Member Article

John Grimes Partnership Ltd v Gubbins [2013] EWCA Civ 37 involved a dispute about a property development. Mr Gubbins engaged the John Grimes Partnership Ltd to design a road over land on which he intended to develop residential properties. An express term of the contract between the parties was that the works would be completed by March 2007. However, in February 2008 there was still work to be done so Mr Gubbins engaged an alternative engineer to complete the work.

Mr Gubbins received an invoice from the John Grimes Partnership for £22,893 which he refused to pay. The Partnership commenced proceedings to recover this amount. Mr Gubbins counterclaimed with part of his claim seeking additional damages for the failure to complete the work on time, arguing that this delay led to an increase in building costs and a significant reduction in the market value of the development.

The Partnership appealed the first instance decision, arguing that the reduced market value of the land was too remote a loss to be taken into account in determining damages. They relied upon the test in The Achilleas [2008] UKHL 48: the court should consider objectively whether the Partnership would have accepted responsibility for that type of loss at the time of entering into the contract. In other words, could it have been foreseen at the time of the contract?

Mr Gubbins, by contrast, argued that the appropriate question was whether or not this kind of loss was one that was likely to result from a breach of contract at the time of entering into the contract according to a reasonable person in the position of the Partnership, following Hadley v Baxendale [1854].  In other words, did the breach cause the loss?

The Court of Appeal, in finding for Mr Gubbins, stated that the general approach to be taken is one where a contracting party will be liable for all losses arising naturally from the breach as well as for all losses which may reasonably be supposed to have been in the contemplation of the parties at the time they made the contract. The Partnership knew that there was a risk of a reduction in the market value of Mr Gubbins’ properties if there was a delay in the performance of their obligations. The difficulty with this aspect of the decision is that determining a party to be liable for ‘all losses arising naturally’ is casting a very wide net, the limits of which are yet to be established by the courts.

This case demonstrates that liability which arises from the breach of a contract has the potential to extend further than the basic contractual terms. Therefore, care should be taken to expressly exclude certain losses at the time of formation, once the potential consequences of a breach have been considered, as the potential liabilities arising from a breach may well be significantly higher than amounts paid in performing the contract.