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You are here: BAILII >> Databases >> United Kingdom House of Lords Decisions >> Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1993] UKHL 4 (22 July 1993)
URL: http://www.bailii.org/uk/cases/UKHL/1993/4.html
Cite as: [1993] UKHL 4, [1994] AC 85, [1994] 1 AC 85, [1993] 3 All ER 417

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JISCBAILII_CASE_CONTRACT

    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

    - 1 -

    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.

    - 2 -

    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.

    - 3 -

    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:

    - 4 -

    '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

    - 5 -

    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

    - 6 -

    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.

    - 7 -

    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.

    - 8 -

    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

    - 9 -

    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?

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

    2. 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

    - 10 -

    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

    - 11 -

    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

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    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

    - 23 -

    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

    - 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.

    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

    - 25 -

    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.

    - 26 -


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