Assignation, Delegation and Novation - Scottish Construction Contracts - page 292

12.3 Effect of assignation upon claims
Questions often arise in the context of construction contracts as to the effect of an
assignation upon claims. his issue was considered by the House of Lords in the Scot-
tish case of GUS Property Management Ltd v. Littlewoods Mail Order Stores Ltd (1982)
andintheEnglishcasesof Linden Gardens Trust Ltd v. Lenesta Sludge Disposals Ltd
(1994), Darlington BC v. Wiltshier Northern Ltd (1995) and Alfred McAlpine Construc-
tion Ltd v. Panatown Ltd (No. 1) (2001).
GUS Property Management Ltd concerned the assignee's right to claim losses aris-
ing from a delict where that right has been validly assigned. A building in Glasgow,
owned by a company named Rest Property Co. Ltd (henceforth Rest), was damaged
in the course of building operations at a neighbouring property. Rest transferred the
property to GUS Property Management (henceforth GUS), a related company, for its
full book value, ignoring the cost of repairing the damage. GUS carried out repairs to
the property and Rest then assigned to GUS all claims competent to them arising out
of the building operations on the neighbouring property. Relying on the assignation,
GUS raised an action for damages against the neighbouring proprietors and those
involved in the building operations. The defenders argued that because the property
had been transferred for its full book value, the assignor had not sustained any loss at
all, and thus, based on the principle assignatus utitur jure auctoris ,theassigneecould
notinturnrecoverdamagesforanysuchloss.heHouseofLords,overrulingthe
Inner House of the Court of Session, held that such a defence was not sustainable and
refusedtoallowtheclaimtofallintosomekindoflegal'blackhole'.Restwouldhave
been able to sue for damages at the time of the assignation, following the general rule
in Gordon v. Davidson (1864), that the owner of a property damaged as a result of a
delictdoesnotlosetherighttosueonpartingwiththatproperty.hefactthatthe
transfer price had been fixed for internal accounting purposes did not affect the true
loss suffered by Rest, and Rest had assigned its right to sue for that loss to GUS.
While GUS Property Management Ltd isacasedealingwithadelictualclaim,it
is submitted that the principles set out in it are equally applicable to claims under
contract or for breach of contract. Although the decision was based on a specific set
of circumstances, it appears that the court would reject a defence to a claim by an
assignee on the ground that no loss has been suffered because the assignor (i.e. the
original developer) sold for full value. Such 'no loss' arguments have been resisted by
both the Scottish and English courts, see McLarenMurdoch&HamiltonLtd v. he
Abercromby Motor Group Ltd (2003) and Darlington BC respectively. This seems to
be the case whether the transaction is between related companies, as in GUS Property
Management Ltd ,oratarm'slength,asin Technotrade Ltd v. Larkstore Ltd (2006).
he appeal in Linden Gardens Trust Ltd was heard by the House of Lords with
the appeal in St Martin's Property Corporation Ltd v. Sir Robert McAlpine & Sons Ltd
(1994). Both cases concerned an exception to the rule that a contracting party may
only recover its own losses under the contract.
In each case the contract was subject to the JCT 63 conditions. Clause 17 of JCT 63
(as with clause 7.1 of the SBC) prohibited assignation of the contract by the Employer