Citation: [2022] EWHC 1418 (TCC)
Summary of facts
Mallino (the employer) engaged Essex Demolition (the original contractor) to carry out works at a project in Cornwall. The contract was varied, with the parties agreeing that the final section of the works would be re-tendered, whereupon the employer could choose to retain the original contractor, engage a new contractor and novate the original contractor to it (as a trade contractor), or terminate the original contractor's engagement (paying demobilisation costs, but with no liability for loss of profit or overheads).
In the event, the employer engaged a new contractor without undertaking a competitive re-tendering process. The original contractor claimed damages for breach of contract, including loss of profits and overheads. The employer admitted breach of contract but argued that, even if it had re-tendered the works, it would have been entitled to terminate the original contract without paying loss of profits and overheads.
TCC’s decision (Martin Bowdery QC)
Judgment for the Defendant/Respondent.
Measure of loss - The judge recognised that where a contract entitles a defendant to choose between alternative means of performance, damages for breach are usually measured on the basis that it would have selected the means most favourable to itself (Lavarack v Woods of Colchester Ltd [1967] 1 QB 278 followed). However, he concluded that this was not a situation in which the variation gave the employer a simple choice between alternative modes of performance. Rather, this contract imposed an obligation on the employer (to re-tender) and, given that it had not complied with that obligation, the question of how it would have exercised its discretion had it complied was for the court to consider, without assuming that it would have acted in the way that minimised its liability to the original contractor (Abrahams v Reiach (Herbert) Ltd [1922] 1 KB 477, Durham Tees Valley Airport Ltd v Bmibaby Ltd and another [2010] EWCA Civ 485 and British Gas Trading Ltd v Shell UK Ltd [2019] EWCA Civ 2349 applied).
On the facts, the judge concluded that there was a 66% chance that the original contractor would have won the re-tendered contract and awarded damages of £212,118.53. The judge also concluded that, even if the Lavarack test did apply, the employer would have selected the original contractor as the most attractive bidder, as the alternative risked "cutting off its nose to spite its face".
Emma Healiss was instructed for the Defendant/Respondent
