Alfred McAlpine Construction Ltd v Panatown Ltd [2001]

Alfred McAlpine Construction Ltd v Panatown Ltd [2001]

Alfred McAlpine Construction Ltd v Panatown Ltd [2001] AC 518 revolves around the application of the Albazero exception in the context of a construction contract. The key issue in this case was whether the contracting parties, Panatown and McAlpine, had provided a remedy for the third party, UIPL, and if so, whether the Albazero exception still applied.

Panatown hired McAlpine to construct an office building for UIPL, a company within the same group as Panatown. McAlpine entered into a duty of care deed with UIPL, making it liable for any failure to exercise reasonable care in the construction project, essentially granting UIPL direct contractual rights against McAlpine.

The defect and delay in the project led to losses suffered by UIPL, prompting Panatown to sue McAlpine for breach of contract. Panatown argued for the application of the broader ground as stated by Lord Griffiths in the St Martins case, contending that UIPL's losses should entitle Panatown to substantial damages.

However, the House of Lords held that Panatown's claim failed, and it was only entitled to nominal damages. The duty of care deed between McAlpine and UIPL provided a direct contractual remedy for UIPL, and the Albazero exception did not apply in this scenario.

Lord Clyde, in his reasoning, emphasised that the Albazero exception should be regarded as a rule of law rather than being based on the parties' intentions. He highlighted that when parties deliberately provide a remedy for a third party, it can be inferred that they intended to exclude the operation of the exception. In the current case, the duty of care deed and collateral warranties were entered into, displacing the Albazero exception.

Lord Jauncey, concurring with Lord Clyde, further emphasised the narrow ground of the Albazero exception, preventing claims from falling into a legal black hole where no remedy is available for the third party. He argued that the exception is displaced when rights vested in a third party are identical to those of the innocent contracting party.

Lord Browne-Wilkinson supported the narrower ground, stating that the rationale of the rule disappears when the third party has a direct remedy against the wrongdoer. He also raised concerns about the double liability problem, where both the innocent contracting party and the third party could claim damages.

In dissent, Lord Goff and Lord Millet argued that Panatown should be entitled to recover substantial damages based on Lord Griffiths' broader ground in the St Martins case. However, the majority view prevailed, and Panatown was limited to nominal damages due to the presence of the duty of care deed providing a direct remedy for UIPL.
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