McALPINE v PANATOWN IN THE HOUSE OF LORDS

The decision of the Court of Appeal in Alfred McAlpine Construction Ltd v Panatown Ltd (1998) 58 Con L R 46, CA, discussed in our April 1998 issue page 3, has been reversed by the House of Lords: Alfred McAlpine Construction Ltd v Panatown Ltd (unreported, 27 July 2000, HL). A majority of the House (Lord Clyde, Lord Jauncey of Tullichettle and Lord Browne-Wilkinson, with Lord Goff of Chieveley and Lord Millett dissenting) has held that, while the exceptional rule in Dunlop v Lambert (1839) 6 Cl & F 600, as expounded by Lord Diplock in The Albazero [1977] AC 747, HL, is good law, it remains an exception to the general principle that damages are compensatory ( Livingstone v Rawyards Coal Company (1880) 5 App Cas 25, per Lord Blackburn) and can be displaced where the third party to the contract under litigation has independent contractual rights against the party in breach, even though those rights are not identical to, or do not confer the same right to substantial damages as, those which might have been recovered in equivalent circumstances under the principal contract. In the present case the existence of the Duty of Care Deed (‘DCD’) between the third party UPIL and the defendants McAlpine, executed by McAlpine under an obligation to that effect in the principal contract, removed the need for any exception to the general principle, which itself precluded the right to recovery: ‘So long as UPIL enjoys this right Panatown has suffered no failure to satisfy its performance interest’, per Lord Browne-Wilkinson. The majority was not disposed to reinstate any right to substantial damages under the principal contract by reference to Lord Griffiths’s principle in Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85, HL, because in the view of the majority, however legitimate that principle was in general circumstances, the present DCD was equally effective to bar recovery under this ‘broader ground’ as it was to bar recovery under the narrower ground of Dunlop v Lambert , its existence preventing any damage to any performance interest on the part of the innocent party Panatown. Any other course would, in the majority’s view, produce the risk of McAlpine’s being mulcted twice over for damages in respect of the same wrong: once at the behest of the third party UPIL and once at the behest of the innocent contracting party Panatown. Lord Browne-Wilkinson considered that risk to be especially pronounced if, as he understood Lord Goff and Lord Millett to be holding in their dissenting speeches, there was no general principle of law which required the innocent contracting party to account to the third party for the damages which he receives.