Lloyd's Maritime and Commercial Law Quarterly
THIRD-PARTY LOSS
Paul S Davies*
A enters into a contract with B to confer a benefit upon C. A breaches the contract, so B brings a claim. Can B recover substantial damages and, if so, upon what basis? Does B need to account for any damages to C? This article considers such questions in the light of important recent appellate decisions, including Swynson Ltd v Lowick Rose LLP and BV Nederlandse Industrie Van Eiprodukten v Rembrandt Entreprises Inc. Although courts continue to refer to the “broad ground” of recovery, in substance it appears that the law of damages is shifting away from the “broad ground” towards the “narrow ground”.
I. INTRODUCTION
A enters into a contract with B to confer a benefit upon C. A breaches the contract, so B brings a claim. Can B recover substantial damages and, if so, upon what basis? Does B need to account for any damages to C?
These simple questions have long proved troublesome. It is surprising that English law still does not provide a clear answer.1 In Woodar Investment Development Ltd v Wimpey Construction UK Ltd,2 Lord Scarman said that the law in this area “is most unsatisfactory” and hoped that the House of Lords would “soon have an opportunity of reconsidering it”. His Lordship expressly said that he hoped that the review would be “now, not forty years on”.3 That was in 1980. Forty years later, treatment of the issue at the highest level has not resolved the uncertainty.
The most detailed judicial discussion of the damages that B might recover is to be found in Alfred McAlpine Construction Ltd v Panatown Ltd,4 which left the law in an inconclusive state. Lord Clyde and Lord Jauncey of Tullichettle thought that B could recover substantial damages from A, but would have to account to C for those damages. This has become known as the “narrow ground”: B can recover for C’s loss in certain circumstances. Lord Goff of Chieveley and Lord Millett, on the other hand, were prepared to allow B to recover substantial damages for itself, in substitution for performance of the bargain.5 This has
* Professor of Commercial Law, UCL; Barrister, Essex Court Chambers. I am grateful to Ben Cartwright, William Day, Christopher Monaghan, Magda Raczynska and Katherine Ratcliffe for helpful comments on previous drafts.
1. The “transferred loss principle” was recently said to be “of uncertain scope”: Palmali Shipping SA v Litasco SA [2020] EWHC 2581 (Comm), [45] (Foxton J).
2. [1980] 1 WLR 277, 291. See too Forster v Silvermere Golf and Equestrian Centre (1981) 42 P&CR 255, 258 (Dillon J).
3. [1980] 1 WLR 277, 301.
4. [2001] 1 AC 518.
5. Cf
Attorney-General v Blake [2001] 1 AC 268, 298 (Lord Hobhouse of Woodborough): “The claim is for damages in order to put the plaintiff in the same position as if the contract had been performed. It is a substitute for performance.” (emphasis in original).
Third-party loss
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