Legal Terms Explained: Transferred Loss

What is transferred loss?

"Transferred loss" is a limited exception to the general rule that a claimant can recover only loss which it has itself suffered (Swynson Ltd v Lowick Rose LLP [2017] UKSC 32). The principle is underpinned by the need to avoid a "legal black hole", which can arise where for example:

• Party A and Party B enter into a construction contract to perform works to Party B's property;
• Party B's property is subsequently acquired by Party C; and
• Party C later suffers loss due to defective work originally performed by Party A under the construction contract with Party B.

The principle of transferred loss allows Party B to recover damages for Party A's breach of contract resulting in damage to the property, even though the loss flowing from the damage is suffered by Party C and not Party B.