A firm of consulting engineers has been found liable for the fall in property values following its failure to meet the completion date of a road on a new development.
The decision calls into doubt the widely-held view developed in SAAMCO (South Australia Asset Management Corporation v York Montague Ltd) that falls in property value could not be recovered. The decision could lead to many more professional negligence cases against professional firms.
The case, John Grimes Partnership Limited v Gubbins, concerned a firm of consulting engineers which had been engaged to design a road for a residential development. The work was not completed by the agreed date with the result that the development was delayed for 15 months. This occurred following the financial crisis in 2008 and the developer claimed for damages saying the delay resulted in a fall in the value of the housing and a rise in building costs.
In its defence the consulting engineers relied on the principle set out in SAAMCO. This 1996 case set out that valuers advising lenders on the value of properties who negligently overvalue the property should not be liable for losses attributable solely to a fall in the property market.
The Court of Appeal’s said that SAAMCO was concerned with liability for negligent valuation and decided it did not apply in this case which involved liability for losses caused by the professional’s delay in breach of contract. Instead it decided that the consulting engineer was liable for the loss, based on the precedent set in Hadley v Baxendale (1854). This says that where that a party is in breach of contract, it is responsible for losses that could reasonably have been foreseen at the time of contract.
“This decision is bad news for construction professionals and could lead to more claims for professional negligence from developers who have suffered losses on the value of their property portfolios,” said James Burgoyne, Director, Brunel Professional Risks. “Time obligations are often drafted onerously in the appointment contracts presented to professionals, and this case underlines a professional’s exposure to sizeable delay claims. The key for professionals is to make sure that their contracts are appropriately drafted and therefore supported by insurance. We help all our clients with contract review and risk management services.”