Bolton v Mahadeva

In a lump-sum contract, complete performance is not the only route to payment. A contractor who has substantially performed may recover the contract price, subject to deductions or a set-off for defects and omissions. Whether performance is substantial depends on both the amount and the nature of the defects. Their importance to the contractual purpose and the extent of work needed for rectification must be considered. Defects that leave a central-heating installation materially ineffective and emit fumes into living rooms are not minor merely because the average reduction in heat is modest. Where the contract has not been substantially performed, the contractor cannot recover the lump sum, although sums due for separate extras may remain payable.

The plaintiff claimed payment for central-heating installation and other work under a lump-sum contract, together with separate extras. The defendant alleged extensive defects, asserted failure of consideration, and claimed a set-off and damages. The Brentford County Court awarded the plaintiff £431.50 after deductions. The defendant appealed on substantial performance, expert evidence and report fees, damages for inconvenience, and an unpleaded contention that payment depended on a satisfaction note for an insurance-backed loan. The action had originally been commenced in the High Court and remitted under section 45 of the County Courts Act. The central issue was whether the identified defects prevented substantial performance.

Disposition. The Court of Appeal unanimously allowed the appeal, set aside the County Court judgment and substituted judgment for the plaintiff for £46.

1. Substantial performance. Lord Justice Cairns held that the governing principle for a lump-sum contract was substantial performance. The strict rule in Cutter v Powell had to be read in the light of later authorities, including Dakin v Lee (1916 1 King's Bench, 566) and Hoenig v Isaacs (1952 2 All England Reports, 176). Where there is substantial performance, the contractor may recover the stipulated price subject to deductions, a counterclaim or set-off for defects. Conversely, without substantial performance the contractor cannot recover under the main contract. The de minimis rule is distinct from the substantial-performance inquiry.
2. Nature of the defects. The question cannot be decided wholly by the cost or proportion of the defects. Their nature and importance must also be considered, including whether the work fulfils its primary purpose and whether the defects can be remedied by a small amendment. The defects here left the house inadequately heated and allowed fumes into living rooms. They were materially different from the limited defects in Dakin v Lee and Hoenig v Isaacs. The central-heating contract therefore had not been substantially performed. Lord Justice Sachs agreed, emphasising the installation's general ineffectiveness for its primary purpose. Lord Justice Buckley agreed without adding reasons.
3. Other grounds. The argument based on an implied term linking payment to a satisfaction note was disregarded because it had not been pleaded, supported by evidence or raised in the notice of appeal. Fees for an expert report obtained after a dispute arose, for possible use in evidence or settlement, were recoverable, if at all, only under an order for costs. The trial judge was entitled to prefer one expert's evidence over another's. His assessment of £15 for inconvenience, although low, disclosed no appealable error.
4. Order. Judgment was substituted for the plaintiff for £46, with costs on Scale 1 up to payment-in and the defendant's costs of the claim and counterclaim on Scale 4 thereafter. The plaintiff was ordered to repay the balance of £354 within 14 days.

1. Court of Appeal: The appeal was allowed unanimously. The County Court judgment was set aside and judgment was substituted for the plaintiff for £46, with consequential costs and repayment orders.
2. Brentford County Court: On 30 September 1971, Deputy Judge Finlay entered judgment for the plaintiff for £431.50 after allowing set-offs and damages for inconvenience.
3. Procedural transfer: The action had commenced in the High Court and was remitted to the County Court under section 45 of the County Courts Act.