In the recent decision of Mallino Development Limited -v- Essex Demolition Contractors Limited  EWHC 1418 (TCC), the Technology and Construction Court provided a useful update on the appropriate assessment of damages where a contract provides for alternative methods of performance.
The employer in the case, Mallino Development Limited (Mallino), engaged a contractor, Essex Demolition Contractors Limited (Essex Demolition), to carry out development works at Bodmin Jail in Cornwall, which was to become a luxury hotel and visitor attraction.
The contract broke down the work into three stages, and provided that the final stage of the works would be re-tendered. Upon re-tender, Mallino could choose whether to retain Essex Demolition, engage a new contractor and novate Essex Demolition to it, or terminate Essex Demolition’s engagement (paying demobilisation costs, but with no liability for loss of profit or overheads).
Instead of re-tendering as agreed, Mallino instead engaged a new contractor without undertaking a competitive re-tender process. When Essex Demolition claimed damages for breach of contract, Mallino admitted breach but claimed that even if it had re-tendered the works, Essex Demolition would not have been retained and, instead, Mallino would have been entitled to terminate without paying loss of profits and overheads.
Having been the subject of two adjudications, the outstanding points in dispute were then appealed to the Technology and Construction Court (TCC) to determine:
- The correct measure of loss;
- Whether Essex Demolition would have been appointed for the final stage of works; and
- Essex Demolition’s alleged lost profit and overhead contribution.
Appeal to the TCC
In considering the appeal, the judge provided a detailed assessment of the appropriate means by which to measure loss. The judge recognised that, where a contract entitles the defendant to choose between various means of performance, damages for breach are usually measured on the basis that it would have selected the route that would be most favourable to itself.
However, the judge emphasised that the position was not quite so simple in this instance, as this dispute related not to a series of mere choices, but rather to a direct obligation imposed upon Mallino, with Mallino then having been given discretion as to how to perform said obligation.
In making this distinction, the judge relied upon three leading authorities, including Durham Tees Valley Airport Ltd -v- Bmibaby Ltd  EWCA Civ where it was noted that:
‘where a contract imposes a single obligation, rather than alternative obligations, compensation is to be based on the probabilities of the case – on the remuneration which the claimant might reasonably be expected to receive – and not on the bare minimum necessary to have amounted to performance of the contract.’
The judge further considered how the ‘probabilities of the case’ would be measured. The judge referred to the following commentary in Allied Maples -v- Simmons & Simmons (a firm)  1 WLR 1602:
‘the plaintiff must prove as a matter of causation that he has a real or substantial chance as opposed to a speculative one. If he succeeds in doing so, the evaluation of the chance is part of the assessment of quantum of damage, the range lying somewhere between something that just qualifies as real or substantial on the one hand and near certainty on the other.’
The judge held that the contract had imposed a mandatory obligation upon Mallino to re-tender the works. Given that this mandatory obligation had been established, in order to establish causation of loss as per Allied Maples), Essex Demolition was required to prove, on the balance of probabilities, that it would have re-tendered for the works, and that there was a real or substantial chance of their tender being accepted.
Essex Demolition was not required to prove that success in re-tendering was a ‘dead certainty’ but, on the facts, the judge considered that it was likely that Essex Demolition would have chosen to re-tender and there was a real or substantial chance that this tender would have been successful.
In considering the assessment of damages for the loss of a chance to retender, the judge found, on the the evidence given, that there was a 66% chance of Essex Demolition successfully being awarded the contract for the final stage of the works.
As such, the judge held that Essex Demolition were entitled to damages in the amount of 66% of the claimed sum.
Authorities on loss of chance cases are few and far between, and so it is always interesting to see what approach a court takes on the evidence available. However, more specifically, the decision serves as an important reminder of the pitfalls in circumstances where a contract provides for alternative outcomes. These provisions are not uncommon, particularly in the context of re-tendering obligations.
As with many contractual disputes, Mallino highlights the importance of prevention of disputes by ensuring that re-tendering and other similar obligations are carefully worded in any contract and taken seriously in the event that a departure from the contracting party is being considered.
The judge reiterated in Mallino the famous comments of Diplock LJ in Lavarack -v- Woods of Colchester Ltd that ‘one must not assume that [the defendant] will cut off his nose to spite his face.’ However, in taking hasty action to replace Essex Demolition, resulting in a damages award against it, Mallino appears to have done precisely that.
For further information, please contact:
Laura Scott, Hill Dickinson