St Martins Property Corporation v Sir Robert McAlpine & Sons Ltd [1994] 1 AC 85

Key point

  • Extension of the Albazero exception from contracts of carriage for goods to building contracts

Facts

  • St Martins Property (C) began working on a property development
  • C hired McAlpine (D) as its building contractor, with the contract including an anti-assignment clause, which required the consent of D for assignment
  • C assigned the property and contract to St Martins Investments without D’s consent
  • Later, the building was found to be defective with remedial work required
  • C sued D for breach for contract
  • D argued that C had suffered no loss since it no longer had proprietary interest

Held (House of Lords)

  • C’s claim succeeded; substantial damages were awarded
  • Majority decided the appeal on the narrow ground as stated by Lord Browne-Wilkinson (see below)

Lord Griffiths

Advocated the “broader ground”

  • The recovery of damages for breach of contract should not be dependent on C having a proprietary interest in the subject matter of the contract at the date of breach: p. 96E
  • 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: p. 96E
  • To deny them a claim would be absurd as they have suffered the loss of the bargain they had contracted for and the measure of damages is the cost of securing the performance of that bargain again by other means: p. 97A

Current case

  • C suffered the loss of bargain and it does not matter that at the point of breach of contract it no longer had proprietary interest in the property: p. 96 – 97
  • C has suffered financial loss because it has to spend money to give St Martins Investments the benefit of the bargain which D had promised but failed to deliver” p. 97B

Lord Browne-Wilkinson

Advocated the “narrow ground” (Albazero exception)

  • This case falls within the rationale of the exceptions to the general rule that a plaintiff can only recover damages for his own loss laid down by Lord Diplock in The Albazero (p. 112):
    • Where it is within the contemplation of parties that interest in goods will be transferred after the contract is entered into and before the breach of contract,
    • If such be the intention of the parties, the original party to the contract is to be treated as having entered into the contract for the benefit of persons acquiring interest in the goods
    • Thus, the original party is entitled to recover damages for breach of contract the loss suffered by those persons

Current case

  • The requirements for the Albazero exception are met:
    1. The contract was for a large development of property which to the knowledge of both C and D, was to be transferred to a third party
    2. Therefore, it could be foreseen that damage caused by a breach would cause loss to a later owner and not merely the original contracting party
    3. There was no vesting of any right to sue in the owners or occupiers who sustained the loss
  • Thus, it is proper to treat the parties as having entered into the contract on the footing that C could enforce contractual rights for the benefit of third parties

Justification for the narrow ground

  • 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.”: citing Lord Diplock in The Albazero: p. 114C
  • Many building contracts have standard terms that include an anti-assignment clause and in the recession many properties are sold off before completion, producing the risk that ownership might be divided from the right to sue on the building contract before the breach occurs: p. 115B

Lord Keith, Lord Bridge, Lord Ackner

Agreed with Lord Browne-Wilkinson’s decision on the narrow ground although they sympathised with Lord Griffiths’ broad ground

Commentary

Background on the Albazero exception

  • In contracts for carriage of goods, the title to the goods would pass to the consignee (recipient of the goods) under a contract of sale before the goods are received but the consignee would not have a right to sue the carriers for any breach of contract
  • It was laid down authoritatively in The Albazero that a carrier is liable to a consignor for damage to goods where it is contemplated by the parties that title to the goods will be transferred to the consignee after the contract of carriage is concluded
  • The significant in this case is that the Albazero exception on contracts of carriage of goods was extended to building contracts

Summary of the requirements for the Albazero exception:

  1. Parties contemplated that the property will be transferred to a third party
  2. It could be foreseen that loss caused by a breach of contract will be suffered by the third
  3. The third-party has no direct right to sue