Technotrade Ltd v Larkstore Ltd

This appeal is against a ruling on a preliminary issue in Part 20 proceedings. The litigation arises from a dispute about liability for the substantial physical damage and financial loss resulting from building operations on a residential development site.

The main issue turns on the legal effect of the assignment of a cause of action for breach of contract. Is the assignee of the cause of action entitled to recover from the contract-breaker damages for loss, which occurred after the transfer of the development site by the assignor to the assignee, but before the assignment of the cause of action, in a larger sum than the assignor would have recovered?

One possible answer to this question would produce “a legal black hole.” The expression cropped up in argument. The whole topic of assignment, including possible “black holes”, is of special interest to practitioners in construction law and their clients. A “black hole” scenario would occur when loss is suffered in consequence of a breach of contract, but the contract-breaker’s position is that no-one is legally entitled to recover substantial damages from him.

The question was well put in a Note in the Law Quarterly Review (Vol 110 LQR 42 at p 44 I N Duncan Wallace QC)-

“ …whether .. a contract-breaker can avoid an otherwise inescapable liability in damages as a result of the accident of the transfer of the property and assignment of the benefit of the relevant …contract to a third party, either by arguing that the original contracting party or assignor, having parted with the property at full value, has suffered no loss and that the assignee cannot be in a better position, or conversely that an assignee, in a case where he alone can sue, has paid a reduced price, equally suffering no loss. In other words, does the accident of transfer and assignment create a “legal black hole” into which the right to damages disappears, leaving the contract-breaker with an uncovenanted immunity?”

It will be necessary to consider the leading authorities on the effect of the assignment of a cause of action for breach of contract on the liability of the contract-breaker to the assignee for damages, notably the case of Linden Gardens Trust v. Lenesta Sludge Disposals [1994] 1 AC 85 and (in the Court of Appeal) 57 BLR 57 (Linden Gardens). We have been referred to valuable discussions of the decision in an extended case note in the Law Quarterly Review by Mr I N Duncan Wallace QC: (1994) LQR Vol 110 at pp 42-55 and in an article in the Construction Law Journal by Mr John Cartwright - (1993) 9 Const LJ pp 281-296.

The “black hole” question arises here in the context of the assignment of a contract claim for an allegedly negligent soil inspection report obtained by the original owner of a building site for residential development. After the site ceased to be in the ownership of the company which obtained the report, a landslip occurred in the course of building operations by the contractor, who was engaged by the purchaser of the site from the original owner. The cause of action in respect of the report had not, however, been assigned when the site was sold. It was assigned only after the landslip. The assignment was made nearly 5 years after the site itself had changed hands.

Technotrade Limited offers geo-technical site investigation and engineering services. It produced a site investigation report dated 14 December 1998 on a sloping site (the Hillside Nursery Site) in Hythe Road, Hythe, Kent (the Site). The report, which was produced following a letter of instruction dated 7 November 1998 from the owner of the Site, found that it was satisfactory for the proposed development of a number of two storey houses. The report contained no prohibition against assignment.

At the time when the report was produced the freehold Site was owned by Starglade Limited, who sold it on 21 June 1999 to Larkstore Limited, a property development company. Completion of the sale was in two phases: phase I immediately, phase II in August 2000. The site was offered for sale with planning permission dated 19 November 1997 for 8 detached units. The planning consent had contained a condition requiring a specialised soil report in relation to phase I of the development. The report had been obtained by Starglade in order to satisfy the planning condition. Stargate used the report to satisfy the planning condition and sold the site to Larkstore with the benefit of full planning and building control consents, including all soil investigations.

Larkstore came into possession of the Technotrade report in June 1999 and used it without seeking Technotrade’s consent. At no time did Larkstore have any contract with Technotrade relating to its use of the report.

Larkstore engaged Bess Limited, a building and civil engineering contractor, under a design and build contract to carry out works on the Site. The contract documentation included the Technotrade report.

On 28 March 2001 planning permission was granted by Shepway District Council for phase II of the Site. It contained a similar planning condition requiring a specialised soil report prior to the commencement of the development. Larkstore used the Technotrade report to satisfy the condition.

In September 2001 Larkstore sold off part of phase II of the Site to a third party.

On 13 October 2001, while the works were being carried out by Bess on the Site, a landslip occurred, causing damage to properties in North Road uphill from the Site. They were owned by the five Claimants, who allege that the landslip was caused by excavations on the Site down slope and to the rear of their properties.

Extensive stabilisation works had to be undertaken by Larkstore for the purposes of the proposed development.

On 23 February 2004 a Deed of Assignment was entered into between Starglade and Larkstore in consideration of the payment of £1, expressly providing that

“ i) Starglade with full title guarantee assigns to Larkstore the Report together with all the benefit and interest and rights of Starglade in and under the Report and the right to enforce the same TO HOLD to Larkstore absolutely.

“ii)

For the avoidance of doubt the assignment effectively hereby includes the right to sue in respect of breaches of Technotrade of its duties and obligations and to bring all such claims against Technotrade as are available at law.”

On the same date Larkstore wrote a side letter to Starglade confirming the agreement that had been reached in relation to the assignment:

“ …In consideration of you making the assignment of even date, we undertake to pay you one half of the net monies received from Technotrade Limited.

“Net monies” means all sums received from Technotrade Limited, whether by Court order or judgment or by compromise or otherwise and whether in respect of the cause of action assigned by you to us or otherwise, but after deduction of our costs of pursuing Technotrade Limited and deduction of any costs we may be ordered to pay Technotrade Limited.

We agree to hold all monies received from Technotrade Limited on trust for division in accordance with the foregoing…”

Notice in writing of the assignment was given to Technotrade.

In the main proceedings, which were commenced by the Claimants on 25 March 2003, Larkstore is the first defendant. Bess, the second defendant, is insolvent. Hence the importance to Larkstore of making out a case against Technotrade on the basis of the 1998 soil inspection report.

On 6 October 2004 Larkstore commenced Part 20 proceedings against Technotrade. As there had never been a contract between Larkstore and Technotrade, Larkstore had to rely on the assignment of the cause of action as the basis of its contractual claim for damages for breach.

Larkstore also claimed, by virtue of the assignment, the benefit of Starglade’s rights of action for breach of duties in tort.

Larkstore made other claims in tort against Technotrade that were not connected with the assignment. The first direct claim was for breach of a duty of care in tort to carry out its duties so as to protect Larkstore from economic loss or damage to people or property. The second claim was for a contribution pursuant to the Civil Liability (Contribution) Act 1978 based on the assertion that Technotrade owed a tortious duty of care to the neighbouring landowners and is liable to them in respect of the same damage as is the subject of the claim by the Claimants against Larkstore.

On 14 June 2005 an order was made for the determination of 3 preliminary issues on the Part 20 claim. In his judgment of 2 December 2005, from which this appeal is brought by Technotrade, HHJ David Wilcox answered the issues as follows -

The judge gave permission to appeal in respect of the court’s determination of preliminary issue 1, but not in relation to issues 2 or 3.

On 6 February 2006 Carnwath LJ adjourned to the main hearing of the appeal an application by Technotrade for permission to appeal against the judge’s ruling on issue 3, with the appeal to follow, if permission is granted. The application was initially opposed by Larkstore.

On 7 March 2006 Larkstore filed a respondent’s notice seeking to cross appeal against paragraphs 52-58 of the judgement on issue 3 and an extension of time for filing a respondent’s notice. It seeks to set aside those paragraphs so as to ensure that all matters relating to the nature and extent of the physical damage and the consequences and remedial works are open for determination at trial.

In view of developments during the course of the hearing this is now the only substantial issue remaining in the appeal. On the assignment point the judge concluded

“51.

In my judgment, Larkstore under the assignment acquired Starglade’s right to sue Technotrade in contract, the cause of action having accrued at the time of the alleged breach of the contract of retainer. The measure of damages would not be nominal. The actual cost of repair and stabilisation of the site by Larkstore would be evidentially relevant to what would be recoverable, as would be the cost of reasonable repair to the neighbouring properties. Since the damage to the site occurred after the assignment, and damage is an essential ingredient in tort it follows in my judgment that under the assignment there was no cause of action in tort capable of being assigned by Starglade.”

[Note: The judge must have meant the transfer of the site. The damage occurred after that transfer, not after the assignment of the cause of action].

In reaching this conclusion the judge rejected Technotrade’s submission that the assignment was invalid. He rejected the submission that it was never in the contemplation of Starglade and Larkstore that the benefit of Technotrade’s report and Starglade’s rights of action in relation to it should be assigned to Larkstore. He found that the report was an incident of the vital planning consent being sold with the land and that a formal assignment was intended, but overlooked. As Peter Smith J observed in argument, there may have been an equitable assignment which was perfected by the statutory assignment in 2004. The judge held that Larkstore had a genuine commercial interest in the enforcement of any claim against Technotrade arising out of the breach of the contract of retainer and the recovery of at least an agreed proportion of the damages. This aspect of the judgment is not appealed by Technotrade.

Technotrade then submitted that Larkstore’s claims based on the assignment were misconceived. The argument was that an assignee cannot recover more than could the assignor, had there been no assignment; Starglade, the assignor, had not suffered any loss as a consequence of the report or the landslip, as it had ceased to own the Site at the time of the landslip and at the date of the assignment of the cause of action.

The judge reviewed the authorities and decided to apply the law was as stated by Staughton LJ in Linden Gardens at 57. The principle was that an assignee can recover no more damages than the assignor could have recovered if there had been no assignment, and if the building had not been transferred to the assignee (emphasis added).

The perceived problem of the effect of the assignment on the assignee’s right to recover substantial damages is temporal in origin. It arises from the particular order in which the following events occurred: the breach of contract by Technotrade, the transfer of ownership of the Site by Starglade to Larkstore, the damage caused by the landslip after the transfer, and the assignment of the cause of action by Starglade to Larkstore, which occurred years after the transfer of the Site.

There are 3 relevant points of time.

The answer to the perceived problem of a limit on the damages which Larkstore, as assignee, is entitled to recover from Technotrade is to be found, in my judgment, in an analysis of the cause of action itself. In this case the cause of action was the right to sue Technotrade for breach of contract in respect of the preparation of the soil inspection report on the Site. The cause of action was complete in December 1998 when Technotrade produced the soil report for Starglade.

It is accepted that the report and the rights of action and remedies in respect of it were assignable and were not personal to Starglade. It is also accepted that, although the damages which Starglade could have recovered at the date when the cause of action was complete would have been no more than nominal damages, Starglade, if it had remained the owner of the Site, would have been entitled to claim and, if able to prove, recover substantial damages for the landslip which occurred in October 2001.

The remedy in damages for breach of contract is not limited to the loss that could have been proved at the date when the breach occurred and the cause of action first arose. Subject to factual and legal issues of causation, remoteness, quantum and limitation of actions, there is a remedy in damages against the contract breaker for loss which occurs after the cause of action has accrued. A cause of action may arise years before any substantial damage occurs, as, for example, in the case of negligent advice on title. There is no legal principle which protects the contract-breaker by excluding his liability for substantial damage that occurs after the initial breach of contract.

What difference, if any, can an assignment of the cause of action make to the remedies available to the assignee against the contract-breaker? A statutory assignment in writing under section 136 of the Law of Property Act 1925, of which express notice has been given, as was done in this case, is effectual in law to pass and transfer from the date of notice the legal right to the thing in action and “all legal and other remedies for the same.” The statutory assignment is expressly made “subject to equities having priority over the right of the assignee.”

Mr Friedman QC (who did not appear in the court below) submitted on behalf of Technotrade that the assignment makes a crucial difference. His broad submission was that the only losses that Larkstore is entitled to claim by virtue of the assignment of the cause of action are the losses that Starglade could itself have recovered from Technotrade at the time of the assignment. As the assignment of the cause of action took place after Starglade had parted with the Site to Larkstore and the substantial damage occurred before the assignment of the cause of action to Larkstore, Starglade and therefore Larkstore had no right to claim and recover substantial damages for loss resulting from the landslip.

In its defence to the Part 20 Particulars of Claim Technotrade pleaded that Starglade’s rights of action are of no assistance to Larkstore, as Starglade has suffered no losses (paragraph 31). It is pleaded in paragraph 30 -

“ (i) The well established principle that an assignee of a chose in action (here Larkstore) cannot recover more than the assignor (here Starglade) has lost, is applicable on the particular facts of this claim, which it is averred does not fit within any of the exceptions to the said principle. Starglade has suffered no loss and Larkstore is not entitled to put itself in any better position than the principal to the contract which it has purported to assign.”

The scope of the principle pleaded is discussed generally in Chitty on Contracts (29^th Edition-2004) Ch 19-

“19-073 Assignee cannot recover more than assignor. A further aspect of the idea that an assignee takes an assignment “subject to equities” is the principle that an assignee cannot recover more from the debtor than the assignor could have done had there been no assignment. For example, in Dawson v. Great Northern & City Railway Co the assignment of a statutory claim for compensation for damage to land did not entitle the assignee to recover extra loss suffered by reason of a trade carried on by him, but not the assignor, that the assignor would not have suffered.

19-074 The application of this principle has given rise to particular difficulty in relation to building contracts or tort claims for damage to buildings. Say, for example, a building is sold at full value along with an assignment to the purchaser of claims in contract or tort in relation to the building. The building turns out to need repairs as a result of a breach of the builder’s contract with the assignor (whether that breach is prior, or subsequent, to the sale to the assignee) or of a tort (damaging the building prior to the sale). The assignee pays for the repairs. It might be argued that the assignor in that situation has suffered no loss so that, applying the governing principle that the assignee cannot recover more than the assignor, the assignee has no substantial claim. If correct, “ …the claim to damages would disappear …into some legal black hole, so that the wrong-doer escaped scot-free.” Acceptance of the argument would also nullify the purpose of the governing principle which is to avoid prejudice to the debtor and not to allow the debtor to escape liability.

19-075 Perhaps not surprisingly, therefore, that argument was rejected by the House of Lords in a Scottish delict case. And the problem has been circumvented in England by the courts’ recognition that, where a third party is, or will become, owner of a defective or damaged property, there is an exception to the general rule that a contracting party can recover damages for its own loss and not for the loss of a third party. Where the exception applies, the contracting party (the assignor) is entitled to substantial damages for the loss suffered by the third party (the assignee): by the same token, an award of substantial damages to the assignee does not infringe the principle that the assignee cannot recover more than the assignor.”

Applying this concise account of the legal principles to the particular circumstances of this case, it is, in my judgment, fallacious to contend that Larkstore cannot recover substantial damages from Technotrade, even if it can prove that Technotrade was in breach of contract and otherwise liable for them.

The contention is based on the propositions that Starglade (the assignor) had only suffered nominal damages at the date of the assignment, because it no longer owned the Site, and that Larkstore (the assignee) could not acquire by assignment from Starglade any greater right than Starglade had against Technotrade.

As I see it, that is not the true legal position. What was assigned by Starglade to Larkstore was a cause of action for breach of contract against Technotrade and the legal remedies for it. It was not an assignment of “a loss”, as Mr Friedman described it in his attempt to persuade the court that the amount of the loss recoverable by Larkstore was limited by what loss had been suffered by Starglade, in this case nil. The assignment included the remedy in damages for the cause of action. The remedy in damages for breach of contract is not, in principle, limited to the loss suffered as at the date of the accrual of the cause of action or as at any particular point of time thereafter.

The principle invoked by Technotrade that the assignee cannot recover more than the assignor does not assist it on the facts of this case. The purpose of the principle is to protect the contract-breaker/debtor from being prejudiced by the assignment in having, for example, to pay damages to the assignee which he would not have had to pay to the assignor, had the assignment never taken place. The principle is not intended to enable the contract-breaker/debtor to rely on the fact of the assignment in order to escape all legal liability for breach of contract.

In this case the assignment of 23 February 2004 did not, in itself, prejudice Technotrade by exposing it to a claim for damages by Larkstore, which Starglade could not have brought against Technotrade. The assignment of the cause of action by Starglade to Larkstore was a delayed consequence of the earlier sale of the Site. It completed the transaction. If Starglade had not sold the Site to Larkstore, it would not have assigned the cause of action against Technotrade to Larkstore and it could have recovered substantial damages against Technotrade for the landslip. The increased exposure of Technotrade for damages for breach of contract was a consequence of the landslip after the cause of action arose. It was not a consequence of the assignment of the cause of action, which was made to enable Larkstore to step fully into the shoes of Starglade following on the earlier sale of the Site .

Indeed, if Mr Friedman’s arguments were accepted, far from being prejudiced by the assignment, Technotrade would improve its position as a result of it. Technotrade would escape all potential contractual liability for the damage caused by the landslip. It would have ceased to be liable to Starglade, which no longer owned the Site. It would not be liable to Larkstore, which did own the site, but the liability to Larkstore would be subject to the Starglade limit proposed by Mr Friedman, which would cancel any claim against Technotrade for substantial damages. By a legal conjuring trick worthy of Houdini the assignment would free Technotrade from the fetters of contractual liability. The position would be that the contract-breaker would be liable to no-one for the substantial loss suffered in consequence of the breach. As a matter of legal principle and good sense, this cannot possibly be the law, and fortunately the authorities cited in argument and discussed below do not compel the court to reach such a result.

Mr Friedman submitted that there was no “legal black hole” or conjuring trick here. He contended that the parties did not contemplate that any one other than Starglade would or might suffer loss in consequence of a breach of contract by Technotrade in respect of the report. Technotrade’s retainer was on the basis that it was Starglade who would be carrying out the development of the Site. Losses have been suffered by Larkstore because it chose not to seek any form of warranty from Technotrade, did not engage its own geo-technical advisers and relied on the Technotrade report without obtaining the consent of Technotrade for a purpose for which it had not been written.

In my judgment, these arguments amount to no more than an ingenious attempt to deny what has been correctly conceded, namely that the report and the causes of action in respect of it were assignable by Starglade. There was no express prohibition against assignment. No prohibition can be implied from any special circumstances. It was not argued, for example, that the contract between Starglade and Technotrade was of a personal nature and therefore unassignable.

Mr Friedman’s submissions on the assignment point are not supported by the authorities cited by him to show that the judge had misunderstood or misapplied the correct legal principles. Although the cases were discussed at length in the skeleton arguments and at the hearing, I propose to deal with them quite briskly.

Dawson v. Great Northern and City Railways Company [1905] 1 KB 260 at 272-274 per Stirling LJ was cited for the proposition that the assignee was not entitled to recover any greater amount of compensation than the assignor could have recovered. The width of the general proposition has to be read in context. In that case compensation under the Lands Clauses Consolidation Act 1845 was not payable to the assignee for “damage to her trade stock” (as distinct from structural damage to premises requiring re-instatement works which did not increase the burden on the defendants), because that was compensation for an item that could not have been recovered by the assignor from the defendants. The assignor did not trade in the stock in question and could not have made a claim for compensation for that item.

GUS Property Management Limited v. Littlewoods Mail Order Stores Limited [1982] SLT 583 was also cited for Lord Keith’s statement at p 537-538 that

“ …. the basic question at issue is whether in this action the Pursuers are really seeking to pursue against the Defenders a claim or claims which the [assignor] could have pursued at the date of the [assignment] ….. the only relevant loss which by virtue of the [assignment] the Pursuers could claim title to recover is loss suffered by the [assignor] for which the [assignor] could at the date of the [assignment] have sought reparation.”

The speech of Lord Keith was considered in Linden Gardens. We heard very detailed submissions on the speech of Lord Browne-Wilkinson in the House of Lords (with which the other members of the Appellate Committee concurred) and on the judgments in the Court of Appeal.

The judge was criticised by Mr Friedman for relying on the following passage in the judgment of Staughton LJ in 57 BLR 57 at p80-81-

“That brings me to the last point to be considered in connection with assignment of choses in action. Where the assignment is of a cause of action for damages, the assignee must of course have a sufficient proprietary right, or a genuine commercial interest, if the assignment is not to be invalid. It is no longer in issue in these appeals that the assignees had such a right in each case; we heard no argument to the contrary from the contractors. But it is said that in such a case he assignee can recover no more as damages than the assignor could have recovered.

That proposition seems to me well founded. It stems from the principle already discussed, that the debtor is not to be put in any worse position by reason of the assignment. And it is established by Dawson v. Great Northern & City Railway Co [1905] 1 KB 260; see also GUS Property Management Ltd v. Littlewoods Mail Order Stores Ltd [1982] SLT 533 by Lord Keith of Kinkel at page 538, cited later in this judgment [pp 89-90]. But in a case such as the present one must elucidate the proposition slightly: the assignee can recover no more damages than the assignor could have recovered if there had been no assignment, and if the building had not been transferred to the assignee.”

As I read the judgments of the other members of the court (Kerr LJ at pp 97- 98 and Nourse LJ at p66), it is reasonably clear that they agreed with what Staughton LJ said on this point in the passage cited and on pp 91-92.

Although the House of Lords overturned the decision of the Court of Appeal on the issue of the effect of the prohibition against assignment, I do not read the speech of Lord Browne-Wilkinson, which did not directly address the issue, as questioning the ruling of the Court of Appeal on the question whether an assignee could recover no more damages than the assignor could have recovered. It was unnecessary for the House to consider the assignee’s remedies for breach of contract in view of its decision that the prohibition against assignment rendered the assignments ineffective.

The judgment of Staughton LJ was rightly relied on by the judge. I am respectfully of the view that the ruling of Staughton LJ on this point is correct as a matter of legal principle and good sense, and ought to be followed by this court in this case. It completely disposes of the argument raised in the defence of Technotrade that Larkstore is not entitled to claim substantial damages from Technotrade, because its assignor, Starglade, had suffered no loss, having parted with the Site before the landslip occurred and before the assignment of its cause of action to Larkstore.

I must, however, make it clear that the only point raised in this case at this preliminary stage is whether Larkstore had, by virtue of the assignment, a right to sue Technotrade for substantial damages for breach of contract in respect of loss claimed to have been suffered by it in consequence of the landslip at the Site. There is no question before this court, nor was there below, as to the proper measure or quantum of damages, which Larkstore is entitled to recover against Technotrade. We have heard no argument on it and I express no views on that aspect of the case.

As to the duty of care owed by Technotrade to the Claimants in the main action, the judge’s ruling is not appealed. He held that

“88.

…a duty of care lies in respect of the physical damage suffered by the owners of the neighbouring upslope property and such loss would be recoverable from Technotrade. To that extent therefore the damage is the same damage as that for which Larkstore is liable albeit through separate and different causes of action.”

As to a duty of care owed by Technotrade to Larkstore, Larkstore pleaded that Technotrade owed a duty of care to carry out its obligations to protect Larkstore from economic loss and/or so as to

“ protect Larkstore from damage or the threat of damage to people or property other than that which comprised the works and in particular to take into account the risk of instability of the land and any neighbouring land and buildings.”

The claim for economic loss was based on Hedley Byrne principles, the loss claimed being alleged to have been caused by the negligent provision of defective professional advice by Technotrade. The judge’s ruling that there was no relevant duty of care based on economic loss (paragraph 73) is not appealed by Larkstore. In reaching his conclusion the judge held that an inference of proximity to a class of developers was not warranted or fair, as Technotrade was expressly informed in the letter of instruction that Starglade had decided against selling the site and had decided to build. There was no other developer in contemplation. Further, Larkstore was not made known to Technotrade till several years later and the planning permission for which Technotrade was originally used was superseded by a later planning permission, the development was carried out in 2 phases and part of the site sold off to another builder. It was not within the reasonable contemplation of Technotrade that their report would be recycled in succeeding years to satisfy further planning permission conditions by a developer who they had no knowledge of and who proceeded without further investigation.

That leaves only the rulings of the judge on the question of a duty of care by Technotrade to Larkstore not to cause physical damage . On that point there is some understandable confusion as to the effect of the judgment. It is that confusion that has led to an application by Technotrade for permission to appeal on the 3^rd preliminary issue and an application by Larkstore for leave to serve a respondent’s notice on that point.

Fortunately, it was unnecessary for the court to hear detailed argument on the applications as the parties have sensibly reached an agreement, which meets with the court’s approval, as to how the applications should be disposed of.

The agreement is as follows-

“Technotrade’s application for permission to appeal (in relation to items 2, 3 and 4 of its Grounds of Appeal) and Larkstore’s application for permission to appeal dated 7 March 2006 be refused on the basis that:

1)

The conclusions of the judge at paragraphs 52 to 58 of the judgment do not amount to findings as to how heads of loss should be categorised (as is conceded at paragraph 11 of Technotrade’s Supplementary Skeleton dated 14 June 2006), not being issues which were before the judge.

2)

Issues as to causation, remoteness, categories of loss and the measure of damages remain open.

3)

The issues which remain open include the question of intermediate examination as raised in paragraph 10 of Technotrade’s Supplementary Skeleton dated 14 June 2006.”

I would dismiss the appeal on the assignment point.

As for the applications on the duty of care point, I would refuse the applications for permission to appeal made by each party with no order as to costs.

I agree, and I would like to add a few observations about the authorities which have been cited to us, particularly in the context of Mr Friedman QC’s submission for Technotrade that to uphold the judgment below would run counter to fundamental principle in ignoring that Starglade, as assignor, simply had no loss, that is to say none other than a purely nominal loss, to pass on to Larkstore as assignee.

In this connection, Lord Justice Mummery has already cited Chitty on Contracts, 2004, 29^th ed, at para 19-075, for the proposition that –

“where a third party is, or will become, owner of a defective or damaged property, there is an exception to the general rule that a contracting party can recover damages for its own loss and not for the loss of a third party. Where the exception applies, the contracting party (the assignor) is entitled to substantial damages for the loss suffered by the third party (the assignee): by the same token, an award of substantial damages to the assignee does not infringe the principle that the assignee cannot recover more than the assignor.”

The relevant footnote refers to Linden Gardens Trust Ltd v. Lenesta Sludge Disposals Ltd [1994] 1 AC 85, Darlington Borough Council v. Wiltshier Northern Ltd [1995] 1 WLR 68, and Alfred McAlpine Construction Ltd v. Panatown Ltd [2001] 1 AC 518.

The authorities in this area demonstrate the courts’ striving to ensure that wrongdoers do not escape from their liabilities, by reference to the general principle that a person can only recover for his own loss, because of the happenstance that a cause of action lies in the hands of someone other than the person who has suffered the loss. The courts are concerned to see that justice is done between the parties. The general problem has arisen in a number of different ways.

Thus in GUS Property Management Limited v. Littlewoods Mail Order Stores Limited [1982] SLT 583 the pursuers, GUS, were the transferees from an associate company, Rest, of a building which had suffered damage during works to a neighbouring property. Rest therefore had a claim in tort against the defendants, Littlewoods. After the damage had been caused, Rest transferred their building to GUS, as a matter of group policy designed to concentrate the groups’ property assets in a single subsidiary. The transfer was made at book value, without any discount being allowed for the damage suffered, and indeed without any reference to the true value of the building. A few years later, Rest also assigned to GUS their cause of action against Littlewoods. Thus the cause of action and the loss caused by the damage started life in the same hands, viz with Rest, and ended up with their assignees, GUS. However, because of the transfer value obtained by Rest, Littlewoods alleged that Rest had suffered no loss, and that their assignees, GUS, therefore had no claim either. The First Division upheld this defence, but the House of Lords reversed that decision. As Lord Keith of Kinkel said, the price for which Rest had transferred the damaged building to GUS was entirely irrelevant for the purpose of measuring the loss suffered by Rest and was quite incapable of founding an argument that Rest had suffered no loss at all. Lord Keith protested against this attempt to make Rest’s loss “disappear…into some legal black hole, so that the wrongdoer escaped scot-free” (at 538).

The next argument raised by Littlewoods was that GUS were suing, on their pleadings, for their own loss in repairing the damage, and that that was not a loss suffered by Rest. That argument was also rejected. The cost of repairs was merely one way of evidencing the loss. Another possible way was to take the day one diminution of the value of the building due to the damage caused. In either event, the loss had been suffered by Rest, and it was Rest’s loss for which GUS were suing as assignees. The First Division had taken too narrow a view of GUS’s pleadings, “which was not conducive to the aim of doing justice between the parties” (at 539).

That was a comparatively simple case, because, upon proper analysis, cause of action and loss had both been suffered by the assignor, prior to the assignment. It demonstrates, however, the defendant’s attempt to manipulate legal principle to split cause of action and loss between assignor and assignee. The House of Lords would have none of it.

Linden Gardens Trust v. Lenesta Sludge [1994] 1 AC 85 involved two separate cases, heard together. The other case was St Martins Property Corporation Ltd v. Sir Robert McAlpine Ltd. I shall call the two cases Lenesta and McAlpine respectively.

In Lenesta the lessee of a building entered into an asbestos removal contract with a contractor who subcontracted it to Lenesta. Lenesta did a bad job, and some time later, (in 1985), the lessee had to engage a further contractor to complete the task. This realised a loss of some £22,000. The second contractor also did a bad job, overlooking further asbestos, but at that time that was unknown. Thereafter the lessee assigned his lease to Linden at full market value. Later again, the lessee commenced proceedings against both contractors and Lenesta, for breach of contract and negligence. It was at that point that the lessee also assigned to Linden its pleaded rights of action. Subsequently, Linden had to undertake still further work to remedy the situation and incurred a cost of some £236,000 (in 1987/1988). There was a prohibition on assignment in the contractors’ contracts. The court of appeal [1992] 57 BLR 57 held that the assignment was nevertheless effective and awarded damages to Linden for the accumulated costs of remedying the two contractors’ defaults. Some of that cost had been incurred by the lessee (Stock Conversion) and subsequently some of it had been incurred by Linden. Thus, as in GUS v. Littlewoods, the causes of action had arisen in the hands of the assignor, Stock Conversion, but (the majority of) the financial consequences of the breaches had been experienced by the assignee, Linden (aside from that part incurred by Stock Conversion before transfer of the lease). The House of Lords, however, held that the assignment was invalid, because of the prohibition on assignment. Therefore, Linden lost its claim. There was no claim by the assignor, Stock Conversion.

At the Court of Appeal level, however, where the assignment was held to be valid, the defendant contractors submitted that the assignee, Linden, could recover no more than the assignor, Stock Conversion could have done, and that the assignor had suffered no loss because he had sold his lease for full market value. It was also submitted that in any event, Linden could not recover the £236,000 it had incurred itself in respect of loss of rent during the works. These were essentially the same arguments as had been run in GUS v. Littlewoods. They failed again. Staughton LJ showed that the sale of the lease at full market value was res inter alios acta, just as much as the transfer at book value in the earlier case, and did not go in diminution of Stock Conversion’s loss (at 89/91). As for the £236,000 incurred by Linden itself, it was submitted that there had been no right of action vested in Stock Conversion because no remedial work had been carried out by it, but Staughton LJ said (at 92):

“It is immaterial that Linden Gardens Trust subsequently incurred the expense of remedial work and suffered loss of rent while it was carried out, although the cost and loss may assist them in establishing the damages which would, but for the assignment have been recoverable by Stock Conversion…in my opinion there was an existing right of action for breach of contract.”

Staughton LJ had previously said (at 80/81):

“But it is said that in such a case the assignee can recover no more as damages than the assignor could have recovered.

That proposition seems to me to be well founded. It stems from the principle already discussed, that the debtor is not to be put in any worse position by reason of the assignment. And it is established by Dawson v Great Northern & City Railway Co [1905] 1 KB 260; see also GUS Property Management Ltd v Littlewoods Mail Order Stores Ltd [1982] SLT 533 by Lord Keith of Kinkel at page 538, cited later in this judgment. But in a case such as the present one must elucidate the proposition slightly: the assignee can recover no more damages than the assignor could have recovered if there had been no assignment, and if the building had not been transferred to the assignee.”

Sir Michael Kerr (at 97/98) wrote in essentially the same terms, saying –

“The next point is then that an assignee can recover damages from the debtor to the same extent as his assignor could have done, but he cannot enforce any new claims, let alone under new heads of damage, which would not have been available to the assignor. However, his right to damages, limited to that extent, is enforceable by him even though he is not accountable to his assignor…Both [the £22,000 and the £236,000 losses] are claims for damages which had vested in Stock Conversion and which were validly assigned to Linden Gardens. The fact that, at the time of the assignment, Stock Conversion were aware [sc unaware] of the full extent of the breaches, and therefore of the extent of their claims for damages does not appear to me to make any difference to the validity and effect of the assignment to Linden Gardens. The only limitation upon Linden Gardens’ right of recovery is the extent to which the defendants may be able to show that Linden Gardens’ claims exceed what would have been recoverable by Stock Conversion if there had been no assignment. But that is merely a question which goes to quantum, like the discussion in the speech of Lord Keith in GUS as to what would be the appropriate measure of damages in the circumstances.”

Nourse LJ agreed with the judgments of both Staughton LJ and Sir Michael Kerr (at 66). In the House of Lords, their Lordships did not have to reach this issue, because they held the assignment to have been invalid.

For the reasons given by Lord Justice Mummery, it seems to me that these authorities are directly applicable to the present appeal. It is true that in one, admittedly important, respect the present case goes beyond GUS v. Littlewoods and Lenesta: whereas in those cases the damage caused by the breaches of contract or negligence had already occurred by the time of the assignments, albeit it had not been experienced as a financial loss until quantified by remedial works instituted by the assignees, and the assignees’ loss of rent in the present case, although the breach of contract had already occurred before the assignment, the loss arising from the breach had not been caused until the development work was actually undertaken, by which time the development had been sold to Larkstore and the loss had not been experienced, even in an unquantified form, by the assignor Starglade. However, for the reasons given by Lord Justice Mummery, I agree that this difference is not crucial. Damage arising from a breach of contract is often slow in materialising. The delay in this case may give rise hereafter to arguments about causation or remoteness: I say nothing about those problems. However, it was Starglade who had experienced the breach of contract and owned the cause of action, and, subject to issues of causation and remoteness, it would have been Starglade who, subject to such issues, would have been entitled to have recovered for the financial consequences of that breach if it had not sold the development to Larkstore.

Thus the facts that the damages had only been nominal at the time of the sale of the property, or that the substantial loss only occurred after the sale, or that Larkstore suffered that loss before it had acquired, under the assignment, the right of action to go along with the loss, do not in my judgment prevent recovery by Larkstore. Those complications no doubt mean that the arguments about causation and quantum may be affected by considerations which would not have arisen if Starglade had developed the Site itself: see Dawson v. Great Northern & City Railway Company [1905] 1 KB 260, where the defendant was not liable for that part of the assignee’s claim which was premised on “damage to trade stock” by reason of disturbance to her drapery business, which was a different business from that of the assignor, in whose hands the land in question was simply used for the purpose of letting out (at 273/4). However, to hold that Larkstore’s claim as assignee of Starglade’s cause of action for breach of contract against Technotrade simply failed in limine would be to consign it to that black hole about which Lord Keith was concerned in GUS v. Littlewoods and which has been repeatedly alluded to in successive cases which have raised analogous problems.

It seems to me that this conclusion is also supported by the result of the other case reported with Lenesta, namely McAlpine.

In McAlpine, as in Lenesta, the assignment again failed because of a prohibition against assignment, but in this case both assignor and assignee were parties to the litigation against McAlpine. The assignor was St Martins Property Corporation (“Corporation”) and the assignee was St Martins Property Investments (“Investments”). The assignee’s claim necessarily failed, but the assignor’s claim succeeded. Corporation was concerned in the development of a property and for these purposes entered into a building contract with McAlpine. It later assigned to Investments, for full value, all its interest in the development and associated contracts, including the McAlpine contract. After development, defects where found in the property, costing £800,000 to remedy, and those defects were due to McAlpine’s breach of contract. McAlpine argued that because that loss had been suffered by Investments and not by Corporation, neither party could recover. Investments, as purported assignee, could not recover since the assignment was invalid. Corporation, however, could not recover either, because at the time of McAlpine’s breach it had no longer had any proprietary interest in the property and had therefore suffered none but a purely nominal loss. Thus the contract and its breach lay between Corporation and McAlpine but the loss lay between Investments and McAlpine, between whom there was neither an original nor an assigned contract.

Nevertheless, the House of Lords held that Corporation could recover substantial damages for the account of Investments. Lord Browne-Wilkinson described McAlpine’s argument as “formidable, if unmeritorious”, formidable because apparently based on principle and supported by authority, viz in The Albazero [1977] AC 774. Nevertheless, Lord Browne-Wilkinson held that the Dunlop v. Lambert (1839) 6 Cl & F 600 exception applied, whereby one party may be thought of as entering into a contract for the benefit of all parties who may subsequently acquire an interest in goods, because it was contemplated by both original parties to the contract that the goods may be transferred to another party after its making and before its performance has been completed. Lord Browne-Wilkinson put the matter in this way (at 114G/115B):

“In my judgment the present case falls within the rationale of the exceptions to the general rule that a plaintiff can only recover damages for his own loss. The contract was for a large development of property which, to the knowledge of both Corporation and McAlpine, was going to be occupied, and possibly purchased, by third parties and not by the Corporation itself. Therefore it could be foreseen that damage caused by the breach would cause loss to a later owner and not merely to the original contracting party, Corporation. As in contracts for the carriage of goods by land, there would be no automatic vesting in the occupier or owners of the property for the time being who sustained the loss of any right of suit against McAlpine. On the contrary, McAlpine had specifically contracted that the rights of action under the building contract could not without McAlpine’s consent be transferred to third parties who became owners or occupiers and might suffer loss. In such a case, it seems to me proper, as in the case of carriage of goods by land, to treat the parties as having entered into the contract on the footing that Corporation would be entitled to enforce contractual rights for the benefit of those who suffered from defective performance but who, under the terms of the contract, could not acquire any right to hold McAlpine liable for breach. It is truly a case in which the rule provides “a remedy where no other would be available to a person sustaining loss which under a rational legal system ought to be compensated by the person who has caused it”.”

Lord Browne-Wilkinson was not impressed by an argument that “it would be wrong to distort the law…to meet…an exceptional case”, since he regarded the problem as one inherent in a standard form of enterprise (at 115B/G).

In a later case, the same solution was applied, by way of an extension of the Dunlop v. Lambert exception, even though neither factor stressed by Lord Browne-Wilkinson, namely that the contractual parties contemplated transfer of the property to which the contract related, and that the contract prohibited assignment, applied: see Darlington Borough Council v. Wiltshier Northern Ltd [1995] 1 WLR 68 (CA). In Alfred McAlpine Construction Ltd v. Panatown Ltd [2001] 1 AC 518, however, the House of Lords while approving the decision in Darlington was unwilling to extend the Dunlop v. Lambert/McAlpine exception to a situation where the parties had provided the assignee with his own separate and direct avenue of claim against the contractor. See Chitty at paras 18-050/063 for a detailed discussion of these cases.

While McAlpine and the cases which have followed do not directly apply to the present case, as was common ground before the judge, since here there is no question of Starglade claiming in respect of Larkstore’s loss, nevertheless they illustrate the possibilities that, in order to prevent the loss caused by a defendant’s breach disappearing into the proverbial black hole, the courts are nowadays willing to go far to create a working, and developing, analysis which will accommodate a claim for substantial damages. Those cases also demonstrate, in my judgment, that if substantial damages may be claimed by the assignor in such circumstances, then there can be no objection to a claim brought by an assignee of a valid assignment, in whom both cause of action and loss unite in the same party.

Underlying all these cases can be heard the drumbeat of a constant theme, which could possibly be described as ubi ius ibi remedium, the maxim that where there is a right there is a remedy; but it could also be said that the courts are anxious to see, if possible, that where a real loss has been caused by a real breach of contract, then there should if at all possible be a real remedy which directs recovery from the defendant towards the party which has suffered the loss. In the case of property development, where it is readily contemplated that a party which prepares the development will transfer the fruits of his work to one or more partners or successors, there is a particular need for some such solution.

The courts have to work with the analytical tools which are to hand. But the essence of the matter is that the general principles which have been developed to ensure that claims are confined to victims (the rule that a party may only claim in respect of his own loss; the rule in favour of privity of contract) and that a wrongdoer should not be made to pay compensation which goes beyond his breach (the rule that an assignee may not recover more than his assignor could have recovered), rules which as far as they go, are necessary and fundamental to good order and fairness in the litigation of claims, are not, if at all possible, to be allowed to become instruments of maladjustment and injustice. Thus the exception developed long ago in the carriage of goods context to allow a contracting party to recover damages against a carrier on behalf of another party to whom the goods in question are subsequently transferred has been brought into use in a modern situation where there is an equal need to find a solution which matches the commercial situation, and where no other solution had been found to be at hand. Of course, where a solution has been provided by statute, as where a contract of carriage of goods by sea is novated statutorily, as in the case of bills of lading, or where there are other solutions readily to hand (as in The Albazero or in Panatown), there may be no need, and thus it will be thought to be undesirable, to find an exception to general principle.

In the present case, however, although the problem may arise, on these particular facts, in somewhat unusual circumstances, seeing that the consequences of the breach of contract were delayed until the Site was actually developed, I do not think that any true exceptions are being created. The first victim of the breach of contract was Starglade, in whose hands the cause of action for that breach originally arose. That cause of action was intended to be assigned to Larkstore at the time of the transfer of the substance of the development, but through an error was not then assigned. The substantive loss alleged to arise from the breach then occurred. At that point the cause of action and that loss are in separate hands: but following the assignment come together again. The apparent difficulty which is said at this preliminary stage to arise is that the assignee is seeking to recover more than the assignor could have recovered: but that, subject to arguments of causation or remoteness which are reserved, is not, at this stage of the argument, because of any novel intrusion brought into the matter by the assignee, but simply because all the possible losses brought in train by the original breach had been suspended until the Site was actually developed. Only the breach itself had so far occurred. However, in principle the assignee is seeking to recover no more than the loss which the assignor would have suffered and been entitled to recover if he had not transferred the development. The rule in Dawson is not designed to allow a defendant to escape liability for his breach, but to ensure that he does not have to meet a bigger liability than he would have been under to the assignor. In other words, the assignee cannot bring to his claim losses which do not follow from the original breach, but which he has separately introduced. Similarly, the rule that a party may only recover in respect of his own loss does not seem to me to create any difficulty in a case where cause of action and loss are, at this point, united in the same party. The cause of action for Technotrade’s breach always brought with it potential or inchoate liability for all the losses which would ultimately, subject to matters of causation and remoteness, flow from it.

I also agree.