Privity Flashcards
I - Passing a Benefit to a Third Party
A - The Third Party’s Rights (The General Rule)
The rule wasn’t clearly established until 19C (Price v Easton, Tweddle v Atkinson):
I - Passing a Benefit to a Third Party
A - The Third Party’s Rights (The General Rule)
|*Tweddle v Atkinson (1861) 1 B&S 393
- Facts: C married the promisor’s daughter. Prior to the wedding the promisor entered into an agreement with C’s father where they each promised to give C money, with a clause in the contract stipulating that C “has full power to sue the said parties in any Court of law or equity for the aforesaid sums”. The promisor failed to pay and C sued.
- Held (QBD): The claim failed –
o “it is now established that no stranger to the consideration can take advantage of a contract, although made for his benefit” (Wightman J).
o “Consideration must move from the party entitled to sue upon the contract” because it would be “monstrous” to allow someone to sue for his own advantage but not for the purpose of being sued (Crompton J)
o Consideration must move from the promisee for an action to be maintained upon a promise; C argued that there was an exception – where consideration moves from a father for the benefit of his son, the natural love and affection between them gives the son the right to sue as if the consideration moved from himself. However, “natural love and affection are not a sufficient consideration” to found an action (Blackburn J)
I - Passing a Benefit to a Third Party
A - The Third Party’s Rights (The General Rule)
|*Tweddle v Atkinson (1861) 1 B&S 393
Commentary
- reason son couldn’t sue?
- what general rule did C accept/what did he argue?
- what did Lawrence v Fox hold?
- what do some commentators argue re privity vs consideration? - relationship between rule that consideration must move from promisee and consideration?
- what does Furmston argue? - How did Lord Denning explain Tweddle in Beswick?
- why is this a contentious argument?
1º Thus it seems that the reason the son couldn’t sue is less (1) he was not a party to the contract and more (2) consideration didn’t move from him:
- C accepted that there was a general rule that an action must be brought by the person from whom consideration moved (though he argued for an exception for father/son), and this concession has been criticized as unnecessary, leading to the loss of a general third party right of action (Flannigan).
- Nobody mentioned the NY CoA case of Lawrence v Fox, suggesting that the real basis of the decision was that C was a stranger to the consideration, not that he was a third party to the contract
So some argued that the privity rule is really no more than an application of the doctrine of consideration (Furmston), but the two doctrines were distinguished in Dunlop.
2º Thus, the rule that consideration must move from the promisee is closely linked with the privity rule, and discussion of the former often renders the latter obsolete. Only where the third party has provided consideration but is not party to the agreement that the need for a distinct privity rule arises (but can a third party provide “consideration” if no contract is made?).
3º One point of significance is that C’s father might not have sued the promisor himself because he had not, himself, honored his promise and paid his son. Lord Denning explained in Beswick that Tweddle “failed for the very good reason that the husband’s father had not done his part”. If he had done his part, then he would have been able to sue the promisor (but this is difficult because there is nothing in Tweddle to suggest that the father hadn’t paid).
I - Passing a Benefit to a Third Party
A - The Third Party’s Rights (The General Rule)
|*Dunlop Pneumatic Tyre Co Ltd v Selfridge [1915] AC 847
- facts
- trial judge
- CA/HL
- Haldane VC
- 3 principles - how was consideration given in this case?
- Lord Dunedin
- Facts: X agreed to buy tires from C, tire manufacturer. C agreed to give X certain discounts in return for a promise from X not to sell to anybody at less than the list price except where X obtained from the buyer a similar promise to observe the list prices. D ordered tyres from X at a discount in return for such an agreement, and then breached the agreement. C sued D for breach of the undertaking.
- Held: trial judge held for C, reversed by CoA because C was not a party to the contract, upheld by HL.
- Haldane VC:
o Three principles:
♣ Only a person who is a party to a contract can sue on it; a third party right of action can only be conferred by way of property (ex. Trust) and not contract in personam.
♣ Consideration must move from the person trying to enforce the promise.
♣ A third party can sue upon a promise if the promisee really contracted as his agent, but then again he must have given consideration either personally or through the agent.
o In this case the consideration (discount) was given by X, not as C’s agents, but as principals acting on their own account. This conclusion renders it unnecessary to decide whether C can claim that the bargain was made by X as C’s agent, but (obiter) two contracts (one made as principal and one as agent by the same person) can be comprised in the same paper, but they must be two contracts and not one single contract. - Lord Dunedin:
o This case is “apt to nip any budding affection which one might have had for the doctrine of consideration”, for it essentially bars the person who has a legitimate interest to enforce a bargain, not in itself unfair, from enforcing it. However, “I cannot say that I have any doubt that the judgment of the Court of Appeal was right”.
o In this case X contracted as C’s agent, but C still can’t sue because consideration didn’t move from C to D (in that X had full ownership of the tires and could confer ownership on anyone he liked, subject to an in personam right of C to sue X in breach of the collateral contract to the sale).
I - Passing a Benefit to a Third Party
A - The Third Party’s Rights (The General Rule)
|*Dunlop Pneumatic Tyre Co Ltd v Selfridge [1915] AC 847
- what did Viscount Haldane confirm?
- What did Lord Denning in Smith and Snipes say re Dunlop?
- is privity absolute?
- 2 exceptions?
1º Viscount Haldane confirmed that privity and consideration must move from the promisee are two separate (though interrelated) rules (though the greater part of this case was again devoted to consideration).
2º In Smith and Snipes Lord Denning said that Dunlop should be confined to cases concerned with “the maintenance of prices to the public disadvantage” (because it was a price fixing agreement aiming to fix a minimum price for sale to consumers, which might disadvantage the public), but there is nothing in the judgment to suggest that the Court was at all concerned by this fact.
3º Privity is not absolute – there are at least two exceptions:
- Trust of a promise (possible to confer a right of action upon a third party via trust)
- Agency (a principal not named in the contract may sue upon it if the promisee really contracted as his agent – Viscount Haldane), but the consideration must crucially move either from the principal directly or from the agent in his capacity as agent so in reality from the principal
I - Passing a Benefit to a Third Party
A - The Third Party’s Rights (The General Rule)
|Smith & Snipes Hall Farm Ltd v River Douglas Catchment Bd [1949] 2 KB 500 (Lord Denning only)
- re does he say privity does not apply or does he challenge it outright?
- what is the deeper principle that it has not supplanted?
- what stems from this principle (implicitly if not expressly?
(i) covenants?
(ii) undisclosed principal
(iv) trust?
- the main difficulty?
- must there always be a trust?
- what does it cover?
- examples of such rights?
- how has the legislature intervened?
- Lord Denning: Can deal with privity either by admitting the principle and saying that it does not apply to this case, or by disputing the principle itself. I make so bold as to dispute it. The principle is not nearly so fundamental as it is sometimes supposed to be. It did not become rooted in our law until the year 1861(Tweddle v. Atkinson21, and reached its full growth in 1915(Dunlop v. Selfridge22).
- It has never been able entirely to supplant another principle whose roots go much deeper: the principle that a man who makes a deliberate promise intended to be binding must keep his promise; and the court will hold him to it, not only at the suit of the party who gave the consideration, but also at the suit of one who was not a party to the contract, provided that it was made for his benefit and that he has a sufficient interest to entitle him to enforce it, subject to any defences.
- It is upon this principle, implicit if not expressed
o (i.) that a covenant made with the owner of land for its benefit can be enforced against the covenantor, not only by the original party, but also by his successors in title.
o (iii.) that Lord Mansfield held that an undisclosed principal is entitled to sue on a contract made by his agent for his benefit, even though nothing was said about agency in the contract
o (iv.) that Lord Hardwicke decided that a third person is entitled to sue if there can be spelt out of the contract an intention by one of the parties to contract as trustee for him, even though nothing was said about any trust in the contract, and there was no trust fund to be administered. (SeeTomlinson v. Gill27.) - The difficulty is what is sufficient interest to entitle the third person to recover.
o Sometimes been supposed that there must always be something in the nature of a “trust” for his benefit. (SeeVandepitte’scase28.) But this does not explain all the cases. The truth is that the principle is not so limited.
o It may be difficult to define what is a sufficient interest. Whilst it does not include the maintenance of prices to the public disadvantage, it does cover the protection of the legitimate property, rights and interests of the third person, although no agency or trust for him can be inferred.
o It covers, therefore, rights such as these which cannot justly be denied; the right of a seller to enforce a commercial credit issued in his favour by a bank, under contract with the buyer; the right of a widow to sue for a pension which her husband’s employers promised to pay her under contract with him; (SeeDutton v. Poole30and cf.In re Schebsman31); or the right of a man’s servants and guests to claim on an insurance policy, taken out by him against loss by burglary which is expressed to cover them; cf.Prudential Staff Union v. Hall32.
o In some cases the legislature itself has intervened, as, for instance, to give the driver of a motor car the right to sue on an insurance policy taken out by the owner which is expressed to cover the driver. But this does not mean that the common law would not have reached the same result by itself.
I - Passing a Benefit to a Third Party
A - The Third Party’s Rights (The General Rule)
|*Scruttons Ltd v. Midland Silicones Ltd [1962] A.C. 446
Held
- who dissented?
1. re word ‘carrier’ in the Act
2. re carrier contracting as agent?
3. implied contract?
4. fundamental principle of privity?
- Held, (Lord Denning dissenting), that the stevedores were not entitled to rely on the limitation of liability contained in the bill of lading, since -
o (1) The word “carrier” in the Act did not include a stevedore, and there was thus nothing in the bill of lading which stated or even implied that the parties to it intended the limitation of liability to extend to stevedores.
o (2) The carrier did not contract as agent for the stevedores.
o (3) There was no implied contract to which the present parties were parties that the stevedores should have the benefit of the immunity.
o (5) It is a fundamental principle that only a person who is party to a contract can sue upon it, and a stranger to a contract cannot in question with either of the contracting parties, take advantage of provisions of the contract even where it is clear from the contract that some provision in it was intended to benefit him.
I - Passing a Benefit to a Third Party
A - The Third Party’s Rights (The General Rule)
|*Scruttons Ltd v. Midland Silicones Ltd [1962] A.C. 446
- Simonds VC:
1. agents?
2. implied contract?
3. fundamental rule of privity?
5. Wilson v Darlington + what is argued?
o Agents: no ground for thinking so – the relationship between the carriers and stevedores was one of independent contractors
o Implied contract between the cargo owners, the respondents, and the stevedores that the latter should have the benefit of the immunity clause in the bill of lading: no – already uncommon to imply a term into a contract to give “business efficacy”, even more difficult to infer a contractual relationship where none exists. In this case, the stevedores knew nothing about the exclusion clause between the carriers and owners; and were only concerned with the business the carriers told them to do. No reason to imply a contract.
o The stevedores can sue on the contract between the carriers and the owners: privity is a “fundamental principle” of English law and reforming it is the task of Parliament. Therefore, any support for introducing an ius quaesitum tertio principle by the courts (Smith and Snipes etc.) must be rejected.
o Cites Wilson v Darlington Island Stevedoring and Lighterage (HCA) with approval, especially the passages by Fullagar J arguing that the exceptions to the rule inTweddle v. Atkinson152are apparent rather than real and explains the so-called on-carrier cases, and in which he protests against a tendency by some artifice to save negligent people from the normal consequence of their fault.
I - Passing a Benefit to a Third Party
A - The Third Party’s Rights (The General Rule)
|*Scruttons Ltd v. Midland Silicones Ltd [1962] A.C. 446
- Lord Reid:
o Although I may regret it, I find it impossible to deny the existence of the general rule that a stranger to a contract cannot enforce, even where it is clear from the contract that it was intended to benefit him.
o There are certain well-established exceptions to that rule - though I am not sure that they are really exceptions and do not arise from other principles. But none of these in any way touches the present case.
o The rule applies equally where the stranger is using the contract as a shield or as a sword.
I - Passing a Benefit to a Third Party
A - The Third Party’s Rights (The General Rule)
|*Scruttons Ltd v. Midland Silicones Ltd [1962] A.C. 446
- Lord Denning:
1. re the extravagant principle?
2. how has this fundamental principle been inverted?
3. since Donoghue v Stevenson?
4. how might suing the stevedores in negligence, thus escaping the exceptions in the contract and limitations of Hague Rules, expose a gap in commercial law?
o The “fundamental principle” was a discovery of the nineteenth century, and in the nineteenth century it was carried to the most extravagant lengths: it was held that, where a duty to use reasonable care arose out of a contract, no one could sue or be sued for a breach of that contract except a party to it (so this case would have failed entirely, because the duty of the stevedores to use reasonable care arose out of their contract with the carrier and only he would be able to sue). The goods owner would only have had a remedy against the carrier (because negligence was not an independent tort).
o It is ironic that this “fundamental principle” which was invoked 100 years ago for the purpose of holding that the agents of the carrier were “not liable at all” is now invoked for the purpose of holding that they are inescapably liable, without the benefit of any of the conditions of carriage. How has this come about?
o Since the decision ofDonoghue v. Stevenson222in 1932 we have had negligence established as an independent tort in itself. But if you permit the owner of the goods to sue the sub-contractor in tort for what is in truth a breach of the contract of carriage, then at least you should give him the protection of the contract. Were it otherwise there would be an easy way round the conditions of the contract of carriage.
o If the owner can, by suing the stevedores in negligence, escape the exceptions in the contract of carriage and the limitations in the Hague Rules, it will expose a serious gap in our commercial law. It has great potentialities too. If you can sue the stevedore, why should you not sue the master and officers of the ship? Nolonger need you worry about the limitation. You can recover the value of the most precious package without disclosing its nature or value beforehand. No longer need you worry about bringing an action within one year. You can bring it within six years. Nor are the potentialities limited to carriage by sea…
I - Passing a Benefit to a Third Party
A - The Third Party’s Rights (The General Rule)
|*Scruttons Ltd v. Midland Silicones Ltd [1962] A.C. 446
EXAM POINT (MI)
Perhaps it is growth in the tort of negligence that is both (1) a response to the privity rule and its being taken to extremes in the nineteenth century, and (2) the biggest threat to the doctrine of privity today because it seems to give people (in this case cargo owners) the right to sue but not be sued.
I - Passing a Benefit to a Third Party
B - The Promisee’s Remedies in a Contract for the Benefit of a Third Party
- The third party is a gratuitous beneficiary whereas the promisee provided consideration, so the law should put greater emphasis on protecting the promisee
- D might have defences against the promisee (like Lord Denning’s interpretation of Tweddle) and these should be applied to the third party beneficiary as well
- Stopping D from breaking the contract with impunity should arguably focus on strengthening the promisee’s rights and not the third party’s
I - Passing a Benefit to a Third Party
B - The Promisee’s Remedies in a Contract for the Benefit of a Third Party
EXAM POINT (MI)
Clearly, if there is no trust, and the judges are so insistent on this fact, it is because then B can vary or discharge A from the contract and should be free to do so regardless of X’s opinion. So what legitimate expectation can X have under the contract, since A and B can vary it at any point, and B doesn’t even have to enforce the contract in case of breach? The rightful beneficiary is clearly B and not X.
I - Passing a Benefit to a Third Party
B - The Promisee’s Remedies in a Contract for the Benefit of a Third Party
Primary remedies:
- specific performance?
- damages?
- restitutionary remedies?
- Specific remedies
o Specific performance
o Injunction (to enforce a negative promise not to sue the third party)
o Action for agreed sum (no reason in principle why it couldn’t also be available to enforce the promise to pay a third party, though no clear authority on this point) - Damages
o For promisee’s own loss
o For the third party’s loss? - Restitutionary remedies
o Recovery of money paid for total failure of consideration (but wouldn’t work if there was part performance)
I - Passing a Benefit to a Third Party
B - The Promisee’s Remedies in a Contract for the Benefit of a Third Party
1/ Specific Performance
|*Beswick v Beswick [1968] AC 58
Held
- Held: Trial judge refused to accord specific performance, CoA allowed C to specific performance in her capacity as administratrix or s56(1) in her personal capacity, and HL upheld the first point but rejected the second point.
I - Passing a Benefit to a Third Party
B - The Promisee’s Remedies in a Contract for the Benefit of a Third Party
1/ Specific Performance
|*Beswick v Beswick [1968] AC 58
- Lord Denning:
1. under common law
2. in equity
3. under statute
4. conclusion
o Under the common law:
♣ the third party should bring the action in the name of the contracting party, and D cannot argue that the contracting party suffered no loss because “the common law has never allowed the defaulter to escape by such shifty means”. The contracting party then holds the proceeds for the benefit of the third party (Re Schebsman). However, now that joinder of parties is allowed the third party and contracting party should join as co-plaintiffs and the money will go at once to the third party.
o In Equity:
♣ Contracting parties can make the contract on trust for the third person (so from the very beginning the contractual right is vested in the contracting party as trustee for the third party beneficiary, who can sue in equity), but the disadvantage is that the contract cannot be varied without the consent of the third party beneficiary.
♣ But even without a trust Equity can order specific performance as long as the action is brought in the name of the contracting party.
o Under statute:
♣ S56(1) LPA 1925 applies to “property”, which includes “things in action” (s205(1)(xx)). The promise to pay is a thing in action (because it can be enforced in an action), so that the widow can take the benefit of that agreement under s56(1) although she is not named as a party. Thus, she must be able to sue for it.
o Conclusion:
♣ There is a rule that no third person can sue or be sued on a contract, but this is only a rule of procedure that goes to the form of the remedy, not the substance of the right. Third persons who have a legitimate interest in enforcing the contract can sue in the name of the contracting party or join with him, or if he refuses to join add him as a defendant.
♣ A third party would have no legitimate interest (and therefore cannot sue) if:
• He is seeking to enforce the maintenance of prices to the public disadvantage (Dunlop)
• He is seeking to rely on an exemption clause (and not a right conferred on him by contract) to exempt himself of his just liability (Midland Silicones).
I - Passing a Benefit to a Third Party
B - The Promisee’s Remedies in a Contract for the Benefit of a Third Party
1/ Specific Performance
|*Beswick v Beswick [1968] AC 58
- Lord Reid:
1. his opinion on whether an obligation to pay a third party should be recognised?
- how can the promise be enforced?
- trust?
- s56?
- her capacity as administratrix?
o It is not argued that the obligation to pay a third party would be a nullity, for “although there may have been a time when the existence of a right depended on whether there was any means of enforcing it, but today the law would be sadly deficient if one found that, although there is a right, the law provides no means for enforcing it” the obligation must be enforceable by the contracting party or third party.
o How can the promise be enforced?
♣ No evidence of a trust being created (because otherwise an equitable right in favour of X would immediately arise so that the promisee would not be able to grant the promisor a discharge and would be bound to enforce the contract and account to X)
♣ S56 cannot be used in this way because it was a consolidating statute designed to replace s5 Real Property Act 1845, and was not designed to substantially alter pre-existing law. Thus if the definition of “property” has such far-reaching consequences as Lord Denning suggests, then it ought not to be applied to s56
♣ But in her capacity as administratrix she can enforce specific performance
I - Passing a Benefit to a Third Party
B - The Promisee’s Remedies in a Contract for the Benefit of a Third Party
1/ Specific Performance
|*Beswick v Beswick [1968] AC 58
- Lord Pearce:
1. need damages be nominal?
2. Lloyds v Harper, Lush LJ
3. Re Australian High coURT
4. any need to quantify in this case?
5. why is specific performance more appropriate?
3 points
o If suit was for damages, IJO damages need not be nominal:
♣ “established rule of law that where a contract is made with A for the benefit of B, A can sue on the contract for the benefit of B, and recover all that B could have recovered if the contract had been made with B himself” (Lloyd’s v Harper, Lush LJ)
♣ IJO agrees with HC Australia that if the contract was for $500, the damages would not be nominal; “they could be substantial. They would not necessarily be $500; they could I think be less or more” (Coulls v Bagot’s Executor)
♣ In this case it would have been substantial but no need to quantify because the more appropriate remedy is specific performance
o Specific performance is more appropriate because the agreement was an annuity and damages don’t accord with this intention. All of the conditions where courts grant specific performance are present:
♣ The administratrix is entitled to enforce the agreement rather than accept its repudiation
♣ There is mutuality
♣ D had received the whole benefit of the contract so it is a matter of conscience that he perform his part
I - Passing a Benefit to a Third Party
B - The Promisee’s Remedies in a Contract for the Benefit of a Third Party
1/ Specific Performance
|*Beswick v Beswick [1968] AC 58
The case is important because:
- C sued in her dual capacity, illustrating the difference in approach towards promisee and third party
- The case evidences Lord Denning’s criticism of privity, and the HL’s disapproval but refusal to overrule it
- The case illustrates the various mechanisms that the Court uses to (attempt to) outflank privity
o S56(1) LPA 1925 Lord Reid establishes that you can’t use it to get around privity as widely as Lord Denning thought, but its precise scope remains uncertain, though Peel suggests that the case means it only applies to:
♣ Real property
♣ Covenants running with the land
♣ Instrument is not merely for the benefit of the third party but purports to contain a grant to or covenant with him
♣ Deeds strictly inter partes
o Common law aside from s56(1) Lord Denning said that she was entitled to succeed in her personal capacity under common law, but this argument was not attempted before the HL so HL was not asked to re-examine the privity doctrine.
I - Passing a Benefit to a Third Party
B - The Promisee’s Remedies in a Contract for the Benefit of a Third Party
1/ Specific Performance
|*Beswick v Beswick [1968] AC 58
Commentary
1º The action failed in her personal capacity, which means that if the executor had been someone else, she wouldn’t have been able to enforce specific performance or compel the executor to do so. However, arguable that the remedy rightly belonged to the estate (because consideration flowed from it).
2º Why was specific performance allowed in the first place? Indeed damages wouldn’t be sufficient for C in her own capacity, but she was suing as representative of the estate and it is hard to see why damages would be inadequate or inappropriate for the estate…
3º If the contract were not specifically enforceable, then Lord Pearce said damages would be substantial whereas the rest of the HL were content to assume that it would have been nominal.
I - Passing a Benefit to a Third Party
B - The Promisee’s Remedies in a Contract for the Benefit of a Third Party
2/ Stay of Proceedings
If the promisor (A) promises not to sue a third party (X), the promisee (B) may be able to seek a stay of A’s action against X under s49(3) Senior Courts Act 1981, if B demonstrates:
- A has promised not to sue X
- B has a sufficient interest in enforcing the promise to justify the grant of a stay
I - Passing a Benefit to a Third Party
B - The Promisee’s Remedies in a Contract for the Benefit of a Third Party
2/ Stay of Proceedings
|Gore v Van der Lann [1967] 2 QB 31
- A fell when attempting to board a bus operated by company B. She sued in negligence against the bus conductor (X), employee of B. B applied to stay A’s action, on the basis that she had applied for a free bus pass and signed an agreement that “neither X nor any of their servants or agents responsible for the driving … of their bus system, are to be liable … for injury however caused”.
- Held (CoA):
o The clause was invalid under s151 Road Traffic Act 1960
o Alternatively, not entitled to the stay because (a) A had not promised not to sue X (though the exemption clause could have been interpreted as a promise not to sue?) and (b) B did not have sufficient interest in enforcing the promise (had there been one) because it was not under an obligation to indemnify its employee against his liability to A in negligence.
I - Passing a Benefit to a Third Party
B - The Promisee’s Remedies in a Contract for the Benefit of a Third Party
2/ Stay of Proceedings
|Snelling v Snelling [1973] QB 87
Facts:
The plaintiff and his brothers, the second and third defendants were directors of a family business and company, the first defendant. The company owed the brothers large amount of money. The brothers had a falling out and in an effort to make amends, an agreement was drawn up stating that if any of the brother’s resigned as director, they would forfeit the amount of money that was owed to them and that money would be used to pay the company mortgage. Snelling resigned and his director brothers passed a resolution upholding the terms of the agreement. Snelling issued a writ against the company for the monies owed. Proceedings ensued.
Issues:
Whether the agreement between the brothers was intended to create legal relations and whether it could be relied on by the company.
Held:
The appeal was dismissed. Upon consideration of the background in which the agreement between the brothers was made, i.e. that the company was running into financial difficulties, the agreement was intended to apply to the company and be considered legally. Therefore, the plaintiff was entitled to be legally bound by the contract. The case of Balfour v Balfour [1919] 2 K.B. 571, was distinguished on its fact as the family relationship had already been destroyed by arguments. Even though the company was not a party to the contract as the contract was made between the directors, the Snelling company was the beneficiary of the contract, in the event a brother resigned as director. It was at the court’s discretion under s 41 of the Supreme Court of Judicature (Consolidation) Act 1925 to dismiss Snelling’s claim and to honour the agreement even though the defendant company had no defence to the actions of Snelling.
I - Passing a Benefit to a Third Party
B - The Promisee’s Remedies in a Contract for the Benefit of a Third Party
2/ Stay of Proceedings
|Snelling v Snelling [1973] QB 87
Commentary
Here claim succeeded even though the brothers weren’t obliged to indemnify the company in respect of its liability; Ormrod J took a broad view and concluded that the interest the brothers had in running the family company was sufficient to give them an interest in obtaining the stay.
I - Passing a Benefit to a Third Party
B - The Promisee’s Remedies in a Contract for the Benefit of a Third Party
3/ Damages
a/ Damages for the promisee’s own loss (YES)
In principle, damages are for the promisee’s own loss, which in most cases will be nominal. However, Coote argues that the court confused the loss of enjoyment of the fruits of performance (which promisee doesn’t lose) and loss of the bargained-for contractual rights (which the promisee did lose).
But the loss may be substantial if:
- The promisee comes under a moral or legal obligation to compensate the third party (Radford v de Froberville) or
- Voluntarily incurs expenses in making good the breach, if it is reasonable to do so in order to mitigate (Banco de Portugal v Waterlow)
I - Passing a Benefit to a Third Party
B - The Promisee’s Remedies in a Contract for the Benefit of a Third Party
3/ Damages
b/ Damages for the third party’s loss
ϖ i/ General rule = no recovery
|*Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 518
no recovery
- Held (HL): all judges in the majority accepted the general rule but the dissents (Millett and Goff) analyse it most extensively
- Lord Millett: the object of compensation is to make good a loss, so only the person who has suffered the loss is entitled to have it made good by compensation. Recovering for a third party’s loss is a “contradiction in terms”. There is no logical justificaiton unless the person recovering the compensation is accountable for them to the person who has suffered the loss.
- Lord Goff: it would be an “extraordinary defect in our law” if there were a rule excluding a right of B to substantial damages. Contracts to confer a benefit on X are common in the family and commercial contexts, and authority for this rule is very thin. Many scholars doubt it because it would deprive parties of the fulfillment of their reasonable contractual obligations.
Since the majority accepted the rule it would seem that Lord Millett’s judgment has the weight of authority, but Lord Goff’s concerns are reflected in the exceptions.
I - Passing a Benefit to a Third Party
B - The Promisee’s Remedies in a Contract for the Benefit of a Third Party
3/ Damages
b/ Damages for the third party’s loss
ϖ i/ General rule = no recovery
|*Jackson v Horizon Holidays [1975] 1 WLR 1468
Facts/held
- Facts: B booked a holiday for himself and his family through travel agency A, setting out precise requirements that B assured would be met. Then B informed A that the hotel he had booked would not be ready so offered A alternative arrangements, assuring A that they would meet his expectations, so A agreed. The stay was disappointing and the whole family suffered distress and inconvenience. A sued B for misrepresentation and breach of contract.
- Held: Trial judge awarded £1,100 in damages (against £1,200 payment for the stay), the B appealed, arguing that the damages were excessive. CoA dismissed the appeal.
I - Passing a Benefit to a Third Party
B - The Promisee’s Remedies in a Contract for the Benefit of a Third Party
3/ Damages
b/ Damages for the third party’s loss
ϖ i/ General rule = no recovery
|*Jackson v Horizon Holidays [1975] 1 WLR 1468
- Lord Denning:
o Though the judge didn’t divide up the damage IJO he decided that the family only had half the value of the holiday (£600 for diminution in value) and then added £500 for mental distress. The judge said that he could only consider the mental distress to A, and not the family.
o In this case what was the contract?
♣ It was a case where one person makes a contract for the benefit of himself, and his family (other cases include a host contracting with the restaurant for dinner for himself and friends, or vicar booking a coach trip for himself and the choir). Whether he pays the whole price himself or asks for a contribution doesn’t matter; in any case, he made the contract.
♣ It would be wrong to say:
• B was an agent (in this case it would be absurd to say the father was an agent for his three-year-old children)
• There was a trust (the agreement bears no resemblance to a trust – no trust property or fund)
♣ It was simply a contract for the benefit of third persons.
o What is the consequence of a breach of such a contract?
♣ The current state of the law is that only the promisee can sue, but he can recover damages for his own loss and the loss of the others [relying on the principle in Lloyd’s v Harper, cited by Lord Pearce in Beswick]. That principle must be regarded as correct, at least so long as the law forbids the third parties themselves from suing.
o Thus the damages are about right – it would have been excessive had it been for B only, but it’s about right if it accounts also for the family.
I - Passing a Benefit to a Third Party
B - The Promisee’s Remedies in a Contract for the Benefit of a Third Party
3/ Damages
b/ Damages for the third party’s loss
ϖ i/ General rule = no recovery
|*Jackson v Horizon Holidays [1975] 1 WLR 1468
- Orr LJ:
- James LJ:
“I agree”
o B booked a family holiday. The wording of such a contract might in certain circumstances give rise to a contract where the signatory is acting as his own principal and agent for others.
o In this case B booked a family holiday and didn’t get one; he “felt terrible”, didn’t get anything from the holiday and was only pleased to be back home. The measure of damages is right and proper in these circumstances.
I - Passing a Benefit to a Third Party
B - The Promisee’s Remedies in a Contract for the Benefit of a Third Party
3/ Damages
b/ Damages for the third party’s loss
ϖ i/ General rule = no recovery
|*Jackson v Horizon Holidays [1975] 1 WLR 1468
1º Thus Lord Denning says that the measure of damages was for B’s and his family’s suffering, whereas James LJ suggests it is for B’s own suffering only. Orr LJ’s judgment can’t be interpreted as agreeing with any other judge or only the outcome. Thus Jackson cannot be regarded as authority for this purpose.
2º However the result is clear and has been approved in Woodar and by Goff and Millett in Panatown.
3º A concern in Panatown was that B not be entitled to recover an “uncovenanted profit”, and Lord Denning was alive to the problem by holding that B would be accountable to the third parties by means of an action for money had and received to their use (a claim in restitution).
I - Passing a Benefit to a Third Party
B - The Promisee’s Remedies in a Contract for the Benefit of a Third Party
3/ Damages
b/ Damages for the third party’s loss
ϖ i/ General rule = no recovery
|*Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277
Facts/held
- A agreed to buy land from B for £X, and promised to pay a further £Y upon completion to X. B alleged that A committed a repudiatory breach of the contract and sued for damages including the £Y.
- Held (HL): A had not repudiated the contract, so unnecessary to consider the damages issue (but obiter)
I - Passing a Benefit to a Third Party
B - The Promisee’s Remedies in a Contract for the Benefit of a Third Party
3/ Damages
b/ Damages for the third party’s loss
ϖ i/ General rule = no recovery
|*Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277
- Lord Wilberforce:
o IJO would not dissent from the actual decision in Jackson but would confine it more narrowly as either:
♣ A broad decision on the measure of damages (James LJ’s judgment)
♣ One of the situations of daily life which do not fit neatly into conceptual analysis but which require some flexibility in the law of contract (as alluded to in The Eurymedon), so as a special type of contract (family holidays) calling for special treatment.
o Would not support Lord Denning’s basis – Lloyds v Harper referred to an agent being able to sue on a contract made by him on behalf of the principal if the contract gives him such a right.
o Whether B can recover more than nominal damages where (1) B was not an agent for X and (2) B hasn’t suffered any loss is “of great doubt and difficulty – no doubt open in this House – but one on which I prefer to reserve my opinion”
I - Passing a Benefit to a Third Party
B - The Promisee’s Remedies in a Contract for the Benefit of a Third Party
3/ Damages
b/ Damages for the third party’s loss
ϖ i/ General rule = no recovery
|*Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277
- Lord Keith:
o IJO Jackson is not capable of being supported on the basis of Lloyd’s v Harper because that was based on agency
o But it can be supported more narrowly as deciding that there is a certain class of cases where third parties stand to gain indirectly by virtue of a contract, and where their deprivation of that gain can properly be regarded as no more than a consequence of the loss suffered by one of the contracting parties.
o In such situations, third parties cannot claim in their own right, but in assessing damages recoverable by B, it may be proper to take account of expenses incurred by B in replacing by other means benefits of which the third parties have been deprived or in mitigating the consequences of that deprivation.
I - Passing a Benefit to a Third Party
B - The Promisee’s Remedies in a Contract for the Benefit of a Third Party
3/ Damages
b/ Damages for the third party’s loss
ϖ i/ General rule = no recovery
|*Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277
- Lord Scarman:
o IJO open to the House to declare that in the absence of evidence showing that B suffered no loss:
♣ B can rely on the fact that he required the payment to be made to X as prima facie evidence that the promise was of benefit to B and the measure of B’s loss was the benefit which he intended for X.
♣ Because (whatever the reason) he must have desired the payment to X and relied on A to make it, so that if A doesn’t make it, B would have to find money from elsewhere to confer the same benefit on X.
o Without expressing a final opinion on the issue, it requires consideration by HL.
I - Passing a Benefit to a Third Party
B - The Promisee’s Remedies in a Contract for the Benefit of a Third Party
3/ Damages
b/ Damages for the third party’s loss
ϖ i/ General rule = no recovery
|*Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277
- Lord Russell:
o Nothing in the CoA’s order in Jackson suggests that the measure of damages was for the use and benefit of the family, so IJO B would only be entitled to nominal damages in respect of the £Y payable to X.
I - Passing a Benefit to a Third Party
B - The Promisee’s Remedies in a Contract for the Benefit of a Third Party
3/ Damages
b/ Damages for the third party’s loss
ϖ i/ General rule = no recovery
Commentary
1º Clearly everyone disapproves of Lord Denning in Jackson, but other than that it’s unclear whether the HL thought B should be allowed to recover in this case.
McAlpine v Panatown doesn’t really clarify the matter – most cited it with approval and some for authority for the trustee and agency exceptions, but only Lord Millett (dissenting) cited Lord Scarman’s judgment (apparently with approval) which may (though need not necessarily) evidence his opinion that B should have recovered in this case.
I - Passing a Benefit to a Third Party
B - The Promisee’s Remedies in a Contract for the Benefit of a Third Party
3/ Damages
b/ Damages for the third party’s loss
ϖ ii/ Exceptions
I – Contracting out of the general rule (no?)
The parties appear not to be free to provide in the contract that B would be able to recover loss suffered by X. Otherwise, the contract in Woodar should have been interpreted this way (the alternative interpretations – that the £Y should be unenforceable or that X should be able to enforce it himself – would have been less likely), though perhaps this intention wasn’t sufficiently precise because the parties failed to make use of agency or the trust.
I - Passing a Benefit to a Third Party
B - The Promisee’s Remedies in a Contract for the Benefit of a Third Party
3/ Damages
b/ Damages for the third party’s loss
ϖ ii/ Exceptions
II – The Albazero Exception
|The Albazero [1977] A.C. 774 (esp Lord Diplock)
- Lord Diplock: in a commercial contract concerning goods where the parties contemplate that the proprietary interests in the goods be transferred from one owner to another after the contract has been entered into and before the breach which causes loss to the goods, an original party to the contract, if such be the intention of them both, is treated as having entered into the contract for the benefit of all persons who have or may acquire an interest in the goods before they are lost or damaged, and is entitled to recover damages for the loss sustained by these people.
I - Passing a Benefit to a Third Party
B - The Promisee’s Remedies in a Contract for the Benefit of a Third Party
3/ Damages
b/ Damages for the third party’s loss
ϖ ii/ Exceptions
II – The Albazero Exception
|*Linden Gardens Trust Ltd v. Lenestra Sludge Disposals [1994] 1 A.C. 85
- HL applied the Albazero exception to building contracts [see Cartwright’s note]
I - Passing a Benefit to a Third Party
B - The Promisee’s Remedies in a Contract for the Benefit of a Third Party
3/ Damages
b/ Damages for the third party’s loss
ϖ ii/ Exceptions
II – The Albazero Exception
|NOTE Wallace (1994) 110 L.Q.R. 42
- At first sight Linden Gardens (HL) may seem a set-back to later owners (they already can’t exercise the Anns remedy in tort because of Murphy, and now they can’t sue in contract either)
- But HL may be offering an alternative rout in expanding the assignor’s rights (thus not dependent on assignment), though assignment route still appears to be open if the original builder’s contract doesn’t contain prohibitions on assignment.
o NB HL (i) confirms that there is no public policy that invalidates express prohibitions on assignment of “fruits” (rights under the contract, including claims for damages) and (ii) reverses the CoA in holding that a construction of the standard term in question did effectively prohibit such assignment
- The different alternatives:
o Where the defect is known and the transfer is at reduced price = vendor suffered loss, not the buyer
o Where the defect is not known so transfer is at market value + contemporaneous assignment = vendor suffers no loss unless he is contractually liable to the buyer for the defects later discovered.
o Where the defect is not known so transfer is at market value + no contemporaneous = ?
♣ Perhaps the seller can assign later? not addressed.
♣ Perhaps the seller can sue for the loss? addressed in St Martin’s - The key question = does transfer and assignment create a “legal black hole” into which the right to damages disappears, leaving the contract-breaker with an uncovenanted immunity?
- The CoA judgments:
o Majority (Nourse LJ, Sir Michael Kerr) =
♣ The contractual prohibition on assignment doesn’t prevent assignments of accrued rights to damages (Linden assignment effective) but does prevent assignments of the right to enforce future performance (St Martin’s assignment ineffective)
• Thus Linden Gardens succeeded as assignees who in fact incurred the expenses of repairs, even though the assignors suffered no loss.
♣ On an implied term between the sellers and buyers in St Martin’s, the seller was contractually bound to reimburse buyers for cost of repairs as damages for the seller’s failure to obtain the builder’s consent to assignment of the building contract, so that the sellers could succeed against the builders because they suffered loss.
o Minority (Staughton LJ) =
♣ The contractual prohibition was only a prohibition of vicarious performance so that the assignees could succeed in both cases.
♣ Alternatively (agreeing with majority), the seller could enforce as assignors. The objection that they suffered no loss can be met because there are many categories of cases where Cs received full damages.
♣ Then dismissed the “black hole” defence by explaining that assignees are prima facie entitled to recover what the assignor, but for the assignment, could have recovered. - The HL judgments:
o The prohibition on assignment was effective in both cases (rejecting CoA’s distinction)
o Rejected the circuitous route allowing St Martin’s to recover (implied term to indemnify…)
o Allowed recovery on one of two possible grounds, but preferred the narrower ground:
♣ Lord Browne-Wilkinson adopted the narrow ground
♣ Lord Griffiths favoured the wide ground
♣ Lord Keith had much sympathy for the broad ground but preferred the narrow ground because the wide ground wasn’t fully explored in argument
♣ Lord Bridge was he was “much attracted” by the wide ground but was content to adopt the narrow
♣ Lord Ackner didn’t refer to either
I - Passing a Benefit to a Third Party
B - The Promisee’s Remedies in a Contract for the Benefit of a Third Party
3/ Damages
b/ Damages for the third party’s loss
ϖ ii/ Exceptions
II – The Albazero Exception
|NOTE Wallace (1994) 110 L.Q.R. 42
The broad ground for assignor liability
- = in contracts for the supply of goods and services, like a building contract, the measure of damage for defective work was loss of value and/or cost of repair, but that it might be right, as in the case of sale of goods, to treat this measure as an objective one, not dependent on actual or continued ownership or enjoyment of the contracted services by the buyer or owner himself, but rather on the difference so measured between what had been contracted for and what was supplied.
o Lord BW noted that the authorities requiring proof of ownership by C were all contracts of carriage where goods were damaged, which is different from building contracts where the breach is failure to provide the very goods undertaken by the contract. Thus there is “much to be said for drawing a distinction between cases where ownership is relevant to prove that C suffered loss, and cases where the contractual obligation itself requires the provision of said goods”, though not ready to make this distinction because not argued.
I - Passing a Benefit to a Third Party
B - The Promisee’s Remedies in a Contract for the Benefit of a Third Party
3/ Damages
b/ Damages for the third party’s loss
ϖ ii/ Exceptions
II – The Albazero Exception
|NOTE Wallace (1994) 110 L.Q.R. 42
The narrow ground for assignor liability
- applied The Albazero exception, citing the passage: “the rule extends to all forms of carriage … and there may still be occasional cases in which the rule would provide a remedywhere no other would be available to a person sustaining loss which under a rational legal system ought to be compensated by the person who has caused it” in St Martin’s it is a case where no other remedy would be available and a national legal system ought to compensate…
o This would not have assisted Linden Gardens because there was a straightforward sale of the lease by the seller as ordinary lessees, and therefore not within the contemplation of the building contracts.
I - Passing a Benefit to a Third Party
B - The Promisee’s Remedies in a Contract for the Benefit of a Third Party
3/ Damages
b/ Damages for the third party’s loss
ϖ ii/ Exceptions
II – The Albazero Exception
|NOTE Wallace (1994) 110 L.Q.R. 42
- Hypotheticals based on Linden Gardens:
o No assignment prohibition in the building (or in Linden Gardens removal) contract CoA said that cost of repair would have been recoverable by the assignee, and it is no answer to say that the assignor suffered no loss and assignee can’t recover more than assignor, because the assignee is entitled to what the assignor would have gotten had he not assigned. But Lord BW merely noted this holding and didn’t express approval or disapproval.
o There is a prohibition but seller sues seems that narrow ground means seller wouldn’t be able to sue because only in development projects (where resale is in contemplation of the building contract) that an assignor who suffered no loss would be able to recover.
o There has been no assignment hard to see why the seller in Linden Gardens (where assignment was prohibited) could be in a better position, so seller who never assigned would probably be able to recover in the same circumstances.
I - Passing a Benefit to a Third Party
B - The Promisee’s Remedies in a Contract for the Benefit of a Third Party
3/ Damages
b/ Damages for the third party’s loss
ϖ ii/ Exceptions
II – The Albazero Exception
|NOTE Wallace (1994) 110 L.Q.R. 42
- Remaining questions:
o What if seller recovers but doesn’t want to account to the purchaser? IAO remedy will be an action for money had and received.
o Can the purchaser compel the seller to sue if he doesn’t want to?
♣ If there is an assignment = prohibited assignment doesn’t affect the position between assignor and assignee (Lord BW), so assignee may be able to get compulsory use the assignor’s name…
♣ If there is no assignment = in the bailment cases the bailor can’t compel the bailee to sue (The Winkfield, The Albazero (obiter)), and compulsory use of the seller’s name seems like a major invasion of privity + defeat the purpose of contractual prohibitions against assignment (if there is one)
If the vendor assigned but also gives a contractual warranty for defects seems like the vendor won’t be able to sue because has assigned, but the purchaser might sue and may have to account to the assignor
I - Passing a Benefit to a Third Party
B - The Promisee’s Remedies in a Contract for the Benefit of a Third Party
3/ Damages
b/ Damages for the third party’s loss
ϖ ii/ Exceptions
II – The Albazero Exception
|NOTE Wallace (1994) 110 L.Q.R. 42
- Should the broad principle be adopted? Two problems:
o Procedural difficulties where there is no identity of interest between seller and purchaser – the spirit of the broad principle seems to be to prevent avoidance of liability, which would suggest compulsory joinder…
o Is reduced value or cost of repair the correct measure of damages?
I - Passing a Benefit to a Third Party
B - The Promisee’s Remedies in a Contract for the Benefit of a Third Party
3/ Damages
b/ Damages for the third party’s loss
ϖ ii/ Exceptions
II – The Albazero Exception
|NOTE Cartwright, “Remedies in Respect of Defective Buildings after Linden Gardens”, (1993) 9 Con. L.J. 281
Problem =
- how can the purchaser of a building enforce contractual obligations between the seller and builder, in respect of defects in the building?
I - Passing a Benefit to a Third Party
B - The Promisee’s Remedies in a Contract for the Benefit of a Third Party
3/ Damages
b/ Damages for the third party’s loss
ϖ ii/ Exceptions
II – The Albazero Exception
|NOTE Cartwright, “Remedies in Respect of Defective Buildings after Linden Gardens”, (1993) 9 Con. L.J. 281
o Assignment of seller’s contractual right:
♣ Is it possible because of the prohibition?
• Validity of the prohibition: yes – prohibitions of assignment of choses in action like contractual rights are valid.
• Construction of the clause in this case (prohibits assignment of “this contract”):
o CoA:
♣ In Linden Gardens the right had accrued before the purported assignment. In St Martins it only accrued after (so what was assigned was the contractor’s continuing obligation to perform)
♣ CoA construed the clause prohibiting assignment as not applying to assignment of accrued rights, so the assignment was effective. But in St Martins it was ineffective.
o HL rejected CoA: the clause prohibits the assignment of any benefit of or under the contract, so includes the assignment in this case. Thus, none of the assignments was effective.
I - Passing a Benefit to a Third Party
B - The Promisee’s Remedies in a Contract for the Benefit of a Third Party
3/ Damages
b/ Damages for the third party’s loss
ϖ ii/ Exceptions
II – The Albazero Exception
|NOTE Cartwright, “Remedies in Respect of Defective Buildings after Linden Gardens”, (1993) 9 Con. L.J. 281
o Assignment of seller’s contractual right:
♣ Is it effective (assuming that there is no prohibition)?
• There is a “no loss argument” because the contractual rights assigned to the purchaser are linked to the rights which the seller had, and since the seller hasn’t suffered any loss (because he obtained the full value of a non-defective building when he sold it to the purchaser), the purchaser (as the seller’s successor) can claim no more than nominal damages.
o Breach before transfer and assignment of contractual rights: no problem if the right is assigned with the transfer of the property, but maybe problem if assigned later, but CoA in Linden Gardens said no problem either way because the problem results from the principle that the assignee cannot recover any more than the assignor, but that principle only applies if the contract had not been assigned, and the building never been transferred to the assignee.
♣ However, this analysis assumes that the seller retained a right to sue for substantial damages even though it had parted with the property.
♣ Should the measure of damages be cost of remedying the defect, or difference in market value? Cost of cure is surely inappropriate because it is known for certain that the seller would not spend the money on repairs…
♣ In any case the CoA at least achieves a convenient and commercially sensible result…
o Breach after transfer of property and assignment of contractual rights (because the building work is still ongoing): because P is already the beneficiary of seller’s obligations, he can obviously sue (this was assumed in St Martins)
o Breach after transfer of property but before assignment of contractual rights: here at the accrual of the cause of action, the property was in P’s hands but contractual rights were still in seller’s easier to argue that the “no loss” principle applies (this arose in St Martins, and was accepted by the CoA, but the court got around this by saying that the seller did suffer loss)
I - Passing a Benefit to a Third Party
B - The Promisee’s Remedies in a Contract for the Benefit of a Third Party
3/ Damages
b/ Damages for the third party’s loss
ϖ ii/ Exceptions
II – The Albazero Exception
|NOTE Cartwright, “Remedies in Respect of Defective Buildings after Linden Gardens”, (1993) 9 Con. L.J. 281
o Getting a remedy through the seller:
♣ Claim in respect of seller’s own loss:
- CoA accepted in St Martin’s that the seller suffered a substantial loss because they had to indemnify the buyer as a result of the failed assignment. But this is “outrageous” because the seller assigned the benefit of a contract that was (the CoA accepted) non-assignable, and it was the seller’s own failure to comply with the arrangement that created the loss for which the builder had to pay…
- This was (IAO rightly) rejected by HL, but on different facts the seller may have been able to recover for their own substantial loss
I - Passing a Benefit to a Third Party
B - The Promisee’s Remedies in a Contract for the Benefit of a Third Party
3/ Damages
b/ Damages for the third party’s loss
ϖ ii/ Exceptions
II – The Albazero Exception
|NOTE Cartwright, “Remedies in Respect of Defective Buildings after Linden Gardens”, (1993) 9 Con. L.J. 281
o Getting a remedy through the seller:
♣ Claim (by seller) in respect of the buyer’s loss (two grounds of decision by HL):
• Narrow ground (St Martin’s is an exception to the rule that you can only recover for your own losses – Lord Browne-Wilkinson): extending cases in carriage of goods by sea (The Albazeero exception) to this context.
o The contract was for a development of property which (to the knowledge of both seller and builder) was going to be occupied and possibly purchased by third parties and not the seller himself.
o Because of the express prohibition on assignment, it is proper to treat the parties as contracting on the footing that the seller would be entitled to enforce contractual rights for the benefit of those who suffered loss but couldn’t get any right to enforce under the terms of the contract.
o This is a case in which the rule provides ‘a remedy where no other would be available to a person sustaining loss which under a rational legal system ought to be compensated by the person who has caused it.’
• Wide ground (Lord Griffiths): if I contract for a service to be done, the mere fact that it is not done means that I suffer a recoverablefinancialloss because I have to spend money in getting someone else to do the service for which I had contracted.
o If adopted, this would reverse the many cases which have indicated that privity means nobody can sue (third party nor promisee).
I - Passing a Benefit to a Third Party
B - The Promisee’s Remedies in a Contract for the Benefit of a Third Party
3/ Damages
b/ Damages for the third party’s loss
ϖ ii/ Exceptions
II – The Albazero Exception
|NOTE Cartwright, “Remedies in Respect of Defective Buildings after Linden Gardens”, (1993) 9 Con. L.J. 281
- Unanswered questions:
o HL didn’t say what remedies are available to P in capacity as assignee… So the best authority is the CoA decision, but (i) measure of damages and (ii) what about where seller parted with property before assignment?
o As to the seller’s remedy the HL took the “radical step” of allowing seller to sometimes recover for P’s loss (but only where it was foreseeable to the builder at the time of contract that the building might come into the hands of third parties who would suffer loss without any direct recourse against C)
I - Passing a Benefit to a Third Party
B - The Promisee’s Remedies in a Contract for the Benefit of a Third Party
3/ Damages
b/ Damages for the third party’s loss
ϖ ii/ Exceptions
II – The Albazero Exception
|*Darlington Borough Council v. Wiltshier Northern Ltd [1995] 3 All E.R. 895
CoA held that the Albazero exception applied even in the absence of a transfer of ownership.
- Facts: A construction company entered into a contract with a finance company, to build property for the Council (owner of the land). The finance company assigned to the council all its rights and causes of action against the construction company. The Council sued the construction company for breach of contract.
- Held (CoA): since the building contracts were, to the knowledge of both parties, entered into for the benefit of the Council, and it was foreseeable that damage caused by breach would cause loss to the Council, the council as assignee could claim substantial damages, which should be assessed on the normal basis as if the Council had been a party to the contract.
- Dillon and Waite LJJ: If the finance company had, before any assignment, sued in its own name, it would have held any damages recovered as a constructive trustee for the council and would have been accountable accordingly in equity
I - Passing a Benefit to a Third Party
B - The Promisee’s Remedies in a Contract for the Benefit of a Third Party
3/ Damages
b/ Damages for the third party’s loss
ϖ ii/ Exceptions
II – The Albazero Exception
|*Darlington Borough Council v. Wiltshier Northern Ltd [1995] 3 All E.R. 895
EXAM POINT
The normal rule for assessing damages is that a C suffering a loss is entitled to have it made good in money (so Ruxley is exceptional), and it is “no concern of the law what the plaintiff proposes to do with his damages”. Thus, where building work has been done badly, the notional cost of putting it right may generally be claimed from the constructor whether or not the claimant has any intention to use the money for that purpose (Steyn LJ).
I - Passing a Benefit to a Third Party
B - The Promisee’s Remedies in a Contract for the Benefit of a Third Party
3/ Damages
b/ Damages for the third party’s loss
ϖ ii/ Exceptions
II – The Albazero Exception
|*McAlpine v. Panatown [2001] 1 AC 518
- Held (Lord Goff and Millett dissenting): The Albazero exception cannot apply where the third party has their own right of action against the promisor
- Lord Millett thought that the exception was confined to situations where a transfer of ownership in the currency of the contract was contemplated, though Lord Clyde thought that transfer of ownership was not a necessary ingredient of the exception
I - Passing a Benefit to a Third Party
B - The Promisee’s Remedies in a Contract for the Benefit of a Third Party
3/ Damages
b/ Damages for the third party’s loss
ϖ ii/ Exceptions
II – The Albazero Exception
|NOTE Burrows, “No Damages for a Third Party’s Loss” (2001) Ox Univ Commonwealth LJ 107
- The decision:
o Of the majority:
♣ Lord Clyde and Lord Jauncey rejected Lord Griffith’s “broad” ground of recovery in Linden Gardens because it would be a fiction to say that the promisee suffered loss simply because it didn’t get the contracted-for services
♣ Lord Browne-Wilkinson assumed that the broad ground was correct.
♣ But all three thought the broad ground in any event inapplicable where X had a direct contractual right.
o The minority (Lord Goff, Lord Millett) thought that the broad ground was a general principle of contract damages that a promisee suffers loss where contracted-for services are not performed. Because it was a principle and not an exception, it was applicable even if X had a direct contractual right.
