Forthwell Limited v Pontegadea UK Limited

A contracting party generally recovers damages only for its own loss. Transferred loss is a limited exception, founded on the parties’ common intention and legal necessity. The narrow exception applies where the transaction contemplated a third-party benefit or property-related loss and the third party lacks a direct remedy.

Scots law does not recognise a general policy rule allowing a contracting party to recover any financially measurable loss suffered by another and then account for the damages. Such a rule would be excessively wide and indefinite. A proposed requirement that the claimant have a material interest in the third party’s loss supplies no sufficiently clear limit.

The narrow exception forms part of Scots law. Whether the broader performance-interest ground forms part of Scots or English law remains open.

Forthwell Limited v Pontegadea UK Limited concerned a tenant’s attempt to recover profits allegedly lost by its wholly owned subsidiary. The subsidiary operated a restaurant from the leased premises under a licence. Following flooding and continuing water ingress, the landlord allegedly failed to perform repairing obligations under the lease, and the restaurant remained closed.

The tenant sought specific implement and damages for its own expenditure. It also claimed the subsidiary’s past and future lost profits on the basis that it could sue on the subsidiary’s behalf and would be bound to account for any recovery.

The commercial judge held that the transferred-loss claims should proceed to proof before answer: [2024] CSOH 59; 2024 SLT 657. The First Division, by a majority, allowed the landlord’s reclaiming motion and dismissed those claims: [2024] CSIH 38; 2025 SC 127.

Although the parties settled before the Supreme Court hearing, the court refused permission to withdraw the appeal because the settlement was unconditional, the issue was of general public importance and another action awaited authoritative guidance. The central issue was whether Scots law permits a contracting party, as a matter of general legal policy, to recover financially measurable loss suffered by a third party irrespective of the parties’ intentions when contracting.

1. Disposition and withdrawal. Lord Doherty, with whom Lord Reed, Lord Stephens, Lady Simler and Lord Hodge agreed, dismissed the appeal. The court refused to permit withdrawal notwithstanding the parties’ settlement. The settlement did not depend on withdrawal, the appeal raised a point of general public importance, and another action awaited its determination.

2. The governing principle. A contracting party ordinarily recovers only loss which it has itself suffered. Transferred loss is an anomalous and limited exception. The recognised narrow ground is a rule of implication founded on the contracting parties’ common intention, rather than a general rule of law designed to prevent every uncompensated loss. It also depends on legal necessity and is unavailable where the third party has a direct remedy for the same loss.

3. The proposed Scots law exception was rejected. Lord Clyde’s suggested solution in Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 518 had not been endorsed by any other member of the Appellate Committee and was inconsistent with the majority reasoning. Lord Drummond Young therefore erred in treating it as the majority approach and adopting it as Scots law. The solution was also contrary to the guidance in Swynson Ltd v Lowick Rose LLP [2017] UKSC 32; [2018] AC 313.

   A policy-based right to recover any financially measurable third-party loss would be too wide because it could impose liability for third-party involvement which the contracting parties had not contemplated. It would also be too indefinite. Requiring the claimant to possess a “material interest” in the third party’s loss would not provide a clear and workable boundary. The rarity of legal black holes and the possible availability of rights under the Contracts (Third Party Rights) (Scotland) Act 2017 or the Contracts (Rights of Third Parties) Act 1999 further weakened the case for creating the proposed exception.

4. The narrow ground in Scotland. As legally significant obiter, the court stated that the exception originating in Dunlop v Lambert (1839) 6 Cl & Fin 600 and developed through Albacruz v Albazero (The Albazero) [1977] AC 774 is part of Scots law and is too long established to be questioned.

5. The broader ground. The court considered that there was much to be said for the broader performance-interest ground, but expressly left open whether it forms part of either English or Scots law. Any conclusion would have been obiter because the tenant did not rely on that ground and the point had not been fully argued below or in the Supreme Court.

1. United Kingdom Supreme Court: In Forthwell Limited v Pontegadea UK Limited [2026] UKSC 33 , the court refused the application to withdraw the settled appeal and unanimously dismissed it, affirming the dismissal of the transferred-loss claims.
2. First Division of the Inner House: By a majority, the court allowed the landlord’s reclaiming motion and dismissed the transferred-loss claims: [2024] CSIH 38; 2025 SC 127. Lord Malcolm dissented.
3. Outer House: The commercial judge declined to dismiss the transferred-loss claims and permitted them to proceed to proof before answer: [2024] CSOH 59; 2024 SLT 657.