Recession-hit construction dispute

Posted: 13th July 2012

Construction siteProperty developers who fell out when a large-scale residential and commercial project was hit by the credit crunch have had their contract dispute resolved by a High Court judge.

The claimant and the defendant contracted to construct the mixed development in south-east London in 2007. However, after the financial crisis caused a collapse in the property market, the defendant decided in March 2009 that it would be necessary to put work on part of the development ‘on hold’ due to funding difficulties.

Work did not resume until October 2010 and the claimant sought to terminate the contract three weeks later on the basis that there had been a repudiatory breach of the contract by the defendant.

The claimant contended that it was entitled to rescind the contract for fraudulent, alternatively negligent, misrepresentation by the defendant regarding the funding of the development.

The defendant denied those allegations and itself terminated the contract in 2010 on grounds that the claimant had failed to make a payment due under the contract. The defendant counter-claimed for its alleged loss.

In his ruling, Mr Justice Roth rejected the claimant’s case on misrepresentation but found that the defendant had been in repudiatory breach of the contract.

He also decided that the claimant had not reaffirmed the contract or lost its right to accept the defendant’s repudiation by reason of the fact that the work had re-commenced less than three weeks before it rescinded the contract.

The defendant’s counterclaim was dismissed and the claimant was awarded £421,309, plus interest, that being the sum it had paid by way of deposit under the contract which incorporated standard commercial property conditions.

The judge refused to award the claimant further compensation for the expenses it had incurred in the course of the development explaining that even had the contract been completed the claimant would have made insufficient profit to recover the expenditure claimed.