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Sometimes, exclusions of liability need to be specifically expressed, says Angus Dawson

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, if these are reasonably foreseeable. The quantum of such losses may even exceed redesign and repair costs.

In the recent case of John Grimes Partnership 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 and a road on the site. Under the terms of its appointment, JGP was obliged to complete its work by March 2007, but the firm failed to do so. 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 its work had been defective. He also claimed for the reduced market value of the development as a result of delay in completing 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 affect 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 its 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 shows 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. 

Angus Dawson is a senior solicitor at Macfarlanes LLP 

Reasonable foreseeability: Which consequences are reasonable to see and which are not can be tricky to assess

In the case of John Grimes Partnership v Gubbins, the courts considered whether a particular loss was ‘reasonably foreseeable’. The general principle in Hadley v Baxendale is that a loss may be recovered if it is of a type which may fairly and reasonably be regarded as having been within the reasonable contemplation of the parties when the contract was entered into as the probable (or not unlikely) result of the breach. The principle is split into two limbs: First, losses which arise naturally, according to the normal course of things, from the breach of contract itself; or second, particular losses which may reasonably be supposed to have been in the contemplation of the parties at the time they made their contract as being a probable result of a breach of that contract.

The first limb covers losses which a reasonable person would ordinarily expect to flow from a particular breach of contract. The second covers categories of loss which may not ordinarily have been expected to have arisen as a result of the breach of contract but which both parties were aware of at the time the contract was entered into.

In JGP v Gubbins, the Court of Appeal had to consider whether there was anything particular in the contract itself or the commercial background of the case that implied that a particular category of loss should not be recoverable even though it may be reasonably foreseeable. The Court held, on the facts of the particular case, that there was nothing in this contract, or in the property market as a whole, to imply such a limitation.