#2189 - Promisee Remedies In Contract For Benefit Of 3rd Party - Contract Law

Promisee’s remedies in a contract used for benefit of a third party

If the promisee sues

• Traditional view = promisee only able to recover its own loss (and in absence of this, only nominal damages to acknowledge the breach)

  • Woodar Investment Development v Wimpey Construction [1980]: WC and WID agreed a contract of sale for some land. Purchase price was 850,000 with a condition to pay TT 150,000 upon completion. WC rescinded deal ‘improperly’ so WID claimed losses and those of TT.

    • Lord Wilberforce:

      • General rule = promisee can only recover nominal damages for breach of terms to third party If promisee has not suffered losses from that breach themselves.

        • Even where third party has suffered loss

      • Jackson v Horizon Holidays disapproved

        • Lord Denning:

          • Although third parties can’t sue on the contract

            • Promisee can

              • And Can recover losses of third parties as well as his own

          • Is the only way to achieve a just result while the law is in the position that third parties cannot sue for their individual damages.

    • Lord Keith:

      • Jackson has application in special circumstances where contract law needs flexibility

        • Such as where one party contracts for the benefit of a group (e.g. Dad arranges family holiday and all the family have a rubbish time)

          • And thus can be applied where losses suffered by third parties can be rightly considered to be part of the loss suffered by the promisee (disappointment of Dad for stress/concern caused to rest of family as well as own disappointment/distress)

            • Should not be a general rule though.

  • Burrows: effect of this is that usually only nominal damages available

    • You can only recover for that which you’ve lost

    • Therefore, promisee won’t have suffered where contract broken for benefit of third party

      • Thus promisee only gets nominal damages (about 20) to recognise the breach.

• Exceptions to nominal damages only

  • Specific Performance (although many restrictions on this)

    • Beswick v Beswick [1968]:

      • Lord Reid: Would be grossly unfair if nominal damages was the only remedy, however, Old B’s estate can order specific performance of the obligation

      • Lord Pearce:

        • In absence of specific performance, would be a substantial defect in the law if promisee only allowed to recover nominal damages when a third party has suffered a great loss

          • Should be substantial damages recoverable from D by B for C’s loss, which should then be payable to C.

• Exception to traditional rule – promisee can recover third party’s loss

  • The Albezero

    • Lord Diplock:

      • In a commercial contract concerning goods

        • where C and D know that proprietary interests of goods may be transferred from C to X after entrance into contract

          • and before the breach which causes loss or damage to the goods

      • C, if such be the intention of them both,

        • is to be treated in law as having entered into the contract for the benefit of X

          • and is entitled to recover by way of damages for breach of contract the actual loss sustained by X for whom the contract was entered into.

    • Linden Gardens BC v Lenista Sludge Disposals [1994]:

      • Lord Wilberforce (maj)

        • Exception only has limited application – such as goods carried at sea and indeed building works

        • But, should have application where exception would give remedy where no other would be available

          • So that person sustaining loss, under a rational legal system

            • Would be compensated by he who caused it.

      • Lord Griffiths (min)

        • Exception should be based on a “broad ground”

          • The fact that employers have not received what they bargained for

            • is a loss in itself which they should be able to claim substantial damages for.

  • Darlington

    • Abolished need for foreseeable transfer of goods

      • No transfer needed from promisee in the first place

  • Alfred McAlpine Construction Ltd v Panatown Ltd [2001]: 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 P’s losses. M had, however, given UIPL some direct contractual rights against M via a duty of care deed (collateral warranty)

    • Albezero Exception

      • Lord Browne Wilkinson (maj): Point of exception = fill lacuna where third party unable to do anything

        • In this case, third party could do something b/c collateral deed given, so exception does not apply.

    • Lord Wilberforce of Lord Griffiths?

      • Lord Clyde (maj):

        • Lord Wilberforce should be followed, not Lord Griffiths

          • Loss of expectation might be a loss, but not one which would justify substantial damages

          • P intend no cost of repairs themselves, UIPL...