REUTERS | Luke MacGregor

So long, SAAMCo? The impact of John Grimes v Gubbins

Ever since the House of Lords handed down their now seminal judgment in SAAMCo, in almost any case involving allegations of professional negligence where it could be said that the damages claimed resulted from a fall in the market, defence lawyers up and down the land have pointed to SAAMCo and written a lengthy letter to the claimant’s legal team explaining why the losses claimed were too remote. However, following the Court of Appeal’s judgment in John Grimes v Gubbins, the claimant’s solicitors now have ammunition to write a lengthy letter in reply.

John Grimes v Gubbins

Mr Gubbins is a farmer who obtained planning permission for a mixed-use housing development on one of his fields. The development included an access road to the adjacent main road. As is usual, it was anticipated that the access road would be adopted by the local authority pursuant to a section 38 agreement.

John Grimes Partnership Ltd is a firm of consulting engineers. It was engaged by Mr Gubbins for a fee of £15,000 to undertake the design of the access road, drainage and to gain section 38 approval for the works. (At first instance, the judge found that there was an oral agreement that the task would be complete by March 2007 which, he additionally found, was a reasonable time in which to complete the task.)

John Grimes did not complete its task by March 2007. By February 2008, it had only achieved an initial section 38 approval and some aspects remained unfinished. Mr Gubbins was dissatisfied with its performance and engaged another engineer, Mr. Powell of the Joint Technical Partnership Ltd. He commenced works in May 2008 and, having redesigned the road and drainage works, section 38 approval was finally achieved on 18 June 2008.

By this time, John Grimes had received just under £20,000 by way of fees, but it invoiced Mr Gubbins (perhaps optimistically) for a further £2,893. Mr. Gubbins (perhaps understandably) refused to pay and John Grimes commenced its claim.

Mr. Gubbins counterclaimed for:

  • The sums previously paid on the basis that John Grimes’ work had been defective and was redone.
  • Damages for the failure to complete the agreed work by March 2007 comprising:
    • a reduction in market value of the private residential units;
    • a reduction in the offer from a housing association for the affordable units; and
    • an increase in building costs.

Court of Appeal

The principal issue on appeal was whether the damages awarded at first instance were recoverable.

Having reviewed the authorities (including SAAMCo, The Achilleas, Supershield v Siemens and Pindell Ltd v Air Asia Berhad (2011) 2 All ER (Comm) 396), the Court of Appeal upheld the first instance judge who determined that John Grimes was liable for the damages claimed that arose out of the property market fall, that is the reduced value of the private housing and the reduced offer made by the housing association, together with the increased building costs.

In other words, Mr Gubbins was entitled to recover what many of us would describe as “SAAMCo” type losses and accordingly too remote to be recoverable.

However, this is not as surprising as may appear on first blush. Given that:

  • It was an express term of the contract that John Grimes was required to perform by a certain date.
  • It was found as a fact that John Grimes had knowledge of both Mr Gubbins’ intentions as regards the development and the timing of his plans.
  • John Grimes had accepted that they knew the market may go up as well as down.

Why shouldn’t John Grimes be fixed with the consequences of its failure to perform?

After all, why should a negligent professional who fails to perform a contractual obligation by an agreed date be in any better position than, say, a supplier who fails to deliver by an agreed date, say fifty plug-in radiators to a school, in consequence of which the school is forced to hire replacements?

The defaulting supplier would be responsible for the hire charges as these would be a foreseeable loss flowing from its default. Why shouldn’t the engineer be liable for the foreseeable consequences of its delay in performance?

The key to this case perhaps lies in three matters:

  • There was an express date for performance which coupled with the enormous (and inexcusable) 15-month delay in performance. As the court observed, the paucity of cases on this subject is most likely due to the fact that the property market does not move as quickly as certain other types of market involving commodities and other goods. It takes a very lengthy delay in breach of contract before a provable/quantifiable loss of value can occur.
  • No material was put before the court to demonstrate that there was some general understanding in the property world that an engineer in John Grimes’ position would not be taken to have assumed responsibility for losses arising from a fall in the market where there had been delay. In that sense it was not an Achilleas type case.
  • It must be remembered that SAAMCo is not a “delay” case: it dealt with negligent overvaluation. In fact, a close reading of the judgment shows that Lord Hoffman approved the principle that damages should be recoverable where losses were suffered in consequence of a solicitors delay (see the New Zealand Court of Appeal’s judgment in McElroy Milne v Commercial Electronics Ltd (1993) 1 NZLR 39).

Summary

When properly considered Grimes v Gubbins may not be such a surprising case as a matter of law. However, the fact there is an answer to the SAAMCo point it is likely to come as a shock to (allegedly) negligent professionals or – perhaps more accurately – their insurers!

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