Ruxley Electronics: Alternative Measures of Damages for Breach of Contract

30 April 2018

Daniel Loh

You built a brick wall for your customer. The wall fit all the specifications except for one: It was 1.38m instead of 1.4m as agreed. There is also no safety issue with the brick wall remaining at 1.38 m. Can your customer claim the full costs of knocking down and rebuilding the wall at 1.4m thickness?

Ruxley Electronics v Forsyth
This matter came up before the House of Lords in the UK case of Ruxley Electronics v Forsyth. In Ruxley, a homeowner had contracted with a builder to construct a swimming pool to a depth of 7 ft 6 in. When the pool was constructed, however, the homeowner discovered that the pool was only 6 ft deep. This was 1.5 ft shallower than the terms specified in the contract and the homeowner refused to pay. The builder subsequently sued for the payment due to him under the contract, while the homeowner brought a counterclaim for, amongst other heads of claim, damages for the breach of contract.

The homeowner claimed the full sum of reinstatement/rectification, which involved demolishing the pool built and rebuilding it to the stipulated depth. The contractor on the other hand submitted that the pool was fit for purpose, despite being shallower than stipulated, and that damages measured to the full sum of rectification would be disproportionate to the nominal or non-loss suffered by the homeowner.

At first instance. the Court held that the homeowner had suffered nominal losses to a quantum of £1k, while the Court of Appeal overturned that judgment and awarded the homeowner damages at the full cost of rectification works.

When the matter came before the House of Lords, the House of Lords held that awarding the full cost of rectification works would be disproportionate as the actual loss suffered by the homeowner did not warrant rectification works, which would require the costly endeavour of digging up the swimming pool, digging down to the required depth, and rebuilding the swimming pool.

Jauncey LJ held that:-
"Damages are designed to compensate for an established loss and not to provide a gratuitous benefit to the aggrieved party from which it follows that the reasonableness of an award of damages is to be linked directly to the loss sustained. If it is unreasonable in a particular case to award the cost of reinstatement it must be because the loss sustained does not extend to the need to reinstate. A failure to achieve the precise contractual objective does not necessarily result in the loss which is occasioned by a total failure. [emphasis added]"

Lloyd LJ went on to lay the proper procedure in measuring damages for a breach of contract:-
"[F]irst, the cost of reinstatement is not the appropriate measure of damages if the expenditure would be out of all proportion to the benefit to be obtained, and, secondly, the appropriate measure of damages in such a case is the difference in value, even though it would result in a nominal award. [emphasis added]"
 
A distinction was also made between contracts which were purely commercial and those which contain non-commercial objectives.

Loss of Amenity – a recognised head of damages?
In Ruxley, the House of Lords recognised that while the loss suffered by the homeowner was nominal, some measure of damages should still be awarded. The trial judge had taken into consideration that the contract was for “the provision of a pleasurable amenity” and awarded £2,500 as damages for loss of amenity. The House of Lords restored this award (upon appeal from the Court of Appeal), but Lloyd LJ noted that the loss of amenity claim would not be available in most cases and that contractual damages had not yet been expanded to “compensate the buyer for his disappointed expectations”. He, however, left it open as to whether loss of amenity could be a recognised head of claim generally across contract law.
 
Adoption by the Singapore courts
The Singapore courts have clearly accepted parts of Ruxley, particularly the principle that contractual damages are to be proportionate and should not be unreasonable. The Court of Appeal in Family Food Court (a firm) v Seah Boon Lock and another (trading as Boon Lock Duck and Noodle House) [2008] 4 SLR(R) 272; [2008] SGCA 31 acknowledged at [54] that Ruxley had laid down an “objective test of reasonableness” that was “a legal constraint on recovery by the plaintiff/promise for loss of the performance interest”.

However, the courts have been less willing to recognise that a loss of amenity would always arise as a result of a breach of contract. The High Court case of Yap Boon Keng Sonny v Pacific Prince International Pte Ltd and another (“Sonny Yap”) [2009] 1 SLR(R) 385; [2008] SGHC 161 is the rare example where Ruxley was applied in this regard.

In Sonny Yap, a homeowner had engaged a contractor to construct a house for him. When works were completed, the bedrooms were found to be 1m2 smaller than contractually stipulated. The homeowner thus sued for the cost of reinstatement.

Prakash J (as she then was) applied Ruxley and noted that “the entire objective was to construct a house that was suitable for the plaintiff’s family to occupy” and that while the bedrooms were smaller than contractually stipulated, they were not unusable as bedrooms and thus did not warrant a reconstruction of the bedrooms. Prakash J thus made an award for the loss of amenity for $50,000 as she found that she was entitled to make such an award.

However, the court in Ng Siok Poh (administratrix of the estate of Lim Lian Chiat, deceased) and another v Sim Lian-Koru Bena JV Pte Ltd [2017] SGHC 231 noted that the basis for a claim for loss of amenity remained controversial and unclear. Ramesh J in the case noted Sonny Yap as an example where an award was made but chose to leave the question open as to the basis of such an award.
 
Commentary
The juridical basis for an award for loss of amenity for breach of contract remains unclear. What is clear is that there ought to be some compensation involved, if it was not a purely commercial contract and that some element of personal preference or pleasure was involved.

However, the case has been accepted for the principle that when the cost of reinstatement is unreasonable the diminution in value will be awarded instead. While this clashes with the general contractual principle that a party must fulfil his end of the bargain, the application of Ruxley would be applicable where the cost of reinstatement would be too disproportionate to be awarded by the court.


Daniel Loh
Associate Director, BR Law Corporation
[email protected]