Architects BewareOctober 1, 2013
Until very recently, architects and other related consultants believed there was no risk to them in the case of a fall in market value should a development project become delayed as a result of their inaction or otherwise. The argument in defence of such claims is that the fall in the property value, and consequent reduced profit or increased losses, was not foreseeable, and therefore legally deemed to be too remote.
However, a recent case found in favour of a developer and has now clarified the approach that the courts will take to such losses in future actions. In August 2006, a farmer, Mr Gubbins, obtained planning permission for the development of a field for residential purposes. The development included a road to be built to serve the dwellings and provide access to a main road.
The developer engaged a consultant engineer to design the road and drainage for the site and to obtain any necessary approval so the road would be adopted upon completion. There was a verbal agreement between Mr Gubbins and the consultant that this would be completed by March 2007. The work was not completed by March 2007. In April 2008 the developer appointed an alternative consulting engineer, who redesigned the layout, with approval given in June 2008, allowing the development to proceed.
Proceedings were initially brought by the original consultant who sought payment of its outstanding bill of costs. The developer, however, counter claimed for the return of money already paid to the consultant, together with damages for the failure to complete the works by March 2007. The developer argued the delay had resulted in a reduced market value of the proposed dwellings and an increase in building costs.
The Court of Appeal re-examined the case law relating to the remoteness of damage. This determines which types of losses suffered by a contracting party may be compensated for in damages, when the loss is alleged have been caused by a breach of contract by the other party. Certain types of loss may be regarded as being too remote for the contract breaker to be held liable. The Court of Appeal concluded that the consultant was well aware that the work formed an essential part of the permitted development, and that he was responsible for these losses as they were foreseeable at the time of entering into the contract.
Consultants serving the construction industry beware. If you wish to limit your liability not to be responsible for market fluctuations due to avoidable delay, you must make this an express term of all your contractual documentation. Time will tell if developers previously discouraged from bringing claims for resultant losses from a fall in the property market may be encouraged by the Gubbins decision to bring claims against their professional team.
Please note the content of this article is for information purposes only and further advice should be sought from aprofessional advisor.