In Aldgate v Unibar the Court considered a loss of profits claim following a fire which scuppered a future development. Aldgate was a family run developer which pursued, for reasons of economies of scale and efficiency savings, a business model under which it always developed dual plots for high quality houses on the same site at any one time. It did not borrow money, and used the profit earned to fund the next development.
In this case, Aldgate was developing nos. 33 and 35 Cambridge Road, Dunton. No. 35 was close to completion when a plumber, employed by Unibar, caused a fire with his blowtorch which spread to the roof and caused substantial damage. Aldgate had used Unibar on a number of developments and so it was familiar with Aldgate’s business model. Aldgate recovered the cost of the damage from its insurers, but was forced to demolish no. 35 and rebuild it. This required a diversion of resources, caused delay, and consequently Aldgate said it was unable to acquire a second plot on its next development site. This meant it would not be able to run a dual plot development. Aldgate therefore sought to recover the loss of profit it said it would have earned on that development, the losses flowing from its loss of chance of acquiring the second plot, and the additional costs resulting from the loss of efficiency savings.
Unibar admitted negligence but denied that the losses were recoverable. It argued that Aldgate (1) should have borrowed money to fund the purchase of the second plot, and (2) acted unreasonably in failing to sell another development plot to release funds. The Court therefore had to consider:
- Whether the type of loss suffered was in the reasonable contemplation of the parties at the time the contract was entered into;
- Whether the fire caused the loss (the “but for” test);
- Whether there were any intervening acts which broke the chain of causation; and
- Whether Aldgate had contributed to the loss itself
The Court accepted that Aldgate had had a 50% chance of acquiring the second plot and rejected the argument that it should have borrowed money given that Aldgate had never had to borrow money previously, and in any event the terms imposed by the bank were unreasonable. The Court also rejected the suggestion that Aldgate had in any way acted unreasonably, and therefore Aldgate’s claim was successful.
COMMENT: This decision provides a useful application of the current law on the recoverability of damages, and in particular loss of profits in the context of property development. Aldgate’s recovery of over £400,000 was certainly in excess of what Unibar thought it might be liable for.
