April 16, 2013

Damages for delays can include property price drops

A ruling by the Court of Appeal means that the losses resulting from a breach of contract by consultants can include a drop in property values.

The case focused on a firm of engineers hired by a farmer to design a road and drainage on land he was preparing as a housing development site. The firm needed to secure an agreement under section 38 of the Highways Act 1980 in order to be able to carry out the necessary works.

An original completion date for the works was agreed as being within March 2007. However, the work was not completed until 15 months later, when another firm was called in – during which time there was a significant drop in the property market.

The farmer refused to pay the outstanding fees to the original engineers, and counterclaimed for both the fees already paid and the losses incurred due to the significant delay. In most commercial contracts, parties are responsible for losses that can be “reasonably foreseen”. The firm argued that this did not include the property market dip.

However, the High Court judge disagreed, concluding that “losses arising from the movement in the property market were reasonably foreseeable at the time of contract as a consequence of delay”, and the firm both knew “the property market could go up or down” and what the farmer “intended to do by way of development and when”.

These views were upheld in the ensuing Court of Appeal case. It is notable that the £400,000 damages resulting from the drop in property value were somewhat disproportionate to the engineer’s £20,000 fee.

The Court of Appeal’s decision commented that: “A few days’ or even a few weeks’ delay is unlikely to give rise to a demonstrable loss on the property market. It was the [engineers’] delay of 15 months which in the present case gave rise to a quantifiable loss.” In the words of the judge, the delay amounted to “an egregious delay”.

Consequently, the liability included in consultants’ contracts will need to be carefully checked to ensure the other party cannot recover such losses.

At Palmers Solicitors, we can use our dedicated expertise to draft bespoke contracts to deal with liability for such losses.

When a dispute arises, we can identify the most effective strategy for dispute resolution – whether that be negotiation, more structured mediation, or formal proceedings, such as adjudication, arbitration or litigation – and advise on any payments due for breach of contract, including liquidated damages.

For more information and guidance, please contact us.