Last edited 17 Aug 2013

St Martins Property Corporation Ltd and Another v Sir Robert McAlpine & Sons Ltd

In St Martins Property Corporation Ltd and Another v Sir Robert McAlpine & Sons Ltd, St Martins Property Corporation entered into a contract with McAlpine for a mixed commercial and residential development. The contract was dated 29 October 1974. On 25 March 1976, St Martins Corporation transferred the property and assigned the benefit of the contract to St Martins Property Investments Ltd for its market value.

Subsequent to practical completion of the podium deck on 1 November 1979, substantial defects were discovered in the structure requiring remedial costs in excess of £800,000. Both Corporation and Investments brought proceedings against McAlpine to recover the cost of the remedial works.

The court held in Linden Gardens that the claimant was entitled to recover the cost of remedial works carried out by Stock Conversions in 1985 (£22,205) and also the works carried out by Linden Gardens (£236,000) after the date of the assignment of the rights of action in January 1987. In St Martins the court held, inter alia, that as Corporation had sold the property for market value to Investments, Corporation could only recover nominal damages. In both Linden Gardens and St Martins Property Corporation the purported assignments of the contractual rights were held to be invalid, therefore the courts were looking at the right to recover damages by the original contracting party after a disposal of the relevant property at market value and where the remedial costs had been incurred, in part or in whole, by a third party. The House of Lords confirming the Court of Appeal's decision (although reversing the Court of Appeal on the meaning of the contractual prohibition) held that a party to a building contract was entitled to recover substantial damages from the contractor in breach even though that party had disposed of the damaged property and had not incurred the remedial costs, since the parties were to be treated as having entered into the contract on the footing that the original contracting party 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 the defendants liable for breach.

The majority of their Lordships felts that this decision was one which did not create new principle, but fell within the exceptions to the rule that a party can only recover its own losses established by the case of Dunlop v Lambert as explained in Albacruz (cargo owners) v Albazero (owners) ('The Albazero'). However, Lord Griffiths was in favour of new principle finding that with contracts for the supply of work, labour and the supply of materials, the recovery of damages for breach of contract was not dependent or conditional on the plaintiff having a proprietary interest in the subject matter of the contract at the date of breach. Further it was irrelevant who actually paid for the repairs and where a tortfeasor's (a person who commits a tort) liability was temporarily discharged by payment by a third party, on the plaintiffs behalf, the plaintiff ought not to be prevented from suing the tortfeasor for damages.

In his judgment, Lord Griffiths added a constraint which was thought previously not to be material:

'The court will of course wish to be satisfied that the repairs have been or are likely to be carried out.'

Contrast this with the House of Lords decision in Ruxley Electronics v Forsyth where it was accepted that 'the courts are not normally concerned with what a plaintiff does with his damages' (see also the Court of Appeal in Dean v Ainley).

In the St Martins Property Corporation appeal, Staughton LJ considered the position of the assignee where there was no breach of contract prior to the assignment. His Lordship stated:

‘In my judgment St Martins Corporation by the assignment transferred to St Martins Investments the contractual right to have the building properly constructed. St Martins Investment can sue for the breach of obligation, and recover substantial damages - which they in fact incurred. The damages must be no more than St Martins Corporation would have suffered if there had been no assignment and no transfer of property, since McAlpines must not be put in any worse position by reason of assignment. That is established by Dawson's case (Dawson v Great Northern and City Railway Co). But it seems unlikely that the cost of remedial work in the present case would have been any different if there had been no assignment. In the course of the hearing I did not understand it to be disputed that an assignee of the benefit of a contractual right could, in principle, recover damages if it is not performed after [sic] the date of the assignment. That appears to follow from the decision of the House of Lords in (Tolhurst v The Associated Portland Cement Manufacturers Ltd).’

Although the main decision by the Court of Appeal on the nature of contractual prohibitions on assignments was subsequently overturned by the House of Lords, the passages on the assessment of an assignee's damages were not considered by and, it is submitted, survived the House of Lords decision. Per Lord Browne-Wilkinson:

'(5) What is the measure of damages recoverable by the assignee? In view of my decision on the earlier issues, this issue does not arise for determination. I mention it only to explain that the Court of Appeal considered that the assignee was entitled to recover what the assignor could have recovered had there been no assignment.’

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