Forthwell Limited v Pontegadea UK Limited
| Court | The Supreme Court of the United Kingdom, sitting in Glasgow |
| Justices | Lord Reed, President; Lord Stephens; Lady Simler; Lord Doherty; Lord Hodge |
| Judgment of | Lord Doherty, with whom Lord Reed, Lord Stephens, Lady Simler and Lord Hodge agree |
| Hearing | 20 May 2026 |
| Judgment | 17 September 2026 |
| Jurisdiction | Scotland |
| Appellant | Forthwell Limited, the tenant under the lease |
| Respondent | Pontegadea UK Limited, the landlord |
| Case reference | UKSC/2025/0081 |
| On appeal from | [2024] CSIH 38 |
| Matter | Whether a contracting party may recover a third party's loss as a matter of legal policy, outside the narrow ground and outside the broader ground |
| Outcome | Appeal dismissed. The transferred loss claims remain dismissed. The remaining conclusions go to a proof before answer. |
Summary
The Rogano traded at 11 Exchange Place in Glasgow from 1935 until it closed in 2020. Floods in December 2020 and January 2021 damaged the premises, a fire left the electrics unsafe, and water is still getting in. The repairs have not been done and the restaurant has not reopened.
The tenant is Forthwell. The restaurant was run by Lynnet, its wholly owned subsidiary, which held nothing but a licence to occupy. Forthwell sued the landlord for Lynnet's lost profits: 178,696.94 pounds to 31 March 2023 and a further 934,056.13 pounds estimated on a sixteen month repair programme. It did not advance that claim on either recognised exception. It advanced it on a rule of policy taken from one speech in Panatown, and the appeal was dismissed.
Background and facts
The lease is dated 18 and 29 March 1996 and neither of these parties was there at the start. The tenant's interest came to Forthwell in August 2013. Forthwell then licensed Lynnet into the premises, and does not aver that the landlord was told. Clause 8 of that licence provides that Forthwell will at no time be liable to Lynnet for loss from any deficiency in the premises.
The lease makes the landlord rebuild any part of the premises damaged by an insured risk, flooding included, and it prohibits both sub-letting and the sharing of possession. The claims for specific implement, damages in the alternative and professional fees survive and go to a proof before answer. Only the two claims for Lynnet's trading losses were attacked as irrelevant. The commercial judge allowed them through. The First Division reversed him by a majority, Lord Malcolm dissenting.
The issue
Forthwell accepted that its averments do not satisfy the narrow ground, the Albazero exception applied in Linden Gardens and St Martins, which turns on what the parties contemplated about a third party's interest in the property. It did not run the broader ground either. Its case was that the right to sue for another's loss is conferred by general legal policy, whatever the parties had in mind, so long as the party suing has a material interest in the loss. That is Lord Clyde's suggested solution in Panatown, taken into Scots law by Lord Drummond Young.
The decision
The parties settled on the morning of the hearing and moved to withdraw the appeal. The court refused, because a second commercial action had been sisted behind this one.
On the merits the court went straight at the foundation. Nobody else in Panatown adopted Lord Clyde's solution, nothing in Swynson supports it, and it cannot live alongside the requirement that a third party benefit be in contemplation when the contract is made.
It is very clear that Lord Clyde's solution does not represent the law of England and Wales.Lord Doherty, paragraph 31
The Scots law version fell with it, because the basis on which it had been adopted was a misreading of what Panatown decided.
Plainly, Lord Drummond Young was not correct to describe Lord Clyde's solution as the view of the majority in Panatown.Lord Doherty, paragraph 36
Two further reasons were given and these are the ones that will be cited. The exception would be too wide.
it would allow recovery in circumstances where the involvement of a person such as the third party was not within the contemplation of the parties at the time of contractingLord Doherty, paragraph 40
It is also too indefinite. The boundary Forthwell offered, a material interest in performance of the obligation, did not hold.
I am not convinced that that would provide a clear, robust and workable solution.Lord Doherty, paragraph 41
Nor was the outcome unjust. The two companies picked their structure and take what comes with it, and the court added that the licence looks on its face like a breach of the alienation provisions.
Forthwell and Lynnet chose to organise their affairs in the way in which they did.Lord Doherty, paragraph 43
Read the disposal narrowly. What was decided is that the policy based right argued for is no part of the law on either side of the border. After dismissing the appeal the court went on to say that the Albazero exception belongs to Scots law as much as to English law. Whether the broader ground belongs to either system was left undecided, and the court said in terms that it was not deciding it.
there is much to be said for the broader ground, but that it is not necessary or appropriate to decide the point in this appealLord Doherty, paragraph 47
Practical implications
The black hole is still open and the courts will not close it with policy. Where the company that suffers the loss is not the company holding the contract, the route to recovery has to be built in when the contract is drawn.
Construction is full of this shape. A vehicle company takes the building contract while the asset sits elsewhere in the group, or an operator loses the trade while the employer holds the rights. Panatown settled one end of it: give the third party a direct remedy and the transferred loss claim dies. This judgment settles the other. Give the third party nothing, and there is no claim to bring on its behalf.
The fix is drafting. Third party rights under the Contracts (Rights of Third Parties) Act 1999, or the Contracts (Third Party Rights) (Scotland) Act 2017, or collateral warranties, in favour of every company that will carry real money if performance fails. Assignment is a weak substitute.
Practice points
- List every company that will lose money if the works, the repairs or the services fail, and give each one a direct remedy of its own. Common ownership gives nothing.
- Where the employer does not own the asset, plead the narrow ground and plead it at the date of contract: the contemplated third party interest, and the clauses that show it was contemplated.
- Watch the Panatown trap from the other side. A warranty or duty of care deed handed to the third party can extinguish the employer's claim for that party's loss. Decide which route you want before granting either.
- Do not build a money claim on one speech that nobody else in the court joined. Check who agreed with it before the pleadings go in.
- If your client occupies under a licence from a group company, check the alienation clause in the lease before relying on the occupation.
- Keep the loss and the right to sue in the same company where the commercial structure allows it. Where it does not, say so in the contract and price the risk.