Transferred Loss Claims within Corporate Groups: the UK Supreme Court Closes off One Potential Route in Forthwell v Pontegadea

In Forthwell Ltd v Pontegadea UK Ltd [2026] UKSC 33 (“Forthwell”), handed down on 17 September 2026, the UK Supreme Court considered whether a parent company can recover damages from its contractual counterparty for loss suffered by a subsidiary that is not party to the contract. The subsidiary, lacking privity of contract, has no claim; the parent, which has the claim, has on the ordinary rule suffered no loss. The result is what the case law calls a “legal black hole”: a breach without a remedy. The Supreme Court unanimously declined to fill it.

The appeal came from the Court of Session and was decided under Scots law. However, the Court’s analysis rests on the English authorities, from The Albazero to Swynson, and the Court stated in terms that it is “very clear” that the solution advanced by the appellant “does not represent the law of England and Wales”.[1] The judgment is therefore as significant for contracts governed by English law as for those governed by Scots law.

The facts: Pontegadea UK Ltd (“Pontegadea”) was the landlord, and Forthwell Ltd (“Forthwell”) the tenant, of the premises of the Rogano restaurant in Glasgow. Forthwell granted a licence to occupy the premises to its wholly owned subsidiary, Lynnet Leisure (Rogano) Ltd (“Lynnet”), which ran the restaurant. Lynnet was not party to the lease. Forthwell did not aver that Pontegadea knew of the licence, which appeared prima facie to breach the lease’s prohibition on sharing or parting with possession.[2] After flooding in December 2020 and January 2021, and a fire, the restaurant could not reopen. Forthwell alleged that Pontegadea had failed to carry out repairs required by the lease and claimed some £1.1 million, representing Lynnet’s lost trading profits, on the footing that it would account to Lynnet for any sums recovered.[3]

The issue: whether Forthwell could recover damages for breach of the lease in respect of losses sustained by Lynnet, a third party to it (i.e., bring a “transferred loss” claim)

The general rule and its exceptions: in English law, a contracting party can in general recover damages only in respect of its own loss. A subsidiary’s lost profits do not become its parent’s loss merely because both belong to the same group: each company is a separate legal person. English law recognises one established exception to this rule, and has long debated a second.

1. The “narrow” ground,or “Albazero exception”. Traced to Dunlop v Lambert (1839) 6 Cl& F 600 (itself a Scottish appeal), articulated in Albacruz (CargoOwners) v Albazero (Owners) (The Albazero) [1977] AC 774 and extended to building contracts in Linden Gardens Trust Ltd v Lenesta Sludge DisposalsLtd [1994] 1 AC 85, it allows a contracting party to recover damages for a third party’s loss caused by breach of a contract relating to property, where the contracting parties contemplated that the property would be transferred to the third party, or that the third party might otherwise suffer loss in respectof it, and the third party has no direct remedy of its own. The Supreme Courtconfirmed that this exception is part of English law.[4] Forthwell accepted that its pleadings did not satisfy it: it had not even averred that Pontegade a knew of Lynnet’s occupation.

2. The “broader”ground, or “performance interest”. Proposed by Lord Griffiths in LindenGardens and adopted by Lord Goff and Lord Millett (in the minority) in Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 518 (“Panatown”), it holds that a person who contracts for work to be done on property owned by another suffers a loss of their own if the work is not properly performed. LordGriffiths’ example is a husband who contracts for the repair of the roof of the matrimonial home owned by his wife; Lord Goff’s, a benefactor who pays for the restoration of the village hall. Strictly, this is not an exception to the general rule at all, since the loss recovered (typically the cost of obtaining the performance bargained for) is the promisee’s own. Its status remains unsettled: the Supreme Court left it open in Swynson Ltd v Lowick Rose LLP[2017] UKSC 32 (“Swynson”), the Court of Appeal treated it as good law in BV Nederlandse Industrie van Eiprodukten v Rembrandt Enterprises Inc [2019] EWCA Civ 596, and in Forthwell the Supreme Court again declined to decide the point, while observing that “there is much to be said for the broader ground”.[5] In any case, Forthwell did not rely on it.

Forthwell’s argument: Forthwell instead based its claim “squarely” on a third approach, suggested by Lord Clyde in Panatown.[6] Lord Clyde had proposed that “a more realistic and practical solution is topermit the contracting party to recover damages for the loss which he and athird party has suffered, being duly accountable to them in respect of theiractual loss”,[7] so that, “to avoid the legal black hole, the law will deem the innocent partyto be claiming on behalf of himself and any others who have suffered loss”.[8]He envisaged that the problem would most likely arise in the context of “thedomestic affairs of a family group or the commercial affairs of a group ofcompanies”[9] (precisely Forthwell’s situation). Forthwell invited the Supreme Court to endorse it, limited by a requirement that the contracting party have a “material interest” in the third party’s loss.

The Supreme Court’s decision

In a judgment given by Lord Doherty, with which Lord Reed, LordHodge, Lady Simler and Lord Stephens agreed, the Supreme Court dismissed the appeal, for the following reasons:

1. Lord Clyde’s solution was his alone. No other member of the House of Lords concurred with it, and it is inconsistent with the reasoning of the majority in Panatown, for whom the decisive point was that the site owner had a direct remedy under a duty of care deed.[10]

2. It is inconsistent with Swynson, which treats transferred loss as an anomalous exception, driven by legal necessity, to be applied only in defined and limited circumstances.[11]

3. It would be too wide “because it would allow recovery in circumstances where the involvement of aperson such as the third party was not within the contemplation of the parties at the time of contracting. That would be likely to produce unforeseen consequences for the party in breach. They are unlikely to have arranged their affairs (eg in relation to insurance) on the basis that such a liability might arise.”[12]

4. It would be too indefinite: Lord Clyde did not define its limits, and Forthwell’s “material interest” test did not supply a clear, robust and workable one.[13]

5. Legal black holes are rare, and may be avoided by other means, including third-party rights legislation and, potentially, the broader ground described above.[14]

6. Nor was the outcome unjust. Forthwell and Lynnet had chosen to organise their affairs as they did, knowing that they were separate legal persons, and the licence itself appearedto breach the lease.[15]

Takeaways for practitioners ‍

‍Forthwell confirms that a corporate group cannot treat the contracting entity as a conduit for losses suffered elsewhere in the group. Absent a direct contractual right, the group company that bears the loss from a breach (because it occupies the premises, operates the asset or earns the revenue) will generally go uncompensated. Where English law governs the contract, the following steps should therefore be considered:

1. Contracting party. Where possible, make the entity that will bear the loss a party to the contract, or obtain a collateral warranty or direct agreement in its favour.

2. Third-party rights. The Contracts (Rights of Third Parties) Act 1999 is routinely excluded in commercial contracts governed by English law. Where it is, consider carving out the relevant group companies and conferring an express right on them, identified by name, class or description (section 1(3)), and address how liability caps and limitations apply across claimants.

3. Contemplation. Since the narrow ground rests on what the parties contemplated at the time of contracting, record in the contract which group companies will occupy or use the asset and may suffer loss if it is breached. This will not close every gap, but it is precisely what Forthwell could not show.

4. Consents. Where a lease or other contract restricts parting with possession, assignment or subcontracting, obtain the counterparty’s consent to the group company’s involvement. The apparent breach of the lease weighed against Forthwell.

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[1]              Forthwell, para 31; see also para 36.

[2]              Forthwell, paras 5, 8 and 43.

[3]               Forthwell, para 10: £178,696.94 and £934,056.13 in respect of two successive periods of lost profit.

[4]              Forthwell, paras 14 and 46.

[5]              Forthwell, para 47; see also paras 15 and 28–30.

[6]              Forthwell, para 20.

[7]              Panatown, at 535E–F (quoted in Forthwell, para 23).

[8]              Panatown, at 535 (quoted in Forthwell, para 34).

[9]              Panatown, at 535H–536A (quoted in Forthwell, para 41).

[10]             Forthwell, paras 22 and 24. See also Panatown, at 568C–G (Lord Jauncey) and 576H–577B (Lord Browne-Wilkinson).

[11]             Forthwell, paras 28 and 39, citing Lord Neuberger in Swynson, at para 102.

[12]             Forthwell, para 40.

[13]             Forthwell, para 41.

[14]             Forthwell, para 42.

[15]             Forthwell, para 43.

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