When a party is forced to carry out remedial works due to the fault (e.g. breach of contract or negligence) of another party, it will want to recover the full cost of those works from the defaulting party. But can it, or are there constraints on what works it can recover for and the amount it can recover?
This is a question that I have come across regularly in construction litigation. You might assume that the innocent party’s ability to recover costs of remedial works directly necessitated by the defaulting party would be pretty much unfettered – after all, the fact that the remedial works have to be carried out is due to the defaulting party- but as ever in law, the situation is a little more complicated.
This is because an innocent party’s right to recover its losses arising from the fault of another party (whether that be breach of contract or negligence) is fettered by a legal principle called “mitigation of loss”. This provides that a claimant cannot recover losses that it could have avoided by taking reasonable steps.
But what, in practical terms, does “reasonable steps” actually mean in the context of remedial works?
For example, the innocent party may be faced with a choice of carrying out patch repairs or, at the other end of the scale, the wholesale replacement of the defective element of the works. Does the principle of mitigation of loss mean that the innocent party has to choose the cheapest option (patch repairs)?
Alternatively, an innocent party may have the option to replace a defective element with something different, rather than with something identical to what was there previously. Does the principle of mitigation of loss mean that the innocent party has to choose the ‘like-for-like’ option?
Much will depend on that word so beloved of lawyers- reasonableness. An innocent party is not confined to choosing the cheapest option, nor is it confined to replacing like for like, as long as what it chooses is, in all the circumstances, reasonable. That, of course, brings us to the question of: “what is reasonable?”
It used to be that a pretty sure fire way of showing that a party is reasonable in choosing a remedial option is if it was recommended by an independent expert. So long as that advice is not negligent, the innocent party can recover the cost of the works recommended by the expert. In this case, Great Ormond Street Hospital was able to recover the costs of full-scale remedial works because it had followed the advice of its expert. Although other experts disagreed, the fact was that Great Ormond Street’s expert was not negligent.
The Great Ormond Street case established that:
1.“reasonable costs” does not mean the minimum amount which, with hindsight, would have sufficed; and
2.the mere fact that the result of the claimant’s work is to produce a better building than he had before does not necessarily mean that the claimant acted unreasonably.
There was an assumption that the Great Ormond Street case means that a party can recover costs of remedial works as long as those remedial works have been recommended by an expert. However, this does not reflect the more recent case law. These cases restrict the Great Ormond Street principle, so that non-negligent expert evidence on its own is not necessarily enough to prove that the claimant has acted reasonably. The expert does not have to have acted negligently to break the change of causation – making wrong assumptions may be enough.
Essentially, it all goes back to what is reasonable in all the circumstances. Put in layman’s terms this probably means implementing the remedial option which it can justify not only in terms of expert advice, but also in terms of common and commercial sense.
Dos and Don’ts
What can be taken from all this? When making a decision as to what remedial works you should undertake you should:
1.Obtain expert advice from an independent expert as to the causes of the defects and what the appropriate remedial solution should be;
2.If the proposed remedial works are particularly costly or important, it may be worth getting a second expert opinion on what works to undertake. If both experts’ opinions align, it will be very hard for the defaulting party to challenge your decision;
3.Sense check the experts’ recommendations from a common-sense and commercial point of view;
4.Inform the defaulting party, as early as possible, what remedial works you intend to carry out and the justification for them;
5.Offer the defaulting party an opportunity for it and its experts to investigate the defects before the remedial works are commenced. If not, you may face criticism at a later stage for destroying evidence of the defects before the defaulting party had an opportunity to look at them; and
6.Consider any expert evidence offered by the defaulting party although, of course, you are not bound by it if you reasonably believe that your own expert evidence is more reliable or accurate.
Experience has taught me that there is no sure-fire way of recovering all of the costs of remedial works, but taking simple steps like this should assist in a successful recovery.