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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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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.
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.
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.
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 -
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.
Mr. Forsyth had no intention or
desire to fit a diving-board, and would
be unlikely to form such
a desire in the future.
Since the pool was safe for
diving, the shortfall in depth did not
decrease the value of the
pool.
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.
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
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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
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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.
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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
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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.
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