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Mitigation of Loss and the Contractor’s Right to Rectify

21 June 2018 | David Morris

Something we are seeing increasingly often in building disputes is Employers, whether they are developers completing large-scale housing developments or householders having an extension completed, falling into dispute with their contractors over delay or quality of work and not wanting them back on site to attend to defects.

If there is no express provision in the contract then contractors do not actually have an automatic right to return to remedy defects. An employer is then entitled to employ others to complete any remedial works that appear after practical completion, but what effect could this have on potential claims?

If there is an express provision, such as a defects liability period giving the contractor a period of time, such as 12 months, during which the contractor is required to return and remedy defects, it could be in both parties’ interests for the contractor to return. The Employer should notify the contractor of those defects in order to give the contractor an opportunity to return but if the Employer does not, its claim for damages would be affected by a failure to mitigate its losses; likewise if the contractor fails to return, it would likely be liable for the cost of another contractor remedying those defects.

However, often matters will often fall somewhere in the middle. Perhaps the contractor has returned but the work remains defective; perhaps the contractor has returned and said the problem is the fault of the Employer or a third party, but the Employer has evidence to suggest otherwise; perhaps the parties have completely fallen out and, despite a contractor’s offer to return, the Employer wants to never see them again, or perhaps the Employer is refusing to pay the contractor while defects continue to appear.

The case of Mul v Hutton Construction Ltd [2014] EWHC 1797 (TCC) and Akenhead J’s obiter comments remain the most up to date guidance on these points and the mitigation of loss. An Employer is entitled to damages for defects that exist after practical completion, but that entitlement is subject to a duty to mitigate.

Akenhead J gives the following examples where the Employer would not be failing to mitigate its loss by not giving the contractor an opportunity to remedy defects:

  • Such whole sale defects that no reasonable employer would be expected to have that contractor back on site;
  • Fraudulent behaviour on the part of the contractor, or
  • Where the contractor makes it clear that he is not prepared to return to remedy the alleged defects.

Akenhead J said ‘it all depends upon the facts and the circumstances’ of the case.

Though not expressly mentioned by Akenhead J, the working relationship breaking down, or the Employer’s trust in the contractor’s ability or desire to complete the works to the requisite standard are narratives we see a lot in practice. In that instance, the mitigation of loss could arguably extend to not having the contractor back to rectify the works.

Ultimately, the courts will now take into account the facts and the circumstances of the case. The outcome will depend on the evidence, but a contractor would be wise to offer to remedy defects, and Employers should be aware of their duty to mitigate loss.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.

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