| Date | 11 May 2005 |
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| Judgment | Birse Construction Ltd v Eastern Telegraph Co Ltd, 5 November 2004 |
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| The Issue | The measure of damages for defective building works. |
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| Implication |
The cost of reinstatement is the normal measure of damages for defective building works, but that should not be used where that measure would be out of proportion to the claimant's real loss. |
printIn the recent case of Birse Construction v Eastern Telegraph Company the court had to consider the appropriate measure of damages in the event of defective works where it was clear that the claimant did not intend to remedy the defects. The case concerned a residential training college in Coventry which was built in 1993 for Eastern Telegraph by Birse Construction. The finished building gained architectural awards and was described as "an arresting development with clean lines, materials selected for their particular aesthetic qualities, and eye-catching details such as the wave-form roofs on the teaching wings". However, disputes arose between the parties which led to an action being brought by Eastern Telegraph claiming approximately £1.5 million damages in relation to an extensive list of defects. Birse defended the allegations of defective works and counterclaimed for unpaid retentions. Eastern Telegraph supported its claim by indicating that though it had not yet rectified the majority of the claimed defects, it intended to do so. This was against the background that the college had now been placed on the market for sale. Birse maintained that having decided to sell the college, Eastern Telegraph had put right only the minimum number of defects. This conduct showed that Eastern Telegraph had no intention of carrying out the remaining remedial works. The essential issue in the case was therefore to determine, on the assumption that Birse was liable for the claimed defects, what the appropriate measure of damages was for defects that Eastern Telegraph had not remedied. To answer this question, the judge had to consider the application of the 1995 House of Lords decision in the case of Ruxley v Forsyth, an important case that dealt directly with the question of how damages should be assessed in this type of situation. Forsyth had engaged Ruxley to build a swimming pool which was specified to have a maximum depth of 7'6". Unfortunately, Ruxley constructed the pool to a maximum depth of 6'9". Forsyth, who said he was keen on diving, sued for the cost of a new pool. At first instance, the judge concluded that the pool was perfectly safe to dive into and that there was no evidence that the short fall 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 Ruxley's breach of contract in building a pool that did not meet the required specification, the damages to be awarded was simply a figure to reflect the loss of amenity. This was assessed in the amount of £2,500. Forsyth then appealed the matter to the Court of Appeal where he 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 if the contract had been performed. The answer was the cost of replacing 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. However the matter did not stop there. The next port of call was to the House of Lords where the decision was once again reversed. The House of Lords ruled that it would fly in the face of common sense to hold that the measure of a building owner's loss was always the cost of reinstatement, however unreasonable it would be to incur that cost. Where the cost of remedying defects was disproportionate to the end to be obtained, the damages were to be measured by the diminution in value of the property. As a consequence, Forsyth's damages were reduced to a nominal sum. Returning to the Eastern Telegraph case, Judge Lloyd reaffirmed the approach in Ruxley. "In my judgment it is now clear that the normal measure of damages for defective work is the cost of reinstatement, but in every instance, it has to be reasonable to apply it. Thus where that measure is out of proportion to the claimant's real loss, then some other measure should be used." The essence of the approach was to use common sense. On the evidence it was clear that Eastern Telegraph did not intend to carry out remedial works for the majority of the alleged defects. Accordingly, Eastern Telegraph's claim for general damages based on the totality of the unremedied defects must fail. Moreover, if the college was to be sold for a price which was not diminished as a consequence of the alleged defects, Eastern Telegraph's supposed loss would be avoided. In some cases it might be reasonable to award an amount to ensure that the contractor did not get paid for work that he did not do, by making an appropriate contractual reduction in the price for the work. However, a loss that had been avoided or was reasonably avoidable was not recoverable. On the facts of this case, Eastern Telegraph was therefore entitled to only nominal damages respect of their claims.
CJ-0518
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