ORCHARD PLAZA MANAGEMENT COMPANY LIMITED v BALFOUR BEATTY REGIONAL CONSTRUCTION LIMITED

For contractual remoteness, the relevant question is whether the type of loss was reasonably contemplated at contracting as a serious possibility. Where a collateral warranty expressly permits assignment to persons without restriction, the reasonable contemplation of loss may extend to loss suffered by an assignee, including remedial costs.

An assignee’s inability to recover a different kind of loss from that which the assignor could have suffered is part of the general no-loss principle. However, clear wording may disapply that principle. Clause 12.3 of the collateral warranty prevented reliance on remoteness where the assignee’s loss was different in kind from the hypothetical loss of the assignor.

The claimant management company, as assignee of a collateral warranty originally granted by the defendant contractor to a project funder, sought the costs of remedial works to a residential development. The defendant admitted breach but pleaded that the remedial costs were too remote because the warranty had been given to a funder, whose likely loss would have been diminution in the value of its security.

The claimant applied to strike out and/or obtain summary judgment on that defence. The issues were whether the claimed loss was too remote and, if so, whether clause 12.3 of the collateral warranty precluded reliance on remoteness.

1. The claimant’s application succeeded. The defendant’s remoteness defence was struck out or summarily rejected, subject to consequential orders.

2. The ordinary contractual remoteness test asks whether the type or kind of loss was, at the time of contracting, reasonably contemplated as a serious possibility resulting from breach. The assessment is objective and depends on the knowledge then possessed by the parties, particularly the defendant. It is ordinarily fact-sensitive.

3. The general rule is that an assignee cannot recover more than the assignor could have recovered had there been no assignment. Offer-Hoar v Larkstore Ltd added a gloss for a building owner who assigns rights with the property: the question is what the assignor could have recovered had there been no assignment and no transfer of the property. That gloss does not exclude remoteness and did not apply directly to the funder, which had never owned the property.

4. Here, the warranty expressly permitted assignment without restricting the identity of the assignee. It was therefore within the defendant’s reasonable contemplation that an assignee might incur remedial costs. It was also a serious possibility that the funder itself would take possession after default and incur repair costs. The claimant’s remedial costs were consequently not too remote.

5. Clause 12.3 independently defeated the defence. Properly construed, its reference to loss being “different” included a difference in kind or type, not merely amount. The clause displaced the relevant no-loss principle, including the rule that an assignee could not recover a kind of loss which the assignor could not have suffered. Applying remoteness in that situation would undermine clause 12.3.