Engineer held liable for losses caused by the fall in property values
An engineer may be liable to his client for losses caused by a fall in property values. So held the Court of Appeal in the case of John Grimes Partnership Ltd v Gubbins.
In that case, JGP failed to meet the contractual deadline for certain works relating to a residential development, which caused the project to be delayed by 15 months. The Court of Appeal held that it was liable to pay damages to the developer, Mr Gubbins, for the diminution in the market value of the development that had occurred during that period.
Mr Gubbins retained JGP to design a road and drainage system for a residential development and to obtain the necessary approval from the local authority. JGP failed to complete the design by the agreed date. Mr Gubbins eventually retained another engineer to prepare the design and to liaise with local authority, who finally approved the scheme some 15 months after the deadline agreed with the JGP. JGP sued Mr Gubbins for unpaid fees, who then brought a counterclaim against JGP for losses caused by their breach of contract. These included damages for the diminution in the market value of the development that had occurred during the period of delay. The court at first instance found in favour of Mr Gubbins and awarded this head of loss. JGP appealed.
The Court of Appeal was unanimous in its decision to dismiss the appeal. In the court's view, this type of loss was reasonably foreseeable, was not too remote and was therefore recoverable by Mr Gubbins. SAAMCO afforded JGP no defence.
In accordance with the principles set down in the case of Hadley v Baxendale, it was an implied term of the contract that JGP would be responsible for any losses that could reasonably be foreseen at the time the contract was agreed. The judge at first instance had considered whether there were any particular circumstances that took the loss outside the scope of foreseeable losses, taking into account the commercial background to the contract and the expectations of the parties. In the judge's view, the fact that the loss was caused by a change in the market value of the development during the period of delay caused by JGP's breach of contract did not make the loss either unforeseeable or too remote. Indeed, on the facts, JGP knew that the market could well go down during the period of any delay.
The fact that allowing Mr Gubbins to recover the diminution in value meant that JGP faced a liability far in excess of fee payable under the contract (£398,000, as compared with a fee of £15,000) did not affect the Judge's view, and the Court of Appeal agreed. The case provides a salutary reminder to all construction professionals, and their insurers, of the risks of failing to meet contractual deadlines on development projects. Given the very substantial downward movement of property values since the end of 2007, any such failures could expose both the professional and their insurers to very significant claims. Such losses can be avoided if the contract contains an express term limiting the types of loss for which a party will accept liability if it breaks the contract, but in practice such exclusions are likely to be rare.