St Martins Property Corporation Ltd v Sir Robert McAlpine & Sons Ltd [1994] 1 AC 85, 115
Contract – Building – Third Party Entitlement – Assignment – Standard form Contract
Facts:
St Martins, the first plaintiff, began working on a development which included shops, offices and flats. A 150-year leasehold was granted on completion by the council. St Martins entered into a contract with McAlpine. The contract stated that the contract could not be assigned unless there had been written consent of the contractor. The first plaintiff assigned their contract with McAlpine to the second plaintiff all of their rights under the contract. McAlpine did not consent to the assignment. Sometime after the assignment, the building was found to be defective with remedial work required. The first and second plaintiffs brought action against McAlpine. Initially the assignment was held to be ineffective and the first plaintiff was only entitled to nominal damages. The second defendants in Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1993] UKHL 4 and McAlpine cross-appealed.
Issues:
Whether the assignment of the contract gave rise to an entitlement for substantial damages to the second plaintiff and whether both of the defendants could cross-appeal for a breach of contract.
Held:
The cross-appeal by the defendants was dismissed. The original assignee to the contract was entitled to the damages granted, as under the terms of the contract, St Martins would have been entitled to damages for any defect that caused them to suffer loss. Even though the contract did not allow for the assignment of rights, as consent to an assignment was not obtained, St Martins were entitled to seek damages and enforce against the defendants on the behalf of the second plaintiff (the third party), was unable to acquire rights under it even though their loss was foreseeable.
Updated 20 March 2026
This case summary relates to St Martins Property Corporation Ltd v Sir Robert McAlpine & Sons Ltd [1994] 1 AC 85, decided by the House of Lords and reported alongside Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85. The core legal principles established in this case — concerning the narrow ‘Dunlop v Lambert’ exception allowing a contracting party to recover substantial damages on behalf of a third party where loss was transferred, and the effect of a prohibition on assignment — remain part of English law.
However, readers should be aware of significant subsequent developments. The broader ‘third party loss’ principle has been substantially refined and, in some respects, curtailed by later House of Lords and Supreme Court decisions, most notably Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 518, which held that the narrow ground for recovery on behalf of a third party is not available where the third party has a direct right of action against the defendant (for example, via a duty of care deed). Additionally, the Contracts (Rights of Third Parties) Act 1999 now provides third parties with a statutory mechanism to enforce contractual terms in their own right in certain circumstances, which may reduce reliance on the exception discussed in this case. The summary above does not address these developments and should be read with that limitation in mind.
The summary itself also contains some imprecision in its description of the holding — in particular, the final sentence is garbled and may confuse readers. The essential holding is that the original contracting party (St Martins) could recover substantial damages from McAlpine for the benefit of the assignee, notwithstanding the ineffective assignment, on the basis that the loss had passed to the third party and it was within the reasonable contemplation of the parties that the property would be occupied or purchased by third parties.
