Panatown

By:Chen Nan – Shanghai Ganus LawDate:2018-11-08

McAlpine v Panatown

 

Panatown entered contract with McAlpine for construction of offices on land owned by UIPL

-          Panatown entered into the contract instead of UIPL to avoid paying for VAT

 

UIPL had duty of care deed (DCD) with McAlpine for direct remedy against damages

-          DCD was entered into as there was possibility that property would be sold, provide against uncertainty

 

Why did UIPL not sue directly?

-          Cases for delay & extra damage, Panatown can claim more compared to UIPL, less extensive remedies

-          McAlpine can decline fault, as under DCD, all they need is to exercise reasonable care; but under building contract, they need to build good building. Harder to establish duty under DCD as need to prove defective building without reasonable care (they had to sue under negligence, & McAlpine could escape saying there was no negligence)

-          Preferred dispute go to specialist arbitration panel for fair access, speedier means of resolution, better result. In panel just between Panatown & McAlpine, in Court sub-contractors will be involved leading to more complex proceedings (Arbitration clause, stop McAlpine bringing in sub-contractors into case)

-          Building contract had a guarantee from UIPL, advantage of parent company guarantee is that if subsequent company is put under liquidation, Panatown could claim from parent company, DCD was not subject of parent company guarantee

 

Legal black hole

-          General rule that only contracting party could claim damages if personally suffered actual loss

-          Panatown is not owner of land, hence did not suffer damages

-          UIPL is not contracting party to the contract between Panatown & McAlpine

 

Exceptions

-          General rule: damages will be awarded to contracting parties for personal actual loss

-          Dunlop exception: promisee can recover on behalf of 3rd party (narrow ground) due to legal black hole

-          Albazero: Dunlop exception only applies if there is no separate contract & no direct remedy available (no DCD)

 

Narrow ground

-          Promisee can recover damages on behalf of the 3rd party to avoid legal black hole

 

Broader ground

-          Promisee can recover damages for loss of performance interest, not receiving what was contracted for

-          Damages should provide a substitute for performance bargained for which will ordinarily be cost of reimbursement

-          Dissenting judges pointed out, broader ground is not response to problem of privity of contract as it concerns with an actual loss suffered by a party

-          Panatown presented case primarily on broader ground, as they could avoid trap of recovering damages for own loss without having to invoke Dunlop nor Albazero

 

Lord Clyde’s 2 formulations on broader ground

-          1st formulation: promisee recovers damages for 3rd party granted that repair work would be carried out, damages measured by cost of repair.

o   A contracted with B to pay C

o   B defaulted

o   A’s loss could be to find other funds to pay C

o   A should be able to recover damages from B

o   If A had no intention to pay C, might not be able to recover damages as A suffered no loss

-          2nd formulation: loss with failure in performance, loss of expectation interest, did not receive what was bargained for, does not need to account for repairs

 

 

 

Lord Clyde (Allowed)

 

-          To avoid legal black hole, law will deem promisee to be claiming on behalf of 3rd party who has suffered loss

-          Does not matter if promisee suffered no loss & property is not his

-          Both narrow & broad ground addresses issue of legal black hole

-          But both grounds will not apply due to DCD

-          FOCUS ON HIS LAST PAGE

 

Without DCD & with CPA

 

When party had course of action,

-          Narrow ground will not apply, as there is no legal black hole, there is nothing to remedy, parties can sue by themselves (?)

-          Broader ground will not apply, as there is no legal black hold, Panatown suffers no loss, & does not want to extend the law due to legislative reform (?)

 

When party had no course of action

-          Narrow ground will apply due to existence of legal black hole (?)

-          1st formulation of broader ground probably applies if repairs will be carried out (?)

-          2nd formulation of broader ground does not apply as Panatown suffered no loss (?)

 

On narrow ground

-          Accepted narrow ground

-          Dismissed as there was existence of DCD

-          If parties had action under CPA, he would dismiss

-          Only allowed to avoid legal black hole, does not matter that P is not owner of property, nor suffered any economical loss

-          Makes it clear, this is case of 3rd party loss, better to apply narrow ground than to construct a theoretical loss for which the contracting party would be under no duty to recover

 

On broader ground

-          Rejected, substantial damages should only be recovered by UIPL, a party who has suffered real & substantial loss

-          Thinks that Panatown suffered no loss, if there was loss, he might consider it more

-          Broader ground was not appropriate to apply due to legislative reform, plainly inappropriate to enlarge statutory provision by judicial innovation

-          On 1st formulation, damages can be recovered if repair work is going to be carried out, if employer is not going to spend damages on repair work, then broader ground is not applicable

-          More sympathy for 1st formulation of broader ground

 

Difficult to accept 2nd formulation of broader ground

-          Difficult to measure damages/loss for disappointment, measure should be diminution of value

-          Loss in disappointment does not include all loses due to breach in contract, such as consequential losses

-          No obligation to successful plaintiff to account to anyone who may have sustained actual loss

-          Further court mechanism might be needed to prevent double recovery

-          Loss in disappointment calls for an award in nominal damages not substantial damages

-          A breach of contract may cause a loss, but is in itself not a loss, there must be some personal/financial damage for there to be a loss. As result of breach of contract, you are worse off financially/personally

 

 

 

 

 

 

 

 

Lord Browne-Wilkinson (Allowed)

 

Without DCD & with CPA

 

When party had course of action,

-          Narrow ground would not apply as existence of DCD is fatal (?)

-          Broader ground would not apply either due to existence of DCD, & issues of double recovery (?)

 

When party had no course of action

-          Narrow ground will apply to remedy legal black hole (?)

-          Broader ground will probably apply since law is sound (?)

o   Rather fixated on issues arising with subsequent buyers

o   Issue with double recovery

 

On narrow ground

-          A although not owning the land, has course of action to recover

-          BUT

o   A accountable to C for damages recovered from B to compensate C’s loss

o   Exception does not apply if C has direct remedy against B (DCD)

-          The existence of the DCD is fatal to claim on narrow ground

-          Rule was set out to provide remedy when there is no other available, if direct course of action is available, the rule is not needed (remedying legal black hole)

 

On broader ground

-          Claims for loss of performance interest (substantial, not just nominal damages)

-          Law is sound, but due to DCD, Panatown have no rights to substantial damages

-          Does not see Panatown having suffered any damages to performance interest, so long as UIPL has direct remedy (DCD)

-          Declined to adopt this ground until consequences have been examined by academic writers

o   A will not be accountable to C for damages recovered

o   Critical factor, what interest does A has in provision of services to C?

-          Since statutory provisions addresses the issue, Courts should not develop the law

 

Practical difficulties of broader ground

-          If UIPL sold property to X

-          Panatown successfully recovered damages (how to stop double recovery?)

-          Neither McAlpine nor Panatown is liable to X

-          X who suffered real loss could not recover anything, but Panatown who did not suffer real loss recover substantial damages

-          Also, Panatown would not sue in the first place if property sold to X (practicality), even if they did sue, they have no intention of doing the remedy work

-          This is however a highly impractical situation, as Panatown would not sue due to no interest, even if they did they might not recover according to Lord Goff’s judgment, unless they have intention to remedy the defeats which will be difficult to show as they do not own the land anymore

 

 

 

 

 

 

 

 

 

 

 

 

 

Lord Jauncey of Tullichette (Allowed)

 

-          Both narrow and broad ground address issue of legal black hole

-          Misread Lord Griffith on the broader ground

-          All about privity

 

Without DCD & with CPA

 

When party had course of action,

-          Narrow ground would not apply due to existence of DCD (?)

-          Broader ground would not apply either due to existence of DCD when 3rd party had right of action that would bar the application of the broader ground, purpose of broader ground is to avoid legal black hole, he needs evidence of intention to remedy which is a misread of Lord Griffith (?)

 

When party had no course of action

-          Narrow ground will apply to remedy legal black hole (?)

-          Broader ground will still not apply as he might hold the need for an intention to remedy the defeats (?)

 

On narrow ground

-          Similar with most judges DCD precludes right to damages since there would be no legal black hole to address

 

On broader ground

-          Whole judgment on the broader ground was based on a misread, distorted what Lord Griffith said

-          Agrees that broader ground can exist, would be absurd if cannot recover damages based on husband and wife example

-          Broader ground cannot apply as UIPL suffered the loss not Panatown

-          However misread Lord Griffith’s (broader ground) example of giving promisee right to claim damages, not about intention of remedying defeats with damages awarded, all Lord Griffith did in fact was just taking facts closer to the actual situation

 

 

 

 

 

 

 

 

 

 

 

 

Lord Goff (Dismissed)

 

-          Issue: does promisee have course of action in damages in case like this where work is contracted to be done on the property of a 3rd party?

-          This case is not concerned with privity of contract, here concerns effectiveness of rights conferred on Panatown under building contract, UIPL have own rights under DCD

-          Does not accept that just because Parliament is reforming law with Privity Bill, Courts should not extended the law, as this is not concerned with privity, this regards performance interests

-          These developments is better left to judges than legislation, as legislation causes rigidness and disfigures law and would impede future development of legal basis on coherent basis

-          Segregate two problems, one on privity of contract, and another on damages

-          Split issue into two questions

o   Can Panatown recover when they did not have propriety interest?

o   Is so, are they barred due to the DCD?

 

Without DCD & with CPA

 

When party had course of action,

-          Narrow ground would not apply as this case is not concerned with issue of privity, additional there is DCD (?)

-          Broader ground would apply as damages should be awarded for breach of performance interest, DCD only concerns with narrow ground, although weary for double recovery (?)

 

When party had no course of action

-          Narrow ground not apply as this case is not concerned with issue of privity (?)

-          Broader ground would apply as damages should be awarded for breach of performance interest (?)

 

On narrow ground

-          Primary function of narrow ground is to escape privity doctrine, but this is not what the case is about, this is a case about rights of the promisee

-          Denies plaintiff remedy in damages due to DCD, cause plaintiff’s expectation interest to be insufficiently protected at law

-          Completely inappropriate due to DCD, this is not a case involving a subsequent transfer of building to a 3rd party, UIPL was always the owner

-          Unless a party to the contract has given considerations or one would not be able to sue for damages/loss, much less can 3rd parties be able to do so

 

On broader ground

-          Broader ground is not an exception to old privity rule, although it does provide a principled basis for recovery of damages

-          DCD does not apply to broader ground, as broader ground is interested in damages for own loss of not receiving what was bargained for

-          Seemingly suggest that broader ground is only basis which employer could recovery, probably right as narrow ground would not apply as there is no damage to the 3rd party

-          He said broad ground is similar to narrow ground, if broader ground have to be accountable for the 3rd party using the damages for defeats, then it would be too similar to narrow ground which is not desirable since the broader ground is remedy for own loss

-          Panatown can recover substantial damages under the broader ground recovering for their own loss of non-performance they were entitled to, substantial damages recoverable, narrow ground deals to privity and this case is not about privity

-          If broader ground is not accepted, it would give rise to absurd consequences such as example in husband & wife, and philanthropist

-          Broader ground is also supported by substantial authority, case law & commentaries (Ruxley, Radford), loss does not only encompass financial loss

-          Not only supported by existing authority, but is in accordance with legal principals, classic contractual theory, even if not so, it fell within the development of common law

 

On DCD

-          DCD precludes Panatown from recovering damages on narrow ground, does not affect broader ground, no application where promisee is suing for damages under the broader ground

-          Mere fact that McAlpine had a DCD regarding possible defeats does not itself detract their obligations under the building contract (984)

-          See no likelihood of double recovery as no inconsistencies between 2 remedies

-          Contractual obligation on Panatown to procure building contract, damages received will have to be to make good the defeats in structure

-          DCD is limited remedy compared to contractual remedy, contractual remedy does not need proof of negligence, hence easier to prove and better damages awarded, Panatown would be accountable, under an obligation to use the funds

 

 

Lord Millett (Dismissed)

 

Without DCD & with CPA

 

When party had course of action,

-          Narrow ground would not apply as this case is not concerned with issue of privity (?)

-          Broader ground would apply as damages should be awarded for breach of performance interest (?)

 

When party had no course of action

-          Narrow ground not apply as this case is not concerned with issue of privity (?)

-          Broader ground would apply as damages should be awarded for breach of performance interest (?)

 

On narrow ground

-          Concerns privity, but this is not case involving privity, agrees with Lord Goff’s reasoning

-          Allowing contracting party to recover damages for benefit of 3rd party is not an exception to the rule regarding compensatory damages but a means of circumventing the privity rule

-          Several exceptions to general rule whereby one can recover for 3rd parties such as trustee, agent, baliee, insured goods

-          True exception in Dunlop which can be excluded when there is a separate contract own/action against damages (DCD)

-          Function of narrow ground is to escape undesirable consequences of the privity rule, does not apply where it is not needed, this is not a case about privity

-          Problem in the whole area is a one dimensional area to what amounts to loss that it had to be some out or pocket loss

 

On broader ground

-          Does not concern with privity

-          Suffers loss for non-performance of bargain contracted for, measure of damages is cost of securing performance of that bargain

-          Loss can be in terms of performance loss, not just financial loss, regarded Radford as authority as establishing performance interest

-          Dunlop is an exception to the general rule that one can only recover damages for his own loss, the broader principle treats plaintiff as recovering for own loss, thus is an application of the general rule, not an exception

-          Manifestly unjust if law does not recognise performance interest and contractor repudiates contract before doing any work and employer had to engage another contractor to do the work

-          Legitimate interest to use damages to put right the defeats is not necessary as he recovers damages for own loss; what plaintiff plans to do with damages can be evidence of reasonableness but not conclusive

 

On DCD

-          DCD was primarily designed to cater for subsequent purchasers, to give building owner’s successors in title with course of action, not to provide UIPL with one

-          DCD does not preclude Panatown from recovering damages

-          No issue of double recovery as since performance of primary obligation would discharge liability to both parties, so must damages. Payment of damages to either party will discharge liability to both (collateral warranty)

 

No DCD & Contracts Privity Act Applies

 

3rd party no course of action

3rd party had course of action

 

Narrow Ground

Broad Ground

Narrow Ground

Broad Ground

Millett

?

?

?

?

Goff

?

?

?

?

Brown-Wilkinson

?

?

?

?

Jauncey

?

?

?

?

 

Clyde

 

?

1st formulation:

?

2nd formulation:

?

 

?

 

?

 

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