A loss too far?

01 May 2013

Damages for breach of contract can extend beyond costs of redesign and repair. Architects should be aware that they can be held liable for much broader categories of loss, provided these are reasonably foreseeable. The quantum of such losses may even exceed the cost of redesign and repair.

In the recent case of John Grimes Partnership Limited v Gubbins, the Court of Appeal had to consider whether losses arising out of a fall in the market value of a development site could be recovered from an engineer, or whether such losses were too remote.

In this case, the property owner, Mr Gubbins, had obtained planning permission for a residential development.  He engaged John Grimes Partnership (JGP) to design the drainage for the site and a road on the site.  Under the terms of its appointment, JGP was obliged to complete its design work by March 2007.  JGP failed to complete the work within the required period. Over a year later, Mr Gubbins engaged a new engineer to redesign the road and drainage layout and apply for statutory approval (which was subsequently received).

JGP brought a claim against Mr Gubbins for unpaid fees of approximately £3,000.  Mr Gubbins refused to pay and, as a counterclaim, looked to recover the entire fee he had previously paid to JGP on the grounds that JGP's work had been defective.  In addition, Mr Gubbins claimed for the reduction in market value of the development as a result of delay in completion of JGP's design.

Losses claim upheld

The Court of Appeal upheld the initial judge's findings that JGP had acted in breach of contract and that the decline in value of the development was recoverable.

JGP's argument that these losses were too remote to be recoverable was rejected by the Court of Appeal.  The court was satisfied that JGP had been aware at the time it entered into its contract with Mr Gubbins of the proposed programme for the development.  It had also known that the time of completion of the development was likely to impact upon the value of the development as the market could either rise or fall.  JGP could therefore reasonably be expected to know that a delay in completion of its services could have a knock on effect on the value of the development.

Specifically, the Court of Appeal held that there was nothing in JGP's contract to suggest that JGP's liability for such reasonably foreseeable losses should be limited or excluded.  There was nothing in the relationship between JGP and Mr Gubbins to suggest that liability for a change in the value of the development had been excluded or limited and it was not customary in the market for such categories of loss to be implied.  There was therefore no bar to Mr Gubbins recovering the reduction in market value of the development site as a result of delays brought about by JGP's breach.

This case goes to show that if an architect wishes to exclude or limit liability for a particular category of loss which would ordinarily be recoverable, it will need to do so by express agreement.  The courts will not otherwise stand in the way of a developer or client recovering losses which are the reasonably foreseeable consequence of a breach of contract by an architect.  When entering into contracts, architects need to consider if there are any particular circumstances or categories of loss for which they consider they should not be held liable and address these expressly in their fee letters or appointment documents.