In this summary of one of the talks from the 2014 Construction Law Conference, we consider two cases Kathryn Noble discussed in her round-up of key cases from 2013. She discussed a third case, Parkwood Leisure Limited v Laing O’Rourke Wales and West Limited [2013] EWHC 2665 (which has implications for collateral warranties), which was considered in our blog last year ‘Collateral Damage’.

Remoteness of loss

In John Grimes Partnership Limited v Gubbins [2013] EWCA Civ 37  a delay to the completion of a construction project resulted in loss to the developer as a consequence of reduction in the market value of the completed property over the delay period. The Court of Appeal held that the engineer who had caused the delay (John Grimes Partnership Limited) should be held liable for the developer’s losses as it was reasonably foreseeable that property values would decline in the market at the time and that there was an implied responsibility on the parties for such losses. The practical implications of this case may be wide reaching and include a potential rise in claims by employers where a delay in completion coincides with a fall in property value. Conversely, if the delay leads to the value of the development increasing (in the context of a rising market) and the employer profits from the delay, then the contractor could potentially claim that any damages against the contractor should be reduced accordingly. However, liquidated damages for delayed completion, which should be a pre-estimate of loss as would be reasonable in the minds of the parties at the date when such rate of damages is agreed, should ordinarily be unaffected by any fluctuations in the market. That’s not to say though that such fluctuations cannot be taken into account when arriving at the pre-estimate, of course, although given how accurately predicting future performance of the property market has proved beyond many property analysts, the likelihood that such fluctuations could be agreeably hedged for would remain to be seen.

Delayed completion resulting in loss of mortgage offer

Urban I (Blonk Street) Limited v Simon Martin Ayres & Nicola Jane Ayres [2013] EWCA Civ 816 considered whether time was of the essence in contracts for sale of land in the context of a mortgage-funded purchase of an “off-plan” apartment. Here, the buyers lost their 90% mortgage offer during the delay period. The Court of Appeal held that the delay in completing the apartment did not entitle the buyers to terminate their agreement held with the developer as the buyers were not substantially deprived of the substantially the whole benefit of the contract for the lease of the apartment.

The case considered the implied term in the contract that completion of the development was to be within a reasonable time and paid particular attention to the fact that the contract did not contain a fixed long-stop date nor did it expressly provide for the buyers to terminate the contract if the building was not handed over by a specified date. From a practical perspective this case acts as a reminder to parties that financing by way of mortgage carries with it inherent risk on the part of the buyer. For parties concerned about being tied into open-ended commitments, it may be worthwhile considering including fixed long-stop dates within their contracts.

A copy of Kathryn’s slides from the Conference can be found here.