, at p. 891, that there is "no general license to instal whatever, in
    the builder's judgment, may be regarded as 'just as good'". But he went on
    to consider the measure of damages in the following paragraph:

    "[2] In the circumstances of this case, we think the measure of the
    allowance is not the cost of replacement, which would be great, but
    the difference in value, which would be either nominal or nothing . .
    . It is true that in most cases the cost of replacement is the measure.
    . . . The owner is entitled to the money which would permit him to
    complete, unless the cost of completion is grossly and unfairly out of
    proportion to the good to be attained. When that is true, the measure
    is the difference in value. Specifications call, let us say, for a
    foundation built of granite quarried in Vermont. On the completion of
    the building, the owner learns that through the blunder of a sub-
    contractor part of the foundation has been built of granite of the same
    quality quarried in New Hampshire. The measure of allowance is not
    the cost of reconstruction. 'There may be omissions of that which

    - 17 -

    could not afterwards be supplied exactly as called for by the contract
    without taking down the building to its foundations, and at the same
    time the omission may not affect the value of the building for use or
    otherwise, except so slightly as to be hardly appreciable."

    Cardozo J.'s judgment is important, because it establishes two
    principles, which I believe to be correct, and which are directly relevant to the
    present case; first, the cost of reinstatement is not the appropriate measure of
    damages if the expenditure would be out of all proportion to the good to be
    obtained, and, secondly, the appropriate measure of damages in such a case
    is the difference in value, even though it would result in a nominal award.

    The first of these principles is contrary to Staughton L.J.'s view that
    the plaintiff is entitled to reinstatement, however expensive, if there is no
    cheaper way of providing what the contract requires. The second principle
    is contrary to the whole thrust of Mr. Jacob's argument that the judge had no
    alternative but to award the cost of reinstatement, once it became apparent that
    the difference in value produced a nil result.

    Next, chronologically, is a decision of the High Court of Australia.
    in Bellgrove v. Eldridge (1954) 90 C.L.R. 613, the builder built a house with
    detective foundations, as a result of which the house was unstable. The
    building owner brought an action against the builder claiming the cost of
    reinstatement. His claim was upheld on the facts. But the statement of
    principle is instructive. Having said that the building owner is, as a general
    rule, entitled to have a building which conforms with the contract plans, the
    High Court continued, at pp. 618-619:

    "The qualification, however, to which this rule is subject is that, not
    only must the work undertaken be necessary to produce conformity,
    but that also, it must be a reasonable course to adopt. No one would
    doubt that where pursuant to a building contract calling for the erection
    of a house with cement rendered external walls of second-hand bricks,
    the builder has constructed the walls with new bricks of first quality,
    the owner would not be entitled to the cost of demolishing the walls
    and re-erecting them in second-hand bricks. In such circumstances the
    work of demolition and re-erection would be quite unreasonable or it
    would, to use a term current in the United States, constitute 'economic
    waste'. . . We prefer, however, to think that the building owner's
    right to undertake remedial works at the expense of a builder is not
    subject to any limit other than is to be found in the expressions
    'necessary' and 'reasonable', for the expression 'economic waste'
    appears to us to go too far and would deny to a building owner the
    right to demolish a structure which, though satisfactory as a structure
    of a particular type, is quite different in character from that called for
    by the contract. Many examples may, of course, be given of remedial
    work, which though necessary to produce conformity would not
    constitute a reasonable method of dealing with the situation and in such

    - 18 -

    cases the true measure of the building owner's loss will be the
    diminution in value, if any, produced by the departure from the plans
    and specifications or by the defective workmanship or materials. As
    to what remedial work is both 'necessary' and 'reasonable' in any
    particular case is a question of fact."

    Once again one finds the court emphasising the central importance of
    reasonableness in selecting the appropriate measure of damages. If
    reinstatement is not the reasonable way of dealing with the situation, then
    diminution in value, if any, is the true measure of the plaintiffs loss. If there
    is no diminution in value, the plaintiff has suffered no loss. His damages will
    be nominal.

    These principles are recognised in the leading English authority, East
    Ham Corporation v. Bernard Sunley & Sons Ltd.
    [1966] A.C. 406. In that
    case stone panels which had been fixed to the external walls of a school fell
    off, owing to defective fixing by the contractor. It was held by this House
    that the contractor was liable for the cost of reinstating the stone panels,
    calculated at the date when the defect was discovered. Lord Cohen quoted,
    at p. 434, with approval a passage in Hudson on Building and Engineering
    Contracts
    8th edn. (1959), p. 319:

    "There is no doubt that wherever it is reasonable for the employer to
    insist upon reinstatement the courts will treat the cost of reinstatement
    as the measure of damage."

    Lord Cohen continued:

    "In the present case it could not be disputed that it was reasonable for
    the appellants to insist upon reinstatement and in these circumstances
    it necessarily follows that on the question of damage the trial judge
    arrived at the right conclusion."

    There seems little doubt that if it had not been reasonable for the employer to
    insist on reinstatement, Lord Cohen would have chosen, as the alternative
    measure of damages, the diminution in value.

    East Ham Corporation v. Bernard Sunley & Sons Ltd. has been
    followed in a number of subsequent cases. In G. W. Atkins Ltd. v. Scott
    (1980) 7 Const. L.J. 215, the building owner complained of some defective
    tiling. He claimed £1,229 as the cost of re-tiling the whole roof. The County
    Court judge found that the tiling was defective, but that the defects were
    mostly cosmetic and of a minor character. He refused to give the plaintiff the
    cost of reinstatement, but awarded instead the sum of £250 as damages for
    bad workmanship. His reason, according to the Court of Appeal, was because
    he regarded the defects as not being very serious, and accordingly that it
    would be unreasonable to go to the expense of completely stripping the tiles.
    His decision was upheld by the Court of Appeal. Sir David Cairns said that

    - 19 -

    the judge's finding that it would be unreasonable to award the cost of
    reinstatement was not open to attack on appeal. He said, at p. 221:


    "Mr. Hicks accepts that in some cases it would be grossly
    unreasonable, or capricious, or perverse, to suggest reinstatement and
    that in such a case some other basis of assessment must be found. I
    confess that I can see no reason in principle, nor any support in the
    authorities, for the proposition that the test is other than lack of
    reasonableness simpliciter ..."

    Ackner L.J. said, at pp. 221-222:

    "I accept that the court must have some regard to the predilections of
    the building owner, but that is only one of the factors. To take a
    wholly fanciful example; the half-round tiles at the edge of the bath,
    as shown in photograph 1, were white. They did not match the tiles
    as they should have done. If, for the purpose of the argument, they
    could only have been removed and replaced by the removal of all the
    tiles in the bathroom at a cost of several hundred pounds, would it
    have been reasonable for the plaintiff to have required this to be done?
    Mr. Hicks contends that his client is entitled to say 'I want what I
    bargained for. What you have done is unacceptable to me.' Such an
    approach seems to me to make his client the sole arbiter of what is
    reasonable."

    Stephenson L.J. agreed with both judgments.

    Mr. Jacob submits that the decision is erroneous, at least in so far as
    the court upheld the award of £250 general damages. But it seems to me that
    it is a well-reasoned authority that the cost of reinstatement is recoverable, but
    only if it is reasonable for the plaintiff to insist on that course. Otherwise the
    measure of damages will be the diminution in the value of the work.

    One other very recent authority may be mentioned, although it is
    currently subject to appeal to your Lordships' House. In Darlington Borough
    Council v. Wiltshier Northern Ltd.
    .1995] 1 W.L.R. 68, Steyn L.J. said, at

    p. 79:

    "... in the case of a building contract, the prima facie rule is cost of
    cure, i.e. the cost of remedying the defect: East Ham Corporation v.
    Bernard Sunley & Sons Ltd.
    [1966] A.C. 406. But where the cost of
    remedying the defects involves expense out of all proportion to the
    benefit which would accrue from it, the court is entitled to adopt the
    alternative measure of difference of the value of the works ..."

    It seems to me that in the light of these authorities - and many other
    authorities cited were to the same effect, including C.R. Taylor (Wholesale)
    Ltd. v
    . Hepworths Ltd. [1977] 1 W.L.R. 659, Minscombe Properties Ltd. v.

    - 20 -

    Sir Alfred McAlpine & Sons Ltd. (1986) 2 Const. L.J. 303 and leading
    textbooks both here and in the United States. Mr. Maguire was right when he
    submitted, and Dillon L.J. was right when he held, that mitigation is not the
    only area in which the concept of reasonableness has an impact on the law of
    damages.

    If the court takes the view that it would be unreasonable for the
    plaintiff to insist on reinstatement, as where, for example, the expense of the
    work involved would be out of all proportion to the benefit to be obtained,
    then the plaintiff will be confined to the difference in value. If the judge had
    assessed the difference in value in the present case at, say, £5,000, I have
    little doubt that the Court of Appeal would have taken that figure rather than
    £21,560. The difficulty arises because the judge has, in the light of the expert
    evidence, assessed the difference in value as nil. But that cannot make
    reasonable what he has found to be unreasonable.

    So I cannot accept that reasonableness is confined to the doctrine of
    mitigation. It has a wider impact, as indeed Mr. Jacob himself accepted in
    the course of his argument, and in his written case. I quote from paragraph

    15:

    "It is important to realise that when the plaintiff has come to court
    before taking any steps to rectify the position, the court is acting on
    the basis of a hypothetical situation. The plaintiff is awarded a sum
    of money to represent either the cost of cure or diminution whichever
    course the court considers reasonable in the circumstances of the
    case."

    How then does Mr. Jacob seek to support the majority judgment? It
    can only be. I think, by attacking the judge's finding of fact that the cost of
    rebuilding the pool would have been out of all proportion to the benefit to be
    obtained. Mr. Jacob argues that this was not an ordinary commercial contract
    but a contract for a personal preference. This was the line taken by Mann
    L.J. in the Court of Appeal. It was the way in which Phillips J. distinguished
    the decision in the present case (by which he was bound) in Channel Island
    Ferries Ltd. v. Cenargo Navigation Ltd.
    , (the "Rozel") [1994] 2 Lloyd's Rep.
    161, where he said, at pp. 166-167:

    "It is always necessary to exercise the greatest care before applying the
    reasoning in one case to a different factual situation, and this is
    particularly true in the field of damages. The majority of the court in
    Ruxley Electronics did not hold that a plaintiff can recover in damages
    the cost of remedial measures which are unreasonable. They held that,
    in the circumstances of that case, it was not unreasonable for the
    plaintiff to spend the substantial sum necessary to have what he had
    contracted for. The test of what was reasonable had to have regard to
    his personal preference, as expressed in the depth of water that he had
    contractually required. This reasoning can be applied to a requirement

    - 21 -

    which is incorporated in a contract as an end in itself, reflecting a
    personal preference of the contracting party. It does not apply when
    the contractual requirement is not an end in itself, but is inserted into
    a commercial contract because it has financial implications. If, in such
    a case, the contractual requirement is not met, the costs of remedial
    measures will not normally be recoverable as damages if they are
    disproportionate to the financial consequences of the breach. If that
    is the case it will not be reasonable to incur those costs. The damages
    recoverable will be those necessary to compensate for the financial
    consequences of the breach."

    I am far from saying that personal preferences are irrelevant when
    choosing the appropriate measure of damages ("predilections" was the word
    used by Ackner L.J. in G.W. Atkins Ltd. v. Scott 7 Const. L.J. 215, 221,
    adopting the language of Oliver J. in Radford v. De Froberville [1977] 1
    W.L.R. 1262.) But such cases should not be elevated into a separate category
    with special rules. If, to take an example mentioned in the course of
    argument, a landowner wishes to build a folly in his grounds, it is no answer
    to a claim for defective workmanship that many people might regard the
    presence of a well built folly as reducing the value of the estate. The
    eccentric landowner is entitled to his whim, provided the cost of reinstatement
    is not unreasonable. But the difficulty of that line of argument in the present
    case is that the judge, as is clear from his judgment, took Mr. Forsyth's
    personal preferences and predilections into account. Nevertheless, he found
    as a fact that the cost of reinstatement was unreasonable in the circumstances.
    The Court of Appeal ought not to have disturbed that finding.

    Staughton L.J. was much influenced by the decision in Radford v. De
    Froberville
    [1977] 1 W.L.R. 1262. The defendant in that case was in breach
    of covenant to build a wall between two properties. The plaintiff claimed as
    damages the cost of building the wall on his own land. The defendant argued
    that a pre-fabricated fence would do just as well. Oliver J. rejected that
    argument. He asked himself whether "the carrying out of the work on his
    own land [was] a reasonable thing for the plaintiff to do?" He answered that
    question in favour of the plaintiff, and one can see why. It was a case that
    fell clearly on the other side of the factual line. It throws no light on the
    question of fact which the judge had to decide in the present case. Indeed, the
    question which Oliver J. asked himself affords further support for Judge
    Diamond's approach.

    Finally, under this head, Mr. Jacob argued that in order to arrive at a
    true figure for diminution in value, one should assume that Mr. Forsyth had
    put his house on the market, and bought another house identical in all respects
    save that it had a 7 ft. 6 ins. swimming pool instead of a 6 ft. 9 ins.
    swimming pool. Even though the value of the two properties might be the
    same, one should take into account the notional cost of moving from one
    house to the other, so as to arrive at a true comparison between diminution in
    value and the cost of reinstatement. On that view, so it was argued, the

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    diminution in value would be greater than the cost of reinstatement, and not
    less; and by opting for reinstatement Mr. Forsyth was mitigating his loss.

    This argument seems to lose touch with reality. Nobody in their
    senses would move house in order to have the pleasure of diving into a deeper
    swimming pool. The analogy with defective chattels, such as a motor car, for
    which there is a ready market, is very strained. In any event, as Sir David
    Cairns pointed out in G. W. Atkins Ltd. v. Scott, 7 Const L.J. 215, 220, it is
    not the diminution in the value of the freehold which provides the correct
    comparison, but the diminution in the value of the works, in this case a
    swimming pool.

    I have confined my citation of authority to building cases, since that
    is the subject matter of the present dispute. But the principle that a plaintiff
    cannot always insist on being placed in the same physical position as if the
    contract had been performed, where to do so would be unreasonable, is not
    confined to building cases. In Sealace Shipping Co. Ltd. v. Oceanvoice Ltd.
    (the "Alecos M.
    ") [1991] 1 Lloyd's Rep. 120, there was a contract for the sale
    of a ship, including a spare propeller. When the ship was delivered there was
    no spare propeller. It was common ground that there was no market for
    second-hand propellers. So the only way of providing a spare propeller would
    have been to commission the manufacture of a new propeller at great expense.
    The arbitrator held that this would be unreasonable. Instead, he awarded the
    scrap value of the propeller, since that was all the buyer had actually lost by
    reason of the seller's breach. The arbitrator's decision was upheld in the
    Court of Appeal. Neill L.J. said, at p. 125:

    "I can only read his award as meaning that he asked the question: what
    did these buyers really suffer as a result of the non-delivery of this
    spare propeller with this vessel? And he gave the answer: they lost its
    scrap value which in the circumstances was the only value which it had
    for them."

    Intention

    I fully accept that the courts are not normally concerned with what a
    plaintiff does with his damages. But it does not follow that intention is not
    relevant to reasonableness, at least in those cases where the plaintiff does not
    intend to reinstate. Suppose in the present case Mr. Forsyth had died, and the
    action had been continued by his executors. Is it to be supposed that they
    would be able to recover the cost of reinstatement, even though they intended
    to put the property on the market without delay?

    There is. as Staughton L.J. observed, a good deal of authority to the
    effect that intention may be relevant to a claim for damages based on cost of
    reinstatement. The clearest decisions on the point are those of Sir Robert
    Megarry V.-C. in Tito v. Waddell (No. 2) [1977] Ch. 106. and Oliver J. in
    Radford v. De Froberville [1977] 1 W.L.R. 1262. One of the many questions

    - 23 -

    in the former case was whether the plaintiffs could recover the cost of
    replanting the plots of land in question, or whether the recovery of damages
    was limited to the difference in the market value of the land by reason of the
    work not having been done. Sir Robert Megarry said, at p. 332:


    "Again, some contracts for alterations to buildings or for their
    demolition, might not, if carried out, enhance the market value of the
    land, and sometimes would reduce it. The tastes and desires of the
    owner may be wholly out of step with the ideas of those who constitute
    the market; yet I cannot see why eccentricity of taste should debar him
    from obtaining substantial damages unless he sues for specific
    performance. Per contra, if the plaintiff has suffered little or no
    monetary loss in the reduction of the value of his land, and he has no
    intention of applying any damages towards carrying out the work
    contracted for, or its equivalent, I cannot see why he should recover
    the cost of doing work which will never be done. It would be a mere
    pretence to say that this cost was a loss and so should be recoverable
    as damages."

    In the present case the judge found as a fact that Mr. Forsyth's stated
    intention of rebuilding the pool would not persist for long after the litigation
    had been concluded. In these circumstances it would be "mere pretence" to
    say that the cost of rebuilding the pool is the loss which he has in fact
    suffered. This is the critical distinction between the present case, and the
    example given by Staughton L.J. of a man who has had his watch stolen. In
    the latter case, the plaintiff is entitled to recover the value of the watch,
    because that is the true measure of his loss. He can do what he wants with
    the damages. But if, as the judge found, Mr. Forsyth had no intention of
    rebuilding the pool, he has lost nothing except the difference in value, if any.

    The relevance of intention to the issue of reasonableness is expressly
    recognised by the respondent in his case. In para. 37, Mr. Jacob says:

    "The respondent accepts that the genuineness of the parties, indicated
    predilections can be a factor which the court must consider when
    deciding between alternative measures of damage. Where a plaintiff
    is contending for a high as opposed to a low cost measure of damages
    the court must decide whether in the circumstances of the particular
    case such high cost measure is reasonable. One of the factors that
    may be relevant is the genuineness of the plaintiffs desire to pursue
    the course which involves the higher cost. Absence of such desire
    (indicated by untruths about intention) may undermine the
    reasonableness of the higher cost measure."

    I can only say that I find myself in complete agreement with that approach,
    in contrast to the approach taken by the majority of the Court of Appeal.

    - 24 -

    Does Mr. Forsyth's undertaking to spend any damages which he may
    receive on rebuilding the pool make any difference? Clearly not. He cannot
    be allowed to create a loss, which does not exist, in order to punish the
    defendants for their breach of contract. The basic rule of damages, to which
    exemplary damages are the only exception, is that they are compensatory not
    punitive.

    Loss of amenity

    I turn last to the head of damages under which the judge awarded
    £2,500. I have already quoted the paragraph in which the judge justified his
    award. In the Court of Appeal Mr. Forsyth sought to increase the award
    under this head. According to Staughton L.J. this led to an interesting
    argument. But the Court of Appeal did not find it necessary to deal with the
    point.

    Before your Lordships, Mr. Jacob abandoned the point altogether, for
    what Mr. Maguire described as forensic reasons. It undermined the main
    theme of his argument that since difference in value gave Mr. Forsyth nothing
    by way of damages, he must be entitled to the cost of reinstatement. So Mr.
    Jacob was contending that the judge's award of £2,500 was without precedent
    in the field of damages, and was fundamentally inconsistent with the decision
    of this House in Addis v. Gramophone Co. Ltd. [1909] A.C. 488. For
    obvious reasons, Mr. Maguire did not press the contrary argument. So your
    Lordships are placed in something of a difficulty. The House does not have
    the benefit of the views of the Court of Appeal on the point, and the
    submissions before your Lordships have been artificially restricted.

    Addis v. Gramophone Co. Ltd. established the general rule that in
    claims for breach of contract, the plaintiff cannot recover damages for his
    injured feelings. But the rule, like most rules, is subject to exceptions. One
    of the well-established exceptions is when the object of the contract is to
    afford pleasure, as, for example, where the plaintiff has booked a holiday with
    a tour operator. If the tour operator is in breach of contract by failing to
    provide what the contract called for, the plaintiff may recover damages for his
    disappointment: see Jarvis v. Swans Tours Ltd. [1973] Q.B. 233 and Jackson
    v. Horizon Holidays Ltd.
    [1975] 1 W.L.R. 1468.

    This was, as I understand it, the principle which Judge Diamond
    applied in the present case. He took the view that the contract was one "for
    the provision of a pleasurable amenity". In the event, Mr. Forsyth's pleasure
    was not so great as it would have been if the swimming pool had been 7 ft.
    6 ins. deep. This was a view which the judge was entitled to take. If it
    involves a further inroad on the rule in Addis v. Gramophone Co. Ltd., then
    so be it. But I prefer to regard it as a logical application or adaptation of the
    existing exception to a new situation. I should, however, add this note of
    warning. Mr. Forsyth was, I think, lucky to have obtained so large an award
    for his disappointed expectations. But as there was no criticism from any

    - 25 -

    quarter as to the quantum of the award as distinct from the underlying
    principle, it would not be right for your Lordships to interfere with the
    judge's figure.


    That leaves one last question for consideration. I have expressed
    agreement with the judge's approach to damages based on loss of amenity on
    the facts of the present case. But in most cases such an approach would not
    be available. What is then to be the position where, in the case of a new
    house, the building does not conform in some minor respect to the contract,
    as for example, where there is a difference in level between two rooms,
    necessitating a step. Suppose there is no measurable difference in value, and
    the cost of reinstatement would be prohibitive. Is there any reason why the
    court should not award by way of damages for breach of contract some
    modest sum. not based on difference in value, but solely to compensate the
    buyer for his disappointed expectations? Is the law of damages so inflexible,
    as I asked earlier, that it cannot find some middle ground in such a case? I
    do not give a final answer to that question in the present case. But it may be
    that it would have afforded an alternative ground for justifying the judge's
    award of damages. And if the judge had wanted a precedent, he could have
    found it in Sir David Cairn's judgment in G. W. Atkins Ltd. v. Scott 7 Const.
    L.J. 215, where, it will be remembered, the Court of Appeal upheld the
    judge's award of £250 for defective tiling. Sir David Cairns said, at p. 221:

    "There are many circumstances where a judge has nothing but his
    common sense to guide him in fixing the quantum of damages, for
    instance, for pain and suffering, for loss of pleasurable activities or for
    inconvenience of one kind or another."

    If it is accepted that the award of £2,500 should be upheld, then that
    at once disposes of Mr. Jacob's argument that Mr. Forsyth is entitled to the
    cost of reinstatement, because he must be entitled to something. But even if
    he were entitled to nothing for loss of amenity, or for difference in value, it
    would not follow as Mr. Jacob argued that he was entitled to the cost of
    reinstatement. There is no escape from the judge's finding of fact that to
    insist on the cost of reinstatement in the circumstances of the present case was
    unreasonable.

    I would therefore allow the appeal and restore the judgment of Judge
    Diamond.

    - 26 -



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