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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