The court rejected a proposed wider exception for recovering losses suffered by a subsidiary.
The Supreme Court has dismissed Forthwell’s appeal over Forthwell subsidiary losses, ruling that the proposed broad exception allowing a contracting party to recover losses suffered by another company should not form part of Scots law. The judgment was given on 17 September 2026 in Forthwell Limited v Pontegadea UK Limited [2026] UKSC 33.
The case concerned the former Rogano restaurant premises at 11 Exchange Place in Glasgow. Forthwell and Pontegadea were the tenant and landlord under a lease dated March 1996. Forthwell later granted its wholly owned subsidiary, Lynnet Leisure (Rogano) Ltd, a licence to occupy the premises, where Lynnet operated the Rogano Restaurant and Bar. Lynnet was not a party to the lease.
The premises were damaged by flooding and water ingress on 9 and 14 December 2020 and again on 10 January 2021. A fire following the first flood also made the electrical installations unsafe, while the premises were left without heating. Water ingress remained ongoing.
Under the lease, Pontegadea was required to rebuild parts of the premises damaged by an insured risk, including flooding. Forthwell also claimed that the lease contained an implied obligation on Pontegadea to repair the common parts of the building. Repairs had not been carried out, meaning the restaurant could not reopen for trading.
Forthwell brought proceedings seeking orders requiring the repairs to be carried out or, alternatively, damages to enable the repairs to be undertaken. It also claimed damages connected with the alleged failure to maintain the common parts.
A separate part of Forthwell’s claim concerned loss of profits suffered by Lynnet. Forthwell claimed £178,696.94 for past loss of profit and estimated a further £934,056.13 in future losses. Forthwell said it was entitled to recover these losses on Lynnet’s behalf and would be required to account to Lynnet for any sums recovered.
The Supreme Court considered whether that claim could succeed under the proposed transferred-loss principle.
The argument was based on an approach suggested by Lord Clyde in Alfred McAlpine Construction Ltd v Panatown Ltd. That approach would allow a contracting party to recover loss suffered by a third party in circumstances where the contracting party was required to account to the third party for the damages recovered.
The Supreme Court rejected this approach as a general Scots law rule. Lord Doherty, giving the judgment with which Lord Reed, Lord Stephens, Lady Simler and Lord Hodge agreed, noted that none of the other judges in Panatown had endorsed Lord Clyde’s proposed solution.
The court also considered subsequent authorities, including Swynson Ltd v Lowick Rose LLP. It concluded that Lord Clyde’s approach was inconsistent with the requirement that, for a transferred-loss exception to operate, the parties must have contemplated when contracting that the transaction was intended to benefit the relevant third party or people in the same position.
The proposed exception was also considered too broad and uncertain. The court said it could permit recovery where the involvement of the third party had not been contemplated when the contract was made. This could create unforeseen liabilities for the party in breach, including liabilities that had not been considered when arranging matters such as insurance.
Forthwell had suggested that a third party should have a “material interest” in the performance of the contractual obligation before such a claim could be brought. The Supreme Court was not persuaded that this would provide a sufficiently clear or workable boundary.
The judgment nevertheless confirmed that the established Albazero exception forms part of Scots law. The court also said there was much to be said for the broader ground of transferred loss, but declined to decide whether that broader ground forms part of Scots law or the law of England and Wales.
The Supreme Court therefore dismissed the appeal and upheld the decision of the First Division of the Inner House, which had dismissed Forthwell’s transferred-loss claims.
For solicitors and barristers, the immediate point from the judgment is that a party seeking to recover losses suffered by a third party cannot rely simply on the proposed general rule advanced in this case. The Supreme Court has rejected that particular basis for recovery while leaving the scope of the narrower Albazero exception and the unresolved broader ground to be determined in an appropriate case.