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Damages should reflect status if contract had been done properly

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legal matters

It is all very well working out the legal basis of a claim, but what the parties often really want to know is how much it might be worth.

The basic measure of damages in a contract is a sum that puts the wronged party in the position it would have been in if the contract had been properly performed. That sounds simple, but it must be applied in each case to the particular facts.

One example, the recent case of Hoadley v Edwards (28 March, 2001), illustrates some of the principles in practice.

In 1994, Mr Edwards, a chartered surveyor, surveyed a mock-Tudor 1930s house overlooking Beachy Head for the Hoadleys. The north end of the house was a standard masonry structure, the south end comprised an exposed oak frame with infilled panels. The house had taken something of a battering from the elements and, as a result, had been reinforced in various ways.

Before buying the house, the Hoadleys asked Mr Edwards 'the estimated cost and specifications of any necessary repairs'. Mr Edwards' subsequent report did not refer to any serious structural defects.

By the time the matter reached trial, Mr Edwards had accepted that, in certain aspects, his report had not fully advised the Hoadleys of necessary works. In particular, the parties agreed that the timber-framed southern end of the house had moved and was distorted because of timber shrinkage and settlement of the structure as a result of the feet of the supporting posts decaying.

So how much was due to the Hoadleys to put them in the position they would have been in had Mr Edwards advised them properly?

If they had known the full extent of the problems with the house, the Hoadleys could have looked for another house or negotiated the price down. In cases of this type, the basic loss is taken as the reduction in the market value of the house, it being assumed that the price could have been negotiated down to its true level. But that reduction is not necessarily the same thing as the cost of carrying out the necessary remedial works.

It was agreed that the value of the house, had it been as Mr Edwards said it was, would have been £197,000 - the price the Hoadleys paid.

The judge considered the evidence and concluded that a competent survey would have shown that an immediate programme of work costing about £20,000 would have been required. But he also took into account the evidence of the Hoadleys' valuation expert that, even if the problems with the timber end of the house were put right, prospective purchasers might be put off by the past structural problems and the possibility that future work to the structure might be needed.

The judge allowed a further £20,000 to account for this second aspect. He therefore concluded that the true value of the house in 1994 had been £157,000, and the Hoadleys were entitled to recover £40,000.

Other aspects of the damages allowed by the judge further illustrate the application of the basic measure of contractual damage.

The Hoadleys did not have to pay Mr Edwards' fees. They argued, and the judge agreed, that they had not received any benefit from the report. On the other hand, the judge refused to award the Hoadleys sums they had spent on expert surveys after they bought the house - for example, of the electrical installation. Had Mr Edwards properly advised the Hoadleys, he would have recommended such surveys. It followed that, had Mr Edwards' contract been properly performed, the Hoadleys would have incurred such sums in any event.

There will be cases in which the proper measure is only the cost of remedial works.

Conversely, there will be cases in which additional benefits might have been gained by the claimant if a contract had been properly performed, such as profits that could have been earned had they been able to start to run a business if their building had been finished on time.

In the absence of a contract that spells out what is recoverable, the best route is to look at every loss claimed and go back to 'what if the contract had been properly performed' for each one.

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