Judgments - Alfred McAlpine Construction Limited v. Panatown Limited

(back to preceding text)

    The need for collateral warranties for successors in title was removed by the decision in the St. Martins case, [1994] 1 A.C. 85 which was given in July 1993. The building contract in the present case was entered into in 1989, that is to say after Murphy's case [1991] 1 A.C. 398 and before St. Martins. Of course, the parties and their lawyers knew that U.I.P.L. was the building owner. That is why the D.C.D. was entered into with U.I.P.L. and its successors in title rather than with Panatown and its successors in title. But I think that it was intended to serve the purpose normally served by such a document: to provide the building owner's successors in title with a cause of action, not to provide U.I.P.L. with one. Pending the disposal of the site, it must have been assumed that Panatown would enforce the building contract in the usual way. It was the paying party, and would certainly be the party to claim any abatement of the contract price. It is unlikely to have entered anyone's head that Panatown could claim abatement but not damages and U.I.P.L. damages but not abatement. As it happens, McAlpine was willing to offer an unqualified warranty to an unidentified future lessee, and there is no reason to suppose that it would have been unwilling to have entered into such a warranty with a future purchaser from U.I.P.L. But this merely shows that the D.C.D. was included in the contractual documentation as a matter of course in accordance with contemporary practice rather than to meet a special and unusual situation.

    Accordingly I agree with the Court of Appeal that the existence of the D.C.D. does not demonstrate an intention that any damages caused by defective or incomplete performance of McAlpine's obligations under the building contract should be recoverable by U.I.P.L. under the D.C.D. and not by Panatown under the building contract. I do not, however, agree with their formulation of the question: whether the parties contemplated that the D.C.D. would "replace" the more detailed provisions of the building contract. It is not correct to ask whether Panatown would have had a claim under the building contract if there had been no D.C.D. and then ask whether the parties intended to replace that claim by a claim by U.I.P.L. under the D.C.D. If it be relevant to impute intention to the parties, the correct approach is to examine the whole complex of contracts and ask whether they contemplated that the building contract could be enforced by Panatown.

    But the broad ground does not rest on imputed intention. The narrow ground does, for it is a response to the privity rule which incidentally allows the claimant to recover damages for a third party's loss. The claimant is granted this exceptional remedy on two conditions: that he is accountable for the damages to the third party who suffered the loss, and that the remedy is withheld if the third party has his own cause of action. But the broad ground is based on ordinary contractual principles. It has nothing to do with the privity rule. The plaintiff is a contracting party who recovers for his own loss, not that of a third party. Whatever arrangements the third party may have entered into, these do not concern the plaintiff and cannot deprive him of his contractual rights. He is not accountable for the damages to anyone else, and he cannot be denied a remedy because "it is not needed." I respectfully agree with my noble and learned friend Lord Goff of Chieveley that the exception identified by Lord Diplock in The Albazero [1997] A.C. 774 is confined to the narrow ground and that it is inappropriate to apply it to the broad ground.

    The real significance of the D.C.D. is different. By giving the third party a cause of action, it raises the spectre of double recovery. Even though the plaintiff recovers for his own loss, this obviously reflects the loss sustained by the third party. The case is, therefore, an example, not unknown in other contexts, where breach of a single obligation creates a liability to two different parties. Since performance of the primary obligation to do the work would have discharged the liability to both parties, so must performance of the secondary obligation to pay damages. Payment of damages to either must pro tanto discharge the liability to both. The problem, in my view, is not one of double recovery, but of ensuring that the damages are paid to the right party.

    There can be no complaint by the building employer if the damages are recovered by the building owner, since he was the intended beneficiary of the arrangements in the first place. The building employer's performance interest will be satisfied by carrying out the remedial work or by providing the building owner with the means to pay for it to be done. This provides the key to the proper approach in the converse case like the present where the action is brought by the building employer despite the existence of a cause of action in the building owner. Since the building employer's expectation loss reflects and cannot exceed the loss suffered by the building owner, and would be satisfied by any award of damages to the latter, his claim should normally be subordinated any claim made by the building owner. While, therefore, I do not accept that Panatown's claim to substantial damages is excluded by the existence of the D.C.D., I think that an action like the present should normally be stayed in order to allow the building owner to bring his own proceedings. The court will need to be satisfied that the building owner is not proposing to make his own claim and is content to allow his claim to be discharged by payment to the building employer before allowing the building employer's action to proceed.

My noble and learned friend Lord Browne-Wilkinson has postulated the case where the breach does not occur (or the defects are not discovered) until after completion of the work and sale of the building to a purchaser who has taken an assignment of a collateral warranty.

    I do not share his concern that such a case will cause difficulty in practice. The position will be the same as in the ordinary case where the building owner and the building employer are one and the same. In such a case, the building employer/owner suffers no financial loss if he disposes of the building before the breach occurs or the defects are discovered. It cannot make any difference that the building owner and the building employer are different. The purchaser will have a cause of action under the collateral warranty. Whether this bars the remedy of the building employer depends on whether the St. Martin case is properly regarded as covered by the narrow ground or, now that it is available, the broad ground. If the former, it is an exception to the privity rule, and the building owner's action is barred (because it is not needed) by the existence of the purchaser's cause of action. If the latter, then the building owner is in theory entitled to bring proceedings in respect of own his own defeated expectation interest, but they are likely to be stayed since in practice the purchaser will normally prefer to bring his own.

    All the supposed difficulties disappear once it is grasped that the building employer's performance interest merely reflects the interest of the building owner and that his loss cannot exceed that of the building owner.


    In the present case U.I.P.L. is fully aware of the present proceedings and supports Panatown's claim to substantial damages. It has no wish to be forced to invoke its own subsidiary and inferior remedy under the D.C.D. There is no need to join it in the proceedings or require it to enter into a formal waiver of its claim under the D.C.D. Any claim it may have under the D.C.D. will be satisfied by the payment of damages to Panatown.


continue previous