Ruxley Electronics & Construction Ltd v Forsyth [1995] UKHL 8 (29 June 1995)

A contractor built a swimming pool 9 inches shallower than contracted. The pool remained safe and functional, with no diminution in value. The House of Lords held that the cost of rebuilding (£21,560) was unreasonable and disproportionate, awarding instead £2,500 for loss of amenity.

Facts

Mr Forsyth contracted with Ruxley Electronics and Construction Ltd for the construction of a swimming pool at his property in Kent. The contract specified a maximum depth of 7 ft 6 in at the deep end. When completed, the pool’s maximum depth was only 6 ft 9 in. The pool was perfectly safe for diving, and expert evidence established that the shortfall did not decrease the pool’s value. The only method to achieve the specified depth would be to demolish and rebuild the pool at a cost of £21,560.

Trial Judge’s Findings

Judge Diamond QC found that: (1) the pool as built was safe for diving; (2) there was no diminution in value; (3) Mr Forsyth had no genuine intention to rebuild the pool; (4) the cost of rebuilding would be wholly disproportionate to any benefit gained; and (5) it would be unreasonable to award reinstatement costs. The judge awarded £2,500 for loss of amenity instead.

Issues

The central issue was whether the appropriate measure of damages for breach of a building contract should be the cost of reinstatement (£21,560) or some lesser amount where reinstatement would be unreasonable and disproportionate to the benefit obtained.

Judgment

The House of Lords unanimously allowed the appeal and restored Judge Diamond’s judgment. Their Lordships held that reasonableness is a key factor in determining the appropriate measure of damages, not merely a consideration limited to mitigation.

Key Principles

Lord Jauncey stated that damages are designed to compensate for an established loss, not to provide a gratuitous benefit. Where reinstatement would be unreasonable, it indicates that the loss sustained does not extend to the need to reinstate. Personal preference may be a factor in reasonableness but cannot be determinative of loss.

Lord Lloyd emphasised that the cost of reinstatement is not appropriate where expenditure would be out of all proportion to the good obtained. The plaintiff’s intention regarding reinstatement is relevant to reasonableness—if there is no genuine intention to rebuild, awarding such costs would be mere pretence.

Lord Mustill addressed the concept of ‘consumer surplus’, noting that the law should recognise and compensate non-monetary personal losses even where economic measurement is difficult. He observed that there is not a simple binary choice between cost of reinstatement and diminution in value.

Loss of Amenity Award

The House upheld the judge’s award of £2,500 for loss of amenity, recognising that where a contract is for the provision of a pleasurable amenity, general damages may be awarded for the loss of that pleasure, applying principles from holiday cases.

Implications

This case establishes that in building contract disputes, courts are not bound to choose between only cost of reinstatement or diminution in value as measures of damage. Reasonableness operates as a qualifying factor in determining what loss has actually been sustained. Where reinstatement costs are grossly disproportionate to benefit, and there is no genuine intention to reinstate, the court may award a modest sum for loss of amenity or disappointed expectations. The decision protects defendants from excessive claims whilst ensuring claimants receive fair compensation for genuine losses, including non-monetary benefits contemplated by the contract.

Verdict: Appeal allowed. The Order of the Court of Appeal was set aside and the judgment of Judge Diamond QC was restored, awarding £2,500 damages for loss of amenity rather than £21,560 for cost of reinstatement.

Source: Ruxley Electronics & Construction Ltd v Forsyth [1995] UKHL 8 (29 June 1995)