| Date | 18 December 2002 |
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| Judgment | McLaren Murdoch & Hamilton Limited -v- The Abercromby Motor Group Limited, Outer House, Court of Session 22 November 2002 |
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| The Issue | Measure of damages for breach of contract where the cost of reinstatement is disproportionate to the loss suffered. |
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| Implication |
The cost of making construction works conform to contract is regarded as the ordinary measure of damages for defective performance under a building or engineering contract. However, if the expenditure would be out of all proportion to the benefit to be obtained, the appropriate measure of damages may be the difference in value between the facility as constructed and as specified. |
printThe 1995 House of Lords decision in the case of Ruxley -v- Forsyth was widely reported since it added to the general understanding of how damages should be assessed for a contractor's failure to meet specified standards in a construction contract. Forsyth had specified that a swimming pool being constructed for him by Ruxley should have a maximum depth of water of 7'6". Unfortunately the completed pool only had a maximum depth of 6'9" and the depth below the diving board was only 6'. Forsyth sued for the cost of a new pool. The trial judge concluded that the pool constructed was perfectly safe to dive into and that there was no evidence that the shortfall in depth had decreased its value. The only practical 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 some £21,000. There was no evidence that Forsyth actually intended to build a new pool at such a cost. The judge held that that cost would be wholly disproportionate to the disadvantage of retaining the pool as it had been built. Accordingly he concluded that, despite breach of contract on the part of Ruxley in building a pool which did not meet the required specification, the damages to be awarded was simply a figure to reflect a loss of amenity. This was assessed in the amount of £2,500. Forsyth appealed the matter to the Court of Appeal and was successful. The Court of Appeal held that Forsyth had suffered a loss as he had a swimming pool less suited to diving than the one he had contracted for. The question to answer was what money would place Forsyth in the same situation as he would have been, had the contract been performed. The answer was the cost of replacement of the pool, otherwise a builder of swimming pools would never need to perform its contract. The Court of Appeal awarded Forsyth damages in the amount of £21,000, being the cost of a new pool. No doubt Forsyth thought that he could now pocket the £21,000 and continue to swim happily in his 6'9" deep pool. However, the matter did not stop there, and the next port of call was to the House of Lords where the decision was once again reversed, reinstating the earlier decision of the trial judge. Their Lordships stated that to hold in a case of this kind that the measure of the building owner's loss was the cost of reinstatement, however unreasonable it would be to incur that cost, would seem to fly in the face of commonsense. Where the cost of remedying the defect was disproportionate to the end to be attained, the damages were to be measured by the value of the facility built in accordance with the contract, less its value as it stood. Thus Forsyth never saw his £21,000 but instead, no doubt, was faced with a considerably larger legal bill. These issues have been examined once again in the Court of Session in Scotland in the case of McLaren Murdoch & Hamilton -v- The Abercromby Motor Group. The Abercromby Group were car dealers who operated a number of showrooms in Scotland and who had used McLaren as architects for its previous building projects. McLaren were appointed architects for the design and construction of four new dealership showrooms and workshops to be construction in Stirling. Disputes arose concerning the non-payment of architects' fees and when the matter came to court the Abercromby Group lodged a counter-claim in which they claimed that McLaren were negligent in the design of the heating system for their showrooms and workshops. It seems that McLaren had specified an electrical under-floor heating system which worked on a night-storage principle. Electrical elements ran through the floor of the buildings and were heated at night using cheap electricity. The resultant heat was stored in the concrete of the floor and released during the following day. The system failed to provide satisfactory heating and an expert witness gave unchallenged evidence to the effect that such a system had a number of fundamental problems. It was said that the buildings, which were largely of lightweight construction, including large amounts of glazing, were entirely unsuited to such a heating system. Further problems arose in relation to the workshop areas. During the day there was a considerable turnover of cars which had to be moved in and out of the workshops through a number of large doors. When the doors were opened heat was lost. The installed heating system provided no means of rapidly restoring heat to the building after the doors were opened. Similar problems occurred in the showroom areas in which the heating, particularly during winter, had proved inadequate. In consequence the Abercromby Group had replaced the entirety of the heating systems in all four facilities. McLaren contended that the under-floor heating could have been augmented rather than the entirety of the system replaced. Relying upon the decision in Ruxley McLaren argued that the cost of reinstatement would not be the appropriate measure of damages if the expenditure was out of all proportion to the benefit obtained. In the Court of Session Lord Young accepted that the general principle of Ruxley must apply, namely that a claimant will be entitled to the cost of making building works conform to the contract, unless that cost is significantly disproportionate to the benefit that is obtained. However, the decision as to whether it was appropriate to replace the entirety of the heating systems was anything but clear cut. Capital costs and operating costs had to be considered. Lord Young was accordingly of the opinion that it could not be said that the costs of replacing the entirety of the heating systems were manifestly disproportionate to the benefit obtained. As a consequence, the Abercromby Group were held entitled to the cost of replacing the entire heating systems.
CJ-0249
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