Pearce & High Ltd v Baxter & Anor

A defects-liability clause which requires a contractor to make good patent defects does not, without clear words or necessary implication, extinguish the employer’s ordinary damages claim for the original breach of contract.

Notice is ordinarily required before the employer can compel rectification under the clause. Failure to notify the contractor, or to permit repair, does not bar direct damages altogether. It limits recoverable repair costs to the amount which the contractor would have incurred if given the opportunity to remedy the defects. That limitation reflects mitigation of loss and may also be analysed through set-off.

The respondent building contractor carried out alterations and extensions under the JCT Minor Building Works form. After practical completion, the appellants alleged patent defects which had appeared during the six-month defects-liability period. They did not give sufficiently specific notice until serving their Defence and Counterclaim after that period had expired.

The Recorder in the Swindon County Court held that clause 2.5 made timely notice a condition precedent to any damages claim for those defects. The employers appealed. The central issue was whether clause 2.5 barred their damages claim, or instead affected only the contractor’s opportunity to repair and the measure of damages.

1. Appeal allowed unanimously. Evans LJ, with whom Tuckey LJ and Hidden J agreed, held that the Recorder had construed clause 2.5 too broadly. The clause applied where defects became objectively apparent, rather than remaining latent, during the defects-liability period.

2. Notice was ordinarily a condition precedent to enforcing the contractor’s clause 2.5 obligation to make good a defect. The clause also gave the contractor a valuable right and licence to return and remedy it. It did not follow that the employer’s common-law right to damages for the contractor’s original breach was lost if notice was not given during the period.

3. A contractual term does not exclude an accrued damages remedy without clear express words or a clear and strong necessary implication. Clause 2.5 contained neither. Its practical function was to provide an express rectification remedy and to allow the contractor to reduce remedial cost by undertaking the work itself.

4. Where the employer failed to notify the contractor or denied it the opportunity to repair, the employer could not recover the full higher cost of third-party repairs. Recoverable direct loss was limited to the sum which the contractor would itself have incurred in remedying the defects. This was properly explained by the employer’s duty to mitigate, and could alternatively be analysed by set-off.

5. The court read P & M Kaye Ltd v Hosier & Dickinson Ltd 1972 1 W.L.R. 146 as concerning the measure of direct damages, not as eliminating the right to recover them. The court approved the same analysis in William Tomkinson and Sons Ltd v The Parochial Church Council of St Michael 1990 C.L.J. 319. Issue (b) was answered in the employers’ favour and issue (d) “No”.

• Court of Appeal (Civil Division): Allowed the employers’ appeal in [1999] EWCA Civ 789. It reversed the Recorder’s ruling that clause 2.5 barred all damages for patent defects not notified during the defects-liability period.
• Swindon County Court: On 26 June 1998, Mr Recorder Hall determined preliminary issues and held that timely notice under clause 2.5 was a condition precedent to recovery of damages for the relevant defects.