The Albazero Exception CASES
In English law, The Albazero Exception is a principle allowing a contracting party to claim damages on behalf of a third party who suffers loss but cannot claim directly due to lacking contractual rights.
Definition and Principles
Originating from The Albazero (1977) case, this exception arises when goods are transferred or sold to a third party who is not party to the original contract, yet suffers loss from its breach. The original contracting party can recover losses for the third party’s benefit in specific circumstances.
Key Conditions
- The contracting parties must have contemplated that goods would be transferred to a third party.
- The third party must have no independent right to sue for breach.
- The loss must occur after goods have been transferred.
Practical Importance
Understanding The Albazero Exception helps clarify obligations and remedies in complex supply chains, ensuring that those who ultimately suffer losses have access to compensation.
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A building contract prohibited assigning rights without consent. The property was sold to a third party. The House of Lords held the prohibition was valid, but allowed the original owner to sue the builder for defects on behalf of the new owner, creating an exception to prevent a legal 'black hole'. Facts This case involved two conjoined appeals concerning building contracts and the assignment of rights. Both contracts contained a clause prohibiting the employer from assigning the benefit of the contract without the contractor’s written consent. Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd Stock Conversions plc contracted with
A council arranged for a finance company to commission a building on its land. When defects arose, the builder argued the council couldn't sue for substantial damages. The court permitted the claim, extending an exception to privity of contract for a known third party. Facts Darlington Borough Council (‘the Council’) wished to construct a recreational centre on its own land. To navigate public sector borrowing controls, it entered into a complex arrangement. A finance company, Morgan Grenfell (Local Authority Finance) Limited (‘MG’), contracted with Wiltshier Northern Ltd (‘WNL’) to carry out the construction work. The Council was not a party
