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Session 1999-2000
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Judgments - Alfred McAlpine Construction Limited v. Panatown Limited


Lord Clyde Lord Goff of Chieveley Lord Jauncey of Tullichettle Lord Browne-Wilkinson Lord Millett








ON 27 JULY 2000


My Lords,

    Panatown employed McAlpine to build a building on land owned by UIPL. The work was defective. Panatown has sought to terminate the contract on the ground of McAlpine's failure in performance. Panatown has suffered no loss. UIPL owns a defective building, which requires a significant expenditure for its repair, and has been unable for a considerable period to put the building to a profitable use. Panatown now seeks to recover, by way of an arbitration, from McAlpine the loss which UIPL has suffered. The appeal thus concerns the circumstances in which the employer in a contract of services may claim from the contractor on the ground of breach of contract damages in respect of a loss which has been suffered by a third party.

    I find no reason to question the general principle that a plaintiff may only recover damages for a loss which he has himself suffered. But there are exceptions to that principle. One is where the one party expressly enters a contract as agent or trustee for another. The existence of this category of case was recognised in Woodar Investment Development Ltd. v. Wimpey Construction U.K. Ltd. [1980] 1 W.L.R. 277. In such a case the contracting party may be entitled to recover damages for all the loss which his principal has suffered. But a solution along the lines of a formal agency is not available in the present case. Although the Duty of Care Deed expressly records that Panatown was acting on behalf of the building owner, that is UIPL, any relationship of agency was disowned by the respondents. The precise analysis of the relationships which may have existed between the companies associated with the employer remains obscure. The issue in the case has required to be resolved against the unsatisfactory background of that obscurity.

    The exception which is invoked by the respondents, Panatown, is the one which was identified in The Albazero [1977] A.C. 774. It arose in the context of the carriage of goods by sea but has more recently been developed in the context of building contracts. It may be useful first to consider its antecedents. The decision in The Albazero was plainly heavily influenced by what was seen as the doctrine, or the rule, in Dunlop v. Lambert (1839) 6 Cl. & F. 600. But the use of the word "rule" in such a context may lead to confusion. If anything, Dunlop v. Lambert provides an exception to the general rule, rather then constituting a rule in itself. The trouble may lie in the ambiguity of the word "rule," which may serve both to refer to a principle of general application and to a ruling, or decision, which may truly not be prescribing any general principle. It appears that the case has come to be seen as authority for the proposition that a consignor may recover substantial damages from the carrier where there was privity of contract between the consignor and the carrier, even although the goods were neither his property nor at his risk. Consideration of Dunlop v. Lambert gives rise to a real question whether it propounded any new principle at all.

    Dunlop v. Lambert concerned the loss of a cargo consisting of a puncheon of whisky while in course of carriage by sea between Leith and Newcastle. The pursuers, William Dunlop and Co., wine and spirit merchants in Edinburgh, shipped the puncheon on board a vessel owned by the defenders. The bill of lading bore that the puncheon was to be delivered to "Robson or his assigns" and that the freight had been paid by the pursuers. The pursuers sent the bill of lading to Robson. They also sent to him an invoice informing him that they had drawn on him by bill at three months, which Robson accepted. The invoice included the cost of the freight and the cost of insurance. After the loss of the puncheon the pursuers shipped to Robson another puncheon, the price of which together with the freight was slightly higher than the cost of the first puncheon, with its freight and insurance. Dunlop advised Robson that if he wished to insure the second puncheon he should do that in Newcastle. Robson stated in a deposition that the first puncheon was to be delivered safely on the quay at Newcastle before he could consider it as his property, that the second puncheon was expressly sent to replace the first, that the bill drawn for the first was renewed on account of the second and that he, Robson, had lost nothing. The pursuers claimed damages against the shipowners on the ground that they were liable to the pursuers in damages for wrongfully failing to deliver the puncheon to Robson. The pursuers stated in their pleadings that they "undertook by their agreement, and were answerable to the said Matthew Robson, for the safe delivery of the said puncheon."

    The case went eventually before a jury. There was a question whether the loss occurred through improper stowage or through a peril of the sea, but the jury held that as it had been placed on the deck and not stowed in the hold the defenders were liable for its loss. However, the jury were also asked to decide whether the defenders were liable to the pursuers for the loss. The presiding judge, Lord President Hope, instructed the jury that after the puncheon had been shipped and the bill of lading transmitted to Robson, the puncheon was Robson's property and at his risk. Robson had been charged with the cost of insurance, and that could only proceed on the basis of its being his property at his risk. So the pursuers had no right to recover the value of the puncheon. The jury decided that the defenders had wrongfully failed to deliver the puncheon to Robson, but that the defenders were not liable to the pursuers because they were not at the time of the loss the owners of the goods, the invoice showing that their right in the whisky ceased at the time of shipment. The report of the trial is at First Division (1837) 15 S 884

    The pursuers took exception to the direction of the trial judge and the matter came before the First Division (1837) 15 S 1232. The majority of the four judges considered that the direction of the trial judge was correct. Lord Mackenzie and Lord Gillies founded particularly upon the fact the insurance for the first puncheon had been effected at the direction of Robson and to his account. The Lord President stated that it was proved by written contract that the pursuers were free of all risk or liability after shipping the puncheon, the property and the risk being then Robson's. Lord Corehouse dissented. He considered that since the insurance only covered perils of the sea and did not cover the fault or negligence of the mariners, which the pursuer alleged was the cause of the loss, the insurance was not incompatible with the understanding of both parties that the pursuers were to be responsible for the safe delivery. He also considered that the sending of the second puncheon was real evidence of their understanding. The bargain relating to the second puncheon superseded the first bargain and necessarily inferred that Robson had given up all claim for the price of the first.

    Dunlop then appealed to this House. The report is in (1839) 6 Cl. & F. 600, and (1839) 3 Maclean & R. 663. The Lord Chancellor first rejected an argument that the liability of the defenders to the pursuers had not been put in issue in the case. The point of that argument was that the question whether the pursuers were the right people to sue should not have been raised as a question for the jury to consider. That question had been raised at an earlier stage of the case as a preliminary point. As appears from the report in Maclean and Robinson at p. 666 the point had been argued at an early stage of the litigation before the Lord Ordinary, Lord Fullerton, and he had held that the pursuer's pleadings were relevant to support their title and interest to sue. The pursuers had accordingly good reason to argue that that issue at least as a matter of law had been disposed of and should not have been re-opened before the jury. However, the Lord Chancellor was satisfied that point was within the scope of the formal issues which had been put to the jury.

    The Lord Chancellor then formulated what he saw as the question in the case. His formulation at p. 674 of the report in Maclean and Robinson was whether under the law of Scotland - the law of Scotland being in this respect the same as the law of England:

    "in a question between a carrier and the person to whom the carrier is responsible in the event of the property being lost, whether it be true in law, that the sending of an invoice to the consignee, by which it appeared that the property had been insured and the freight paid by the consignor, and the amount charged by the consignor to the consignee, deprived the consignor of the power of suing, and of an interest or right to recover the value of the property."

He observed that while in general delivery to the carrier was delivery to the consignee and the risk then passed at p. 675, to the consignee, that position could be varied:

    "If a particular contract be proved between the consignor and the consignee, - and it does not follow that the circumstance of the freight and the insurance being paid by the one or the other is to be considered a conclusive evidence of ownership, - as notwithstanding the ordinary rule, of course there may be special contracts; - where the party undertaking to consign undertakes to deliver at a particular place, and if he undertakes to deliver at a particular place, the property, till it reaches that place, and is delivered according to the contract, is at the risk of the party consigning; so although the consignor may follow the directions of the consignee, and deliver the property to be conveyed, either by a particular carrier or in the ordinary course of business, still the consignor may make such a contract with the carrier as will make the carrier liable to him . . ."

    The trial judge had erred in directing that because the consignee was charged with freight and insurance the jury were not entitled to consider what was the particular transaction between the parties. The Lord Chancellor pointed out that the cost of the freight and insurance had to be met by the consignee, whether embodied in the price charged by the consignor or paid directly by the consignee. He then referred to the special contract with the carrier by which he agreed to deliver at Newcastle and also the fact that as between the consignor and the consignee the consignors were under an undertaking to deliver the spirits at Newcastle. If that latter contract existed it ought to have been admitted to proof and not withdrawn from the jury. He then referred to several cases to show that notwithstanding the general rule that the consignee can sue the carrier, the right of action and the liability "may be varied by special contract entered into between the consignor and the consignee, and that the payment of insurance by the one or the other is not conclusive." Having reviewed the cases he stated at p. 683:

    "that although, generally speaking, where there is a delivery to a carrier to deliver to a consignee, the consignee is the proper person to bring the action against the carrier if they should be lost; yet the consignor may have a right to sue if he made a special contract with the carrier, and the carrier has agreed to take the goods from the consignor and to deliver them to any particular person at a particular place, which special contract supersedes the necessity of showing ownership in the goods; and by authority of the case of Davis v. James (5 Burr. 2680), and the latest case of Joseph v. Knox (3 Camp. 320) that the consignor is able to maintain an action, though the goods may be the goods of the consignee."

He continued with the observation that

    "the authorities seem to me to establish that the consignor is entitled to maintain the action where there is a contract to deliver at a particular place, provided the risk appears in fact to be still on him."

The paying of the freight or the insurance was not conclusive of the right to sue. He identified two objections to the way in which the Lord President had left the case to the jury:

    "he withdrew from their consideration that which ought to have been submitted to their consideration, - I mean the fact whether the goods had been delivered to the carrier on the risk of the consignor or the consignee; and the question whether there was a special contract between the consignors and the consignee, which in its circumstances would have been sufficient to enable the pursuers to recover in the action."

    It is to be noticed that in the first passage which I have quoted passage the Lord Chancellor first refers to a contract between the consignor and the consignee, and then refers to a contract between the consignor and the carrier. In the later passages he again refers to the possibility of a "special contract" but again identifies the parties as either the consignor and the carrier, or the consignor and the consignee. In the final passage in the context of the particular facts of the case the possible contract in question was described as a special contract between the consignors and the consignee. In my view Professor Emeritus Brian Coote ("Dunlop v. Lambert: the Search for a Rationale" [1998] J.C.L. 91) is correct in concluding that the Lord Chancellor had two kinds of special contracts in mind. Either of them may have the effect of leaving a sufficient interest in the consignor to entitle him to sue the carrier. The two kinds of special contract were identified by Lord Diplock in The Albazero [1977] A.C. 774, 842. Thus the general rule that the risk passes to the consignee on delivery to the carrier can be varied by a particular contractual arrangement between the consignor and the carrier or between the consignor and the consignee. Dunlop's argument was that the contractual arrangements it had made with the consignee left the risk with him until delivery at Newcastle. What the Lord Chancellor was saying was that evidence of that agreement should have been allowed to be put before the jury. In that connection I agree with my noble and learned friend Lord Jauncey of Tullichettle that it would be difficult to understand how the Lord Chancellor could have been referring to the evidence of Robson's opinion of the effect of the written contract, evidence which had been properly excluded by the Lord President. But the Lord Chancellor may have been requiring that the jury should have been allowed to consider the whole terms of the contract properly before them namely not only the provisions regarding responsibility for payment of the freight and insurance, which was not necessarily conclusive, but also the obligation to deliver at Newcastle which could be a factor pointing to the existence of a special contract.

    Whether Dunlop was entitled to claim damages depended upon matters of fact which the jury should have been entitled to consider. The case thus does not decide that Dunlop did have title to claim, but only that it might be able to do so. But if Dunlop was entitled to claim, that would be because, under the particular contractual arrangements made between the parties, the risk of loss of the cargo had remained with Dunlop. The case did not decide that a consignor can sue for damages for loss of a cargo even although he has suffered no loss, nor is it authority for the view that a consignor may recover on behalf of the consignee damages for a loss which has fallen upon a consignee. The House proceeded upon the express understanding that the laws of Scotland and England on the correctness or otherwise of the trial judge's direction were the same. That understanding would not have been correct if the case had been seen as involving broader principles of contract law or consideration of the particularly English doctrine of privity of contract. Nor would the understanding have been correct if there was an issue about the passing of the risk and the passing of the ownership at common law, since in Scotland the risk of loss might pass before delivery, but the ownership would not pass until delivery was made (Seath & Co. v. Moore (1886) 13 R. (H.L.) 57). The question in the case, as formulated by the Lord Chancellor in the terms which I have already quoted, was concerned purely with carriage of goods and the special feature was the identification of contractual relationships between consignor and carrier and between consignor and consignee. Whether the general rule regarding the entitlement to sue in the event of the loss of goods during a sea voyage could be affected by some particular agreement between the interested parties was a matter where the laws of Scotland and England would coincide. However, as can be seen from Lord Diplock's speech in The Albazero [1977] A.C. 774, 844, the understanding of the case in England was developed in terms which recognised the doctrine of privity.

    The decision of the House in Dunlop v. Lambert 6 Cl. & F. 600 came before the First Division of the Court of Session a few years later in Campbell v. Tyson (1840) 2 D. 1215. The majority of the First Division did not find difficulty with the decision in Dunlop, although the Lord President dissented, making some critical observations upon the speech of the Lord Chancellor. The question was raised in argument whether the earlier cases to which the Lord Chancellor had referred established that the mere contracting for the safe carriage, if made by the consignor, entitled him to sue the carrier for damages, if the carrier failed to perform the duty undertaken by him under that contract. In that connection Lord Mackenzie observed at p. 1222:

    "I do not trust to these decisions as going as far as that. The Lord Chancellor does not go so far in his opinion; and even, as it seems to me, implies in his opinion the reverse of that general abstract doctrine. And there would be great difficulty in reconciling such a doctrine to the ordinary principles of the law of Scotland."

Lord Fullerton, the same judge who had ruled on the preliminary dispute on title to sue in Dunlop's case, observed at p. 1223 of the decision in Dunlop that

    "It went no further than this, that although in the general case the consignee was the proper party to sue, there might be circumstances in the transaction which reserved in the person of the consignor such an interest in the contract of carriage as to protect his title to pursue."

He also observed at p. 1224:

    ". . . the consignor, who by contract undertakes the risk of the goods, substantially contracts with the consignee for their safe delivery; and consequently the contract with the actual carrier for their carriage remains a separate contract between the consignor and the carrier, for the breach of which the consignor has the legal interest to maintain action."

He also observed at p. 1224 in relation to the older English cases:

    "The only question in the case of Dunlop & Co. v. Lambert, etc, and the other cases referred to, was, whether the consignor could recover. It never was doubted that the consignee could; on the contrary, in all those disputed cases it is assumed on all sides that the consignee was, in the general case, the proper party to sue."

In the standard work on the law of contract in Scotland, Professor Gloag on Contract, 2nd ed. (1929), p. 350 refers to Dunlop and other Scottish cases as supporting the proposition that "an agreement whereby the seller undertakes the risk may be inferred from the terms of the contract, although the property in the goods may have passed to the buyer."

    A corresponding view of the decision appears to have been taken in England in the years subsequent to it. It appears to have been absorbed by textbook writers as vouching the proposition that where there is a special contract with the consignor, the consignor can have a right to sue for damage to the goods during carriage, even if he was not the owner of the goods. Where such a special contract was made with the consignor on his own behalf the ownership of the goods was immaterial (Maude and Pollock, A Compendium of the Law of Merchant Shipping, 1st ed. (1853), p. 150, 2nd ed. (1861), p. 235 and carried into later editions). Abbott, Treatise of the Law relating to Merchant Ships and Seamen Shipping 7th ed. (1844) and carried into later editions) makes the point that where there is a special contract the consignor may sue upon it: the ownership may have passed to the consignee but there is still a sufficient interest in the goods or their carriage remaining with the consignor to enable him to sue. Chitty, in the first edition of his Practical Treatise on the Law of Contracts (1850) at p. 422, in listing cases where the consignor may sue the carrier for the loss notes Dunlop v. Lambert as authority for the case "where the carrier is employed by the consignor and the goods are at his risk," recognising the separation of the risk and the property. The separate contract between consignor and carrier may co-exist with the contract between the carrier and the consignee (The Proprietors of the Cork Distilleries Co. v. The Directors of the Great Southern and Western Railway Co. (Ireland) (1874) L.R. 7 H.L. 269) and the question generally is one of construction of the particular contract in each case (Great Western Railway Co. v. Bagge & Co. (1885) 15 Q.B.D. 625). But on the approach discussed so far the consignor is suing the carrier in his own right and for his own loss.

    It is evident from the careful review of the early cases in the English courts which was made particularly by Brandon J. in The Albazero that the right of the consignor to sue the carrier was recognised even where the risk as well as the ownership had passed to the consignee. For such a condition to hold there was required to be some special contract between the consignor and the carrier, the special contract distinguishing the case from that of a common carrier where no detailed agreement was concluded with the carrier. But the seeds of what grew into The Albazero exception may more truly be found in such earlier English cases as Davis and Jordan v. James (1770) 5 Burr. 2680, and more particularly Joseph v. Knox (1813) 3 Camp. 320, on which the Lord Chancellor particularly relied in Dunlop. In the latter case Lord Ellenborough took the view that the consignors were entitled to recover the value of the lost goods "and they will hold the sum recovered as trustees for the real owner." Here the consignor is to be seen as suing for the loss suffered by another.

    The proposition which I refer to as The Albazero exception, as described by Lord Diplock (at p. 844), was:

    "that the consignor may recover substantial damages against the shipowner if there is privity of contract between him and the carrier for the carriage of goods; although, if the goods are not his property or at his risk, he will be accountable to the true owner for the proceeds of his judgment."

If by a special contract the goods were the property or at the risk of the consignor then the loss would be his. That indeed was recognised in Dunlop. The second part of the passage which I have quoted however advances beyond such a position. What is there propounded is, as was noticed by my noble and learned friend Lord Goff of Chieveley in White v. Jones [1995] 2 A.C. 207, 267, a case of transferred loss. This is not a situation where the loss is that of the promissee. It is a loss suffered by the third party but transferred to the promissee who is then accountable to the third party. Thus the loss becomes that of the employer instead of and in place of the third party, a point emphasised by Hannes Unberath in his recent article in (1999) 115 L.Q.R 535. The promissee is deemed to have suffered the loss so that it is he and not the third party who is able to pursue the remedy in damages.

    The justification for the exception to the general rule that one can only sue for damages for a loss which he has himself suffered was explained by Lord Diplock in The Albazero [1977] A.C. 774, 847. His Lordship noted that the scope and utility of what he referred to as the rule in Dunlop v. Lambert 6 Cl. & F. 600 in its application to carriage by sea under a bill of lading had been much reduced by the passing of the Bills of Lading Act 1855 and the subsequent development of the law, but that the rule extended to all forms of carriage, including carriage by sea where there was no bill of lading:

    "and there may still be occasional cases in which the rule would provide 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."

The justification for The Albazero exception is thus the necessity of avoiding the disappearance of a substantial claim into what was described by Lord Stewart in J. Dykes Ltd. v. Littlewoods Mail Order Stores Ltd. 1982 S.C. (H.L.) 157, 166 as a legal black hole, an expression subsequently taken up by Lord Keith of Kinkel in this House at p. 177.

    In The Albazero Lord Diplock, at p. 847, sought to "rationalise the rule in Dunlop v. Lambert" so that it might fit into the pattern of English law. He did so by treating it:

    "as an application of the principle, accepted also in relation to policies of insurance upon goods, that in a commercial contract concerning goods where it is in the contemplation of the parties that the proprietary interests in the goods may be transferred from one owner to another after the contract has been entered into and before the breach which causes loss or damage to the goods, an original party to the contract, if such be the intention of them both, is to be treated in law as having entered into the contract for the benefit of all persons who have or may acquire an interest in the goods before they are lost or damaged, and is entitled to recover by way of damages for breach of contract the actual loss sustained by those for whose benefit the contract is entered into."

    It is particularly this passage in Lord Diplock's speech which has given rise to a question discussed in the present appeal whether The Albazero exception is a rule of law or is based upon the intention of the parties. The issue was identified by my noble and learned friend Lord Goff of Chievely in his speech in White v. Jones [1995] 2 A.C. 207, 267. The problem arises from two phrases in the speech of Lord Diplock the mutual relationship between which may not be immediately obvious. The two phrases, in the reverse order than that in which they appear, are "is to be treated in law as having entered into the contract" and "if such be the intention of the parties." In my view it is preferable to regard it as a solution imposed by the law and not as arising from the supposed intention of the parties, who may in reality not have applied their minds to the point. On the other hand if they deliberately provided for a remedy for a third party it can readily be concluded that they have intended to exclude the operation of the solution which would otherwise have been imposed by law. The terms and provisions of the contract will then require to be studied to see if the parties have excluded the operation of the exception.