When an employer pursues a claim against its contractors or consultants for defective work, it will usually base its claim in contract. This is because there will be a contract between them, usually in writing, setting out the terms of the relationship and the remedies available in the event that things go wrong.
So why is it that lawyers advise employers to make a claim in tort as well, even where they already have a claim in contract? After all, a claim in tort (i.e. negligence) is usually used in situations where there is no contract between the parties, and the claim is therefore based on a ‘duty of care’ between them.
The answer lies in the fact that a claim in tort can offer the employer more flexibility in its claim. There are two reasons for this:
- A claim in tort can offer longer limitation periods. This is because under the law of contract, limitation will start running from when the work is done. On the other hand, limitation for a claim in tort will start running when the claimant actually suffers damage. There can be a very significant time gap between the two. This is especially important in claims against professionals, because often the claimant will not suffer the damage until well after the work has been done.
- A wider range of damages may be available for a claim in tort. Damages for breach of contract are more restricted (generally to direct losses), whereas more indirect damages, such as loss of profits, loss of a chance and loss of management time, are more likely to be available for a claim in tort.
There are therefore two particular advantages to an employer pursuing a claim in tort, even when it has a contractual claim.
However, following a recent Court of Appeal decision*, it appears that one of these advantages has been removed, because the Court of Appeal decided that the more restrictive contractual position in respect of damages should apply to claims in contract and tort.
What this means is that where an employer pursues a claim against a contractor or consultant in contract and tort, the damages that it will be able to recover will be restricted to the type of damage that the parties would have regarded as ‘not unlikely’ at the time they entered into the contract. In plain terms, this means that the employer will be able to recover direct losses, but will find it much harder to recover indirect losses.
This does not mean, however, that an employer will not be able to recover indirect losses at all. If the indirect damage is a type of damage that the parties could have contemplated at the time of making the contract, then it may well be recoverable. On the other hand, if the damage is an unusual, “one off” type of damage, then it is very unlikely to be recoverable.
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*Wellesley Partners LLP v Withers LLP  EWCA Civ 1146