A Summary of Ruxley Electronics v Forsyth [1996]

Case name & citation: Ruxley Electronics and Construction Ltd v Forsyth [1996] AC 344; [1995] UKHL 8; [1995] 3 All ER 268

Court and jurisdiction: House of Lords; England and Wales
Decided on: 29 June 1995
The bench of judges: Lord Keith of Kinkel, Lord Bridge of Harwich, Lord Jauncey of Tullichettle, Lord Mustill, Lord Lloyd of Berwick
Area of law: Assessment of damages

What is the case about?

Ruxley Electronics and Construction Ltd v Forsyth is a landmark contract law case that concerns the challenges involved in assessing damages for defective performance of a construction contract. The difficulty arises especially where 1) there is no reduction in the property’s overall value despite the existence of defects and 2) the reinstatement cost for rectifying the defects is considerably higher than the benefits that the owner shall gain from the corrective measures.

Let us see the facts of this case.

Facts of the case (Ruxley Electronics v Forsyth)

In 1987, Mr. Forsyth engaged in a contractual agreement with Ruxley Construction Ltd whereby the latter would construct a swimming pool for Forsyth.

As part of the contract, it was explicitly stated that the swimming pool’s maximum depth should be 7 ft 6 in. However, after the pool’s completion, Mr. Forsyth discovered that the actual maximum depth was only 6 ft 9 in, and in the area where diving was most likely to occur, it was just 6 ft deep. During the contract negotiations, Mr. Forsyth had specifically asked for an amendment to raise the maximum depth to 7 ft 6 in, citing his larger size and the need for a deeper pool to feel safer while diving. Ruxley had agreed to this request without increasing the contract price.

Forsyth claimed that there was a breach of contract.

There was no diminution in the value of the constructed pool as compared to a pool with the specified maximum depth of 7 ft 6 in. But Forsyth sought to rectify the pool to meet the terms of the contract. The evidence presented during the trial established that the only way to achieve this was to demolish the current pool, excavate further, and reconstruct the pool, incurring a total cost of £21,560.

Issue

Whether Forsyth should be awarded the cost of reinstatement?

Judgment of the Court in Ruxley Electronics v Forsyth

The House of Lords determined that awarding the cost of reinstatement would not be justifiable. Instead, they upheld the trial Judge’s decision to grant the owner a modest sum of damages to compensate for the “loss of amenity”. The judgment involved overturning the majority decision of the Court of Appeal and reinstating the County Court’s original decision.

The Courts gave the following verdicts:

The trial judge:

In the trial judgment, Forsyth was awarded general damages amounting to £2,500 for the loss of amenity. The judge held that there was no decrease in the pool’s value as a result of the breach of contract (i.e., because of the shortfall in depth). Despite the pool not being as deep as specified in the contract, it was still safe for diving. And he deemed it unreasonable for Forsyth to proceed with the rectification work, as the cost of such work outweighed the benefits Forsyth would gain. Also, there were doubts if Forsyth would actually carry out the work.

The Court of Appeal:

The Court of Appeal, by majority, reversed the trial judge’s decision and instead granted Forsyth the full cost of achieving a cure, i.e., £21,560 in place of general damages.

The House of Lords:

The House of Lords upheld the decision of the trial judge and emphasized the matter of reasonableness. It concluded that it would be unreasonable to award the cost of reinstatement of the pool since it was wholly disproportionate to the benefits Forsyth would gain. Lord Lloyd said:

“If reinstatement is not the reasonable way of dealing with the situation, then diminution in value, if any, is the true measure of the plaintiff’s loss. If there is no diminution in value, the plaintiff has suffered no loss. His damages will be nominal.”

Moreover, Lord Jauncey expressed the view that it would be unreasonable to seek reinstatement costs when the main objective of the contract has been achieved to a substantial extent.

Key principle emerging from the case

In the Ruxley case, both the House of Lords and the Court of Appeal focused on two approaches to assess damages: (i) diminution in value, and (ii) cost of reinstatement. They held that if the cost of rectification was deemed unreasonable, the appropriate measure of damages should be based on the difference in value. While the pool may not have suffered any decrease in value, Mr. Forsyth was still entitled to receive compensation for the loss of satisfaction he experienced due to the pool’s non-compliance with the contract’s specifications.

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Baltic Shipping Co v Dillon: A Quick Summary

Baltic Shipping Co v Dillon is an Australian contract law case that deals with a dramatic example of a tragically truncated holiday. The question arose as to whether damages can be awarded for mental distress or not.

Given below are the details:

Case name & citation: Baltic Shipping Company v Dillon [1993] HCA 4; (1993) 176 CLR 344

The concerned Court: High Court of Australia

Decided on: 10 February 1993

The bench of judges: Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron and McHugh JJ

Area of law: Damages for breach of contract

Facts of the case (Baltic Shipping Co v Dillon)

In this case, Mrs. Dillon was the plaintiff and the defendant, Baltic Shipping, was the other party involved. Mrs. Dillon entered into a contract to take a 14-day cruise aboard the defendant’s vessel named “Mikhail Lermontov”. The cruise was intended to be a round-trip journey starting and ending in Sydney via the South Pacific Ocean. The agreed fare for this cruise was $2205, and the scheduled departure date was set for 7 February 1986.

As is customary for such cruises, Mrs. Dillon, the plaintiff, made the payment for the fare well ahead of the scheduled holiday. The contract between the parties was subject to the laws of New South Wales.

The ship departed from Sydney on the appointed day and proceeded smoothly until the ninth day of the journey when an unfortunate incident occurred. The ship struck a rock and subsequently sank off the coast of New Zealand. Owing to the collision, Mrs. Dillon, along with other passengers, suffered significant losses. Not only did she suffer personal injuries and property damage but mental distress as well. Baltic Shipping admitted that the collision was caused by their breach of the cruise contract, in particular, the breach of an implied term that reasonable care would be exercised by the shipowner in the navigation of the vessel.

During the trial, Mrs. Dillon was granted a sum of $1,417 as restitution of fare and $5,000 as compensation for the distress and disappointment she experienced due to the loss of entertainment (this was in addition to damages for personal injuries). The NSW Court of Appeal upheld the decision made by the trial judge, and subsequently, the case was brought before the High Court for further consideration.

Issue

The following issues were for consideration before the High Court:

1. Whether the plaintiff had the right to receive a refund of the prepaid fare due to a total failure of consideration?

2. Whether the plaintiff was eligible for general damages to compensate for the profound disappointment resulting from her tragically truncated holiday (the injured feelings issue)?

Judgment of the Court in Baltic Shipping Co v Dillon

The High Court ruled that to award the plaintiff restitution of the cruise fare alongside damages for disappointed feelings would lead to an excessive level of compensation. It emphasized that the damages awarded for disappointment were notably generous, amounting to twice the value of the cruise fare. (It might be noted that Mrs. Dillon had also been granted damages for personal injuries.)

In view of this, the restitution order was reversed by the High Court based on the grounds that, as there had been partial performance of the cruise until the ninth day, a total failure of consideration did not occur. But it upheld the damages that had been awarded for the plaintiff’s emotional distress and disappointment. They were not reduced despite being a little over-generous.

The reasoning behind the decision

In its reasoning, the Court held that there were three categories where damages could be awarded for injured feelings:

“1. Distress caused by a breach of a contract the object, or an object, of which is to provide enjoyment, pleasure, or relaxation.

2. Distress caused by a breach of a contract to prevent molestation or vexation.

3. Distress consequent upon physical injury or inconvenience caused by a breach.”

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Payzu v Saunders [1919]: A Case Summary

Payzu v Saunders [1919] is a UK contract law case that concerned the question of awarding damages if the claimant fails to mitigate its losses. It did not accept an alternate offer from the defendant sellers who were in breach of contract. Given below are the case details:

Case name & citation:	Payzu Ltd v Saunders [1919] 2 KB 581
Court and jurisdiction:	The Court of Appeal, England and Wales
The bench of judges:	Bankes LJ, Scrutton LJ
Area of law:	Remedies for breach of contract; assessment of damages

Facts of the case (Payzu Ltd v Saunders)

In the instant case, an agreement was reached between a buyer and a seller whereby the seller agreed to sell a fabric known as crêpe de chine. Delivery was supposed to take place in installments over the course of nine months, with payment due within one month of each delivery. Following the first delivery, the buyer failed to make its timely payment.

Mistakenly believing that the buyer’s lack of resources was the cause of non-payment, the seller refused to continue delivering goods under the contract. Instead, they proposed to deliver the goods at the contract price only if the buyer agreed to pay in cash on delivery of each installment. The buyer rejected this offer and ended the contract based on the seller’s repudiation (i.e., refusal to fulfill their contractual obligations). They sued the seller for breach of contract and claimed compensatory damages for the difference between the market price and the contract price (given that the market price of the goods had risen in the meanwhile).

What was the issue?

Could the buyer claim the aforesaid damages for breach of contract?

Judgment of the Court in Payzu Ltd v Saunders

The Court held that the buyer should have accepted the seller’s revised offer and payment terms in order to mitigate its loss. But instead of doing so, it went on to purchase the goods from the market at a higher price. Since it permitted itself to sustain a large measure of loss despite being offered a reasonable option by the seller, it failed to mitigate the loss and hence, was not entitled to damages.

Scrutton LJ stated: “In commercial contracts, it is generally reasonable to accept an offer from the party in default. However, it is always a question of fact.”

Consequently, the amount of damages awarded to the buyer did not rely on the difference between the market price and the contract price. Rather it was limited to the loss that the buyer would have incurred if it had accepted the offer.

The reasoning behind the decision

The rationale behind the decision was to prevent overburdening the defaulting promisor with liabilities. In cases where the promisee has the opportunity to avoid part of his losses by accepting a reasonable offer presented by the promisor, then he is expected to do so. Any residual loss that still exists can be compensated through damages so that the promisee is not left worse off.

Based on the facts, the court determined that the buyer had the financial capacity to pay cash for the goods and that the seller’s offer was genuine. The buyer would have experienced only a minor loss as a result of the less favorable payment terms, for which damages would have been available. Therefore, it should not have allowed itself to bear a substantial amount of loss that could have been reasonably avoided through prudent and reasonable actions.

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Chaplin v Hicks [1911]: A Case Summary

Chaplin v Hicks [1911] is a UK contract law case concerning the assessment of damages. It dealt with the issue of an actress losing her chance of getting selected at a competition.

Below are the case details:

Case name & citation:	Chaplin v Hicks [1911] 2 KB 786 (CA)
Court and jurisdiction:	Court of Appeal, England and Wales
Decided on:	16 May 1911
The bench of judges:	Vaughan Williams, Fletcher Moulton and Farwell L.JJ.
Area of law:	Remedies for breach of contract; assessment of damages

Facts of the case

Hicks, a theatrical manager, posted an advertisement in a London daily newspaper asking young women who aspired to be actors to give him their photographs and information. From those applicants, he would choose twenty-four photographs and feature them in the newspaper. The readers of the newspaper would then select twelve winners, and Hicks would offer them three-year professional commitments at salaries ranging from £3 to £5 per week. After receiving an overwhelming response of 6,000 photographs, Hicks modified the rules: the public would now choose the fifty most beautiful girls by giving their votes, from whom he would personally select the final twelve. Miss Chaplin was one of the fifty finalists.

On January 5, she was informed that she would be required to attend an interview in London on January 6. Since Miss Chaplin was in Dundee at the time, she was unable to keep this appointment and Hicks refused to provide her with another one. Hence, she was not among the twelve selected and decided to sue Hicks for her lost opportunity of gaining employment.

The jury decided in favor of Miss Chaplin and determined that Hicks had failed to provide her with a reasonable opportunity to present herself and awarded her £100 in damages.

Hicks appealed against this. He did not contend that there was no breach of contract, but rather that the damages should have been nominal, either because they were too remote and speculative in nature or because they were incapable of assessment.

Judgment of the Court in Chaplin v Hicks

The appeal was rejected. The Court of Appeal determined that the damages were neither too remote nor unassessable.

The claimant had the right to seek compensation for the opportunity she lost in obtaining employment. It was not necessary for her to demonstrate that she would have been successful in the interview process.

Quote from the case

Fletcher Moulton L.J. stated as under:

“It is said that the damages cannot be arrived at because it is impossible to estimate the quantum of the reasonable probability of the plaintiff’s being a prize-winner. I think that, where it is clear that there has been actual loss resulting from the breach of contract, which it is difficult to estimate in money, it is for the jury to do their best to estimate; it is not necessary that there should be an absolute measure of damages in each case.”

Vaughan Williams L.J. said:

“But the fact that damages cannot be assessed with certainty does not relieve the wrong-doer of the necessity of paying damages for his breach of contract.”

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A Case Summary of Howe v Teefy (1927)

Howe v Teefy (1927) is an Australian contract law case that dealt with the issue of assessment of damages. Here, it was asked whether the Courts can be precluded from awarding damages if there are difficulties involved in their assessment.

The case involved a dispute over a leased racehorse. Given below are the case details:

Case name & citation:	Howe v Teefy (1927) 27 SR (NSW) 301
Jurisdiction:	New South Wales
Decided on:	01 July 1927
The bench of judges:	Street CJ, Gordon and Campbell JJ
Area of law:	Remedies for breach of contract; assessment of damages

Facts of the case (Howe v Teefy)

The defendant leased a racehorse to the plaintiff, who was a trainer, for a period of three years from 13^th September 1926. But in January 1927, he took the horse away from the plaintiff without any valid justification. Following this, the plaintiff filed a lawsuit against the defendant, claiming damages for breach of contract, conversion (wrongful interference with the plaintiff’s property), and detinue (wrongful withholding of the horse).

He claimed to recover damages in respect of the loss of profits he would have made from betting on the horse himself and the loss of profits he would have earned by supplying information about the horse to other persons for reward.

It may be noted that at the time of the lease agreement, the plaintiff had expressed his intention to have the horse “as a racing proposition.”

The jury decided in favor of the plaintiff and awarded him £250 in damages. The defendant was dissatisfied with the verdict and appealed against it on two grounds. Firstly, the defendant argued that the potential winnings from bets and stable commissions were too uncertain and speculative (or contingent) to be recovered as damages. Secondly, he claimed that there was no sufficient evidence upon which the jury could assess the prospective winnings accurately and that only nominal damages should have been awarded.

Issue raised

The issue, in this case, was whether the award of damages was justified or not. Given the difficulty in assessment, should the damages be limited to nominal ones?

Judgment of the Court in Howe v Teefy

The Court held that the plaintiff had indeed been deprived of his right to profit from the use of the racehorse and that this loss of right was capable of being calculated in monetary terms by the jury. Thus, the court dismissed the defendant’s appeal and affirmed the jury’s verdict of £250 in damages in favor of the plaintiff.

From this case, it can be deduced that difficulty in assessing damages does not prevent a court from awarding damages. Although the prospective winnings from bets and stable commissions may have been difficult to ascertain with certainty, still the court recognized that the plaintiff had been deprived of a chance or opportunity to make a profit from the use of the horse. Hence, based on common sense and reasonable estimations, damages were quantified in the best way possible.

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Dougan v Ley (1946): A Case Summary

Dougan v Ley (1946) is an Australian case that throws light on the remedy of specific performance where there is a breach of contract. It concerns a contract to transfer a taxi license. Given below are the case details:

Case name & citation:	Dougan v Ley (1946) 71 CLR 142; [1946] HCA 3
The concerned court:	High Court of Australia
Decided on:	08 April 1946
Area of law:	Remedies for breach of contract; specific performance

Facts of the case (Dougan v Ley)

The case was about a contract between two parties for the transfer of a taxi license. The defendant was the owner of a taxi and had a registration and license for it. He then verbally agreed to sell the taxi and the benefit of the registration and license to the plaintiff for a particular price. The plaintiff paid a deposit and desired to complete the arrangement. The defendant declined. He breached the contract and failed to transfer the license as was agreed upon.

Recognizing that there was a scarcity of available taxi licenses, the plaintiff sought to claim specific performance of the contract. This means that the plaintiff wanted the court to order the defendant to perform their contractual obligation by effecting the transfer of license.

However, the defendant argued that instead of an order for specific performance, damages would be sufficient as a remedy for the breach of contract.

Issue

Was an order for specific performance appropriate in this case?

Judgment of the Court in Dougan v Ley

The Court decided that while chattels (movable personal property) are not generally subject to specific performance, there are exceptions to this, for example, a chattel of special or unique value. In the given case, the taxi license was considered to fall within this exception and hence, specific performance was regarded as appropriate. The Court took into account the fact that there were only a limited number of taxi licenses available, making them valuable and difficult to obtain. Due to this scarcity, the court determined that the unique/rare nature of the taxi license made it fall within the exception. Hence, it ordered the defendant to fulfill the contract by transferring the license as damages alone would not be an adequate remedy.

It was held that the defendant should take all necessary actions and execute all documents which were needed to enable the plaintiff to make a proper application to the Commissioner for Road Transport and Tramways for the transfer of the registration and license of the taxi.

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