A summary of the law setting out the damages you can claim in the event that someone breaches their contract with you. The note was developed by Sarah Fox, author of the 500-Word Contract. The tips and techniques from her 500-Word series of talks, workshops and contract coaching will help you create simple, ethical contracts you can read, use and understand. Contact her by email sarah@500words.co.uk or for more information, visit her website www.500words.co.uk

1. THE LAW OF DAMAGES FOR CONSTRUCTION CONTRACTS
Carillion JM Ltd v Phi Group Ltd [2011] EWHC 1379 (TCC)
At paragraph 168 of his judgment, Akenhead J quoted this summary of the law of damages
(‘so far as relevant to that case’) from AXA Insurance UK PLC v Cunningham Lindsey United
Kingdom [2007] EWHC 3023 (TCC)
"256.
The essential object of an award of damages is to put the innocent claimant "in the
same position as he would have been in if he had not sustained the wrong for which
he is now getting compensation or reparation" (see Livingstone v Rawyards Coal
Company (1880 5 App.Cas 25, 39).
257.
Damages for breach of contract "should be such as may fairly and reasonably be
considered either (1) arising naturally, i.e. according to the usual course of things
from such breach of contract itself, or (2) such as may reasonably be supposed to
have been in the contemplation of both parties at the time they made the contract,
as the probable result of a breach of it" (Hadley v Baxendale (1854) 9 Ex 341, 354). I
am only concerned in this case with first limb of Hadley v Baxendale damages. None
of the heads of loss in this case are challenged, properly or at all, on the grounds
that they fall outside the first limb of Hadley v Baxendale. Whether the quantum
and the requisite causation are proved, however, another matter.
258.
The question of reasonableness of the loss or damage claimed legitimately arises in
a number of different ways. As confirmed in Hadley v Baxendale (in the words
quoted above) it is necessary that the damages must "fairly and reasonably be
considered" as arising from the breach. That reasonableness is itself an essential
element in establishing damages was confirmed in the House of Lords case of
Ruxley Electronics Ltd v Forsyth [1995] [UKHL 8]. The judgments of their Lordships
contain many references to the importance of reasonableness in selecting the
appropriate measure of damages and determining the extent and measure of
damages. For instance Lord Lloyd of Berwick says at page 368A and 370A:
"Once again one finds the court emphasising the central importance of
reasonableness in selecting the appropriate measure of damages … So I
cannot accept that reasonableness is confined to the doctrine of mitigation.
It has a wider impact …"
Thus, I conclude that it is generally incumbent upon an innocent claimant entitled to
damages to demonstrate not only that the loss was within one of the Hadley v
Baxendale limbs but also that it is reasonable to recover damages of the type and
extent claimed.
259.
Reasonableness as a separate element is to be distinguished from the "duty" to
mitigate. That is described in the well-known speech of Viscount Haldane LC in
British Westinghouse Co v Underground Railway [1912] AC 673, 689:
"The fundamental basis is thus compensation for pecuniary loss naturally
claimed from the breach; but this first principle is qualified by a second,
which imposes on a claimant the duty of taking all reasonable steps to

2. mitigate the loss consequent on the breach, and debars him from claiming
any part of the damage which is due to his neglect to take such steps."
The onus of establishing a failure to mitigate is upon the defendant. It is clear from
numerous authorities that the duty to mitigate does not impose a heavy onus on a
claimant. In almost every case, provided that the claimant can be shown not to have
acted unreasonably in all the circumstances, to that extent it will not have failed to
mitigate its loss.
260.
The duty to mitigate is, generally, not a contractual or statutory duty. For instance
Pearson LJ in Darbishire v Warran [1963] 1 WLR 1067 properly said:
"It is important to appreciate the true nature of the so-called 'duty to
mitigate the loss' or 'duty to minimise the damage'. The claimant is not
under any contractual obligation to adopt the cheaper method: if he wishes
to adopt the more expensive method, he is at liberty to do so and by doing
so he commits no wrong against the defendant or anyone else. The true
meaning is that the claimant is not entitled to charge the defendant by way
of damages with any greater sum than that which he reasonably needs to
expend for the purpose of making good the loss. In short, he is fully entitled
to be as extravagant as he pleases but not at the expense of the defendant."
That dictum has some particular relevance here where, on any count, as it
effectively accepts, AXA spent considerably more in resolving the problems at
Orchard Farm than was necessary.
261.
The costs of and occasioned by reinstatement in a construction context are often,
albeit not invariably, the proper measure of damages where there has been
defective or negligence performance, particularly where the defaults have caused
defects or deficiencies in building (East Ham Corpn v Bernard Sunley & Sons [1966]
AC 406). However "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" (per Clarke LJ in
the Maersk Colombo [2001] 2 Lloyd's Rep 275, 281).
262.
In considering reasonableness, both in the context of mitigation and reasonableness
as a basis for establishing damages, the court will not be unsympathetic to the
predicament in which an innocent claimant is put by the breaches of contract of the
defendant. As Lord MacMillan said in Banco De Portugal v Waterlow & Sons Ltd
[1932] AC 452 at page 506:
"Where the sufferer from a breach of contact finds himself in consequence of
that breach placed in the position of embarrassment the measures which he
may be driven to adopt in order to extricate himself ought not to be weighed
in nice scales at the instance of the party whose breach of contract has
occasioned the difficulty. It is often easy after an emergency has passed to
criticise the steps which have been taken to meet it, but such criticism does
not come well from those who themselves created the emergency. The law is
satisfied if the party placed in a difficult situation by reason of the breach of
a duty owed to him has acted reasonably in the adoption of remedial
measures, and he will not be held disentitled to recover the costs of such

3. measures merely because the party in breach can suggest that other
measures less burdensome to him might have been taken.""
Akenhead J went on to state:
“169
The broad propositions that can be distilled from these cases are:
(a)
Damages are awarded to compensate an innocent claimant so as to put it in
the same position as it would have been in if he had not sustained the
wrong.
(b)
Damages for breach of contract must fall within one or other of the two
limbs of Hadley v Baxendale.
(c)
The innocent claimant must establish that it is reasonable to recover
damages of the type and extent claimed.
(d)
The burden of proving a failure to mitigate is on the unsuccessful defendant.
If the innocent claimant has not acted unreasonably in all the circumstances,
particularly examined at the time, there will be no failure to mitigate.
(e)
In considering reasonableness or unreasonableness both in the context of a
failure to mitigate as well as the reasonableness of the type and extent of
damages claim, the Court will not be unsympathetic to the predicament in
which the innocent claimant finds itself as a result of the unsuccessful
defendant's breaches of contract.”
Further Resources for Construction Professionals:


Designing Buildings Wiki on Expectation Interest and Reliance Expenditure
Atkinson Law Resources on Delay & Disruption
The Author
Sarah Fox of Enjoy Legal Learning wrote this note. She is a speaker and trainer who cuts
through the complexities of construction law. She provides confidence to construction
companies to read, use and understand their contracts. She is also author of the 500 Word
Contract™.
To find out how Sarah can help you love your terms and conditions, contact her on: 07767
342747 or by email: sarah@enjoylegallearning.co.uk