Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd

Facts

Stock Conversions Ltd, the lessee of a building, used a JCT standard form contract to hire Lenesta to remove asbestos. Clause 17(1) said "The employer shall not without written consent of the contractor assign this contract." Lenesta subcontracted another firm to do the job. More asbestos was soon found, and a third business was contracted. Then Stock Conversions Ltd assigned the building lease to Linden Gardens, and at the same time, without Lenesta ever having consented, assigning its right of action against Lenesta to Linden Gardens. More asbestos was found and Linden Gardens sued the contractors for negligence and breach of contract. The Court of Appeal found the assignment was effective. Lenesta appealed.

In a second joined case, St Martin's Property Corp Ltd had been granted a 150-year lease on a site from a council where they began a shop development, and in 1974 used the JCT standard contract with the same clause 17 to hire Sir Robert McAlpine as a builder. They assigned their interest and the benefits of the contracts to another company, without Sir Robert McAlpine Ltd's consent. Then in 1981 it was found that the building work was defective, and remedial work would cost £800,000. The Court of Appeal by a majority held the assignment was invalid but that St Martin's Property Corp Ltd was entitled to damages.

Judgment

The House of Lords held that a true construction of clause 17(1) prohibited assignment without consent and that since a party to such a contract might have a genuine commercial interest in ensuring that contractual relations with the party he selected were preserved, there was no reason for holding the contractual prohibition on assignment as being contrary to public policy.

In the second case because the development was, to the knowledge of the parties, likely to be occupied or purchased by third parties, damage to a subsequent owner was foreseeable. Because of the specific contractual provision that rights of action were not assignable without the defendants' consent, the parties could properly be treated as having entered into the contract on the basis that the first plaintiffs would be entitled to enforce against the defendants contractual rights on behalf of those third parties who would suffer from defective performance of the contract but were unable to acquire rights under it. Accordingly, the first plaintiffs were entitled to substantial damages for any breaches of the contract by the defendants.

Lord Browne-Wilkinson adapted the concept of Lord Diplock in The Albazero that there is an exception applicable to contracts of carriage: ‘that the consignor may recover substantial damages against the shipowner if there is privity of contract between him and the carrier for the carriage of goods; although, if the goods are not his property or at his risk, he will be accountable to the true owner for the proceeds of his judgment.’