Judge Rules on Recession-Hit Developers’ Contract Dispute

Property 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. In March 2009, however, after the financial crisis caused a collapse in the property market, the defendant decided that it would be necessary to put work on part of the development on hold due to funding difficulties.



Work on that part of the development 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 (or alternatively negligent) misrepresentation by the defendant regarding the funding of the development.



The defendant denied those allegations and itself terminated the contract on the ground that the claimant had failed to make a payment due under it. The defendant counterclaimed 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its right to accept the defendant’s repudiation by reason of the fact that the work had re-commenced shortly before it rescinded the contract.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.



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