Privity
Cases
Tweddle v Atkinson
[1861] EWHC QB J57
The declaration stated that the plaintiff was the son of John Tweddle, deceased, and before the making of the agreement hereafter mentioned, married the daughter of William Guy, deceased; and before the said marriage of the plaintiff the said William Guy, in consideration of the then intended marriage, promised the plaintiff to give to his said daughter a marriage portion, but the said promise was verbal, and at the time of the making of the said agreement had not been performed; and before the said marriage the said John Tweddle, in consideration of the said intended marriage, also verbally promised to give the plaintiff a marriage portion, which promise at the time of the making of the said agreement had not been performed. It then alleged that after the marriage and in the lifetime of the said William Guy, and of the said John Tweddle, they, the said William Guy and John Tweddle, entering into the agreement hereafter mentioned as a mode of giving effect to their said verbal promises; and the said William Guy also entering into the said agreement in order to provide for his said daughter a marriage portion, and to procure a further provision to be made by the said John Tweddle, by means of the said agreement, for his said daughter, and acting for the benefit of his said daughter; and the said John Tweddle also entering into the said agreement in order to provide for the plaintiff a marriage portion, and to procure a further provision to be made by the said William Guy, by means of the said agreement, for the plaintiff, and acting for the benefit of the plaintiff; they the said William Guy and John Tweddle made and entered into an agreement in writing in the words following, that is to say:
“High Coniscliffe, July 1, 1855. “Memorandum of an agreement made this day between William Guy, of etc., of the one part, and John Tweddle, of etc., of the other part. Whereas it is mutually agreed that the said William Guy shall and will pay the sum of 200l. to William Tweddle, his son-in-law; and the said John Tweddle, father to the aforesaid William Tweddle, shall and will pay the sum of 100l. to the said William Tweddle, each and severally the said sums on or before the 21st day of August, 1855. And it is hereby further agreed by the aforesaid William Guy and the said John Tweddle that the said William Tweddle has full power to sue the said parties in any Court of law or equity for the aforesaid sums hereby promised and specified.”
“And the plaintiff says that afterwards and before this suit, he and his said wife, who is still living, ratified and assented to the said agreement, and that he is the William Tweddle therein mentioned. And the plaintiff says that the said 21st day of August, A.D. 1855, elapsed, and all things have been done and happened necessary to entitle the plaintiff to have the said sum of 200l. paid by the said William Guy or his executor; yet neither the said William Guy nor his executor has paid the same, and the same is in arrear and unpaid, contrary to the said agreement.”
Demurrer and joinder therein. Edward James, for the defendant: The plaintiff is a stranger to the agreement and to the consideration as stated in the declaration, and therefore cannot sue upon the contract. It is now settled that an action for breach of contract must be brought by the person from whom the consideration moved; Price v. Easton (4 B. & Ad. 433). (He was then stopped.)
Mellish, for the plaintiff: Admitting the general rule as stated by the other side, there is an exception in the case of contracts made by parents for the purpose of providing for their children. In Dutton and Wife v. Poole[1], affirmed in the Exchequer Chamber, a tenant in fee simple being about to cut down timber to raise a portion for his daughter, the defendant his heir-at-law, in consideration of his forbearing to fell it, promised the father to pay a sum of money to the [396] daughter, and an action of assumpsit by the daughter and her husband was held to be well brought. The natural relationship between the father and the son constituted the father an agent for the son, in whose behalf and for whose benefit the contract was made, and therefore the latter may maintain an action upon it. The object of the contract, which was that the children should be provided for, will be accomplished if this action is maintainable: whereas if the right of action remains in the father it will be defeated, because the damages recovered in that action will be his assets. In Bourne v. Mason (1 Ventr. 6), two cases are cited which support this action. In Sprat v. Agar, in the King’s Bench in 1658, one promised the father that, in consideration that he would give his daughter in marriage with his son, he would settle so much land; after the marriage the son brought an action, and it was held maintainable. The other was the case of a promise to a physician that if he did such a cure he would give such a sum of money to himself and another to his daughter, and it was resolved the daughter might bring assumpsit, “Which cases,” says the report, “the Court agreed;” and the reason assigned as to the latter is, ” the nearness of the relation gives the daughter the benefit of the consideration performed by her father.” There is no modern case in which this question has been raised upon a contract between two fathers for the benefit of their children. According to the old cases he could not. When a father makes a contract for the benefit of his child, the law vests the contract in the child. In Thomas v. – (Sty. 461) the defendant promised to a father that in consideration that he would surrender a copyhold to the defendant, the defendant would give unto his two daughters 20l. a-piece; and after verdict in an action upon the case brought by one of the daughters for breach of that promise, on motion for arresting the judgment on the ground that the two ought to have joined, it was held that the parties had distinct interests, and so each might bring an action.
Edward James was not called upon to reply.
Wightman J: Some of the old decisions appear to support the proposition that a stranger to the consideration of a contract may maintain an action upon it, if he stands in such a near relationship to the party from whom the consideration proceeds, that he may be considered a party to the consideration. The strongest of those cases is that cited in Bourne v. Mason (1 Ventr. 6), in which it was held that the daughter of a physician might maintain assumpsit upon a promise to her father to give her a sum of money if he performed a certain cure. But there is no modern case in which the proposition has been supported. On the contrary, it is now established that no stranger to the consideration can take advantage of a contract, although made for his benefit.
Crompton J: It is admitted that the plaintiff cannot succeed unless this case is an exception to the modern and well established doctrine of the action of assumpsit. At the time when the cases which have been cited were decided the action of assumpsit was treated as an action of trespass upon the case, and therefore in the nature of a tort; and the law was not settled, as it now is, that natural love and affection is not a sufficient consideration for a promise upon which an action may be maintained; nor was it settled that the promisee cannot bring an action unless the consideration for the promise moved from him. The modern cases have, in effect, overruled the old decisions; they shew that the consideration must move from the party entitled to sue upon the contract. It would be a monstrous proposition to say that a person was a party to the contract for the purpose of suing upon it for his own advantage, and not a party to it for the purpose of being sued. It is said that the father in the present case was agent for the son in making the contract, but that argument ought also to make the son liable upon it. I am prepared to overrule the old decisions, and to hold that, by reason of the principles which now govern the action of assumpsit, the present action is not maintainable.
Blackburn J: The earlier part of the declaration shews a contract which might be sued on, except for the enactment in sect. 4 of the Statute of Frauds, 29 Car. 2, c. 3. The declaration then sets out a new contract, and the only point is whether, that contract being for the benefit of the children, they can sue upon it. Mr. Mellish admits that in general no action can be maintained upon a promise, unless the consideration moves from the party to whom it is made. But he says that there is an exception; namely, that when the consideration moves from a father, and the contract is for the benefit of his son, the natural love and affection between the father and son gives the son the right to sue as if the consideration had proceeded from himself. And Dutton and Wife v. Poole[2] was cited for this. We cannot overrule a decision of the Exchequer Chamber; but there is a distinct ground on which that case cannot be supported. The cases upon stat. 27 El. c. 4, which have decided that, by sect, 2, voluntary gifts by settlement after marriage are void against subsequent purchasers for value, and are not saved by sect. 4, shew that natural love and affection are not a sufficient consideration whereon an action of assumpsit may be founded.
Judgment for the defendant.
Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd
[1915] UKHL 1
VISCOUNT HALDANE L.C.
My Lords, in my opinion this appeal ought to fail.
Prior to January 2, 1912, Messrs. Dew had entered into a contract with the appellants to purchase a quantity of tyres and other goods from them at the prices in their list, in consideration of receiving certain discounts. As part of their contract Messrs. Dew undertook, among other things, not to sell to certain classes of customer at prices below the current list prices of the appellants. They were, however, to be at liberty to sell to a class of customer that included the respondents at a discount which was substantially less than the discount they were themselves to receive from the appellants, but in the case of any such sale they undertook, as the appellants’ agents in this behalf, to obtain from the customer a written undertaking that he similarly would observe the terms so undertaken to be observed by themselves. This contract was embodied in a letter dated October 12, 1911.
On January 2 the respondents contracted with Messrs. Dew, in terms of a letter of that date addressed to them, that, in consideration of the latter allowing them discounts on goods of the appellants’ manufacture which the respondents might purchase from Messrs. Dew, less, in point of fact, than the discount received by the latter from the appellants, the respondents, among other things, would not sell the appellants’ goods to private customers at prices below those in the appellants’ current list, and that they would pay to the appellants a penalty for every article sold in breach of this stipulation.
The learned judge who tried the case has held that the respondents sold goods of the appellants’ manufacture supplied through Messrs. Dew at less than the stipulated prices, and the question is whether, assuming his finding to be correct, the appellants, who were not in terms parties to the contract contained in the letter of January 2, can sue them.
My Lords, in the law of England certain principles are fundamental. One is that only a person who is a party to a contract can sue on it. Our law knows nothing of a jus quaesitum tertio arising by way of contract. Such a right may be conferred by way of property, as, for example, under a trust, but it cannot be conferred on a stranger to a contract as a right to enforce the contract in personam. A second principle is that if a person with whom a contract not under seal has been made is to be able to enforce it consideration must have been given by him to the promisor or to some other person at the promisor’s request. These two principles are not recognized in the same fashion by the jurisprudence of certain Continental countries or of Scotland, but here they are well established. A third proposition is that a principal not named in the contract may sue upon it if the promisee really contracted as his agent. But again, in order to entitle him so to sue, he must have given consideration either personally or through the promisee, acting as his agent in giving it.
My Lords, in the case before us, I am of opinion that the consideration, the allowance of what was in reality part of the discount to which Messrs. Dew, the promisees, were entitled as between themselves and the appellants, was to be given by Messrs. Dew on their own account, and was not in substance, any more than in form, an allowance made by the appellants. The case for the appellants is that they permitted and enabled Messrs. Dew, with the knowledge and by the desire of the respondents, to sell to the latter on the terms of the contract of January 2, 1912. But it appears to me that even if this is so the answer is conclusive. Messrs. Dew sold to the respondents goods which they had a title to obtain from the appellants independently of this contract. The consideration by way of discount under the contract of January 2 was to come wholly out of Messrs. Dew’s pocket, and neither directly nor indirectly out of that of the appellants. If the appellants enabled them to sell to the respondents on the terms they did, this was not done as any part of the terms of the contract sued on.
No doubt it was provided as part of these terms that the appellants should acquire certain rights, but these rights appear on the face of the contract as jura quaesita tertio, which the appellants could not enforce. Moreover, even if this difficulty can be got over by regarding the appellants as the principals of Messrs. Dew in stipulating for the rights in question, the only consideration disclosed by the contract is one given by Messrs. Dew, not as their agents, but as principals acting on their own account.
The conclusion to which I have come on the point as to consideration renders it unnecessary to decide the further question as to whether the appellants can claim that a bargain was made in this contract by Messrs. Dew as their agents; a bargain which, apart from the point as to consideration, they could therefore enforce. If it were necessary to express an opinion on this further question, a difficulty as to the position of Messrs. Dew would have to be considered. Two contracts — one by a man on his own account as principal, and another by the same man as agent — may be validly comprised in the same piece of paper. But they must be two contracts, and not one as here. I do not think that a man can treat one and the same contract as made by him in two capacities. He cannot be regarded as contracting for himself and for another uno flatu.
My Lords, the form of the contract which we have to interpret leaves the appellants in this dilemma, that, if they say that Messrs. Dew contracted on their behalf, they gave no consideration, and if they say they gave consideration in the shape of a permission to the respondents to buy, they must set up further stipulations, which are neither to be found in the contract sued upon nor are germane to it, but are really inconsistent with its structure. That contract has been reduced to writing, and it is in the writing that we must look for the whole of the terms made between the parties. These terms cannot, in my opinion consistently with the settled principles of English law, be construed as giving to the appellants any enforceable rights as against the respondents.
I think that the judgment of the Court of Appeal was right, and I move that the appeal be dismissed with costs.
Scruttons Ltd v Midland Silicones
[1961] UKHL 4 [1962] AC 446
Lord Reid
In considering the various arguments for the Appellants I think it is
necessary to have in mind certain established principles of the English Law
of Contract. Although I may regret it I find it impossible to deny the
existence of the general rule that a stranger to a contract cannot in a 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. That rule appears to have been crystallised
a century ago in Tweddle v. Atkinson (1861) 1 B. & S. 393, and finally estab-
lished in this House in Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge & Co.
Ltd. [1915] AC 847. There are it is true 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.
The actual words used by Lord Haldane in the Dunlop case were made
the basis of an argument that, although a stranger to a contract may not
be able to sue for any benefit under it, he can rely on the contract as a
defence if one of the parties to it sues him in breach of his contractual
obligation—that he can use the contract as a shield though not as a sword.
I can find no justification for that. If the other contracting party can prevent
the breach of contract well and good, but if he cannot I do not see how
the stranger can. As was said in Tweddle v. Atkinson the stranger cannot
” take advantage ” from the contract.
It may be that in a roundabout way the stranger could be protected. If
A, wishing to protect X, gives to X an enforceable indemnity, and contracts
with B that B will not sue X, informing B of the indemnity, and then B does
sue X in breach of his contract with A, it may be that A can recover from B
as damages the sum which he has to pay X under the indemnity, X
having had to pay it to B. But there is nothing remotely resembling that
in the present case.
The Appellants in this case seek to get round this rule in three different
ways. In the first place they say that the decision in Elder, Dempster & Co.
Ltd. v. Paterson, Zochonis & Co. [1924] A.C. 522 establishes an exception to
the rule sufficiently wide to cover the present case. I shall later return to con-
sider this case. Secondly, they say that through the agency of the carrier they
(were brought into contractual relation with the shipper and that they can
now found on that against the consignees the Respondents. And thirdly, they
say that there should be inferred from the facts an implied contract, indepen-
dent of the Bill of Lading, between them and the Respondents. It was not
argued that they had not committed a tort in damaging the Respondents’
goods.
I can see a possibility of success of the agency argument if (first) the
Bill of Lading makes it clear that the stevedore is intended to be protected
by the provisions in it which limit liability, (secondly) the Bill of Lading
makes it clear that the carrier, in addition to contracting for these provisions
on his own behalf, is also contracting as agent for the stevedore that these
provisions should apply to the stevedore, (thirdly) the carrier has authority
from the stevedore to do that, or perhaps later ratification by the stevedore
would suffice, and (fourthly) that any difficulties about consideration
moving from the stevedore were overcome. And then to affect the consignee
it would be necessary to shew that the provisions of the Bills of Lading Act,
1855, apply.
But again there is nothing of that kind in the present case. I agree with
your Lordships that “carrier” in the Bill of Lading does not include
stevedore, and if that is so I can find nothing in the Bill of Lading which
states or even implies that the parties to it intended the limitation of liability
to extend to stevedores. Even if it could be said that reasonable men in the
.shoes of these parties would have agreed that the stevedore should have
this benefit that would not be enough to make this an implied term of the
contract. And even if one could spell out of the Bill of Lading an intention
to benefit the stevedore there is certainly nothing to indicate that the carrier
was contracting as agent for the stevedore in addition to contracting on his
own behalf. So it appears to me that the agency argument must fail.
And the implied contract argument seems to me to be equally unsound.
From the stevedores’ angle, they are employed by the carrier to deal with
the goods in the ship. They can assume that the carrier is acting properly
in employing them and they need not know who the goods belong to
There was in their contract with the carrier a provision that they should be
protected, but that could not by itself bind the consignee. They might
assume that the carrier would obtain protection for them against the consignee
and feel aggrieved when they found that the carrier did not or could not
do that. But a provision in the contract between them and the carrier is
irrelevant in a question between them and the consignee. Then from the
consignees’ angle they would know that stevedores would be employed to
handle their goods but if they read the Bill of Lading they would find
nothing to shew that the shippers had agreed to limit the liability of the
stevedores. There is nothing to shew that they ever thought about this
or that if they had they would have agreed or ought as reasonable men to
have agreed to this benefit to the stevedores. I can find no basis in this
for implying a contract between them and the stevedores. It cannot be said
that such a contract was in any way necessary for business efficiency.
So this case depends on the proper interpretation of the Elder Dempster
case. What was there decided is clear enough. The ship was under time
charter, the Bill of Lading made by the shippers and the charterers provided
for exemption from liability in the event which happened and this exemption
was held to ensure to the benefit of the shipowners who were not parties to
the Bill of Lading but whose servant the master caused damage to the
shippers’ goods by his negligence. The decision is binding on us but I agree
that the decision by itself will not avail the present Appellants because the
facts of this case are very different from those in the Elder Dempster case.
For the appellants to succeed it would be necessary to find from the speeches
in this House a ratio decidendi which would cover this case and then to follow
that ratio decidendi.
Before dealing further with that case I think it necessary to make some
general observations about the binding character of rationes decidendi of
this House. Unlike most supreme tribunals this House holds itself bound
by its own previous decisions. That was the decision of this House in
The London Street Tramways Co. v. L.C.C. [1898] AC 375. It was founded
on immemorial practice, and the justification given by Lord Halsbury, L.C.,
with whom the other noble Lords concurred, was ” the disastrous incon-
” venience of having each question subject to being reargued and the dealings
” of mankind rendered doubtful by reason of different decisions, so that
” in truth and in fact there would be no real final Court of Appeal.” I
have on more than one occasion stated my view that this rule is too rigid
and that it does not in fact create certainty. In illustration of that I need
go no further than the series of decisions in this House on workmen’s com-
pensation. But I am bound by the rule until it is altered.
But I can find no invariable practice with regard to rationes decidendi.
In the first place it must be noted that only three years later Lord Halsbury
said in Quinn v. Leathem [1901] AC 495 at p. 506: ” There are two obser-
” vaitions of a general character which I wish to make, and one is to repeat
” what I have very often said before, that every judgment must be read as
” applicable to the particular facts proved, or assumed to be proved, since
” the generality of the expressions which may be found there are not intended
” to be expositions of the whole law, but governed and qualified by the
” particular facts of the case in which such expressions are to be found.
” The other is that a case is only an authority for what it actually decides.
” I entirely deny that it can be quoted for a proposition that may seem to
” follow logically from it.” And, if one has to assume that every case has a
ratio decidendi to be extracted from the speeches in this House by the ordinary
methods of construction of written documents, I think that quite a number of
cases will be found of which the rationes decidendi have not in fact been
followed. I give only a few examples which I happen to have noted from
time to time. They may not be very modern, but, if there was no unbroken
practice, modern pronouncements (in themselves at best only rationes deci-
dendi) cannot have created a rule preventing your Lordships from exercising
the full traditional jurisdiction of this House. A fairly recent example is
Goodman v. Mayor of Saltash 7, App. Cas. 633, and with that I couple a note
by Mr. Macqueen at 1 Macq. 792 where, having dealt with the question of
previous decisions being binding, he says: ” Notwithstanding all this it must
be owned that one or two well-known decisions of the House have been
tabooed by the profession ; not, however, by holding them to be wrong, but by
making out invariably that they have no application to other cases. I think,
however, it will be found that the House itself has never revoked what it has
once deliberately laid down on an appeal or Writ of Error.” And very soon
after that was said Lord Chelmsford, L.C. said in Magistrates of Dundee v.
Morris, 3 Macq. 134 at p. 155: “Your Lordships will probably think that
” Ewen v. Provost of Montrose (4 Wilson & Shaw 346) can only be urged as
” an authority where the circumstances of the case to which it is sought to be
” applied are precisely similar to the circumstances of that case.”
I would certainly not lightly disregard or depart from any ratio decidendi
of this House. But there are at least three classes of case where I think
we are entitled to question or limit it: first, where it is obscure, secondly,
where the decision itself is out of line with other authorities or established
principles, and thirdly, where it is much wider than was necessary for the
decision so that it becomes a question of how far it is proper to distinguish
the earlier decision. The first two of these grounds appear to me to apply to
the present case.
It can hardly be denied that the ratio decidendi of the Elder Dempster
decision is very obscure. A number of eminent judges have tried to
discover it, hardly any two have reached the same result, and none of the
explanations hitherto given seems to me very convincing. If I had to try,
the result might depend on whether or not I was striving to obtain a narrow
ratio. So I turned to the decision itself. Two quite separate points were
involved in the case. The first was whether the damage to the cargo was
caused by bad stowage or by the ship being unseaworthy. This was very
fully considered and the decision was bad stowage. On the conditions in
the Bill of Lading this clearly freed the charterer of liability. The other
question was whether those conditions were also available as a defence to
the ship-owner. From the report of the case it would seem that this was not very
fully argued, and none of the three noble Lords who spoke devoted more than
a page of print to it. They cannot have thought that any important question
of law or any novel principle was involved. Lord Finlay said that a decision
against the ship-owner would be absurd and the other noble Lords probably
thought the same. They must all have thought that they were merely
applying an established principle to the facts of the particular case.
But when I look for such a principle I cannot find it, and the extensive
and able arguments of counsel in this case have failed to discover it. The
House sustained the dissenting judgment of Scrutton, L. J. in the Court of
Appeal [1923] 1 K.B. 420. The majority there did not have to consider this
question but Scrutton, L. J. did and he also devoted less than a page to its
consideration. His reasoning, though brief, is quite clear, but he gives no
reason or authority for the proposition on which he bases his judgment and
it is not derived from the argument as reported. He said: “The real
” answer to the claim is, in my view, that the shipowner is not in possession
” as a bailee, but as the agent of a person, the charterer, with whom the owner
” of the goods has made a contract defining his liability, and that the owner
” as servant or agent of the charterer can claim the same protection as the
” charterer. Were it otherwise there would be an easy way round the Bill
” of Lading in the case of every chartered ship: the owner of the goods would
• simply sue the owner of the ship and ignore the Bill of Lading exceptions,
” though he had contracted with the charterer for carriage on those terms and
” the owner had only received the goods as agent for the charterer.” It is true
that an unreasonable proposition is seldom good law, and, perhaps for that
reason, it would seem that that great lawyer did not pause to consider how
great an exception he was making to the rule that a stranger to a contract
cannot take advantage from it. For he was saying in terms that servants
and ” agents ” can take advantage of contracts made by their master or
” principal “. I would not dissent from a proposition that something of that
kind ought to be the law if that was plainly the intention of the contract, and
it may well be that this matter is worthy of consideration by those whose
function it is to consider amending the law. But it seems to me much too
late to do that judicially.
That this House made an exception to the general principle seems to me
clear: the question we have now to consider is how wide an inroad did they
make. It is very far from clear that any of those who spoke in this House
intended to go all the way with Scrutton, L. J.: if they had intended to do so
it would have been easy to say so. And it is not clear just how far Scrutton,
L. J. himself intended to go. The use of the term ” agent” is one difficulty:
he cannot have been using that word accurately in its legal sense. The
charterer or anyone else under obligation to do certain things employs
servants or independent contractors and instructs them to do those things.
But they do not act as agents; they have nothing to do with the party to
whom their master or employer is under contractual obligation; their duty
is to carry out the instructions of their master or employer under the contracts
which they have made with him. But in the course of carrying out that
duty they may by their own negligence do damage to the property of a third
party, the person who has made a contract with their master or employer.
On what ground are they to be better off than if they had damaged the
property of some other person? On that analysis it becomes still more
difficult to find a legal justification for what Scrutton, L. J. said. And was
there any implicit limitation to the rule which he enunciated? There seems
to be no logical reason why it should be confined to carriage of goods by
sea or indeed to carriage of any kind. If it is a good rule for bills of lading
it would seem to be an equally good rule for all cases where the master or
employer has some protection under a contrac and employs someone else
to do the things which have to be done under that contract I must say
I have considerable doubt whether Scrutton, L. J. can really have intended
his rule to be so far-reaching.
In such circumstances I do not think that it is my duty to pursue the
unrewarding task of seeking to extract a ratio decidendi from what was
said in this House in Elder Dempster. Nor is it my duty to seek to rationalise
the decision by determining in any other way just how far the scope of the
decision should extend. I must treat the decision as an anomalous and
unexplained exception to the general principle that a stranger cannot rely
for his protection on provisions in a contract to which he is not a party.
The decision of this House is authoritative in cases of which the circumstances
are not reasonably distinguishable from those which gave rise to the
decision. The circumstances in the present case are clearly distinguishable
in several respects. Therefore I must decide this case on the established
principles of the law of England apart from that decision, and on that basis
I have no doubt that this appeal must be dismissed.
Beswick v Beswick
[1967] UKHL 2 [1967] 2 All ER 1197, [1968] AC 58, [1967] 3 WLR 932
Lord Reid
For clarity I think it best to begin by considering a simple case where,
in consideration of a sale by A to B, B agrees to pay the price of £1,000
to a third party X. Then the first question appears to me to be whether
the parties intended that X should receive the money simply as A’s
nominee so that he would hold the money for behoof of A and be account-
able to him for it, or whether the parties intended that X should receive
the money for his own behoof and be entitled to keep it. That appears
to me to be a question of construction of the agreement read in light of
all the circumstances which were known to the parties. There have been
several decisions involving this question. I am not sure that any conflicts
with the view which I have expressed: but if any does, e.g. Engelbach
[1924] 2 Ch. 348, I would not agree with it. I think that re Schebsman
[1944] Ch. 83 was rightly decided and that the reasoning of Uthwatt J. ([1943]
Ch. 366) and the Court of Appeal supports what I have just said. In the
present case I think it clear that the parties to the agreement intended that
the Respondent should receive the weekly sums of £5 in her own behoof
and should not be accountable to her deceased husband’s estate for them.
Indeed the contrary was not argued.
Reverting to my simple example the next question appears to me to be,
where the intention was that X should keep the £1,000 as his own, what
is the nature of B’s obligation and who is entitled to enforce it. It was
not argued that the law of England regards B’s obligation as a nullity, and
I have not observed in any of the authorities any suggestion that it would
be a nullity. 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. So this obligation of B must be
enforceable either by X or by A. I shall leave aside for the moment the
question whether section 56(1) of the Law of Property Act 1925 has any
application to such a case, and consider the position at Common Law.
Lord Denning’s view, expressed in this case not for the first time, is
that X could enforce this obligation. But the view more commonly held
in recent times has been that such a contract confers no right on X and
that X could not sue for the £1,000. Leading counsel for the Respondent
based his case on other grounds, and as I agree that the Respondent
succeeds on other grounds, this would not be an appropriate case in which
to solve this question. It is true that a strong Law Revision Committee
recommended so long ago as 1937 (Cmd. 5449) that ” where a contract by
” its express terms purports to confer a benefit directly on a third party it
” shall be enforceable by the third party in his own name . . . (page 31).
And if one had to contemplate a farther long period of Parliamentary
procrastination, this House might find it necessary to deal with this matter.
But if legislation is probably at an early date I would not deal with it in
a case where that is not essential. So for the purposes of this case I shall
proceed on the footing that the commonly accepted view is right.
What then is A’s position? I assume that A has not made himself a
trustee for X, because it was not argued in this appeal that any trust
had been created. So if X has no right A can at any time grant a discharge
to B or make some new contract with B. If there were a trust the position
would be different. X would have an equitable right and A would be
entitled and indeed bound to recover the money and account for it to X.
And A would have no right to grant a discharge to B. If there is no trust
and A wishes to enforce the obligation how does he set about it? He
cannot sue B for the £1,000 because under the contract the money is not
payable to him, and, if the contract were performed according to its terms,
he would never have any right to get the money. So he must seek to make
B pay X.
The argument for the Appellant is that A’s only remedy is to sue B
for damages for B’s breach of contract in failing to pay the £1,000 to X.
Then the Appellant says that A can only recover nominal damages of 40s.
because the fact that X has not received the money will generally cause
no loss to A: he admits that there may be cases where A would suffer
damage if X did not receive the money but says that the present is not
such a case.
Applying what I have said to the circumstances of the present case, the
Respondent in her personal capacity has no right to sue, but she has a
right as administratrix of her husband’s estate to require the Appellant to
perform his obligation under the agreement. He has refused to do so and
he maintains that the Respondent’s only right is to sue him for damages
for breach of his contract. If that were so, I shall assume that he is right
in maintaining that the administratrix could then only recover nominal
damages because his breach of contract has caused no loss to the estate of
her deceased husband.
If that were the only remedy available the result would be grossly unjust.
It would mean that the Appellant keeps the business which he bought and
for which he has only paid a small part of the price which he agreed to pay.
He would avoid paying the rest of the price, the annuity to the Respondent,
by paying a mere 40s. damages.
The Respondent’s first answer is that the common law has been radically
altered by section 56(1) of the Law of Property Act 1925, and that that
section entitles her to sue in her personal capacity and recover the benefit
provided for her in the agreement although she was not a party to it.
Extensive alterations of the law were made at that time but it is necessary
to examine with some care the way in which this was done. That Act
was a Consolidation Act and it is the invariable practice of Parliament
to require from those who have prepared a consolidation Bill an assurance
that it will make no substantial change in the law and to have that checked
by a committee. On this assurance the Bill is then passed into law, no
amendment being permissible. So, in order to pave the way for the 1925
Consolidation Act, earlier Acts were passed in 1922 and 1924 in which
were enacted all the substantial amendments which now appear in the
1925 Act and these amendments were then incorporated in the Bill which
became the 1925 Act. Those earlier Acts contain nothing corresponding
to section 56 and it is therefore quite certain that those responsible for the
preparation of this legislation must have believed and intended that sec-
tion 56 would make no substantial change in the earlier law. and equally
certain that Parliament passed section 56 in reliance on an assurance that it
did make no substantial change.
In construing any Act of Parliament we are seeking the intention of
Parliament and it is quite true that we must deduce that intention from the
words of the Act. If the words of the Act are only capable of one meaning
we must give them that meaning no matter how they got there. But if they
are capable of having more than one meaning we are, in my view, well
entitled to see how they got there. For purely practical reasons we do not
permit debates in either House to be cited: it would add greatly to the
time and expense involved in preparing cases involving the construction of
a statute if Counsel were expected to read all the debates in Hansard, and
it would often be impracticable for counsel to get access to at least the
older reports of debates in Select Committees of the House of Commons;
moreover, in a very large proportion of cases such a search, even if
practicable, would throw no light on the question before the Court. But
I can see no objection to investigating in the present case the antecedents
of section 56.
Section 56 was obviously intended to replace section 5 of the Real
Property Act 1845 (8 and 9 Vict. C. 106). That section provided:
” That under an Indenture executed after the first day of October
” 1845 an immediate estate or interest in any tenements or heredita-
” ments and the benefit of a condition or covenant respecting any
” tenements or hereditaments may be taken although the taker thereof
” be not named a party to the said indenture …”
Section 56(1) now provides:
” a person may take an immediate or other interest in land or other
” property, or the benefit of any condition, right of entry, covenant
” or agreement over or respecting land or other property, although
” he may not be named as a party to the conveyance or other
” instrument: …”
If the matter stopped there it would not be difficult to hold that section 56
does not substantially extend or alter the provisions of section 5 of the
1845 Act. But more difficulty is introduced by the definition section of the
1925 Act (section 205) which provides:
” (1) In this Act unless the context otherwise requires the following
” expressions have the meanings hereby assigned to them respectively,
that is to say . . . (xx) ‘ Property’ includes any thing in action and any
” interest in real or personal property “.
Before farther considering the meaning of section 56(1) I must set out
briefly the views which have been expressed about it in earlier cases.
White v. Bijou Mansions [1937] Ch. 610 dealt with a covenant relating to
land. The interpretation of section 56 was not the main issue. Simonds J.
rejected an argument that section 56 enabled anyone to take advantage
of a covenant if he could shew that if the covenant were enforced it
would redound to his advantage. He said—
” Just as under section 5 of the Act of 1845 only that person could
” call it in aid who, although not a party, was yet a grantee or
” covenantee, so under section 56 of this Act only that person can
” call it in aid who although not named as a party to the conveyance
” or other instrument is yet a person to whom that conveyance or other
” instrument purports to grant something or with which some agreement
” or covenant is purported to be made.”
He was not concerned to consider whether or in what way the section could
be applied to personal property. In the Court of Appeal ([1938] Ch. 351)
Sir W. Greene M.R. said, in rejecting the same argument as Simonds J. had
rejected:
” before he can enforce it he must be a person who falls within the
” scope and benefit of the covenant according to the true construction
” of the document in question.”
Again he was not considering an ordinary contract and I do not think that
he can be held to have meant that every person who falls within the ” scope
” and benefit ” of any contract is entitled to sue though not a party to the
contract.
In re Miller [1947] Ch. 615 two partners covenanted with a retiring
partner that on his death they would pay certain annuities to his daughters.
The Revenue’s claim for estate duty was rejected. The decision was clearly
right. The daughters, not being parties to the agreement, had no right to
sue for their annuities. Whether they received them or not depended on
whether the other partners were willing to pay or if they did not pay whether
the deceased partner’s executor was willing to enforce the contract. After
citing the earlier cases Wynn-Parry J. said:
” I think it emerges from these cases that the section has not the
” effect of creating rights but only of assisting the protection of rights
” shewn to exist.”
I am bound to say I do not quite understand that. I had thought from
what Lord Simonds said in White’s case that section 5 of the 1845 Act did
enable certain persons to take benefits which they could not have taken
without it. If so it must have given them rights which they did not have
without it. And if that is so section 56 must now have the same effect.
In Smith and Snipes Hall Farm Ltd. v. River Douglas Catchment Board
[1949] 2 K.B. 500 Lord Denning, after stating his view that a third person
can sue on a contract to which he is not a party, referred on page 517 to
section 56 as a clear statutory recognition of this principle, with the con-
sequence that Miller’s case (cit. sup.) was wrongly decided. I cannot agree
with that. And in Drive Yourself Hire Co. v. Strutt [1954] 1 Q.B. 250
Lord Denning again expressed similar views about section 56.
I can now return to consider the meaning and scope of section 56. It
refers to any ” agreement over or respecting land or other property “. If
” land or other property ” means the same thing as ” tenements or heredita-
” ments ” in the 1845 Act then this section simply continues the law as it was
before the 1925 Act was passed, for I do not think that the other differences
in phraseology can be regarded as making any substantial change. So any
obscurities in section 56 are obscurities which originated in 1845. But
if its scope is wider than two points must be considered. The section refers
to agreements ” over or respecting land or other property “. The land is
something which existed before and independently of the agreement and
the same must apply to the other property. So an agreement between A
and B that A will use certain personal property for the benefit of X would
be within the scope of the section, but an agreement that if A performs
certain services for B, B will pay a sum to X would not be within the scope
of the section. Such a capricious distinction would alone throw doubt on
this interpretation.
Perhaps more important is the fact that the section does not say that a
person may take the benefit of an agreement although he was not a party
to it: it says that he may do so although he was not named as a party
in the instrument which embodied the agreement. It is true that section 56
says although he may not be named ; but section 5 of the 1845 Act says
although he be not named a party. Such a change of phraseology in a
Consolidation Act cannot involve a change of meaning. I do not profess
to have a full understanding of the old English law regarding deeds. But
it appears from what Lord Simonds said in White’s case and from what
Vaisey J. said in Chelsea Building Society v. Armstrong [1951] Ch. 853
that being in fact a party to an agreement might not be enough; the
person claiming a benefit had to be named a party in the indenture.
I have read the explanation of the old law given by my noble and learned
friend Lord Upjohn. I would not venture to criticise it. but I do not think
it necessary for me to consider it if it leads to the conclusion that section 56
taken by itself would not assist the present Respondent.
But it may be that additional difficulties would arise from the application
to section 56 of the definition of property in the definition section. If so
it becomes necessary to consider whether that definition can be applied to
section 56. By express provision in the definition section a definition
contained in it is not to be applied to the word defined if in the particular
case the context otherwise requires. If application of that definition would
result in giving to section 56 a meaning going beyond that of the old section
then in my opinion the context does require that the definition of ” property “
shall not be applied to that word in section 56. The context in which this
section occurs is a Consolidation Act. If the definition is not applied the
section is a proper one to appear in such an Act because it can properly
be regarded as not substantially altering the pre-existing law. But if the
definition is applied the result is to make section 56 go far beyond the pre-
existing law. Holding that the section has such an effect would involve
holding that the invariable practice of Parliament has been departed from
per incuriam so that something has got into this Consolidation Act which
neither the draftsman nor Parliament can have intended to be there. I am
reinforced in this view by two facts. The language of section 56 is not
at all what one would have expected if the intention had been to bring
in all that the application of the definition would bring in. And secondly
section 56 is one of 25 sections which appear in the Act under the cross
heading ” Conveyances and other Instruments”. The other twenty-four
sections come appropriately under that heading and so does section 56 if
it has a limited meaning: but, if its scope is extended by the definition of
property, it would be quite inappropriately placed in this part of the Act.
For these reasons I am of opinion that section 56 has no application to the
present case.
The Respondent’s second argument is that she is entitled in her capacity
of administratrix of her deceased husband’s estate to enforce the provision
of the agreement for the benefit of herself in her personal capacity, and
that a proper way of enforcing that provision is to order specific performance.
That would produce a just result, and, unless there is some technical
objection, I am of opinion that specific performance ought to be ordered.
For the reasons given by your Lordships I would reject the arguments
submitted for the Appellant that specific performance is not a possible
remedy in this case. I am therefore of opinion that the Court of Appeal
reached a correct decision and that this appeal should be dismissed.
Jackson v Horizon Holidays Ltd [1975] 1 WLR 1468
Lord Denning MR
“they were greatly disappointed. Their room had not got a connecting door with the room for the children at all. The room for the children was mildewed – black with mildew, at the bottom. There was fungus growing on the walls The toilet was stained. The shower was dirty. There was no bath. They could not let the children sleep in it. So for the first three days they had all the family in one room. The two children were put into one of the single beds and the two adults in the other single bed. After the first three days they were moved into what was said to be one of the best suites in the hotel.[2] Even then, they had to put the children in to sleep in the sitting room and the parents in the bedroom. There was dirty linen upon the bed. There was no private bath but only a shower; no mini-golf course; no swimming pool, no beauty saloon, no hairdressers’ saloon. Worst of all was the cooking. There was no choice of dishes. On some occasions, however, curry was served as an alternative to the main dish. They found the food very distasteful. It appeared to be cooked in coconut oil. There was a pervasive taste because of its manner of cooking. They were so uncomfortable at Brown’s Hotel, that after a fortnight they moved to the Pegasus Reef Hotel
…..
It would be a fiction to say that the contract was made by all the family… and that he was only an agent for them. Take this very case. It would be absurd to say that the twins of three years old were parties to the contract or that the father was making the contract on their behalf as if they were principals.’ Or trust, and the truth was that he was making a contract for their benefit.
He quoted Lush LJ in Lloyd’s v Harper (1880) 16 ChD 290, 321 and said that although there were suggestions that he meant you can sue for a disappointed benefit to a third party if you are a trustee, he ‘did not think so… I think they should be accepted as correct, at any rate so long as the law forbids the third persons themselves from suing for damages. It is the only way in which a just result can be achieved.’ [Otherwise] ‘is no one to recover from them except the one who made the contract for their benefit? He should be able to recover the expense to which he has been put, and pay it over to them. Once recovered it will money had and received to their use.”
The New Zealand Shipping Company Limited v A. M. Satterthwaite & Company Limited (New Zealand)
[1974] UKPC [1974] 1 Lloyd’s Rep 534, [1974] UKPC 4, [1974] 1 All ER 1015, [1975] AC 154, [1974] 2 WLR 865
Lord Wilberforce
The question in the appeal is whether the Stevedore can take the benefit of the time limitation provision. The starting point, in discussion of this question, is provided by the House of Lords decision in Midland Silicones Ltd. v. Scruttons Ltd. [1962] A.C.446. There is no need to question or even to qualify that case in so far as it affirms the general proposition that a contract between two parties cannot be sued on by a third person even though the contract is expressed to be for his benefit. Nor is it necessary to disagree with anything which was said to the same effect in the Australian case of Wilson v. Darling Island Stevedoring & Lighterage Company (1956-7) 95 C.L.R. 43. Each of these cases was dealing with a simple case of a contract the benefit of which was sought to be taken by a third person not a party to it, and the emphatic pronouncements in the speeches and judgments were directed to this situation. But Midland Silicones left open the case where one of the parties contracts as agent for the third person: in particular Lord Reid’s speech spelt out, in four propositions, the prerequisites for the validity of such an agency contract. There is of course nothing unique to this case in the conception of agency contracts: well known and common instances exist in the field of hire purchase, of bankers’ commercial credits and other transactions. Lord Reid said this:
” I can see a possibility of success of the agency argument if (first) the bill of lading makes it clear that the stevedore is intended to be protected by the provisions in it which limit liability, (secondly) the bill of lading makes it clear that the carrier, in addition to contracting for these provisions on his own behalf, is also contracting as agent for the stevedore that these provisions should apply to the stevedore, (thirdly) the carrier has authority from the stevedore to do that, or perhaps later ratification by the stevedore would suffice, and (fourthly) that any difficulties about consideration moving from the stevedore were overcome. And then to affect the consignee it would be necessary to show that the provisions of the Bills of Lading Act, 1855, apply.” (l.c. p.474)
The question in this appeal is whether the contract satisfies these propositions.
Clause 1 of the Bill of Lading, whatever the defects in its drafting, is clear in its relevant terms. The carrier, on his own account, stipulates for certain exemptions and immunities: among these is that conferred by Article III (6) of the Hague Rules which discharges the carrier from all liability for loss or damage unless suit is brought within one year after delivery.
In addition to these stipulations on his own account, the carrier as agent for (inter alios) independent contractors stipulates for the same exemptions.
Much was made of the fact that the carrier also contracts as agent for numerous other persons; the relevance of this argument is not apparent. It cannot be disputed that among such independent contractors, for whom, as agent, the carrier contracted, is the appellant company which habitually acts as stevedore in New Zealand by arrangement with the carrier and which is, moreover, the parent company of the carrier. The carrier was, indisputably, authorised by the appellant to contract as its agent for the purposes of Clause 1. All of this is quite straightforward and was accepted by all of the learned judges in New Zealand. The only question was, and is, the fourth question presented by Lord Reid, namely that of consideration.
It was on this point that the Court of Appeal differed from Seattle J., holding that it had not been shown that any consideration for the shipper’s promise as to exemption moved from the promisee, i.e. the appellant company.
If the choice, and the antithesis, is between a gratuitous promise, and a promise for consideration, as it must be in the absence of a tertium quid, there can be little doubt which, in commercial reality, this is. The whole contract is of a commercial character, involving service on one side, rates of payment on the other, and qualifying stipulations as to both. The relations of all parties to each other are commercial relations entered into for business reasons of ultimate profit. To describe one set of promises, in this context, as gratuitous, or nudum pactum, seems paradoxical and is prima facie implausible. It is only the precise analysis of this complex of relations into the classical offer and acceptance, with identifiable consideration, that seems to present difficulty, but this same difficulty exists in many situations of daily life e.g. sales at auction; supermarket purchases; boarding an omnibus; purchasing a train ticket; tenders for the supply of goods; offers of rewards; acceptance by post; warranties of authority by agents; manufacturers’ guarantees; gratuitous bailments; bankers’ commercial credits. These are all examples which show that English law, having committed itself to a rather technical and schematic doctrine of contract, in application takes a practical approach, often at the cost of forcing the facts to fit uneasily into the marked slots of offer, acceptance and consideration.
In their Lordships’ opinion the present contract presents much less difficulty than many of those above referred to. It is one of carriage from Liverpool to Wellington. The carrier assumes an obligation to transport the goods and to discharge at the port of arrival. The goods are to be carried and discharged, so the transaction is inherently contractual. It is contemplated that a part of this contract, viz. discharge, may be performed by independent contractors—viz- the appellant. By clause 1 of the Bill of Lading the shipper agrees to exempt from liability the carrier, his servants and independent contractors in respect of the performance of this contract of carriage. Thus, if the carriage, including the discharge, is wholly carried out by the carrier, he is exempt. If part is carried out by him, and part by his servants, he and they are exempt. If part is carried out by him and part by an independent contractor, he and the independent contractor are exempt. The exemption is designed to cover the whole carriage from loading to discharge, by whomsoever it is performed: the performance attracts the exemption or immunity in favour of whoever the performer turns out to be. There is possibly more than one way of analysing this business transaction into the necessary components; that which their Lordships would accept is to say that the Bill of Lading brought into existence a bargain initially unilateral but capable of becoming mutual, between the shippers and the appellants, made through the carrier as agent. This became a full contract when the appellant performed services by discharging the goods. The performance of these services for the benefit of the shipper was the consideration for the agreement by the shipper that the appellant should have the benefit of the exemptions and limitations contained in the Bill of Lading. The conception of a “unilateral” contract of this kind was recognised in Great Northern Railway Co. v. Witham L.R. 9 C.F.16 and is well established. This way of regarding the matter is very close to if not identical to that accepted by Seattle J. in the Supreme Court: be analysed the transaction as one of an offer open to acceptance by action such as was found in Carlill v. Carbolic Smoke Ball Company [1893] I Q.B.256. But whether one describes the shipper’s promise to exempt as an offer to be accepted by performance or as a promise in exchange for an act seems in the present context to be a matter of semantics. The words of Bowen L. J. in Carlill v. Carbolic Smoke Ball Co., ” Why should not an offer be made to all the world which is to ripen into a contract with anybody who comes forward and performs the condition? ” (I.e. p.268) seem to bridge both conceptions: he certainly seems to draw no distinction between an offer which matures into a contract when accepted and a promise which matures into a contract after performance, and, though in some special contexts (such as in connection with the right to withdraw) some further refinement may be needed, either analysis may be equally valid. On the main point in the appeal, their Lordships are in substantial agreement with Beattie J.
The following other points require mention:
1. In their Lordships’ opinion, consideration may quite well be provided by the appellant, as suggested, even though (or if) it was already under an obligation to discharge to the carrier. (There is no direct evidence of the existence or nature of this obligation, but their Lordships are prepared to assume it.) An agreement to do an act which the promisor is under an existing obligation to a third party to do, may quite well amount to valid consideration and does so in the present case: the promisee obtains the benefit of a direct obligation which he can enforce. This proposition is illustrated and supported by Scotson v. Pegg (1861) 6 H. & N. 295 which their Lordships consider to be good law.
2. The consignee is entitled to the benefit of, and is bound by, the stipulations in the Bill of Lading by his acceptance of it and request for delivery of the goods thereunder. This is shown by Brandt v. Liverpool [1924] 1 K.B. 575 and a line of earlier cases. The Bills of Lading Act 1855, section 1 (in New Zealand the Mercantile Law Act 1908, section 13) gives partial statutory recognition to this rule, but, where the statute does not apply, as it may well not do in this case, the previously established law remains effective.
3. The appellant submitted, in the alternative, an argument that, quite apart from contract, exemptions from, or limitation of, liability in tort may be conferred by mere consent on the part of the party who may be injured. As their Lordships consider that the appellant ought to succeed in contract, they prefer to express no opinion upon this argument: to evaluate it requires elaborate discussion.
4. A clause very similar to the present was given effect by a United States District Court in Carle and Montanari Inc. v. American Export Isbrandtsen Lines Inc. and Another [1968] I L1.R.260. The carrier in that case contracted, in an exemption clause, as agent for, inter altos, all stevedores and other independent contractors, and although it is no doubt true that the law in the United States is more liberal than ours as regards third party contracts, their Lordships see no reason why the law of the Commonwealth should be more restrictive and technical as regards agency contracts. Commercial considerations should have the same force on both sides of the Pacific.
In the opinion of their Lordships, to give the appellant the benefit of the exemptions and limitations contained in the Bill of Lading is to give effect to the clear intentions of a commercial document, and cars be given within existing principles. They see no reason to strain the law or the facts in order to defeat these intentions. It should not be overlooked that the effect of denying validity to the clause would be to encourage actions against servants, agents and independent contractors in order to get round exemptions (which are almost invariable and of tea compulsory) accepted by shippers against carriers, the existence, and presumed efficacy, of which is reflected in the rates of freight. They see no attraction in this consequence.
Their Lordships will humbly advise Her Majesty that the appeal be allowed and the judgment of Beattie J. restored. The respondent must pay the costs of the appeal and in the Court of Appeal.
Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd
[1993] UKHL 4 [1994] 1 AC 85, [1993] UKHL 4, [1994] AC 85, [1993] 3 All ER 417
Lord Browne-Wilkinson
Notwithstanding the apparent logic of Mr Fernyhough’s submission,
I have considerable doubts whether it is correct. A contract for the supply of
goods or of work, labour and materials (a supply contract) is not the same as
a contract for the carriage of goods. A breach of a supply contract involves
a failure to provide the very goods or services which the defendant had
contracted to supply and for which the plaintiff has paid or agreed to pay. If
the breach is discovered before payment of the contract price, the price is
abated by the cost of making good the defects: see as to sale of goods Mondel
v. Steel (1841) 8 M. & W.858 and Sale of Goods Act 1979, section 53(1);
as to building contracts Modern Engineering (Bristol) Ltd. v. Gilbert-Ash
(Northern) Ltd. [1974] A.C. 689. Mr Fernyhough accepted that this right to
abatement of the price does not depend on ownership by the plaintiff of the
goods and it would be odd if the plaintiff’s rights arising from breach varied
according to whether the breach was discovered before or after the payment
of the price. No such similar principle of abatement applies to freight
charges: the freight charges have to be paid in full leaving the consignor to
bring a separate action for damages for breach of the contract of carriage:
Colonial Bank v. European Grain and Shipping Ltd. (The Dominique) [1989]
A.C. 1056, 1067-1068.
In contracts for the sale of goods, the purchaser is entitled to damages
for delivery of defective goods assessed by reference to the difference between
the contract price and the market price of the defective goods, irrespective of
whether he has managed to sell on the goods to a third party without loss:
Slater v. Hoyle & Smith Limited [1920] 2 K.B. 11; see also as to non-delivery
Williams Brothers v. Ed. T. Agius Limited [1914] A.C. 510. In those cases
the judgments contained no consideration of the person in whom the property
in the goods was vested although it appears that some of the sub-contracts had
been made prior to the breach of contract.
If the law were to be established that damages for breach of a supply
contract were not quantifiable by reference to the beneficial ownership of
goods or enjoyment of the services contracted for but by reference to the
difference in value between that which was contracted for and that which is
in fact supplied, it might also provide a satisfactory answer to the problems
raised where a man contracts and pays for a supply to others, e.g., a man
contracts with a restaurant for a meal for himself and his guests or with a
travel company for a holiday for his family. It is apparently established that,
if a defective meal or holiday is supplied, the contracting party can recover
damages not only for his own bad meal or unhappy holiday but also for that
of his guests or family; see Jackson v. Horizon Holidays Ltd. [1975] 1
W.L.R. 1468 as explained in Woodar In vestment Development Ltd. v. Wimpey
Construction U.K. Ltd. [1980] 1 WLR 277, 283-284. 293-294. 297 and
300-301.
There is therefore much to be said for drawing a distinction between
cases where the ownership of goods or property is relevant to prove that the
plaintiff has suffered loss through the breach of a contract other than a
contract to supply those goods or property and the measure of damages in a
supply contract where the contractual obligation itself requires the provision
of those goods or services. I am reluctant to express a concluded view on
this point since it may have profound effects on commercial contracts which
effects were not fully explored in argument. In my view the point merits
exposure to academic consideration before it is decided by this House. Nor
do I find it necessary to decide the point since, on any view, the facts of this
case bring it within the class of exceptions to the general rule to which Lord
Diplock referred in The Albazero.
In The Albazero Lord Diplock said (at p. 846B):
“Nevertheless, although it is exceptional at common law that a plaintiff
in an action for breach of contract, although he himself has not
suffered any loss, should be entitled to recover damages on behalf of
some third person who is not a party to the action for a loss which that
third person has sustained, the notion that there may be circumstances
in which he is entitled to do so was not entirely unfamiliar to the
common law and particularly to that part of it which, under the
influence of Lord Mansfield and his successors. Lord Ellenborough
and Lord Tenterden, had been appropriated from the law merchant.
“I have already mentioned the right of the bailee, which has been
recognised from the earliest period of our law, to sue in detinue or
trespass for loss or damage to his bailor’s goods although he cannot be
compelled by his bailor to do so and he is not himself liable to the
bailor for the loss or damage: The Winkfield [1902] P.42.
Nevertheless, he becomes accountable to his bailor for the proceeds of
the judgment in an action by his bailor for money had and received.
So too the doctrine of subrogation in the case of insurers, which was
adopted from the law merchant by the common law in the eighteenth
century, involved the concept of the nominal party to an action at
common law suing for a loss which he had not himself sustained and
being accountable to his insurer for the proceeds to the extent that he
had been indemnified against the loss by the insurer. In this instance
of a plaintiff being able to recover as damages for breach of contract
for the benefit of a third person a loss which that person has sustained
and he had not, the insurer is entitled to compel an assured to whom
he has paid a total or partial indemnity to bring the action. A third
example, once again in the field of mercantile law, is the right of an
assured to recover in an action on a policy of insurance upon goods the
full amount of loss or damage to them, on behalf of anyone who may
be entitled to an interest in the goods at the time when the loss or
damage occurs, provided that it appears from the terms of the policy
that he intended to cover their interest.”
In addition, the decision in The Albazero itself established a further exception.
This House was concerned with the status of a long-established principle based
on the decision in Dunlop v. Lambert (1839) 6 Cl. & F. 600 that a consignor
of goods who had parted with the property in the goods before the date of
breach could even so recover substantial damages for the failure to deliver the
goods. Lord Diplock (at p.847E) identified the rationale of that rule as being:
“The only way in which I find it possible to rationalise the rule in
Dunlop v. Lambert so that it may fit into the pattern of the English law
is to treat it as an application of the principle, accepted also in relation
to policies of insurance upon goods, that 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 them 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.”
In The Albazero it was held that the principle in Dunlop v. Lambert no
longer applied to goods consigned under a bill of lading because both the
property in the goods and the cause of action for breach of the contract of
carriage passes to the consignee or indorsee by reason of the consignment or
indorsement: therefore, since the consignee or indorsee will in any event be
entitled to enforce the contract direct there is no ground on which one can
impute to the parties an intention that the consignor is entering into the
contract for the benefit of others who will acquire the property in the goods
but no right of action for breach of contract.
However, this House was careful to limit its decision to cases of
carriage by sea under a bill of lading, leaving in force the principle in Dunlop
v. Lambert in relation to other contracts for the carriage of goods where such
automatic assignment of the rights of action for breach does not take place.
Lord Diplock. after the passage referring to the exceptions which I have
already quoted, said (at p. 846G):
“My Lords, in the light of these other exceptions, particularly in the
field of mercantile law, to the general rule of English law that apart
from nominal damages the plaintiff can only recover in an action for
breach of contract the actual loss he has himself sustained. I do not
think that the fact that the rule which it is generally accepted was laid
down by this House in Dunlop v. Lambert. 6 Cl. & F. 600 would add
one more exception would justify your Lordships in declaring the rule
to be no longer law. Nor do I think that the almost complete absence
of reliance on the rule by litigants in actions between 1839 and 1962
provides a sufficient reason for abolishing it entirely. The
development of the law of negligence since 1839 does not provide a
complete substituted remedy for some types of loss caused by breach
of a contract of carriage. Late delivery is the most obvious example
of these. The Bills of Lading Act 1855 and the subsequent
development of the doctrine laid down in Brandt v. Liverpool, Brazil
and River Plate Steam Navigation Co. Ltd. [1924] 1 K.B. 575, have
reduced the scope and utility of the rule in Dunlop v. Lambert . . .
where goods are carried under a bill of lading. But the rule extends
to all forms of carriage including carriage by sea itself where no bill
of lading has been issued, and there may still be occasional cases in
which the rule would provide 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.
For my part, I am not persuaded that your Lordships ought to go out
of your way to jettison the rule.”
In my judgment the present case falls within the rationale of the
exceptions to the general rule that a plaintiff can only recover damages for his
own loss. The contract was for a large development of property which, to
the knowledge of both Corporation and McAlpine, was going to be occupied,
and possibly purchased, by third parties and not by Corporation itself.
Therefore it could be foreseen that damage caused by a breach would cause
loss to a later owner and not merely to the original contracting party,
Corporation. As in contracts for the carriage of goods by land, there would
be no automatic vesting in the occupier or owners of the property for the time
being who sustained the loss of any right of suit against McAlpine. On the
contrary, McAlpine had specifically contracted that the rights of action under
the building contract could not without McAlpine’s consent be transferred to
third parties who became owners or occupiers and might suffer loss. In such
a case, it seems to me proper, as in the case of the carriage of goods by land,
to treat the parties as having entered into the contract on the footing that
Corporation would be entitled to enforce contractual rights for the benefit of
those who suffered from defective performance but who. under the terms of
the contract, could not acquire any right to hold McAlpine liable for breach.
It is truly 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.”
Mr Fernyhough submitted that it would be wrong to distort the law in
order to meet what he described as being an exceptional case. He said that
this was a one-off or exceptional case since the development was sold before
any breach of contract had occurred and there was an express contractual
prohibition on assignment. He submitted that to give Corporation a right to
substantial damages in this case would produce chaos when applied to other
cases where the contractors have entered into direct warranties with the
ultimate purchasers of the individual parts of a development. I am not
impressed by these submissions. I am far from satisfied that this is a one-off
or exceptional case. We are concerned with standard forms of building
contracts which prohibit the assignment of the benefit of building contracts to
the ultimate purchasers. In the prolonged period of recession in the property
market which this country has experienced many developments have had to be
sold off before completion, thereby producing the risk that the ownership of
the property may have become divided from the right to sue on the building
contract at a date before any breach occurs. As to the warranties given by
contractors to subsequent purchasers, they will not, in my judgment, give rise
to difficulty. If, pursuant to the terms of the original building contract, the
contractors have undertaken liability to the ultimate purchasers to remedy
defects appearing after they acquired the property, it is manifest the case will
not fall within the rationale of Dunlop v. Lambert, 6 Cl. & F. 600. If the
ultimate purchaser is given a direct cause of action against the contractor (as
is the consignee or indorsee under a bill of lading) the case falls outside the
rationale of the rule. The original building owner will not be entitled to
recover damages for loss suffered by others who can themselves sue for such
loss. I would therefore hold that Corporation is entitled to substantial
damages for any breach by McAlpine of the building contract.
7. The answer to the preliminary issues
The Linden Gardens Case
The preliminary issues directed were as follows:
“(1). Are the plaintiffs entitled by virtue of the deed of assignment
pleaded at paragraph 1F. of the amended statement of claim to recover
damages against the defendants in respect of the various causes of action and
heads of loss pleaded
where the loss was incurred by Stock Conversion prior to
the said Deed of Assignment.
where the loss was incurred by the plaintiffs subsequent
thereto?
“(2). Were Stock Conversion precluded from lawfully assigning
rights of action to the plaintiffs against second defendants by clause
17(1) of contract dated 19 July 1979 made between Stock Conversion
and the second defendants? . . . “
Logically these questions should be posed in the opposite order. If, as I
would hold, the benefit to the rights of action were not effectively assigned to
– 24 –
Stock Conversion at all. there can be no question of the defendants being
liable to Stock Conversion for any loss whenever the breach occurred. I
would therefore answer question 2 “yes” and question 1 “does not arise”.
I would accordingly allow this appeal with costs both here and below.
Woodar Investment Development Ltd v Wimpey Construction UK Ltd
[1980] UKHL 11 [1980] 1 All ER 571, [1980] 1 WLR 277, [1980] WLR 277
Lord Wilberforce
The second issue in this appeal is one of damages. Both courts below have
allowed Woodar to recover substantial damages in respect of Condition I
under which £150,000 was payable by Wimpey to Transworld Trade Ltd.
on completion. On the view which I take of the repudiation issue, this question
does not require decision, but in view of the unsatisfactory state in which the
law would be if the Court of Appeal’s decision were to stand I must add three
observations:
1. The majority of the Court of Appeal followed, in the case of Goff L.J.
with expressed reluctance, its previous decision in Jackson v. Horizon Holidays
Ltd. [1975] 1 WLR 1468. I am not prepared to dissent from the actual decision
in that case. It may be supported either as a broad decision on the measure of
damages (per James L.J.) or possibly as an example of a type of contract-
examples of which are persons contracting for family holidays, ordering meals
in restaurants for a party, hiring a taxi for a group—calling for special treat-
ment. As I suggested in New Zealand Shipping Co. Ltd. v. A.M. Satterthwaite
& Co. Ltd. [1975] AC 154, 167, there are many situations of daily life which
do not fit neatly into conceptual analysis, but which require some flexibility
in the law of contract. Jackson’s case may well be one.
I cannot however agree with the basis on which the learned Master of the
Rolls put his decision in that case. The extract on which he relied from the
judgment of Lush L.J. in Lloyd’s v. Harper (1880) 16 Ch. D. 290, 321 was part
of a passage in which the Lord Justice was stating as an “established rule
“of law” than an agent (sc. an insurance broker) may sue on a contract made
by him on behalf of the principle (sc. the assured) of the contract gives him
such a right, and is no authority for the proposition required in Jackson’s
case, still less for the proposition, required here, that if Woodar made a
contract for a sum of money to be paid to Transworld Woodar can, without
showing it has itself suffered loss or that Woodar was agent or trustee for
Transworld, sue for damages for non-payment of that sum. That would
certainly not be an established rule of law, nor was it quoted as such authority
by Lord Pearce in Beswick v. Beswick [1968] AC 58.
Assuming that Jackson’s case was correctly decided (as above), it does
not carry the present case, where the factual situation is quite different. I
respectfully think therefore that the Court of Appeal need not, and should
not have followed it.
Whether in a situation such as the present—viz. where it is not shown
that Woodar was agent or trustee for Transworld, or that Woodar itself
sustained any loss, Woodar can recover any damages at all, or any but nominal
damages, against Wimpey, and on what principle, is, in my opinion, a question
of great doubt and difficulty—no doubt open in this House—but one on which
I prefer to reserve my opinion.
I would allow the appeal.
Lord Scarman
It being the view of the majority of the House that there was no repudiation,
the appeal must be allowed, with the result that there is no need to consider
the other issues raised. But, because of its importance, I propose to say a few
words on the question of damages.
The plaintiff company agreed to sell the land to the defendants for £850,000.
They also required the defendants to pay £150,000 to a third party. The
covenant for this payment was in the following terms:—
“I. Upon completion of the purchase of the whole or any part of the
“land the purchaser shall pay to Transworld Trade Limited of 25 Jermyn
“Street, London. S.W.1, a sum of £150,000.”
No relationship of trust or agency was proved to exist between the plaintiff
company and Transworld Trade Ltd. No doubt, it suited Mr. Cornwell to
split up the moneys payable under the contract between the two companies:
but it is not known, let alone established by evidence (though an intelligent
guess is possible) why he did so, or why the plaintiffs desired this money to
be paid to Transworld Trade. It is simply a case of B agreeing with A to pay
a sum of money to C.
B, in breach of his contract with A, has failed to pay C. C, it is said, has no
remedy, because the English law of contract recognises no “jus quaesitum
“tertio”: Tweddle v. Atkinson (1861) 1 B. and S. 393. No doubt, it was for this
reason that Transworld Trade is not a party to the suit. A, it is acknowledged,
could in certain circumstances obtain specific performance of the promise to
pay C: Beswick v. Beswick [1968] AC 58. But, since the contract in the present
case is admitted (for reasons which do not fall to be considered by the House)
to be no longer in existence, specific performance is not available. A’s remedy
lies only in an award of damages to himself. It is submitted that, in the absence
of any evidence that A has suffered loss by reason of B’s failure to pay C,
A is only entitled to nominal damages.
I wish to add nothing to what your Lordships have already said about the
authorities which the Court of Appeal cited as leading to the conclusion that
the plaintiff company is entitled to substantial damages for the defendants’
failure to pay Transworld Trade. I agree that they do not support the conclusion.
But I regret that this House has not yet found the opportunity to reconsider the
two rules which effectually prevent A or C recovering that which B, for value,
has agreed to provide.
First, the “jus quaesitum tertio”. I respectfully agree with Lord Reid that the
denial by English law of a “jus quaesitum tertio” calls for reconsideration.
In Beswick v. Beswick, supra, at page 72 Lord Reid, after referring to the Law
Revision Committee’s recommendation (1937 Cmd. 5449 page 31) that the third
party should be able to enforce a contractual promise taken by another for his
benefit, observed:—
“And, if one had to contemplate a further long period of Parliamentary
“procrastination, this House might find it necessary to deal with this
“matter.”
The Committee reported in 1937: Beswick v. Beswick was decided in 1967. It is
now 1979: but nothing has been done. If the opportunity arises, I hope the
House will reconsider Tweddle v. Atkinson and the other cases which stand
guard over this unjust rule.
Likewise, I believe it open to the House to declare that, in the absence of
evidence to show that he has suffered no loss, A, who has contracted for a
payment to be made to C, may rely on the fact that he required the payment to
be made as prima facie evidence that the promise for which he contracted was a
benefit to him and that the measure of his loss in the event of non-payment is the
benefit which he intended for C but which has not been received. Whatever the
reason, he must have desired the payment to be made to C and he must have
been relying on B to make it. If B fails to make the payment, A must find the
money from other funds if he is to confer the benefit which he sought by his
contract to confer upon C. Without expressing a final opinion on a question
which is clearly difficult, I think the point is one which does require consideration
by your Lordships’ House.
Certainly the crude proposition for which the defendants contend, namely
that the state of English law is such that neither C for whom the benefit was
intended nor A who contracted for it can recover it, if the contract is terminated
by B’s refusal to perform, calls for review: and now, not forty years on.
Technotrade Ltd v Larkstore Ltd
[2006] EWCA Civ 1079 [2006] 1 WLR 2926, [2006] WLR 2926
Assignment point: general principles
The perceived problem of the effect of the assignment on the assignee’s right to recover substantial damages is temporal in origin. It arises from the particular order in which the following events occurred: the breach of contract by Technotrade, the transfer of ownership of the Site by Starglade to Larkstore, the damage caused by the landslip after the transfer, and the assignment of the cause of action by Starglade to Larkstore, which occurred years after the transfer of the Site.
There are 3 relevant points of time.
1) The time of the breach of contract by Technotrade. The contractual cause of action against Technotrade arose when Starglade was the owner of the Site. Starglade was only entitled to recover nominal damages at that time. No substantial damage could be established until the occurrence of the landslip in October 2001
2) The time of the landslip. Larkstore was the owner of the Site at the time when the landslip occurred and substantial damage was suffered. Starglade was still entitled to the chose in action, but it was not entitled to recover substantial damages, as it had ceased to own the Site. Larkstore owned the Site and suffered substantial damage, but was not entitled to recover damages form Technotrade for breach of contract, because it had no contract with Technotrade and, at that time, had no assignment from Starglade of the benefit of its contract, rights of action and remedies for breach of contract.
3) The time of the assignment. Starglade could not, it was submitted, assign to Larkstore more than it had. It did not have a claim for substantial damages against Technotrade in contract, as it had ceased to own the Site before the assignment and before the landslip.
The answer to the perceived problem of a limit on the damages which Larkstore, as assignee, is entitled to recover from Technotrade is to be found, in my judgment, in an analysis of the cause of action itself. In this case the cause of action was the right to sue Technotrade for breach of contract in respect of the preparation of the soil inspection report on the Site. The cause of action was complete in December 1998 when Technotrade produced the soil report for Starglade.
It is accepted that the report and the rights of action and remedies in respect of it were assignable and were not personal to Starglade. It is also accepted that, although the damages which Starglade could have recovered at the date when the cause of action was complete would have been no more than nominal damages, Starglade, if it had remained the owner of the Site, would have been entitled to claim and, if able to prove, recover substantial damages for the landslip which occurred in October 2001.
The remedy in damages for breach of contract is not limited to the loss that could have been proved at the date when the breach occurred and the cause of action first arose. Subject to factual and legal issues of causation, remoteness, quantum and limitation of actions, there is a remedy in damages against the contract breaker for loss which occurs after the cause of action has accrued. A cause of action may arise years before any substantial damage occurs, as, for example, in the case of negligent advice on title. There is no legal principle which protects the contract-breaker by excluding his liability for substantial damage that occurs after the initial breach of contract.
What difference, if any, can an assignment of the cause of action make to the remedies available to the assignee against the contract-breaker? A statutory assignment in writing under section 136 of the Law of Property Act 1925, of which express notice has been given, as was done in this case, is effectual in law to pass and transfer from the date of notice the legal right to the thing in action and “all legal and other remedies for the same.” The statutory assignment is expressly made “subject to equities having priority over the right of the assignee.”
Mr Friedman QC (who did not appear in the court below) submitted on behalf of Technotrade that the assignment makes a crucial difference. His broad submission was that the only losses that Larkstore is entitled to claim by virtue of the assignment of the cause of action are the losses that Starglade could itself have recovered from Technotrade at the time of the assignment. As the assignment of the cause of action took place after Starglade had parted with the Site to Larkstore and the substantial damage occurred before the assignment of the cause of action to Larkstore, Starglade and therefore Larkstore had no right to claim and recover substantial damages for loss resulting from the landslip.
In its defence to the Part 20 Particulars of Claim Technotrade pleaded that Starglade’s rights of action are of no assistance to Larkstore, as Starglade has suffered no losses (paragraph 31). It is pleaded in paragraph 30 –
” (i) The well established principle that an assignee of a chose in action (here Larkstore) cannot recover more than the assignor (here Starglade) has lost, is applicable on the particular facts of this claim, which it is averred does not fit within any of the exceptions to the said principle. Starglade has suffered no loss and Larkstore is not entitled to put itself in any better position than the principal to the contract which it has purported to assign.”
The scope of the principle pleaded is discussed generally in Chitty on Contracts (29th Edition-2004) Ch 19-
“19-073 Assignee cannot recover more than assignor. A further aspect of the idea that an assignee takes an assignment “subject to equities” is the principle that an assignee cannot recover more from the debtor than the assignor could have done had there been no assignment. For example, in Dawson v. Great Northern & City Railway Co the assignment of a statutory claim for compensation for damage to land did not entitle the assignee to recover extra loss suffered by reason of a trade carried on by him, but not the assignor, that the assignor would not have suffered.
19-074 The application of this principle has given rise to particular difficulty in relation to building contracts or tort claims for damage to buildings. Say, for example, a building is sold at full value along with an assignment to the purchaser of claims in contract or tort in relation to the building. The building turns out to need repairs as a result of a breach of the builder’s contract with the assignor (whether that breach is prior, or subsequent, to the sale to the assignee) or of a tort (damaging the building prior to the sale). The assignee pays for the repairs. It might be argued that the assignor in that situation has suffered no loss so that, applying the governing principle that the assignee cannot recover more than the assignor, the assignee has no substantial claim. If correct, ” …the claim to damages would disappear …into some legal black hole, so that the wrong-doer escaped scot-free.” Acceptance of the argument would also nullify the purpose of the governing principle which is to avoid prejudice to the debtor and not to allow the debtor to escape liability.
19-075 Perhaps not surprisingly, therefore, that argument was rejected by the House of Lords in a Scottish delict case. And the problem has been circumvented in England by the courts’ recognition that, where a third party is, or will become, owner of a defective or damaged property, there is an exception to the general rule that a contracting party can recover damages for its own loss and not for the loss of a third party. Where the exception applies, the contracting party (the assignor) is entitled to substantial damages for the loss suffered by the third party (the assignee): by the same token, an award of substantial damages to the assignee does not infringe the principle that the assignee cannot recover more than the assignor.”
…….
The authorities
Mr Friedman’s submissions on the assignment point are not supported by the authorities cited by him to show that the judge had misunderstood or misapplied the correct legal principles. Although the cases were discussed at length in the skeleton arguments and at the hearing, I propose to deal with them quite briskly.
Dawson v. Great Northern and City Railways Company [1905] 1 KB 260 at 272-274 per Stirling LJ was cited for the proposition that the assignee was not entitled to recover any greater amount of compensation than the assignor could have recovered. The width of the general proposition has to be read in context. In that case compensation under the Lands Clauses Consolidation Act 1845 was not payable to the assignee for “damage to her trade stock” (as distinct from structural damage to premises requiring re-instatement works which did not increase the burden on the defendants), because that was compensation for an item that could not have been recovered by the assignor from the defendants. The assignor did not trade in the stock in question and could not have made a claim for compensation for that item.
GUS Property Management Limited v. Littlewoods Mail Order Stores Limited [1982] SLT 583 was also cited for Lord Keith’s statement at p 537-538 that
” …. the basic question at issue is whether in this action the Pursuers are really seeking to pursue against the Defenders a claim or claims which the [assignor] could have pursued at the date of the [assignment] ….. the only relevant loss which by virtue of the [assignment] the Pursuers could claim title to recover is loss suffered by the [assignor] for which the [assignor] could at the date of the [assignment] have sought reparation.”
The speech of Lord Keith was considered in Linden Gardens. We heard very detailed submissions on the speech of Lord Browne-Wilkinson in the House of Lords (with which the other members of the Appellate Committee concurred) and on the judgments in the Court of Appeal.
The judge was criticised by Mr Friedman for relying on the following passage in the judgment of Staughton LJ in 57 BLR 57 at p80-81-
“That brings me to the last point to be considered in connection with assignment of choses in action. Where the assignment is of a cause of action for damages, the assignee must of course have a sufficient proprietary right, or a genuine commercial interest, if the assignment is not to be invalid. It is no longer in issue in these appeals that the assignees had such a right in each case; we heard no argument to the contrary from the contractors. But it is said that in such a case he assignee can recover no more as damages than the assignor could have recovered.
That proposition seems to me well founded. It stems from the principle already discussed, that the debtor is not to be put in any worse position by reason of the assignment. And it is established by Dawson v. Great Northern & City Railway Co [1905] 1 KB 260; see also GUS Property Management Ltd v. Littlewoods Mail Order Stores Ltd [1982] SLT 533 by Lord Keith of Kinkel at page 538, cited later in this judgment [pp 89-90]. But in a case such as the present one must elucidate the proposition slightly: the assignee can recover no more damages than the assignor could have recovered if there had been no assignment, and if the building had not been transferred to the assignee.”
As I read the judgments of the other members of the court (Kerr LJ at pp 97- 98 and Nourse LJ at p66), it is reasonably clear that they agreed with what Staughton LJ said on this point in the passage cited and on pp 91-92.
Although the House of Lords overturned the decision of the Court of Appeal on the issue of the effect of the prohibition against assignment, I do not read the speech of Lord Browne-Wilkinson, which did not directly address the issue, as questioning the ruling of the Court of Appeal on the question whether an assignee could recover no more damages than the assignor could have recovered. It was unnecessary for the House to consider the assignee’s remedies for breach of contract in view of its decision that the prohibition against assignment rendered the assignments ineffective.
The judgment of Staughton LJ was rightly relied on by the judge. I am respectfully of the view that the ruling of Staughton LJ on this point is correct as a matter of legal principle and good sense, and ought to be followed by this court in this case. It completely disposes of the argument raised in the defence of Technotrade that Larkstore is not entitled to claim substantial damages from Technotrade, because its assignor, Starglade, had suffered no loss, having parted with the Site before the landslip occurred and before the assignment of its cause of action to Larkstore.
I must, however, make it clear that the only point raised in this case at this preliminary stage is whether Larkstore had, by virtue of the assignment, a right to sue Technotrade for substantial damages for breach of contract in respect of loss claimed to have been suffered by it in consequence of the landslip at the Site. There is no question before this court, nor was there below, as to the proper measure or quantum of damages, which Larkstore is entitled to recover against Technotrade. We have heard no argument on it and I express no views on that aspect of the case.
Rolls-Royce Power Engineering Plc & Anor v Ricardo Consulting Engineers Ltd.
[2003] EWHC 2871
In the existing state of the law it seems to me that a fundamental condition to be met if the rule in Dunlop v. Lambert is to be applied in any case is that it should at the time the relevant contract was made have been in the actual contemplation of the parties that an identified third party or a third party who was a member of an identified class would or might suffer damage in the event of a breach of the contract. In no case to which my attention was drawn was that condition not satisfied. Moreover, if the general rule, as everyone seems to accept, is that a party to a contract may not recover in respect of a breach of it substantial damages if he himself has not suffered such loss, any exception is an exception to that rule, not a wholesale replacement of it, and there must be special circumstances which take a particular case out of the ambit of the general rule. If the special circumstances which take a case out of the general are knowledge that an identified third party or a third party who is a member of an identified class will or might suffer damage if there is a breach of contract, that is something which ought to be capable of being readily demonstrated, it involves no obvious injustice, as the possibility of loss will have been known at the time the contract was made, and seems to do justice because it gives effect to the contemplation of the contracting parties and provides a means of compensating the third party for whose benefit, at least in part, the relevant contractual obligation was undertaken. If knowledge at the date of the contract of the interest of the third party as such or as a member of an identified class were unnecessary, the result would be that a claim for substantial damages could be advanced on behalf of anyone whomsoever who contended that they had suffered loss as a result of a breach of contract, however remote their apparent connection to the performance of the contract. Such a possibility would destroy the general rule.
In the present case, on my findings of fact, RRPE was not a party identified either by name or by membership of an identified class as one who would or might suffer loss as a result of a breach of the Definitive Design Contract on the part of Ricardo. The fact that it was known to be the parent company of Allen is, in my judgment, insufficient, for in that capacity it would sustain no loss in the event of a breach of the contract in respect of which Allen could recover substantial damages, and Allen would have been able to do that in the event of a claim for damages arising at any stage, had not the Allen Diesels Business been transferred to RRPE and RRPE thereafter undertaken manufacture and sale of the Engines itself.
In the result the answer to sub-issue 7 (c) is negative.
Alfred McAlpine Construction Limited v. Panatown Limited
[2000] UKHL 43; [2000] 4 All ER 97; [2000] 3 WLR 946 [2001] 1 AC 518
Lord Clyde
It is particularly this passage in Lord Diplock’s speech which has given rise to a question discussed in the present appeal whether The Albazero exception is a rule of law or is based upon the intention of the parties. The issue was identified by my noble and learned friend Lord Goff of Chievely in his speech in White v. Jones [1995] 2 AC 207, 267. The problem arises from two phrases in the speech of Lord Diplock the mutual relationship between which may not be immediately obvious. The two phrases, in the reverse order than that in which they appear, are “is to be treated in law as having entered into the contract” and “if such be the intention of the parties.” In my view it is preferable to regard it as a solution imposed by the law and not as arising from the supposed intention of the parties, who may in reality not have applied their minds to the point. On the other hand if they deliberately provided for a remedy for a third party it can readily be concluded that they have intended to exclude the operation of the solution which would otherwise have been imposed by law. The terms and provisions of the contract will then require to be studied to see if the parties have excluded the operation of the exception.
That appears to have been the conclusion adopted in St. Martins Property Corporation Ltd. v. Sir Robert McAlpine [1994] 1 AC 85, where my noble and learned friend Lord Browne-Wilkinson observed at p. 115:
“In such a case, it seems to me proper, as in the case of the carriage of goods by land, to treat the parties as having entered into the contract on the footing that Corporation would be entitled to enforce contractual rights for the benefit of those who suffered from defective performance but who, under the terms of the contract, could not acquire any right to hold McAlpine liable for breach.”
In that case the point was made that the contractor and the employer were both aware that the property was going to be occupied and possibly purchased by third parties so that it could be foreseen that a breach of the contract might cause loss to others than the employer. But such foresight may be an unnecessary factor in the applicability of the exception. So also an intention of the parties to benefit a third person may be unnecessary. Foreseeablility may be relevant to the question of damages under the rule in Hadley v. Baxendale (1854) 9 Exch 341, but in the context of liability it is a concept which is more at home in the law of tort than in the law of contract. If the exception is founded primarily upon a principle of law, and not upon the particular knowledge of the parties to the contract, then it is not easy to see why the necessity for the contemplation of the parties that there will be potential losses by third parties is essential. It appears that in the St. Martins case [1994] 1 AC 85 the damages claimed were in respect of the cost of remedial work which had been carried out. I see no reason why consequential losses should not also be recoverable under this exception where such loss occurs and the third party should have a right to recover for himself all the damages won by the original party on his behalf.
The Albazero exception will plainly not apply where the parties contemplate that the carrier will enter into separate contracts of carriage with the later owners of the goods, identical to the contract with the consignor. Even more clearly, as Lord Diplock explained at p. 848, will the exception be excluded if other contracts of carriage are made in terms different from those in the original contract. In The Albazero the separate contracts which were mentioned were contracts of carriage. That is understandable in the context of carriage by sea involving a charterparty and bills of lading, but the counterpart in a building contract to a right of suit under a bill of lading should be the provision of a direct entitlement in a third party to sue the contractor in the event of a failure in the contractor’s performance. In the context of a building contract one does not require to look for a second building contract to exclude the exception. It would be sufficient to find the provision of a right to sue. Thus as my noble and learned friend Lord Browne-Wilkinson observed in the St. Martins case [1994] 1 AC 85, 115:
“If, pursuant to the terms of the original building contract, the contractors have undertaken liability to the ultimate purchasers to remedy defects appearing after they acquired the property, it is manifest the case will not fall within the rationale of Dunlop v Lambert 6 Cl. & F. 600. If the ultimate purchaser is given a direct cause of action against the contractor (as is the consignee or endorsee under a bill of lading) the case falls outside the rationale of the rule.”
In the St. Martins case the employer started off as the owner of the property and subsequently conveyed it to another company. In the present case the employer never was the owner. But that has not featured as a critical consideration in the present appeal and I do not see that that factor affects the application of the exception. In the St. Martins case there was a contractual bar on the assignment of rights of action without the consent of the contractor. In the present case the extra qualification was added that the consent should not be unreasonably withheld. But again I do not see that difference as of significance. It does not follow that the presence of a provision enabling assignment without the consent of the contractor excludes the exception. As was held in Darlington Borough Council v. Wiltshier Northern Ltd. [1995] 1 WLR 68 where there is a right to have an assignment of any cause of action accruing to the employer against the contractor, the exception may still apply so as to enable the assignee to recover substantial damages. It may be that the exception could be excluded through some contractual arrangement between the employer and the third party who sustained the actual loss, but the law would probably be slow to find such an intention established where it would leave the black hole. At least an express provision for assignment of the employer’s rights will not suffice.
I have no difficulty in holding in the present case that the exception cannot apply. As part of the contractual arrangements entered into between Panatown and McAlpine there was a clear contemplation that separate contracts would be entered into by McAlpine, the contracts of the deed of duty of care and the collateral warranties. The duty of care deed and the collateral warranties were of course not in themselves building contracts. But they did form an integral part of the package of arrangements which the employer and the contractor agreed upon and in that respect should be viewed as reflecting the intentions of all the parties engaged in the arrangements that the third party should have a direct cause of action to the exclusion of any substantial claim by the employer, and accordingly that the exception should not apply. There was some dispute upon the difference in substance between the remedies available under the contract and those available under the duty of care deed. Even if it is accepted that in the circumstances of the present case where the eventual issue may relate particularly to matters of reasonable skill and care, the remedies do not absolutely coincide, the express provision of the direct remedy for the third party is fatal to the application of The Albazero exception. On a more general approach the difference between a strict contractual basis of claim and a basis of reasonable care makes the express remedy more clearly a substitution for the operation of the exception. Panatown cannot then in the light of these deeds be treated as having contracted with McAlpine for the benefit of the owner or later owners of the land and the exception is plainly excluded.
I turn accordingly to what was referred to in the argument as the broader ground. But the label requires more careful definition. The approach under The Albazero exception has been one of recognising an entitlement to sue by the innocent party to a contract which has been breached, where the innocent party is treated as suing on behalf of or for the benefit of some other person or persons, not parties to the contract, who have sustained loss as a result of the breach. In such a case the innocent party to the contract is bound to account to the person suffering the loss for the damages which the former has recovered for the benefit of the latter. But the so-called broader ground involves a significantly different approach. What it proposes is that the innocent party to the contract should recover damages for himself as a compensation for what is seen to be his own loss. In this context no question of accounting to anyone else arises. This approach however seems to me to have been developed into two formulations.
The first formulation, and the seeds of the second, are found in the speech of Lord Griffiths in St. Martins Property Corporation Ltd. v. Sir Robert McAlpine Ltd. [1994] 1 AC 85, 96. At the outset his Lordship expressed the opinion that Corporation, faced with a breach by McAlpine of their contractual duty to perform the contract with sound materials and with all reasonable skill and care, would be entitled to recover from McAlpine the cost of remedying the defect in the work as the normal measure of damages. He then dealt with two possible objections. First, it should not matter that the work was not being done on property owned by Corporation. Where a husband instructs repairs to the roof of the matrimonial home it cannot be said that he has not suffered damage because he did not own the property. He suffers the damage measured by the cost of a proper completion of the repair:
“In cases such as the present 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.”
The second objection, that Corporation had in fact been reimbursed for the cost of the repairs was answered by the consideration that the person who actually pays for the repairs is of no concern to the party who broke the contract. But Lord Griffiths added at p. 97:
“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 upon the defendant who broke his contract.”
In the first formulation this approach can be seen as identifying a loss upon the innocent party who requires to instruct the remedial work. That loss is, or may be measured by, the cost of the repair. The essential for this formulation appears to be that the repair work is to be, or at least is likely to be, carried out. This consideration does not appear to be simply relevant to the reasonableness of allowing the damages to be measured by the cost of repair. It is an essential condition for the application of the approach, so as to establish a loss on the part of the plaintiff. Thus far the approach appears to be consistent with principle, and in particular with the principle of privity. It can cover the case where A contracts with B to pay a sum of money to C and B fails to do so. The loss to A is in the necessity to find other funds to pay to C and provided that he is going to pay C, or indeed has done so, he should be able to recover the sum by way of damages for breach of contract from B. If it was evident that A had no intention to pay C, having perhaps changed his mind, then he would not be able to recover the amount from B because he would have sustained no loss, and his damages would at best be nominal.
But there can also be found in Lord Griffiths’ speech the idea that the loss is not just constituted by the failure in performance but indeed consists in that failure. This is the “second formulation.” In relation to the suggestion that the husband who instructs repair work to the roof of his wife’s house and has to pay for another builder to make good the faulty repair work has sustained no damage Lord Griffiths observed at p. 97:
“Such a result would in my view be absurd and the answer is that the husband has suffered loss because he did not receive the bargain for which he had contracted with the first builder and the measure of damages is the cost of securing the performance of that bargain by completing the roof repairs properly by the second builder.”
That is to say that the fact that the innocent party did not receive the bargain for which he contracted is itself a loss. As Steyn L.J. put it in Darlington Borough Council v. Wiltshier Northern Ltd. [1995] 1 WLR 68, 80, “he suffers a loss of bargain or of expectation interest.” In this more radical formulation it does not matter whether the repairs are or are not carried out, and indeed in the Darlington case that qualification is seen as unnecessary. In that respect the disposal of the damages is treated as res inter alios acta. Nevertheless on this approach the intention to repair may cast light on the reasonableness of the measure of damages adopted. In order to follow through this aspect of the second formulation in Lord Griffiths’ speech it would be necessary to understand his references to the carrying out of the repairs to be relevant only to that consideration.
I find some difficulty in adopting the second formulation as a sound way forward. First, if the loss is the disappointment at there not being provided what was contracted for, it seems to me difficult to measure that loss by consideration of the cost of repair. A more apt assessment of the compensation for the loss of what was expected should rather be the difference in value between what was contracted for and what was supplied. Secondly, the loss constituted by the supposed disappointment may well not include all the loss which the breach of contract has caused. It may not be able to embrace consequential losses, or losses falling within the second head of Hadley v. Baxendale (1854) 9 Exch 341 . The inability of the wife to let one of the rooms in the house caused by the inadequacy of the repair, does not seem readily to be something for which the husband could claim as his loss. Thirdly, there is no obligation on the successful plaintiff to account to anyone who may have sustained actual loss as a result of the faulty performance. Some further mechanism would then be required for the court to achieve the proper disposal of the monies awarded to avoid a double jeopardy. Alternatively, in order to achieve an effective solution, it would seem to be necessary to add an obligation to account on the part of the person recovering the damages. But once that step is taken the approach begins to approximate to The Albacruz exception. Fourthly, the “loss” constituted by a breach of contract has usually been recognised as calling for an award of nominal damages, not substantial damages.
The loss of an expectation which is here referred to seems to me to be coming very close to a way of describing a breach of contract. A breach of contract may cause a loss, but is not in itself a loss in any meaningful sense. When one refers to a loss in the context of a breach of contract, one is in my view referring to the incidence of some personal or patrimonial damage. A loss of expectation might be a loss in the proper sense if damages were awarded for the distress or inconvenience caused by the disappointment. Professor Coote (“Contract Damages, Ruxley, and the Performance Interest” (1997) C.L.J. 537) draws a distinction between benefits in law, that is bargained-for contractual rights, and benefits in fact, that is the enjoyment of the fruits of performance. Certainly the former may constitute an asset with a commercial value. But while frustration may destroy the rights altogether so that the contract is no longer enforceable, a failure in the obligation to perform does not destroy the asset. On the contrary it remains as the necessary legal basis for a remedy. A failure in performance of a contractual obligation does not entail a loss of the bargained-for contractual rights. Those rights remain so as to enable performance of the contract to be enforced, as by an order for specific performance. If one party to a contract repudiates it and that repudiation is accepted, then, to quote Lord Porter in Heyman v. Darwins Ltd. [1942] A.C. 356, 399,
“By that acceptance he is discharged from further performance and may bring an action for damages, but the contract itself is not rescinded.”
The primary obligations under the contract may come to an end, but secondary obligations then arise, among them being the obligation to compensate the innocent party. The original rights may not then be enforced. But a consequential right arises in the innocent party to obtain a remedy from the party who repudiated the contract for his failure in performance.
Both of these two formulations seek to remedy the problem of the legal black hole. At the heart of the problem is the doctrine of privity of contract which excludes the ready development of a solution along the lines of a jus quaesitum tertio. It might well be thought that such a solution would be more direct and simple. In the context of the domestic and familial situations, such as the husband instructing the repairs to the roof of his wife’s house, or the holiday which results in disappointment to all the members of the family, the jus quaesitum tertio may provide a satisfactory means of redress, enabling compensation to be paid to the people who have suffered the loss. Such an approach is available in Germany see W. Lorrenz “Contract Beneficiaries in German Law” in The Gradual Convergence: Foreign Ideas, Foreign Influences, and English Law on the Eve of the 21st Century ed. Markesinis (1994), pp. 65, 78, 79. It may also be available in Scotland (Carmichael v. Carmichael’s Executrix 1920 SC (HL) 195). But we were not asked to adopt it in the present case and so radical a step cannot easily be achieved without legislative action. Since Parliament has recently made some inroad into the principle of privity but has stopped short of admitting a solution to a situation such as the present, it would plainly be inappropriate to enlarge the statutory provision by judicial innovation. The alternative has to be the adoption of what Lord Diplock in Swain v. The Law Society [1983] 1 A.C. 598, 611 described as a juristic subterfuge “to mitigate the effect of the lacuna resulting from the non-recognition of a jus quaesitum tertio.” The solution, achieved by the operation of law, may carry with it some element of artificiality and may not be supportable on any clear or single principle. If the entitlement to sue is not to be permitted to the party who has suffered the loss, the law has to treat the person who is entitles to sue as doing so on behalf of the third party. As Lord Wilberforce observed in Woodar Investment Development Ltd. v. Wimpey Construction U.K. Ltd. [1980] 1 WLR 277, 283, “there are many situations of daily life which do not fit neatly into conceptual analysis, but which require some flexibility in the law of contract.”
It seems to me that a more realistic and practical solution is to permit the contracting party to recover damages for the loss which he and a third party has suffered, being duly accountable to them in respect of their actual loss, than to construct a theoretical loss in law on the part of the contracting party, for which he may be under no duty to account to anyone since it is to be seen as his own loss. The solution is required where the law will not tolerate a loss caused by a breach of contract to go uncompensated through an absence of privity between the party suffering the loss and the party causing it. In such a case, to avoid the legal black hole, the law will deem the innocent party to be claiming on behalf of himself and any others who have suffered loss. It does not matter that he is not the owner of the property affected, nor that he has not himself suffered any economic loss. He sues for all the loss which has been sustained and is accountable to the others to the extent of their particular losses. While it may be that there is no necessary right in the third party to compel the innocent employer to sue the contractor, in the many cases of the domestic or familial situation that consideration should not be a realistic problem. In the commercial field, in relation to the interests of such persons as remoter future proprietors who are not related to the original employer, it may be that a solution by way of collateral warranty would still be required. If there is an anxiety lest the exception would permit an employer to receive excessive damages, that should be set at rest by the recognition of the basic requirement for reasonableness which underlies the quantification of an award of damages.
The problem which has arisen in the present case is one which is most likely to arise in the context of the domestic affairs of a family group or the commercial affairs of a group of companies. How the members of such a group choose to arrange their own affairs among themselves should not be a matter of necessary concern to a third party who has undertaken to one of their number to perform services in which they all have some interest. It should not be a ground of escaping liability that the party who instructed the work should not be the one who sustained the loss or all of the loss which in whole or part has fallen on another member or members of the group. But the resolution of the problem in any particular case has to be reached in light of its own circumstances. In the present case the decision that Panatown should be the employer under the building contract although another company in the group owned the land was made in order to minimise charges of VAT. No doubt thought was given as to the mechanics to be adopted for the building project in order to achieve the course most advantageous to the group. Where for its own purposes a group of companies decides which of its members is to be the contracting party in a project which is of concern and interest to the whole group I should be reluctant to refuse an entitlement to sue on the contract on the ground simply that the member who entered the contract was not the party who suffered the loss on a breach of the contract. But whether such an entitlement is to be admitted must depend upon the arrangements which the group and its members have decided to make both among themselves and with the other party to the contract. In the present case there was a plain and deliberate course adopted whereby the company with the potential risk of loss was given a distinct entitlement directly to sue the contractor and the professional advisers. In the light of such a clear and deliberate course I do not consider that an exception can be admitted to the general rule that substantial damages can only be claimed by a party who has suffered substantial loss.
I agree that the appeal should be allowed.
Lord Goff (dissenting)
I add that, if Lord Griffiths’ approach was to be rejected, it would follow that, for example, the employer under a building contract for work on another’s property would have no remedy in damages if the builder was to repudiate the contract or to fail altogether to perform the contractual work. In other words, the builder could repudiate with impunity. It is no answer, or an insufficient answer, to this point that money paid in advance by the employer may be recoverable on the ground of failure of consideration, any more than it is an answer to other cases that there may be an abatement of the price.
In the light of this preamble I wish to state that I find persuasive the reasoning and conclusion expressed by Lord Griffiths in his opinion in the St. Martin’s case [1994] 1 AC 85, that the employer under a building contract may in principle recover substantial damages from the building contractor, because he has not received the performance which he was entitled to receive from the contractor under the contract, notwithstanding that the property in the building site was vested in a third party. The example given by Lord Griffiths of a husband contracting for repairs to the matrimonial home which is owned by his wife is most telling. It is not difficult to imagine other examples, not only within the family, but also, for example, where work is done for charitable purposes – as where a wealthy man who lives in a village decides to carry out at his own expense major repairs to, or renovation or even reconstruction of, the village hall, and himself enters into a contract with a local builder to carry out the work to the existing building which belongs to another, for example to trustees, or to the parish council. Nobody in such circumstances would imagine that there could be any legal obstacle in the way of the charitable donor enforcing the contract against the builder by recovering damages from him if he failed to perform his obligations under the building contract, for example because his work failed to comply with the contract specification.
At this stage I find it necessary to return to the opinion of Lord Griffiths in the St. Martin’s case. In the passage from his opinion, [1994] 1 AC 85, 96-97, which I have already quoted, he gave the example of a husband placing a contract with a builder for the replacement of the roof of the matrimonial home which belonged to his wife. The work proved to be defective. Lord Griffiths expressed the opinion that, in such a case, it would be absurd to say that the husband has suffered no damage because he does not own the property. I wish now to draw attention to the fact that, in his statement of the facts of his example, Lord Griffiths included the fact that the husband had to call in and pay another builder to complete the work. It might perhaps be thought that Lord Griffiths regarded that fact as critical to the husband’s cause of action against the builder, on the basis that the husband only has such a cause of action in respect of defective work on another person’s property if he himself has actually sustained financial loss, in this example by having paid the second builder. In my opinion, however, such a conclusion is not justified on a fair reading of Lord Griffiths’ opinion. This is because he stated the answer to be that “the husband has suffered loss because he did not receive the bargain for which he had contracted with the first builder and the measure of damages is the cost of securing the performance of that bargain by completing the roof repairs properly by the second builder.” It is plain, therefore, that the payment to the second builder was not regarded by Lord Griffiths as essential to the husband’s cause of action.
The point can perhaps be made more clearly by taking a different example, of the wealthy philanthropist who contracts for work to be done to the village hall. The work is defective; and the trustees who own the hall suggest that he should recover damages from the builder and hand the damages over to them, and they will then instruct another builder, well known to them, who, they are confident, will do the work well. The philanthropist agrees, and starts an action against the first builder. Is it really to be suggested that his action will fail, because he does not own the hall, and because he has not incurred the expense of himself employing another builder to do the remedial work? Echoing the words of Lord Griffiths, I regard such a conclusion as absurd. The philanthropist’s cause of action does not depend on his having actually incurred financial expense; as Lord Griffiths said of the husband in his example, he “has suffered loss because he did not receive the bargain for which he had contracted with the first builder.”
There has been a substantial amount of academic discussion about the difference of opinion in the Appellate Committee in the St. Martin’s case and in particular about the merits of Lord Griffiths’ opinion in that case. The Appellate Committee in the present case was supplied with copies of a number of relevant articles, which I have studied with interest and respect. I have not detected any substantial criticism of Lord Griffiths’ broader ground, whereas there has been some criticism of the narrower ground adopted by the majority of the Appellate Committee in the St. Martin’s case [1985] 1 A.C. 85 – see in particular the articles by Professor Treitel in (1998) 114 L.Q.R. 527, and by Mr. Duncan Wallace Q.C. (the editor of Hudson on Building Contracts) in (1994) 110 L.Q.R. 42 and (1999) 115 L.Q.R. 394 (in which the writer supports Lord Griffiths’ broader ground). I have found nothing in the academic material with which we were supplied which should deter those who are attracted to the broader ground from giving effect to it in an appropriate case. In this connection, I wish to draw attention in particular to articles by Professor Brian Coote in (1997) 56 Camb. L.J. 557 and in (1998) 13 J.C.L. 91; to the articles by Mr. Duncan Wallace Q.C. to which I have already referred; and to a Paper presented by Janet O’Sullivan (the Director of Studies in Law at Selwyn College, Cambridge) at a conference held in Cambridge in 1999 on Comparative Unjustified Enrichment (the Papers for which will , I understand, shortly be published) in which she considered the whole question of damages awarded to protect contractual expectations with special reference to “restitutionary damages,” and in particular to the judgment of the Court of Appeal in Attorney-General v. Blake [1998] Ch 439. In so doing, she reviewed a number of cases in which damages were, or might usefully have been, awarded to protect contractual expectations, and in particular regarded Lord Griffiths’ opinion in St. Martin’s, together with the recent decision of your Lordships’ House in Ruxley Electronics and Construction Ltd. v. Forsyth [1996] AC 344, as providing examples of steps recently taken to recognise and attack a deficiency in the remedial regime for breach of contract, arising from the “perceived failure of the English law of contract to recognise that the plaintiff’s interest lies in the performance of the contract.” Her review provides the context within which Lord Griffiths’ opinion can usefully be set, and in this way provides further justification for Lord Griffiths’ broader ground.
Turning to the authorities, I think it right to start with the decision of your Lordships’ House in East Ham Corporation v. Bernard Sunley & Sons Ltd. [1966] A.C. 406, which is regarded as the leading authority for the proposition that, in cases in which the plaintiff is seeking damages for the defective performance of a building contract (which is a contract for labour and materials), the normal measure of his damages is the cost of carrying out remedial work. On the issue of damages in that case, there appears to have been no difference of opinion among the members of the Appellate Committee. Lord Upjohn accepted at p. 445 that the normal measure of damages is the cost of reinstatement, as both Lord Guest and Lord Pearson appear to have done at pp. 440 and 451 respectively. Lord Cohen was however careful to qualify this proposition by reference to a principle of reasonableness which he drew from Hudson on Building and Engineering Contracts, 8th ed. (1859). The statement of the law (which he drew from that book) was as follows at p. 434:
“There is no doubt that wherever it is reasonable for the employer to insist upon reinstatement the courts will treat the cost of reinstatement as the measure of damage.”
I turn next to the authoritative judgment of Oliver J. in Radford v. De Froberville [1977] 1 W.L.R. 1262, for which I wish to express my respectful admiration. The case was concerned with a contract for the sale of a plot of land adjoining a house belonging to the plaintiff (the vendor) but occupied by his tenants, under which the defendant (the purchaser) undertook to build a house on the plot and also to erect a wall to a certain specification on the plot so as to separate it from the plaintiff’s land. The plaintiff obtained judgment against the defendant for damages for breach of contract by reason of her failure to erect the dividing wall, but an issue arose as to the measure of the damages. The defendant having failed to build the dividing wall on the land purchased from the plaintiff, the plaintiff proposed to build a dividing wall on his own land, and claimed the cost of doing so from the defendant; whereas the defendant maintained that the appropriate measure of damages was the consequent diminution in the value of the plaintiff’s property, which was nil. Oliver J. rejected the defendant’s contention. He held that the plaintiff had a genuine and serious intention of building the wall on his own land, and that this was a reasonable course of action for him to take. With regard to an argument by the defendant that, since the plaintiff did not himself occupy the property, he could not be said to have himself suffered damage by reason of the defendant’s failure to build the wall, because he was not there to enjoy it, and that his only loss, therefore, was the diminution of the value of his reversion, Oliver J. gave the following answer at [1977] 1 W.L.R. 1262, 1285:
“Whilst I see the force of this, I do not think that it really meets the point that, whatever his status, the plaintiff has a contractual right to have the work done and does in fact want to do it . . . . As it seems to me, the fact that his motive may be to confer what he conceives to be a benefit on persons who have no contractual rights to demand it cannot alter the genuineness of his intentions.” Oliver J. here referred to Jackson v. Horizon Holidays Ltd. [1975] 1 WLR 1468.
The reference in this passage to the persons who would benefit by the building of the wall was a reference to the plaintiff’s tenants.
Oliver J.’s reliance on the simple fact that the plaintiff had a contractual right to have the wall built constitutes a plain assertion of the plaintiff’s right to recover damages on the basis of damage to his performance interest, and is surely inconsistent with the submission of McAlpine, in the present case, that the mere fact that the buildings were to be constructed on the land of UIPL, rather than on the land of Panatown, debars Panatown from recovering substantial damages for the defective performance of McAlpine in the construction of the buildings. Indeed the decision of Oliver J. that the plaintiff in the case before him was entitled to substantial damages is of itself inconsistent with McAlpine’s submission, since the damages were awarded in respect of a failure by the defendant to build on land which was not the property of the plaintiff.
In the course of his judgment Oliver J., relying on a passage from the judgment of Megarry V.-C. in Tito v. Waddell (No. 2) [1977] Ch. 106, 331-334, concluded, at p. 1283, that there were three questions which he had to answer:
“First, am I satisfied on the evidence that the plaintiff has a genuine and serious intention of doing the work? Secondly, is the carrying out of the work on his own land a reasonable thing for the plaintiff to do? Thirdly, does it make any difference that the plaintiff is not personally in occupation of the land but desires to do the work for the benefit of his tenants?”
The first two questions he answered in the affirmative; the third he answered in the negative. I think it right however to record that the issue of reasonableness which arose in the second question was not the same issue as that raised in Lord Cohen’s statement of principle in East Ham Corporation v. Bernard Sunley & Sons; [1996] A.C. 406 it arose because Oliver J. had to consider whether, although the defendant’s breach of contract related to a failure to build the wall on her land which she had purchased from the plaintiff, the plaintiff was entitled to claim the cost of building a similar wall on his own land. It followed that the second question was, as Oliver J. said (see [1977] 1 W.L.R. 1284E-F) “really one of mitigation,” and that it was in that context that he had to consider whether the proposed action of the plaintiff was a reasonable step for him to take.
In Ruxley Electronics and Construction Ltd. v. Forsyth [1996] AC 344, the defendants contracted to construct a swimming pool on the plaintiff’s land. The contract specification required that the deep end of the pool should be 7 feet 6 inches deep. The pool was constructed, but the deep end was only 6 feet deep. The plaintiff claimed damages in the sum required to reconstruct the pool to the specified depth, viz. £21,560. The trial judge rejected that claim, but awarded the plaintiff damages in the sum of £2,500 for loss of amenity. The Court of Appeal allowed the plaintiff’s appeal from that decision, and awarded him the full sum claimed by him. The House of Lords allowed the defendants’ appeal from the decision of the Court of Appeal, on the ground that the expenditure required to reconstruct the pool to the specified depth was out of all proportion to the benefit to be obtained, and restored the judgment of the trial judge. The plaintiff invoked the decision of Oliver J. in Radford v. De Froberville as showing that he was entitled to damages for failure to comply with the contract to provide a swimming pool to his specification, notwithstanding that the extra depth was of no objective value; but on the facts of the case your Lordships’ House held that the award of damages which the plaintiff sought was unreasonable and so could not be upheld. In support of this conclusion, the House was able to invoke not only English authority, notably the speech of Lord Cohen in East Ham Corporation v. Bernard Sunley & Sons, but also authoritative statements of principle from the High Court of Australia (viz. Bellgrove v. Eldridge (1954) 90 C.L.R. 613, 617-618) and the United States (viz. Jacob & Youngs v. Kent 129 N.E. 889, 891-2, per Cardozo J.). It is however plain from the opinions of the Appellate Committee that they regarded Oliver J.’s judgment in Radford v. De Froberville [1977] 1 W.L.R. 1262 as an authoritative and useful statement of legal principle: see, e.g., [1996] 1 A.C. at p. 360, per Lord Mustill. And, as Oliver J. said in Radford v. De Froberville [1977] 1 W.L.R. 1262, 1270:
“If [the plaintiff] contracts for the supply of that which he thinks serves his interests – be they commercial, aesthetic or merely eccentric – then if that which is contracted for is not supplied by the other contracting party I do not see why, in principle, he should not be compensated by being provided with the cost of supplying it through someone else or in a different way, subject to the proviso, of course, that he is seeking compensation for a genuine loss and not merely using a technical breach to secure an uncovenanted profit.”
I respectfully agree with this proposition, the last few words of which can be regarded as concerned with the issue of reasonableness which arose in the Ruxley Electronics case [1996] AC 344. It cannot be said that, in the present case, the breach of contract alleged by Panatown is “technical”, or that Panatown is seeking an “uncovenanted” profit. Moreover Oliver J.’s proposition, and indeed his decision, are, as I have already indicated, inconsistent with the argument now advanced on behalf of McAlpine that the employer under a building contract is unable to recover substantial damages for breach of the contract if the work in question is to be performed on land or buildings which are not his property. Oliver J.’s proposition is, in my opinion, equally applicable where the work contracted for is to be performed on another person’s property for family reasons, or (as in the present case) for the benefit of a group of companies of which the plaintiff is a member, or for purely charitable reasons, or for any other reason for which the plaintiff thinks it appropriate to enter into such a contract –as for example in the case of a contract by the defendant to build a wall on her own land, as in Radford v. De Froberville [1977] 1 W.L.R. 1262 itself.
It follows, in my opinion, that the principal argument advanced on behalf of McAlpine is inconsistent with authority and established principle. This conclusion may involve a fuller recognition of the importance of the protection of a contracting party’s interest in the performance of his contract than has occurred in the past. But not only is it justified by authority, but the principle on which it is based is supported by a number of distinguished writers, notably Professor Brian Coote and Mr. Duncan Wallace Q.C.
However, as I have already recorded, it was the submission of McAlpine that your Lordships should regard any such development in the law as a matter for legislation, presumably after a reference to the Law Commission. This submission was made on the basis that the Lord Chancellor had introduced into Parliament a Bill – the Contract (Rights of Third Parties) Bill, based on a Report by the Law Commission, designed to bring about a radical reform of the privity rule, and that the prospect of this imminent legislation rendered illegitimate any further judicial activism in the field which was the subject of the present appeal. That Bill is now on the statute book: see the Contracts (Rights of Third Parties) Act 1999.
I am unable to accept this submission. As I have previously explained, this case is not concerned with privity of contract. There is no question of a third party here seeking to enforce a jus quaesitus tertio – i.e., of UIPL enforcing a right arising under the contract between McAlpine and Panatown. On the contrary, the reason why Panatown contracted as employer under the building contract with McAlpine was so that UIPL, although the owner of the site, should not do so. Even if the new Act had been in force at the material time, it would not have given UIPL any right to enforce the building contract, or any provision of it, against McAlpine.Section 1 of the Act, which is concerned with the right of a third party to enforce a contractual term, provides as follows:
(1) Subject to the provisions of this Act, a person who is not a party to a contract (a “third party”) may in his own right enforce a term of the contract if
(a) the contract expressly provides that he may, or
(b) subject to subsection (2), the term purports to confer a benefit on him.
(2)
Subsection (1) (b) does not apply if on a proper construction of the contract it appears that the parties did not intend the term to be enforceable by the third party.
It is plain that the building contract in the present case did not expressly provide that UIPL might in its own right enforce a term of the contract; and, in so far as the contract, or any term of it, purported to confer a benefit on UIPL, it is plain that the parties did not intend any such term to be enforceable by UIPL, the rights of the latter against McAlpine being limited to those which arose under a separate contract, the DCD.
In truth, no question of a jus quaesitum tertio arises in this case at all. Lord Griffiths’ broader ground is not concerned with privity of contract as such. It is concerned with the damages recoverable by one party to a contract (the employer) against another (the contractor) for breach of a contract for labour and materials, viz. a building contract. It does not seek to establish an exception to the old privity rule, though it may provide a principled basis for the recovery of damages (by a contracting party, not by a third party) in some cases, such as Jackson v. Horizon Holidays Limited [1975] 1 WLR 1468, in which the privity rule has been seen as a barrier to recovery (not by a contracting party but by a third party).
Furthermore, as Professor Hugh Beale stated some years ago (see (1995) 9 J.C.L. 103 at p. 108).
“Even if the basic doctrine of privity were to be reformed along the lines suggested by the Law Commission, I think it is vital that the promisee should have adequate remedies to take care of those cases in which the third party does not acquire rights.”
I would however go further. I do not regard Lord Griffiths’ broader ground as a departure from existing authority, but as a reaffirmation of existing legal principle. Indeed, I know of no authority which stands in its way. On the contrary, there have been statements in the cases which provide support for his view. Thus in Darlington Borough Council v. Wiltshier Northern Ltd. [1995] 1 WLR 68, 80, Steyn L.J. (as he then was) described Lord Griffiths’ broader ground as based on classic contractual theory, a statement with which I respectfully agree. Moreover, Lord Griffiths’ reasoning was foreshadowed in the opinions of members of the Appellate Committee in Woodar Investment Development Ltd. v. Wimpey Construction U.K. Ltd. [1980] 1. W.L.R. 277; see especially the opinion of Lord Keith of Kinkel (at pp. 297-8), and in addition the more tentative statements of Lord Salmon (at p. 291) and Lord Scarman (at pp. 300-1). Furthermore, as I have just indicated, full recognition of the importance of the performance interest will open the way to principled solution of other well-known problems in the law of contract, notably those relating to package holidays which are booked by one person for the benefit not only of himself but of others, normally members of his family (as to which see Jackson v. Horizon Holidays Ltd. [1975] 1 WLR 1468), and other cases of a similar kind referred to by Lord Wilberforce in his opinion in the Woodar Investment case at p. 283 – cases of an everyday kind which are calling out for a sensible solution on a principled basis. Even if it is not thought, as I think, that the solution which I prefer is in accordance with existing principle, nevertheless it is surely within the scope of the type of development of the common law which, especially in the law of obligations, is habitually undertaken by appellate judges as part of their ordinary judicial function. That such developments in the law may be better left to the judges, rather than be the subject of legislation, is now recognised by the Law Commission itself, because legislation within a developing part of the common law can lead to ossification and a rigid segregation of legal principle which disfigures the law and impedes future development of legal principle on a coherent basis. It comes as no surprise therefore that, in its Report on “Privity of Contract: Contracts for the Benefit of Third Parties, (1996) (Law Com. No. 242) para. 5.15, the Law Commission declined to make specific recommendations in relation to the promisee’s remedies in a contract for the benefit of a third party (here referring to The Albazero [1977] A.C. 774 and Linden Gardens Trust Ltd. v. Lenesta Sludge Disposals Ltd. (the St. Martin’s case) [1994] 1 AC 85 as cases in which “the courts have gone a considerable way towards developing rules which in many appropriate cases do allow the promisee to recover damages on behalf of the third party”), and stated that the Commission “certainly . . . would not wish to forestall further judicial development of this area of the law of damages.” This certainly does not sound like a warning to judicial trespassers to keep out of forbidden territory; see also para. 11. 22, concerned with the problem of double liability – which I shall have to consider at a later stage.
The present case provides, in my opinion, a classic example of a case which falls properly within the judicial province. I, for my part, have therefore no doubt that it is desirable, indeed essential, that the problem in the present case should be the subject of judicial solution by providing proper recognition of the plaintiff’s interest in the performance of the contractual obligations which are owed to him. I cannot see why the proposed statutory reform of the old doctrine of privity of contract should inhibit the ordinary judicial function, and so prevent your Lordships’ House from doing justice between the parties in the present case. As I have said, the principal function of this submission of McAlpine appears to have been to restrict the argument of Panatown to the narrower ground in Dunlop v. Lambert 6 Cl. & F. 600 and by so doing to enable McAlpine to argue that, on that basis, the cause of action by Panatown under the building contract was excluded by the separate contractual right afforded to the building owner, UIPL, under the DCD. That is a matter which I will have to address when I come to consider the second issue in the case.
Contracts (Rights of Third Parties) Act 1999 (UK Act reforming the law)
An Act to make provision for the enforcement of contractual terms by third parties.
[11th November 1999]
Be it enacted by the Queen’s most Excellent Majesty, by and with the advice and consent of the Lords Spiritual and Temporal, and Commons, in this present Parliament assembled, and by the authority of the same, as follows:—
Annotations: Help about Annotation
Extent Information
E1
Act extends to Northern Ireland but the operation of s. 9 is limited by application as mentioned in s. 9(1)
Commencement Information
I1
Act in force at Royal Assent (11.11.1999): for application see s. 10(2)(3)
Right of third party to enforce contractual term.
(1)Subject to the provisions of this Act, a person who is not a party to a contract (a “third party”) may in his own right enforce a term of the contract if—
(a)the contract expressly provides that he may, or
(b)subject to subsection (2), the term purports to confer a benefit on him.
(2)Subsection (1)(b) does not apply if on a proper construction of the contract it appears that the parties did not intend the term to be enforceable by the third party.
(3)The third party must be expressly identified in the contract by name, as a member of a class or as answering a particular description but need not be in existence when the contract is entered into.
(4)This section does not confer a right on a third party to enforce a term of a contract otherwise than subject to and in accordance with any other relevant terms of the contract.
(5)For the purpose of exercising his right to enforce a term of the contract, there shall be available to the third party any remedy that would have been available to him in an action for breach of contract if he had been a party to the contract (and the rules relating to damages, injunctions, specific performance and other relief shall apply accordingly).
(6)Where a term of a contract excludes or limits liability in relation to any matter references in this Act to the third party enforcing the term shall be construed as references to his availing himself of the exclusion or limitation.
(7)In this Act, in relation to a term of a contract which is enforceable by a third party—
“the promisor” means the party to the contract against whom the term is enforceable by the third party, and
“the promisee” means the party to the contract by whom the term is enforceable against the promisor.
Variation and rescission of contract.
(1)Subject to the provisions of this section, where a third party has a right under section 1 to enforce a term of the contract, the parties to the contract may not, by agreement, rescind the contract, or vary it in such a way as to extinguish or alter his entitlement under that right, without his consent if—
(a)the third party has communicated his assent to the term to the promisor,
(b)the promisor is aware that the third party has relied on the term, or
(c)the promisor can reasonably be expected to have foreseen that the third party would rely on the term and the third party has in fact relied on it.
(2)The assent referred to in subsection (1)(a)—
(a)may be by words or conduct, and
(b)if sent to the promisor by post or other means, shall not be regarded as communicated to the promisor until received by him.
(3)Subsection (1) is subject to any express term of the contract under which—
(a)the parties to the contract may by agreement rescind or vary the contract without the consent of the third party, or
(b)the consent of the third party is required in circumstances specified in the contract instead of those set out in subsection (1)(a) to (c).
(4)Where the consent of a third party is required under subsection (1) or (3), the court or arbitral tribunal may, on the application of the parties to the contract, dispense with his consent if satisfied—
(a)that his consent cannot be obtained because his whereabouts cannot reasonably be ascertained, or
(b)that he is mentally incapable of giving his consent.
(5)The court or arbitral tribunal may, on the application of the parties to a contract, dispense with any consent that may be required under subsection (1)(c) if satisfied that it cannot reasonably be ascertained whether or not the third party has in fact relied on the term.
(6)If the court or arbitral tribunal dispenses with a third party’s consent, it may impose such conditions as it thinks fit, including a condition requiring the payment of compensation to the third party.
(7)The jurisdiction conferred on the court by subsections (4) to (6) is exercisable[F1in England and Wales by both the High Court and the county court and in Northern Ireland ] by both the High Court and a county court.
Annotations: Help about Annotation
Amendments (Textual)
F1
Words in s. 2(7) inserted (22.4.2014) by Crime and Courts Act 2013 (c. 22), s. 61(3), Sch. 9 para. 71; S.I. 2014/954, art. 2(c) (with art. 3) (with transitional provisions and savings in S.I. 2014/956, arts. 3-11)
Defences etc. available to promisor.
(1)Subsections (2) to (5) apply where, in reliance on section 1, proceedings for the enforcement of a term of a contract are brought by a third party.
(2)The promisor shall have available to him by way of defence or set-off any matter that—
(a)arises from or in connection with the contract and is relevant to the term, and
(b)would have been available to him by way of defence or set-off if the proceedings had been brought by the promisee.
(3)The promisor shall also have available to him by way of defence or set-off any matter if—
(a)an express term of the contract provides for it to be available to him in proceedings brought by the third party, and
(b)it would have been available to him by way of defence or set-off if the proceedings had been brought by the promisee.
(4)The promisor shall also have available to him—
(a)by way of defence or set-off any matter, and
(b)by way of counterclaim any matter not arising from the contract,that would have been available to him by way of defence or set-off or, as the case may be, by way of counterclaim against the third party if the third party had been a party to the contract.
(5)Subsections (2) and (4) are subject to any express term of the contract as to the matters that are not to be available to the promisor by way of defence, set-off or counterclaim.
(6)Where in any proceedings brought against him a third party seeks in reliance on section 1 to enforce a term of a contract (including, in particular, a term purporting to exclude or limit liability), he may not do so if he could not have done so (whether by reason of any particular circumstances relating to him or otherwise) had he been a party to the contract.
Enforcement of contract by promisee.
Section 1 does not affect any right of the promisee to enforce any term of the contract.
Protection of promisor from double liability.
Where under section 1 a term of a contract is enforceable by a third party, and the promisee has recovered from the promisor a sum in respect of—
(a)the third party’s loss in respect of the term, or
(b)the expense to the promisee of making good to the third party the default of the promisor,then, in any proceedings brought in reliance on that section by the third party, the court or arbitral tribunal shall reduce any award to the third party to such extent as it thinks appropriate to take account of the sum recovered by the promisee.
Exceptions.
(1)Section 1 confers no rights on a third party in the case of a contract on a bill of exchange, promissory note or other negotiable instrument.
(2)Section 1 confers no rights on a third party in the case of any contract binding on a company and its members under [F2section 33 of the Companies Act 2006 (effect of company’s constitution)].
[F3(2A)Section 1 confers no rights on a third party in the case of any incorporation document of a limited liability partnership [F4or any agreement (express or implied) between the members of a limited liability partnership, or between a limited liability partnership and its members, that determines the mutual rights and duties of the members and their rights and duties in relation to the limited liability partnership.]]
[F5(2A)Section 1 confers no rights on a third party in the case of any incorporation document of a limited liability partnership [F4or any agreement (express or implied) between the members of a limited liability partnership, or between a limited liability partnership and its members, that determines the mutual rights and duties of the members and their rights and duties in relation to the limited liability partnership.]]
(3)Section 1 confers no right on a third party to enforce—
(a)any term of a contract of employment against an employee,
(b)any term of a worker’s contract against a worker (including a home worker), or
(c)any term of a relevant contract against an agency worker.
(4)In subsection (3)—
(a)“contract of employment”, “employee”, “worker’s contract”, and “worker” have the meaning given by section 54 of the M1National Minimum Wage Act 1998,
(b)“home worker” has the meaning given by section 35(2) of that Act,
(c)“agency worker” has the same meaning as in section 34(1) of that Act, and
(d)“relevant contract” means a contract entered into, in a case where section 34 of that Act applies, by the agency worker as respects work falling within subsection (1)(a) of that section.
(5)Section 1 confers no rights on a third party in the case of—
(a)a contract for the carriage of goods by sea, or
(b)a contract for the carriage of goods by rail or road, or for the carriage of cargo by air, which is subject to the rules of the appropriate international transport convention,except that a third party may in reliance on that section avail himself of an exclusion or limitation of liability in such a contract.
(6)In subsection (5) “contract for the carriage of goods by sea” means a contract of carriage—
(a)contained in or evidenced by a bill of lading, sea waybill or a corresponding electronic transaction, or
(b)under or for the purposes of which there is given an undertaking which is contained in a ship’s delivery order or a corresponding electronic transaction.
(7)For the purposes of subsection (6)—
(a)“bill of lading”, “sea waybill” and “ship’s delivery order” have the same meaning as in the M2Carriage of Goods by Sea Act 1992, and
(b)a corresponding electronic transaction is a transaction within section 1(5) of that Act which corresponds to the issue, indorsement, delivery or transfer of a bill of lading, sea waybill or ship’s delivery order.
(8)In subsection (5) “the appropriate international transport convention” means—
(a)in relation to a contract for the carriage of goods by rail, the Convention which has the force of law in the United Kingdom under section 1 of the M3International Transport Conventions Act 1983,
(b)in relation to a contract for the carriage of goods by road, the Convention which has the force of law in the United Kingdom under section 1 of the M4Carriage of Goods by Road Act 1965, and
(c)in relation to a contract for the carriage of cargo by air—
(i)the Convention which has the force of law in the United Kingdom under section 1 of the M5Carriage by Air Act 1961, or
(ii)the Convention which has the force of law under section 1 of the M6Carriage by Air (Supplementary Provisions) Act 1962, or
(iii)either of the amended Conventions set out in Part B of Schedule 2 or 3 to the M7Carriage by Air Acts (Application of Provisions) Order 1967.
Annotations: Help about Annotation
Extent Information
E2
In its application to Northern Ireland, this section has effect subject to the modifications set out in s. 9(2)(3)
Amendments (Textual)
F2
Words in s. 6(2) substituted (1.10.2009) by The Companies Act 2006 (Consequential Amendments, Transitional Provisions and Savings) Order 2009 (S.I. 2009/1941), arts. 1(2), 2(1), Sch. 1 para. 179(2)(a) (with art. 10)
F3
S. 6(2A) inserted (N.I.) (13.9.2004) by Limited Liability Partnerships Regulations (Northern Ireland) 2004 (S.R. 2004/307), regs. 1, 9, Sch. 4 para. 16
F4
Words in s. 6(2A) substituted (1.10.2009) by The Companies Act 2006 (Consequential Amendments, Transitional Provisions and Savings) Order 2009 (S.I. 2009/1941), arts. 1(2), 2(1), Sch. 1 para. 179(2)(b) (with art. 10)
F5
S. 6(2A) inserted (E.W.) (6.4.2001) by S.I. 2001/1090, reg. 9, Sch. 5 para. 20
Marginal Citations
M1
1998 c. 39.
M2
1992 c. 50.
M3
1983 c. 14.
M4
1965 c. 37.
M5
1961 c. 27.
M6
1962 c. 43.
M7
S.I. 1967/480.
Supplementary provisions relating to third party.
(1)Section 1 does not affect any right or remedy of a third party that exists or is available apart from this Act.
(2)Section 2(2) of the M8Unfair Contract Terms Act 1977 (restriction on exclusion etc. of liability for negligence) shall not apply where the negligence consists of the breach of an obligation arising from a term of a contract and the person seeking to enforce it is a third party acting in reliance on section 1.
(3)In sections 5 and 8 of the M9Limitation Act 1980 the references to an action founded on a simple contract and an action upon a specialty shall respectively include references to an action brought in reliance on section 1 relating to a simple contract and an action brought in reliance on that section relating to a specialty.
(4)A third party shall not, by virtue of section 1(5) or 3(4) or (6), be treated as a party to the contract for the purposes of any other Act (or any instrument made under any other Act).
Annotations: Help about Annotation
Extent Information
E3
In its application to Northern Ireland, this section has effect subject to the modifications set out in s. 9(2)(3)
Marginal Citations
M8
1977 c. 50.
M9
1980 c. 58.
Arbitration provisions.
(1)Where—
(a)a right under section 1 to enforce a term (“the substantive term”) is subject to a term providing for the submission of disputes to arbitration (“the arbitration agreement”), and
(b)the arbitration agreement is an agreement in writing for the purposes of Part I of the M10Arbitration Act 1996,the third party shall be treated for the purposes of that Act as a party to the arbitration agreement as regards disputes between himself and the promisor relating to the enforcement of the substantive term by the third party.
(2)Where—
(a)a third party has a right under section 1 to enforce a term providing for one or more descriptions of dispute between the third party and the promisor to be submitted to arbitration (“the arbitration agreement”),
(b)the arbitration agreement is an agreement in writing for the purposes of Part I of the Arbitration Act 1996, and
(c)the third party does not fall to be treated under subsection (1) as a party to the arbitration agreement,the third party shall, if he exercises the right, be treated for the purposes of that Act as a party to the arbitration agreement in relation to the matter with respect to which the right is exercised, and be treated as having been so immediately before the exercise of the right.
Annotations: Help about Annotation
Marginal Citations
M10
1996 c.23.
9 Northern Ireland.
(1)In its application to Northern Ireland, this Act has effect with the modifications specified in subsections (2) and (3).
(2)F6. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3)In section 7, for subsection (3) there is substituted—
“(3)In Articles 4(a) and 15 of the M11Limitation (Northern Ireland) Order 1989, the references to an action founded on a simple contract and an action upon an instrument under seal shall respectively include references to an action brought in reliance on section 1 relating to a simple contract and an action brought in reliance on that section relating to a contract under seal.”.
(4)In the M12Law Reform (Husband and Wife) (Northern Ireland) Act 1964, the following provisions are hereby repealed—
(a)section 5, and
(b)in section 6, in subsection (1)(a), the words “in the case of section 4” and “and in the case of section 5 the contracting party” and, in subsection (3), the words “or section 5”.
Annotations: Help about Annotation
Extent Information
E4
S. 9 extends to Northern Ireland but the operation of s.9 is limited by application as mentioned in s. 9(1)
Amendments (Textual)
F6
S. 6(2) omitted (1.10.2009) by virtue of The Companies Act 2006 (Consequential Amendments, Transitional Provisions and Savings) Order 2009 (S.I. 2009/1941), arts. 1(2), 2(1), Sch. 1 para. 179(3) (with art. 10)
Marginal Citations
M11
S.I. 1989/1339 (N.I. 11).
M12
1964 c. 23 (N.I.).
10 Short title, commencement and extent.
(1)This Act may be cited as the Contracts (Rights of Third Parties) Act 1999.
(2)This Act comes into force on the day on which it is passed but, subject to subsection (3), does not apply in relation to a contract entered into before the end of the period of six months beginning with that day.
(3)The restriction in subsection (2) does not apply in relation to a contract which—
(a)is entered into on or after the day on which this Act is passed, and
(b)expressly provides for the application of this Act.
(4)This Act extends as follows—
(a)section 9 extends to Northern Ireland only;
(b)the remaining provisions extend to England and Wales and Northern Ireland only.