Once more unto the breach

Such is the case concerning the liability of the contractor for defects discovered after practical completion and before final certificate. Typically, most defects come to light towards the end of defects liability period. Nine times out of 10 the contractor takes steps to make good. Nevertheless, can a disgruntled employer cry breach of contract and pursue damages, or does the contractor snap back and say: "I'm not in breach because the contract allows me to return and make good, and having done so, there is no loss at all"?

The starting point is straightforward. Defective work performed by a contractor is a breach of contract, be it in quality, workmanship, performance or design. Most standard form contracts contain express terms concerning the removal and replacement of defective work. Essentially, the contractor has a dual obligation, both to carry out and complete the work (including the design where the contractor has design obligations).

But what if there is defective workmanship that materialises in the defects liability period that is put right after the employer has obtained opinions on it from experts? This raises an interesting little theory known as "temporary disconformity". Under this theory, however serious the defect may be, there can be no breach until the time for completion has arrived and, if discovered after practical completion, until the defects liability process has run its course. One might think this to be an extreme view and unduly lax on the contractor, but it means that a contractor that carries out defective work will not be in breach until completion of all its contractual obligations. The theory owes its origin to a speech of Lord Diplock's in the House of Lords where he said that as long as a defect was put right timeously, it could not make business sense to say that any disconformity represented a breach.

The theory suggests an employer may at best recover only nominal damages for a breach of the contractor's obligations pertinent to workmanship, materials and, in the case of design and build, bad design if rectified under the defects liability set-up.

There is, though, an argument against this theory that says it was not intended to be of "universal application". These dissenters follow a short line of cases where usually their employer has incurred considerable costs appointing consultants and a new contractor to make good defects.

So what is a contractor's obligation? Under JCT 98, the contractor is responsible for making good defects caused by inferior quality materials, and substandard work or frost damage before practical completion. The courts recognise that such work can usually be carried out more cheaply and efficiently by the original contractor. For this reason, the defects liability procedures under JCT have advantages for both parties. It means the contractor not only has the obligation but also the right to make good any defects at its own cost.

Yet employers who dump their original contractor and put the work elsewhere, do so at considerable risk. For one thing, the contractor has a right of return and for another, the employer cannot expect to recover the higher sums the replacement contractor charges.

Although there is sadly no direct English legal authority on "temporary disconformity", there is a recent decision of Scotland's Court of Session (Michael Johnston vs WH Brown Construction (Dundee), 2000). This case concerned a contract under the JCT design-and-build form. The employer sought to recover the fees of an architect appointed to produce a schedule of defects, as well as a lawyer's bill for advice. The employer's claim was rejected at first instance and when it went to appeal. Lord Sunderland's leading judgment approved the temporary disconformity argument. He made two important points: first, that clause 16 contains its own remedy: to instruct the contractor to return to make good. If it does so, there is no further remedy unless the employer can show consequential loss. Second, if an employer chooses to procure by design and build and not have the benefit of a contract administrator, then if it later retains a consultant, it is not consequential loss and the cost is irrecoverable.