Earl's Terrace Properties Ltd v Nilsson Design Ltd

In a construction professional-negligence claim, delay-related financing loss is recoverable in principle where the claimant proves a direct causal connection between the breach, delayed completion and funds remaining locked into the development. The claimant must prove that it lost the use of the funds and establish the commercial use to which they would have been put. Where the precise loss cannot reasonably be quantified, it may be assessed by reference to a reasonable commercial rate of return. Loss incurred by a related third party may also be recoverable where it falls within the contemplation and scope of the defendant’s duty. A later rise in sale prices is not ordinarily brought into account where the sales are unconnected with the breach and form no part of the same transaction.

The claimant developer brought proceedings against its architects concerning water penetration into basement structures during a refurbishment project. The architects brought contribution proceedings against the contractor. Two legal issues were tried separately on agreed assumed facts under the court’s case-management powers.

The first issue concerned whether the developer could recover alleged holding costs, calculated by applying interest to development funds said to have remained locked into the project during a 15-month remedial delay. The second concerned whether any increased sale proceeds resulting from a later rise in property prices had to be credited against damages.

1. Issue 1. The claim was recoverable in principle, but only subject to proof of loss. The developer had to establish a direct causal connection between the delayed completion caused by the defects and the delayed unlocking of funds. Mere proof that completion was delayed was insufficient. It had to show that the development costs would have been recovered earlier but for the breach and that the funds would have been put to commercial use.
2. The loss could consist of additional financing costs or loss of commercial use. If the claimant proved loss of use but could not reasonably identify or quantify the precise commercial loss, damages could be approximated by a reasonable commercial rate of return. No damages were recoverable if no actual or discernible loss were proved.
3. The fact that the funds were advanced by Vastint did not necessarily prevent recovery by the developer. A claimant may recover loss incurred by a third party where the loss falls within the contemplation of the parties and the scope of the contractual or tortious duty, or where the claimant’s performance or expectation interest provides a basis for recovery.
4. The alternative assumption that the architects’ breach consisted in failing to warn about another party’s design did not alter the answer. The court declined to answer further alternatives removing the architects’ assumed knowledge of the commercial nature and risks of the development, because the issue was too fact-sensitive and insufficiently argued.
5. Issue 2. On the assumed facts, any rise in the sale prices of the houses was not to be credited against damages. The sales were not shown to be impossible during the delay, were not part of the same transaction as the defective design and remedial works, and the price movement was not sufficiently connected with the breach. A different result might follow on materially different facts.
6. The answers to the issues were directed to be agreed by the parties. The same answers governed the notional contribution proceedings against the contractor.

First-instance determination of two preliminary legal issues on agreed assumed facts. The judgment itself records no prior appellate decision.