United Kingdom House of Lords Decisions

Parliamentary Archives,
HL/PO/JU/18/253

Linden Gardens Trust Limited (Respondents) v. Lenesta Sludge
Disposals Limited and others (Appellants)

St. Martin's Property Corporation Limited and others
(Original Respondents and Cross-Appellants) v. Sir
Robert McAlpine and Sons Limited (Original
Appellants and Cross-Respondents)

JUDGMENT

Die Jovis 22° Julii 1993

Upon Report from the Appellate Committee to whom were
referred the Causes Linden Gardens Trust Limited against Lenesta
Sludge Disposals Limited and others and St. Martin's Property
Corporation Limited and others against Sir Robert McAlpine and
Sons Limited et e contra, That the Committee had heard Counsel
as well on Monday the 8th as on Tuesday the 9th, Wednesday the
10th and Thursday the 11th days of February and Tuesday the 30th
and Wednesday the 31st days of March last upon the Petitions and
Appeals of McLaughlin & Harvey Plc of 15 Trench Road, Mallusk,
Newtownabbey, Co. Antrim and Sir Robert McAlpine & Sons Limited
of Eaton Court, Maylands Avenue, Hemel Hempstead, Hertfordshire
HP2 7DR and upon the Petition and Cross-Appeal of St Martin's
Property Corporation Limited and St Martin's Property Investments
Limited, both of Adelaide House, London Bridge, London EC4,
praying that the matter of the Orders set forth in the Schedules
thereto, namely Orders of Her Majesty's Court of Appeal of the
13th and the 14th days of February 1992, might be reviewed before
Her Majesty the Queen in Her Court of Parliament and that the
said Orders might be reversed, varied or altered or that the
Petitioners might have such other relief in the premises as to
Her Majesty the Queen in Her Court of Parliament might seem meet;
as also upon the case of Linden Gardens Trust Limited, St.
Martin's Property Corporation Limited and St. Martin's Property
Investments Limited and Sir Robert McAlpine Limited lodged in
answer to the said Appeals and the said Cross-appeal; and due
consideration had this day of what was offered on either side in
these Causes:

It is Ordered and Adjudged, by the Lords Spiritual and
Temporal in the Court of Parliament of Her Majesty the Queen
assembled, That the appeal by McLaughlin and Harvey plc be
allowed and that the said Order of Her Majesty's Court of Appeal
the 14th day of February 1992 complained of in the said Appeal
be, and the same is hereby, Set Aside and that the Order of His
Honour Judge Loyd Q.C. of the 9th day of October 1990 be, and the
same is hereby, Restored, save that the preliminary issues be
answered in the manner set out in the speech of Lord Browne-
Wilkinson: And it is further Ordered, That the Respondents do
pay or cause to be paid to the said Appellants the Costs incurred
by them in the Court of Appeal and in respect of the said Appeal,




Judgment: 22 July 1993

HOUSE OF LORDS

LINDEN GARDENS TRUST LIMITED
(RESPONDENTS)

v.

LENESTA SLUDGE DISPOSALS LIMITED
AND OTHERS
(APPELLANTS)

ST MARTIN'S PROPERTY CORPORATION LIMITED

AND OTHERS
(ORIGINAL RESPONDENTS AND CROSS APPELLANTS)

v.

SIR ROBERT McALPINE AND SONS LIMITED
(ORIGINAL APPELLANTS AND CROSS-RESPONDENTS)




Lord Keith of Kinkel
Lord Bridge of Harwich
Lord Griffiths
Lord Ackner
Lord Browne-Wilkinson




LORD KEITH OF KINKEL

My Lords.

I have had the advantage of reading in draft the speech prepared by my
noble and learned friend Lord Browne-Wilkinson, and also that prepared by
my noble and learned friend Lord Griffiths.

I agree entirely with the reasoning which leads Lord Browne-Wilkinson
to the conclusion that the appeal in the Linden Gardens case must be allowed,
and the cross-appeal by St. Martin's Property Investments Limited dismissed.

As regards the appeal by McAlpines in which St. Martin's Property
Corporation Limited are respondents I would dismiss that for the reasons
given by Lord Browne-Wilkinson, and not upon the broader grounds favoured
by Lord Griffiths. I have much sympathy with the view that where a building
contractor is in breach of his contract he should not be relieved of liability to
pay substantial damages for his breach merely by reason that the other
contracting party had no proprietary interest in the works at the time when the
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breach occurred. There is much force in the analysis that the party who
contracted for the works to be done has suffered loss because he did not
receive the performance he had bargained for and in order to remedy that has
been required to pay for the defects to be put right by another builder.
However, the matter was not fully explored in argument before your
Lordships, and the possible effects upon other forms of commercial contract
remain uncertain. While in some future case the view expressed by my noble
and learned friend Lord Griffiths may well prevail, the present case can be
disposed of in favour of the respondents without the necessity of deciding
upon its correctness.

LORD BRIDGE OF HARWICH

My Lords.

For the reasons given in the speech of my noble and learned friend
Lord Browne-Wilkinson I would allow the appeal in the Linden Gardens case
and dismiss both the appeal and the cross-appeal in the St. Martin's case. I
would also answer the questions raised by the preliminary issues in each case
in the terms proposed by my noble and learned friend and make the orders for
costs which he proposes.

In the McAlpine appeal I am much attracted by the broad principle
favoured by my noble and learned friend Lord Griffiths, but am content from
the purpose of the present proceedings to adopt the narrower ground for
dismissal of the appeal on which Lord Browne-Wilkinson rests his decision.

LORD GRIFFITHS

My Lords,

I have had the advantage of reading the speech of Lord Browne-
Wilkinson and agree that for the reasons he gives the first appeal should be
allowed. In the second appeal I agree that for the reasons given by my Lord.
St. Martin's Property Investments Limited (Investments) have no claim against
Sir Robert McAlpine and Sons Limited (McAlpine). I also agree that for
reasons which I can state quite shortly, St. Martin's Property Corporation
Limited (Corporation) are entitled to recover substantial damages from
McAlpine. Accordingly the appeal in the Linden Gardens case must be
allowed and the cross-appeal by St. Martin's Property Investments Limited
dismissed.

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McAlpine have successfully resisted Corporation's claim to have
assigned the benefit of the contract to Investments. It follows that throughout
the performance of the contract McAlpine owed to Corporation a contractual
duty to build the podium deck of sound materials and with all reasonable skill
and care. Upon the assumption that McAlpine broke this contractual duty the
normal measure of damages in such circumstances is the cost of remedying the
defect in the building (see East Ham Corporation v. Bernard Sunley & Sons
Ltd. [1966] A.C. 406). If the cost of remedying the defect in the podium
deck was £800.000 Corporation would in my opinion be entitled to recover
that sum from McAlpine.

It is however submitted that two factors prevent this normal and just
result of McAlpine's breach of contract. The first ground upon which
McAlpine resists the claim is that Corporation had transferred their building
lease to Investments before the podium deck was built and thus had no
proprietary interest in the property when the breach occurred. The second is
that for financial reasons beneficial to Corporation and Investment. Investment
reimbursed Corporation for the money that they paid for the repairs to the
podium deck.

In my view neither of these considerations provide McAlpine with a
defence to Corporation's claim. I cannot accept that in a contract of this
nature, namely for work, labour and the supply of materials, the recovery of
more than nominal damages for breach of contract is dependent upon the
plaintiff having a proprietary interest in the subject matter of the contract at
the date of breach. In everyday life contracts for work and labour are
constantly being placed by those who have no proprietary interest in the
subject matter of the contract. To take a common example, the matrimonial
home is owned by the wife and the couple's remaining assets are owned by
the husband and he is the sole earner. The house requires a new roof and the
husband places a contract with a builder to carry out the work. The husband
is not acting as agent for his wife, he makes the contract as principal because
only he can pay for it. The builder fails to replace the roof properly and the
husband has to call in and pay another builder to complete the work. Is it to
be said that the husband has suffered no damage because he does not own the
property'? 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. To put this simple example closer to the facts
of this appeal - at the time the husband employs the builder he owns the house
but just after the builder starts work the couple are advised to divide their
assets so the husband transfers the house to his wife. This is no concern of
the builder whose bargain is with the husband. If the roof turns out to be
defective the husband can recover from the builder the cost of putting it right
and thus obtain the benefit of the bargain that the builder had promised to
deliver. It was suggested in argument that the answer to the example I have
given is that the husband could assign the benefit of the contract to the wife.



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But what if. as in this case, the builder has a clause in the contract forbidding
assignment without his consent and refuses to give consent as McAlpine has
done. It is then said that neither husband nor wife can recover damages; this
seems to me to be so unjust a result that the law cannot tolerate it.

The principal authority relied upon by McAlpine in support of the
proposition that the contracting party suffers no loss if they did not have a
proprietary interest in the property at the time of the breach was The Albazero
[1977] A.C. 774. The situation in that case was however wholly different
from the present. The Albazero was not concerned with money being paid to
enable the bargain, i.e. the contract of carriage, to be fulfilled. The damages
sought in The Albazero were claimed for the loss of the cargo, and as at the
date of the breach the property in the cargo was vested in another with a right
to sue it is readily understandable that the law should deny to the original
party to the contract a right to recover damages for a loss of the cargo which
had caused him no financial loss. 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. I therefore cannot accept that it is a condition of recovery
in such cases that the plaintiff has a proprietary right in the subject matter of
the contract at the date of breach.

The second ground upon which the recovery of damages is resisted is
that Investments in fact reimbursed Corporation for the money they spent on
the repairs. But here again in my view who actually pays for the repairs is
no concern of the defendant who broke the contract. 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. Authority for this is to be found in Jones v. Stroud
District Council [1986] 1 W.L.R. 1141. The case in fact was one in tort and
not contract but the principle of whether or not it is a defence if someone else
has paid for work for which the defendant would otherwise be liable must
apply to both ton and contract. The claim was for damages to a building
which had suffered damage as a result of the defendant's negligence. In
giving judgment Neill L.J. said, at p. 1150:

"The plaintiffs failed to provide any documents relating to the work (of
repairs) carried out by Marlothian Ltd. and there is no evidence that
the plaintiffs have paid or are liable to pay any sum to Marlothian in
respect of that work. It was submitted on behalf of the plaintiffs,
however, that if the repairs were necessary and were carried out it was
not to the point that the plaintiffs had not proved that they had paid for
the repairs themselves. Our attention was drawn to The Endeavour
(1890) 6 Asp. M.C. 511, where repairs to a vessel were carried out
but before paying for them the plaintiff had gone bankrupt. It was
there argued that the plaintiff could not claim the cost of the repairs
because the sums recovered would only go to swell the creditors'
funds. This argument was rejected and it was said, at p. 512:

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'If somebody out of kindness were to repair the injury and
make no charge for it. the wrongdoer would not be entitled to
refuse to pay as part of the damages the cost of the repairs to
the owner.'

In my judgment, on the facts of this case this submission is correct."

There are many cases where a tortfeasor's liability has been
temporarily discharged by payment by a third party on behalf of the plaintiff.
A very common example occurs in personal injury cases where the cost of
medical treatment is borne by a relative; but that has never been seen as a
reason why that sum should not ultimately be paid by the defendant if he is
found liable for the injuries. The law regards who actually paid for the work
necessary as a result of the defendant's breach of contract as a matter which
is raised inter alios acta so far as the defendant is concerned.

It will be seen that my reasons for holding that Corporation can
recover damages are essentially those canvassed in the speech of Lord
Browne-Wilkinson in the introduction to that part of his speech dealing with
Corporation's claim for damages. Whilst I always welcome and find the
views of academic writers most helpful, I am prepared even without the
benefit of their views to adopt the direct route to the award of damages to
Corporation.

LORD ACKNER

My Lords.

For the reasons given in the speech of my noble and learned friend Lord
Browne-Wilkinson I would allow the appeal in the Linden Gardens case and
dismiss both the appeal and the cross-appeal in the St. Martin's case. I would
also answer the questions raised by the preliminary issues in each case in the
terms proposed by my noble and learned friend and make the orders for costs
which he proposes.

LORD BROWNE-WILKINSON

My Lords.

These appeals and cross-appeal arise in two separate actions which
raise similar issues. In broad terms, those issues are. first, what is the effect
of a contractual provision which prohibits a party from assigning the benefit
of a contract and, second, can a building owner recover substantial damages



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for breach of a building contract if he has parted with the property. The
appeals relate to preliminary issues directed to be tried in both actions. As
the cases have proceeded, certain of those issues have become irrelevant. I
propose therefore to state shortly the facts of each case, then deal with the
matters which fall for decision by this House and. at the end, indicate the
answers which should in my view be given to the questions posed by the
preliminary issues which have been directed.

THE FACTS IN THE LINDEN GARDENS CASE

In 1979 Stock Conversion and Investment Trust Plc ("Stock
Conversion") were the owners of a leasehold interest in the third to sixth
floors inclusive of 130 Jermyn Street, London SW1. On 19 June 1979 Stock
Conversion entered into a building contract with the second defendants,
McLaughlin and Harvey Plc ("M & H") under which M & H were to remove
blue asbestos from the property.




The contract was in the Joint Contract Tribunal Standard Form of
Building Contract for use with approximate quantities private edition (1963
edition revised to July 1975) with amendments. Clause 17 of the contract
provided as follows:-

"17(1) The Employer shall not without the written consent of the
Contractor assign this Contract.

(2) The Contractor shall not without the written consent of the
Employer assign this Contract, and shall not without the written
consent of the Architect (which consent shall not be unreasonably
withheld to the prejudice of the Contractor) sub-let any portion of the
Works.

Provided that it shall be a condition in any sub-letting which
may occur that the employment of the sub-contractor under the sub-
contract shall determine immediately upon the determination (for any
reason) of the Contractor's employment under this contract."

Lenesta Sludge Disposals Limited, the first defendants, were the nominated
sub-contractors for the removal of the asbestos. They are of no significance
in these appeals and I mention them only to explain their presence in the title
to the action.

Practical completion of the works to be carried out by M & H took
place on 25 March 1980. Subsequently, more asbestos which should have
been removed by M & H was found in the premises. In February 1985
Stock Conversion entered into a contract with Ashwell Construction Company
Limited (the third defendant) for the removal of such asbestos: such contract
also contained a covenant against assignment. Practical completion of the



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second contract took place in August 1985. and the cost was borne by Stock
Conversion.

Meanwhile, on 1 April 1985 Stock Conversion assigned to Linden
Gardens Trust Limited ("Linden Gardens") its leasehold interest in the third,
fifth and sixth floors of the property, subject to a licence back under which
Stock Conversion continued to occupy the third floor. In December 1986
Stock Conversion surrendered its licence of the third floor and assigned its
leasehold interest in the fourth floor to Linden Gardens. It is not suggested
that Stock Conversion received anything less than the full market value of its
leasehold interest or that any allowance was made in the price for the
possibility that there might still be asbestos in the building.

This action was started on 3 July 1985 when Stock Conversion (which
then still had an interest in the building) issued a writ against Lenesta Sludge
as sole defendant.

Following the disposal by Stock Conversion of its whole interest in the
property to Linden Gardens, on 14 January 1987 Stock Conversion executed
a Deed of Assignment in favour of Linden Gardens. The Deed of
Assignment recited that Stock Conversion had agreed with Linden Gardens to
assign to them Stock Conversion's rights of action as pleaded in the High
Court proceedings and incidental to the leasehold interest in the premises in
consideration of one pound and provided as follows:




"In pursuance of the said agreement and in consideration of the sum
of One pound (£1) (the receipt of which sum the Assignors hereby
acknowledge) the Assignors hereby assign to the Assignees.

(a) all their rights of action as pleaded in the said proceedings or
otherwise against Lenesta Sludge Disposal Limited:

(b) all other rights of action currently vested in the Assignors which
are or were incidental to their leasehold in the said premises."

M & H did not, as was required by clause 17(1) of the building contract,
consent to such assignment: it is this lack of consent which is the basis of the
problems which arise.

In 1987 and 1988 yet more asbestos was found in the premises.
Further work was undertaken to remove this asbestos, the cost of which was
borne by Linden Gardens. It is not asserted that Stock Conversion is under
any liability to Linden Gardens to bear any part of these costs.

By a series of amendments, the action has been reconstituted: Linden
Gardens has been substituted for Stock Conversion as the Plaintiff: Lenesta
Sludge remains as first defendant; M & H have been joined as second
defendant; Ashwell Construction is the third defendant.

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In the action as now constituted. Linden Gardens, as assignee, claims
damages for breach by each of the defendants of their respective building
contracts. The crucial points to be noticed are these. First. Stock
Conversion which was the only party in a direct contractual relationship with
each of the defendants is not a party to the action. Second, the purported
assignment of the benefit of the building contract by Stock Conversion to
Linden Gardens was made without the consent of the defendants. Third, any
breach of contract by M & H occurred before Stock Conversion parted with
its interest in the premises. Fourth, since Stock Conversion obtained from
Linden Gardens the full market price for its interest in the premises on the
assumption that the asbestos had been eradicated. Stock Conversion was not
out of pocket by reason of the breaches save to the extent that it paid for the
further works done in 1985.

The preliminary issues in this action were therefore directed to two
questions. First, were Stock Conversion's rights under the contracts
effectively assigned to Linden Gardens despite the fact that assignment of the
building contracts by Stock Conversion was prohibited by the terms of those
contracts? If so, second, could Linden Gardens as assignee recover damages
for the cost of removing the asbestos after the date of the assignment, which
cost was incurred not by Stock Conversion but by Linden Gardens'?

Judge John Lloyd Q.C. held that the assignment to Linden Gardens
was ineffective and that, in any event, Linden Gardens could not recover for
the cost of work executed after the date of the assignment: (1990) 52 B.L.R.
93. The Court of Appeal (Nourse and Staughton L.JJ. and Sir Michael Kerr)
reversed the judge on both points: (1992) 57 B.L.R. 57. The Court of
Appeal held that the Assignment was effective to transfer to Linden Gardens
the causes of action for subsisting breaches of contract by M & H and
Ashwell Construction and that the assignee could recover such damages as
Stock Conversion could have recovered had there been no assignment. M &
H appeal to this House. Ashwell Construction has not appealed.

THE FACTS IN THE ST. MARTIN'S CASE

In 1968 the first plaintiffs, St. Martin's Property Corporation Limited
("Corporation") began to develop a site at King Street, Hammersmith,
London. The development was to include shops, offices, and flats. On 17
May 1968, Corporation entered into a written agreement with the local
authority whereby, upon completion of the development, Corporation would
be entitled to the grant of a 150 year lease of the site.

On 29 October 1974 Corporation entered into a building contract with
Sir Robert McAlpine and Sons Limited ("McAlpine") which incorporated the
Joint Contracts Tribunal, Standard Form of Building Contract, Private
Edition, With Quantities (1963 Edition revised July 1972). Clause 17 of such
contract was, for all practical purposes, in terms identical to those in clause
17 in the Linden Gardens case.

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Corporation is a wholly owned subsidiary of St. Martin's Holdings
Limited which is itself wholly owned by the State of Kuwait. In the mid-
1970s a scheme was implemented for tax reasons whereunder all the property
interests of the State of Kuwait were to be vested in another wholly owned
subsidiary of St. Martin's Holdings Limited, the second Plaintiff. St. Martin's
Property Investments Limited ("Investments"). Pursuant to that scheme a
Deed of Assignment dated 25 March 1976 was executed under which
Corporation for full value assigned to Investments all Corporation's interests
in the property under the Agreement with the local authority of 17 May 1968.
It further purported to assign to Investments:

"the full benefit of all the contracts and engagements whatsoever
entered into by the Assignor and existing at the date hereof for the
construction of and completion of the Development."

As in the Linden Gardens case, the consent of McAlpine's to the assignment
of the benefit of the building contract was neither sought nor given. No
notice of the Assignment was given to McAlpine until ten years later on 3
March 1986.

At the time of the Assignment there were no subsisting relevant
breaches of the building contract. In November 1976 Investments appointed
Corporation to be its agent to manage the property and the development.
Practical completion of the works took place in 1980.

In 1981 part of the development, the podium deck, was found to be
leaking. It is alleged that this is due to breaches of contract by McAlpine
occurring after the date of assignment to Investment. Remedial works have
been carried out at a cost of some £800,000 plus VAT which, although
originally paid by Corporation, has been recovered by Corporation from
Investments.

In the action Corporation and Investments sue McAlpine for breach of
contract. The following points should be noted. First, as in the Linden
Gardens case, no consent to the Assignment was obtained. Second, unlike
the Linden Gardens case the breaches of contract all took place after the date
of the assignment, that is to say at a time when Corporation had no interest
in the property. Third, unlike the Linden Gardens case, the original
contracting party, Corporation, is a party to the action and is claiming
substantial damages notwithstanding that Corporation is not out of pocket as
a result of the McAlpine breaches.

Therefore the main issues which arise in this case are first, whether
notwithstanding clause 17 of the building contract the assignment to
Investments was effective. Second, whether Corporation is entitled to
substantial damages for breach of contract. His Honour Judge Bowsher Q.C.
held that the assignment to Investments was ineffective and that Corporation
was only entitled to nominal damages. The appeal to the Court of Appeal



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was heard at the same time as the appeal in the Linden Gardens case. The
Court of Appeal held by a majority (Staughton L.J. dissenting) that the
assignment was invalid, the case differing from the Linden Gardens case in
that, at the date of the Assignment, there were no accrued causes of action
which could be assigned. However the Court of Appeal held unanimously
that Corporation was entitled to substantial damages. McAlpine appeal and
Investments cross-appeal to this House.

THE ISSUES

The two cases therefore raise, or potentially raise, the following issues:



1. Does clause 17(1) of the building contracts prohibit the purported
assignment of the benefit of the building contracts?

2. Does clause 17(1) prohibit the assignment of causes of action for
breaches of contract subsisting at the date of the Assignments?

3. Is a prohibition on assignment void as being contrary to public
policy?

4. Even if the Assignments were validly prohibited, were they
   effective to vest causes of action in the assignees?

5. If so, what is the measure of damages recoverable by the
   assignees?

6. If the assignments are ineffective, can the original contracting
party recover substantial damages?

I will deal with these issues in turn, save that on the view I take of the case
issue 5 does not arise since the assignments were invalid and ineffective to
vest any cause of action in the assignees.

1. Does clause 17 prohibit the assignment of the benefit of
building contracts?

Staughton L.J. (dissenting on this point) held that on its true
construction clause 17 did not prohibit the assignment by the employer of the
benefit of the building contract. It was urged before your Lordships on
behalf of Linden Gardens and Investments that his views were correct.

The argument runs as follows. On any basis, clause 17 is unhappily
drafted in that it refers to an assignment of "the contract". It is trite law that
it is, in any event, impossible to assign "the contract" as a whole, i.e.
including both burden and benefit. The burden of a contract can never be
assigned without the consent of the other party to the contract in which event
such consent will give rise to a novation. Therefore one has to discover what



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the panics meant by this inelegant phrase. It is said that the intention of the
parties in using the words "assign this contract" is demonstrated by clause
17(2) which prohibits both the assignment of the contract by the contractor
without the employer's consent and the sub-letting of any portion of the works
without the consent of the architect. In clause 17(2), the contractor is only
expressly prevented from sub-letting "any portion of the works." Yet it must
have been the party's intention to limit the contractor's rights to sub-let the
whole of the works. Accordingly, the words in clause 17(2) "assign this
contract" have to be read as meaning "sub-let the whole of the works." If
that is the meaning of the words "assign this contract" in clause 17(2) they
must bear the same meaning in clause 17(1), which accordingly only prohibits
the employer from giving substitute performance and does not prohibit the
assignment of the benefit of the contract.

Like the majority of the Court of Appeal. I am unable to accept this
argument. Although it is true that the phrase "assign this contract" is not
strictly accurate, lawyers frequently use those words inaccurately to describe
an assignment of the benefit of a contract since every lawyer knows that the
burden of a contract cannot be assigned: see, for example. Nokes v.
Doncaster Amalgamated Collieries Ltd. [1940] A. C. 1014, 1019-1020. The
prohibition in clause 17(2) against sub-letting "any portion of the Works"
necessarily produces a prohibition against the sub-letting of the whole of the
works: any sub-letting of the whole will necessarily include a sub-letting of
a portion and is therefore prohibited. Therefore there is no ground for
reading the words "assign this contract" in clause 17(1) as referring only to
sub-letting the whole. Decisively, both clause 17(1) and (2) clearly
distinguish between "assignment" and "sub-letting": it is therefore impossible
to read the word "assign" as meaning "sub-let." Finally, I find it difficult to
comprehend the concept of an employer "sub-letting" the performance of his
contractual duties which consist primarily of providing access to the site and
paying for the works.

Accordingly, in my view clause 17(1) of the contract prohibited the
assignment by the employer of the benefit of the contract. This, by itself, is
fatal to the claim by Investments (as assignee) in the St. Martin's case.

2. Does clause 17(1) prohibit the assignment of accrued rights of
action?

The majority in the Court of Appeal drew a distinction between an
assignment of the right to require future performance of a contract by the
other party on the one hand and an assignment of the benefits arising under
the contract (e.g. to receive payment due under it or to enforce accrued rights
of action) on the other hand. They held that clause 17 only prohibited the
assignment of the right to future performance and did not prohibit the
assignment of the benefits arising under the contract, in particular accrued
causes of action. Therefore, in the Linden Gardens case, where all the
relevant breaches of contract by the contractors pre-dated the Assignment, an

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assignment to Linden Gardens of the accrued rights of action for breach was
not prohibited. In contrast, in the St. Martin's case, where all the breaches
of contract occurred after the date of the Assignment, the majority of the
Court of Appeal held that it was a breach of clause 17 to seek to transfer the
right to future performance.

This distinction between assigning the right to future performance of
a contract and assigning the benefits arising under a contract was largely
founded on a Note entitled "Inalienable Rights?" by Professor Goode ((1979)
42 M.L.R. 553) on Helstan Securities Ltd. v. Hertfordshire County Council
[1978] 3 All E.R. 262. In that case a contract contained a clause prohibiting
the contractor from assigning the contract "or any benefit therein or
thereunder." The contractors assigned to the plaintiffs the right to a
liquidated sum of money then alleged to be due to the contractors under the
contract. Croom-Johnson J. held that the plaintiffs, as assignees, could not
sue the employers to recover the sum of money.

In his Note, Professor Goode rightly pointed out that where a contract
between A and B prohibits assignment of contractual rights by A. the effect
of such a prohibition is a question of the construction of the contract. There
are at least four possible interpretations, viz.,

1. that the term does not invalidate a purported assignment by A
   to C but gives rise only to a claim by B against A for damages for breach of
   the prohibition;

2. that the term precludes or invalidates any assignment by A to
   C (so as to entitle B to pay the debt to A) but not so as to preclude A from
   agreeing, as between himself and C, that he will account to C for what A
   receives from B: In re Turcan (1888) 40 Ch. D. 5;

3. that A is precluded not only from effectively assigning the
   contractual rights to C. but also from agreeing to account to C for the fruits
   of the contract when received by A from B;

4. that a purported assignment by A to C constitutes a repudiatory
   breach of condition entitling B not merely to refuse to pay C but also to refuse
   to pay A.

Professor Goode then expressed the view that construction (2) (being
the Helstan case itself) was permissable and effective but that construction (3)
to the extent that it purported to render void not only the assignment as
between B and C but also as between A and C was contrary to law.

I am content to accept Professor Goode's classification and
conclusions, though I am bound to say that I think cases within categories (1)
and (4) are very unlikely to occur. But Professor Goode's classification
provides no warrant for the view taken by the majority of the Court of Appeal

- 12 -

in the present case: he does not discuss or envisage a case where a
contractual prohibition against assignment is to be construed as prohibiting an
assignment by A to C of rights of future performance but does not prohibit the
assignment by A to C of "the fruits of performance" e.g., accrued rights of
action or debts. Professor Goode only draws a distinction between the
assignment of rights to performance and the assignment of rights under the
contract in two connections: first in dealing with the effect of a prohibited
assignment as between the assignor and the assignee (in categories (2) and
(3)): secondly, in dealing with contracts for personal services. In the latter,
he rightly points out that, although an author who has contracted to write a
book for a fee cannot perform the contract by supplying a book written by a
third party, if he writes the book himself he can assign the right to the fee -
the fruits of performance. He expressly mentions that such right to assign the
fruits of performance can be prohibited by the express terms of the contract.

However, although I do not think that Professor Goode's article throws
any light on the true construction of clause 17, I accept that it is at least
hypothetically possible that there might be a case in which the contractual
prohibitory term is so expressed as to render invalid the assignment of rights
to future performance but not so as to render invalid assignments of the fruits
of performance. The question in each case must turn on the terms of the
contract in question.

The question is to what extent does clause 17 on its true construction
restrict rights of assignment which would otherwise exist? In the context of
a complicated building contract, I find it impossible to construe clause 17 as
prohibiting only the assignment of rights to future performance, leaving each
party free to assign the fruits of the contract. The reason for including the
contractual prohibition viewed from the contractor's point of view must be
that the contractor wishes to ensure that he deals, and deals only, with the
particular employer with whom he has chosen to enter into a contract.
Building contracts are pregnant with disputes: some employers are much
more reasonable than others in dealing with such disputes. The disputes
frequently arise in the context of the contractor suing for the price and being
met by a claim for abatement of the price or cross-claims founded on an
allegation that the performance of the contract has been defective. Say that,
before the final instalment of the price has been paid, the employer has
assigned the benefits under the contract to a third party, there being at the
time existing rights of action for defective work. On the Court of Appeal's
view, those rights of action would have vested in the assignee. Would the
original employer be entitled to an abatement of the price, even though the
cross-claims would be vested in the assignee? If so, would the assignee be
a necessary party to any settlement or litigation of the claims for defective
work, thereby requiring the contractor to deal with two parties (one not of his
choice) in order to recover the price for the works from the employer? 1
cannot believe that the parties ever intended to permit such a confused position
to arise.

- 13 -

Again, say that before completion of the works the employers assigned
the land, together with the existing causes of action against the contractor, to
a third party and shortly thereafter the contractor committed a repudiatory
breach? On the construction preferred by the Court of Appeal, the right to
insist on further performance, being unassignable, would have remained with
the original employers whereas the other causes of action and the land would
belong to the assignee. Who could decide whether to accept the repudiation,
the assignor or the assignee?

These possibilities of confusion (and many others which could be
postulated) persuade me that panics who have specifically contracted to
prohibit the assignment of the contract cannot have intended to draw a
distinction between the right to performance of the contract and the right to
the fruits of the contract. In my view they cannot have contemplated a
position in which the right to future performance and the right to benefits
accrued under the contract should become vested in two separate people. I
say again that that result could have been achieved by careful and intricate
drafting, spelling out the parties' intentions if they had them. But in the
absence of such a clearly expressed intention, it would be wrong to attribute
such a perverse intention to the panics. In my judgment, clause 17 clearly
prohibits the assignment of any benefit of or under the contract.

It follows that the purported assignment to Linden Gardens without the
consent of the contractors constituted a breach of clause 17. The claim of
Linden Gardens as assignee must therefore fail unless it can show that the
prohibition in clause 17 was either void as being contrary to public policy or.
notwithstanding the breach of clause 17, the Assignment was effective to
assign the chose in action to Linden Gardens.

3. Is a prohibition on assignment void as being contrary to public
policy?

It was submitted that it is normally unlawful as being contrary to
public policy to seek to render property inalienable. Since contractual rights
are a species of property, it is said that a prohibition against assigning such
rights is void as being illegal.

This submission faces formidable difficulties both on authority and in
principle. As to the authorities, in In re Turcan (supra) a man effected an
insurance policy which contained a term that it should not be assignable in any
case whatever. He had previously covenanted with trustees to settle after-
acquired property. The Court of Appeal held that although he could not
assign the benefit of the policy so as to give the trustees the power to recover
the money from the insurance company, he could validly make a declaration
of trust of the proceeds which required him to hand over such proceeds to the
trustees. This case proceeded, therefore, on the footing that the contractual
restriction on assignment was valid. In Helstan Securities (supra) Croom-
Johnson J. enforced such a prohibition. In Reed Publishing Holdings Ltd. v.



- 14 -

King's Reach Investments (unreported), 25 May 1983; Court of Appeal (Civil
Division) Transcript No. 121 of 1983, the Court of Appeal had to consider an
application to join as a party to an action an assignee of the benefit of a
contract which contained a prohibition on such assignment. One of their
grounds for refusing the application was that by reason of the prohibition the
assignment was of no effect.

In none of these cases was the public policy argument advanced. But
they indicate a long-term acceptance of the validity of such a prohibition
which is accepted as pan of the law in Chitty on Contracts, 26th ed. (1989).
vol. 1, p. 883, para. 1413. We were referred to a decision of the supreme
court of South Africa, Paiges v. van Ryn Goldmines Estates Ltd. 1920 A.D.
600 in which it was expressly decided that a term prohibiting a workman from
assigning his wages was not contrary to public policy. In Scotland a
covenant against assigning a lease of minerals (which was treated simply as
a contract) was held not to infringe public policy: Duke of Portland v. Baird
and Co. (1865) 4 M. 10. We were referred to certain cases in the United
States, but they give no unequivocal guidance.

In the face of this authority, the House is being invited to change the
law by holding that such a prohibition is void as contrary to public policy.
For myself I can see no good reason for so doing. Nothing was urged in
argument as showing that such a prohibition was contrary to the public interest
beyond the fact that such prohibition renders the chose in action inalienable.
Certainly in the context of rights over land the law does not favour restrictions
on alienability. But even in relation to land law a prohibition against the
assignment of a lease is valid. We were not referred to any English case in
which the courts have had to consider restrictions on the alienation of tangible
personal property, probably because there are few cases in which there would
be any desire to restrict such alienation. In the case of real property there is
a defined and limited supply of the commodity and it has been held contrary
to public policy to restrict the free market. But no such reason can apply to
contractual rights: there is no public need for a market in choses in action.
A party to a building contract, as I have sought to explain, can have a
genuine commercial interest in seeking to ensure that he is in contractual
relations only with a person whom he has selected as the other party to the
contract. In the circumstances, I can see no policy reason why a contractual
prohibition on assignment of contractual rights should be held contrary to
public policy.

To avoid doubt, I must make it clear that I have been considering only
the validity of a restriction which prohibits assignments which have the effect
of bringing the assignee into direct contractual relations with the other party
to the contract. I have not been considering Professor Goode's category (3),
i.e. an attempt by contractual term to prevent one party making over the fruits
of the contract to a third party. Professor Goode expresses the view that if
the prohibition seeks to prevent the assignor from binding himself to pay over



- 15 -

such fruits to the assignee, such prohibition is pro tanto void. I express no
view on that point.

4. Are the assignments (although prohibited) effective to transfer
the causes of action to the assignees?

It was submitted that, even though the assignments were in breach of
clause 17. they were effective to vest the causes of action in the assignees, i.e.
Professor Goode's category 1. This argument was founded on two bases:
first, the decision in Tom Shaw and Co. v. Moss Empires Ltd. (1908) 25
T.L.R. 190: second, the fact that an assignment of a leasehold term in breach
of a covenant against assignment is effective to vest the term in the assignee.

In the Tom Shaw case an actor, B, was engaged by Moss Empires
under a contract which prohibited the assignment of his salary. B assigned
10 per cent of his salary to his agent, Tom Shaw. Tom Shaw sued Moss
Empires for 10 per cent of the salary joining B as second defendant. Moss
Empires agreed to pay the 10 per cent of the salary to Tom Shaw or B as the
court might decide i.e. in effect it interpleaded. Darling J. held, at p. 191.
that the prohibition on assignment was ineffective: it could "no more operate
to invalidate the assignment than it could to interfere with the laws of
gravitation." He gave judgment for the plaintiffs against both B and Moss
Empires, ordering B to pay the costs but making no order for costs against
Moss Empires.

The case is inadequately reported and it is hard to discover exactly
what it decides. Given that both B and Moss Empires were panics and Moss
Empires was in effect interpleading, it may be that the words I have quoted
merely indicate that as between the assignor, B, and the assignee Tom Shaw,
the prohibition contained in the contract between B and Moss Empires could
not invalidate B's liability to account to Tom Shaw for the monies when
received and that, since B was a party, payment direct to Tom Shaw was
ordered. This view is supported by the fact that no order for costs was made
against Moss Empires. If this is the right view of the case, it is
unexceptionable: a prohibition on assignment normally only invalidates the
assignment as against the other party to the contract so as to prevent a transfer
of the chose in action: in the absence of the clearest words it cannot operate
to invalidate the contract as between the assignor and the assignee and even
then it may be ineffective on the grounds of public policy. If on the other
hand Darling J. purported to hold that the contractual prohibition was
ineffective to prevent B's contractual rights against Moss Empires being
transferred to Tom Shaw, it is inconsistent with authority and was wrongly
decided.

In the Helstan Securities case Croom-Johnson J. did not follow the
Tom Shaw case and held that the purported assignment in breach of the
contractual provision was ineffective to vest the cause of action in the



- 16 -

assignee. That decision was followed and applied by the Court of Appeal in
the Reed Publishing Holdings case (supra): see also Turcan (supra).

Therefore the existing authorities establish that an attempted assignment
of contractual rights in breach of a contractual prohibition is ineffective to
transfer such contractual rights. I regard the law as being satisfactorily
settled in that sense. If the law were otherwise, it would defeat the legitimate
commercial reason for inserting the contractual prohibition viz. to ensure that
the original parties to the contract are not brought into direct contractual
relations with third parties.

As to the analogy with leases, I was originally impressed by the fact
that an assignment of the term in breach of covenant is effective to vest the
term in the assignee: Williams v. Earle (1868) L.R. 3 Q.B. 739, 750: Old
Grovebury Manor Farm Ltd. v. W. Seymour Plant Sales and Hire Ltd. (No.
2) [1979] 1 WLR 1397. However. Mr Kentridge in his reply satisfied me
that the analogy is a false one. A lease is a hybrid, part contract, part
property. So far as rights of alienation are concerned a lease has been treated
as a species of property. Historically the law treated interests in land, both
freehold and leasehold, as being capable of disposition and looked askance at
any attempt to render them inalienable. However, by the time of Coke
covenants against the assignment of leases had been held to be good, because
the lessor had a continuing interest in the identity of the person who was his
tenant: Holdsworth, A History of English Law, 2nd ed., vol. III. p. 85 and
vol. VII, p. 281. The law became settled that an assignment in breach of
covenant gave rise to a forfeiture, but pending forfeiture the term was vested
in the assignee. In contrast, the development of the law affecting the
assignment of contractual rights was wholly different. It started from exactly
the opposite position viz. contractual rights were personal and not assignable.
Only gradually did the law permitting assignment develop: Holdsworth, vol.
VII, p. 520-521 and 531 etc. It is therefore not surprising if the law
applicable to assignment of contractual rights differs from that applicable to
the assignment of leases.

Therefore in my judgment an assignment of contractual rights in breach
of a prohibition against such assignment is ineffective to vest the contractual
rights in the assignee. It follows that the claim by Linden Gardens fails and
the Linden Garden action must be dismissed.

5. What is the measure of damages recoverable by the assignee?

In view of my decision on the earlier issues, this issue does not arise
for determination. I mention it only to explain that the Court of Appeal
considered that the assignee was entitled to recover what the assignor could
have recovered had there been no assignment. On that basis Staughton L.J.
(who had held that the assignees in both actions could sue) had to consider
what the assignors could have recovered.

- 17 -

6. What is the measure of damages in the claim by Corporation?



McAlpine accept that, since the attempted assignment by Corporation
of its rights under the contract to Investments was ineffective. Corporation has
retained those rights and is entitled to judgment against McAlpine for any
breach of contract. But. McAlpine submits, Corporation is only entitled to
nominal damages. Corporation has suffered no loss: it had parted with its
interest in the property (and therefore with the works when completed) before
any breach of the building contract: moreover Corporation received full value
for that interest on its disposal to Investments. Therefore, it is said, neither
of the plaintiffs has any right to substantial damages: Investments has incurred
damage (being the cost of rectifying the faulty work) but has no cause of
action; Corporation has a cause of action but has suffered no loss. If this is
right, in the words of my noble and learned friend, Lord Keith of Kinkel in
G. U. S. Property Management Ltd. v. Littlewoods Mail Order Stores Ltd.,
1982 S. L. T. 533, 538, "... the claim to damages would disappear...into
some legal black hole, so that the wrongdoer escaped scot-free."

The Court of Appeal was able to avoid this result by reason of the
continuing liability on Corporation to indemnify Investments against the cost
of remedying the defects. McAlpine accepted, and still accept, that
Corporation is liable to Investments in damages for Corporation's breach of
contract in failing to obtain the consent of McAlpine to the assignment of the
benefit of the building contract. The measure of the damages payable by
Corporation to Investments for such breach would be the cost of remedying
the defects since, if the Assignment had been valid, Investments could have
recovered such cost from McAlpine. Therefore, the Court of Appeal held.
Corporation have suffered substantial loss by reason of McAlpine's breach,
such loss being the liability to indemnify Investments.

Attractive as this argument is. Mr Fernyhough for McAlpine has
satisfied me that it is erroneous because the damage being claimed is too
remote. The loss so identified as having been suffered by Corporation flows
from the attempt by Corporation to assign the benefit of the building contract
in breach of clause 17 of the contract. However the rule in Hadley v.
Baxendale (1854) 9 Exch 341 is formulated, in my judgment it is impossible
to say that such damage arose naturally according to the usual course of
things, or was in the contemplation of, or foreseeable by, McAlpine, or that
McAlpine ought to have realised that such damage was "not unlikely". The
contract for the breach of which damages are sought expressly prohibited
Corporation from making such assignment. One party to a contract cannot be
liable for damages flowing from the doing of an act by the other party which
the contract itself expressly forbids.

It is therefore necessary to consider Mr Fernyhough's principle
argument in some detail. He starts from the well known proposition that the
measure of damages is generally "that sum of money which will put the party
who has been injured, or who has suffered, in the same position he would



- 18 -

have been in if he had not sustained the wrong for which he is now getting his
compensation or reparation:" per Lord Blackburn in Livingstone v. Rawyards
Coal Company (1880) 5 App.Cas. 25, 39. Since, before the date of any
breach of contract by McAlpine, Corporation had disposed of all its interest
in the property on which the building works were carried out. Corporation has
suffered no loss. Corporation received the full value of the property from
Investments. The measure of damages for defective performance of a
building contract is the diminution in value of the plaintiff's property, which
diminution is usually properly reflected by the cost of carrying out the repairs
necessary to effect reinstatement: East Ham Corporation v. Bernard Sunley
& Sons Ltd. [1966] A.C. 406. Since at the date of breach Corporation did not
own the property, Corporation suffered no loss by any diminution in its value
nor could Corporation carry out any works of reinstatement. Therefore, it
is said. Corporation has suffered no loss.

Mr Fernyhough accepted that central to his argument is the fact that
at the date of breach Corporation no longer owned the property. He
distinguished the decision in Newton Abbot Development Co. Ltd. v. Stockman
Brothers (1931) 47 T.L.R. 616 on that ground. In that case the plaintiffs, as
developers, had contracted with the defendants as contractors for the
construction of a number of houses. After completion of the works, the
plaintiffs had sold the houses to individual purchasers at a profit. Thereafter
defects due to faulty construction by the defendants appeared in the houses.
The plaintiffs, although under no legal liability to do so, had remedied these
defects. They were held entitled to recover from the defendants not the cost
of effecting the remedial work but the difference between the value of the
houses as they ought to have been completed and their actual value as in fact
completed. Mr Fernyhough explains this case on the basis that, although in
fact the plaintiff suffered no commercial loss, they were the owners of the
houses at the date of breach and therefore entitled to the diminution in value
of that property, the sale on by the plaintiffs being irrelevant as res inter alios
acta. In support of the proposition that only nominal damages are
recoverable by a plaintiff who has parted with ownership of the property at the
date of breach, Mr Fernyhough further relied on two cases concerned with
breach of contract for the carriage of goods. Albacruz v. Albazero, The
Albazero [1977] A.C. 774 and Obestain Inc. v. National Mineral Development
Corporation Ltd. (The "Sanix Ace") [1987] 1 Lloyd's Rep. 465.

This is a formidable, if unmeritorious, argument since it is apparently
soundly based on principle and is supported by authority. In The Albazero the
plaintiffs chartered the defendant's vessel for the carriage of oil. The
carriage was covered by a bill of lading which named the plaintiffs as
consignees. In the course of the voyage the vessel and cargo became a total
loss. However on the day before that loss, the plaintiffs indorsed the bill of
lading to a third party: the property in the goods and the right to sue the
defendants were thereby vested in the third party. The plaintiffs, although
having no property in the goods at the date of breach of the contract of

- 19-

carriage, sued the defendants for the full value of the goods. This House held
that the plaintiffs were not entitled to substantial damages. Lord Diplock
treated the general rule as being clear: a party who has no property in the
goods at the date of breach has suffered no loss. However he recognised that
there were exceptions to this general rule and I will consider those exceptions
later.

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] AC 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



- 20 -

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



- 21 -

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



- 22 -

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



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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

1. where the loss was incurred by Stock Conversion prior to
   the said Deed of Assignment.

2. 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



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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.



The St. Martin's Case

The issues in this case are rather more complex and I will so far as
necessary explain each issue.

" 1. Was the benefit of the contract dated 29 October 1974 between
the first plaintiff (Corporation) and the defendant (McAlpine)
validly assigned by the first plaintiff to the second plaintiff
(Investments)?"

This is straightforward: the answer is "no."

"2. Was there an implied term in the deed of assignment dated 25
March 1976 and in the agency agreement dated 1976 and 1983
as pleaded in paragraph 7 and 7A of amended statement of
claim?"

The statement of claim alleges that there were implied terms under
which Corporation undertook to obtain McAlpine's consent to the assignment
(paragraph 7) or to enforce the building contract for the benefit of Investments
(paragraph 7A). Since these points would only be relevant if, contrary to my
view, Corporation could claim damages by reference to obligations undertaken
in the Deed of Assignment by Corporation to Investment, I would answer this
issue "does not arise".

"3. On the assumption that the matters pleaded in paragraph 8 of
the statement of claim are correct then

1. Does the second plaintiff (Investments) have a valid
   claim against the defendants for damages, other than
   nominal damages, for breach of the contract dated 29
   October 1974 as pleaded in paragraph 10 of the
   statement of claim?

2. Does the first plaintiff (Corporation) have a valid claim
   against the defendant for damages, other than nominal
   damages, for breach of the contract dated 29 October
   1974 as pleaded in paragraph 11 of the statement of
   claim?

(c) Does the first plaintiff (Corporation) have a valid claim
for damages other than nominal damages for breach of



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the contract dated 29 October 1974 as pleaded in
paragraph 12 of the statement of claim?"

Questions (a) and (b) are self-explanatory. I would answer them
(a) "no" (b) "yes." Question (c) raises the question whether Corporation can
claim damages as constructive trustee for Investments or because of
Corporation's liability to Investment under terms implied in the Deed of
Assignment. Since in my judgment Corporation is entitled to substantial
damages in any event, I would answer question (c) "does not arise",
although, as I have explained. I would if necessary have answered it "no".

I would therefore dismiss the appeal by McAlpine and the cross-appeal
by Investments, save that the order of the Court of Appeal be varied by
substituting the answers to the issues which I have indicated. McAlpine's
must pay the costs of the appeal to this House and Investments the costs of its
own cross-appeal.

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