Ruxley v. Forsyth - brief

Case brief: template

Case name:	Ruxley v. Forsyth
Court:
Citation; Date:	3 All ER 268 (1995)

PROCEDURAL HISTORY
Trial court:		Appeal court (for appeal cases only):
Plaintiff:	Ruxley	Appellant:
Defendant:	Forsyth	Respondent:

Facts of the case:
The defendant (the owner) contracted with the two plaintiff companies, R and L (the builders), to build a swimming pool in his garden and a building to enclose it for a total price of £70,178·74. The contract expressly provided that the maximum depth of the pool should be 7 ft 6 in. After the work had been completed, the owner discovered that the maximum depth was only 6 ft 9 in and that at the point where people would dive into the pool the depth was only 6 ft. The owner paid various sums on account and after certain agreed credits the balance of the price due for the construction of the pool and the enclosure amounted to £39,072.

Remedy sought:

Court opinion (including key issues and arguments):
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. 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. However, where the contractual objective has been achieved to a substantial extent the position may be very different. 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. 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. ... 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.

Disposition of case:
The builders claimed the balance of the contract price and the owner counterclaimed for breach of contract. Although it was accepted that the failure to provide the required depth was a breach of contract, the trial judge found that the shortfall in depth had not decreased the value of the pool and gave judgment for R in the sum of £3,903 and for L in the sum of £36,874 but awarded the owner £2,500 general damages for loss of amenity on his counterclaim. The owner appealed, contending that the judge should have awarded damages in respect of the breach or deducted a sum from the contract price to reflect the cost of reconstructing the swimming pool to conform to the original contractual specification and that by itself the award of general damages was too low if he received no other compensation for the breach. The Court of Appeal allowed the appeal, holding that it was not unreasonable to award as damages the cost of replacing the swimming pool in order to make good the breach of contract, even though the shortfall in the depth of the pool had not decreased its value. The court awarded the owner £21,560 damages against R. R appealed to the House of Lords. Where there had been a breach of performance resulting in loss of expectation of performance, satisfaction of a personal preference or a pleasurable amenity but there had been no diminution in value the court could award modest damages to compensate the plaintiff. The judge’s finding that the owner’s loss did not extend to the cost of reinstatement because it would be unreasonable to incur the cost of demolishing the existing pool and building a new and deeper one would be upheld and since there had been no challenge to the award of £2,500 general damages for loss of amenity the appeal would be allowed and the judge’s judgment restored.

ECONOMIC ANALYSIS OF THE CASE

Efficiency/incentive issues discussed in the court opinion:

Other efficiency/incentive issues relevant to the case:

Assessment of the economic consequences of the court decision: