Construction
PLC




  No loss and assignment: the development of the common law in
  the construction context
  Resource ...
The beginnings of the rule that an assignee may not recover more than an assignor
In Dawson v Great Northern and City Rail...
Lenesta Sludge argued that, because Stock Conversion Ltd had received full market value prior to the assignment, Stock
Con...
liable to Investments in damages for Corporation’s breach of contract in failing to obtain the consent of Sir Robert
McAlp...
Lord Griffiths also answered the argument that Corporation had suffered no loss because it had been indemnified for its
re...
Alfred McAlpine v Panatown
Facts

Panatown had employed Alfred McAlpine under a building contract to design and construct ...
ground was not available to the claimant in this case, the two Law Lords would have dismissed Alfred McAlpine’s appeal
on ...
Starglade’s cause of action against Technotrade (and the resultant remedy). Accordingly, whether Starglade (or
Larkstore) ...
works to benefit a number of third parties. It is possible that the courts may prefer the narrow ground in future for this...
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PLC: No loss and assignment

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A note outlining the development of the common law on the no loss defence, or the defence that an assignor may not
recover more than the assignee, in the context of construction and engineering cases (published by Practical Law Company).

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PLC: No loss and assignment

  1. 1. Construction PLC No loss and assignment: the development of the common law in the construction context Resource type: Practice note Status: Maintained Jurisdictions: England, Wales A note outlining the development of the common law on the no loss defence, or the defence that an assignor may not recover more than the assignee, in the context of construction and engineering cases. Francis Ho, King & Spalding and PLCConstruction Contents  The beginnings of the rule that an assignee may  Treatment of the no loss principle by the courts not recover more than an assignor after St. Martin’s   Darlington v Wiltshier  Does it matter whether the assignee suffered the loss before or after the assignment?   Alfred McAlpine v Panatown   Linden Gardens Trust Ltd v Lenesta Sludge   Technotrade v Larkstore Disposals Ltd (Court of Appeal)  The common law: where are we now?   St. Martin’s Property Corporation Ltd and another   The no loss defence has been substantially v Sir Robert McAlpine Ltd (Court of Appeal) undermined in relation to assignment  Exceptions to the rule that a party may only   The narrow ground and the broad ground recover its own losses: the narrow ground and the remain as possible exceptions to the no loss broad ground principle   The narrow ground in St. Martin’s  GUS Property Management v Littlewoods   The broad ground in St. Martin’s “No loss” issues can arise when the benefit of a contract is assigned. That is, there is a risk that the assignee may only recover nominal damages from a wrongdoer (most likely a contractor or a professional consultant) as a result of a breach. In other words, any other losses suffered by the claiming party fall into a legal “black hole”. For more information on “no loss”, see Practice note, No loss argument in construction claims: what it is and how to deal with it (www. practicallaw.com/0-385-2290). This note analyses the line of construction-related cases about the assignment of the benefit of construction contracts and the rule that an assignee cannot recover more under an assigned contract than the assignor would have recovered, without the assignment (that is, the rule that the assignee may not recover more than the assignor). Register for a free trial: T: +44 (0)20 7202 1200 E: info@practicallaw.com W: www.practicallaw.com This document can be found at http://construction.practicallaw.com/4-385-6875 © Legal & Commercial Publishing Limited 2009 1
  2. 2. The beginnings of the rule that an assignee may not recover more than an assignor In Dawson v Great Northern and City Railway Company [1905] 1 KB 260 (CA), Great Northern and City had carried out underground tunnelling operations, under statutory powers, that caused structural damage to houses leased to the claimant for her drapery business. The freehold owner was entitled to compensation for damage caused under the Regulation of Railways Act 1868. This non-contractual right had been assigned to the claimant. Part of the claimant’s claim related to trade stock damaged by the works. However, the freeholder’s statutory right to compensation did not cover such losses. As such, the claimant was not entitled to claim for those losses: the assignee could not recover more than the assignor would have done. Does it matter whether the assignee suffered the loss before or after the assignment? The Court of Appeal has indicated that whether or not the loss was suffered before or after the assignment should not impact on the claimant’s ability to claim substantial damages (Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd and others [1992] 57 BLR 57, St. Martin’s Property Corporation Ltd and another v Sir Robert McAlpine & Sons Ltd [1992] 57 BLR 57 and Technotrade Ltd v Larkstore Ltd [2006] EWCA Civ 1079). (Note that Linden Gardens and St. Martin’s went to the House of Lords: this section of the note refers to the Court of Appeal judgments, which remain useful on this point.) In Linden Gardens and Technotrade, the assignor assigned the benefit of a contract after the breach of contract occurred. In St. Martin’s, the assignment occurred before the breach. In all three cases, the Court of Appeal held that the assignee would have been entitled to claim substantial damages if there had been a valid assignment. The qualification of the assignment being legitimate is important, since the decision in Linden Gardens hinged on whether the building contracts were assigned or not. Although Linden Gardens and St. Martin’s were tried separately at first instance, they were heard together in the Court of Appeal, as the key issues (relating to assignment) were substantially similar. Staughton LJ stated that two of the main issues the court had to consider in hearing both cases were:  Can an original party to the contract (or its assignee) recover substantial damages for breach of contract when the original party’s loss has later been remedied by someone other than the defendant (in other words, the assignor has suffered no actual loss).  Can an assignee recover losses which occur from a breach of contract occurring after the assignment? On both questions, the Court of Appeal decided that, provided there was a valid assignment of the benefit of the contract, an assignee could indeed recover substantial damages. Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd (Court of Appeal) In June 1979, Stock Conversion Ltd, the lessee of part of a building, instructed Lenesta Sludge (as prospective sub-contractors) to carry out asbestos removal activities to its premises. Stock Conversion subsequently engaged McLaughlin & Harvey plc as main contractor for the asbestos removal. The works were performed negligently and some asbestos remained. In February 1985, Stock Conversion appointed Ashwell Construction Ltd to remove further asbestos and in July the same year issued proceedings against Lenesta Sludge for breach of contract as a result of failing to remove all the asbestos originally. Stock Conversion later assigned the lease to Linden Gardens at full market value. Subsequently, it purported to assign to Linden Gardens its rights of action under the contracts with McLaughlin & Harvey and Ashwell. Linden Gardens took over Stock Conversion’s claim against Lenesta Sludge (against whom the case was dropped before judgment in the first instance case) and McLaughlin & Harvey and Ashwell were joined as second and third defendants. Linden Gardens pursued the second and third defendants for the cost of Stock Conversion’s remedial works in 1985. Register for a free trial: T: +44 (0)20 7202 1200 E: info@practicallaw.com W: www.practicallaw.com This document can be found at http://construction.practicallaw.com/4-385-6875 © Legal & Commercial Publishing Limited 2009 2
  3. 3. Lenesta Sludge argued that, because Stock Conversion Ltd had received full market value prior to the assignment, Stock Conversion had suffered no loss and therefore Linden gardens (as assignee) could not recover substantial damages. Its argument failed. The Court of Appeal decided that, if the contracts had been validly assigned, Linden Gardens would be able to claim for substantial damages against the contractors. The Court of Appeal also decided that the purported assignment was valid. (For more information on the House of Lords’ judgment in this case, see note, Exceptions to the rule that a party may only recover its own losses: the narrow ground and the broad ground.) St. Martin’s Property Corporation Ltd and another v Sir Robert McAlpine Ltd (Court of Appeal) St. Martin’s Property Corporation (Corporation) employed Sir Robert McAlpine Ltd to carry out a mixed-use development in Hammersmith under a building contract dated 29 October 1974. Corporation then sold its long lease for market value to a related company, St. Martin’s Property Investments Ltd (Investments), and purported to assign the benefit of its building contract to Investments. Investments engaged Corporation as its agents to manage a number of properties. Sir Robert McAlpine’s works were completed after the assignment. However, after practical completion was certified, the parties discovered that a podium deck, which comprised part of the works, was defective. Several years later, Investments appointed Tarmac Corporation Ltd to remedy the defects. Corporation paid for the works, but recovered the costs from Investments. Both Corporation and Investments sought to recover the remedial costs from Sir Robert McAlpine as damages for breach of contract. In defence, Sir Robert McAlpine argued that Corporation had suffered no loss, having sold its proprietary interest at market value, and that Investments had no right to recover any losses at all. The parties had agreed, for the purposes of the issue to be decided, that the breach of contract causing defects in the podium occurred after the date of assignment. Corporation had suffered no loss and therefore Investments would not recover substantial damages since it could recover no more that Corporation, its assignor, would have. The reason the argument failed seems to be that, as Staughton LJ said (p81 of BLR 57), an assignee cannot recover more than the assignor would have, had there been no assignment of the benefit of the building contract to the assignee. In effect, this is a gloss on Dawson. On appeal, the House of Lords also found in favour of the claimants, but did not follow the Court of Appeal’s reasoning. Nevertheless Staughton LJ’s comments remain useful (see note, Exceptions to the rule that a party may only recover its own losses: the narrow ground and the broad ground). Exceptions to the rule that a party may only recover its own losses: the narrow ground and the broad ground Both Linden Gardens and St. Martin’s reached the House of Lords and the appeals were again heard together. On appeal, the House of Lords disagreed with the Court of Appeal and held that the assignment in Linden Gardens was not valid (see Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1993] UKHL 4). For this reason, the House of Lords judgment in Linden Gardens does not move forward the assessment of the development of the no loss principle. In contrast, in St. Martin’s, the House of Lords agreed with the Court of Appeal that there had been no valid assignment of the benefit of the building contract to the claimant. Although the House of Lords agreed with the Court of Appeal on assignment, it disagreed with the Court of Appeal’s reasoning on why Corporation should be entitled to claim for substantial damages. Sir Robert McAlpine accepted in the Court of Appeal, and still accepted in the House of Lords, that Corporation was Register for a free trial: T: +44 (0)20 7202 1200 E: info@practicallaw.com W: www.practicallaw.com This document can be found at http://construction.practicallaw.com/4-385-6875 © Legal & Commercial Publishing Limited 2009
  4. 4. liable to Investments in damages for Corporation’s breach of contract in failing to obtain the consent of Sir Robert McAlpine to the assignment of the benefit of the building contract. Since consent had not been obtained, Investments could not recover remedial costs. Sir Robert McAlpine argued that this damage was too remote for Sir Robert McAlpine to be liable for it. Corporation argued that the measure of damages payable by Corporation to Investments for that breach would be the cost of remedying the defects since, if the assignment of the benefit of the building contract had been valid, Investments could have recovered that cost from Sir Robert McAlpine. Sir Robert McAlpine did not accept this argument in either the Court of Appeal or the House of Lords. However, disagreeing with the Court of Appeal (and agreeing with Sir Robert McAlpine), Lord Browne-Wilkinson confirmed that, following Hadley v Baxendale (1854) 9 Exch 341, these losses were not in the specific contemplation of the parties and did not flow naturally from a breach of the building contract. On this basis the House of Lords could have ruled that Corporation’s loss fell into a black hole. Instead, the House of Lords avoided a no loss scenario (that would prevent the claimant from recovering substantial damages) by considering two possible exceptions to the no loss principle in construction: the “narrow ground” and the “broad ground”. The narrow ground in St. Martin’s The basis of the narrow ground was an exception drawn from The Albazero, Albacruz (cargo owners) v Albazero (owners) [1976] 3 All ER 129 (HL), a carriage by sea case, which followed the 19th century case of Dunlop v Lambert (1839) 7 ER 824 (HL), in which the House of Lords decided that a consignor of goods who had parted with property in the goods before the date of breach could, even so, recover substantial damages for failure to deliver the goods. Lord Diplock explained the Albazero exception as follows: “In a commercial contract concerning goods where it is in the contemplation of the parties that the proprietary interests in the goods may be transferred from one owner to another after the contract has been entered into and before the breach which causes loss or damage to the goods, an original party to the contract, if such be the intention of both, is to be treated in law 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 by way of damages for breach of contract the actual loss sustained by those for whose benefit the contract is entered into.” This indicates that if the claimant has no proprietary interest and no liability in respect of the loss to the third party, he will hold any damages awarded in respect of the claim on behalf of the third party. Translating this to the facts in St. Martin’s, both Corporation and Sir Robert McAlpine should have been aware that, subsequent to the building contract being entered into, another person could occupy the property, or Corporation’s interest in the property could be transferred to another person. Therefore, Sir Robert McAlpine could have foreseen that its breach of contract could harm such a third party. The third party should be treated in law as if it was an original party to the contract and Corporation should be able to claim substantial damages on Investments’ behalf from the contractor, Sir Robert McAlpine. The House of Lords decided in favour of the claimants in St. Martin’s on the basis of the narrow ground of recovery. The broad ground in St. Martin’s The broad ground in St Martin’s was raised in a minority judgement by Lord Griffiths, who believed that Corporation should be entitled to recover the cost of remedying the defects as the normal measure of damages. He considered it irrelevant that Corporation had no proprietary interest in the building and should be entitled to its “loss of bargain” as a result of the breach of contract: “...the person who places the contract has suffered financial loss because he has to spend money to give him the benefit of the bargain which the defendant had promised but failed to deliver.” Register for a free trial: T: +44 (0)20 7202 1200 E: info@practicallaw.com W: www.practicallaw.com This document can be found at http://construction.practicallaw.com/4-385-6875 © Legal & Commercial Publishing Limited 2009
  5. 5. Lord Griffiths also answered the argument that Corporation had suffered no loss because it had been indemnified for its repair costs by Investments: “The court will of course wish to be satisfied that the repairs have been or are likely to be carried out but if they are carried out the cost of doing them must fall on the defendant who broke his contract.” This indicates that, for the court to apply the broad ground, the claimant would need to have carried out the repairs, or be likely to carry them out, and that the recoverable damages are the repair costs. As the name suggests, the broad ground is a wider exception to the no loss principle than the narrow ground. This is because the narrow ground depends on a common understanding that the works will ultimately benefit a third party, who is not a party to the original contract, and the third party acquires a proprietary interest in the works. In contrast, Lord Griffiths stated that Corporation suffered a loss simply because it did not receive the performance (from Sir Robert McAlpine) that it had contracted for (under the building contract) and it simply did not matter whether it owned the works. If Lord Griffiths’ approach is correct, it will be hard for a contract-breaker to argue, against an assignee, that the assignee is not entitled to substantial damages because the assignor had suffered no loss. Treatment of the no loss principle by the courts after St. Martin’s St. Martin’s was considered in the subsequent no loss cases of Darlington Borough Council v Wiltshier Northern Ltd [1994] EWCA Civ 6, Alfred McAlpine Construction Ltd v Panatown Ltd [2000] UKHL 43 and Technotrade Ltd v Larkstore Ltd [2006] EWCA Civ 1079 (CA). Darlington v Wiltshier Darlington Borough Council (Council) required a new recreation centre to be built at a site it owned. Due to restrictions on local authority borrowing, it made an arrangement with a finance company, Morgan Grenfell (Local Authorities) Ltd (Morgan Grenfell), which involved splitting construction of the centre into two phases. Morgan Grenfell entered into two building contracts, as employer, with Wiltshier Northern Ltd (Wiltshier) (then known as Leslie and Company Ltd) as principal, not as an agent of the Council. In turn, the Council indemnified Morgan Grenfell for its liabilities under the building contracts. Morgan Grenfell had no liabilities to the Council, but entered into a tripartite agreement with the Council and Wiltshier to ensure that any liquidated damages for delay were payable to the Council, who would suffer the consequences of a delay. Morgan Grenfell’s role in the project was similar to a developer’s, where a landowner commissions a developer to procure the construction of a development for the landowner’s benefit. However, Morgan Grenfell did not have any liability to the Council for construction defects. After completion, Morgan Grenfell assigned the benefit of the building contracts to the Council (the Council could call for that assignment under its contracts with Morgan Grenfell). The Council discovered substantial defects in the completed development and sued Wiltshier for breach of contract pursuant to the assigned building contracts. Wiltshier contended that because Morgan Grenfell (the assignor) had suffered no loss, and despite the fact that the building contracts were to carry out works for the benefit of the Council, the Council should only be entitled to nominal damages. The Court of Appeal found in favour of the Council on the basis of the narrow ground from the (see note, The narrow ground in St. Martin’s). That is, both Wiltshier and Morgan Grenfell were aware that the building was being entered into for the benefit of the Council. Register for a free trial: T: +44 (0)20 7202 1200 E: info@practicallaw.com W: www.practicallaw.com This document can be found at http://construction.practicallaw.com/4-385-6875 © Legal & Commercial Publishing Limited 2009
  6. 6. Alfred McAlpine v Panatown Facts Panatown had employed Alfred McAlpine under a building contract to design and construct an office building and multi- storey car park in Cambridge. Panatown claimed damages from Alfred McAlpine for alleged defects in the works. Panatown was the employer under the building contract and one of its sister companies, Unex Investment Properties Ltd (Unex), owned the site of the works. Panatown had no contractual liabilities towards Unex in respect of any defects and was the employer for tax reasons. Panatown did not have a proprietary interest in the works that would have led to it suffering loss. Unex was not a party to the building contract. It did have the benefit of a duty of care deed (in effect, a collateral warranty) but this was drafted in terms of “reasonable skill and care” and was less favourable to Unex than the building contract, if Unex was entitled to benefit under it. As a preliminary issue, the House of Lords was asked to determine whether Alfred McAlpine would be liable to Panatown for substantial defects in the works, which were alleged to have resulted from the Alfred McAlpine’s breach of contract. Alfred McAlpine did not dispute that there were substantial defects in the works. However, it contended that Panatown itself had suffered no loss and should consequently only be entitled to claim nominal damages. A three to two majority of the House of Lords agreed with Alfred McAlpine’s argument. The narrow ground and the duty of care deed Since Panatown’s situation was very similar to Corporation’s position in St Martin’s and Morgan Grenfell’s in Darlington v Wiltshier, commentators might have expected the court to find in favour of Panatown on the basis of the narrow ground. However, the existence of the duty of care deed from the building contractor in favour of Unex appears to have been critical in the House of Lords’ decision and this is the key difference between this case and St Martin’s and Darlington v Wiltshier. (On this point, the House of Lords disagreed with the Court of Appeal, which would have allowed Panatown to claim for substantial damages.) Lord Browne-Wilkinson expressed surprise that the group of companies that included Panatown and Unex had not chosen to claim against Alfred McAlpine under the duty of care deed. Indeed, their Lordships indicated that, had the duty of care deed not existed (and consequently there was a black hole), they would have considered allowing Panatown to claim for Unex’s loss. The House of Lords’ decision in Alfred McAlpine v Panatown illustrates that a collateral warranty, or another right to claim direct between a third party and a contracting party (such as a right under the Contracts (Rights of Third Parties) Act 1999), can “defeat” the narrow ground referred to in St. Martin’s. The narrow ground and the need for a proprietary interest Lord Browne-Wilkinson’s interpretation of The Albazero exception in St. Martin’s seems to envisage that the transfer of the proprietary interest must be in the contemplation of the parties at the date of the contract. Judicial opinion on this was split in Panatown. While all five members of the House of Lords agreed that the narrow ground was a legitimate exception to a no loss situation, Lord Goff and Lord Millett, in the minority, believed that it was strictly limited to situations where the defendant had contemplated the land transfer. The other Law Lords did not consider this to be a necessary requirement. The minority view casts doubt over whether Darlington was correctly based on the narrow ground. The broad ground and the duty of care deed Like the narrow ground argument, the broad ground argument was defeated by the existence of Unex’s duty of care deed. Lord Goff and Lord Millett, however, did not consider that it was. While all five Law Lords thought the narrow Register for a free trial: T: +44 (0)20 7202 1200 E: info@practicallaw.com W: www.practicallaw.com This document can be found at http://construction.practicallaw.com/4-385-6875 © Legal & Commercial Publishing Limited 2009
  7. 7. ground was not available to the claimant in this case, the two Law Lords would have dismissed Alfred McAlpine’s appeal on the basis of the broad ground. Nevertheless, the lengthy judgments in Panatown provide helpful guidance on the broad ground exception to the no loss principle. In addition to pleading the narrow ground, Panatown argued that it was entitled to claim substantial damages for loss of bargain under the broad ground. That is, the defective building was not what it had expected from its building contract with Alfred McAlpine. As with the narrow ground, views were divided, with the majority favouring it as a legitimate exception to the no loss principle for a claimant seeking to recover on behalf of a third party. Lord Goff preferred it to the narrow ground because, on the facts, Panatown was in contract with Alfred McAlpine and, unlike in Dunlop v Lambert, there had been no transfer of land. Panatown had never owned the land. Lord Millett broadly agreed with this sentiment. Only Lord Clyde disagreed with the application of the broad ground:  He did not equate Panatown losing its anticipated contractual rights (its loss of bargain), with an actual breach of contract.  He argued that permitting a broad ground exception was too radical for a court to easily allow without legislative change. Lord Jauncey, the only other law Lord to have concerns about the broad ground, did not rule it out but believed it should only apply where the employer has made or intends to repair the defects caused by the breach. Technotrade v Larkstore Facts and proceedings In November 1998, Starglade Ltd, the owner of a sloping site in Kent, engaged Technotrade Ltd to prepare a site investigation report to assess whether the site was suitable for residential development (the report). Starglade sold the land to Larkstore in June 1999, with planning permission for eight residential units. Starglade provided the purchaser with a copy of Technotrade’s report dated 14 December 1998. Larkstore appointed Bess Ltd to carry out works at the site, incorporating a copy of the report into the contact documentation. Larkstore used the Technotrade report to satisfy a planning permission condition for further development of the site (phase II). In September 2001, it sold part of phase II to a third party. In October 2001, a landslip occurred during excavation works by Bess, and parties owning nearby properties alleged that this had damaged their properties. They issued proceedings against Larkstore and Bess (which by this time was insolvent) in March 2003. The report did not prohibit the assignment of its benefit to a third party and, in February 2004, Starglade assigned its benefit and interest in the report to Larkstore. In October 2004, Larkstore joined Technotrade as a Part 20 defendant to the proceedings, relying on the rights assigned to it to claim, amongst other things, breach of contract leading to the landslip (see Glossary term, Part 20 claim (www.practicallaw.com/9-107-6966)). Court of Appeal’s decision The Court of Appeal heard a number of preliminary issues relating to the Part 20 claim. One of these was whether Larkstore had a claim against Technotrade because the assignor of the report (Starglade) had suffered no loss. At the time of the sale, Starglade had not suffered any loss. The loss had been suffered by Larkstore before the benefit of the report was assigned. Technotrade argued that the assignor had suffered no loss and that the principle from Dawson v Great Northern and City Railway should apply. However, Mummery LJ’s view, which Smith J agreed with, was that what had been assigned to Larkstore was not the loss that Starglade would otherwise have suffered, but instead Register for a free trial: T: +44 (0)20 7202 1200 E: info@practicallaw.com W: www.practicallaw.com This document can be found at http://construction.practicallaw.com/4-385-6875 © Legal & Commercial Publishing Limited 2009
  8. 8. Starglade’s cause of action against Technotrade (and the resultant remedy). Accordingly, whether Starglade (or Larkstore) suffered the loss suffered at or after the date of the cause of action arising was irrelevant. Mummery LJ expressly followed Staughton LJ in the Court of Appeal in Linden Gardens. As Mummery LJ commented, Technotrade’s increased exposure for damages was not caused by the assignment but by the landslip. His concern was that the contract-breaker should not be able to benefit (by avoiding liability to any person) by virtue of the fact that an assignment had taken place. Mummery LJ did not specifically refer to the narrow ground or the broad ground. However, the third judge, Rix LJ, who concurred with Mummery LJ, explained that he did not see any conflict with Mummery LJ’s reasoning and the decisions in St. Martin’s, Panatown Linden Gardens or GUS Property Management Ltd v Littlewoods Mail Order Services Ltd [1982] SLT 583 (see box, GUS Property Management v Littlewoods). However, Rix LJ did concede that his decision would not necessarily be consistent with Dawson, although that was not a contractual black hole case. Mummery LJ’s opinion was that Dawson was a different situation because, on the facts, the loss suffered by the assignee (damage to trade stock) was not one that the assignor could ever have recovered. The common law: where are we now? The no loss defence has been substantially undermined in relation to assignment Technotrade is a key decision in a line of cases, following Linden Gardens in the Court of Appeal (where the court considered the assignment to be valid), St. Martin’s and Darlington, where the courts have sought to find a way around a defence that, since the assignor did not suffer loss, the assignee should only be able to claim nominal damages. It is likely that the House of Lords in Panatown would have reacted in the same way but for the duty of care deed. However, Technotrade goes further than earlier cases. The Court of Appeal’s decision that the cause of action and its remedy was assigned may be a substantial blow to the no loss defence. For example, a recently-completed office building may have a defective roof resulting from the contractor’s breach of contract. However, if the owner then sells the building for full market value and validly assigns its benefit and interest in the building contract to the buyer, its cause of action against the building contractor and all the remedies that relate to it will belong to the buyer. This could be a better position for the buyer than the broad ground in St. Martin’s because the indication in St. Martin’s was that the broad ground will only provide a remedy in respect of repair costs, whereas wider contractual remedies may be available to an assignee (such as claiming for diminution in the value of the building or loss of profit). On the other hand, in Technotrade Mummery LJ and Rix LJ said that they were not concerned with issues of quantum, only whether or not the claim failed because only nominal damages were recoverable. The narrow ground and the broad ground remain as possible exceptions to the no loss principle Technotrade does not allow an assignee to claim against a wrongdoer where the assignor would have had no cause of action against the wrongdoer if the assignment had not happened. For instance, in Darlington, the assignor, Morgan Grenfell, had no proprietary interest in the works or any liability to another party for defects in the completed works. It was the application of the narrow ground by the court that enabled the Council to claim for a loss which the assignor could not have suffered. Panatown showed there is judicial support for the narrow ground and this was not affected by the decision in Technotrade. In addition, Technotrade will not assist a claimant where an assignment has taken place, as was the case in Panatown. In that case, the court may have decided to allow the narrow ground exception, had there not been the duty of care deed. The majority in the House of Lords commented positively on the broad ground in Panatown. However, as Lord Clyde pointed out, as a means of allowing a claimant to recover on behalf of a third party, it could expose the party in breach of contract to much wider liability than the narrow ground, if the party with the benefit of the contract was expecting the Register for a free trial: T: +44 (0)20 7202 1200 E: info@practicallaw.com W: www.practicallaw.com This document can be found at http://construction.practicallaw.com/4-385-6875 © Legal & Commercial Publishing Limited 2009
  9. 9. works to benefit a number of third parties. It is possible that the courts may prefer the narrow ground in future for this reason. Panatown was also decided in relation to contracts entered into before the Contracts (Rights of Third Parties) Act 1999 allowed a contract to provide express rights for third parties (see Practice note: overview, Contracts (Rights of Third Parties) Act 1999 and the construction industry (www.practicallaw.com/4-378-7467)). The opportunity for the parties to a contract to use the Contracts (Rights of Third Parties) Act 1999 could also dissuade a court from applying the broad ground. GUS Property Management v Littlewoods In the Scottish case of GUS Property Management Ltd v Littlewoods Mail Order Services Ltd [1982] SLT 583, piling works in Glasgow by Littlewoods had damaged a neighbouring building, which was owned by a sister company of GUS, Rest Property Co. Limited (Rest). The building was subsequently transferred to GUS at book value as part of a property portfolio reorganisation. Rest’s claims against Littlewoods for the damage from its building operations were assigned at the same time as the transfer. GUS carried out works to remedy the damage and pleaded that it should be entitled to recover, from Littlewoods, either the diminution in the building’s value as a result of the damage or the cost of the repairs. In its defence, Littlewoods contended, amongst other grounds,that:  GUS was really pursuing a claim Rest could have made prior to the assignation but that Rest had suffered no actual loss (having received book value for the transfer) and, as an assignee, GUS should not be able to claim greater compensation than the assignor could have obtained.  The loss had been suffered by GUS in effecting the repairs and therefore it was seeking to claim under assigned rights where the assignor had suffered no actual loss. In effect, Littlewoods claimed there was a “black hole”. This was the first case that used this phrase. The House of Lords dismissed Littlewoods’ arguments. It decided that Rest had obviously suffered a loss from the serious structural damage. In addition, it decided that the conveyance of the property to GUS for book value was immaterial for the purposes of considering the losses suffered by Rest because the transfer was pursuant to the policy of the group of companies to which they both belonged. The price was an issue for accounting purposes and had no reference to the building’s true value. The House of Lords held that the assignee, GUS, was entitled to claim damages from Littlewoods. Register for a free trial: T: +44 (0)20 7202 1200 E: info@practicallaw.com W: www.practicallaw.com This document can be found at http://construction.practicallaw.com/4-385-6875 © Legal & Commercial Publishing Limited 2009

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