The case of Ruxley Electronics and Construction Ltd v Forsyth [1995] UKHL 8 is one of the leading English contract law authorities concerning the proper measure of damages in building contracts where performance has deviated from specifications.
It explores the distinction between awarding the cost of rectifying a defect and granting compensation for loss of amenity when full rectification would be unreasonable or disproportionate. This decision clarified how courts should balance contractual performance expectations with the principle of reasonableness in assessing damages.
Facts of Ruxley Electronics and Construction Ltd v Forsyth
In Ruxley Electronics and Construction Ltd v Forsyth, Ruxley Electronics entered into a contract to build a swimming pool at Mr Forsyth’s residential property. The contract specifically provided that the pool should have a diving area of seven feet and six inches in depth. Upon completion, it was discovered that the actual depth of the pool was only six feet nine inches—around nine inches shallower than the specification.
Despite this shortfall, the pool remained safe for diving and suitable for its intended purpose. Importantly, the deviation did not affect the market value of the property or the pool itself. However, Mr Forsyth was dissatisfied with the result and regarded the failure to meet the agreed specification as a breach of contract. He sought damages representing the cost of demolishing and rebuilding the pool to the agreed depth—an amount totalling £21,540.
At first instance, the trial judge agreed that there had been a breach of contract, as Ruxley Electronics had not fulfilled the contractual specification. However, the judge concluded that awarding the full cost of reinstatement would be unreasonable given the circumstances. The pool was fully functional and safe, and the reduction in depth did not diminish its overall value or usability. Therefore, the judge declined to award the cost of cure but instead granted £2,500 in damages for loss of amenity, recognising the disappointment and loss of pleasure suffered by Mr Forsyth.
Unsatisfied, Mr Forsyth appealed. The Court of Appeal overturned the trial judge’s decision, holding that Mr Forsyth was entitled to damages reflecting the cost of reinstatement. It reasoned that he had contracted for a pool of a particular depth, and since this obligation had not been met, he should be compensated to the level required to achieve full performance.
Ruxley Electronics then appealed to the House of Lords, arguing that such an award would be disproportionate to the actual loss suffered and contrary to the principles governing damages in contract law.
Issues Before the Court
The central issue before the House of Lords in Ruxley Electronics and Construction Ltd v Forsyth was the appropriate measure of damages for a breach of a building contract where the performance was defective but still substantially met its purpose. Specifically, the Court had to decide:
- Whether Mr Forsyth was entitled to recover the cost of rebuilding the pool to the specified depth; or
- Whether it was more appropriate to award damages for loss of amenity, reflecting the reduced satisfaction and enjoyment from the deviation in depth.
The Court needed to determine whether awarding the cost of cure was reasonable in the circumstances, and if not, what alternative measure of damages would fairly compensate the claimant without resulting in unjust enrichment.
Ruxley Electronics and Construction Ltd v Forsyth Judgement
The House of Lords unanimously allowed the appeal by Ruxley Electronics and reinstated the trial judge’s decision to award £2,500 for loss of amenity. The Lords held that awarding the cost of rebuilding the pool—£21,540—would be wholly disproportionate to the benefit Mr Forsyth would obtain and the actual loss he had suffered.
The leading judgement delivered by Lord Mustill established an important principle: damages in contract law should aim to place the injured party in the position they would have been in if the contract had been properly performed, but this must be done reasonably. He observed that “the law must cater for those occasions where the value of the promise to the promisee exceeds the financial enhancement of his position which full performance will secure.”
In essence, the value of the promise and the monetary worth of performance are not always identical. The case recognised that an individual may attach personal or non-financial significance to contractual performance—what Lord Mustill referred to as “consumer surplus.” Nevertheless, he held that the proper compensation in such cases is a modest monetary award reflecting that loss of expectation or satisfaction, rather than the excessive cost of physical reinstatement.
Lord Lloyd agreed, adding that although the courts generally do not concern themselves with how a claimant intends to spend their damages, in certain cases—such as this—the claimant’s intentions might be relevant when assessing reasonableness. Since Mr Forsyth had no genuine intention of rebuilding the pool, the court was not bound to award the full cost of cure. The relevant measure was instead the loss actually suffered, which was the diminished enjoyment of the pool as constructed.
Conclusion
The ruling in Ruxley Electronics and Construction Ltd v Forsyth [1995] UKHL 8 reaffirmed the fundamental purpose of contractual damages: to place the injured party in the position they would have been in had the contract been properly performed, while maintaining proportionality and reasonableness.
By awarding £2,500 for loss of amenity instead of the £21,540 cost of reinstatement, the House of Lords underscored that compensation must reflect the actual loss suffered, not the mere breach of promise.