PJ Spillings (Builders) Ltd v Bonus Flooring Ltd

An innocent contracting party may generally elect between reliance loss and expectation loss. Reliance loss cannot exceed the contractual return, and wasted expenditure is recoverable only if it would have been recouped on full performance. Where the contract would have produced a loss, the reliance approach is unavailable. Damages must instead be assessed by reference to the contract price, including proper extras, less the cost of completing the work after termination.

The respondent contractor was engaged to lay and finish concrete slabs. The appellant wrongfully terminated the contract after problems arose with the concrete mix, for which the appellant was contractually responsible. The County Court held that the contractor bore some responsibility for failing to stop the pour and awarded damages calculated largely by reference to costs incurred before termination.

The appellant challenged the method of assessment. The central issue was whether the contractor could recover reliance expenditure where the evidence showed that full performance would have resulted in a substantial loss.

1. Appeal allowed. The County Court had erred in calculating damages by reference to the contractor’s reliance expenditure.
2. An innocent party may choose between reliance loss and expectation loss. That choice is subject to the limitation that reliance damages cannot exceed the contractual return. Expenditure is recoverable only if it would have been recovered had the contract been fully performed.
3. The evidence established that the contract would have resulted in a substantial loss if completed. The reliance approach was therefore unavailable. The proper approach was the expectation method: the contract price, together with proper additional extras, less the cost of completing the works after wrongful termination.
4. The County Court’s reasoning on quantum was insufficiently clear to enable the High Court to determine the correct amount. The matter was remitted to the County Court for redetermination by another judge.

• High Court (Queen’s Bench Division): allowed the appeal from the County Court and remitted the issue of quantum for determination by another judge.