Lloyd's Maritime and Commercial Law Quarterly

Professor Francis D Rose

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ASSIGNEES OF THE BENEFIT OF A DEED AND “BLACK HOLES”

CH Tham*

Orchard Plaza v Balfour Beatty

In general, since a contract party may recover damages only for its own losses, so, too, its assignee. Recently, Orchard Plaza Management Co Ltd v Balfour Beatty Regional Construction Ltd 1 presented the High Court with another instance where the losses sustained by an assignee seemed to fall down a “black hole” because of this. However, a third party’s losses may be recovered, exceptionally, by a contract party—hence, its assignee may recover likewise. Orchard Plaza suggests this is also true for contracts made by deed.

Around 2007–2008, having obtained funding from AIB Group (UK) Plc (“A”), the defendant (“B”) entered an amended Joint Contracts Tribunal Design and Build contract (the “Building Contract”) with Coltham (Orchard) Ltd (“C1”) to design and convert an existing office block (the “Property”) into apartments and commercial units. C1 owned the freehold of the Property.

Pursuant to the Building Contract,2 B executed a contract made by deed (the “Deed”), seemingly unsupported by any consideration,3 on 22 October 2007. The other parties to the Deed were C1 as “Beneficiary” and A as “Funder” of the project.4 The Deed included an assignable collateral warranty (the “Collateral Warranty”) by which B covenanted to A that, inter alia, it had performed its Building Contract obligations with reasonable skill and diligence.5

Later, C1 granted the claimant (“C2”), a management company established for this purpose and whose members were purchasers of the apartments, a long lease of the Property. In 2015, C2 became aware of defects in the cladding selected and installed by B, and in 2020 was served an improvement notice by the council to replace it. Meanwhile, on 28 June 2017, A had assigned to C1 its rights under the Collateral Warranty, which C1 assigned to C2 on 10 July 2017. C2 then sued B for breaching it.

The Contracts (Rights of Third Parties) Act 1999 often gives assignees of the benefit of a construction contract6 recourse against the builders. However, C2 did not raise the point:7 the interlocutory hearing before Morris J focused on C2’s entitlements as an assignee to recover damages for B’s breach of the Collateral Warranty, the benefit of which had been

* Professor of Law, Yong Pung How School of Law, Singapore Management University.

1. [2022] EWHC 1490 (TCC); [2022] BLR Plus 34 (hereafter “Orchard Plaza”).

2. Clause 10: see Orchard Plaza, [10].

3. Many provisions of the Deed were reproduced in Orchard Plaza, [13], but no consideration appears to have been given in exchange for the benefit of the “Collateral Warranty”. If so, the deed would not simultaneously operate as a simple contract. See infra, fn.6.

4. Orchard Plaza, [11].

5. Clause 3.1: see Orchard Plaza, [13].

6. Contracts take three forms: contract by record, contract by deed, and simple contracts which are neither of those: 2 Bl Com 465. See also Halsbury’s Laws of England, 5th edn (London, 2019), vol.22, title “Contract”, para.14. Arguably, the Contracts (Rights of Third Parties) Act 1999 applies to both a simple contract and a “specialty”, which includes contracts by deed. See: N Andrews, “Strangers to justice no longer: the reversal of the privity rule under the Contracts (Rights of Third Parties Act) 1999” (2001) 60 CLJ 353, 372; and PH Pettit, Equity and the Law of Trusts, 12th edn (Oxford, 2012), 112, fn.67. But cf R Stevens, “The Contracts (Rights of Third Parties) Act 1999” (2004) 120 LQR 292, 313.