Forthwell Ltd v Pontegadea UK Ltd [2026] UKSC 33, is an important UK Supreme Court decision on “transferred loss” i.e. whether a contracting party can recover damages for losses suffered by a subsidiary or other third party.
The facts
Forthwell was the tenant of premises in Glasgow at which the Rogano restaurant operated. Forthwell had granted a licence to occupy the premises to its wholly owned subsidiary, Lynnet Leisure (Rogano) Ltd, which actually operated the restaurant.
The premises were badly damaged by flooding and a subsequent fire in the period 2020 to 2021. The landlord, Pontegadea, was obliged under the lease to carry out certain repairs/reinstatement works.
The restaurant could not reopen and Lynnet consequently suffered substantial loss of trading profits.
The important point was that Lynnet was not a party to the lease. Forthwell therefore sought to recover Lynnet’s lost profits itself, essentially on Lynnet’s behalf.
The legal question
The conventional rule is that a contracting party can recover damages for losses it has itself suffered, but generally it cannot recover someone else’s loss.
There are established exceptions, most notably the “Albazero exception”, where the circumstances surrounding the contract justify recovery of a third party’s loss.
Forthwell, however, accepted that it did not satisfy the established Albazero exception. Instead, it relied on what has sometimes been called the “broader ground” or, alternatively, Lord Clyde’s proposed solution in Panatown: the contracting party should be permitted to recover the third party’s loss, provided it accounts for the damages recovered to that third party.
The attraction is obvious: it prevents the third party’s loss falling into a “legal black hole” merely because the wrong entity happens to be the contracting party.
The Supreme Court’s decision
It rejected Forthwell’s proposed exception. The Supreme Court held that the proposed general right for a contracting party to recover its subsidiary’s losses does not form part of Scots law. The Court was particularly influenced by the fact that Lord Clyde’s approach in Panatown had never actually been adopted by the other members of the House of Lords in that case, and subsequent English decisions, including Swynson v Lowick Rose [2017] UKSC 32, did not establish the proposed rule.
The Court considered the suggested exception too indefinite and uncertain. In particular, the suggested requirement that the third party have a “material interest” in performance of the contract did not provide a sufficiently clear or workable legal test.
The Supreme Court’s important practical point
The Court essentially said that the existence of occasional “legal black holes” does not justify creating a broad new exception to the normal compensatory principle.
There are already mechanisms which can protect third parties, including:
- contractual rights granted directly to third parties;
- the Contracts (Third Party Rights) (Scotland) Act 2017;
- the established Albazero exception; and
- potentially the separate “broader ground”, whose status the Court expressly did not decide.
A particularly interesting aspect of the case
The corporate structure actually mattered.
Forthwell and Lynnet were separate companies, notwithstanding that Lynnet was wholly owned by Forthwell. The Supreme Court said that they had chosen to organise their affairs using two separate legal entities and there was no reason to disregard the ordinary consequences of separate corporate personality.
There was also an additional difficulty: the lease prohibited subletting and the sharing or parting with possession, and Forthwell’s licence to Lynnet appeared, prima facie, to have breached those provisions.
That made this particular case a poor candidate for developing a broad exception.
What did the Court not decide?
The Supreme Court did not decide that a contracting party can never recover losses suffered by a third party.
It confirmed that the Albazero exception exists in Scots law, but expressly left open whether the “broader ground” exists in either:
- England and Wales; or
- Scotland.
So the judgment should not be read as finally eliminating the broader Panatown/St Martins line of reasoning in English law.
The significance for English commercial litigation
Although this was a Scottish appeal, it is highly relevant to English commercial lawyersbecause the Supreme Court carefully considered the leading English authorities:
- The Albazero (Albacruz v Albazero (“The Albazero”) [1977] AC 774)
- St Martins (St Martins Property Corpn Ltd v Sir Robert McAlpine Ltd [1994] 1 AC 85)
- Panatown (Alfred McAlpine Construction Ltd v Panatown Ltd [2001] 1 AC 518)
- Swynson (Swynson Ltd v Lowick Rose LLP (formerly Hurst Morrison Thomson LLP) [2017] UKSC 32)
It effectively said that Panatown did not establish the broad transferred-loss rule that Lord Clyde had proposed. The decision is therefore particularly useful when considering whether a claimant has standing to recover loss actually suffered by a subsidiary, parent company, group company, assignee or other third party.
The key takeaway
A claimant cannot simply say “I am the contracting party, so I can recover my subsidiary’s loss and account to the subsidiary for it.” There must be an established legal basis for doing so.
The Supreme Court’s full judgment is here: Forthwell v Pontegadea — full Supreme Court judgment.
If your business is facing challenges with corporate structures and contractual disputes, our expert team can support you.
Contact Adam Greaves, Consultant in our Disputes Resolution team at axg@branchaustinmccormick.com.
