In a ruling which is bound to cause consternation in the construction and associated industries, the Court of Appeal has ruled that falls in property values that coincide with project delays can give rise to an actionable loss. The court upheld a damages claim in respect of a housing development which was delayed for 15 months due to a consulting engineering firm’s breach of contract and, during that period, was affected by a 14% drop in residential property prices.
The court rejected the firm’s arguments that the losses attributable to reductions in property values were ‘too remote’ from the breach of contract to give rise to a recognisable cause of action. Also dismissed was the firm’s plea that the £389,000 compensation claim that it faced in respect of the delay was ‘disproportionate’ to its £15,000 contractual fee for the work it performed.
The landowner had been granted planning permission for residential development of a former agricultural site and had engaged the firm to advise on construction of an estate road which it was envisaged would in due course be adopted by the local highway authority and thereafter be maintained at public expense. It was an express oral term of the contract that the firm’s work would be completed by a particular date. However, that deadline was exceeded and another firm was eventually engaged to complete the work 15 months later than had been originally anticipated.
The firm successfully sued the landowner for part of its fee, which he had refused to pay. However, the landowner successfully counter-claimed in respect of losses he had incurred as a result of the dramatic reduction in property values which had occurred during the period of the delay.
Dismissing the firm’s appeal, the court ruled that, as a professional firm and given the commercial background to the contract, such a loss was foreseeable and the firm could reasonably have been expected to have assumed responsibility for it. The court acknowledged that awards of compensation in respect of losses suffered due to changes in market values during a period of wrongful delay were rare. However, there was no evidence that there was some general understanding or expectation in the property world that a party in the firm’s position would not be held responsible for losses arising from movements in the property market where there had been a delay in breach of contract.
Observing that movements in the property market are rarely as extreme as they were in the present case, the court noted: ‘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 firm’s delay of 15 months, an egregious delay, which in the present case gave rise to a quantifiable loss.’ After applying established legal principles to the case, the court concluded: ‘The judge was right to find that there was nothing to take this case out of the conventional approach to remoteness of damages in contract cases.’