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Privity of Contract

By Edited Nov 13, 2013 0 0

Privity of Contract

Since we have covered privity earlier, here is a case where a party must claim for the third, on the alternative exception

The second exception: the broad ground

A person who contracts with another person to perform certain work is entitled to have this work done properly and if it is not, he is entitled to the cost of rectifying the defect. - Lord Griffith, St Martins

The crux of the issue is the perspective of justice and fairness as a negative answer could result in the party who breached the contract ("the defendant/promisor") escaping with, in effect, no legal liability (save, perhaps, for nominal damages)

And then the claim of the party injured by the breach of contract ("the plaintiff/promisee") "would disappear … into some legal black hole, so that the wrongdoer escape[s] scot-free"

Here thus appears, on balance, to be an endorsement of the broad ground in the English context. The broad ground has also been endorsed by subsequent cases. Indeed, although first, the narrow ground could be applied , it proceeded nevertheless to consider the broad ground and held that it applied "in principle" as well in that case. Judges expressed the view that "the broad ground [was] probably more consistent with principle.
The basis on which a plaintiff is entitled to claim for substantial damages under the broad ground is that he did not receive what he had bargained and paid for. It has nothing to do with the ownership of the thing or property.- prosperland

Hence, unlike the narrow ground, the broad ground is not concerned with filling up any legal black hole.

It should further be noted that the performance interest claimed by the plaintiff/promisee must be a genuine one. In this regard, the court will apply an objective test of reasonableness to the performance interest claimed so as to curb what would otherwise be a windfall accruing to the plaintiff/promisee.

Suppose, in an example given in a case, that the contract value of a pool is $50,000, but the pond is so badly built that it has to be abandoned. The owner will recover his $50,000 for total failure of consideration. Presumably, he can also recover damages for loss of the enjoyment of having a pool.

There has been however many different interpretations of the broad ground.

An extremely important point is that the two exceptions are conceptually inconsistent with each other.
Hence, they cannot apply simultaneously. The crucial issue that arises, as a result, is whether – and, if so, how – the two exceptions can be applied in a consistent and coherent manner.
To this end, there should be an objective legal line which, when crossed, will result in the broad ground being applied in place of the narrow ground.

One approach might be to stipulate that, in order for the narrow ground to apply, the plaintiff/promisee must originally have possessed a proprietary interest in the contractual subject matter, which interest was contemplated by the contracting parties as possibly being passed or transferred to a third party; if not, the broad ground would potentially apply. However, this approach would entail holding that the extension of the narrow ground in Darlington was erroneous and should not be followed.

Another possible approach is the principle of "transferred loss" from "Third Party Losses and Black Holes: Another View".

In short this principle ie, the principle of "transferred loss" seeks to explain the cases on the basis that the loss is suffered by a third party instead of the promisee by reason of a special relationship between the third party and the promisee. The 'special relationship' is the key to understanding when it is appropriate to award damages on behalf of a third party and avoid the 'black hole.' It also helps to clarify the third party's rights as against the promisee.

Alfred McAlpine Construction Ltd v Panatown Ltd

This should bring about a clearer understanding of the different parts of the albazero exception.



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