Engineer held liable for fall in market value

When contracts are drafted, worryingly, it is not always in the mind of the contracting parties as to what will happen if things go wrong. So what could go wrong? What could a party inadvertently find themselves responsible for?

In a recent Court of Appeal decision - John Grimes Partnership Limited -v- Gubbins [2013] EWCA Civ 337- an engineer was found liable for events that were outside of his control; namely, a reduction in market value of residential units.

In short, Mr Gubbins, appointed John Grimes Partnership Limited (JGP) as Consultant Engineers to design a road and site drainage for a housing development and to obtain Local Authority approval. Unfortunately, JGP failed to complete the works by the agreed deadline and Farmer Gubbins instructed another engineer to complete the works. In total, the completion of the housing development was delayed by 15 months.

Mr Gubbins had already paid JGP nearly £20,000 worth of fees. JGP then raised a further invoice for nearly £3,000; which Mr Gubbins refused to pay. JGP issued Court proceedings. Mr Gubbins counterclaimed for the fees previously paid and for the works that were undertaken by a different engineer and damages for the reduction in the market value of the residential units on the development due to the delay.

Initially, JGP were successful; they were awarded their unpaid fees. However, Mr Gubbins was also successful in his counterclaim. It was held that the delay caused by JGP had resulted in the declining value of the residential units on the development. JGP appealed the decision but the Court of Appeal confirmed the earlier decision; JGP were liable for the diminution in value of the residential units on the development.

Mr Gubbins and JGP did not make any express provision in their contract limiting liability for these losses. The Court therefore looked at whether the diminution in value of the properties was reasonably foreseeable as likely to stem from a breach of the contract; and they found that it did. The Court did however say that if evidence is available to disregard that implied term, for example, commercial or special circumstances specific to the contract, the contract breaker could escape liability. Unfortunately, no such evidence was available and the implied term stood.

How this case will impact future cases is yet to be seen. However, the warning to be taken from it is to ensure that express provision is made in to a contract to exclude liability for any losses to which a party does not intend to be responsible. Otherwise, even circumstances out of the control of a party could end up being their problem.

This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.