Remedies Assignment (LIA3015)
Question chose:Question 1
Prepared by:Loo Yong Feng (LIA 160064)
Instructor:Dr. Nur Jaanah Binti Abdullah @ Chew Li Hua
& Mdm Choong Shaw Mei
1) Introduction
Damages are a sum of money awarded to compensate for the loss suffered by a
claimant upon a defendant’s breach of contract.1 As laid down in Lim Foo Yong & Sons Realty Sdn Bhd v Datuk Eric Taylor,2 when there is a breach of contract, the
innocent party and anyone who is privy to the contract can always claim for damages
provided that they have suffered loss through the breach of contract. In regard to the
burden of prove, the onus is on the claimant to prove that they have suffered the loss
claimed for otherwise, no damages will be awarded as laid down in Tan Sri Khoo Teck Puat v Plenitude Holdings Sdn Bhd.3
Generally, there are two major interests in which damages are aiming to protect,
namely the expectation interest and reliance interest.4 Under the expectation interest,
the aim of damages is to “put” the claimant into a position he would have been in if the
breached contract had been performed.5 On the other hand, the reliance interest is
seeking to “put” the claimant back to the position he would have been in if he did not
enter into the contract. An example to illustrate the protection of such interest can be
seen in McRae v Commonwealth Disposals Commission.6 In this case, the claimant
and defendant entered into a contract to recover a shipwrecked oil tanker. To perform
the contract, the claimant incurred some expenses to organise an expedition to salvage
the said tanker. However, the claimant could not find the tanker and only to find that the
defendant merely heard of the existence of the tanker from rumours, hence the tanker
might not even exist, to which the claimant claimed for damages. In assessing the
amount of damages, the Court awarded the expenses the claimant has incurred for the
salvage expedition since that was the amount the claimant would not lose if the contract
was performed. Besides expectation and reliance interest, there is actually a third
category of interest. In 1936, Lon Fuller and William Perdue published an article "The
1 Cheong, May Fong, “Damages”, Civil Remedies, 2nd Ed. (Subang Jaya: Thomson Reuters Malaysia Sdn Bhd, 2016). 98.2 [1990] 1 MLJ 168.3 [1993] 1 MLJ 113 (SC).4 Cheong, May Fong, “Damages”, Civil Remedies, 2nd Ed. (Subang Jaya: Thomson Reuters Malaysia Sdn Bhd, 2016). 99.5 Loke, F H, “Cost of Cure or Difference In Market Value? Towards A Sound Choice In The Basis For Qualifying Expectatio Damages”, (1996) 10 Journal of Contract Law 189 – 211.6 (1951) 84 CLR 377.
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Reliance Interest in Contract Damages."7 which “coin” a third calcification of interest
called the restitution interest. Under this interest, when a claimant has accepted the
defendant’s repudiation of a contract, the claimant can claim to recover the value of any
benefits conferred upon the defendant in the course of performing a contract prior to its
termination. However, this category of interest has been heavily criticised by some
scholars as it seems to overlap with both expectation and reliance interests.8 Some
scholars have even criticised this category of interest as “out of date and not very useful
as an organising principle in teaching contract remedies.”9 Therefore, in some
textbooks, this category of interest has been completely omitted.10 Despite so many
categories of interests, in pursuant to the question of this assignment, only the
expectation interest will be discussed. In that regard, the following discussion will be
separated into a few parts, namely the general principle for measure of damage, the
measure of damage for expectation interest followed by case analysis.
2) Content & Analysis/ Comments
2.1) General Principles For Measure of Damage
As mentioned earlier, there are two major interests the court will seek to protect when
measuring the amount of damages. However, before discussing the application of
measure of damage for expectation interest, we must first understand the general
principles in assessing the amount of damage, which apply to both expectation and
reliance interest.
The law on damages is set out in section 74 of the Contract Act 195011. Section
74(1) provided that when a contract has been broken, the innocent party is entitled to
receive compensations for any loss or damages caused to him from the defaulting
party. However, section 74(1) further provided that such compensation sought must
only be limited to two categories, which are losses or damages which would arise
7 L. L. Fuller & William R. Perdue, “The Reliance Interest In Contract”, (1937) 46 Yale Law Journal 373 – 420.8 Richard Craswel, “Against Fuller and Perdue”, The University of Chicago Law Review (Chicago: The University of Chicago., 2003). 99.9 Ibid.10 Ewan McKendrick, “Damages”, Contract Law (New York: Oxford University Press Inc., 2005). 1005.11 Contract Act 1950 (Act 136).
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naturally “in the course of things from the breach” or losses or damages which were
within the parties’ contemplation when they made the contract. Section 74(2) then
provided that such compensation cannot be given for any remote and indirect losses
or damages. Generally, Section 74 deals with the principle of remoteness or in other
words, the claimant cannot be entitled to damages which are too remote in that
particular circumstance. The landmark case which the Courts often cite to illustrate
this principle is Hadley v Baxendale,12 though subsequent cases seems to apply the
principle differently as can be seen cases such as Victoria Laundry (Windsor) Ltd v Newman Industries Ltd13 and C Czarnikow Ltd v Koufos or The Heron II.14
However, since this is not the focus of this assignment, it will not be further
discussed.
Secondly, as a general principle, the functions of damages are compensatory
and not punitive in nature. The classic authority for this principle is Robinson v Harman15 which held that where a person sustain a loss due to a breach of contract,
he will, “so far as money can do it”, be placed in the same situation, with regard to
damages, as if the contract had been performed.16 This principle has been adopted
by Malaysia in the Federal Court case of Tan Sri Khoo Teck Puat v Plentitude Holdings Sdn Bhd17 which held that the general principle which constitutes the
starting point in assessing damages for a breach of contract is to place the parties
who have sustained losses due to the breach of the contract, “so far as money can
do it”, in the same situation as if the contract has been performed. On top of that, the
Court also noted that the damages awarded are to compensate the actual loss
suffered by the claimant and not to benefit the claimant by putting the claimant in a
better financial position than what the claimant could earn if the contract was
performed. In other words, as explained in Mid Valley City Sdn Bhd & Anor v Akitek Tenggara Sdn Bhd,18 in any case, a claimant can only claim for what he has
lost due to the fault of the defendant for breaching a contract. The claimant cannot 12 (1854) 9 Exch 341.13 [1949] 2 KB 528.14 [1967] UKHL 4.15 (1848) 1 Exch 850.16 Ibid, at 855.17 [1995] 1 AMR 41.18 [2007] 5 MLJ 697
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claim for more than what he lost or what he did not loss. To support this, the Court
explained that section 74 uses the word “compensate”19 and not “damage” where the
former implies giving an award equivalent to what has been lost. This is a very
important principle to take note of as in most cases, the Court will always have to
examine what damages are claimable so as to not “unjustly enrich” the claimant. This
will be discussed in depth in the next subject topic.
In relation to the second general principle, a claim for damages must also be
distinguished from a claim of debt. As distinguished in Letrik Bandar Hup Heng Sdn Bhd v Wong Sai Hong,20 a debt is a definite sum of money fixed by the agreement
payable by one party to the other in return for the performance of the contract.
Damages on the other hand refer to pecuniary loss suffered by the claimant due to
the breach of the contract by the defendant. The Court further explained that the
reason for such distinction is because the rules for claiming damages do not apply to
a claim for payment of debt. A simple example to illustrate this point would be, if A
agreed to lend B certain amount of money, say RM 50 but failed to do so, the “RM
50” in this scenario is a “debt” since it is a payable amount by A to B as agreed in the
contract. Therefore, B cannot claim for the “RM 50” as “damages” though he may
seek for its payment through specific performance under Section 11 of the Specific
Relief Act.21 However, if the purpose of B entering into such contract with A was
actually to supply the “RM 50” to C with certain rate of interest, say RM 1 a week, in
the event of A breached the contract, B would not be able to supply the “RM 50” to C
hence losing the opportunity to earn the interest. In this event, such “loss of interest”
is a damages and thus B could claim from A the amount of interest B would have
earned if A fulfilled the contract.
Another general principle in measuring damages are the principle of mitigation of
loss. Basically, under this principle, if the claimant did not take reasonable steps to
mitigate his losses arise from the breach of the contract, the damages he is entitled to
19 As per section 74(1) “When a contract has been broken, the party who suffers by the breach is entitled to receive … Compensations for any loss …” and as per section 74(2) “Such compensation is not to be given…”20 [2002] 5 MLJ 24721 Specific Relief Act 1950 (Act 137)
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will be lesser.22 This principle is reflected in the Explanation to section 74 of the
Contract Act23 which provided that in estimating the loss or damages arising from a
breach of contract, the means which existed of remedying the inconvenience caused
by the non-performance of the contract must be taken into account. Again, since this
is beyond the scope of current discussion, no further elaborations will be made.
2.2) Protection of The Expectation Interest
As a general rule, it has been said that the primary aim of awarding damages for
breach of contract is the protection of the claimant’s expectation interest.24 According
to a popular British barrister, Harvey McGregor, expectation interest is the “normal
measures of recovery” and reliance interest is the “alternative measures of
recovery”.25 As laid down in Commonwealth v Amann Aviation Pty Ltd, 26 the
rational for the protection of the claimant’s expectation interest stems from the
premise that a binding promise creates an expectation of performance in the promise,
Thus, a breach of such as a binding promise must be rectified by a remedy that will
fulfil that expectation.27 In relation to that, there are two possible measures which may
be adopted to put a plaintiff back into the position he would have been in if the
contract was performed. The first method is called “diminution in value”, which is to
take the difference in value between what the claimant has received and what he
expected to receive from the contract. The second method is called “cost of cure”
which is to take the cost of putting the plaintiff into the position which he would have
been if the contract was duly performed.28
Both of the methods mentioned above can be seen in the Illustrations to section
74. Illustration (a) shows the application of the “diminution in value” as shown below:
22 Cheong, May Fong, “Damages”, Civil Remedies, 2nd Ed. (Subang Jaya: Thomson Reuters Malaysia Sdn Bhd, 2016). 152.23 Supra no.1124 McGregor, H, McGreogor on Damages, 19th Ed. (London: Sweet & Maxwell, 2014). 36.25 Ibid.26 [1991] HCA 5427 Chen-Wishart, M, Loke, A and Ong, B, Studies in the Contract Law of Asia: Remedies for Breach of Contract. (Oxford: Oxford University Press, 2016). 32528 Loke, F H, “Cost of Cure or Difference In Market Value? Towards A Sound Choice In The Basis For Qualifying Expectatio Damages”, (1996) 10 Journal of Contract Law 189 – 211.
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“A contracts to sell and deliver 50 gantangs of saltpetre to B, at a certain price to
be paid on delivery. A breaks his promise. B is entitled to receive from A, by way
of compensation, the sum, if any, by which the contract price falls short of the
price for which B might have obtained 50 gantangs of saltpetre of like quality at
the time when the saltpetre ought to have been delivered.”
In simple words, illustration A can be explained as followed, if A promised to sell B a
certain amount of goods for a price, say RM 50 but subsequently failed to do so, this
would mean that B had to buy the same amount of goods of like quality from
someone else. Therefore, if B have to spend RM 60 for buying the substitute goods
from another vendor, the compensation that B will get is RM 10, where RM 10 being
the contract price falls short of the price that B have to pay in order to achieve the
same result if the contract was not breached. Such amount is normally known as cost
of diminution in value.29 However, it must be noted that the “price for which B have to
pay to achieve the same result” is usually referring to the market price of the goods
concerned at the time when contract ought to be performed.30 This means that even if
B is the aggrieved party, it does not mean that he can intentionally buy the substitute
goods from an overpriced source and claim for the price difference between the
contract price and price from such alternate source for otherwise it would infringe the
general principle that “damages for breach of contract is compensatory in nature” as
explained earlier.31
On the other hand, illustration (f) shows the applications of the cost of cure
measure:
“A contracts to repair B’s house in a certain manner, and receives payment in
advance. A repairs the house, but not according to contract. B is entitled to
recover from A the cost of making the repairs conform to the contract.”
This usually refers to situations where the claimant received defected goods from the
defendant. In such a situation, the amount of damages the claimant is entitled to will
29 Ibid.30 Teng, KW, Rosli Said, Mohd Suhaimi Mohd Danuri, The Employer's Claim Against The Contractor For Damages For Defective Work”, (2014) 4 International Surveying Research Journal. 51 -61.31 Ibid.
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be the cost for repairing the defected goods to its supposed condition based on the
contract which is normally known as cost of reinstatement.32
Be that as it may, in most cases, according to McKendrick, regardless of which
approach is taken, usually there will not be significant difference for the amount of
damages awarded, particularly when the goods price is not high.33 As an illustration,
McKendrick gave an example where a seller failed to deliver the promised goods, say
a sowing machine, thereby forcing the buyer to obtain the similar sowing machine
from a another vendor. In such a case, the cost of diminution in value is usually no
difference from the cost of reinstatement.34 However, the complicacy usually arises
when the goods concerned are intangible properties such as houses or buildings. In
such a situation, since property prices are usually high and may change significantly,
compensating the claimant on the basis of cost of diminution in value or cost of cure
would result in significant difference. This is why the ordinary approach taken for
defective works by contractors is the cost of reinstatement as can be illustrated in
Radford v De Froberville35 and the Malaysian case of Lim Chon Jet & Ors v Yusen Jaya Sdn Bhd.36 In that regard, this is when the case of Ruxley Electronics and Construction Ltd v Forsyth37 will come into application. This case has been
frequently cited and referred to as the landmark case which laid down other rules
pertaining the measure of damage under the protection of expectation Interest.38
2.3) Measures of Damages Under The Case of Ruxley Electronics and Construction
Ltd v Forsyth
In the case of Ruxley Electronics and Construction Ltd v Forsyth,39 Ruxley (the
plaintiff) contracted to build a swimming pool in Forsyth (the defendant)'s garden. The
contract specified that the pool would have a diving area of seven feet and six inches
deep. However, upon completion of the pool, it was discovered that the diving area
32 Ibid.33 McGregor, Contract Law: Texts, Cases and Materials, (London: Sweet & Maxwell, 2014). 83534 Ibid.35 [1977] 1 WLR 1262.36 [2011] 8 CLJ 598. 37 [1996] AC 34438 Supra no.2839 Supra no. 35
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was only six feet deep, falling short of one feet and sixth inches than what had been
agreed on in the contract. Therefore, Forsyth refused to pay for the contract price.
This led to Ruxley bringing an action against Forsyth to claim for the purchase price
while Forsyth counter-claimed for breach of contract. Forsyth sought to claim for the
cost for demolishing the pool and rebuilding a new one based on the specifications
stipulated in the contract which amount to £21,540.40 However, based on professional
opinions, the diving area was still safe enough for diving purposes and the “defect” in
depth did not actually affect value of the pool.41 At the end, the House of Lords,
allowed the Forsyth’s claim for damages but such damages was awarded on the
basis of “loss of amenity” amounted to £2500 rather than cost to fix the wrong depth.
The reason for arriving such a decision is because, on one hand, Forsyth had
suffered loss of pleasure for being deprived of the benefit of the pool built to the depth
specified in the contract. On the other hand, it is unreasonable to allow the cost of
cure upon considering the following factors. First, the court examined the purpose of
the contract and found out that building the pool in the wrong depth did not really
defeat the purpose of the pool. In this case, Forsyth wanted the pool to be built in
seven feet and six inches deep merely because he wanted the comfort of diving in
such depth. Secondly, the court examined the intention of Forsyth to fix the defect in
the pool. In this case, Forsyth did not nor intended to fix the depth of the pool. Thirdly,
the court scrutinised the proportionality between the cost of cure, the contract price,
the benefit already received by Forsyth and the benefit he would receive from the
cure. In this case, the Court found that the cost of cure was wholly disproportionate to
the loss Forsyth had suffered for having a shallower pool as the cost to demolish and
rebuild a new pool was very high. Therefore, based on the facts, allowing the cost of
cure would over-compensate Forsyth but measuring the damages based on
diminution of value would under-compensate Forsyth. It is for this reason the Court
allowed the claim on the basis of loss of amenity.
At this point, one may wonder, is not it that the role of damages in a case of
breach of contract is to place the claimant “in the position which he would have been
40 This means that the damages claimed was the cost of cure of the defect.41 This would mean that non-fulfilment of the specifications of the contract did not actually result in diminution in value of the pool.
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in if the contract was performed” as mentioned earlier in the case of Robinson v Harman?42 So, in Ruxley’s case, even if allowing the cost of cure would result in
over-compensation for Forsyth, should not the priority be putting the him “in the
position he would be in if the contract was duly performed” since that is the role of
damages in breach of contract which is “compensatory in nature”? Even if the Court
made it clear that the cost of cure could not be allowed because it would over-
compensate Forsyth, the question is why should the Court be concerned with
Forsyth’s intention to fix the defect? Also, if cost of cure is allowed only when it is
“reasonable to allow so”, would not it defeat the purpose of the contract since the
“party at fault” can legally escape from his contractual obligations so long as the
Court deem it “unreasonable” for him to fix the defects in the goods?
Such questions have in fact been discussed among scholars. On the question of
whether the where the Court should consider the intention of the claimant to reinstate
in assessing damages, some scholars argued that it should be considered since
under the general principle of damages in breach of contract, the claimant should not
“get more than what he deserves”.43 This can be supported by the case of Radford v De Froberville44 which held that the claimant can only claim for genuine loss and
should not be using the technical breach of a contract to secure an uncovenanted
profit. Therefore, if the claimant does not intend to reinstate the defects in the goods,
he should not be allowed to “keep the compensation and use it for something else”.45
On that basis, it is fair for the Court to compensate the claimant for his loss of
amenity “where the value of the promise to the promisee exceeds the financial
enhancement of his position which full performance will secure”.46
On the question of reasonableness, while it seems to be unfair for allowing the
party at fault to “escape his contractual liability” merely because the court deems it
unreasonable for the party at fault to bear the cost to reinstate the defects, some
scholars have argued that this test of reasonableness is necessary as in actual life,
42 (1848) 1 Exch 850.43 Supra.No.144 Supra.No.3345 Supra.No.3146 Supra No. 35 at pg 360
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particularly in cases where the goods concerned is immovable properties, it would be
harsh to expect all contractors to build all buildings strictly in compliance with the
specifications laid out in the contract.47 Therefore, the Court must be there to decide
whether the defects concerned are so gross that they needed to be reinstated so as
to protect both contractors and buyers.48 Be that as it may, some scholars have also
criticised the approach the Court in Ruxley’s case had taken in regard to the test of
reasonableness. For example, Andrew Burrows contended that it was not
unreasonable to allow the cost of cure to Forsyth. According to Andrew Burrows, it
would only be unreasonable to allow so if Forsyth was a property speculator (rather
than a consumer wanting to use the pool) who insisted in rebuilding the pool to the
desired depth even though it made no difference to the property’s value.49 Meanwhile,
McKendrick contended that in applying the test of reasonableness, the courts should
be slow to conclude that the award of cost of cure is unreasonable so that the party at
fault is not in a position to place “unreasonable obstacles” to the innocent part’s
recovery of damages.50 Also, the Australian High Court in Tabcorp Holdings Ltd v Bowen Investments Pty Ltd51 has suggested that a claim should only be held as
“unreasonable” in “fairly exceptional circumstances” so as to not overly deprive the
claimant of what he should get under the contract.
Be that as it may, as far the law is concerned, Ruxley Electronics and Construction Ltd v Forsyth52 is still the authority Courts often referred to when
measuring damages under the expectation Interest. Therefore, unless and until such
position is overruled, the principles laid down in Ruxley Electronics and Construction Ltd v Forsyth53 is still relevant in assessing damages under the
expectation Interest. To sum up, there are two significant principles the court in
Ruxley’s case laid down. First, the claimant cannot be over or under-compensated.
This means that the compensation awarded cannot “place the claimant in the
47 H.P. Livermore, “Contracts: Is It Possible to Contract for an Exact Performance?”, (1949) 37 California Law Journal. 498 – 505.48 Ibid.49 Burrows, A, A Casebook on Contract, 4th Ed. (Oxford and Portland: Hart Publishing, 2013), 362.50 Supra no. 33.51 [2009] HCA 852 Supra no. 3753 Ibid.
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financial position which would exceed or fall short of what fulfillment of the contract
would secure”. Secondly, in measuring damages, if the damages sought is
unreasonably disproportional to the need to reinstate the defects concerned, such
damages cannot be allowed. In that regard, the following subtopics will discuss the
applications of such rules in depth and also issues pertaining to these rules with
reference to subsequent cases.
2.3.1) The Test of Reasonableness
Based on the discussion above, it is clear that the Court in Ruxley Electronics and Construction Ltd v Forsyth54 laid down the test of reasonableness. In that
regard, the Court in Ruxley’s case have explained when does the test of
reasonableness will come into play.
First, Lord Lloyd gave guidance as to the circumstances in which cost of
reinstatement is the appropriate measure of damages. As laid down by Lord
Llyod, when the cost of reinstatement is less than the difference in value, the
measure of damages will be the cost of reinstatement. This is because by
claiming the difference in value, the claimant would be failing to take reasonable
steps to mitigate his loss. Lord Llyord further explained that in many ordinary
cases, where reinstatement presents no special problem, the cost of
reinstatement will be the measure of damages even if reinstating the defects will
not result in much increase in value. This is why it is often said that the cost of
reinstatement is the ordinary measure of damages particularly for defective
performance under a building contract.55
Then, Lord Lloyd added that only when it is unreasonable for the claimant
to insist on reinstatement, for example when the expenses involved to reinstate
the defect would be out of all proportion to the benefit to be obtained, the
claimant will be compensated for the loss in value. In any case, the cost of
remedy is central and often decisive to the issue of reasonableness. If there is no
54 Ibid.55 Ibid, para 282.
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diminution in value, this means that the claimant has suffered no loss. Thus, his
damages will only be nominal damages.56
Therefore, in summary, the application of the test of reasonable is as
followed. First, in case of construction works, the measure of damage will always
be the cost to cure. This is so even if the cost to cure is higher than the cost of
diminution in value.57 However, if based on the circumstance of the case, it is
unreasonable for award cost of cure, then the measure of damage will be the
cost of diminution in value. Whether it is reasonable or not to award the cost of
remedial work, the context of the particular contract must be considered.58 For
example, in Ruxley’s case, the claim for cost of cure was rejected because the
expenses needed to demolish and rebuild a new pool is too high and
disproportional to the benefit the defendant could get from the pool with desired
depth. On the other hand, in the case of Bellgrove v Eldridge,59 similar facts
arose where the plaintiff contracted to build a brick house villa for the defendant.
However, the brick house was so badly built that the entire brick house villa was
not stable at all, in which the defendant refused to pay the full contract price.
Thus, the plaintiff sued for the full contract price and the defendant counter-
claimed for breach of contract. In assessing the damages, the Court allowed the
claim for the cost of demolishing the entire brick house villa and rebuilding a new
one in accordance with the specifications. This is because the brick house villa
was so badly build that it does not serve its original purpose anymore, thus
demolishing the entire building and rebuild a new one is the only way to secure
the claimant’s expectation interest. Lastly, if there is no diminution in value, the
claimant will not be able to claim for both cost to cure and cost of diminution in
value. The only damages the claimant is entitled to are nominal damages.
However, in Ruxley, the fact was so exceptional that both cost of cure and
56 Ibid.57 Ibid. See also Bellgrove v Eldridge [1954] 90 CLR 613; East Ham Corpn v Bernard Sunley & Sons Ltd [1966] AC 40658 per Lord Jauncey in Ruxley59 [1954] 90 CLR 613
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diminution in value60 were unavailable, the Court awarded the damages to the
defendant for loss of amenity.
As a result of the Ruxley’s case, the test of reasonableness seem to have
been adopted in subsequent cases. For example, the importance of
reasonableness was emphasised in Southampton Container Terminals Ltd v Schiffahrisgesellsch “Hansa Australia” MGH & Co (The MV “Maersk Colombo”)61 where the Court held that where reinstatement is the appropriate
basis for the assessment of damages, it must be both reasonable to reinstate
and the amount awarded must be objectively fair as between the claimants and
the defendants. In Vercoe v Rutland Fund Management Ltd,62 the Court was of
the view that in controlling the amount of damages to be awarded for breach of
contract, reference should be made to the strength of the plaintiff’s interest in
performance of a contractual duty, judged objectively and weighing that against
the legitimate interests of the defendant so that the remedy awarded is not
oppressive to the defendant and is properly proportionate to the wrong done to
the plaintiff. In McGlinn v Waltham Contractors Ltd,63 the Court held that
foreseeability is also important in assessing the correct measure of damage. The
court added that if the plaintiff only has a limited interest in the property
concerned or if he could obtain a satisfactory replacement for the property by
buying it elsewhere, then it would not be foreseeable that he would reinstate the
defects. So, the claimant’s loss should be assessed by reference to the
diminution in the value of the property or the cost of purchasing the replacement.
2.3.2) Selling A Defected Property
In property market, it is common that buyers will buy properties and resale them
to subsequent buyers. So, in such cases, if the property is built with defects, this
will usually result in diminution of value, thus inevitably reduces the resale price
60 Since experts testified that even if the pool was reinstated, there will be no any changes in value of the pool. 61 [2001] EWCA Civ 71762 [2010] EWHC 424 (Ch)63 [2007] EWHC 149 (TCC)
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which the subsequent buyers might have previously agreed with.64 In such a
situation, case law has established that, if such defects resulted in loss for
reselling the property, the claimant will be entitled to claim for such loss.
However, if such defects do not result in any loss when reselling the property,65
the property owner will not be entitled to claim for such loss. This is because it is
not right in law or reasonable to compensate the owner for a loss that the
claimant does not suffer.66
For example, in Rawlings v Rentokil Laboratories Ltd,67 pursuant to a
contract, the defendants installed a damp-proofing system in the plaintiff's house
but failed. This resulted in the house acquired a bad reputation amongst
prospective purchasers, thus depreciated in value. Because of this, the claimants
had suffered the loss of earning more money from reselling the house. In
assessing the measure of damages, the Court compensated the claimants for
the cost of diminution in value.
On the other hand, in Birse Construction Ltd v Eastern Telegraph Co Ltd,68 the defendant construction company failed to properly construct a
residential training college. Due to the defects, the claimants wanted to sell the
college but without remedying the defects. In assessing the damages, the Court
rejected the claimants' claim for reinstating the defects since the claimants would
not remedy the defects even such claim was allowed.
2.3.3) Demolition And Rebuilding
As mentioned earlier, there may be situations where it is justifiable for the
claimant to recover the cost of demolishing the property and building afresh as
damages on the basis of the cost of reinstatement. This was in fact laid down in
the Ruxley’s case itself where the Lord Jauncey held that when the contract
breaker has entirely failed to achieve the contractual objective, the damages
64 Supra no. 30.65 For example, if the subsequent buyer agreed to buyer the defected property with the agreed price.66 Supra no. 30.67 [1972] 223 EG 1947.68 [2004] EWHC 2512 (TCC)
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awardable are the necessary cost of achieving that objective. 69 Thus if a building
is constructed so defectively that it is of no use for its designed purpose, the
owner can claim for the necessary costs of demolishing and reconstructing the
building. The classic example of such case is Bellgrove v Eldridge70 which has
been explained earlier.71
However, in practice, such a situation rarely arises and the court will only
allow such claim if the property concerned is so defectives that it does not serves
its designed purpose anymore. For example, in McGlinn v Waltham Contractors Ltd,72 the Court rejected the claimant’s claim for the cost to
demolish and rebuild the building concerned. In this case, the defendants had
built a house for the claimant. The claimant being dissatisfied with the works
completely demolished the house and sought to recover the costs for
demolishing and rebuilding the building. Even though the defects affected the
whole house, the Court found out that those defects were mainly aesthetic in
nature and the house was not structurally unsound or dangerous. Therefore, the
Court held that it would be unreasonable to allow such claim.
2.3.4) Intention to Reinstate
As discussed earlier, one of the issues arose from the Ruxley’s case was
whether the intention to reinstate is relevant in considering whether the cost of
reinstatement should be awarded. In relation to this question, the Court in that
case explained that while the Court would not normally be concerned with what
the claimant does with the damages he got, it does not mean that intention is not
relevant to reasonableness, at least in those cases where the plaintiff does not
intend to reinstate. Particularly in cases where the claimant is contending for a
high as opposed to a low cost measure of damages, the Court must decide
whether such high cost measure is reasonable in the circumstances of the
particular case.
69 Supra no. 37, para 35870 Supra no. 5971 Pg 1372 Supra no. 63
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Therefore, in assessing reasonableness, one of the factors that the Court
may have to consider is the genuineness of the claimant’s desire to pursue the
course which involves the higher cost where in the absence of such desire, it
may undermine the reasonableness of the higher cost measure. Accordingly, this
is when the intention to reinstate becomes relevant as it may be an evidence to
show that whether the cost of carrying out the remedial works is disproportionate
to the benefit to be obtained and whether it is reasonable to reinstate.73
From this explanation, it is clear that as long as a loss has been proven, it
is not the job of the Court to further determine whether or not the claimant will
reinstate the defects. However, where the issue reasonableness arises as in the
Ruxley’s case, the intention of the claimant to reinstate the defects will be one of
the factors in assessing the reasonableness of a claim of damage. Hence, where
the claimant does not intend to reinstate the defects, it is unlikely that the Court
will award remedial cost. Such proposition has been supported by subsequent
cases such as Tito v Waddell (No 2).74
2.3.5) The Existence of Different Remedial Schemes
In situations where there are two or more equally effective remedial schemes
available, the claimant should opt for the cheapest option. If he chooses
otherwise, then he cannot recover more than the cost of the cheapest scheme.
This is because the claimant must “act reasonably” to mitigate his loss. Such a
proposition was laid down in Hospitals for Sick Children Board of Governors v McLaughlin & Harvey Plc75 which held that such duty to choose the cheapest
remedial scheme is a part of his duty to mitigate his loss.
In the case of George Fischer Holding Ltd v Multi Design Consultants Ltd,76 a contract was breached but the remedial works had not been undertaken
73 Supra no. 3074 [1977] Ch 106. As per Sir Robert Megarry VC: “Per contra, if the plaintiff has suffered little or no monetary loss in the reduction of value of his land, and he has no intention of applying any damages towards carrying out the work contracted for, or its equivalent, I cannot see why he should recover the cost of doing work which will never be done. It would be a mere pretence to say that this cost was a loss and so should be recoverable as damages”.75 [1987] 19 Con LR 2576 [1998] 61 Con LR 85
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at the time of the trial. There were two proposed remedial schemes, one of which
was significantly cheaper than the one the claimant preferred. In determining the
proper measure of loss, the Court held that the proper measure of loss should be
made by reference to the less expensive scheme.
However, sometimes, the claimant may consult experts or professionals in
the relevant fields to seek for advice for which remedial scheme to take.
Sometimes, such experts or professionals may also propose their own solutions
to the claimant. In such cases, such proposed remedial scheme may be adopted
and the remedial costs can be claimed by the claimant from the defendant.77 The
court in George Fischer Holding Ltd held that in certain cases, it is foreseeable
that a claimant would decide which remedial scheme to adopt based on
professional advice. In such cases, prima facie, the claimant is entitled to the
remedial costs carried out in accordance with that expert advice, even if, with
hindsight, criticism could be made of the scheme that was carried out. Therefore,
if the defendant wishes to oppose the adaptation of such a remedial scheme, the
defendant must show that such professional advice has been negligently given.
Be that as it may, the Court in Skandia Property (UK) Ltd v Thames Water Utilities Ltd78 seems to have disregarded this principle. In this case, the claimant
was advised by experts that a tanking system was the only practical way to
protect a building that had been damaged by a flood caused by the defendant.
However, unknown to the experts at the time of such advice, pressure grouting
treatment had already been performed some time prior to the flood. This meant
that the flood had not in fact damaged the integrity of the building, hence the
system that was put in place as part of the remedial scheme was unnecessary. In
assessing damages, the Court rejected the claimant's claim for the cost of the
tanking system, despite the absence of any negligent advice by the experts.
Therefore, it is unclear that whether such case has overruled the principle laid
down in George Fischer Holding Ltd that expert advice will conclusively pin the
77 Supra no.3078 [1999] BLR 338
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contractor with the costs of such suggested works unless it is proven that such
advice was negligently given.
Despite the discussions above, it must be noted that all such principles will
not be applicable when the claimant has begun the remedial works. As laid down
in George Fischer Holding Ltd itself, If there are no remedial works carried out by
the claimant at the date of the trial, the court will have to decide what works
should be done. This is when the parties may suggest the solutions to reinstate
the defects and the court will have to choose between these options subject to
relevant principles in assessing damages as discussed above. However, if some
remedial works have been carried out at the date of the trial, it is not for the court
to consider “what other remedial works the claimant should have been done". In
such cases, the Court will have to allow the claim for costs incurred for such
works provided that it is reasonable to do so. This can be illustrated in the case
of McGlinn v Waltham Contractors Ltd79 where the claimant, being dissatisfied
with the works done by the defendant, demolished the entire building. The
claimant then sought to recover the costs of demolition and rebuilding a new
building. The Court observed that since the defects were mainly aesthetic in
nature, it is not reasonable to allow the claim for cost of demolition merely
because the claimant “has done so”.
2.3.6) Malaysian Position
In Malaysia, the cost of cure measure has been applied in two reported cases,
both of which involved defects in building.80 In Quah Ban Poh v Dragon Garden Pte. Ltd,81 the plaintiff bought a land from the defendant with an agreement that
a house would be subsequently build on the land. However, later, when the
plaintiff took possession of the house, it was discovered that the house has not
been completed in which the plaintiff sued for breach of contract. In assessing
the damages, the Court awarded the cost for remedying such uncompleted
79 Supra no. 6380 Cheong, May Fong, “Damages”, Civil Remedies, 2nd Ed. (Subang Jaya: Thomson Reuters Malaysia Sdn Bhd, 2016). 106.81 [1985] 2. MLJ 159
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works and defects. However, in allowing the claim, the Court did not cite any
authority to support its decision nor any guidance was given by the Court in
determining in which circumstance the cost of cure would be the proper measure
of damages vis-à-vis cost of diminution in value. In Teh Khem On v Yeoh & Wu Development Sdn Bhd,82 similar facts happened where the plaintiff contracted
to buy a house from the defendant. However, when the plaintiff took possession
of the house, the plaintiff discovered that the house was defective. Despite the
defendant’s admission of the defects and attempts to rectify the defects, such
works were ineffective. In assessing damages, the Court acknowledged that the
defects in this case were “not ordinary”. The Court relied on the Court of Appeal’s
decision in Ruxley’s case and held that the proper measure of damage is the
cost of remedying the defects. Notably, such cost to instatement was amounted
to RM 38, 625 which was higher than the contract price of the house of RM
78,500. The Court took note of the fact this sum of damages is disproportionally
large and may seem to contradict with the general principle that the claimant
cannot be over-compensated. However, ultimately the Court concluded that this
was the only measure of damages available based on the facts.83
Based on the analysis of these cases, it can be seen that in both
Malaysian cases above, the Court awarded damages for cost of cure because
there was no alternate measure of damages available. Thus, this seems to
suggest that the damages assessed on the basis of cost of cure will only be
available in Malaysia when there is no other ways available to protect the
claimant’s expectation interests.84 Besides, the Court in both cases also did not
discuss the requirement of reasonableness as in the Ruxley’s case. Particularly
the Teh Khem On’s case, the Court did not preclude itself from awarding full cost
of reinstatement despite the disproportionality of the award to the contract price.
However, it is submitted that this was because when the Teh Khem On’s case
was decided, the Ruxley’s case was on appeal to the House of Lords. Therefore,
82 [1996] 2 CLJ 110583 Cheong, May Fong, “Damages”, Civil Remedies, 2nd Ed. (Subang Jaya: Thomson Reuters Malaysia Sdn Bhd, 2016). 107.84 Ibid.
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the Teh Khem On’s case could not have considered the House of Lord’s decision
in the Ruxley’s case, though it is foreseeable that if the Ruxley’s case was
decided earlier by the House of Lords, the amount of damages awarded in the
Teh Khem On’s case could have been lesser.85 Nevertheless, without express
adoption of the House of Lords’ decision in Ruxley’s case in subsequent cases, it
is still unclear as to whether the House of Lords’ decision in Ruxley’s case is
applicable in Malaysia, though it is highly possible that such decision will be
adopted in Malaysia since many other jurisdictions have done so.86
3) Conclusion
Based on the discussion above, it seems to lead to the following principles pertaining
the measure of damages for expectation interest in light of the Ruxley’s case. First, it
has been concluded that the cost of reinstatement is the usual measure for damage.
So, where the cost of reinstatement is less than the diminution in value, the measure of
damages will be the cost of reinstatement. However, if it is not reasonable to allow the
claim for cost of reinstatement, the appropriate measure of damages will the difference
in value, even though it would result in a nominal award. This usually happens when the
expenditure for reinstatement is out of all proportion to the benefit to be obtained.
However, there are certain circumstances which may justify the cost of reinstatement for
demolishing and rebuilding a defective property, especially when the building is
structurally unsafe. Furthermore, while intention to reinstatement is generally irrelevant,
such intention will be a factor to be considered when the issue of reasonableness
arises. Apart from these principles, it must always be remembered that the claimant will
always be subjected to general rules for claiming damages such as the principle of
mitigation of loss and the principle that damages are compensatory in nature. Lastly, so
far, although there are no local cases that expressly adopt the House of Lords’ decision
in Ruxley’s case, it is submitted that such case will highly possible be adopted as many
other jurisdictions have done so.
85 Supra, no.1 86 For example, the Australian case of Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8.
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