Contract

Building contract between builder and employer for benefit of third party - contract enforceable by third party under duty of care deed - defects and delays resulting in loss only to third party - employer not entitled to substantial damages for breach of contractAlfred McAlpine Construction Ltd v Panatown Ltd: HL (Lord Browne-Wilkinson, Lord Goff of Chieveley, Lord Jauncey of Tullichettle, Lord Clyde and Lord Millett): 27 July 2000

The employer and a construction company entered into a contract to design and construct a building on a site which was not owned by the employer but by a third party.

The company also executed a duty of care deed under which the company accepted that it owed a duty of care to the third party in respect of all matters within the scope of the company's responsibilities under the contract with the employer and undertook to the third party that it would exercise all reasonable skill, care and attention in respect of all such matters.

The employer commenced arbitration proceedings, alleging defects and delays in the building work and claiming substantial damages against the company.

The arbitrator found in favour of the employer but the judge reversed that decision on the ground that the employer, having no proprietary interest in the site, had suffered no loss and was therefore entitled only to notional damages.

The Court of Appeal allowed an appeal by the employer.

The construction company appealed.

Gordon Pollock QC and Paul Sutherland (instructed by Masons, Manchester) for the company; David Friedman QC and Jeremy Nicholson (instructed by CMS Cameron McKenna) for the employer.

Held, allowing the appeal, Lord Goff of Chieveley and Lord Millett dissenting, that if there had been no duty of care deed between the construction company and the third party the case would have been covered by the decision in St Martins Property Corporation Ltd v Sir Robert McAlpine Ltd [1994] AC 85, which extended the exceptional principle in The Albazero [1977] AC 774, and the employer would have been entitled to recover the loss suffered by the third party; but that the direct cause of action which the third party had under the duty of care deed was fatal to any claim to substantial damages made by the employer against the construction company; and that therefore the employer was entitled to no more than notional damages for the company's breach of contract.