The House of Lords in Alfred McAlpine Construction Ltd v. Panatown Ltd 1 considered a familiar problem. Where A contracts with B to improve the property of C, and A defaults, do either B or C have an action for substantial damages against A? A strict application of the law effectively gives neither an action. C lacks privity of contract with A; B has privity of contract, but is not considered to have suffered substantial damages. Thus, the party who has suffered damage has no privity of contract and the party who has privity of contract has suffered no damage. The result is that the claim for substantial damages disappears into some legal black hole.2

Rational legal systems ought not to have black holes. To a large extent, the potential creation of such a black hole can now be prevented by the Contracts (Rights of Third Parties) Act 1999.3 Prior to the 1999 Act, courts struggled to identify, or even create, an exception to the otherwise harsh operation of the law. Most of these exceptions were devices aimed at circumventing the doctrine of privity. In Panatown, the House of Lords was concerned with the exception first identified in Dunlop v. Lambert .4 It held, as an exception to the general rule of damages, that in a contract for the carriage of goods by sea the consignor could recover substantial damages from the carrier where the consignor (but not the consignee) had privity of contract with the carrier. This result was allowed even though the goods were no longer owned by the consignor or at his risk. The consignor and the carrier had contemplated at the outset that title to the goods would pass before the contract of carriage was performed. The consignor is accountable to the consignee for the damages. The exception was reaffirmed in The Albazero .5