Introduction

In our last blog post we discussed mitigation and construction disputes. We looked at a situation where a contractor refuses to rectify defective work and the employer engages another contractor to undertake the remediation. Subsequently, the employer seeks to recoup the remediation costs from the initial contractor. In those circumstances, we looked at the importance of considering whether the employer has mitigated its loss. Continuing the theme of defending an employer’s claim, in this post we consider betterment. A betterment defence is often run in tandem with mitigation.

Betterment relates to the correction of a defect in such a manner that the end product is of a standard, value and quality that is greater than that which the contractor was originally obliged to supply. For example, the employer may rectify the defects with higher standard materials or use materials with greater lifespans. In those circumstances it may be unfair that the contractor pays for these enhancements.

Matters to consider for betterment

The burden of proving betterment rests with the contractor. The considerations for betterment are outlined in Lagden v O’Connor [2004] 1 AC 1067 as follows:

‘34 It is for the defendant who seeks a deduction from expenditure in mitigation on the ground of betterment to make out his case for doing so. It is not enough that an element of betterment can be identified. It has to be shown that the claimant had a choice, and that he would have been able to mitigate his loss at less cost. The wrongdoer is not entitled to demand of the injured party that he incur a loss, bear a burden or make unreasonable sacrifices in the mitigation of his damages. He is entitled to demand that, where there are choices to be made, the least expensive route which will achieve mitigation must be selected. So if the evidence shows that the claimant had a choice, and that the route to mitigation which he chose was more costly than an alternative that was open to him, then a case will have been made out for a deduction. But if it shows that the claimant had no other choice available to him, the betterment must be seen as incidental to the step which he was entitled to take in the mitigation of his loss and there will be no ground for it to be deducted.’

Therefore, a contractor needs to be mindful of the following:

• The contractor must prove betterment.

• It is not enough that an element of betterment can be identified. The contractor must show that the employer had a choice to carry out the works at a lesser cost.

• The employer is not expected to incur a loss, bear a burden, or make unreasonable sacrifices in mitigation.

• If the employer had no other choice, the betterment is seen as incidental and there are no grounds for deduction.

Betterment turns on its own facts

The question of betterment will turn on the individual facts of each case. However, the choices an employer has are an important consideration. Further, the issue of betterment in terms of replacing new for old arises. For example, in Harbutt’s ‘Plastisine’ Limited v Wayne Tank and Pump Co Ltd [1970] 1 QB 447 the defendants, while installing machinery in an old mill, caused a fire which burned the mill down. The owner of the mill subsequently rebuilt it, but to a different layout. The cost of rebuilding the mill exceeded the value of the old mill. The court held that the owner was entitled to recover this cost of rebuilding to a new layout, even though it obtained a new, larger mill to replace the old one. There was nothing unreasonable in the owner’s behaviour, and the owner was simply attempting to restore itself to its original position. The court dealt with the question of betterment in the following way:

‘The destruction of a building is different from the destruction of a chattel. If a second-hand car is destroyed, the owner only gets its value; because he can go into the market and get another second-hand car to replace it. He cannot charge the other party with the cost of replacing it with a new car. But when this mill was destroyed, the plasticine company had no choice. They were bound to replace it as soon as they could, not only to keep their business going, but also to mitigate the loss of profit (for which they would be able to charge the defendants). They replaced it in the only possible way, without adding any extras. I think they should be allowed the cost of replacement. True it is that they got new for old; but I do not think the wrongdoer can diminish the claim on that account. If they had added extra accommodation or made extra improvements, they would have to give credit. But that is not this case.

…

It was clear in the present case that it was reasonable for the plaintiffs to rebuild their factory, because there was no other way in which they could carry on their business and retain their labour force. The plaintiffs rebuilt their factory to a substantially different design, and if this had involved expenditure beyond the cost of replacing the old, the difference might not have been recoverable, but there is no suggestion of this here. Nor do I accept that the plaintiffs must give credit under the heading of ‘betterment’ for the fact that their new factory is modern in design and materials. To do so would be the equivalent of forcing the plaintiffs to invest their money in the modernising of their plant which might be highly inconvenient for them.’

Conclusion

Where a contractor is faced with a claim from an employer seeking to recoup costs for works undertaken by a replacement contractor, it is advisable for the contractor to consider whether the employer has received a product of a standard, value and quality that is greater than that which the contractor was originally obliged to supply. In tandem, the contractor should identify more reasonable economic choices that the employer had, but failed to utilise.

In an adjudication setting, if possible, it is advisable for a contractor to raise such matters if faced with a claim from an employer. In defending several adjudications for contractors and sub-contractors, we have raised these types of arguments. Depending on the facts, adjudicators generally find these arguments appealing, which results in a reduction of the employer’s claimed amount.