Darlington BC v Wiltshier Northern Ltd [1995] 1 WLR 68

KEY POINTS

• Despite the privity rule, the plaintiff (i.e., the local council) could claim damages from the contractor for bad performance, even though the council was not a party to the original contract.

• Such a decision is based on two grounds:

  1. Both parties (X and D) knew that the contract was for the council's benefit, and

  2. It was foreseeable that a breach of the contract would cause loss to the council.

FACTS

• The local council, Darlington, wanted to build a recreational centre known as the Dolphin Centre on land they already owned.

• Due to borrowing restrictions, they sought financing from Morgan Grenfell, who entered into building contracts with Wiltshier to construct the Dolphin Centre. Darlington and Morgan Grenfell entered into a Covenant Agreement, granting Darlington rights and obligations regarding the construction.

• The Dolphin Centre was built in two phases under separate building contracts. Darlington alleged serious defects in the Centre's construction, which they claimed were due to Wiltshier's bad workmanship and breaches of the building contracts.

JUDGMENT

• Appeal allowed. The Court ruled in favour of Darlington BC.

COMMENTARY

• The case demonstrates a departure from the strict application of the privity rule, allowing the local council to enforce the contract despite not being a party to the original agreement.

• It reinforced the notion that a party responsible for a breach of contract should not concern themselves with who will ultimately bear the loss. The fact that the council may not suffer a direct financial loss due to another party paying for the repairs did not preclude them from claiming damages for the defendant’s breach.

ORIGINAL ANALYSIS

• X contracted Defendant to build stuff for local council (Plaintiff). X assigned rights to Plaintiff and Plaintiff later sued Defendant for damages for bad performance.

• CA held that

  1. Since the parties knew that the contract was for Plaintiff’s benefit and

  2. It was foreseeable that damage caused by a breach of the contracts would cause loss to the council, Plaintiff could claim as though it was the employer and principal to the contract from the outset.

• In this case there could have been, but was no need for, an application of the Linden exception, there being contractual clause that allowed assignment to the council. 

Lord Griffiths

• Having a proprietary interest in a project is NOT a requirement for claiming damages from its failure to be performed.

  • E.g. if the wife owns the house and the husband contracts to have the roof repaired, he should not be barred from claiming damages on the grounds that it isn’t his house.

• He also said it is no objection to say that another party is paying the repairs so that Plaintiff doesn’t suffer loss, since it is not for the guilty party to consider who will pay.

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