The answer is that he can claim the difference between the contract price and the amount it would actually cost the Employer to complete the contract work substantially as it was intended.
On rare occasions, sometimes the misguided householder will decide to pay the Contractor up front before the works are complete. The courts have decided that in such a case where the Contractor has repudiated the contract after being paid on account more than the value of the work it had carried out the Employer is entitled to repayment of the difference in addition to its nominal damages.
In DO Ferguson Associates -v- Sohl [1992] WL 893890 the court ordered restitution to the Employer of the sums paid for contract work on the grounds that there had been a total failure of consideration by the Contractor. The Contractor had walked off site after a number of disagreements between the parties when the works were still incomplete, having been paid most of the contract price for the works by the Employer. The Employer paid the Contractor the sum of £26,738.75 and the Contract price was £32,194.25. The trial Judge found that the value of the work actually done was £22,065.75 and he awarded the Employer a refund of the overpayment as a restitutionary claim for “money had and received”.
The Judge also awarded the Contractor damages of £1 on the Contractor’s counter claim for completing the contract works since this was less than the outstanding balance of the contract sum. The Court of Appeal dismissed the appeal of the Contractor and said that the overpayment of £4,673 was properly ordered by the trial Judge to be paid by the Contractor because it was paid for work which was never done. For this reason it was recoverable by the Employer as a restitutionary claim.
The Court of Appeal decided that the key point was that the £4,673 was not awarded as damages for breach of contract, but was awarded in restitution to the Employer for the monies paid by him for work that had never been done. The Contractor had been overpaid and he had then repudiated the contract. He was only entitled to be paid for the work he had done up to that point and he had to pay back the overpayment because there had been a total failure of consideration in respect of that overpayment.
In Giedo van der Garde BV -v- Force India Formula One Team Ltd [2010] EWHC 2373 the Court of Appeal noted that the courts are more ready to interpret a total failure of consideration in favour of the Employer and to allow a claim for restitution in their favour even though the Claimant Employer had received some benefit from the Defendant Contractor. The Court of Appeal also observed that the courts can apply the principle of apportionment in contracts for the provision of services.
The fact that only some of the services have been provided, whereby the house has been half built, does not mean that there has not been a total failure of consideration. The Court of Appeal went on to say that the decision in Ferguson -v- Sohlis is a good example of the willingness of the court to adopt a flexible and robust approach in finding a complete failure of consideration where the house is substantially or partially built. The Court of Appeal said that this is an acceptable approach for the court to take rather than to leave a victim of unjust enrichment of the Contractor without an effective remedy.
Sometimes the householder will become so exasperated with the shoddiness of the work they will not only prevent the Contractor from coming back to finish the work but will also refuse an offer from the Contractor that they do so. In Iggleston -v- Fairview New Homes Ltd [2007] EWHC 1573 the TCC decided that the Employer had not acted unreasonably in rejecting the offers made by the Contractor to carry out remedial works since the Contractor had not offered to carry out the works which had been agreed or held to be necessary. The Contractor had no contractual right to carry out the remedial work and the Employer had not failed to mitigate their loss by refusing to allow the Contractor to carry out the remedial works. In the light of the history of the construction it was reasonable for the Employer to say that they did not want the Contractor to undertake the remedial works.
Where the Contractor has substantially completed the works the Contractor will be entitled to be paid the difference between the amount that the work is worth and the cost of the defects, which will be calculated by the cost of making good. In Hoenig -v- Isaacs [1952] 2All ER 176 the Court of Appeal decided that in a contract for work and labour for a lump sum payable on completion the employer cannot repudiate liability under the contract on the ground that the work though “finished” is in some respects not in accordance with the contract.
This is because it is not every breach that absolves the Employer from having to pay the Contractor. It is only breaches that go to the root of the contract that do so, where for example the Contractor abandons the works when they are only half done. The Employer must pay it and bring a cross-claim for the defects or alternatively set up a diminution of the price, whereby the measure is the amount by which the work is worth less the cost of the defects. This is usually calculated by the cost of making them good. This calculation is used because the contract had been substantially performed and therefore the Contractor is entitled to be paid the contract price less the deduction for the defects.
While the case law does allow the Employer to make restitutionary claims in the courts where the Contractor has been overpaid the Employer should enter into a properly drawn up contract that provides for stage payments to be made when the work has been satisfactorily carried out to their satisfaction.
Anthony Philpott
11 August 2016
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