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Assessing Damages for Breach of Contract Can Involve Predicting the Future

It is hard to predict the future with any certainty, but judges are frequently required to do the best they can on the evidence when assessing damages for breach of contract. That was certainly so in one case concerning a mixed residential and commercial development that did not go according to plan.

Buildiong site, waste landThe owner of a commercial building employed a company to act as development and project manager in respect of the multi-million-pound project. The success of the venture depended upon the acquisition of the freehold of a neighbouring building, the purchase of three leases and the negotiation of a 150-year lease of adjoining land to be used as a car park.

Under its contract with the owner, the company was to receive a £200,000 fixed fee in respect of preliminary planning and design work, plus another £200,000 upon the grant of full planning consent. It would also receive 2 per cent of the estimated build cost, to be determined when the building contract was awarded following a tendering process. If the development completed on time and on budget, the company would also receive a performance fee of £250,000.

In the event, however, the owner issued a notice of default under the agreement when the project was still on the drawing board. On the basis that the notice was unjustified, the company treated it as a wrongful repudiation of the contract and launched proceedings, claiming over £1.3 million. The company argued that, had the contract continued, planning consent for the development would inevitably have been granted and it would have earned all the fees particularised in the contract.

After the company won a default judgment in respect of its claim, it fell to the High Court to assess the damages payable. The Court noted that, for a variety of reasons, the site defined in the contract as necessary for the development to proceed had not been successfully assembled. In those circumstances, the owner had to date made no planning application in respect of the defined site. There were also serious doubts as to whether the development as proposed would have been commercially viable.

The owner had already spent a great deal of money in pursuit of the project and was entitled to say that enough was enough. It was justified in deciding to pull the plug on the basis that the development as envisaged in the contract was unlikely to proceed. It was agreed that the company was entitled to the £21,615 balance of the initial £200,000 fee but, in all other respects, its damages claim was dismissed.



 
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