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Property

Breach of contract by an employer – contractor

File photo of the unemployment office

AN employer who refuses to execute the contract he entered into with a contractor before the latter starts the works is committing a breach of the agreement and therefore he is liable to pay damages to be assessed on the basis of the profit  which the contractor would have made. The measure of damages is related to the amount which would have restored the contractor, being the innocent party, to the position he would have been in had the agreement been executed.In this respect, what is taken into account are the reasonably estimated damages which may arise as a result of the breach and the contractor is not entitled to be compensated for damages dealing with the breach.

The legal principle of restoration aims at the recovery of the profit the contractor could have made if he was allowed to execute and complete the works in the normal course of things. An employer can be the main contractor who enters into subcontracts with subcontractors to execute the works if the project is awarded to him following his tender. The aforesaid issue may arise when the main contractor as employer decides to co-operate with other subcontractors at a lower price or not to proceed with the project. In such a case, it is important to identify whether there was a binding agreement between the contractor as employer and the subcontractor so that liability can be attributed for damages.

Breach of the agreement by the employer makes him liable to pay damages according to the profit margin the parties knew or ought to have known at the time of making the agreement. The legal aspect of the issue is similar to the one which applies in accordance with the contract law and was examined by the Supreme Court in a judgment issued analysing the principles and the measure of damages payable. It was held that the damages payable are based on the general principle that governs contracts and applies also to building or contracting agreements. The essence is that damages aim to put the party whose rights were violated in the position he would have been in if his rights were met.

When the employer commits a breach of his agreement with a contractor before the latter starts any works the compensation can be assessed on the basis of the profit the contractor would have made in normal circumstances. There is also the option for the contractor to claim damages on the basis of the expenditure incurred instead of the profit expected to be made. It is up to him to choose which remedy to claim being the innocent party and he may include any expenses he incurred prior to the agreement in view of it. According to the court, the contractor did not base his claim on the profit or the benefit the employer made following his agreements with the new subcontractors, but on the loss of profit.

Where  the loss or damage of the contractor cannot be proved, the court must do its best to assess the damages. As long as the contractor proves that he has an actionable right for damages against the employer, the fact that it is difficult to assess them cannot be an obstacle to awarding him with damages. The employer, being innocent, cannot expect to gain profit due to the diffi culty to prove or assess the damages. In this case, the profit lost was five per cent and the fact that the contractor did not incur any expenses and he did not buy any machinery or other materials, except thathe lost the profit because he did not execute the works was taken into account.

George Coucounis is a lawyer specialising in the Immovable Property Law, based in Larnaca, Tel: 24 818288, [email protected], www.coucounislaw.com

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