Reasonably foreseeable loss
JOHN GRIMES v GUBBINS (CA) [2013]
The Court of Appeal (CA) was asked to review the law governing the damages which can be recovered for breach of contract and when damages will be regarded as being ‘too remote’ to be recoverable. It has long been the case that, as a general rule, once damages of a particular kind are held to be ‘reasonably foreseeable’ in the sense of being ‘not unlikely to result from a breach’, then they can be claimed irrespective of the extent of the damage suffered.
Facts:
- G obtained planning permission to build some houses on his field. He employed J, a firm of consulting engineers, to design a road within the site and to obtain the required statutory approval so that the road could be adopted by the local authority. It was an express oral term of the contract that J would complete the work by March 2007.
- The work was not completed on time. In April 2008, G engaged another consulting engineer, who re-designed the road layout and submitted it to the local authority, which approved it a short time later.
- G claimed almost £20,000 previously paid to J, on the ground that J’s work had been defective and had to be re-done. In addition, he sought damages for the failure to complete the work by March 2007. G claimed that as a result of the delay there had been a reduction in the market value of the houses to be built and an increase in building costs.
- At the first hearing in the High Court, G was awarded damages for the loss resulting from the decline in the property market. Applying the traditional test from Hadley v Baxendale [1854], that loss was not too remote as it was a reasonably foreseeable consequence of any delay in completing the work.
- J appealed relying upon the decision in the case of Transfield v Mercator [2008] (a House of Lords’ judgment and therefore very senior), where it was suggested that it was necessary to decide whether a contracting party could be said to have accepted, at the time of contracting, responsibility for the type and extent of loss which occurred.
Decision:
- The appeal was dismissed. The CA rejected the argument that the principles set out in Transfield had replaced the ‘reasonably foreseeable’ test in Hadley v Baxendale. The ‘reasonably foreseeable’ approach remains the standard one. The leading judge said: "Normally, there is an implied term accepting responsibility for the types of losses which can reasonably be foreseen at the time of contract to be not unlikely to result if the contract is broken. But, if there is evidence in a particular case that the nature of the contract and the commercial background, or indeed any other relevant special circumstances, render that implied assumption of responsibility inappropriate for a particular type of loss, then the contract-breaker escapes liability."
- The judge found no evidence of any general understanding or expectation in the property world that a party in J's position would not be taken to have assumed responsibility for losses arising from movement in the property market where there was a delay.
- Neither was the judge persuaded by an argument based on the scale of loss (around £398,000) in comparison with the fee payable under the contract (£20,000). This would not normally, of itself, suffice to establish an absence of responsibility for such loss according to the judge.
Points to Note:
- The Transfield case created considerable uncertainty in this area. Previous High Court decisions had suggested that the House of Lords in Transfield had not radically changed the law and here the CA has confirmed that.
- This is the first case after Transfield where the Court has sought to explain the relevance of ‘assumption of responsibility’ in the context of the reasonable foreseeability test. They now appear to be elements of the same test rather than discrete tests.
- The onus remains firmly on each contracting party to expressly exclude liability for particular categories of loss for which it does not want to accept responsibility.
- The Transfield case involved the shipping industry where seemingly there was clear evidence of a general expectation in the market as to the extent to which a ship charterer would be liable in damages in the event of late redelivery of a ship. It was on this basis that the present case was distinguished.
- The question still remains as to whether there are any other industries where such expectations apply in order to limit or exclude liability. Industries where there is a very high degree of volatility over a period of a matter of days/weeks (financial markets immediately spring to mind) might be areas where the Transfield judgment might possibly successfully apply to limit liability.