The 'no loss' defence in construction contracts
The 'no loss' defence in construction contracts

The following Construction guidance note provides comprehensive and up to date legal information covering:

  • The 'no loss' defence in construction contracts
  • What is the no loss defence?
  • No loss—property transfer
  • No loss—collateral warranties
  • No loss—novation agreements
  • No loss—assignment
  • Management Contracting
  • No loss in the future

A no loss defence often arises due to the nature of the contractual matrix on construction projects. For example, a contract may be novated, the employer may not own the land on which the works are carried out, or the development may be sold after completion of the works before defects are discovered. These scenarios (and others) can all potentially provoke a no loss defence from a contractor or consultant, alleged to be in breach of its contract.

What is the no loss defence?

Damages for breach of contract are compensatory in nature and are intended to put the claimant into the position it would have been in had the contract been performed as intended. If no loss is incurred following a breach of contract, then there will be no damages awarded or only nominal damages awarded. See Practice Note: Contractual damages—general principles.

If the contract breach does cause loss to be suffered, but it is suffered by a third party, the defendant will not be liable to that third party under that contract, because of the doctrine of privity of contract, namely that only parties to a contract can acquire and enforce rights and obligations under that contract. The Contracts (Rights of Third Parties) Act 1999 (C(RTP)A 1999) was introduced to provide a regime whereby third parties could enforce rights