Defendant builder wrongfully refusing to furnish warranties for completed building – Claimant developer deciding to let rather than sell – Building appreciating in value – Whether loss wiped out – Mitigation principles applied in favour of defendant
The parties were at all material times in dispute over a £22.5m contract, under which the claimant had engaged the defendant to build a two-storey shopping centre at Priory Meadow, Hastings. By a letter dated 9 April 1998, when the centre was ready for occupation, the defendant refused to finalise remaining warranties and to complete a number of subcontract warranties. Rather than selling the centre without the benefit of the warranties, the claimant embarked upon a letting programme.
At a hearing in the Technology and Construction Court in February 1999, the defendant’s refusal was held to be a breach of contract, and orders were made for the provision of the warranties and for an assessment of what, if any, damage the claimant had sustained. The latter order gave rise to a further hearing in October 1999 (the present hearing), by which time the defendant had furnished the required warranties and the claimant had received a net rental income from the letting programme of £5.1m.
In the present hearing the claimant sought to quantify its loss at £3.6m, alleging a £2.5m diminution in value and £1.1m loss of income on sale proceeds over a period of 19 months. The defendant, pointing to the success of the letting programme and a market rise over the relevant period, claimed that no loss had been sustained. After hearing expert valuation evidence, the judge found as facts that: (i) the absence of the warranties was the operative reason for the decision to let rather than sell in April 1998; (ii) in that month and in the next two months, the value of the building, if appropriately warranted, was £47.4m, whereas its value without that benefit (a 2.5% discount being applied) was £46.215m; and (iii) the value of the building at the date of the present hearing was £49.1m.
Held: The claimant had failed to prove any loss.
Applying the rule that the claimant should be placed in the same situation as if the contract had been performed (see per Parke B in Robinson v Harman (1848) 1 Ex 850 at p855), the appropriate time for assessing damages was the time it could and would have sold the centre: in this case June 1988. However, there had to brought into account the capital appreciation of £2.885m, as that was a consequence of the claimant having mitigated its loss by holding on to the centre. For the same reason, the rental income had to be taken into account, thus defeating the claim in so far as it was based on loss of notional investment income.
Martin Bowdery and Fiona Parkin (instructed by Hammond Suddards, of Manchester) appeared for the claimant; Richard Fernyhough QC and Simon Hughes (instructed by Masons) appeared for the defendant.
Alan Cooklin, barrister
