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Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd & St Martins Property Corp Ltd v Sir Robert McAlpine & Sons Ltd (1993) HL
This case explores the assignability of contractual rights and the recovery of damages for breach of contract where the party suffering loss is not the original contracting party. Two cases were heard together:
Case 1: Linden Gardens v Lenesta Sludge
The House of Lords held:
This case explores the assignability of contractual rights and the recovery of damages for breach of contract where the party suffering loss is not the original contracting party. Two cases were heard together:
Case 1: Linden Gardens v Lenesta Sludge
- Facts: Stock Conversion contracted with Lenesta to remove asbestos. The contract prohibited assignment without written consent (Clause 17(1)). Lenesta failed to remove all asbestos. Stock Conversion later sold the property to Linden Gardens and purported to assign its right to sue Lenesta to Linden Gardens. Linden Gardens sued Lenesta for the cost of removing the remaining asbestos.
- Issue: Could Stock Conversion assign its right of action (an accrued right) to Linden Gardens despite Clause 17(1)?
- Facts: St Martins Corp contracted with McAlpine for building work. The contract contained a similar non-assignment clause (Clause 17). St Martins Corp assigned the property and purportedly assigned the benefit of the contract to Investments. McAlpine breached the contract after the assignment. St Martins Corp paid for remedial works and recovered the cost from Investments.
- Issue: Could the benefit of the contract (and the right to sue for breach) be assigned despite Clause 17(1)? Could St Martins Corp recover damages even though it didn't own the property at the time of the breach and wasn't out of pocket?
The House of Lords held:
- Non-Assignability of Rights: Clause 17(1) prevented the assignment of both the benefit of the contract and accrued rights of action. Therefore, Linden Gardens' claim failed, and Investments' claim failed.
- Recovery of Damages by Original Contractor: Despite not owning the property at the time of the breach and having been reimbursed by Investments, St Martins Corp could recover substantial damages from McAlpine. This is based on two key rationales:
- Lord Browne-Wilkinson's Rationale (adopted by Lord Keith, Bridge, and Ackner): The contract was for a large development intended to be occupied and potentially sold to third parties. It was foreseeable that breach would harm a subsequent owner, not just the original contractor. The court viewed it as equitable to allow the original contracting party (St Martins Corp) to recover damages on behalf of the party who actually suffered the loss (Investments), even if the contract prevented direct action by Investments against McAlpine. This rationale aligns with exceptions to the rule that a party can only recover damages for their own loss.
- Lord Griffiths' Rationale (supported by Lord Keith and Bridge): The party commissioning the work (St Martins Corp) suffers financial loss because they must spend money to receive the benefit of the bargain McAlpine failed to deliver. Who actually pays for the repairs is irrelevant; the breaching party (McAlpine) should be liable for the cost.
- Privity of Contract: Only parties to a contract can sue or be sued under it. This case highlights exceptions to this rule.
- Assignability of Contractual Rights: Contracts can explicitly restrict the assignability of rights. The court carefully examined the wording of Clause 17(1).
- Recovery of Damages: The case establishes that a party who commissions work can recover substantial damages for breach even if they are not directly out-of-pocket, particularly when the breach is foreseeable to impact subsequent owners.
- Understand the specific facts and holdings of both cases.
- Analyze the different rationales offered by the Lords (Browne-Wilkinson vs. Griffiths). Consider their implications and the justifications used.
- Compare this case to other cases dealing with privity of contract and exceptions to the rule against assignment.
- Consider the policy implications of the decision: balancing the freedom of contract (including the ability to restrict assignment) with the need to provide a remedy for those who suffer loss due to breach.
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