Mul v Hutton Construction Ltd [2014] EWHC 1797 (TCC)

What happened?

When remedying defects during the Rectification Period the JCT IFC 2005 provides an option (if the Employer agrees) for the Contract Administrator to instruct the Contractor to not remedy the defects and instead an "appropriate deduction" will be made from the Contract Sum.  But what does "appropriate deduction" mean? Luckily, the case of Mul v Hutton provided some welcome guidance on this point.

Here, the claimant Employer (Ms Oksana Mul) employed the defendant contractor (Hutton Construction Ltd) under a JCT IFC 2005 to carry out works at her property. Work started in 2008 with practical completion being certified in 2010. Attached to the practical completion certificate was a large schedule of work alleged to be defective which the Employer later calculated to be approximately £1 million.  The Contractor denied responsibility for this work and so the Employer employed other contractors to remedy the defects.

The Employer then commenced proceedings against the Contractor claiming damages for defects and alleged overpayment.  Part of the Contractor's defence was that clause 2.30 of the contract provided that if the Contract Administrator instructed the contractor not to remedy defects arising within the Rectification Period then "an appropriate deduction shall be made from the Contract Sum in respect of the defects, shrinkages or other faults not made good". On this basis, the Employer's entitlement was limited to an appropriate deduction which equated to a "sum calculated by reference to the contract rates/priced schedule of works".

Mr Justice Akenhead in the TCC considered as a preliminary issue what constituted an "appropriate deduction". Four options were proposed:

  • the contract rates / priced schedule of works / specification;
  • the cost to the Contractor of remedying the defect (including the sums to be paid to third party sub-contractors engaged by the Contractor);
  • the reasonable cost to the Employer of engaging another contractor to remedy the defect; and
  • the particular factual circumstances and/or expert evidence relating to each defect and/or the proposed remedial works.

The Contractor argued that the first option was correct but the Employer disagreed, arguing that it could potentially be all of the options.

After a thorough analysis of the relevant case law in this area, the Court found in favour of the Employer, holding that "appropriate deduction" meant "a deduction which is reasonable in all the circumstances" which could be calculated by reference to one or more of the factors listed above "amongst possibly other factors". The Court dismissed the Contractor's argument, holding that clause 2.30 did not exclude or limit the Employer's general right to claim damages for breach of contract.

Lessons

The key message here is to make sure your contract says exactly what you want it to say. Standard form construction contracts often use certain stock phrases (such as "appropriate deduction") which while simple at first glance can be thought by different parties to mean different things and this can lead to costly and time consuming disputes.  So, at the outset, when negotiating your contract, take the time to read it through carefully.  If something is unclear then make sure it is clarified before the agreement is executed.