Legal black holes: revelations from the Outer House

Marquess of Aberdeen and Tremair v Turcan Connell [2008] CSOH 183 provided an opportunity for analysis of the problem known as a “legal black hole.”  This phenomenon arises where loss caused through a breach of contract falls not on the contracting counter-party, but rather on a third party.  The English courts developed a potential solution to the problem in cases such as St Martin’s Property Corporation v Sir Robert McAlpine and Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85 and Darlington Borough Council v Wiltshier Northern Limited [1995] 1 WLR 408.  Focussing on the problem itself, and explaining it  using a construction context, owner of a building (O) engages builder (B) to carry out works on a building.  Those works are performed negligently, although that fact is not immediately apparent.  The building is then sold, possibly several times.  Rights under the building contract are not assignable without consent of the builder.  When the loss becomes apparent, it falls on a subsequent owner (SO) who finds the building worth less than he anticipated.  However, SO cannot sue the builder, having no rights under the building contract.  Nor does he have an action in delict against B.  O, who has a contract with B and could, in theory, sue him, has suffered no loss.  The lack of congruence between loss and right to sue has led the courts to describe these situations as legal black holes. 

The solution developed by the English courts allows O to recover damages on SO’s behalf.  It is, however, far from perfect, doubts remaining about the way in which SO can force O to disgorge damages, and what might happen if O became insolvent after recovering damages but before giving them to SO.

Marquess of Aberdeen is a case of solicitor’s negligence.  Failure properly to advise a client on the operation of a trust led to substantial, as yet unquantified, financial losses.  However, the loss fell on persons due to benefit from the trust, not the person engaging the legal advisor to set up/administer the trust.  Thus the person with a right to sue in contract (the client) suffered no loss, and the person who suffered the loss (the disappointed beneficiaries) had no right to sue the negligent solicitor. 

Whether the English solution would be applied in Scotland was not previously clear despite discussion in cases such as McLaren Murdoch & Hamilton Ltd v The Abercromby Motor Group Ltd 2003 SCLR 323 and Clark Contracts Limited v The Burrell Company Construction Management) Limited (No 2) 2002 SLT (Sh Ct) 73.  Jus quaesitum tertio, the Scottish third party right, fails to solve these cases.  It is doubtful whether O and B have the intention to benefit SO which would successfully constitute SO as a tertius.  

This decision in Marquess of Aberdeen was made at procedure roll stage.  Thus, Lady Smith was deciding whether the pursuers had a relevant case. The case would only have been dismissed if, assuming that the pursuer approved his averments, his claim would necessarily fail.  Her conclusion was that the case was relevant.  She is, however, not fond of the name given to this phenomenon [para 45]:

         “I am not wholly convinced that it is helpful to compare the situation of a person who finds himself out of pocket on account of the breach of contract to which he was not a party with the extraordinary gravitational pull of the dense collections of mass in outer space that are colloquially known as black holes, but, one way or another, that is how they have come to be known.”

We are fond of the space terminology, and look forward to finding out if, at last, the hole has been plugged.    

Computers, Privacy and Data Protection…

I attended the second annual International Conference on Computers, Privacy and Data Protection was held in Brussels last week, hosted by Vrije Universiteit Brussel.  The conference was well attended by a wide range of lawyers, academics, policy advisors and DP officers. 

As well as providing an in-depth review of some of the key DP developments in 2008, the conference addressed current issues in DP law, including the e-Privacy Directive, DP in the third pillar, and Facebook and SNS.  The increasing impact of Facebook on DP and privacy is nicely illustrated by this story from The Register:

The final panel session addressed the topic of "Privacy by Design", and the speakers provided examples of how DP compliance and respect for privacy can be built in to technology from the outset – but how, unfortunately, in the majority of cases, non-design leads to non-privacy.  One organisation which is trying to tackle this is EuroPrise – the European Privacy Seal, which awards trust marks to recognise IT products and services which respect privacy:  see 

Peter Hustinx, the current European Data Protection Supervisor, closed the conference with some reflections on what has been achieved and what still needs to be done.  One suspects that 2009 will be another busy year for DP!

About the Edinburgh Centre for Commercial Law

The Edinburgh Centre for Commercial Law has been set up by five members of The School of Law, Edinburgh University.  The Centre is a research centre and its principal focus lies on  the development of commercial law in Scotland.  The Centre stages different types of events with this focus in mind, such as academic seminars, book launches and lectures from UK and international legal experts.  One particular aim of the Centre is to foster closer links within the Scottish legal community, bringing together academics, legal practitioners and the judiciary.  The five original members are able to do so through the provision of continuing professional development training to UK law firms, and through collaborative writing projects.

The Director of the Centre is Laura Macgregor, and the associate directors are Gillian Black, David Cabrelli, Parker Hood and Scott Wortley.  The honorary Chair of the Centre is the Right Hon Lord Reed.

The Centre was inaugurated in March 2008, the inaugural lecture being provided by Lord Woolman.  During the whole of academic year 07/08, many Centre events were held.  High profile academics gave seminars wtihin our series on diverse subjects such as commercial agency, private equity and securitisation.  Other seminars were given by prominent legal practitioners such as Lindy Paterson, Dundas and Wilson CS LLP, who provided us with her perspective on the drafting of exclusion and limitation clauses.  At each of these events we successfully achieved our aim of bringing together different parts of the legal community in animated discussion.

Perhaps the highlight from the first year of the Centre's life was the annual Centre lecture which was delivered by Lord Bingham of Cornhill KG.  He provided us with his views on interpretation of contract.  This particularly difficult subject has seen a great deal of recent analysis both in the House of Lords and the Scottish courts.  Lord Bingham's views were frank and often challenging of received wisdom.  The fulll text of his lecture is now available, see  ‘A New Thing Under the Sun?: the interpretation of contract and the ICS decision’ in (2008) Edinburgh Law Review pp. 374-390.  No doubt this year's annual Centre lecture by Lord Hoffmann will prove equally fascinating (provisionally booked for 12 May 2009).

There was also time for lighter relief when guests were invited to celebrate the launch of books co-authored by members of the Centre, for example, Gillian Black's contribution to Business Law in Scotland (2008, Greens) or Laura Macgregor's contribution to Commercial Law in Scotland (2008, Greens).    

This blog will provide the members of the Centre with the opportunity to publicise forthcoming events, but perhaps more significantly to comment on recent cases and developments and to explore research related ideas in the general field of Scots commercial law.  We hope you find it interesting, and would be interested to hear any comments or questions you have.