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How do you claim for losses arising from your client’s breach of contract?
Suppose you engage a tradesman to do some work and, in breach of contract, you are late paying. He had intended to invest the money you owed him in shares. But they have now rocketed. He has missed the market and it is your fault. Can he sue you for his losses? Probably not.
What if you engage an engineer to do design work for a section 38 agreement for your proposed residential development and he delivers late. This means the project runs late and the sale value of the houses falls. Is he liable for that loss? ‘Yes’, said the Court of Appeal this month in John Grimes Partnership Ltd v Gubbins.
What is the difference between these cases and how does the court decide what you could be liable for?
Usually a party can only claim for losses arising from the other party's breach of contract if those losses are not too remote. The established test of remoteness is that the innocent party will be able to recover losses arising naturally and losses which may reasonably be supposed to have been in the contemplation of the parties at the time they made the contract.
The appeal in John Grimes Partnership Ltd v Gubbins raised an important issue: whether the loss by Mr Gubbins was too remote.
The judge in the case said it was clear that Tim Swainson, a consultant at John Grimes Partnership, knew at the time of entering into the contract that delay brought with it the risk that the property market might move considerably, including to the significant disadvantage of his client, Mr Gubbins. The loss was thus foreseeable.
Judges will focus on what the parties at the time of making the contract ought reasonably to have contemplated would result from the breach of contract. So returning to the tradesman, it is unlikely to be foreseeable that he had intended to invest the money in shares that have since rocketed. Any loss from that, therefore, would be too remote.
One might ask: But won’t any losses just follow the contract?
The starting point is the contract and express terms will be followed. When there is no express term dealing with what types of losses a party has accepted potential liability for, the law will imply a term to determine the answer. The implied term will be for the types of losses which could reasonably be foreseen at the time of contract.
Wherever possible, the parties should expressly agree for what types of losses a party accepts responsibility.
As in many areas of business, this is not always possible but it is important to consider the commercial background to each deal and what losses could flow from the delay. If it is foreseeable, then there is a good chance your business will be found liable for any losses. But you are unlikely to be responsible for someone’s future investment plans – unless he told you…
About the author: Mark Clinton is a partner of Thomas Eggar LLP
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