PP 2013/40 Contract-breakers may be liable for the consequences of a fall in the property market

Can a developer, whose development is delayed by the failure of an engineer to perform tasks by an agreed date, recover damages for losses suffered if property values crash while the development is delayed? The defendant in John Grimes Partnership Ltd v Gubbins [2013] EWCA Civ 37 was engaged to design a road and drainage layout for a residential development. The defendant agreed to charge £15,000 for the work and to complete it by March 2007.  The project was subsequently held up for 15 months as a result of delays caused by the engineer and the value of the development fell by £400,000.  The defendant accepted liability for the cost of employing a replacement engineer, but denied responsibility for the downturn in the property market over which it had no control.  Were the developer’s losses too remote to pin on the engineer?  The Court of Appeal reminded the parties that the law will imply a term to determine whether they are liable for a particular type of loss, unless the contract contains an express term dealing with the types of losses for which they are potentially liable, should they break their contract.   The term usually implied is that a party will be responsible for losses that can reasonably be foreseen, at the time of the contract, in the event of a breach. However, the contract-breaker will escape liability for a particular type of loss if the nature of the contract and the commercial background, or other relevant special circumstances, render that implied assumption of responsibility inappropriate. The Court of Appeal noted the many decided cases in which the courts have held defendants liable for losses suffered as a result of a change in the market price of goods where delivery has been delayed, and commented briefly on the decision in South Australia Asset Management Corporation v York Montague Ltd [1996] 2 EGLR 93. In SAAMCO, the House of Lords held a valuer responsible for the loss caused by an overvaluation, but not for losses suffered as a result of a downturn in the property market. However, the loss in SAAMCO was not caused by a delay by the valuer. Consequently, the decision was of no real assistance to the court. Their Lordships agreed that loss arising from a downturn in the property market was a reasonably foreseeable consequence of the delay in completing the work – and it was not out of the ordinary. In addition, there was no evidence to suggest the existence of some general understanding or expectation in the property world that a party in the engineer’s position should be exonerated from liability for losses arising from any movement in the property market following a delay in fulfilling its contractual obligations. The engineer contrasted the contract price with the loss claimed, but the court was unimpressed. Breaches of contracts for modest fees regularly expose defendants to claims for substantial damages. The difference in scale between the fee charged and the damages claimed will not normally suffice, of itself, to exonerate a defendant from liability – and did not do so here. Consultants would be well-advised to check their terms and conditions, in the wake of this decision, to ensure that they exclude liability for losses like this. Allyson Colby is a property law consultant