Mitigation
Cases
Ruxley Electronics & Construction Ltd v Forsyth
[1995] UKHL 8
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.
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 bare essentials, can, I think, be summarised in three propositions. (1) The judge’s 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, namely the cost of reinstatement, which has not been and will not be incurred.
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 QC.
LORD JAUNCEY OF TULLICHETTLE.
My Lords, the respondent entered into a contract with the appellant 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 ft 6 in but, as built, its maximum depth was only 6 ft. The respondent 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 ft 6 in and it would therefore be unreasonable to carry out the works; and (6) that 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 LJ; Dillon LJ dissenting) ([1994] 3 All ER 801, [1994] 1 WLR 650) 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 (1848) 1 Exch 850 at 855, [1843-60] All ER Rep 383 at 385 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 Westing house Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673 at 688-689, [1911-13] All ER Rep 63 at 69 Viscount Haldane LC said:
‘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 BC v Bernard Sunley & Sons Ltd [1965] 3 All ER 619 at 630, [1966] AC 406 at 434-435 said:
‘… the learned editors of HUDSON’S BUILDING AND ENGINEERING CONTRACTS (8th edn, 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 work done and work specified; or (c) the diminution in value of the work due to the breach of contract. They go on (ibid.): “There is no doubt that wherever it is reasonable for the employer to insist upon re-in statement the courts will treat the cost of re-instatement as the measure of damage.” In the present case it could not be disputed that it was reasonable for the employers to insist on re-instatement and in these circumstances it necessarily follows that on the question of damage the trial judge arrived at the right conclusion.’
Lord Upjohn likewise stated that in a case of defective building work reinstatement was the normal measure of damages (see [1965] 3 All ER 619 at 637, [1966] AC 406 at 445). Mr McGuire QC for the appellant 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 in East Ham BC v Bernard Sunley & Sons Ltd quoted above referred to the reasonableness of insisting on reinstatement. In Imodco Ltd v Wimpey Major Projects Ltd (1987) 40 BLR 1 at 19 Glidewell LJ 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 & Sons Ltd (1986) 2 Const LJ 303 at 309 O’Connor LJ 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 [1978] 1 All ER 33 at 54, [1977] 1 WLR 1262 at 1283 Oliver J said:
‘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 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] 2 All ER 784 at 791, [1977] 1 WLR 659 at 667 May J referred with approval to a statement in McGregor On Damages (13th edn, 1972) paras 1059-1061 that in deciding between diminution in value and cost of reinstatement the appropriate test was the reasonableness of the plaintiffs desire to reinstate the property and remarked that the damages to be awarded were to be reasonable as between plaintiff and defendant. He concluded 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 (see [1977] 2 All ER 784 at 794, [1977] 1 WLR 659 at 670). In McGregor (15th edn, 1988) para 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 CLR 613 at 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 edn, 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:
‘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 Inc vKent (1921) 230 NY 239 at 244-245.
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 passage in Bellgrove v Eldridge cited above 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 Megarry V-C in Tito v Waddell (No 2) [1977] 3 All ER 129 at 316, [1977] Ch 106 at 332:
‘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.’
Megarry V-C 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 usable 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 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 reconstructing. 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 [1978] 1 All ER 33 at 42, [1977] 1 WLR 1262 at 1270:
‘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 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 £2,500 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 lies 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 valueof 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 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 increase 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 [1978] 1 All ER 33 at 42, [1977] 1 WLR 1262 at 1270 Oliver J emphasised 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 eg the valuable discussion by Harris, Ogus and Phillips, ‘Contract Remedies and the Consumer Surplus’ (1979) 95 LQR 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 misperformance takes it away. The lurid bathroom tiles, or the grotesque folly 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 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.
Reasonableness
The starting point is Robinson v Harman (1848) 1 Exch 850 at 855 at 855, [1843-60] All ER Rep 383 at 385, where Parke B said:
‘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.’
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 LC in the first of the two broad principles which he formulated in British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673 at 689, [1911-13] All ER Rep 63 at 69:
‘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 …’
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 failing 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 Appeals of New York in Jacob & Youngs Inc v Kent (1921) 230 NY 239. In that case the building owner specified that the plumbing should be carried out with galvanised 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, counterclaimed the cost of replacing the pipework even though it would have meant demolishing a substantial part of the completed structure, at great expense. Cardozo J (at 243) pointed out that there is ‘no general license to install 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 (at 244-245):
‘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 will 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 subcontractor 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 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 LJ’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 Eld ridge (1954) 90 CLR 613 the builder built a house with defective 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 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 of 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 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 plaintiff’s 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 BC v Bernard Sunley & Sons Ltd [1965] 3 All ER 619, [1966] AC 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 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 re-instatement the courts will treat the cost of re-instatement as the measure of damage.’ (See [1965] 3 All ER 619 at 630, [1966] AC 406 at 434.)
Lord Cohen continued:
‘In the present case it could not be disputed that it was reasonable for the employers to insist on 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 BC v Bernard Sunley & Sons Ltd has been followed in a number of subsequent cases. In G W Atkins Ltd v Scott (1980) 7 Const LJ 215 the building owner complained of some defective tiling. He claimed £1,229 as the cost of retiling 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 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 221):
‘[Counsel for the defendant] 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 LJ said (at 221-222):
‘I accept that the court must have some regard for 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 … were white. They did not match the tiles as they should have done. If, for the purpose of this 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? [Counsel for the defendant] 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 LJ 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 BC v Wiltshier Northern Ltd [1995] 1 WLR 68 at 79 Steyn LJ said:
‘… 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. ([1965] 3 All ER 619, [1966] AC 406). But where the cost of remedying the defects involves expense out of all proportion to the benefit which could 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 CR Taylor (Wholesale) Ltd v Hepworths Ltd [1977] 2 All ER 784, [1977] 1 WLR 659, Minscombe Properties Ltd v Sir Alfred McAlpine & Sons Ltd (1986) 2 Const LJ 303 and leading textbooks both here and in the United States—Mr McGuire QC was right when he submitted, and Dillon LJ 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 para 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 LJ 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 at 166-167, where he said:
‘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 which is incorporated in a contract as an end in itself, reflecting a personal preference of the contracting party. It does not apply where 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 LJ in G W Atkins Ltd v Scott (1980) 7 Const LJ 215 at 221, adopting the language of Oliver J in Radford v De Froberville [1978] 1 All ER 33, [1977] 1 WLR 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 LJ was much influenced by the decision in Radford v De Froberville. 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 prefabricated 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 in swimming pool instead of a 6 ft 9 in 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 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 WAtkins Ltd v Scott (1980) 7 Const LJ 215 at 220, it is not the diminution in the value of the freehold which provides the correct comparison, but the diminution in the valueof 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 secondhand 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 valueof 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 LJ said (at 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 LJ 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 Megarry V-C in Tito v Waddell (No 2) [1977] 3 All ER 129, [1977] Ch 106 and Oliver J in Radford v De Froberville [1978] 1 All ER 33, [1977] 1 WLR 1262. One of the many questions 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. Megarry V-C said ([1977] 3 All ER 129 at 316, [1977] Ch 106 at 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 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 LJ of a man who has had his watch stolen. In the latter case, the plaintiff is entitled to recover the valueof 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 plaintiff’s desire to pursue the course which involves the higher cost. Absence of such a 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.
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 LJ 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 McGuire 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] AC 488, [1908-10] All Rep 1. For obvious reasons, Mr McGuire 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] 1 All ER 71, [1973] QB 233 and Jackson v Horizon Holidays Ltd [1975] 3 All ER 92, [1975] 1 WLR 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 in 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 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 Cairns’ judgment in G W Atkins Ltd v Scott 7 Const LJ 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 221):
‘There are many circumstances where a judge has nothing but his commonsense 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.
Golden Strait Corporation v. Nippon Yusen Kubishka Kaisha
[2007] UKHL [2007] 3 All ER 1, [2007] 2 Lloyd’s Rep 164, [2007] 2 WLR 691, [2007] 2 All ER (Comm) 97, [2007] 2 AC 353, [2007] Bus LR 997, [2007] 1 CLC 352
Lord Bingham
Principle
The repudiation of a contract by one party (“the repudiator”), if accepted by the other (“the injured party”), brings the contract to an end and releases both parties from their primary obligations under the contract. The injured party is thereupon entitled to recover damages against the repudiator to compensate him for such financial loss as the repudiator’s breach has caused him to suffer. This is elementary law.
The damages recoverable by the injured party are such sum as will put him in the same financial position as if the contract had been performed. This is the compensatory principle which has long been recognised as the governing principle in contract. Counsel for the charterers cited certain classical authorities to make good this proposition, but it has been enunciated and applied times without number and is not in doubt. It does not, however, resolve the question whether the injured party’s loss is to be assessed as of the date when he suffers the loss, or shortly thereafter, in the light of what is then known, or at a later date when the assessment happens to be made, in the light of such later events as may then be known.
An injured party such as the owners may not, generally speaking, recover damages against a repudiator such as the charterers for loss which he could reasonably have avoided by taking reasonable commercial steps to mitigate his loss. Thus where, as here, there is an available market for the chartering of vessels, the injured party’s loss will be calculated on the assumption that he has, on or within a reasonable time of accepting the repudiation, taken reasonable commercial steps to obtain alternative employment for the vessel for the best consideration reasonably obtainable. This is the ordinary rule whether in fact the injured party acts in that way or, for whatever reason, does not. The actual facts are ordinarily irrelevant. The rationale of the rule is one of simple commercial fairness. The injured party owes no duty to the repudiator, but fairness requires that he should not ordinarily be permitted to rely on his own unreasonable and uncommercial conduct to increase the loss falling on the repudiator. I take this summary to reflect the ruling of Robert Goff J in Koch Marine Inc v D’Amica Società di Navigazione ARL (The “Elena D’Amico”) [1980] 1 Lloyd’s Rep 75. That case concerned the measure of damages recoverable by a charterer for breach of a time charter during its currency by an owner. While taking care to avoid laying down an inflexible or invariable rule, the judge held (p 89, col 2) that if, at the date of breach, there is an available market, the normal measure of damages will be the difference between the contract rate and the market rate for chartering in a substitute ship for the balance of the charter period. An analogy was drawn with section 51(3) of the Sale of Goods Act 1893. Neither party challenged this decision, which has always been regarded as authoritative. It does however assume that the injured party knows, or can ascertain, what the balance of the charter period is.
It is a general, but not an invariable, rule of English law that damages for breach of contract are assessed as at the date of breach. Authority for this familiar proposition may be found in Jamal v Moolla Dawood Sons & Co [1916] AC 175, 179: Miliangos v George Frank (Textiles) Ltd [1976] AC 443, 468; Johnson v Agnew [1980] AC 367, 400-401; Dodd Properties (Kent) Ltd v Canterbury City Council [1980] 1 WLR 433, 450-451, 454-455, 457; County Personnel (Employment Agency) Ltd v Alan R Pulver & Co [1987] 1 WLR 916, 925-926; Chitty on Contracts, 29th ed (2004), vol 1, para 26-057; Professor S M Waddams, “The Date for the Assessment of Damages”, (1981) 97 LQR 445, 446. The Sale of Goods Acts of 1893 and 1979 both give effect to this prima facie rule in section 51(3) of the respective Acts in the case of refusal or neglect by a seller to deliver goods to a buyer where there is an available market.
The argument
While not, I think, challenging the general correctness of the principles last stated, the charterers dispute their applicability to the present case. Their first ground for doing so is in reliance on what, from the name of the case in which this principle has been most clearly articulated, has sometimes been called “the Bwllfa principle”. It is that where the court making an assessment of damages has knowledge of what actually happened it need not speculate about what might have happened but should base itself on the known facts. In non-judicial discourse the point has been made that you need not gaze into the crystal ball when you can read the book. I have, for my part, no doubt that this is in many contexts a sound approach in law as in life, and it is true that the principle has been judicially invoked in a number of cases. But these cases bear little, if any, resemblance to the present. In Bwllfa and Merthyr Dare Steam Collieries (1891) Limited v Pontypridd Waterworks Company [1903] AC 426 a coalowner claimed statutory compensation against a water undertaking which had, pursuant to statutory authority, prevented him mining his coal over a period during which the price of coal had risen. The question was whether the coal should be valued as at the beginning of the period or at its value during the currency of the period. The coalowner was entitled to “full compensation” and the House upheld the latter measure. In doing so, it was at pains to distinguish the case from one of sale or property transfer: see Lord Halsbury LC, pp 428-429; Lord Macnaghten, p 431; Lord Robertson, p 432. In re Bradberry [1943] Ch 35, where the principle was invoked, concerned the valuation of an annuity in the course of administering an estate. The claim in Carslogie Steamship Co Ltd v Royal Norwegian Government [1952] AC 292 was a claim by shipowners for loss of time during repairs of damage caused by a collision. After the collision the ship had suffered heavy weather damage, which required the ship to be detained for repair of that damage. It was common ground that the ship would have been detained for the same period if the collision had never occurred (p 313). In In Re Thoars Deceased ([2002] EWHC 2416(Ch), unreported, 15 November 2002) the principle was invoked in the course of deciding whether a policy of life insurance had been transferred at an undervalue within the meaning of section 339 of the Insolvency Act 1986. The principle was again invoked in McKinnon v E Survey Ltd ([2003] EWHC 475 (Ch), unreported, 14 January 2003), a claim against negligent surveyors in which the court was asked to assume, for purposes of a preliminary issue, that the property had not been the subject of movement at the date of valuation and had not been subject to movement since, but that it would not have been possible to establish these facts until after the purchase of the property. In Aitchison v Gordon Durham & Company Limited (unreported, 30 June 1995) the Court of Appeal applied the principle where a joint venture agreement to develop land had been broken and the court took account of what actually happened to decide what the claimant’s profit would have been. I do not think it necessary to discuss these cases, since it is clear that in some contexts the court may properly take account of later events. None of these cases involved repudiation of a commercial contract where there was an available market.
The charterers further submit that even if, as a general rule, damages for breach of contract (or tort, often treated as falling within the same rule) are assessed as at the date of the breach or the tort, the court has shown itself willing to depart from this rule where it judges it necessary or just to do so in order to give effect to the compensatory principle. I accept that this is so. But it is necessary to consider the cases in which the court departs from the general rule. Some are personal injury claims, of which Curwen v James [1963] 1 WLR 748 and Murphy v Stone-Wallwork (Charlton) Ltd [1969] 1 WLR 1023 may serve as examples. Dudarec v Andrews [2006] EWCA Civ 256, [2006] 1 WLR 3002 was in form a negligence claim against solicitors, but damages were sought for the loss of a chance of success in a personal injuries action struck out for want of prosecution seven years earlier, and the issue was similar to that in a personal injuries action. It is unnecessary to consider the extent to which, in the light of Baker v Willoughby [1970] AC 467 and Jobling v Associated Dairies Ltd [1982] AC 794, the breach date principle applies to the assessment of personal injury damages in tort. The court has also departed from the general rule in cases where, on particular facts, it was held to be reasonable for the injured party to defer taking steps to mitigate his loss and so reasonable to defer the assessment of damage. Radford v De Froberville [1977] 1 WLR 1262 and Dodd Properties (Kent) Ltd v Canterbury City Council [1980] 1 WLR 433 are examples. In both cases the general rule was acknowledged and reasons given for departing from it. County Personnel (Employment Agency) Ltd v Alan Pulver & Co [1987] 1 WLR 916 was a claim against solicitors whose negligent advice had saddled the plaintiffs with a ruinous underlease, from which the plaintiffs had had to buy themselves out. The ordinary diminution in value measure of damage was held to be wholly inapt on the particular facts. Again, reasons were given for departing from the normal rule. In Miliangos v George Frank (Textiles) Ltd [1976] AC 443 the effect of inflation led the House to sanction a departure from the rule that losses sustained in a foreign currency must be converted into sterling at the date of breach. The plaintiff in Re-Source America International Ltd v Platt Site Services Ltd [2005] EWCA Civ 97, [2005] 2 Lloyd’s Rep 50 was bailee of spools used to carry optic fibre cables which it was to refurbish. The spools were destroyed by fire. It was held to be entitled to recover the cost of replacing the spools, subject to a deduction based on the saved cost of refurbishment. The Court of Appeal took account of what happened after the fire. It was expressly found (para 5) that there was no available market in used spools, so the plaintiff could not have mitigated its loss by replacing them. Sally Wertheim v Chicoutimi Pulp Company [1911] AC 301, cited by the charterers, was not a case of non-delivery or refusal to deliver, but of delayed delivery. The goods, although delivered late, were received and there was no accepted repudiation. The case would not have fallen under section 51(3) of the 1893 Act. The buyer made a claim for damages, based on the difference between the market price at the place of delivery when the goods should have been delivered and the market price there when the goods were in fact delivered. It was apparent on the figures that this claim, if successful, would have yielded the plaintiff a much larger profit than if the contract had not been broken, and he was compensated for his actual loss. None of these cases, as is evident, involves the accepted repudiation of a commercial contract such as a charterparty. It is necessary to consider some cases more similar to the present case to which the House was referred.
Considerable attention has been paid to the decision of the Court of Appeal (Lord Denning MR, Edmund Davies and Megaw LJJ) in Maredelanto Compania Naviera SA v Bergbau-Handel GmbH (“The Mihalis Angelos”) [1971] 1 QB 164. The case concerned a voyage charterparty by which the ship was fixed to sail to Haiphong and there load a cargo for delivery in Europe. In the charterparty dated 25 May 1965 the owners stated that the ship was “expected ready to load under this charter about July 1, 1965”. The charterparty also provided, in the first sentence of the cancelling clause, “Should the vessel not be ready to load (whether in berth or not) on or before July 20, 1965, charterers have the option of cancelling this contract, such option to be declared, if demanded, at least 48 hours before vessel’s expected arrival at port of loading”. On 17 July 1965 the ship was at Hong Kong still discharging cargo from her previous voyage. It was physically impossible for her to finish discharging and reach Haiphong by 20 July. The charterers gave notice cancelling the charter. The owners treated this as a repudiation and claimed damages, which were the subject of arbitration and of an appeal to Mocatta J. On further appeal, there were three issues. The first was whether the “expected readiness” clause was a condition of which the owners were in breach, entitling the charterers to terminate the charter contract. All three members of the court decided this issue in favour of the charterers and against the owners. The second issue was whether (if the answer to the first issue was wrong) the charterers had repudiated the contract by cancelling on 17 July, three days before the specified 20 July deadline. Lord Denning held that they had not, but Edmund Davies and Megaw LJJ held that they had. The third issue was as to the damage suffered by the owners, on the assumption that the charterers’ premature cancellation had been a repudiation. Lord Denning, in agreement with the arbitrators, who were themselves agreed, held that they had suffered no damage (p 197):
“Seeing that the charterers would, beyond doubt, have cancelled, I am clearly of opinion that the shipowners suffered no loss: and would be entitled at most to nominal damages.”
Edmund Davies LJ agreed (p 202):
“One must look at the contract as a whole, and if it is clear that the innocent party has lost nothing, he should recover no more than nominal damages for the loss of his right to have the whole contract completed.”
Megaw LJ (at pp 209-210) stated:
“In my view, where there is an anticipatory breach of contract, the breach is the repudiation once it has been accepted, and the other party is entitled to recover by way of damages the true value of the contractual rights which he has thereby lost; subject to his duty to mitigate. If the contractual rights which he has lost were capable by the terms of the contract of being rendered either less valuable or valueless in certain events, and if it can be shown that those events were, at the date of acceptance of the repudiation, predestined to happen, then in my view the damages which he can recover are not more than the true value, if any, of the rights which he has lost, having regard to those predestined events.”
It is evident that all members of the court were viewing the case as from the date of acceptance of the repudiation (although only Megaw LJ said so in terms). They were not taking account of later events. They were recognising, as was obvious on the facts as found, that the value of the contractual right which the owners had lost, as of the date of acceptance of the repudiation, was nil because the charter was bound to be lawfully cancelled three days later.
If, as I think, the Court of Appeal’s decision on the third issue in the Mihalis Angelos was entirely orthodox, so was the decision of Mustill J in Woodstock Shipping Co v Kyma Compania Naviera SA (“The Wave”) [1981] 1 Lloyd’s Rep 521. This concerned a time charter for 24 months, 3 months more or less at charterers’ option. The owners repudiated the charter and the charterers accepted their repudiation on 2 August 1979. In assessing the charterers’ loss, and allowing for their ability to obtain a substitute fixture in the available market shortly after the date of the accepted repudiation, in accordance with the ruling in the Elena D’Amico, above, the judge compared the charterparty rate with the market rate in the early days of September 1979, declining to speculate whether market rates in September 1981 would induce the charterers to exercise their three month option one way or the other.
SIB International SRL v Metallgesellschaft Corporation (“The Noel Bay”) [1989] 1 Lloyd’s Rep 361 concerned a voyage charterparty. The charterers repudiated the charterparty and the owners accepted the repudiation on 3 June 1987. On appeal to the Court of Appeal, Staughton LJ accepted (p 364, col 2) the submission of counsel that the value of the contract which the owners lost “must be assessed as at June 3, the date when repudiation was accepted”. He went on to quote, with approval, the passage from the judgment of Megaw LJ in the Mihalis Angelos which I have set out in para 14 above.
Kaines (UK) Ltd v Osterreichische Warrenhandelsgesellschaft Austrowaren Gesellschaft m.b.H. [1993] 2 Lloyd’s Rep 1 concerned not a charterparty but a contract for the sale and purchase of crude oil. The sellers repudiated and at 17.28 hours on 18 June 1987 the buyers accepted the repudiation. Steyn J held that the buyers should have replaced the oil in the market by, at latest, 19 June, and their damages were assessed accordingly. It was an anticipatory repudiation. Both the judge and the Court of Appeal in dismissing the appeal cited with approval (pp 7, 10) a passage in Treitel, The Law of Contract, 7th ed (1987), p 742:
“Under this [mitigation] rule, the injured party may, and if there is a market generally will, be required to make a substitute contract; and his damages will be assessed by reference to the time when the contract should have been made. This will usually be the time of acceptance of the breach (or such reasonable time thereafter as may be allowed under the rules stated above) …”
The Court of Appeal observed (p 11) that the judge’s finding on the date when the buyers should have bought in a substitute cargo “fixes the level of the plaintiffs’ damages on the facts of this case irrespective of what the plaintiffs did or failed to do at the time” and (p 13) “crystallises the position so far as the basis of a capital award of damages is concerned”.
The buyers in North Sea Energy Holdings NV v Petroleum Authority of Thailand [1999] 1 Lloyd’s Rep 483 repudiated an oil purchase agreement and the sellers accepted their repudiation. The sellers could not, however, show that they would have been able to obtain the oil to sell, and the Court of Appeal accordingly held that they were not entitled to substantial damages. In reaching this conclusion the court cited and applied part of Megaw LJ’s statement in the Mihalis Angelos which I have quoted in para 14 above.
BS & N Ltd (BVI) v Micado Shipping Ltd (Malta) (“The Seaflower”) [2000] 2 Lloyd’s Rep 37 concerned a time charterparty dated 20 October 1997 for a period of 11 months, maximum 12 months at charterers’ option. The charterparty referred to various major oil company approvals including that of Mobil all on the point of expiring and provided that if during the charter term the owners lost one of these approvals they should reinstate the same within 30 days failing which the charterers would be at liberty to cancel the charterparty. It also contained a guarantee by the owners to obtain an approval from Exxon within 60 days of the charter date. The vessel was duly delivered but the owners had not obtained an Exxon approval from Exxon and did not do so within 60 days from the charter date. On 30 December 1997 the charterers fixed the vessel to load a cargo of Exxon products. On the same date the charterers asked the owners if they had obtained the Exxon approval and gave notice requiring the owners to obtain it by 5 January 1998. The owners replied that the vessel would be ready for Exxon inspection by late January or early February. The charterers responded by terminating the charter and redelivering the vessel. At an initial hearing Aikens J held that the 60-day guarantee was an innominate term, not a condition. Thus the charterers were not entitled to terminate, and had repudiated the charterparty, which the owners had accepted. In proceedings initiated by the charterers, the owners counterclaimed for damages for wrongful termination of the charter, quantified as the difference between the daily hire rates in the charter and the alternative employment found for the vessel for the rest of the charter period. The charterers met this claim by contending that the owners would have lost their Mobil approval on 27 January 1998 and would not have been able to regain it within 30 days, namely 26 February: therefore the charterers would be contractually entitled to cancel, and the owners’ damages should end then. Timothy Walker J discerned a difference between the three judgments in the Mihalis Angelos, discounting Megaw LJ’s formulation as that of a minority, but found on the facts, as established at 30 December 1997, that the owners would have lost the Mobil approval on 27 January 1998. This conclusion he found to be supported by evidence of what actually happened after 30 December. He concluded that it was inevitable that the charter would have come to an end on 26 February, and limited the owners’ damages accordingly. This was, as I read the judgment, a conclusion he regarded as inevitable on 30 December. It does not appear that there was argument about the permissibility of relying on evidence of what happened later, and the judge cannot have supposed that he was deciding any issue of principle. The result of this case was perhaps less obvious than that on the third issue in the Mihalis Angelos, but it was a judgment, on different facts, to very much the same effect. It was quite unlike the present case, because early termination was very clearly predictable on the date when the repudiation was accepted, and the judge only relied on evidence of later events to fortify his conclusion on that point. I do not think he would have reached a different conclusion had he not received that evidence.
Dampskibsselskabet “Norden” A/S v Andre & Cie SA [2003] EWHC 84 (Comm), [2003] 1 Lloyd’s Rep 287 is a recent example of the application of the general rule. A forward freight swap agreement was treated as terminated because of the defendants’ breach of solvency guarantees. It was common ground by the end of the trial that the injured party’s loss was to be measured by the difference between the contract rate and the market rate after the date of termination. Toulson J recorded this agreement, observing (p 292, col 2) that “The availability of a substitute market enables a market valuation to be made of what the innocent party has lost, and a line thereby to be drawn under the transaction”. This is what the general rule is intended to achieve.
In support of their argument that damages should be assessed as of the date of actual assessment, the charterers contend that their claim attributable to loss of profit share would in any event have to be deferred. Neither the arbitrator nor the judge mentioned this point, from which it seems safe to infer that the point was not at that stage relied on. But Lord Mance, giving the leading judgment in the Court of Appeal, did refer to it (para 25), and counsel for the owners accepted in argument that the assessment of the profit share loss would have had to be deferred. I am far from convinced that counsel was right to accept this. It would of course be very difficult to calculate loss of profit prospectively over a four year period, but an injured party can recover damages for the loss of a chance of obtaining a benefit (see Treitel, 11th ed, (2003), pp 955-957) and the difficulty of accurate calculation is not a bar to recovery. Even if counsel is right on this point and I am wrong, this would not in my view be sufficient to displace the general rule in this context.
Conclusion
The thrust of the charterers’ argument was that the owners would be unfairly over-compensated if they were to recover as damages sums which, with the benefit of hindsight, it is now known that they would not have received had there been no accepted repudiation by the charterers. There are, in my opinion, several answers to this. The first is that contracts are made to be performed, not broken. It may prove disadvantageous to break a contract instead of performing it. The second is that if, on their repudiation being accepted, the charterers had promptly honoured their secondary obligation to pay damages, the transaction would have been settled well before the Second Gulf War became a reality. The third is that the owners were, as the arbitrator held (see para 7 above), entitled to be compensated for the value of what they had lost on the date it was lost, and it could not be doubted that what the owners lost at that date was a charterparty with slightly less than four years to run. This was a clear and, in my opinion, crucial finding, but it was not mentioned in either of the judgments below, nor is it mentioned by any of my noble and learned friends in the majority. On the arbitrator’s finding, it was marketable on that basis. I can readily accept that the value of a contract in the market may be reduced if terminable on an event which the market judges to be likely but not certain, but that was not what the arbitrator found to be the fact in this case. There is, with respect to those who think otherwise, nothing artificial in this approach. If a party is compensated for the value of what he has lost at the time when he loses it, and its value is at that time for any reason depressed, he is fairly compensated. That does not cease to be so because adventitious later events reveal that the market at that time was depressed by the apprehension of risks that did not eventuate. A party is not, after all, obliged to accept a repudiation: he can, if he chooses, keep the contract alive, for better or worse. By describing the prospect of war in December 2001 as “merely a possibility”, the expression twice used by the arbitrator in paragraph 59 of his reasons, the arbitrator can only have meant that it was seen as an outside chance, not affecting the marketable value of the charter at that time.
There is, however, a further answer which I, in common with the arbitrator, consider to be of great importance. He acknowledged the force of arguments advanced by the owners based on certainty (“generally important in commercial affairs”), finality (“the alternative being a running assessment of the state of play so far as the likelihood of some interruption to the contract is concerned”), settlement (“otherwise the position will remain fluid”), consistency (“the idea that a party’s accrued rights can be changed by subsequent events is objectionable in principle”) and coherence (“the date of repudiation is the date on which rights and damages are assessed”). The judge was not greatly impressed by the charterers’ argument along these lines, observing (paras 13, 35) that although certainty is a real and beneficial target, it is not easily achieved, and the charterparty contained within it the commercial uncertainty of the war clause. Lord Mance similarly said (para 24):
“Certainty, finality and ease of settlement are all of course important general considerations. But the element of uncertainty, resulting from the war clause, meant that the owners were never entitled to absolute confidence that the charter would run for its full seven-year period. They never had an asset which they could bank or sell on that basis. There is no reason why the transmutation of their claims to performance of the charter into claims for damages for non-performance of the charter should improve their position in this respect.”
I cannot, with respect, accept this reasoning. The importance of certainty and predictability in commercial transactions has been a constant theme of English commercial law at any rate since the judgment of Lord Mansfield CJ in Vallejo v Wheeler (1774) 1 Cowp 143, 153), and has been strongly asserted in recent years in cases such as Scandinavian Trading Tanker Co AB v Flota Petrolera Ecuatoriana (“The Scaptrade”) [1983] QB 529, 540-541, [1983] 2 AC 694, 703-704; Homburg Houtimport BV v Agrosin Private Ltd [2003] UKHL 12, [2004] 1 AC 715, 738; Jindal Iron and Steel Co Ltd v Islamic Solidarity Shipping Co Jordan Inc (“The Jordan II”) [2004] UKHL 49, [2005] 1 WLR 1363, 1370. Professor Sir Guenter Treitel QC read the Court of Appeal’s judgment as appearing to impair this quality of certainty (“Assessment of Damages for Wrongful Repudiation”, (2007) 123 LQR 9-18) and I respectfully share his concern.
On my reading of The Seaflower (see para 19 above), I do not think the arbitrator was bound by that decision to reach the conclusion he did. If he was, I respectfully think the judge was wrong to analyse the Mihalis Angelos as he did in that case. But on the facts Timothy Walker J was entitled to value the owners’ charter in that case at two months’ purchase as of the repudiation acceptance date. In the present case, by contrast, the arbitrator found four years’ purchase (less a few days) as the true market value of the charterparty on the repudiation acceptance date.
For these reasons and those given by my noble and learned friend Lord Walker of Gestingthorpe, with which I wholly agree, I would, for my part, have allowed the owners’ appeal.
LORD SCOTT OF FOSCOTE
My Lords,
The facts of this case have been fully and clearly set out in the opinions of my noble and learned friends Lord Bingham of Cornhill and Lord Carswell, both of which I have had the advantage of reading in advance. It will suffice for me to state in summary form what I take to be the salient features of the facts that have led to this litigation and to the appeal to your Lordships.
The charterparty of 10 July 1998 whereby the appellants (the Owners) and the respondents (the Charterers) agreed on a charter of the vessel, Golden Victory, for a period ending on 6 December 2005 contained a provision (clause 33) enabling either party to cancel the charter if war or hostilities should break out between any two or more of a number of named countries. The named countries included the USA, the UK and Iraq. The Charterers in breach of contract repudiated the charter on 14 December 2001 when the charter had nearly four years still to run (but subject, of course, to the clause 33 possibilities of cancellation). The Owners accepted the repudiation on 17 December 2001 and claimed damages for the Charterers’ breach of contract. The Owners’ claim went to arbitration and, after various issues had been determined by the arbitrator, all in the Owners’ favour, but before the arbitrator had assessed the quantum of the damages payable by the Charterers, the outbreak, in March 2003, of the Second Gulf War occurred. The Charterers said that if the charterparty had still been on foot when the Second Gulf War began they would have exercized their clause 33 right to bring the charter to an end. They submitted, therefore, that the Owners’ damages for their (the Charterers’) breach of contract should be assessed by reference to the period from 17 December 2001, when the contract came to an end on the Owners’ acceptance of their repudiation, to March 2003, when the contract would have come to an end if it had still been on foot. The Owners disagreed. They said the damages should be assessed by reference to the value of their rights under the charterparty as at 17 December 2001. That assessment could properly take account of the chance, assessed as at 17 December 2001, that a clause 33 event enabling one or other party to terminate the contract might occur, but should not take account of the actual occurrence of any event subsequent to 17 December 2001. The question was put to the arbitrator for decision. As your Lordships know, the arbitrator decided the question in favour of the Charterers. Langley J did likewise and the Court of Appeal agreed. The question is now before your Lordships for a final decision.
Two important matters that have, or may have, a bearing on the answer to the question are now common ground. First, it is common ground that, if the charterparty had still been on foot when, in March 2003, hostilities between the USA and the UK on one side and Iraq on the other side began, the Charterers would have exercised their clause 33 right to terminate the charterparty. Second, it is common ground that as at 17 December 2001 the chance that any hostilities triggering the clause 33 right of termination would break out was no more than a possibility and certainly not a probability.
My Lords, the answer to the question at issue must depend on principles of the law of contract. It is true that the context in this case is a charterparty, a commercial contract. But the contractual principles of the common law relating to the assessment of damages are no different for charterparties, or for commercial contracts in general, than for contracts which do not bear that description. The fundamental principle governing the quantum of damages for breach of contract is long established and not in dispute. The damages should compensate the victim of the breach for the loss of his contractual bargain. The principle was succinctly stated by Parke B in Robinson v. Harman 1 Ex 850 at 855 and remains as valid now as it was then.
“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.”
If the contract is a contract for performance over a period, whether for the performance of personal services, or for supply of goods, or, as here, a time charter, the assessment of damages for breach must proceed on the same principle, namely, the victim of the breach should be placed, so far as damages can do it, in the position he would have been in had the contract been performed.
If a contract for performance over a period has come to an end by reason of a repudiatory breach but might, if it had remained on foot, have terminated early on the occurrence of a particular event, the chance of that event happening must, it is agreed, be taken into account in an assessment of the damages payable for the breach. And if it is certain that the event will happen, the damages must be assessed on that footing. In The Mihalis Angelos [1971] 1 QB 164, Megaw LJ referred to events “predestined to happen”. He said, at p.210, that:
“… if it can be shown that those events were, at the date of acceptance of the repudiation, predestined to happen, then … the damages which [the claimant] can recover are not more than the true value, if any, of the rights which he has lost, having regard to those predestined events.”
Another way of putting the point being made by Megaw LJ is that the claimant is entitled to the benefit, expressed in money, of the contractual rights he has lost, but not to the benefit of more valuable contractual rights than those he has lost. In Wertheim v. Chicoutimi Pulp Co. [1911] AC 301, Lord Atkinson referred, at 307, to:
“… the general intention of the law that, in giving damages for breach of contract, the party complaining should, so far as it can be done by money, be placed in the same position as he would have been in if the contract had been performed”
and, in relation to a claim by a purchaser for damages for late delivery of goods where the purchaser had, after the late delivery, sold the goods for a higher price than that prevailing in the market on the date of delivery, observed, at 308, that:
“… the loss he sustains must be measured by that price, unless he is, against all justice, to be permitted to make a profit by the breach of contract, be compensated for a loss he never suffered, and be put, as far as money can do it, not in the same position in which he would have been if the contract had been performed, but in a much better position.”
The result contended for by the appellant in the present case is, to my mind, similar to that contemplated by Lord Atkinson in the passage last cited. If the charterparty had not been repudiated and had remained on foot, it would have been terminated by the Charterers in or shortly after March 2003 when the Second Gulf War triggered the clause 33 termination option. But the Owners are claiming damages up to 6 December 2005 on the footing, now known to be false, that the charterparty would have continued until then. It is contended that because the Charterers’ repudiation and its acceptance by the Owners preceded the March 2003 event, the rule requiring damages for breach of contract to be assessed at the date of breach requires that event to be ignored.
That contention, in my opinion, attributes to the assessment of damages at the date of breach rule an inflexibility which is inconsistent both with principle and with the authorities. The underlying principle is that the victim of a breach of contract is entitled to damages representing the value of the contractual benefit to which he was entitled but of which he has been deprived. He is entitled to be put in the same position, so far as money can do it, as if the contract had been performed. The assessment at the date of breach rule can usually achieve that result. But not always. In Miliangos v Frank (Textiles) Ltd [1976] AC 443 Lord Wilberforce at 468 referred to “the general rule” that damages for breach of contract are assessed as at the date of breach but went on to observe that:
“… It is for the courts, or for arbitrators, to work out a solution in each case best adapted to giving the injured plaintiff that amount in damages which will most fairly compensate him for the wrong which he has suffered…”
and, when considering the date at which a foreign money obligation should be converted into sterling, chose the date that “gets nearest to securing to the creditor exactly what he bargained for”. If a money award of damages for breach of contract provides to the creditor a lesser or a greater benefit than the creditor bargained for, the award fails, in either case, to provide a just result.
In Dodd Properties v Canterbury City Council [1980] 1 WLR 433, Megaw LJ, commenting on the “general rule” to which Lord Wilberforce had referred in the Miliangos case, said, at 451, that it was “clear” that the general rule was “subject to many exceptions and qualifications”. In County Personnel Ltd v. Alan R Pulver & Co. [1987] 1 WLR 916, Bingham LJ, as my noble and learned friend then was, said at 926 that the general rule that damages were assessed at the date of the breach “should not be mechanistically applied in circumstances where assessment at another date may more accurately reflect the overriding compensatory rule.” In Lavarack v. Woods of Colchester Ltd [1967] 1 QB 278, the Court of Appeal held that damages for wrongful dismissal could not confer on an employee extra benefits that the contract did not oblige the employer to confer and Diplock LJ (as he then was) said at 294, that:
“… the first task of the assessor of damages is to estimate as best he can what the plaintiff would have gained in money or money’s worth if the defendant had fulfilled his legal obligations and had done no more. Where there is an anticipatory breach by wrongful repudiation, this can at best be an estimate, whatever the date of the hearing. It involves assuming that what has not occurred and never will occur has occurred or will occur, i.e. that the defendant has since the breach performed his legal obligations under the contract and, if the estimate is made before the contract would otherwise have come to an end, that he will continue to perform his legal obligations thereunder until the due date of its termination. But the assumption to be made is that the defendant has performed or will perform his legal obligations under his contract with the plaintiff and nothing more.”
This passage was cited and applied by Waller LJ in giving his judgment, concurred in by Roch and Ward LJJ, in North Sea Energy Holdings NV v. Petroleum Authority of Thailand [1999] 1 Lloyd’s Rep 483 at 494/5.
The assessment at the date of breach rule is particularly apt to cater for cases where a contract for the sale of goods in respect of which there is a market has been repudiated. The loss caused by the breach to the seller or the buyer, as the case may be, can be measured by the difference between the contract price and the market price at the time of the breach. The seller can re-sell his goods in the market. The buyer can buy substitute goods in the market. Thereby the loss caused by the breach can be fixed. But even here some period must usually be allowed to enable the necessary arrangements for the substitute sale or purchase to be made (see e.g. Kaines v. Österreichische [1993] 2 Lloyd’s Rep 1). The relevant market price for the purpose of assessing the quantum of the recoverable loss will be the market price at the expiration of that period.
In cases, however, where the contract for sale of goods is not simply a contract for a one-off sale, but is a contract for the supply of goods over some specified period, the application of the general rule may not be in the least apt. Take the case of a three year contract for the supply of goods and a repudiatory breach of the contract at the end of the first year. The breach is accepted and damages are claimed but before the assessment of the damages an event occurs that, if it had occurred while the contract was still on foot, would have been a frustrating event terminating the contract, e.g. legislation prohibiting any sale of the goods. The contractual benefit of which the victim of the breach of contract had been deprived by the breach would not have extended beyond the date of the frustrating event. So on what principled basis could the victim claim compensation attributable to a loss of contractual benefit after that date? Any rule that required damages attributable to that period to be paid would be inconsistent with the overriding compensatory principle on which awards of contractual damages ought to be based.
The same would, in my opinion, be true of any anticipatory breach the acceptance of which had terminated an executory contract. The contractual benefit for the loss of which the victim of the breach can seek compensation cannot escape the uncertainties of the future. If, at the time the assessment of damages takes place, there were nothing to suggest that the expected benefit of the executory contract would not, if the contract had remained on foot, have duly accrued, then the quantum of damages would be unaffected by uncertainties that would be no more than conceptual. If there were a real possibility that an event would happen terminating the contract, or in some way reducing the contractual benefit to which the damages claimant would, if the contract had remained on foot, have become entitled, then the quantum of damages might need, in order to reflect the extent of the chance that that possibility might materialize, to be reduced proportionately. The lodestar is that the damages should represent the value of the contractual benefits of which the claimant had been deprived by the breach of contract, no less but also no more. But if a terminating event had happened, speculation would not be needed, an estimate of the extent of the chance of such a happening would no longer be necessary and, in relation to the period during which the contract would have remained executory had it not been for the terminating event, it would be apparent that the earlier anticipatory breach of contract had deprived the victim of the breach of nothing. In the Bwllfa case [1903] AC 426, Lord Halsbury at 429 rejected the proposition that “because you could not arrive at the true sum when the notice was given, you should shut your eyes to the true sum now you do know it, because you could not have guessed it then” and Lord Robertson said at 432, that “estimate and conjecture are superseded by facts as the proper media concludendi” and, at 433, that “as in this instance facts are available, they are not to be shut out”. Their Lordships were not dealing with a contractual, or tortious, damages issue but with the quantum of compensation to be paid under the Waterworks Clauses Act 1847. Their approach, however, is to my mind as apt for our purposes on this appeal as to theirs on that appeal.
My noble and learned friend Lord Bingham, in what has been rightly described as a strong dissent, has referred (in para 9) to the overriding compensatory principle that the injured party is entitled to such damages as will put him in the same financial position as if the contract had been performed. On the facts of the present case, however, the contract contained clause 33 and would not have required any performance by the Charterers after March 2003. It should follow that, in principle, the owners, the injured party, are not entitled to any damages in respect of the period thereafter. As at the date of the Owners’ acceptance of the Charterers’ repudiation of the charterparty, the proposition that what at that date the Owners had lost was a charterparty with slightly less than four years to run requires qualification. The charterparty contained clause 33. The Owners had lost a charterparty which contained a provision that would enable the Charterers to terminate the charterparty if a certain event happened. The event did happen. It happened before the damages had been assessed. It was accepted in argument before your Lordships that the Owners’ charterparty rights would not, in practice, have been marketable for a capital sum. The contractual benefit of the charterparty to the Owners, the benefit of which they were deprived by the repudiatory breach, was the right to receive the hire rate during the currency of the charterparty. The termination of the charterparty under clause 33 would necessarily have brought to an end that right.
The arguments of the Owners offend the compensatory principle. They are seeking compensation exceeding the value of the contractual benefits of which they were deprived. Their case requires the assessor to speculate about what might happen over the period 17 December 2001 to 6 December 2005 regarding the occurrence of a clause 33 event and to shut his eyes to the actual happening of a clause 33 event in March 2003. The argued justification for thus offending the compensatory principle is that priority should be given to the so-called principle of certainty. My Lords there is, in my opinion, no such principle. Certainty is a desideratum and a very important one, particularly in commercial contracts. But it is not a principle and must give way to principle. Otherwise incoherence of principle is the likely result. The achievement of certainty in relation to commercial contracts depends, I would suggest, on firm and settled principles of the law of contract rather than on the tailoring of principle in order to frustrate tactics of delay to which many litigants in many areas of litigation are wont to resort. Be that as it may, the compensatory principle that must underlie awards of contractual damages is, in my opinion, clear and requires the appeal in the case to be dismissed. I wish also to express my agreement with the reasons given by my noble and learned friends Lord Carswell and Lord Brown of Eaton-under-Heywood for coming to the same conclusion.
Leahy v Rawson
[2004] 3 IR 1
Sarah Leahy Plaintiff v. Joseph Rawson, Fergus Garland and Peter Murphy trading as Garland and Murphy and Associates and Irish Permanent Plc. Defendants
[1997 No. 9681P]
High Court 14th January 2003
Sullivan J.
14th January, 2003
On the 5th January, 1996, the plaintiff with her then partner, a brother of the first defendant and her son Gerard aged fifteen returned to Ireland having spent some 21 years in London. She bought a plot of land with a cottage on it for £24,000 of which £22,000 was advanced by the fourth defendant. The sale was agreed in February, but before completion she had been to the planning office to ensure that she would be able to build an extension. The cottage is situated at Ballykelly, Cadamstown, Birr, County Offaly.
Plans were prepared for the extension by an official in the planning department but were submitted in the name of the first defendant.
In or about August, 1996, the plaintiff was in a position to start the extension works: she had planning permission for the required alteration, she had the second and third defendants as engineers (a major controversy exists as to whether they were supervising engineers or merely engaged to certify stage payments) and she had a builder, the first defendant.
There was a certain informality about the works on site. In the first place, the plaintiff herself was very busy. A further element of informality was that the first defendant would turn up on site perhaps for three days in any one week. At the end of the week the plaintiff or her partner would pay all the money due for the work done during that week to the first defendant who would distribute it in equal shares amongst his fellow workers. A further element of informality was that, in fact, not all of the works on the invoice were done by the first defendant in that when he first came on site the trenching for the foundations of the new extension had already been marked out and dug and the concrete was being poured into them. Equally, at the end of the first defendant’s time on the site the evidence is that the work on the extension was not complete. The first defendant reached an agreement with the plaintiff’s partner (but not directly with the plaintiff) that the latter would finish the work and subsequent events intervened so that this did not happen. There is also an allegation, to which I will return later, that much of the work was defective. At this point I am summarising the evidence as to how the work was carried out because the plaintiff has alleged that the first defendant was the “builder” in the sense of building contractor for the job whilst the first defendant has argued that not only was he not the”builder” in this sense but that the informality and vagueness of the agreement was such that it was merely a domestic arrangement and not a formal contract at all.
The works commenced in early or mid-August, 1996.
The plaintiff says that her father, John Leahy, who had done building and driving work, became concerned about the standard of the building works. He advised her to get her engineers on site to have it checked. The plaintiff says she did this. There is major controversy between her and the second defendant as to what she did or did not say to him. He accepts only that she asked him to go out and check one specific thing, namely whether the new building was being correctly tied in to the old building. This he did at a stage, he says, when there were three or four courses of block work in place and this enabled him to check the ties on each of the walls and to assess that those involved knew what they were doing. He went out, checked the two walls, did nothing else and told the plaintiff that the tying in was being correctly done. She says that she asked the second defendant to check the block work, the plumpness of the walls and the tying in and made it clear that, notwithstanding that the builders were her partner’s brothers, she wanted a good job done. She says that the second defendant came back and reassured her, using colourful imagery, and that from that point she relied on him to her detriment against any other advisors.
I will return to this factual issue, which is one of two factual controversies between these two parties, the other being the terms of the plaintiff’s engagement of the second defendant, at a later point in this judgment.
Building progressed through the autumn and winter of 1996. Three stage payment certificates were issued by the second defendant, namely a wall plate level certificate issued apparently in early September (the certificates are not dated) but after the plaintiff’s request to have the standard of work checked. A second certificate to roof completion level which issued apparently towards the end of October, 1996 and involved a payment of £10,000 (the first certificate involved £20,000) and a final certificate dated the 5th March, 1997, which appears to imply certified cost expenditure of £8,000.
The final certificate was issued by the second defendant even though he acknowledges that the work was unfinished. He says he issued it in good faith on the understanding that the work would be finished by the plaintiff’s partner in a short time. This certificate has been criticised in the sense that both an architect and an engineering draftsman, called by the plaintiff, say that they would not have issued a final certificate for the house in its state of incompleteness. The evidence is that the work should be 95% complete at final certificate stage and one builder estimated that the house was only 65% complete.
The plaintiff moved into the new extension in January, 1997 once the roof was on and the structure built. She resided there with her partner and her son until July of that year when the relationship broke down and her partner left.
The plaintiff was not satisfied with the standard of workmanship and with the fact that the house was not complete. She engaged an architectural and engineering technician, Frank Murray, to prepare a report and in July, 1997, he verbally reported to her that the house was poorly constructed and that the roof was unsafe. His written report is dated the 17th July. It says that a lot of the walls are off-square, off-line and out-of-plumb and the general block work of the extension was not set out properly. Plastering was of poor standard, some falling off, some ceilings were off-level, there was no permanent ventilation, the chimney was left without sand and cement filling around its flue, the level of the windows and side entrance door appeared to be at different levels, the general workmanship of the interior house was extremely bad, there was insufficient supporting timber in the roof and also the pitch was less than the minimum required by the tile manufacturer, one vertical support member in the roof was totally inadequate and it appeared to be propped off a ceiling joist and not a wall as it should have been. The roof tiles had insufficient overlap, there was inadequate chimney flashing and capping and the path around the house was too steep and incomplete. A lot of plaster would have to be stripped off to straighten the walls, some windows taken out and refitted, the chimney would have to be relined, capped and flashed and the roof would have to be removed, redesigned and refitted. There would have to be permanent ventilation put in and he concluded by saying “at present with the roof in such an unstable manner it would be unsafe for anyone to occupy this house”.
A second report was prepared by an architect engaged by the fourth defendant, dated the 27th August, 1997. His report endorsed many of the points made by Mr. Murray and in particular he says that the rear roof would need to be redesigned and would have to be removed.
The plaintiff’s solicitor said in evidence that the plaintiff was very distressed around this time. He advised her not to occupy the extension in light of Mr. Murray’s assessment that it was dangerous. She continued to do so but also tried to procure local authority housing and failed, tried to raise a loan from the credit union and failed, discovered that there was no suitable rented accommodation (the previous rented accommodation was not available and in any event it was grossly unsuitable), and failed to get a loan from a bank for the purpose of buying a mobile home to live in on the site.
At some point her brother suggested that the planning permission included a garage and that she might build out the garage and occupy it. The planning permission prohibited residential use of the garage structure but this has not proved to be a problem and, indeed, Mr. Hussey the planning officer indicated at the trial that the planning authority might authorise retention of it as a “granny flat”.
The plaintiff decided to have the garage built which was done by Brendan Mahon and who had in fact originally tendered £40,500 for the entire work of the extension.
At the point in her evidence when she was dealing with this period and the options available or not available to her and in response to suggestions that she should have followed up the implications of the criticism of the roof in the engineer’s reports with a view to identifying what remedial works were required and how much they would cost and how long they would take to do the plaintiff repeatedly said that she was acting on the advice of her solicitor and that she had put the matter into the hands of her solicitor. She also said that her solicitor advised her to build out the garage. The plaintiff’s solicitor said that she was in error in this but did acknowledge that when she told him she was going to do this – it was her decision – he thought it was an excellent idea. He said she had tried so many other ways to get out of her quandary without success, she needed to bond with her son and this was an excellent way of doing it.
Her solicitor gave his own personal undertaking as security for a loan which he thought was in the region of £8,000 to enable her to carry forward this work. He was surprised when he heard in evidence that something in the order of £30,000 had been spent on the “garage”.
The plaintiff got credit from suppliers where she could, help free of charge from her father and brothers, obtained further credit where she could and paid for the building of the garage bit by bit over the ensuing period. It was built by Brendan Mahon and the plaintiff occupied the garage in the spring of 1998.
Meanwhile, Brendan Purcell, the consulting engineer engaged on behalf of the plaintiff by the plaintiff’s solicitor had himself instructed a quantity surveyor who prepared a report in December, 1997 valuing the entire work “related to Mr. Rawson’s quotation” at a total cost including materials of £32,000. He valued the labour cost only at £14,690. The quantity surveyor Vincent Drum says that the first defendant’s quote of £9,200 was grossly inadequate but it seems to me that the difference is to a considerable extent explained by the two different bases (non-payment or payment of tax) involved in these estimates. Mr. Drum also reported that the cost of the complete works properly constructed (by which he means free of defects and including several substantial items over and above those producing the “total cost” estimate of £32,000) was £66,544 to include £7,359 for V.A.T. at 12.5%. In this report (dated the 14th January, 1998) Vincent Drum offered an initial reaction that the cheapest and most efficient manner of rectifying the problems would be to demolish the entire and rebuild completely at a cost in the order of £70,000 plus professional fees.
Brendan Purcell considered this report and on the 10th July, 1998, furnished a further report whereby he amended the quantity surveyor’s estimate of the remedial works required upwards from £19,645.36 (Vincent Drum’s estimate as of March, 1998) to £32,835.09. On the basis of this he furnished a report expressing the view that the minimum remedial works proposed “would not provide sufficient benefit to make the house habitable to any comfortable degree” – even at the upwardly revised cost of £32,835.09. Even after this expenditure he said the house would not meet a mortgage society’s surveyor’s examination; it would be extremely difficult to sell and his view was that “to take care and eliminate all of the foregoing” it would be necessary to demolish and start again. He said that the block work in the house was so bad it would defy all skills of a carpenter and of a plasterer to put matters right, there were doubts about the foundations and the damp proof course and he noted that the cost of demolishing and starting again would be £70,000 plus professional fees.
In evidence Mr. Drum said that at the time of the preparation of his report Mr. Purcell and himself were moving towards a view that it would be better to demolish and rebuild the extension rather than to repair it.
The plaintiff submitted that the first defendant was the “builder” for the entire project in the sense that he was in overall charge and had responsibility for it. I am not convinced that this was so. It was a”direct labour” arrangement as part of which the first defendant was responsible to the plaintiff for the works set out in his two invoices, subject to agreed variations: he was not, in my opinion, responsible to her for the proper completion of the overall project.
This defendant also submitted that, by paying him the requested £500 for “extras” in mid-March, 1997, the plaintiff accepted his work without complaint in an obviously defective and incomplete state and cannot now claim against him for these breaches of contract. In my opinion the plaintiff paid the first defendant at a time when – despite appearances – she was still relying on the assurances of the second defendant and, in all the circumstances such payment cannot operate as an implied acceptance by her of the quality or completion by the first defendant of his contractual obligations towards her.
It was suggested that this was nothing more than a purely domestic arrangement between the plaintiff and this defendant. Alternatively it is said that the arrangements were so vague that they could not amount to a formal contract.
The rationale behind the leading cases on this topic namely, Balfour v. Balfour [1919] 2 K.B. 571 and Courtney v. Courtney [1923] 2 I.R. 31, is that the law does not recognise natural love and affection as good consideration (see McDermott,Contract Law, (2001) at p. 161). The doctrine (comprising a presumption against an intention to create legally binding arrangements) appears to apply only to the closest family kinships such as parent and child and spouses. Where it applies there is only a presumption of fact which can be rebutted but the onus is on the claimant to rebut. In Law Society of Ireland v. O’Malley [1999] 1 I.R. 162 Barron J. indicated that he would be prepared to uphold an agreement between the plaintiff and his wife’s family.
In the present case the agreement was between the plaintiff and her partner’s brother. She certainly felt herself bound by it and has furnished a detailed note of the amounts of payments up to and including the £9,200 on the invoice. The invoice was presented to her by the first defendant who indeed presented a further invoice for extras when he felt that he was being asked to do more work than that comprised in his original invoice. In my opinion there was an intention to create legal arrangements, albeit that the implementation of the agreement was done on a somewhat casual basis and was subject to variation on a reasonable basis (as distinct from being unenforceably vague) and this was accepted by both the first defendant and the plaintiff.
In my view the first defendant was obliged under this agreement, subject to agreed reasonable variations, to provide the plaintiff with the work described in the two invoices tendered in evidence. One of the variations exonerated him from setting out and laying out the trenches. He was not exonerated in my view from defective block work, walls being off plumb (as distinct from off skew), defective plaster work, absence of any landscaping or incomplete or defective works. His counsel made the argument that the plaintiff was unable to point to any one block or wall which was done by this defendant as distinct from jointly with his brother. The evidence was that this work was done by the two of them working together. Whilst I accept that the first defendant was not the building contractor with overall responsibility for the entire project he cannot in my view evade responsibility for defective or incomplete delivery of the items contained in his invoices simply on the basis that he only ever shared in any part of the work.
This defendant must accept responsibility for these defects and the consequences which flowed from them. He was aware of the plaintiff’s circumstances, both family and financial, and it was entirely foreseeable that if she was not able to occupy the extension as her dwelling because of defects for which this defendant is responsible she would have to incur expenses in finding alternative accommodation which would mean that she would find it extremely difficult or impossible to lay out expenditure in addition to remedying these defects. These are matters which I will go into in some greater detail at a later point in this judgment.
The case was pleaded on the basis that the second and third defendants were in partnership and this was not denied. During the course of the hearing there was some argument which appeared to be on the basis that the plaintiff had to establish liability against the third defendant separately in his own right. This does not seem to me to be correct if, as is the case, the second and third defendants are in fact one entity comprising a partnership offering architectural and engineering services to the plaintiff.
I ruled at the end of the plaintiff’s case that there was no evidence to show that she engaged the second defendant to supervise the works. Her counsel at the conclusion of the entire hearing pointed to two valuation reports prepared by this defendant for the benefit of the fourth defendant in which he answered “yes” to the question was there a qualified supervising architect and gave his own name as such. This was done twice. The plaintiff’s counsel said that whilst he knew that this document existed (through discovery) he could not prove it. He could have – by way of interrogatories. It may be that if this evidence had been adduced on behalf of the plaintiff my ruling would have been different. Nonetheless, the ruling stands and the case was conducted on the basis of it. These two documents comprising this information which came on his own admission from the second defendant himself do have a bearing, in my view, in the context of my assessment of his evidence.
Insofar as the plaintiff’s claim against the second and third defendants rests in contract my ruling was and must remain that the contractual obligation of these defendants was to provide stage payment certificates in respect of the work. The purpose of these certificates, I was told, was to communicate to the fourth defendant that the money which they proposed to advance had already been spent on the building – as distinct from a holiday or some other extraneous outlay. The evidence was that such a certificate (a stage payment certificate) made no representation either to the fourth defendant or to the plaintiff in relation to the standard or quality of the work: it was simply a certification that the money had been spent on the building.
A further point was made that, at the time that each of the certificates was issued, the plaintiff had already spent her own money on the relevant works and therefore did not rely on these in order to incur this outlay. Even if they were incorrect, this argument goes, she suffered no loss as a result of this failure because she had already spent the money. There was evidence, however, that if such a certificate did not issue then the works would have had to be done again assuming that the reason was that they were defective. This is, of course, contradictory of the initial position that the certificates did not relate to standard or quality of work. The only instance in which the second defendant said a certificate would be refused was if the works were not complete. This was in fact the case in relation to the final certificate but he went ahead nonetheless and gave the certificate, as he said in good faith, trusting that the works would be completed by the first defendant’s brother in a short time.
Insofar as the plaintiff’s claim against these defendants sounds in contract, I hold that it is only in relation to the lack of completion of the works (the evidence is that the final certificate should issue when the works were 95% complete and these works were only 65% complete) that the plaintiff has made out her claim.
The plaintiff has also made a claim in negligence.
It seems to me quite possible and not extraordinary that a person not particularly familiar with the ins and outs of building society requirements and the distinction between stage payment certificates and supervisory certificates would assume that once she mentioned that she required an engineer’s involvement on behalf of the fourth defendant who had told her that she needed a supervising engineer that they would understand that they were to supervise. She said she assumed that the second defendant had been engaged to supervise. She further expressed the view that if this had not been the case, contrary to what she thought, then why did the second defendant not explain to her when she asked him to call out and check the building (which he admits insofar as tying in is concerned) that she got his roles mixed up and that what she was requesting was the job of a supervising engineer, which he was not.
Further background to these clashes of evidence are the documents filled in by the second defendant for the benefit of the fourth defendant in which he acknowledges that there is a supervising architect and that it is indeed himself. This he did twice.
The second defendant says that in fact when engaging him the plaintiff did ask him to supervise and he explicitly said he would not. At that time his firm was not providing supervisory services at all.
In my view when the plaintiff telephoned the second defendant with her concerns about the defective workmanship of the block work she was under the impression that she was talking to her supervising engineer. I prefer her evidence in relation to this conversation to that of the second defendant and it is clear that he was aware that the works involved required a supervising engineer and he must have been aware that the fourth defendant was the recipient of a communication of his own that he indeed was that supervising engineer.
I have held that there was no evidence on the plaintiff’s case that he was engaged as such and if, further, he undertook (taking his own evidence at its face value) in these circumstances to check into the tying in of the new building with the old, this was against a background where he had incorrectly represented to the fourth defendant that he was the supervising engineer and, assuming even on his own evidence that he had explicitly told the plaintiff that he would not supervise then he acted inconsistently when he undertook to do one specific item of supervision. This was at a time when it must have been apparent to him that the plaintiff did not have a supervising engineer. His counsel suggests that the plaintiff knew all this and was aware not only that she had to have a supervising engineer to comply with the fourth defendant’s requirements but that she deliberately decided (in consonance with her overall penny-pinching attitude to outlay) not to pay the second defendant the scale fee involved for supervision but rather to accept his firm merely as instruments for extracting funds from the fourth defendant.
I reject this scenario for a number of reasons. First and foremost, I formed the clear impression that the plaintiff was a truthful witness and, whilst there were parts of her evidence which were clearly incorrect, I do not accept that the only explanation for such an easily demonstrable lie is in fact mendacity on the part of the plaintiff as distinct from some other explanation which is not apparent. My opinion is nonetheless that her evidence was reliable particularly with regard to things which she could understand such as what she said to the second defendant by contrast with things which were new and unfamiliar to her, such as the ins and outs of certification and other paperwork connected with the building process.
Furthermore, the second defendant’s scenario imports to the plaintiff an awareness of distinctions between different kinds of engineering certificates which I do not believe she had at that time. Moreover, there is a certain element of self-contradiction or at least inherent tension in the second defendant’s evidence in so far as he insists that he quite assertively told the plaintiff that he would not supervise and then subsequently when asked to carry out an exercise in supervision he proceeded to do so without demur or explanation. Finally, the above scenario was not explicitly put to the plaintiff in cross-examination.
I hold that the plaintiff did communicate with the second defendant some weeks after the commencement of the block work but before the issuing by the second defendant of the first stage payment certificate and expressed concerns about the general workmanship on the site and told him that her father was concerned about it, asked him to check it, specifically mentioning the tying in, the block work and the out-of-plumpness of the walls (something which might be difficult to divine if the blocks were only three or four courses high) and asked him to be under no illusion but that she required a proper professional job done notwithstanding that the builders were her partner’s brothers. I also hold that the second defendant reassured her in the colourful terms given in evidence by the plaintiff and that as a consequence of this reassurance she relied on him to the exclusion of any others from that moment forward in drawing the inference that the construction work (notwithstanding what might appear to her or others) was up to a good standard and that it was in this context that she understood the issuing by the second defendant of the stage payment certificates.]
O’Sullivan J. continued:-
The law
Counsel has submitted that the relationship between the plaintiff and the second and third defendants is one of contract and contract only. He relies on a number of decisions but in particular for example thedictum of Lord Scarman in Tai Hing Ltd. v. Liu Chong Hing Bank [1986] 1 A.C. 80 at p. 107 as follows:-
“Their Lordships do not believe that there is anything to the advantage of the law’s development in searching for a liability in tort where the parties are in a contractual relationship. This is particularly so in a commercial relationship.”
I note in passing that one of the concerns of Scarman L.J. was a distinction arising in terms of limitation of actions between claims in contract and tort. Further reliance was placed on Pacific Associates v. Baxter [1990] 1 Q.B. 993 where it was held that in the absence of a voluntary assumption of responsibility by the defendants to the plaintiff the law would not impose on the defendants a duty of care to avoid economic loss accruing to the plaintiff.
Furthermore, for the imposition of such a duty of care there had to be three requirements, namely the forseeability of harm, the proximity of the relationship and further it must have been just and reasonable to impose a duty on the defendant. In this instance the contract terms entered into between the parties (and nothing else) were the governing criteria of the relationship between them.
The most recent and authoritative statement of the law in this country as it bears on this topic is that of Keane C.J. in Glencar Exploration plc. v. Mayo County Council (No. 2) [2002] 1 I.R. 84. At p. 135 Keane C.J. refers to the views of Lord Wilberforce in Anns v. Merton London Borough [1978] A.C. 728 at pp. 751 to 752 where he said:-
“¦ in order to establish that a duty of care arises in a particular situation, it is not necessary to bring the facts of that situation within those of previous situations in which a duty of care has been held to exist. Rather the question has to be approached in two stages. First one has to ask whether, as between the alleged wrongdoer and the person who has suffered damage there is a sufficient relationship of proximity or neighbourhood such that, in the reasonable contemplation of the former, carelessness on his part may be likely to cause damage to the latter – in which case a prima facie duty of care arises. Secondly, if the first question is answered affirmatively, it is necessary to consider whether there are any considerations which ought to negative, or to reduce or limit the scope of the duty or the class of person to whom it is owed or the damages to which a breach of it may give rise ¦”
Keane C.J. next alludes at p. 136 to criticisms and doubts voiced in relation to the foregoing culminating in the views expressed for example by Lord Bridge in Caparo plc. v. Dickman [1990] 2 A.C. 605 at pp. 617 to 618 when he said:-
“What emerges is that, in addition to the forseeability of damage, necessary ingredients in any situation giving rise to a duty of care are that there should exist between the party owing the duty and the party to whom it is owed a relationship characterised by the law as one of ‘proximity’ or ‘neighbourhood’ and that the situation should be one in which the court considers it fair, just and reasonable that the law should impose a duty of a given scope upon the one party for the benefit of the other.”
Keane C.J., referring in Glencar Exploration p.l.c. v. Mayo County Council (No. 2) [2002] 1 I.R. 84 to what he described as the more cautious approach favoured in Caparo plc. v. Dickman (1990) 2 A.C. 605 (contrasting that approach with that of McCarthy J. in Ward v. McMaster [1988] I.R. 337) alluded back to the distinction made by Lord Atkin in his judgment in Donoghue v. Stevenson [1932] A.C. 562 when he gave the colourful example of the pusillanimous bystander watching a fire threatening the lives of people in the building and knowing that if he waits for the fire brigade to come and save them it may be too late. The law does not impose upon such a bystander a duty of care simply because he fails to act in a way that a more courageous citizen might do. Keane C.J. observes at p. 139:-
“It is precisely that distinction drawn by Lord Atkin between the requirements of morality and altruism on the one hand and the law of negligence on the other hand which is in grave danger of being eroded by the approach adopted in Anns v. Marton London Borough [1978] A.C. 728, as it has subsequently been interpreted by some. There is, in my view, no reason why courts determining whether a duty of care arises should consider themselves obliged to hold that it does in every case where injury or damage to property was reasonably foreseeable and the notoriously difficult and elusive test of ‘proximity’ and ‘neighbourhood’ can be said to have been met, unless very powerful public policy considerations dictate otherwise. It seems to me that no injustice will be done if they are required to take the further step of considering whether, in all the circumstances, it is just and reasonable that the law should impose a duty of a given scope on the defendant for the benefit of the plaintiff, as held by Costello J. at first instance in Ward v. McMaster [1985] I.R. 29, by Brennan J. in Sutherland Shire Council v. Heyman (1985) 157 C.L.R. 424 and by the House of Lords in Caparo plc. v. Dickman [1990] 2 A.C. 605.”
Brennan J. in Sutherland Shire Council v. Heyman (1985) 157 C.L.R. 424 had said:-
“[I]t is preferable in my view that the law should develop novel categories of negligence incrementally and by analogy with established categories, rather than by a massive extension of a prima facie duty of care restrained only by indefinable ‘considerations which ought to negative, or to reduce or limit the scope of the duty or the class of person to whom it is owed’.”
Applying these criteria, it seems to me that what the second defendant did at the plaintiff’s request when she voiced her concerns to him about the standard and quality of the block work on the site was to volunteer to do something outside the terms of the agreement between the plaintiff and himself. It was clearly foreseeable that if he failed to advise the plaintiff as to the standard of the workmanship having reassured her in the colourful terms, to which I have alluded above, that harm in the form of her being falsely reassured (and consequential loss) would follow. There was clearly, in my view, a sufficient degree of proximity between the plaintiff and the second defendant to attract to that relationship the application of the principles outlined above and it further seems to me in the circumstances that it is just and reasonable to impose on the second defendant a duty of care to the plaintiff so that the second defendant and the firm comprising the second and third defendants are liable to the plaintiff for any breach of their assumed responsibility to advise her in relation to any defects and lack of standard or in completion of the workmanship of the project.
Even therefore, on the basis of the self described more cautious approach, which is of course binding upon me, in my opinion the second defendant (and through him the third defendant as his partner) was under a duty of care to the plaintiff to advise her of the standard of work of the project and I further hold that he was in breach of that duty in failing so to advise the plaintiff. The consequences of such failure were entirely foreseeable and include the loss and damage to which I will refer hereafter.
No difference in scope of liability as between first and second/third defendants
In my view the scope of the liability of the first defendant is the same as that of the second and third defendants. The defects for which the first defendant is liable as already determined above would also necessitate remedial works as set out hereafter under the heading”plaintiff’s right to damages” and entitle the plaintiff to damages comprising the cost of repairs, devaluation of the house after repair, loss of profits from the bed-and-breakfast business and general and special damages as detailed below.
Liability of the fourth defendant
At the conclusion of the plaintiff’s case I ruled that no case had been made out against this defendant. There was no evidence of a mis-statement by Michael Halpin [who was the manager of the Birr office of the fourth defendant] (in recommending the second and third defendants as supervising engineers) let alone negligent mis-statement, and there was no fiduciary duty owed by this (fourth) defendant to the plaintiff.
The plaintiff’s duty to mitigate her loss
To summarise, the professional advice available to the plaintiff in 1998 it was as follows:-
(a) three engineers said the roof was dangerous;
(b) she decided to build out the garage for a dwelling for herself and her son;
(c) her solicitor advised her not to occupy the dangerous extension;
(d) a quantity surveyor assessed the remedial work to get her back into the extension (not to full standard but to get her “in out of the rain”) at £19,645.36;
(e) her consulting engineer increased this figure to £32,835.09 (with the same limitations).
The defendants criticised the decision of the plaintiff to build the garage and more particularly to abandon all notion of doing remedial works on the extension. They said that the latter in particular is a failure on her part to mitigate her loss in the context of her claim against them.
I approach this question in two parts. Firstly, was it reasonable for the plaintiff to opt to construct the garage as a dwelling?
She had applied to the local authority to be housed by them without success, tried to get a loan for a mobile home, found no rentable accommodation, her parents’ and sister’s accommodation was not satisfactory and she urgently needed a dwelling for herself and her son who was now left without a father figure. She was in a virtually impossible situation and even the option she elected to take was in breach of a condition of her planning permission. In my view, in her dire circumstances, she was reasonable in taking this option to build the garage as a dwelling.
The second question is was she reasonable having taken this option in abandoning all effort to carry out remedial works on the extension?
The plaintiff’s finances were in a state of disorder and she spent all her money (and credit) on the garage. Her evidence was that no builder would touch the extension. This was supported by her solicitor who said that no builder could be got to come within 40 miles of the place and, indeed, in the evidence of Brendan Mahon to the extent that he told her at the time that it would only be a patch up job and the walls would be crooked and off-line. A second builder, Richard Brady, gave evidence that he told the plaintiff at the time that the extension could be done up. Martin McManus, one of the builders the plaintiff consulted at the time, said in evidence that he would never say no to work and that he would do it if Mr. Cantrell (an architect) would sign off on the work. Mr. Purcell said (and reported at the time) that the builders he consulted (Brendan Mahon and a Mr. Murphy) were not prepared to do the remedial work. At the trial Mr. Wyer, a builder called by the second and third defendants, had no hesitation in saying that he would have done the work and he gave a price of £26,004.38 at current values and £18,000 or £19,000 at 1997 prices. His estimate for the entire roof work was £7,880. If he had to take off the roof as distinct from repair it the estimate for the entire works was £31,000.
There was some confusion in the plaintiff’s case at this point. It is not clear whether her case is that she did not contemplate or implement remedial works because she was advised that it was not economic to do so (according to the line adopted by Mr. Purcell and Mr. Drum) or because she could not get a builder to do them (according to herself). Indeed as the case was opened it appeared that the structural defects were such that they required demolition of the extension. A further consideration is the impecuniosity of the plaintiff once she had spent money on doing the garage which, as I have held, was reasonable for her in all the circumstances.
It would be a mistake, I think, to look back with the benefit of hindsight and condemn the plaintiff for spending (ultimately) some £30,000 on the garage when the remedial costs for the extension would have come to approximately the same sum. In the first place the garage was built piecemeal, with the help (free) of relatives, credit (extended) of supplies wherever possible and further extended credit of the credit union; secondly, she had no clear advice at the time that the remedial works on the extension could be done at all or in an economic manner (in fact her advice from Brendan Purcell and Vincent Drum when it came was to the opposite effect), thirdly she was clearly managing on incremental and piecemeal assistance (an extended loan here, offers of free help there, supplies of credit elsewhere) on the basis of which only emergency and incremental decisions were possible, and fourthly and most importantly, her primary duty was as a parent to provide forthwith, if possible in autumn 1997, a home for herself and her son: she could not afford to wait (in an unsafe extension) for a report on costings which ultimately emerged in March, 1998. Indeed, when the report did come out it was unclear and inconclusive as witnessed by the several hours of examination, cross-examination and re-examination of its author, Brendan Purcell, at the hearing before me.
In my opinion, the plaintiff was in no position to expend monies on the repair and completion of the works on the extension because of her impecuniosity, the disorder in her finances, her reasonable decision to provide a home for herself and her son in the garage and the advice she was getting from her solicitor and engineer. Her financial circumstances as a result of the defects in the extension were entirely foreseeable to the first defendant who knew her circumstances as a family member and the second and third defendants, who were familiar with them through their role in processing her mortgage.
It is further my distinct impression that the complexity and overall pressure of her situation somewhat overwhelmed not only the plaintiff but her advisors. It is noteworthy in this context that Mr. Purcell engaged in activities proper to a quantity surveyor, Mr. Drum engaged in activities proper to an engineer, her solicitor has given his personal undertaking for part of her borrowing and indeed endorsed (correctly in my view) her decision to build the garage as a dwelling even if he did not advise it in the first place.
Demolition or nothing
A further pressurising and unusual feature of the case is the way in which it has been presented in court. The plaintiff’s counsel made it clear on the third or fourth day of the trial that she was seeking damages based on the cost of demolition and rebuilding and that she was not interested in damages based on the cost of remedial works. This is a matter to which I returned with her counsel on the day after this was stated and the position was repeated. As a result, the second and third defendants declined at least on one occasion to cross-examine the plaintiff’s witness (Mr. Purcell) in relation to his estimate of the remedial works required on the grounds that they were now irrelevant and that the plaintiff’s claim was for “all duck or no dinner”. If ever there was a chance that the parties might reach a negotiated settlement this stance put paid to it. At the conclusion of the trial the plaintiff’s counsel attempted to resile from this stand suggesting that it meant no more than that the plaintiff would lose her case if her witnesses were disbelieved and that the onus of making her case rested with her. The case was run on the basis described and in reliance on the clear intimation of the plaintiff’s counsel set out above: that intimation clearly meant something more than a trite andjejune recital of the obvious and was acted upon as something unusual by the defendants who tailored their handling of at least one witness accordingly. To accede to a revisiting of this tactic at the end of the case would not only be incorrect, but would, in my opinion, have amounted to a mistrial ripe to be set aside for the asking.
As I understand the law, if a plaintiff seeks damages measured at the cost of reinstatement she will be entitled to this if and only if such measurement of damages is reasonable. As Henchy J. said in Munnelly v. Calcon Ltd. [1978] I.R. 387 at p. 399:-
“In my view, the particular measure of damages allowed should be objectively chosen by the court as being that which is best calculated, in all the circumstances of the particular case, to put the plaintiff fairly and reasonably in the position in which he was before the damage occurred, so far as a pecuniary award can do so.”
He went on to cite with approval an extract from McGregor onDamages (13th ed., 1972) which included:-
“The test which appears to be the appropriate one is the reasonableness of the plaintiff’s desire to reinstate the property; this will be judged in part by the advantages to him of reinstatement in relation to the extra cost to the defendant in having to pay damages for reinstatement rather than damages calculated by the diminution in the value of the land.”
Henchy J. then cited a passage from the judgment of May J. in C.R. Taylor Ltd. v. Hepworths Ltd . [1977] 1 W.L.R. 659 at p. 667, which included:-
“But secondly, the damages to be awarded are to be reasonable, reasonable that is as between the plaintiff on the one hand and the defendant on the other.”
There is no right to restiutio in integrum as of right.
In my view, as I have already said, the plaintiff was reasonable in deciding to build out the garage as a home for herself and her son in the late autumn and winter of 1997/1998.
In this regard it is clear that at all material times the plaintiff’s finances were stretched to or perhaps beyond bursting point. Her impecuniosity cannot be ignored. Indeed, I consider that this factor alone exonerates her from doing the repair work up to the time of trial. In deciding that she was reasonable in taking no further step towards repairing and completing the extension between 1998 and the hearing of this case, I bear in mind not only the plaintiff’s impecuniosity but also the state of the advice, already summarised, in relation to whether it would be worthwhile to carry out such repairs or simply plan to demolish and rebuild the extension. Her own evidence is that she left the matter in the hands of her solicitor. At no stage was she told by any of her advisors that she should take such steps (even if she could afford to do so) in order to mitigate her loss. Therefore her inaction must be regarded at least as subjectively reasonable.
The plaintiff’s right to demolition damages
However, this does not end the matter because the plaintiff’s case at trial was presented on the basis that she sought damages on one basis and one basis only, namely the cost of demolition of the extension and re-building it. She was not claiming – even in the alternative – the cost of repairs together with any other sum such as resulting diminution in value of the house even if the defects were put right. She is only entitled to this measure of damages if it is reasonable”¦ as between the plaintiff on the one hand and the defendant on the other” to use the phrase of May J. in C.R. Taylor Ltd. v. Hepworths Ltd. [1977] 1 W.L.R. 659, as cited by Henchy J. in Munnelly v. Calcon Ltd. [1978] I.R. 387. I take this to mean that the reasonableness of the way the plaintiff’s case presented in court must be tested by reference to an objective standard. In other words if her advice stands up then she is entitled to follow it: if it does not then she is not.
The advice came in three parts: she was advised or appeared to have been advised that the premises were unsafe and structurally unsound. Secondly, she was advised or appears to have been advised that it would be better to demolish and rebuild rather than repair on some prudent basis other than structural engineering, presumably, on economic grounds. (I use the words “appears to have been advised” because the evidence at the trial was vague and confused in regard to both these aspects.) In my opinion the advice, if such it was, that the extension would have to be demolished in its entirety onstructural grounds did not stand up – and indeed was not even proffered “in chief” – at the trial. Therefore, on objective grounds, the plaintiff was not entitled to claim demolition and rebuild damages on the basis of this advice. The advice that it would effectively be cheaper to demolish and rebuild than to repair is something that was not articulated to any great extent in the advice given to the plaintiff prior to the trial but was the subject of exhaustive analysis at the trial. I will return shortly to decide whether or not this aspect of the plaintiff’s advice entitles her to claim damages on the basis of demolition and rebuild.
The third element of advice relied upon by the plaintiff in deciding not to carry out repairs (and to claim demolition and rebuild damages) was to the effect that no builder would touch the job. This advice was supported by her solicitor and, with some qualification, by the two builder witnesses called on behalf of the plaintiff. Against this was the evidence of Mr. Wyer who had no difficulty in identifying the works required to be done and in saying he would do them now and would have done them in 1998. On the basis of the evidence at the trial I would have difficulty in holding – if this were the only element for consideration in this particular exercise – that the plaintiff was entitled to refrain from carrying out repairs exclusively upon the basis that no builder could be got to do them.
It seems to me, that in considering this aspect of the basis upon which the plaintiff’s case was advanced in court, I should make an assessment of the damages the plaintiff is entitled to be awarded in respect of the breaches and consequences thereof for which the defendants are liable on the one hand and the cost of demolishing and rebuilding the extension on the other. If the former approximates ora fortiori exceeds the latter, then the decision of the plaintiff to opt for an exclusively “demolish and rebuild” measure of damages is reasonable in the sense of objectively reasonable “as between the plaintiff on the one hand and the defendant on the other” because those latter costs are a smaller amount than the former. It further follows, in my view, that the plaintiff’s claim for damages is limited to such amount the case having been run on the basis that she was interested in one measure of damages only, namely the cost of demolition and rebuilding.
If the plaintiff had carried out repairs of the defects and incomplete parts of the extension (in respect of those items for which the defendants are responsible) then she would be entitled to claim against the defendants:-
(a) the cost of those repairs;
(b) the devaluation of the house so repaired (if any) by contrast with the value of the house had not those defects occurred in the first place;
(c) any loss of profits from operating a bed and breakfast business from the time when the work should have reasonably been complete to the time when it was reasonable for the plaintiff to have carried out such repairs – in the event, of course that is, that she is entitled to claim such losses in the first place;
(d) general damages (here I follow Geoghegan J. in Doran v. Delaney (No. 2) [1999] 1 I.R. 303 at p. 340 and Carroll J. in Roche v. Peilow [1985] I.R. 232);
(e) appropriate items of special damage such as, for example, the costs of heating and maintaining the extension until the time of (notional) repairs.
Before considering each of these heads of damages in turn I will deal with one further aspect of the plaintiff’s claim. She has, in her pleadings, claimed the costs of building the garage. I do not think she is entitled to this because, while she was reasonable in doing these works, she now has the benefit – such as it is – of this (at least formally) unauthorised structure and secondly, the fact that this building work was reasonable in the circumstances does not thereby entitle the plaintiff to increase the burden of damages against the defendants by claiming the expenses involved against them.
Plaintiff’s right to damages
(a) Cost of repairs
Mr. Drum costed “remedial work” in March, 1998 at £19,645.36. This figure was increased to £32,835 not by him but by Mr. Purcell who
discussed this list of remedial works with two builders and”reviewed” the price upward. Mr. Purcell further commented that these minimum remedial works would not provide sufficient benefit to make the house habitable to any comfortable degree. Mr. Purcell’s evidence at trial was confused in relation to what precisely this phrase meant. It is clear that the mere repair of the defective works would not have finished the house but equally, in my opinion, the defendants cannot be held liable for the costs of providing plumbing or electrical installation or central heating to the house which was never to be provided by the first defendant and in respect of which – insofar as these items do exist – there is no complaint.
A further complicating factor, but one which I must nevertheless bear in mind, is the fact that the works which were provided by the plaintiff were provided “on the cheap” even allowing for the fact as already averted to that the first defendant’s invoice was on the basis that tax would not be paid on these earnings. The other side of the picture is the evidence of Liam Wyer who was called on behalf of the second and third defendants. He was furnished with a report prepared by the second and third defendants detailing every defect and element of incompleteness regardless of whether these were items for which these defendants could be held liable. His estimate as of August, 2001 is £26,004.38. His estimate excludes a number of items listed in the second and third defendants’ report for some of which these defendants would be obviously liable (damp stains due to a poor roof flashing detail) and others of which (plumbing installation, incomplete and incomplete utility fitments) they would not. Also excluded is landscaping which was included by the first defendant in his invoice to the plaintiff. Furthermore, Liam Wyer includes a figure of £7,880 for works done on the existing roof structure to make it sound (being works noted in a further report prepared by Colin Hassett, a consulting engineer who gave evidence at the trial).
There was considerable controversy during the case as to whether the roof should be replaced in toto or could be repaired. I was not convinced by the evidence supporting the replacement in toto alternative: it seemed to me that the evidence to the effect that the admitted absence of sufficient timberwork and supporting timber members and the inadequacy of the overlap of the existing tiling together with such further defects such as inadequate flashing did not sustain the more radical solution. On the other hand, I was persuaded by the evidence of Mr. Hassett and with his description of appropriate remedial works. It seems to me that Liam Wyer’s estimate should be the basis of assessing a just figure for repairs for which the defendants are liable in this case. To it I should add an amount for landscaping and I should also allow an increase to take account of price increases from August, 2001, since I have decided that it was reasonable for the plaintiff, on the basis of her impecuniosity, not to carry out repairs until the presentation of her case. In these circumstances the appropriate figure for repairs is £28,000.
(b) Devaluation of plaintiff’s house after repairs
With regard to the devaluation of the plaintiff’s house, a valuer, Liam Keegan said the house looked wrong because the extension roof looked too flat. He had never seen a house so badly built in respect of the off-plumpness of the walls. The condition in the planning permission relating to non-residential occupancy of the garage meant that the house would have very limited appeal on the market and its value in its current state was between £40,000 and £45,000 because it would appeal to a builder who might try to patch it up and sell it. If it had been built correctly its value would have been between £125,000 and £150,000. He would give the same valuation even if a new A-roof (as distinct from the present low-angle roof) were provided. He said he was unable to value the house on the assumption that all the defects were repaired and it was completed. It would still not be saleable from his point of view because, even if there was an engineer’s certificate available for the roof, he would advise a purchaser that they would be caught later on when it came to their turn to sell it.
Ivan Shephard, another valuer, said that the value of the house today without repairs was between £65,000 and £70,000; if completed its value would be between £95,000 and £100,000; and the value of the garage as a garage was “£15,000 and as a dwelling between £35,000 and £45,000.” Jim Cashen, a third valuer, gave evidence that the value of the house today completed was between £95,000 and £100,000; as it stands between £75,000 and £80,000 and these values were reduced by £20,000 when referred back to 1997. Jim Cashen provided comparisons to support his valuation of the property finished from its present condition and ready to live in at between £95,000 and £100,000. By reference to these and the evidence of the valuers it appears to me that there would be some reduction in the market value of the house in its present design but properly repaired (that is with continuing off-plumb walls, skewed rooms and low-pitched roof – that is below the pitch recommended by the manufacturers of the tiles used) by comparison with the market value of the house if these defects were not present. I do not accept, however, the evidence of Liam Keegan to the effect that, even with the repairs done, the house would be unsaleable. In my view the appropriate figure for devaluation on such a sale is in the order of £20,000.
(c) Loss of profits from a bed and breakfast business
I turn now to the question of whether or not the plaintiff is entitled to claim loss of profits from a bed and breakfast business.
The works on the cottage and the extension included the introduction of two en-suite bedrooms in the cottage. This necessitated the knocking of the existing walls in the cottage and the repositioning of them to facilitate these two bedrooms. I was not impressed with the evidence of [the plaintiff’s partner] to the effect that he regarded as a joke the notion that there was going to be a bed and breakfast business: I think he thought it was a joke that he would help his partner in running it, “hanging around looking after any ol’ ones” as he put it who might turn up for bed and breakfast. In my opinion there was a very serious intent on the part of the plaintiff to avail of the relatively young and growing bed and breakfast market in the vicinity of the newly established Kinnitty Castle Hotel. Evidence was advanced in relation to the profits made by bed and breakfast businesses in the vicinity. An estimate was made by an accountant, Seamus Kealey, that the plaintiff could have made £7,500 a year on the basis of 150 bed nights at £50 per night. This would have yielded a gross £7,500 and a net (after expenses) figure of £3,531 per annum. He offered as a comparison the bed and breakfast element in a joint bed and breakfast/bistro business operated by one Percy Glendenning in the village of Cadamstown which yielded a profit for the first ten months after expenses of £3,531. This evidence was criticised by the defendants on the basis that Percy Glendenning’s bed and breakfast business was part of an overall combined business with the bistro and was in the centre of the village whereas the plaintiff’s house was in excess of a mile away. I noted that Mr. Kealey, who was also an accountant for Mr. Glendenning, had his latter client’s permission to divulge certain information in relation to this business. Mr. Kealey hinted that perhaps not all his client’s bed and breakfast profits were accounted for in his evidence.
The plaintiff’s evidence and plans in this regard were also attacked on the basis that she would rely on her partner to help her and that he would have left before the business started and that his disappearance put paid to any prospect of commencing the business. I think this is unreal on two fronts: in the first place, I do not think her partner was ever going to help her (this is my view notwithstanding the plaintiff’s own evidence that she thought he would and his absence affected her plans) and secondly, because the evidence from Liam Kealey is that other bed and breakfast operators avail of the assistance of local neighbours at a relatively modest rate of something in the region of €10 an hour to look after guests when the owners of the business cannot be present. I have no doubt that a woman of the ability and energy of the plaintiff would have quickly come to an economically profitable arrangement for the bed and breakfast business had the house conversion and extension been properly carried through and on time.
It is clear that the plaintiff has the capacity to attract support and help from a wide variety of relatives and friends. She had already done market research (she is qualified in this area) on a preliminary basis with reference to Kinnity Castle and the evidence is that as many as three weddings a week can be held at Kinnity Castle, thereby generating a demand for local bed and breakfast accommodation. I think Mr. Kealey’s estimate of £50 a night is perhaps a bit optimistic. The probability in my opinion is that after tax and expenses the plaintiff would have been able to earn a profit of £3,000 per annum from this business. If things had been done correctly by the defendants the house should have been ready for the tourist season of 1997 and accordingly, the plaintiff is entitled to claim loss of profits from this business for each of the seven last tourist seasons between then and this trial, plus probable loss of the 2003 season due to reconstruction works, but making allowance of some reduction for the start-up season. The appropriate figure, in my view, under this heading is £20,000.
(d) General damages
A number of Irish cases have established that a plaintiff is entitled to general damages in circumstances such as the present. In Johnson v. Longleat Properties (Dublin) Ltd. [1976-1977] I.L.R.M. 93, McMahon J. established this principle when he acknowledged that it had (then) recently received recognition in Jarvis v. Swans Tours [1973] 1 Q.B. 233. He awarded general damages in that case for inconvenience and loss of enjoyment within the presumed intention of the parties. So did Carroll J. in Roche v. Peilow [1985] I.R. 232, where she awarded the plaintiffs a total of £22,000 for strain involved in uncertainty relating to the legal title of their house and consequent financial worries attributable to negligence of their solicitor in conveying the house. The £22,000 appears to have been referable to an eleven year period during which the carefully calculated finances of the plaintiffs went into disarray and they had financial worries and uncertainties about the house title resulting in great personal strain on both the plaintiffs and their marriage. They were entitled to what Carroll J. described as substantial damages for the foregoing troubles and also for social embarrassment, inability to have their own families to visit and miserable conditions at home. They were also awarded a sum of £8,000 into the future. In Doran v. Delaney (No. 2) [1999] 1 I.R. 303, Geoghegan J., explicitly having regard to the judgment of Carroll J. just referred to, awarded £10,000 general damages for anxiety and upset as a consequence of the negligence of the building contractor defendants. In Roche v. Peilow the husband’s unemployment; also, there was evidence of depression which was reflected in the general damages both past and future.
In both Roche v. Peilow [1985] I.R. 232 and Doran v. Doran (No. 2) [1999] I.R. 303, there was evidence of health problems attributable to the negligence of the defendants in respect of which there was no evidence in the present case. It is true that the plaintiff in the present case has included a number of medical type expenses but no evidence was given in relation to them.
On the other hand her finances were clearly put under severe pressure and went into some disarray in a way which clearly relates to the breaches of the defendants. The plaintiff was attempting to provide a home for her son during six crucial years of his life when he was aged between nine and fifteen, she had to contend with living at the rear of a partially completed house and extension with no landscaping and a generally untidy outlook (I am bearing in mind that relatively little expenditure of effort and money could have produced an improvement in this regard) and perhaps worst of all she and her son had to live in excessively cramped conditions because they occupied a small two bedroomed”garage” structure (24 ft by 34 ft) accessed by way of the partly finished, badly built building referred to. There was evidence that this structure had acquired a reputation (which was the reason given for the builder’s unwillingness to come within 40 ft. of it – to use the expression of the plaintiff’s solicitor) and also that the plaintiff’s son was unable to have friends up to the house to visit him.
A review of the cases shows that general damages under this heading have traditionally been modest and indeed were so described by Lord Mustill in Ruxley Electronics v. Forsyth [1996] 1 A.C. 344. On the other hand, Carroll J. held the plaintiffs in Roche v. Peilow [1985] I.R. 232 entitled to substantial damages.
Towards the end of the trial I visited the house and inspected it in the presence of representatives of all parties. The plaintiff lives in the garage which is located at the back of the house from the road and looks out onto the incomplete and defective building which has been left in that state (with some minor additions by way of reveals and other limited work done by her father) since the break up of her partnership in July, 1997. It is a depressing and untidy sight and the existence of this incomplete and defective work is a major disamenity whereas what should have been provided included landscaping albeit, at the price charged, landscaping of a rudimentary kind. I do not think I am entitled to take into account in addition the fact that the presence of the house in its incomplete state continues as a harrowing and offensive reminder of the tension and stress brought on not only by the failure of the building works but also the collapse of the plaintiff’s relationship in July, 1997.
It seems to me that the plaintiff is entitled to a sum in to the amount of £5,000 for each of the six years commencing in mid-1997 to the commencement of the trial and allowing for a further period of disruption, likely to amount to a further year from now, while the extension is being demolished and re-built. She is therefore entitled to a sum in this regard of £30,000.
(e) Special damages
In addition, the plaintiff has claimed many items of special damage to which she would not be entitled. Rather than burden this already lengthy judgment with reasons for the denial of several of these claimed items, I will merely deal with those to which the plaintiff is entitled. I would comment that a number of claims are based on the plaintiff’s impecuniosity – claims for interest on overdrawn accounts and so on. It seems to me that insofar as these accounts reflect payments for the defective work the award of damages for putting it right satisfies the plaintiff’s claim. Insofar as they relate to disbursements on the garage, the plaintiff has thereby acquired an asset of some value and is not entitled to the costs of so doing. I do think the plaintiff is entitled to her costs of heating oil for the bungalow because even though she is also entitled to claim that the extension should be demolished, I think this was a reasonable expense. The amount involved is £645.00.
Conclusion
The total of these several heads of damages comes to £98,645.
At the commencement of the foregoing exercise I indicated that the principle to apply when assessing whether the plaintiff’s claim for reinstatement damages is reasonable is to ensure that those damages would not enrich the plaintiff excessively and unnecessarily and to ensure that it would not mulct the defendants unreasonably. It will be seen that the estimate of damages for demolition and rebuilding as of January, 2002, is £101,500. This figure includes V.A.T. but does not include professional fees. (The same applies to Mr. Wyer’s figure for repairs, and indeed Mr. Drum’s figure for repairs.)
Moreover this is something of an overestimate because it included total demolition including the foundation, whereas it is possible to demolish to slab level only, resulting in a saving of something in the order of £6,000. Against this the figure should be adjusted to take account of whatever inflation has occurred since January of this year to the present. In these circumstances I think the proper figure for comparison purposes is approximately £96,000.
It will be seen that the total amount of damages to which the plaintiff would be entitled on a repair only basis exceeds this. In these circumstances, applying the principle enunciated in Munnelly v. Calcon Ltd. [1978] I.R. 387 the plaintiff is entitled to present her claim on the basis of demolition and rebuild because if she had presented it on an alternative basis it would have cost the defendants more.
Accordingly, the plaintiff is entitled to a decree in the amount of the cost of demolishing (to slab level) and re-building the extension as claimed by her at the trial, being the euro equivalent of £96,000 (i.e., €121,894.85).