International Construction Law Review
STILL NO ANSWER: THIRD PARTY DAMAGE AND THE LEGAL BLACK HOLE
I N DUNCAN WALLACE QC
Editor, Hudson’s Building and Engineering Contracts
INTRODUCTION
Unfortunately, it does not look as if the decision of the House of Lords in Alfred McAlpine Construction Ltd
v. Panatown Ltd
1
resolves the seminally important issue of contract and third party damage raised by that case. This was due to the fortuitous presence of an extraneous “one-off undertaking given under seal by the contractors to the third party property owners in that case. Though in the event considered but then discarded as irrelevant in the Court of Appeal, it will be seen that this document (“DCD”) was crucial to the eventual outcome in the House of Lords’ majority speeches. Inevitably, external commitments in that “one-off” form are unlikely to be encountered in future disputes.
Essentially, the point at issue was the proper measure of damage where a party in breach of contract fails to provide promised goods and services for which the promisee has been willing to pay. Should the damages be more than purely nominal if it can be shown that the promisee, for whatever reason, has himself suffered no direct or consequential damage or incurred any liability as a result of the breach? If correct, the argument means that in all such situations the promisee’s defeated contract expectation, or “performance interest” as it is now being described, is in law of no practical value and the promisee can recover nothing for its loss. It also means that the promisor defaulting party can in such situations renege on his own obligations, up to and including repudiation of the contract, with impunity. In a strictly construction context the argument becomes available where work contracted for with the promisee is carried out on land and for the benefit of a third person in situations where the promisee has not contracted as the third person’s agent and where the responsibility for reinstating omitted or defective work will be that of a third person who has no recourse against the promisee. The counter-argument is that in situations of this kind the classical entitlement of the promisee is to be placed in the same position as if the contract had been properly performed, and that this can only be achieved by substantial damages which can if desired be laid out in making good the promisor’s default.
The cases show that “no damage” arguments of this kind can be advanced
[2001
The International Construction Law Review
114