Woodlands Oak Ltd v Conwell & Anor

In a cost-plus building contract, the court must apply the agreed percentage to the costs properly falling within the contract. It cannot substitute a lower percentage because the contractor was not expected to make a profit or because overhead evidence is limited.

An employer’s failure to give a contractor an opportunity to remedy defects is not automatically a failure to mitigate. It may be so where, on the facts, giving that opportunity was reasonable and would have avoided the loss. An employer may reasonably refuse it in appropriate circumstances. Interest remains discretionary, and loss may be incurred before remedial expenditure is undertaken.

The parties had an oral cost-plus building contract for works to the respondents’ home. Following disputes about the price and defects, Mr Recorder Gibney assessed the works at a figure including a 1 per cent uplift, awarded damages for certain defects and alternative accommodation, but refused damages for snagging items because the respondents had not given the contractor an opportunity to remedy them.

Both sides appealed from the Recorder’s judgment of 10 March 2010. The issues included procedural fairness, an alleged price cap, mitigation, the contractual uplift, correction of the accommodation-cost omission, and interest on the counterclaim.

1. Disposition. The Conwells’ grounds failed. Woodlands Oak succeeded only on the contractual uplift. The appeal was therefore allowed in part.
2. The Recorder’s preliminary indications about the contracting parties, the alleged price cap and the cost-plus basis were premature and ill advised. They did not create an appearance of bias or vitiate the subsequent decision because the Recorder later received written and oral submissions and gave a reasoned judgment.
3. The Recorder’s evaluation of the competing oral evidence on the alleged £200,000 price cap was unimpeachable. There was no basis for appellate intervention.
4. The Recorder’s proposition that failure to give a contractor an opportunity to rectify defects necessarily constituted failure to mitigate misstated the law. The correct approach is fact-sensitive: such a failure may amount to failure to mitigate. An employer may reasonably refuse the contractor’s return where the circumstances justify reliance on third-party contractors. That was so for the roofing work, given past experience and the absence of an enforceable guarantee.
5. For the snagging items, the findings that the respondents knew of the defects, that Woodlands Oak had the resources to remedy them, and that the work could have been done at no cost supported the conclusion that the respondents failed to mitigate. The consequence applied whether or not the contract contained an express defects-liability clause. The court explained the relevance of Pearce & High Ltd v Baxter [1999] 66 Con LR 110 accordingly.
6. The contract was for costs plus 5 per cent. Having identified the recoverable costs, the Recorder had no sustainable basis for applying 1 per cent. The contractual 5 per cent had to be added.
7. The £13,000 alternative-accommodation item was properly included. The experts had agreed both its amount and necessity, and the omission was an error which Woodlands Oak could not exploit as a windfall.
8. Under s.35A, the award of interest was discretionary. The absence of completed remedial works did not mean that no loss had been incurred. The court applied the reasoning in Aerospace Publishing Limited v Thames Water Utilities [2007] EWCA Civ 3, while concluding that withholding interest because contemporary remedial rates were used would produce an unjust result in the circumstances, particularly given the set-off.

• Court of Appeal (Civil Division): Both parties appealed. The court allowed the appeal in part, allowing Woodlands Oak’s challenge to the 5 per cent contractual uplift and dismissing all other grounds: [2011] EWCA Civ 254.
• Southampton County Court: Mr Recorder Gibney gave judgment on 10 March 2010 concerning the cost of the works, defects, alternative accommodation, snagging and interest.