How to determine the damages in construction disputes? The Supreme Court issues a resolution of great relevance in practice | In Principle

On 14 May 2026 a seven-judge panel of the Civil Chamber of the Supreme Court of Poland issued a resolution in case no. III CZP 25/25 holding that the amount of damages for improper performance of a contract for construction works cannot automatically be equated to the expenditures necessary to cure defects in the construction. The issue arose in a dispute between companies over recovery of costs for repair of a building’s thermal insulation.

Description of the case

The Szczecin Court of Appeal submitted the following legal question to a three-judge panel of the Supreme Court of Poland: Can the damages for loss resulting from improper performance of a contract for construction works be determined, under Civil Code Art. 471 in connection with Art. 363 and 361 §2, as the equivalent of costs not yet incurred by the owner for reasonable actions to be taken to cure defects in the contractor’s performance, when the actions were not yet taken as of the closing of the hearing in the case? The issue was forwarded to a seven-judge panel of the Supreme Court.

The Supreme Court found that the damages for defective performance of a contract for construction works should not automatically be equated with the anticipated costs of curing the defects. This marks a major change from the perspective of the practice of the construction market, because for many years the cost estimate for planned work had been treated as fundamental evidence for demonstrating the amount of the claim for damages.

The dispute involved improperly performed construction work on insulation of the building’s foundations. The plaintiff investor sought damages calculated on the basis of an estimate of the future repair work. The contractor alleged in its defence that the hypothetical cost of repairs does not yet constitute an actual financial loss on the investor’s part. The issue boiled down to whether the investor can demand that the contractor pay damages corresponding to the costs of curing the defects, even though the repair work has not yet been conducted and the expenses have not actually been incurred.

Methods for calculating the amount of loss

The Supreme Court pointed out that there are two recognised methods functioning in the legal literature and the case law for determining the extent of the loss.

• The traditional differential method consists of comparing the injured party’s asset position—specifically, a particular element of its assets—prior to the event causing the loss, and after that event. In the case of contractual liability for defects in a tangible thing, the actual value of the thing in question is compared to the value it would have had if it were free of defects.
• The alternative cost-estimate method seeks instead to determine the anticipated amount, not yet incurred by the injured party, necessary to repair the thing and restore it to a condition compliant with the contract. This method is commonly used for example in determining the loss in automobile accidents (repair of the vehicle).

In its resolution, the Supreme Court held that merely drawing up an estimate of the costs of future repairs is insufficient to determine the amount of the loss. The court stressed that damages should reflect the actual shortfall in the injured party’s asset position, which makes it necessary to show that the defect that has been found caused a specific economic injury. The court reasoned that automatically applying the cost-estimate method may lead to a situation where the amount awarded exceeds the actual extent of the loss, which could result in the investor’s unjust enrichment.

Consequences for legal practice

For construction contractors, the resolution may provide grounds for a defence in disputes over claims regarded as overstated, based solely on the estimated costs of future repairs. But this does not necessarily mean a limitation on the liability for defective performance of construction works—if the investor proves the existence of an actual injury, the contractor will still bear full financial liability.

Investors will have to scrupulously document the consequences of construction defects and demonstrate in what concrete way the defects have impacted their asset position. Merely submitting a cost estimate for repair work may prove insufficient to effectively pursue such a claim.

The position adopted by the Supreme Court will probably affect how opinions by court-appointed experts are phrased, as well as the approach taken by counsel in drafting claims in construction litigation. The differential method may be applied more often, but this does not mean that the cost-estimate method will be completely excluded from practice, particularly when the injury can be repaired.

Application of methods for calculating losses

The Supreme Court resolution in this case will change the practice for deciding cases. The court clearly rejected the simplistic mindset under which loss is equated with the cost of repair.

The method for determining the amount of loss depends on the nature of the loss. When the loss takes a definitive form—i.e. when the repair is impossible or not economically feasible, or the injured party does not intend to carry out the repair—it is proper to apply the differential method, comparing the asset position before and after the injury. In such cases, applying the cost-estimate method poses a danger of unjust enrichment of an injured party which retains the fruits of the work performed but at the same time obtains the equivalent of the repair costs.

The situation would be different when the loss is not definitive, and actual curing of the defect is essential to satisfy the injured party’s legitimate interest. In such cases, the cost-estimate method will work well.

In-between cases, where the object can be used despite the existence of a defect, and the defect does not necessarily have to be cured, will be the most difficult. In such situations, the choice of method remains ambiguous, and should depend on such factors as whether the injured party actually seeks to cure the defect. The boundary for the admissibility of the cost-estimate method is set by the economic rationale for the repair—if the cost of the repair is excessive, it should not be the basis for calculating the damages.

Agata Jóźwiak, attorney-at-law, Dispute Resolution & Arbitration practice, Wardyński & Partners