JCT Contracts – What Constitutes an Appropriate Deduction?

Those who deal with JCT contracts will be well aware of their length and complexity but in the first of its kind a recent case has offered some clarification on the interpretation as to what constitutes an ‘appropriate deduction’ to be made by an Employer.

The facts of the case

Various JCT Contracts are used in a variety of different construction scenarios but the case of Oksana Mul v Hutton Construction Limited [2014] concerned the use of the JCT Intermediate Contract 2005. Hutton Construction was appointed by Ms Mul to carry out extension and refurbishment work to her property and at practical completion the issue of defects arose.

Practical completion was certificated by the contract administrator and a long list of defects was produced with a prescribed rectification period of 12 months. Ms Mul said that there were significant defects in the work for which Hutton Construction was liable but any such liability was denied by Hutton Construction. A dispute arose with Ms Mul issuing proceedings against Hutton Construction, whilst in the meantime arranging for the defects to be remedied by another contractor. Hutton Construction stated that it had been deprived of the opportunity to make the defective work good and objected to the deductions to account for the remedial work.

The decision

The Court defined the preliminary issues as relating to clause 2.30 of the JCT Contract, which provides that Contractors must make good any defects that they are notified of in the rectification period, unless otherwise instructed by the Employer. Taking into account the defects, the Employer is permitted to make an appropriate deduction from the contract sum.

Hutton Construction argued that ‘an appropriate deduction’ should relate to the rates and prices contained within the agreed JCT Contract. Ms Mul claimed that what was appropriate would depend wholly the circumstances and that what should be taken into account should be:

  • the contract rates/priced schedule of works/specification; and/or
  • the cost to the Contractor of remedying the defect; and/or
  • the reasonable cost to the Employer of engaging another Contractor to remedy the defect; and/or
  • the particular factual circumstances and/or expert evidence relating to each defect and/or proposed remedial works.

The Court ruled that Ms Mul’s right to damages for breach of contract for defective works existed at practical completion and that the wording of clause 2.30 did not limit or exclude this right. The JCT Contract gives Employers the option as to whether they wish to instruct another contractor to remedy the defects or allow the appointed Contractor a period of time in which they may return and rectify any defects.

Whilst Ms Mul was therefore entitled to make an appropriate deduction from the contract sum based on what was appropriate in the circumstances the court stated that there is never a guarantee that an Employer would be entitled to claim the full amount of the damages claimed should their case go to trial.

Comment

Before instructing a third party to remedy defective work, it is important for Employers to be sure that they will be entitled to recover this cost from the Contractor initially appointed and therefore ensuring that the necessary amendments are put in place to the standard form of JCT Contract in use is vitally important. For advice and assistance on JCT or other forms of construction contracts, contact the Forbes Solicitors Business Law department by telephone on 0800 037 4628 or via our Contact Form.

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