Common law damages

Introduction

Delays in property completion transactions constitute significant breaches of contract under common law. These legal considerations center on the principles governing common law damages, which aim to compensate the injured party by placing them in the position they would have been in had the contract been performed as agreed. Key components include the recognition of contractual breaches, the application of the "time is of the essence" doctrine, and the methodologies for calculating damages arising from delays. A thorough understanding of these principles is essential for the SQE1 FLK2 exam, where the application of substantive and procedural law is tested rigorously.

Breach of Contract and Damages

A delayed completion in a property transaction isn't just a minor setback; it's a breach of contract with legal consequences. At common law, awarding damages serves to compensate the innocent party, aiming to restore them to the position they would have occupied if the contract had been fulfilled as agreed.

Picture a scheduled flight: if the airline cancels your flight without notice, you're entitled to compensation for the inconvenience and any additional costs incurred. Similarly, in property deals, if one party doesn't complete on time, the other may suffer losses that the law seeks to address.

The landmark case of Hadley v Baxendale (1854) sets out the rules for recoverable damages:

1. Losses arising naturally from the breach, according to the usual course of things.
2. Losses contemplated by both parties at the time of the contract.

These principles ensure that only foreseeable losses are compensated, maintaining fairness and predictability in contractual relations.

The Importance of Time in Contracts

Whether "time is of the essence" in a contract determines the severity of a breach due to delay. When time is deemed essential, any delay can amount to a serious breach, entitling the non-defaulting party to terminate the contract and claim damages.

Consider buying concert tickets for a one-night performance. If the tickets arrive after the concert date, they're useless—the timing was critical. Similarly, in contracts, timing can be a major concern.

Time becomes important in three primary ways:

1. Express Terms: The contract explicitly states that time is of the essence.
2. Implied Terms: The nature or circumstances of the contract imply that timing is significant.
3. Subsequent Notice: One party serves a notice making time of the essence after an initial delay.

In Union Eagle Ltd v Golden Achievement Ltd [1997], a purchaser who was ten minutes late in completing lost the property entirely because the contract specified that time was of the essence. This case illustrates the strict enforcement of timing provisions.

Notice to Complete

If time wasn't initially of the essence, a party can serve a notice to complete, effectively making it so. This notice requires the other party to complete the transaction within a reasonable period, typically ten working days.

For example, a seller tired of delays might issue a notice to the buyer. If the buyer fails to complete within the specified time, the seller can treat the contract as repudiated.

In Stickney v Keeble [1915], the court upheld the effectiveness of such notices, reinforcing their role in contractual enforcement.

Calculating Damages for Delay

When a breach occurs due to delayed completion, calculating appropriate damages is important. The aim is to compensate for actual losses suffered, not to punish the defaulting party.

Types of Recoverable Damages

1. Direct Financial Losses:

   • Extra legal fees resulting from the delay.
   • Additional mortgage interest payments.
   • Increased insurance costs.

2. Loss of Use or Enjoyment:

   • Lost rental income if the property was to be let.
   • Expenses for alternative accommodation.

3. Consequential Losses:

   • Missed business opportunities due to the delay.
   • Costs associated with rescheduling or canceling planned events.

4. Wasted Expenditure:

   • Payments made in preparation for completion that are now wasted.

Duty to Mitigate

The injured party must take reasonable steps to minimize their losses. This means they should not allow losses to accumulate unnecessarily. For instance, if a buyer knows the seller won't complete on time, they should seek alternative solutions, like short-term rentals, to reduce their losses.

The principle of mitigation was established in British Westinghouse Electric Co Ltd v Underground Electric Railways Co of London Ltd [1912], emphasizing that claimants cannot recover losses they could have reasonably avoided.

Interest on Damages

Courts may award interest on damages to account for the time the claimant has been out of pocket. Under Section 35A of the Senior Courts Act 1981, interest is generally calculated at the judgment rate, which is typically 8% per annum.

Contractual Compensation vs. Common Law Damages

Contracts often include specific provisions that outline remedies for delay, which can affect the recovery of common law damages.

Standard Conditions of Sale (SC)

Under the Standard Conditions of Sale (5th Edition):

• Compensation Rate: Set at 4% above the base rate of a specified bank.
• Application: Applied to the balance of the purchase price.
• Liability: Both buyer and seller may be liable, depending on who causes the delay.

This compensation is intended to cover losses arising from the delay without resorting to litigation.

Standard Commercial Property Conditions (SCPC)

In commercial property transactions, the Standard Commercial Property Conditions (3rd Edition) provide that:

• Only the buyer is liable for compensation if they delay completion.
• Rate and Calculation: Similar to the SC, but focused solely on the buyer's obligations.

This can lead to situations where the seller delays completion but isn't liable for compensation under these conditions.

Interaction Between Contractual and Common Law Remedies

Receiving contractual compensation doesn't necessarily preclude a claim for additional common law damages. However, the amount received under the contract may be deducted from any damages awarded to prevent double recovery, as noted in Telfair v Burley [1976].

Real-World Applications

Scenario 1: The Chain Reaction in Residential Sales

Consider a chain of home buyers and sellers. If one buyer fails to complete on time, it affects everyone else in the chain. Sellers may incur extra costs, like additional mortgage payments or storage fees.

• Legal Outcome: The defaulting buyer may be liable for foreseeable losses suffered by others in the chain, provided those losses were within the parties' contemplation at the time of contracting.

Scenario 2: Missed Commercial Opportunities

A business intends to purchase a property to open a new store before the holiday season. The seller's delay causes the business to miss this critical period.

• Damages Claimed: Lost profits due to the delay, assuming the seller was aware of the timing's importance.
• Mitigation Efforts: The buyer should explore alternative options, like temporary premises, to reduce losses.

Scenario 3: Development Delays and Expired Permissions

A developer buys land with planning permission set to expire soon. The seller delays completion, causing the permission to lapse.

• Consequences: The developer incurs costs reapplying for permission and delays in the project timeline.
• Legal Action: The developer may claim these costs as damages if they can show the seller knew about the critical timing.

Conclusion

Addressing the complexities of common law damages in delayed property completions requires a comprehensive understanding of contractual breaches, the importance of time, and the calculation of losses. The interdependence of these concepts is evident: establishing a breach due to delay hinges on whether time is of the essence, which in turn affects the remedies available. The duty to mitigate losses and the methods for calculating damages, grounded in precedents like Hadley v Baxendale and British Westinghouse Electric Co Ltd v Underground Electric Railways Co of London Ltd, provide a framework for compensating injured parties.

Moreover, the interplay between contractual provisions, such as those in the Standard Conditions of Sale and the Standard Commercial Property Conditions, and common law rights adds a layer of complexity. Legal practitioners must assess the specific terms of each contract alongside established legal principles to determine the appropriate remedies.

In practice, these issues manifest in varied scenarios—from residential chains to commercial developments—highlighting the importance of foreseeability, reasonable mitigation, and adherence to contractual obligations. An in-depth understanding of these principles is essential for effectively addressing delayed completions and is a key component of the SQE1 FLK2 exam's focus on applying substantive and procedural law.