Loss of profit claims can be notoriously difficult to run, particularly where you are claiming for the lost opportunity to tender for another job or develop another site. How do the Court's approach these important claims?
The Technology and Construction Court provided some useful guidance in the May 2010 decision in Aldgate Construction Company Ltd v Unibar Plumbing & Heating Ltd.
The Facts
Aldgate are a residential property developer. Aldgate were developing a dual site at 33 and 35 Cambridge Road. Aldgate subcontracted the plumbing to Unibar. Unibar caused a fire at 35 Cambridge Road that destroyed the property when the build was nearly complete.
As a result Aldgate claimed £776,599 in damages largely on the basis that the fire prevented it pursuing its policy of dual development sites whilst it re-built the destroyed property.
The Law
The starting point for considering damages for breach of contract is the leading authority, Hadley & Baxendale. Damages can be recovered if either:
1 the loss arose naturally from the breach itself; or
2 the loss was the probable result of a breach that may reasonably have been in the contemplation of the parties at the time of the contract.
The Decision
Unibar admitted that the second limb of Hadley & Baxendale was satisfied, but Unibar denied liability on the grounds of causation. They stated that Aldgate could not have developed certain other properties in the way they claimed, even if the fire had not happened.
The Judge disagreed and found in favour of Aldgate. However, the Judge awarded £401,253 of the £776,500 claimed.
The Judge had to consider and determine on the balance of probabilities, the likely periods for the acquisition, design, construction and disposal of the proposed developments. Unsurprisingly Aldgate gave evidence that such developments were turned around quickly and Unibar alleged the periods were unrealistic. The Judge found, on the facts of this case, that 19 months was average for Aldgate.
The Judge also gave credit for the profits made on a smaller development Aldgate carried out in the interim but rejected the argument that the chain of causation was broken. It was not unreasonable to develop a single site given its reduced level of cash as a result of the fire.
The Judge rejected Unibar's argument that Aldgate should have raised finance to continue developing dual properties in the same way, as Aldgate were not obliged to alter their business model.
Ultimately, the fire caused number 35 to need rebuilding which took time and prevented Aldgate from developing other properties in 2005 and 2006. Aldgate were entitled to damages appropriately.
Conclusion
This decision gives useful guidance as to how the courts will approach loss of profit in a residential development context. But note the lesson in this case: the levels claimed can be difficult to sustain when subject to expert scrutiny.
Notably, the Judge levelled criticism on Unibar for arguing that Aldgate's small scale development in 2005 had broken the chain of causation, when Unibar had not accepted liability at that stage nor made any offers.
It is a reminder that loss of profit claims are not straightforward and careful consideration must be given to both the chain of causation and quantum throughout.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
