Ruxley Electronics and Construction Ltd v Forsyth (Laddingford Enclosures Ltd v Forsyth)

Contract damages compensate the loss actually sustained. They do not confer the cost of obtaining exact performance regardless of reasonableness. For defective building work, reinstatement cost is recoverable only where the remedial work is necessary and reasonable. Reasonableness is assessed against the particular contractual objective and includes the proportionality between cost and benefit. Personal, aesthetic and amenity preferences, together with a genuine intention to reinstate, may be relevant.

If reinstatement would be wholly disproportionate, the breach may cause no diminution in market value yet still deprive the promisee of a subjective, non-monetary benefit. The court may then award a modest sum for loss of amenity or disappointed expectations. Rejecting unreasonable reinstatement does not compel an award of either excessive or merely nominal damages.

Ruxley Electronics and Construction Ltd v Forsyth (Laddingford Enclosures Ltd v Forsyth) concerned a contract to construct a domestic swimming pool. The agreed depth was not achieved, although the completed pool was safe for diving and suffered no diminution in value. Exact conformity required demolition and reconstruction at a cost of £21,560. The trial judge found that this expenditure would be wholly disproportionate and that the owner lacked a genuine continuing intention to rebuild.

Judge Diamond QC refused reinstatement damages but awarded £2,500 for loss of amenity and £750 for inconvenience. The Court of Appeal, by a majority, reversed the decision and awarded the cost of reconstruction: [1994] 1 WLR 650; [1994] 3 All ER 801. Dillon LJ dissented. The contractors appealed, raising the proper measure of damages where defective performance causes no diminution in value and exact reinstatement would be disproportionate.

1. Disposition. Lords Keith of Kinkel, Bridge of Harwich, Jauncey of Tullichettle, Mustill and Lloyd of Berwick unanimously allowed the appeal. The Court of Appeal's order was set aside and Judge Diamond QC's judgment was restored.
2. Compensation and reinstatement. Per Lord Jauncey and Lord Lloyd, whose reasoning commanded majority support, damages compensate the loss actually caused by the breach. They do not provide a gratuitous benefit or a monetary equivalent of specific performance. Although reinstatement is commonly the proper measure for defective building work, it is available only where the work is necessary to achieve conformity and is a reasonable course.
3. Reasonableness and proportionality. Per Lord Jauncey and Lord Lloyd, reasonableness forms part of identifying the loss itself and is not confined to mitigation. It must be assessed in relation to the particular contract. Personal, aesthetic or eccentric preferences may therefore matter, but they do not create a separate category governed by special rules. Where the contractual objective has substantially been achieved and the cost of exact conformity is wholly disproportionate to the resulting benefit, reinstatement cost does not represent the claimant's loss.
4. Intention. Per Lord Lloyd, consistently with Lord Jauncey's qualification, intention to carry out the remedial work may bear on whether reinstatement cost represents a genuine loss. The judge was entitled to find that the owner did not genuinely intend to reconstruct the pool. An undertaking given during the appeal could not create a loss which did not otherwise exist. Once a compensable loss has been established, however, the court ordinarily has no concern with how the damages are spent.
5. Loss of amenity. Per Lord Mustill and Lord Lloyd, with Lord Bridge and Lord Keith agreeing, diminution in value and reinstatement cost are not exhaustive measures. A contractual promise may possess a subjective, non-monetary value exceeding the financial enhancement produced by performance. Where disproportion makes reinstatement inappropriate, the court may award a modest sum for the lost amenity, convenience, aesthetic satisfaction or consumer surplus. The £2,500 award recognised a real loss and avoided both nominal compensation and an excessive windfall.
6. Order. The respondent was ordered to pay the appellants' costs in the Court of Appeal and the House of Lords. The cause was remitted to the Central London County Court to proceed consistently with the judgment.

1. House of Lords: Allowed the contractors' appeal unanimously, set aside the Court of Appeal's order, restored Judge Diamond QC's order and remitted the cause to the Central London County Court.
2. Court of Appeal: By a majority comprising Staughton and Mann LJJ, allowed the owner's appeal and awarded £21,560 as the cost of reinstatement. Dillon LJ dissented: [1994] 1 WLR 650; [1994] 3 All ER 801.
3. Central London County Court: Judge Diamond QC found the pool substantially complete, refused the disproportionate cost of reconstruction, and awarded £2,500 for loss of amenity and £750 for inconvenience. That judgment was restored.