Darlington BC v Wiltshier Northern Ltd [1995] 1 WLR 68

Key point

  • Extension of the Albazero exception to cases where the third party suffering loss owned the property all along even before the contract was made

Facts

  • Darlington BC (C) wanted to build a recreation centre but could not directly borrow money due to statutory limitation
  • To overcome the limitation, C hires a bank, Morgan Grenfell (M) to pay Wiltshier, the builder (D), with the attendant promise to reimburse Morgan Grenfell for the payment
  • M also contracted with C to assign its rights to sue D for defects to C
  • Later, there was a breach of contract by D due to defects in the building work
  • C sued D for breach of contract

Issue

  • Under the principle of assignment an assignor cannot assign better rights than it itself has
  • Since M can only obtain nominal damages, could D only obtain nominal damages?

Held (Court of Appeal)

  • C was entitled to substantial damages
  • The Albazero principle applied: M could recover substantial damages for C’s loss and hence C was entitled to substantial damages

Dillon LJ

  • The Albazero exception to the general rule in Woodar v Wimpey that a party cannot obtain substantial damages loss suffered by a third party is applicable in this case
  • As compared to St Martin’s v McAlpine, there is no prohibition on assigning rights to the third party, a fortiori, the exception applies
  • Although there was no transfer to a third party of the land in this case, given that the land always belonged to C, and it was contemplated from the start that any loss would be borne by C as its owner

Steyn LJ

  • This case is a conservative extension of the Albazero exception
  • Justification
    • Third parties organise their affairs on the faith of the contract
    • The contract breaker could go off scot free

Commentary

Under this extension of the Albazero exception, the assignee/third party can obtain substantial damages if:

  • The contracting parties contemplated from the start that the loss in relation to the property would be suffered by the third party
  • There has been a successful assignment of contract