Property and development professionals are being reminded of the importance of having tightly drafted contracts and terms of business following a decision by the Court of Appeal to uphold a claim for damages made by a developer against a consulting engineer.
In the recent case of John Grimes Partnership Ltd (JGP Ltd) v Gubbins [2013] a farmer, Mr Gubbins, developing a plot of land had instructed engineers JGP Ltd to design a road and drainage system to a site under development, as well as to obtain approval for the road to be adopted by the local authority pursuant to s38 of the Highways Act 1980. This was to be completed by March 2007 but due to delays on the part of JGP Ltd the s38 approval was not obtained until February 2008, and even then certain issues surrounding the approval were still outstanding. This led the developer to instruct a new firm of engineers to obtain the approval which was finally achieved in June 2008.
As we will all remember 2007 signalled the start of the property crash, the long-term effects of which are still being played out today. In this case, by the time the s38 approval was finally obtained, the market value of the site had decreased and the building costs had increased. Accordingly, a dispute over payment arose, proceedings were issued and Mr Gubbins counterclaimed against JGP Ltd (successfully) for damages to reflect the decreased profitability of the development.
The key issue the Court of Appeal had to decide was whether the losses arising from the fall in property value, resulting from delay in breach of contract by JGP Ltd (which were awarded at first instance), were too remote for the developer to recover. The Court of Appeal dismissed JGP Ltd’s appeal agreeing with the first instance decision that those losses were recoverable as it was reasonably foreseeable that such losses would arise if there was a delay. It further agreed with the lower Court’s decision that there was nothing in the nature of the contract or the commercial background of the case which suggested the engineer would not incur responsibility for any loss in property value that is reasonably foreseeable.
Cases of this nature are few and far between as rarely will a delay in breach of contract go on long enough to see a fluctuation in property values to the extent there is a provable loss of value. However, for professionals and consultants the case does highlight the importance of having up to date exclusion of consequential loss clauses in your terms of business. Such clauses can avoid drawn-out and costly construction disputes surrounding claims for losses.
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