Out-Law News 4 min. read

Engineer held liable for drop in property value during his delay


An engineer can be held liable for a drop in the value of a property during a period of delay caused by him, the Court of Appeal has ruled. 

A fall in the value of the property market is not so remote a consequence of a period of delay by a consultant that it cannot be recovered from that consultant as damages, the Court said.

In its judgment, the Court of Appeal said that there was no reason why an engineer should not be liable for the £400,000 drop in value of a property development during a period of delay caused by his breach of contract. This was true even where, as in this case, the engineer's own fee was only £20,000, it said.

In his ruling Sir David Keene said that cases where damages were sought due to the value of the property market falling were relatively uncommon due to the nature of the market. In this case the length of the delay was so significant that the fall in value of the property as a result of the recession was "reasonably foreseeable", he said.

"It may well be that the reason for the absence of many cases of this kind is that the property market does not move as quickly as certain other types of market involving commodities and other goods, and it takes a very lengthy delay in breach of contract before a provable loss of value can occur," he said.

"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, in the judge's words an egregious delay, which in the present case gave rise to a quantifiable loss," he said.

Joanna Higgins, an expert in construction disputes at Pinsent Masons, the law firm behind Out-Law.com, said that the decision would take many consultants by surprise.

"If you had asked most lawyers whether delays caused by the breach of contract by a consultant would include for the drop in value of the housing development in question during the 14 months delay, caused by the highways engineer failing to produce an application for the highway to the development to be adopted, they would until now have said that those losses would not be recoverable," she said.

"Limitations on liability need to be checked in consultants' appointments to make sure liability for these sorts of damages is excluded," she said.

The case involved a farmer, Mr Gubbins, who had hired the John Grimes Partnership to design a road and drainage on land he was preparing as a housing development site. Gubbins obtained planning permission for the site in 2006, but it was up to the John Grimes Partnership as engineers to obtain 'section 38' permission for the new road from the local authority. A completion date of March 2007 was expressly agreed by the parties. However the road was not finally approved by the council until June 2008, after Gubbins contracted with another firm of engineers.

The dispute went to the High Court after the John Grimes Partnership demanded outstanding fees of £2,900 from Gubbins. He refused, and counterclaimed for the fees he had already paid them and damages for failure to complete the work by the date agreed.

It is an implied term in most commercial contracts that parties will be responsible for any losses that could be "reasonably foreseen" at the time the contract was agreed. However, the engineering firm argued that the drop in market value of the property was "too remote" a consequence of the delay and that the firm had "no control" over property values.

The judge in the original court action disagreed. He concluded that "losses arising from movement in the property market were reasonably foreseeable at the time of contract as a consequence of delay" by the engineers. In addition, the firm "knew that the property market could go up or down and knew what Mr Gubbins intended to do by way of development and when".

"It seems to me that the Judge's approach to and summary of the legal principles cannot be faulted," said Sir David Keene in his appeal judgment. "It is beyond dispute that there was no evidence put before him to show that there was some general understanding or expectation in the property word that a party in this engineer's position would not be taken to have assumed responsibility for losses arising from movement in the property market where there had been delay in breach of contract."

"It is said, entirely correctly of course, that the appellant had no control over the property market. But that is the case with all markets, and there are many decided cases where delay in delivery of goods has been held to give rise to damages for loss suffered through a change in the market price," he said.

He added that he was not persuaded by the firm's argument that the scale of the damages was likely to be "disproportionate" to its fee.

Construction disputes expert Joanna Higgins said that although the facts of the case seemed to be quite common, some of the case's more "unusual" features could allow others in similar situations to argue against the principle that was applied here.

"The judge at first instance found that there was an oral agreement that the work would be completed by a fixed date and that the engineer was hugely in delay in doing so," she said. "It will be relatively unusual that a fixed date will be agreed for the delivery of professional services and that the delay will be so great."

"Because the services were so hugely delayed the judge and Court of Appeal felt the losses were foreseeable. It seems unlikely from the way the Court of Appeal discussed the facts that they would have allowed for property market fall losses to be recovered if the delay had only been for a few weeks or possibly months," she said.

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