Last edited 03 Sep 2013

Linden Gardens Trust Limited v Lenesta Sludge Disposals Limited and Others

In Linden Gardens the lessee of the premises, Stock Conversions Ltd, entered into three contracts for the removal of asbestos:

  1. In June 1979 with Lenesta Sludge (first defendant) as prospective sub-contractor.
  2. In July 1979 with McLaughlin & Harvey (second defendant) as main contractor: H.
  3. In February 1985 with Ashwell Construction (third defendant).

Completion of the works under contracts (1) and (2) took place in March 1980 and under contract (3) on 16 August 1985. On 3 July Stock Conversions commenced legal proceedings against Lenesta for damages for breach of contract. Stock Conversions made the following assignment, presumably for market value, to Linden Gardens Trust Ltd:

  1. On 1 August 1985 of its interest in the 3rd, 5th and 6th floors.
  2. On 2 December 1986 of its interest in the 4th floor.
  3. On 14 January 1987 of the rights of action under the contracts with McLaughlin and Ashwell.

Proceedings commenced by Stock Conversions in July 1985 against Lenesta Sludge were amended in 1987, Linden Gardens becoming the claimant, and McLaughlin and Ashwell the second and third defendants respectively.

The Court of Appeal had to consider the assignment of causes of action for damages for breach of contract. Staughton LJ stated:

'But it is said that in such a case the assignee can recover no more as damages than the assignor could have recorded. 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 and City Railway Co] see also [GUS Property Management Ltd v Littlewoods Mail Order Stores Ltd]... 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 received if there had been no assignment, and if the building had not been transferred to the assignee.'

The assumption which forms the root of the statement, i.e. 'no assignment' and 'no transfer', confirms the approach adopted in Dawson and GUS Property Management.

Staughton LJ went on to state:

'Stock Conversion had an accrued cause of action against McLaughlin & Harvey by 25 March 1980, the date of practical completion of that company's works. They subsequently incurred the cost of remedial works in the sum of £22,205.02. That claim was validly assigned to Linden Gardens Trust, who can recover in respect of it. Further breaches of contract were later discovered, giving rise to remedial works in 1987 and 1988, and to expense and loss in the sum of £236,000. Stock Conversions acquired a cause of action in respect of some of these defects against McLaughlin & Harvey, dating from 1980 and in respect of others against Ashwell Construction for defective work in 1985. It is immaterial that during the Ashwell Construction works Stock Conversion disposed of part of their interest in the building. In my opinion, Stock Conversion acquired the right to substantial damages for those breaches of contract, and did not lose it when they disposed of the rest of their interest in the building for its sound market value, on 12 December 1986. After the assignment on 14 January 1987, Linden Gardens Trust as assignees became entitled to enforce Stock Conversions' claim. 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 damage which would, but for the assignment and transfer of property, have been recoverable by Stock Conversion.'

Sir Michael Kerr stated:

'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 claims, let alone under new heads of damage, which would not have been available to his assignor. However, his right to damages, limited to that extent, is enforceable by him even though he is not accountable to his assignor. These principles are illustrated by [Dawson] and [GUS Property Management]. There is no problem about Linden Gardens' right to recover the £22,205.02 which Stock Conversions had spent in remedying the original breach by McLaughlin & Harvey. But in my view Linden Gardens are also prima facie entitled to recover the £236,000 odd which they themselves expended in remedying the other breaches by these contractors and the further breaches by Ashwell, all of which had been committed prior to Stock Conversions' assignment to Linden Gardens. Both are claims for damages which had vested in Stock Conversions and which were validly assigned to Linden Gardens. The fact that, at the time of the assignment, Stock Conversions were aware 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 to the extent to which the defendants may be able to show that Linden Gardens' claims exceed what would have been recoverable by Stock Conversions 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.’

Of the suggestion that Lord Keith's reasoning in GUS Property Management can be distinguished on the grounds that in that case the price for the transferred property was not market value but was'... fixed in an internal group transaction and for accounting purposes only, without any reference to the true value of the building', Staughton LJ stated:

‘It may well be said that this passage appears to accept that, if Rest had sold the building for its sound market value, they would have suffered no loss, and, consequently the pursuers could have recovered only nominal damages. The claim would then indeed have disappeared into a legal black hole. However, I do not consider that Lord Keith expressed an opinion to that effect, even obiter and sub silentio. There was no issue as to what would have happened if Rest had received the full market value of the building in sound condition.'

[edit] Find out more

[edit] Related articles on Designing Buildings Wiki