Alfred McAlpine Construction Ltd v Panatown Ltd [2001] AC 51...

Facts

• Alfred McAlpine Construction Ltd (AMC) contracted with Panatown Ltd to construct an office building and car park.
• The building was intended for use by UIPL, a separate company within the Panatown group.
• Alongside the primary contract, AMC entered into a duty of care deed with UIPL, granting UIPL a direct cause of action against AMC for negligent construction.
• Defects and delays were experienced by UIPL after completion of the project.
• Panatown, not UIPL, sought to claim substantial damages from AMC for these defects and delays, although the primary loss was suffered by UIPL.
• The existence of the duty of care deed giving UIPL its own claim against AMC was central to the dispute.

Issues

1. Whether a contracting party (Panatown) can recover substantial damages for loss suffered by a third party (UIPL) when the third party possesses a direct remedy under a separate duty of care deed.
2. Whether the Albazero exception, allowing recovery for third-party losses, applies when such a direct remedy exists.
3. Whether a broader ground, permitting damages based on the loss of the contracting party's bargain, should apply when loss is suffered by a designated third party.
4. Whether allowing both Panatown and UIPL to claim would result in double recovery for the same breach.

Decision

• The House of Lords, by majority, found that Panatown was entitled only to nominal damages, not substantial damages for the third party’s losses.
• The Court held that the Albazero exception does not apply where the third party has a direct contractual remedy, as in the case of UIPL through the duty of care deed.
• The majority rejected the "broad ground" that would allow Panatown to claim for lost bargain despite not suffering direct loss, holding that the existence of a duty of care deed sufficed to exclude such claims.
• The rationale was to avoid potential double liability and to honor the arrangements made between the parties for third party recourse.
• Dissenting views argued for a broader right to damages for the contracting party, reflecting a different interpretation of expectation loss.

Legal Principles

• The principle of privity of contract is reinforced: only parties to the contract may claim substantial damages for its breach.
• The Albazero exception, permitting recovery for third-party losses in certain situations, is confined to cases where the third party lacks a direct remedy.
• A contracting party cannot recover substantial damages for a third party's loss where that third party has its own direct remedy, even if limited.
• Courts aim to avoid double liability and uphold the practical remedies expressly arranged by the parties.
• Substantial damages are not awarded where the contracting party has not suffered direct loss.

Conclusion

The case clarified that where a third party holds a direct remedy by deed or contract, the original contracting party cannot recover substantial damages for the third party's loss. The decision narrows the Albazero exception, fortifies privity of contract, and discourages duplicated claims, requiring clear contractual arrangements for third-party protection.