Thompson v Solomon and Solomon

• Jurisdiction: Bahamas
• Judge: Allen, P.,Blackman, J.A.,Mr. Christopher Blackman, J.A.,Mr. Justice Conteh, J.A.
• Judgment Date: 27 May 2011
• Neutral Citation: BS 2011 CA 44
• Docket Number: SCCivApp No. 38 of 2010; SCCivApp No. 39 of 2010
• Court: Court of Appeal (Bahamas)
• Date: 27 May 2011

Court of Appeal

Allen, P.; Blackman, J.A.; Conteh, J.A.

SCCivApp No. 38 of 2010; SCCivApp No. 39 of 2010

Thompson

and

Solomon and Solomon

Appearances:

Mr. Brian Simms, Q.C., with Mr. Christopher Jenkins for the appellant.

Mr. Brian Moree, Q.C., with Mr. Howard Thompson for the respondents.

Contract - Terms — Construction — Doctrine of privity of contract.

Allen, P.

1 This judgment is concerned with two appeals arising out of a contract dated 13 July, 2005, between David and Melissa Solomon and Jason Thompson, for building works on land situate in Double Bay, Eleuthera (hereinafter “the contract”).

2 At the time of the contract, Jason Thompson was a building contractor who carried on business in Governor's Harbour, Eleuthera, and the Solomons were the purported owners of the land on which the renovation of an existing building and the construction of two new buildings, were agreed to be carried out.

3 On 19 December, 2007, the Solomons sued the contractor in the Supreme Court, alleging breach of the contract and damages for his failure to use his best skill, efforts and judgments in furthering their interest; damages for defective work; repayment of all sums overcharged for work done and materials supplied; and interest on such sum.

4 They filed a statement of claim on 21 February, 2008, which set out the particulars on which they relied to support their claims, and quantified the loss and damage to be an estimated $451,092.

5 The contractor filed a defence to the Solomons’ claim on 18 March, 2008, denying breach of the contract, and counterclaiming on the ground of their failure to pay the sum owing under the ‘final certificate’ dated 13 June, 2006, issued by the architect under the contract.

6 An amended statement of claim was subsequently filed by the Solomons on 1 March, 2010, amending some of their claims, including that which averred that the land on which the works were performed was owned by them.

7 It was not until the amendment of the statement of claim, did the contractor become aware that the fee simple in the land on which the works were agreed to be carried out, was owned by a third person, namely David and Melissa Solomon Corporation, a company beneficially owned by the Solomons (“Solomons Corporation”).

8 Immediately after the said amendment, namely, by summons filed 8 March, 2010, the contractor applied to have the action struck out on the ground that the Solomons could not recover, on behalf of a third party, loss allegedly suffered as a result of a breach of the contract.

9 The learned Chief Justice however, refused the application and determined the issue in the Solomons' favour, and the first appeal (SCCivApp. No. 38 of 2010), is against that ruling.

10 The second appeal (SCCivApp. No. 39 of 2010), to which I shall return later in this judgment, is against the ruling of the Chief Justice also dated 12 March, 2010, that the ‘final certificate’ issued by the architect under the contract, is not determinative as to the value and quality of the work performed by the contractor.

11 In his ruling, with which the first appeal is concerned, the Chief Justice gave his reasons at paragraphs 14 through 18 as follows:

• “14. With respect, I do not agree that is an essential requirement to fall within the exception that it must be in actual contemplation of the parties that the third party would or might have suffered damage. This requirement does not appear in the speeches in the Panatown Case. Indeed, it is more likely than not, that the issue is not considered by parties at all when a contract is made.

• 15. It appears that my view that this is not a requirement is in accord with the view of Judge Anthony Thornton Q.C. sitting as a Judge of the High Court in Bovis Lend Lease Ltd v. R D Fire Protection Ltd et al 89 Con LR 169. After reviewing the speeches in the Panatown case he said:

  ‘Thus, the majority accepted that a performance interest could be pursued where:

• 1. The employer had no interest in the land or buildings.

• 2. The employer had incurred or would Incur sub-stantial loss in undertaking repairs or the third party owner had incurred or would incur substantial loss and the employer provided an under-taking or suitable assurances that the damages recovered from the contractor would be reimbursed to the third party owner.

• 3. There was no direct contractual nexus between the third party owner and the contractor that would allow for substantial recovery for the same on similar loss.

  The minority consisting of Lord Goff of Chieveley and Lord Millett, would have gone further and, in addition to accepting that the employer need not have any interest in the land or buildings, would have been prepared to award that employer damages without requiring the employer to account to the building owner for the damages it received and did not regard the existence of a second direct contract as being either material or fatal to the recovery of damages based on an interference with the employer's performance interest.

  However, all five law lords regarded it as essential that the employer had incurred substantial loss in paying for remedial work to be carried out even if it had no interest in the land in question.

  It follows that the employer need not have an interest in the subject matter of the dispute but, in the present stage of development of the law in this field, the recovery of performance interest damages is governed by the other qualifications imposed by the majority of the law lords in the McAlpine case including the requirement that the claimant should have incurred loss or should be accountable to the party that has incurred loss for any damages it recovers.’

  It should be noted that Judge Thornton did not include ‘actual contemplation of the third party at the time of the contract’ as an essential requirement for the other party who did not suffer loss to maintain the action.

• 16. I do accept however that the third person must be a person who at the time the contract is made the parties ought reasonably to have expected might suffer damage if there was a breach of contract. The owner of the property is clearly such a person. In my view such a qualification would meet the concern of the court in the Rolls Royce Case that the court must be careful that a claim for substantial damages could be advanced on behalf of anyone whosoever who would contend that they had suffered loss as a result of a breach of contract, however remote their apparent connection to the performance of the contract

• 17. Finally, as attractive as the ‘broad approach’ discussed in the Panatown Case may be to me, I do not consider myself at liberty to decide this issue on that broad ground. It was not accepted by the majority of the House.

• 18. In my judgment the case falls within the recognized exception to the general principle and I refuse the Defendant's application to strike out the claim.”

12 The contractor contends, in this appeal:

• “1. The learned Chief Justice erred in law when he concluded that it was not a requirement for the exception to the general rule that a party can only recover his own loss for breach of contract that where there is a claim for recovery of a third party's loss due to a breach of contract that third party need not have been in the contemplation of the parties at the time of contracting as likely to suffer from the breach.

• 2. The learned Chief Justice erred in concluding that the respondents were entitled to recover substantial damages on behalf of the company the owner of the property, when the company was not within the contemplation of the parties at the time of contracting and its damage or loss was not foreseeable.

• 3. The learned Chief Justice erred in not concluding on the accepted facts that at the time of contract, the parties could not reasonably have expected that the company, which was not known to the defendant to have existed, might suffer damages if there was a breach of contract.

• 4. The learned Chief Justice erred in law and in fact in failing to find that the respondents were estopped by reason of the express statement in the contract that they were the owners of the property from claiming damage on behalf of any other persons.

• 5. The learned Chief Justice having rejected the broad approach based on the purported performance interest principle for the assessment of damages suffered by a third party where there is a breach of contract, nevertheless based his reasoning on the broad approach on reliance on an authority which had no application to the facts and circumstances of the case. Moreover his Lordship relied on a case preferred by the respondents to which he informed the appellant's counsel that they did not need to address him on.

• 6. By implicitly relying on the performance interest principle, the learned Chief Justice erroneously concluded that the Plaintiffs' claim was equivalent to one for injury to their economic interest when that was not their claim and when the facts did not disclose any legal obligation on them to make good the loss or damage suffered by the company from the breach of contract.

• 7. The learned Chief Justice erred in failing to follow established authority which lay down the principle that the exception to the general rule for the recovery of damages only applies when as a matter of construction of their contract the parties have agreed that the innocent party shall have the right to sue for damages on behalf of a third party in their contemplation for foreseeable loss.

• 8. The learned Chief Justice erred in failing to apply the established principles based on the exception to the general rule, which allow a party to a contract to recover substantial damages on behalf of a third party who has suffered damages as a result of a breach of contract.”

13 It seems to me that the starting point must be the acceptance of the rules:

• (a) that...