Alfred McAlpine Construction Ltd v Panatown Ltd

A contracting party under a building contract cannot ordinarily recover substantial damages for loss suffered by a third-party site owner. The exception recognised for third-party loss is excluded where the owner has a direct remedy against the contractor under a duty of care deed. A mere procurement contract, without equivalent back-to-back obligations, adds nothing. A court should not remit a fully litigated preliminary issue merely to provide a second opportunity to prove a different contractual case, especially where the relevant evidence was available at the original hearing.

Panatown was the employer under a design-and-build contract, but UIPL owned the development site. McAlpine had separately granted UIPL a duty of care deed. An arbitrator ruled for Panatown on whether it could recover substantial damages and on an alleged chain of contracts. The High Court ruled for McAlpine, while identifying possible bases for remission. An earlier Court of Appeal decision was reversed by the House of Lords on the principal damages issue, by a 3–2 majority: [2000] 3 WLR 946. The remaining questions were whether a procurement contract or fresh evidence justified reopening the chain-of-contracts issue, and whether any other basis for remission remained.

Waller LJ delivered the leading judgment. Mantell LJ and Newman J agreed.

1. Effect of the duty of care deed. The House of Lords ruling meant that the employer could not recover substantial damages for the site owner’s loss where the owner had a direct remedy against the contractor. That conclusion extended to the proposed recovery of reasonable remedial expenditure and left no available diminution-in-value route on the basis relied upon.
2. Procurement contract. A procurement contract which imposed no obligations on Panatown equivalent to McAlpine’s obligations under the building contract added nothing. It was no different from the moral or group obligation which the House of Lords had held insufficient in the presence of the direct remedy under the duty of care deed.
3. Back-to-back contracts. A genuine chain of binding contracts, made before the building contract, and imposing equivalent obligations on Panatown and the upstream group companies, could have provided a basis for indemnity despite the deed. The alleged minutes did not establish such contracts. They showed that important terms remained to be negotiated and were too uncertain. Courts may construe commercial documents broadly, but cannot make a contract for the parties.
4. Remission. Remission would serve no useful purpose where the proposed procurement-contract case could not succeed and the chain-of-contracts issue had been fully identified and litigated. Allowing Panatown to present a different contractual case would give it a second opportunity. The court also declined to reopen the matter for fresh evidence which had been available at the arbitration. The jurisdictional uncertainty arising under section 1(7) of the Arbitration Act 1979 therefore required no final determination. It was unnecessary to decide the separate limitation issue.

Appeal dismissed, cross-appeal allowed, and leave to appeal to the House of Lords refused.

• House of Lords — On 27 July 2000, by a 3–2 majority, ruled for McAlpine on the principal damages issue and remitted the remaining matters to the Court of Appeal: [2000] 3 WLR 946.
• Court of Appeal — An earlier decision on 5 February 1998 had overruled Judge Thornton on that issue. The present court then determined the remaining remission and chain-of-contracts issues.
• High Court — Judge Thornton ruled for McAlpine on the principal damages issue and the chain-of-contracts issue, while considering possible bases for remission. Judge Fox-Andrews subsequently certified points of law and granted leave.
• Arbitration — The arbitrator’s interim award of 12 August 1994 had ruled for Panatown on both issues.