Excluding the foreseeable

Image; Dwight Burdette (wikimedia commons)

Image; Dwight Burdette (wikimedia commons)

The Court of Appeal’s recent decision in John Grimes Partnership Limited v Gubbins [2013] EWCA Civ 37 has made it clear that if a contacting party can reasonably envisage a particular type of loss occurring as a result of their actions, they could be held liable for that loss.

In the case, the Court of Appeal held that an engineer who caused a delay in completion of a development project was liable for damages caused by a fall in the market value of the property.

The facts

Mr Gubbins engaged John Grimes Partnership Ltd (JGP), a consultant engineer, to design and complete a road and drainage system by March 2007 on land acquired for residential development purposes.

In contravention of an expressly agreed deadline, the works remained incomplete at the end of March 2007. Mr Gubbins subsequently engaged another consultant engineer in April 2008 who re-designed the road and drainage system, gaining quick local authority approval.

In the interim, JGP commenced proceedings against Mr Gubbins for unpaid fees of £2,893 and Mr Gubbins counterclaimed for £20,000 in respect of the defective, unfinished works and the breach of the expressly agreed deadline, claiming that as a result there had been a reduction in the market value of the private residential units, a reduction in the offer from a Housing Association for the affordable units and an increase in building costs.

At trial the High Court found in favour of Mr Gubbins and JGP appealed on the basis that its responsibilities under the contract did not include a duty to protect Mr Gubbins against losses due to a fall in the market value of property.

Court of Appeal decision

Dismissing the appeal, the Court of Appeal held that, although in some cases it may be found that a party to a contract had not taken on responsibility for a particular liability (even if that liability was reasonably foreseeable), the general position is that a contracting party will be liable for all losses arising naturally, according to the normal course of things, from the breach of contract and all losses which may reasonably be supposed to have been in the contemplation of the parties at the time they made the contract, as a probable result of the breach.

On the basis of the particular facts, the Court of Appeal held that JGP knew that Mr Gubbins intended to use the land for development purposes and knew that there was a risk that there could be a fall in the market value of the property if the works were not completed on time. Accordingly, JGP was liable to Mr Gubbins for the losses suffered even though such losses were not within JGP’s control and far exceeded the £15,000 fee payable to JGP under the contract.

Lessons to learn

The case demonstrates that the principle of foreseeability of loss still remains the standard mechanism for assessing remoteness of damage.

Unless a party could not possibly be taken to envisage responsibility for a particular type of loss or there are some other special circumstances which render the implied assumption of responsibility inappropriate for a particular type of loss, it is prudent to expressly exclude liability for particular events by including suitable exclusion clauses and limitation clauses in the contract.