Alfred McAlpine Construction Ltd v Panatown Ltd [2001]

Facts: Office block to be constructed by M for P on UIPL land (P and UIPL being connected companies).  M built defective office block that needed repair which led to substantial delays for UIPL’s use.  P attempted to use Albezero exception to claim UIPL’s losses.  M had, however, given UIPL some direct contractual rights against M via a duty of care deed (collateral warranty)

Issue for the Court: When does the Albezero exception apply?

Held (HoL dismissing the appeal):

Albezero Exception - general application

o   Lord Wilberforce

§  If contractor and employer were both aware that the property was going to be occupied and possibly purchased by third parties

·      so that it could be foreseen that a breach of the contract might cause loss to others than the employer.

o   Then employer can recover losses on behalf of the third party

·      But such foresight, and indeed intention of the parties to benefit a third party.

o    may be an unnecessary factor in the applicability of the exception.

§  Could be relevant to damages, but not to contract law, which is different from tort.

·      Thus, no reason why third party can’t claim all consequential losses. Case application

·      Problem for this case

o   If Z has given right to third party/ultimate purchaser directly through duty of care deed.

§  Thus exception noted should not apply.

Broader Ground?

·      Lord Griffiths in Linden Gardens

o   1st formulation = Let “innocent party” (employers) recover for own damages

§  because they have repairs to do owing to the breach

o   2nd formulation = the fact that employers have not received  what they bargained for

§  Is a loss in itself

·      But these formulations are not exactly realistic

o   Loss of expectation might be a loss

§  But not one which would justify substantial damages

o   P intend no cost of repairs themselves, UIPL do

o   And P don’t intend to use the building, only UIPL do.

·      More realistic and practical solution is to permit the contracting party to recover damages for the loss which he and a third party has suffered (under Albezero exception)

o   being duly accountable to them in respect of their actual loss,

§  than to construct a theoretical loss in law on the part of the contracting party, for which he may be under no duty to account to anyone since it is to be seen as his own loss.

Lord Goff of Chievely

·      Broader Ground

o   Lord Griffiths in Linden Gardens was attempting to give a remedy to a non-breaching party who contract for the benefit of a third party

o   Problem was not Privity of contract

§  But whether C could recover own loss or loss of that of X

·      Difficult to see why the fact that property/chattel should pass ownership to X

o   That C will have suffered no loss

o   Indeed, in building contract

§  Where C  contracts with D for a building for Y

·      Because he has not received the performance he has contracted for

·      Non-withstanding that the building will be passed onto Y.